Insurance Law Hawaii

Insurer Must Pay for Matching Siding of Insured's Buildings

    The Seventh Circuit found that the insurer was obligated to pay for siding of a building that was not damaged by hail so that it matched the replaced damaged portions of the siding. Windridge of Naperville Condominium Association v. Philadelphia Indem. Ins. Co., 2019 U.S. App. 23607 (7th Cir. Aug. 7, 2019). 

    A hail and wind storm damaged buildings owned by Windridge. The storm physically damaged the aluminum siding on the buildings' sought and west sides. Philadelphia Indemnity, Windridge's insurer, contended that it was only required to replace the siding on those sides. Windridge argued that replacement siding that matched the undamaged north and east elevations was no longer available, so Philadelphia had to replace the siding on all four sides of the buildings to that all of the siding matched. 

    Windridge sued and moved for summary judgment. The district court ruled that matching was required. The only sensible result was to treat the damage as having occurred to the building's siding as a whole. 

    The policy was a replacement-cost policy. Philadelphia promised to "pay for direct physical 'loss' to 'Covered Property' caused by or resulting from" the storm, with the amount of loss being "the cost to replace the lost or damaged property with other property . . . of comparable material and quality . . . and . . . used for the same purpose." The loss payment provision offered four different measures for loss, leaving Philadelphia free to choose the least expensive: (1) pay the value of the lost or damaged property; (2) pay the cost of repairing or replacing the lost or damaged property; (3) take all or any part of the property at an agreed or appraised value; or (4) repair, rebuild or replace the property with other property of like kind and quality. 

    The Seventh Circuit noted that the district court's conclusion that the buildings as a whole were damaged - and that all of the siding must be replaced to ensure matching - was a sensible construction of the policy language as applied to the facts. Philadelphia's interpretation - pay to replace only the specific panels of siding that were directly hit by hail, leading to two-tone buildings - was less reasonable. Regardless, the unit of covered property consider under the policy (each panel of siding vs. each side vs. the buildings as a whole) was ambiguous as applied to the facts, so the interpretation that led to coverage was favored. 

    Here, each building as a whole suffered direct physical loss as a result of the storm. The storm altered the appearance of the buildings such that they were damaged. Due to the extent of the damage and the lack of matching siding available on the market, the better construction of the ambiguous policy was to require Philadelphia to replace the siding on all four elevations of the buildings. The district court's judgment in favor of Windridge was affirmed. 

Insurer's Motion for Summary Judgment to Reject Collapse Coverage Denied

    The insurer unsuccessfully moved for summary judgment seeking to reject the insured's collapse claim. Gnannn v. United Servs. Auto, Ass'n, 2019 Conn. Super. LEXIS 1955 (Conn. Super Ct. July 11, 2019).

    The insureds' home was built in 1985 and they purchased their home in 1993. A home inspection reported that some settlement and curing related cracks existed in the slab floor, but no signs of abnormal settlement were noticed. The concrete walls were in overall good condition. 

    In 2015, the insureds became aware of abnormal cracking in the basement. USAA was informed of the claim but denied coverage in October 2015. The insureds sued USAA. After suit was filed, the insureds hired an engineer, David Grandpre, to inspect their home. He observed severe cracking in the basement walls caused by an expansive chemical reaction within the concrete. The structure was not in imminent peril of falling down, and it continued as insureds' residence. But Mr. Grandpre noticed bulging and bowing, evidence that the concrete basement walls had failed and had begun to move inward due to the lateral pressure of the soil outside the home. 

    USAA's policy covered "collapse", defined as follows:

8. "Collapse" For an entire building or any part of a building covered by this insurance we insure for direct physical loss to covered property involving "collapse' of a building or any part of a building only when the "collapse" is cause by one or more of the following:

Causes listed included "decay that is hidden from view" and "use of defective materials or methods in construction, remodeling or renovation." "Collapse" meant a sudden falling or caving in."

