Insurance Law Hawaii

Conference Outline on Triggers in Property Policies

   The ABA's Section of Litigation, Insurance Coverage Litigation Committee's annual conference was held in Tucson last week.  Rina Carmel and I led a lively discussion on applicable triggers for property policies.  Although the manifestation of an injury has been used by some courts to trigger a property policy, the injury-in-fact trigger has more recently been adopted by other courts.  The outline for our presentation is here. 

Damage Caused by Snow Melt Excluded

   Is damage caused by snow melt excluded under a homeowner's policy because it constitutes standing water?  The court answered yes in Northwest Bedding Co. v. Nat. Fire Ins. Co. of Hartford, No. 28044-6, 2010 Wash. App. LEXIS 299 (Wa. Ct. App. Feb. 11, 2010). 

   The Spokane area, where the insured's buildings were located, experienced heavy snowfall during the winter of 2007-08.  The State Department of Transportation diverted snow melt through trenches near the insured's buildings.  The water overflowed the trenches and inundated the insured's building, causing damage. 

   National Fire denied coverage under the all-risk property policy, concluding the loss was caused by surface water.  The insured argued the loss resulted from third parties channeling water onto its property.  The court reasoned that abnormally heavy snowfall followed by rapid snow melt overwhelmed the drainage ditches and forced water onto land that could not readily absorb the water.  Therefore, the water that caused the damage was surface water once it overflowed the ditch.  The court further determined damage caused by the water was also excluded as "Flood."

   The insured also argued the efficient proximate caused doctrine should apply.  If the efficient proximate cause of the loss, or the predominant cause, is covered by the policy, the loss is covered even though other events within the chain of causation are excluded from coverage.  The court, however, rejected this argument because the overflow of the drainage system was not independent from the snow melt and surface water that damaged the insured's premises.

Mold Remediation Excluded Based on Anti-Concurrent Causation Clause

   In Builders' Mutual Ins. Co. v. Glascarr Prop., Inc., No. COA09-486, 2010 N.C. App. LEXIS 186, (N.C. Ct. App. Feb. 2, 2010), the court found no coverage for loss caused by mold because of the anti-concurrent causation clause.  Whether reliance on the anti-concurrent causation clause was correct is difficult to determine from the facts set forth in the decision.

   The insured purchased a builders' risk policy.  After completing construction of a house, vandals broke in and left water taps running, causing extensive damage.  After a claim for $102,161.44 was submitted for losses arising from the vandalism, the insurer paid $101,661.44.

   The insured later discovered mold in the house, caused by the water damage.  An additional claim for $39,000 for mold remediation was submitted.  This claim was denied based on the exclusion for losses caused by mold.

   The parties agreed the policy covered losses from water damage caused by vandalism.  The parties disagreed, however, on whether the policy covered reimbursement for the cost of mold remediation.  The insured sued, but the trial court found no coverage. 

   On appeal, the court considered the policy's the anti-concurrent causation clause:

We will not pay for a "loss" caused directly or indirectly by any of the following.  Such "loss" is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the "loss".

.  .  .

  f.  The presence, growth, proliferation, spread, or any activity of "Fungi", wet or dry rot or "microbes."

   The court determined this clause unequivocally excluded payment for losses "caused directly in indirectly by" mold, and the exclusion applied "regardless of any other cause or event that contributed concurrently or in any sequence to the 'loss.'"  Therefore, payment of a claim for the cost of mold remediation was excluded. 

   Should the anti-concurrent causation clause have been applied?  The opinion notes that, "the water damage led to the formation of the mold."  Further, "vandalism caused water damage, which in turn, caused the formation of the mold."  Finally, the mold was discovered "later."

   Typically, the anti-concurrent causation clause involves two different forces contributing to the exact same damage.  If two or more forces cause different, distinct, and divisible damage, only single causation exits and the anti-concurrent causation clause does not come into play.  If water damage "led to" formation of the mold and the mold damage was discovered "later," it does not seem likely the damage was exactly the same.