    USAA filed its motion for summary judgment. USAA argued there was no "sudden falling or caving in." The court found that "caving in" was susceptible to a meaning other than "falling." The court determined it could not conclude, as a matter of law, that the conditions observed by Mr. Grandpre did not constituted a "caving in.' If the walls had to completely give way to the earth outside then in order to constitute "caving in,' there would be no material difference between "caving in" and "falling." Whether the insureds' basement walls had been undermined and given way to the point that they were caving in, as distinguished from falling, was a question of fact. The court found "sudden" to mean a quick or abrupt event, not just an unexpected one.

    Therefore, there was a genuine issue of material fact whether the damage described by Mr. Grandpre constituted a caving in of the basement walls. Whether the basement walls had been undermined and given way to the point that they were caving in, as distinguished from falling, was a question of fact for the jury. There was also genuine issues of material fact involved in determining whether the basement walls experienced a "sudden falling or caving in."

Insurer Must Defend Additional Insured Though Its Insured is a Non-Party

    The plaintiff insurer's motion for partial summary judgment seeking an order that defendant insurer was obligated to defend a non-party as an additional insured was granted. Am Empire Surplus Lines Ins. Co. v. Burlington Ins. Co., 2019 N. Y. Misc. LEXIS 4145 (N. Y. Sup. Ct. July 25, 2019). 

    Quality Building Construction, LLC was the contractor hired to work on exterior facade of a building owned by Central Park West Corporation. The underlying complaint alleged that Quality caused plastic spacers and pedestals used for the penthouse terrace to fall down the roof drain riser. A clog and rainwater backup resulted in water damage to apartment 8A. The resulting damage was allegedly due to the clogged roof drain riser.

    Quality subcontracted the work to Mega State, Inc. The subcontract required Mega to indemnify and hold Quality harmless against claims in connection with Mega's work, as well as name Quality as an additional insured on a primary, non-contributory bases under Mega's CGL policy. Burlington issued a policy to Mega naming Quality as an additional insured. American Empire issued a CGL policy to Quality.

   Quality was sued in the underlying action, but Mega was not.  American Empire tendered a demand for coverage to Mega and Burlington, relying on the agreement between Quality and Mega. Burlington responded that Mega was not liable for the alleged damages. American Empire sued Burlington. Subsequently, Burlington accepted the tender to defend Quality in the underlying action, and reserved rights as to whether Burlington's policy was primary and on the question of indemnification. American Empire agreed to withdraw its suit if Burlington would modify its reservation of rights. Burlington refused.  

    Mega completed its work prior to the date of loss. American Empire contended that Quality was an additional insured and entitled to coverage under the "Completed Operations Endorsement" in the Burlington policy. American Empire argued that additional insured coverage was triggered because there was at least a reasonable possibility that the named insured, Mega, was a proximate cause of the underlying property damage. Further, coverage to Quality as an additional insured under the Burlington policy was primary and non-contributory. 

    Burlington argued the underlying allegations precluded the possibility of coverage. The underlying complaint stated that the property damage was caused by Quality, and there could be no determination that Mega caused the property damage. There was no proof or allegation that Mega was negligent and Mega was not a party to the underlying action. The only evidence that Mega's work caused the damage was an affidavit from Quality's President swearing that Quality did not perform work because it subcontracted the work to Mega. Burlington challenged this affidavit as self-serving and inadmissible on the cross motions for summary judgment. 

    The court ruled that it was irrelevant that Mega was not mentioned in the underlying complaint. Burlington had the subcontract between Mega and Quality, so it had actual knowledge of facts establishing a reasonable possibility that the complaint was within its indemnification policy terms and that its coverage was primary and non-contributory. Burlington was liable to reimburse American Empire for defense costs, with interest because of the language of the policies and the sub contract between Quality and Mega. 

Shoring of Ceiling Does Not Constitute Collapse Under Policy's Definition

    Despite the need to shore up the ceiling, the building was not in a state of collapse under the language of the policy. Ravinia Vouge Cleaners v. Travelers Cas. Ins. Co. of Am., 2019 U.S. Dist. LEXIS 123594 (N.D. Ill. July 24, 2019).

    Ravinia Cleaners held a property policy issued by Travelers for the building from which it operated its dry-cleaning business. On February 2, 2015, there was heavy snowfall. On February 4, Ravinia reported to Travelers a leak coming from the ceiling. A temporary "shoring " was placed on the ceiling. Ravinia reported to Travelers that there was damage to the roof on February 25, 2015. Travelers hired an engineer who observed a buckling truss and roof displacing downward. The inspector recommended that the building be vacated and not occupied until adequate shoring was in place. 

    Travelers denied coverage because the building was in a state of imminent collapse which was caused by the weight of ice and snow, and defective construction of the truss system. The policy excluded damage relating to a "collapse of a building." Collapse was defined by the policy as "an abrupt falling down or caving in of a building or any part of a building," such that the building could not be occupied for its intended purpose. There were exceptions to the exclusion, however, if the cause of the collapse was: (1) weight of snow; or (2) use of defective materials or methods in construction if the collapse occurred after construction. The policy also excluded damage from a building being in a state of imminent collapse unless the damage was caused by: (1) weight of snow; or (2) use of defective materials or methods in construction if the collapse occurred during construction.

    On cross-motions for summary judgment, Travelers argued that the length of time between Ravinia reporting a ceiling leak and the discovery of the truss failure established that the roof was in a state of imminent collapse, as there had been no abrupt falling down or caving in of the building. Ravinia argued there was an "abrupt falling down or caving in" as the policy defined collapse. Further, the Travelers inspector reported that the building should be vacated. 

    The court found that the Travelers' report did not demonstrate a "collapse" because the policy stated that a building that suffered substantial structural integrity or was in imminent danger of falling down was not a collapse. Similarly, the Travelers' inspector recommending that the building be vacated did not establish a collapse. The timeline between the initial report and the inspection undermined the argument that there was a "abrupt falling down or caving in" as the policy defined "collapse." 

    The court next considered whether the coverage exclusion applied for the roof being in a state of collapse. There was no dispute that the state of imminent collapse did not occur during the course of construction of the roof. Therefore, Ravinia had to demonstrate that the damage resulted from the weight of snow. The policy excluded coverage from damage related to the building being in a state of imminent collapse unless caused by the weight of snow. But Ravinia put forth no evidence that the damage was caused solely by snow.Accordingly, Ravinia had not show that there was a genuine issue of fact for trial. Travelers was entitled to judgment as a matter of law.

Economic Loss Not Property Damage

    The Fifth Circuit agreed with the district court that the insured subcontractor's economic losses did not amount to covered property damage. Greenwich Ins. Co. v. Capsco Industries, Inc., 2019 U.S. App. LEXIS 23949 (5th Cir. Aug 12, 2019).

    Capsco Industries, Inc. was a subcontractor on the construction of a casino. Capsco subcontracted with Ground Control to install water, sewage, and storm-drain lines. Ground Control was terminated from the project by the general contractor for alleged safety violations and failed drug tests of its employees. Ground Control sued in state court against multiple parties, including Capsco, seeking payment for work on the project. The claims were dismissed on summary judgment because neither party had obtained the required certificates of responsibility from the state, making the parties' contract void. The Mississippi Supreme Court agreed the contract was void, but reversed and remanded for further proceedings based solely on theories of unjust enrichment and quantum meruit.

    While the state case was on remand, Capsco's liability insurers, Greenwich Insurance Company and Indian Harbor Insurance Company, filed a compliant for declaratory judgment in federal district court seeking a declaration that they did not owe a defense or indemnity to Capsco. The defendants were Ground Control, Capsco, the general contractor, and the casino owner. The latter two parties were dismissed. Ground Control counterclaimed for coverage of its claims against Capsco. The district court stayed proceedings until the state court litigation ended. 

    In state court, a jury awarded Ground Control over $825,000 in damages against Capsco, later reduced to $199,096 by remittitur. The district court then found the two insurers did not owe Capsco a duty to defend. 

    Subsequently, on summary judgment, the district court held that no indemnification was due and it entered final judgment. Ground Control appealed. Ground Control acknowledged that it had no evidence that would support indemnity during the period of Indian Harbor's policy. Thus, its claim on the duty to indemnify applied solely to Greenwich.