   Some cases have held that mold loss following water damage is covered despite the exclusion for mold.  See The Home Ins. Co. v. McClain, 2000 Tex. App. LEXIS 969 (Tex. Ct. App. Feb. 10, 2000)(mold loss that follows water damage is caused by water damage, not mold damage, so policy's exclusion for mold does not apply); Flores v. Allstate Texas Lloyd's Co., 278 F. Supp. 2d 810, 815 (S.D. Tex. 2003)(when mold damage ensues form water damage which is covered under the policy, the mold damage is covered despite the exclusion).  Neither of these cases, however, discuss whether the policies included an anti-concurrent causation clause.

 

Trial Court Errors By Ordering Appraisal Before Coverage Established

   After the insureds' home was damaged by Hurricane Wilma, they filed a claim for reimbursement.  Sunshine paid the claim and closed the file.  See Sunshine State Ins. Co. v. Corridori, No. 4D09-2502, 2010 Fla. App. LEXIS 915 (Fla. Dist. Ct. App.Feb. 3, 2010).  Two years later, the insureds submitted a "supplemental" claim for damage discovered by a public auditor.  Sunshine required a sworn proof of loss to be submitted within 90 days and examinations under oath.  The insureds did not comply with the deadlines, and their late submission was incomplete and inaccurate.  Consequently, Sunshine denied the new claims, concluding that the damages  were not "supplemental" to the original damages and that the insureds had breached the policy by failing to comply with the proof of loss requirements.

   The insureds the sued to compel an appraisal.  Without taking any evidence, the trial court concluded the new claim was supplemental and that the insureds had not breached the policy.  An appraisal was ordered.

   The appellate court reversed.  Only after a court established that the losses were covered by a policy could the losses be appraised.  The parties disputed whether the claimed losses were covered by the policy and whether the insureds complied with the policy requirements.  The trial court, without taking any evidence, did not resolve the factual issues to support its determination of coverage.  Therefore, the case was remanded for further proceedings.

Insurer's Delay Waives Right to Appraisal

   How long can an insurer wait after denying coverage before insisting upon an appraisal?  In Sanchez v. Prop. and Cas. Ins. Co. of Hartford, No. H-09-1736, 2010 U.S. Dist. LEXIS 6295 (S.D. Tex. Jan. 27, 2010), waiting eleven months after a coverage dispute became clear waived the insurer's right to invoke an appraisal.

   The insured's home was damaged by Hurricane Ike on September 12, 2008.  In late October, the insured reported a claim to Hartford.  The claim encompassed wind damage to the back door and to a pipe stack on the roof.  Wind damage was also reported as the cause of cracking of bricks on the outside of the house and for damage to sheetrock on the interior walls.  A Hartford claims adjuster inspected and concluded that only the damage to the back door was covered.  Therefore, she concluded the total amount of damage was only $150, which was below the deductible of $5,850.  A letter declining to make any payment was then sent by Hartford.  An enclosed itemized repair estimate failed to address damages to the exterior and interior walls, and the pipestack on the roof.

   On November 1, 2008, the insured called and complained to the Hartford adjuster that she had failed to consider all of the damage.  The adjuster responded that other areas were excluded because the damage was not caused by the Hurricane.

   On April 29, 2009, the insured filed suit.  On October 15, 2009, Hartford wrote the insured seeking to invoke the policy's appraisal clause.  After the insured objected, Hartford filed a motion to compel an appraisal.  The insured argued that Hartford waived the appraisal by denying liability and failing to timely request the appraisal.

   The court determined that Texas courts would hold that Hartford waived its right to an appraisal.  The appraisal clause contained no time frame for invoking the procedure.  However, when the insured called the adjuster to complain about the limited coverage, it was clear the parties had reached an impasse on the amount of damages caused by the Hurricane.  At this point, Hartford was on notice that it had the right to invoke the appraisal clause.  Hartford, however, waited for over eleven months to act. 