    The Greenwich policy required the insured to pay for property damage, which the policy stated was either actual damage to physical property or the loss of its use. Purely economic losses were not included in the definition of property damage.

    Ground Control argued must of the work it performed under the void contract was to repair physical property. But the Mississippi Supreme Court limited Ground Control's award to the value of what it expended in labor and supplies on the project. Ground Control claimed that under the void contract, it incurred expenses for labor and supplies to make repairs to physical property. There was no coverage for these expenses, however, unless the insured, Capsco, was legally obligated to pay those amounts "as damages because of . .  'property damage' to which this insurance applies." Capsco was obligated to pay the reasonable value of the services Ground Control provided. It was not paying for property damage or loss of its use; it was paying for labor and materials. Payment for work was a stop removed from paying for property damage that necessitated the work.

    Therefore, the district court was affirmed. 

Insurer Must Pay Portions of Arbitration Award Related to Faulty Workmanship

    The court determined that portions of an arbitration award against the insured contractor based upon faulty workmanship were covered by the policy. Wallace v. Nautilus Ins. Co., 2019 U.S. Dist. LEXIS 122219 (D. N. H. July 23, 2010). 

    Plaintiffs, owners of adjoining homes, hired McPhail Roofing, LLC to replace the roofs of their houses. After installation, the plaintiffs found several problems with their roofs and withheld roughly a third of the agreed-upon contract price from final payments due to McPhail. A roofing consultant found evidence of water leaking through both roofs during rainstorms. Improper installation of the shakes on the roofs allowed rain to seep through to the roof decks (the plywood underneath the roofs) and eventually into the houses. The only way to cure the installation defects was to remove and replace the roofs entirely. 

    Plaintiffs and McPhail went to arbitration. Plaintiffs sought compensation for the damage caused by the leaking and for the replacement costs of the roofs. McPhail sought the remaining payment under the contracts. Nautilus defended McPhail under this CGL policy. 

    The arbitrator issued awards against McPhail, $140,053.50 to one owner and $160,065.62 to the other owner. Pursuant to the parties' stipulation, the arbitrator also awarded plaintiffs $176,898.95 for attorneys' fees, expert witness fees and other expenses, including pre- and post- judgment interest.

    Nautilus paid a portion of the award for attic cleaning and re-insulation, repainting, expert witness fees and expenses. Nautilus determined the rest of the award, including replacing the roofs and award of attorneys' fees, was not covered under the policy. McPhail declared bankruptcy and plaintiffs obtained an assignment of McPhail's claims against Nautilus, eventually bringing suit against Nautilus. 

    Agreeing that defective workmanship alone was not an occurrence under New Hampshire law, plaintiffs argued that the occurrence here was not the defective workmanship itself, but rather the leaking caused by the defective roofs, which resulted in property damage. The court agreed.

    The damage for the cost of replacing the roofs was not covered, however. The arbitrator found that plaintiffs were entitled to the replacement cost of the roofs because: (1) the roofs were installed defectively; and (2) plaintiffs' consultant advised them that the only way to cure the installation defects was to remove and replace the roofs. No New Hampshire case held that a CGL policy covered the cost of replacing defective work any time property damage resulted from it. 

    Next, the court turned to whether the policy covered the award of attorneys' fees. The Supplementary Payments provision included Nautilus' obligation to pay "costs taxed against the insured." Plaintiffs argued the phrase was ambiguous and should be construed in their favor. The court noted that several jurisdictions had interpreted the phrase to include an award of attorneys' fees, but noted that a Hawaii federal district court case held that the phrase excluded attorneys' fees. CIM Ins. Corp. v. Masamitsu, 74 F. Supp. 2d 975 (D. Haw. 1999). The court went the the majority position, finding that "costs taxed against the insured" in the Supplementary Payments provision included attorneys fees. 

Insurer Must Cover Portions of Arbitration Award

    The court determined that there was coverage in a construction defect case for portions of an arbitration award. Liberty Surplus Ins. Corp. v. Century Sur. Co., 2019 U.S. DIst. LEXIS 116093 (S.D. Texas July 12, 2019). 

    Descon Construction contracted with the City of Edinburg, Texas, to build a library. Descon subcontracted with McAllen Steel Erectors to install the library metal roof. The roof began to leak within two months of occupancy. The leaks continued for seven years. 

    Edinburg sued Descon. The matter was arbitrated. The arbitration panel found that the library roof was defective, the exterior stucco system was defectively installed and certain work, including fire-caulking, had not been performed. The panel concluded that Descon was liable for breach of contract and breach of warranty. The panel determined that Edinburg was entitled to replacement of the existing roof. Further, McAllen was found to have breached its subcontract with Descon by defectively installing the roof, entitling Descon to recover $762,537 from McAllen. 

    Descon asked Liberty to cover the award, but Liberty refused. Liberty sued the City and McAllen's insurer, Century, seeking declaratory relief that its policy did not cover the award. Liberty moved for summary judgment. Liberty contended that if it was liable for the award, Century had to pay under its policy with McAllen, which named Descon as an additional insured. The City cross-moved for summary judgment arguing that some of the award damages were covered and no exclusion applied. Century also cross-moved for summary judgment that its policy did not apply.

    The parties agreed that defective roof and exterior stucco installations were "occurrences" under the policies. The question was whether Liberty's policy covered only: (1) "property damage" caused by the defective roof and stucco, as Liberty and Century argued; or whether the policy covered both (1) "property damage" caused by the defective roof and stucco and (2) the costs of repairing the roof and stucco, as the City argued. 

   Liberty and Century argued that defective work in and of itself was not "property  damage" under Texas law. Because the City sought coverage for the cost of fixing defective work, Liberty's policy did not cover any arbitration award damages. The City responded that the cost of repairing faulty workmanship was covered if the faulty workmanship resulted in "physical injury" to "tangible property." The City argued that the defective roof caused interior water damage and Liberty had to cover the award damages for the roof and stucco repair costs. The City also pointed out that the library would continue to sustain water damage until the roof was replaced. Therefore, Texas law required Liberty to pay for the roof replacement costs.         

    The arbitrators found that the library roof and stucco were themselves defective, not that they were damaged or unusable because of other defective work. The court ruled that Liberty's policies covered the cost of repairing the ceiling tiles, as Liberty conceded, and not the costs associated with repairing or replacing the stucco or the roof. 

    Liberty's motion was granted to the extent that Liberty was not liable for the stucco or roof replacement costs. The motion was denied, without prejudice, as to Liberty's liability for ceiling tile damages. The City's motion was denied on coverage because the policy covered only the ceiling tile damages. Century's motion was denied as moot. 

Professor Stempel's Excpert Testimony for Insurer Excluded

    The court denied Daubert motions for several experts with the exception of Professor Stempel's expert testimony opining that the insurer did not act in bad faith Adell Plastics, Inc. v. Mt. Hawley Ins. Co., 2019 U.S. Dist. LEXIS 102942 (D. Md. June 19, 2019).

    A fire demolished several buildings at Adell's facility. Adell was insured under a commercial property policy issued by Mt. Hawley. Mt. Hawley sued Adell, seeking a declaration that it owed no coverage, and requesting recoupment of a substantial advance payment. Adell filed a counterclaim, alleging that Mt. Hawley had breached the policy and had acted with a lack of good faith. Before the court were several pretrial motions, including motions to exclude testimony of eight expert witnesses.

    The court denied Adell's motion to exclude several experts to be called by Mt. Hawley. The accountant's testimony was relevant. Adell had to prove damages on its breach of contract claim, and the accountant's testimony would aid the jury in evaluating Adell's documentation and calculating documented damages. Mt. Hawley's fire safety expert investigated the Adell fire. Mt. Hawley had shown that his expert opinion would be sufficiently reliable for admissibility. Further, three fire protection engineers offered by Mt. Hawley and two fire protection engineers to be called by Adell were allowed to testify. Each expert based his investigation and conclusions on the standards of fire investigation as set out in the NEPA Guide for Fire and Explosion Investigations. This was a fire insurance case, and fire protection engineers would be allowed to testify and illuminate the circumstances of the fire. 