Neglience Claim Against Insurer For Failure to Recommend Coverage Survives Summary Judgment

   The insureds' negligence claim against the insurer for failing to recommend the purchase of business interruption insurance survived the insurer's motion for partial summary judgment in St. Augustine High School v. Underwriters at Lloyd's of London, No. WMN-08-CV-2518, 2010 U.S. Dist. LEXIS 6570 (D. Md. Jan. 27, 2010).

   St. Joseph Society was the owner and operator of St. Augustine High School, which was damaged by Hurricane Katrina.  The insurer argued there was no evidence St. Joseph had been damaged by the alleged negligence in failing to recommend business interruption coverage.  St. Joseph argued, however, it suffered losses as the owner and operator of St. Augustine.  Further, St. Joseph had to loan money to St. Augustine because it had no business interruption coverage, causing St. Joseph to lose investment income.  Moreover, St. Joseph was a named insured on the policy it purchased for St. Augustine High School and would have been entitled to any insurance payments.

   The insurer, on the other hand, argued that where a policy insuring loss to property names multiple assureds, each assured can only recover for the loss sustained by that insured, according to its interest.

   The insurer's motion for partial summary judgment was denied.  Whether St. Joseph could be found to have been damaged as a result of its ownership and operational responsibility for St. Augustine, its loss of investment income, or as one of the named assureds on the policy was a question of fact. 

Tucson ABA Insurance Conference Scheduled for Early March

   The ABA, Section of Litigation, Insurance Coverage Litigation Committee's annual insurance seminar will be held again this year in Tucson from March 4-6, 2010.  As always, this year's conference will offer a number of informative, cutting edge sessions on a variety of insurance-related topics.  Participants from across the country with varying perspectives on insurance coverage will attend.  The conference agenda is here. 

   I am on a panel for a session entitled, "Who Pulled the Trigger? Applying Manifestation or Injury-in Fact Trigger to First Party Property Policy."  We will address a growing trend in which the injury-in-fact trigger, instead of the manifestation trigger, is applied to continuous property damage occurring over several policy periods.  Deciding which trigger is applicable is important, of course, where there is continuing property damage.  Use of the injury-in-fact trigger may invoke several policies for the years during which the damage occurred.

   Hope to see you in Tucson. 

Insurer's Reliance on Mistake to Deny Coverage May be Bad Faith

   Is an insurer exposed to bad faith if it relies upon its own mistake to withhold payment under the policy?  The court answered yes in Lundy Enterprises, LLC v. Wausau Underwriters Ins. Co., No. 06-3509, 2009 U.S. Dist. LEXIS 121295 (E.D. La. Dec. 30, 2009).

   Wausau provided commercial property coverage for the insured's Pizza Hut locations and an office building.  Although the policy included a "Flood Coverage Endorsement" providing coverage for certain flood occurrences, the endorsement excluded properties in certain flood zones.  Prior policies issued to the insured did not include the flood zone exclusions.  The insured later discovered that the current policy was not supposed to have the flood zone exclusions and that Wausau made a mistake in writing the policy. 

   Wausau denied coverage for certain locations damaged in identified flood zones after Hurricane Katrina.  Subsequent to the hurricane, however, Wausau amended the flood endorsement to retract the exclusion of properties in these flood zones.  

   The insured sued, claiming that Wausau relied in bad faith upon its own mistake in writing the policy to deny flood coverage.  In its motion for partial summary judgment, Wausau argued its mistake could not be in bad faith because the Louisiana statute required a knowing act.  Further, the insured could not prove Wausau's actions were arbitrary and capricious. 

   The court refused to dismiss the bad faith claim, however.  The insured's claim for bad faith was not based on Wausau's making a mistake in writing the policy, but rather on Wausau's reliance upon its own mistake in withholding payment under the policy, and failing to pay under circumstances that were unreasonable, arbitrary, and without probable cause.   These issues could not be resolved on a motion for summary judgment.

Insurer's Summary Judgment Motion Denied Where Property's Value at Issue

   The insured's home was extensively damaged by wind and rain resulting from Hurricane Katrina.   See Belonga v. Auto Club Family Ins. Co., No. 09-476, 2009 U.S. Dist. LEXIS 118643 (E.D. La. Dec. 21, 2009).  When purchased in 2003, the home was appraised at $114,000.  An adjuster addressing the insured's flood claim reported, however, the home had a cash value of $190,000.

   The insured held a homeowner's policy issued by Auto Club.  She filed suit seeking payment of her full policy limit for damage to dwelling, plus other structures and contents.  She had received only $25,870 for wind damage to her residence and $2,932 for wind damage to other structures.  Pursuant to a flood policy, the insured also received $94,000 for flood damage to her dwelling.  Therefore, the insured had received a total of $119,870 for damage to her home caused by flood, wind, and wind driven rain. 

   Due to contested issues of fact, Auto Club's motion for summary judgment was denied.  The insured was entitled to recover any previously uncompensated losses that were covered by her homeowner's policy and which, when combined with her flood proceeds, did not exceed the value of her property.  The value of the insured's property was a material fact.  The insured had submitted a report indicating the cash value of her home was $190,000, an amount exceeding the total amount of insurance proceeds she had received.

   Further, although the insured had testified in her deposition that she was not pursuing damages for other structures, her expert's report stated there had been hurricane-related damage to the insured's other structures.  The court discounted the deposition testimony, which likely resulted from her lack of understanding of her policy and not from an intent to abandon her claim for damage to other structures. 

Failure to File Proof of Loss Reduces Coverage Under Flood Policy

   If the insurer pays for adjusted flood damage, can the insured sue for additional coverage when no proof of loss is filed?  Following its own precedent, the Fifth Circuit determined no coverage was due above the adjusted amount when the insured failed to file a proof of loss ("POL").  See Talbott v. Fidelity Nat. Ins. Co., No. 09-30028, 2009 U.S. App. LEXIS 26728 (5th Cir. Dec. 8, 2009).

   The insured purchased a Standard Flood Insurance Policy ("SFIP") from Fidelity.  The policy covered the insured's two story property in New Orleans.  The policy specifically stated there was "no basement" in the property. 

   Hurricane Katrina damaged the insured's property on August 29, 2005.  The insured filed a claim for flood-related property damage five days after the storm.  On November 1, 2005, an adjuster determined the exterior damage was $10,697.68, which Fidelity paid.  Subsequently, another $2,480.90 was paid by Fidelity for interior damage and contents.  Finally, on April 3, 2007, Fidelity sent the insured a check for $419.80 to cover adjusted interior and contents damage.

   On March 26, 2007, Fidelity retroactively changed the property description from stating "no basement" to "basement enclosure unfinished." 

   The insured sued Fidelity, claiming it failed to properly adjust the claim by paying only a fraction of the total property damage.  Prior to filing suit, however, the insured failed to submit a POL in accordance with the SFIP.  Although Fidelity argued the failure to file a POL excused any obligation owed under the policy, the insured contended that Fidelity repudiated the policy on March 26, 2007, when the basement description was altered, thereby relieving the insured from filing a POL.  The district court held in favor of Fidelity, holding that the failure to file a POL meant the insured was not entitled to any payment above the amount Fidelity determined was owed.

   The Fifth Circuit affirmed. Regulations implementing the SFIP required the insured to file a POL within sixty days after the loss occurred.  The Fifth Circuit had consistently held that when the insured fails to file a POL, the insurer is relieved of its obligation to pay an otherwise valid claim.  However, case law also established that repudiation of a policy relieved the insured from the obligation to file a POL. 

   Here, there was no repudiation.  The insured had to show that the insurer owed coverage that it refused to provide.  Fidelity agreed the insured had coverage, but disputed the amount of loss.  Because there was no repudiation, the insured was required to file a POL.