    Regarding Adell's motion to exclude Professor Stempel, the court found this testimony was irrelevant. Stempel's report described the law and made various legal conclusions. A legal conclusion was not likely to assist the jury because the court would provide all necessary legal conclusions in the form of jury instructions. Here, Stempel wanted to tell the jury what result to reach on the lack of good faith issue. The legal conclusions on an ultimate issue for trial predominated Stempel's report. Therefore, Adell's motion to exclude his testimony was granted. 

    

Insurer Not Entitled to Summary Judgment on Construction Defect, Bad Faith Claims

    The federal district court denied the insurer's motion for summary judgment seeking to establish there was no coverage for construction defect claims and for bad faith. Country Mut. Ins. Co. v. AAA Constr. LLC, 2019 U.S. Dist. LEXIS 115935 (W.D. Okla. July 12, 2019).

    Jeffrey and Tammy Shaver entered two contracts with AAA Construction for the construction of a garage and of a barn on their property. After construction was completed, the Shavers sued AAA Construction for building the garage over two high-pressure gas pipelines and the utility easements associated with them. They alleged AAA Construction was negligent for constructing over a working utility line. AAA Construction's insurer, Country Mutual Insurance Company (CMIC) denied coverage because the alleged faulty workmanship of AAA Construction did not constitute an "occurrence" under the policy. 

    CMIC sued AAA Construction for a declaratory judgment that it had no duty to defend or indemnify. CMIC moved for summary judgment. 

    The court denied the motion. A jury could find AAA Construction was negligent or engaged in other nonintentional conduct by failing to ascertain the location of the easement, meaning the possibility of coverage existed. Therefore, CMIC had a duty to defend.

    CMIC also argued that numerous exclusions were applicable to deny coverage. The court disagreed and found none of the raised exclusions applied. 

    Finally, the motion was denied regarding AAA Construction's counterclaim for bad faith. Among other arguments, CMIC submitted it had not acted in bad faith by failing to to an adequate investigation. The court found the factual record on this issue was sparse. The record contained sufficient facts, however, upon which a reasonable juror could find the investigation conducted by CMIC was not reasonable. 

 

9th Circuit Certifies Question on Reimbursement of Defense Costs to Nevada Supreme Court

    The Ninth Circuit certified a question to the Nevada Supreme Court, asking whether the insurer can seek reimbursement of defense costs if it is determined the insurer has no duty to defend. Nautilus Ins. Co. v. Access Medical, LLC, 2019 U.S. App. LEXIS 19777 (9th Cir. July 2, 2019). 

    The insured, Access Medical, was sued by Ted Switzer due to alleged interference with relationships Switzer had with hospitals. For example, Access Medical advised a hospital that it wanted to contract to sell spinal implants to the hospital because its former distributor was banned from selling such implants. Switzer alleged he was the distributor referred to.

    Insured tendered its defense to Nautilus. The policy promised a defense in any suit seeking damages because of a "personal and advertising injury, " "arising out of . . . oral or written publication . . . that slanders or libels a person or organization or disparages a person's or organization's goods, products or services." After many refusals, Nautilus agreed to defend under a reservation of rights. Nautilus reserved its right to disclaim coverage, withdraw from the defense, and obtain a reimbursement of defense fees following a determination that no potential for coverage existed for Access Medical. 

    Nautilus filed suit for a declaratory judgment in Nevada federal district court that Nautilus never had a duty to defend or indemnify the insured. On a motion for summary judgment, the court determined Nautilus had no duty to defend under Nevada law because Switzer's complaint did not allege a false statement that would support a claim for defamation, libel or slander. Judgment was entered for Nautilus.

    Nautilus then brought a motion for further relief under 28 USC 2202 seeking reimbursement of defense costs. Nautilus' motion for further relief was denied. The court held Nautilus did not show it was entitled to further relief under 2202 and did not establish it was entitled to reimbursement under Nevada law. 

    Nevada state courts had not spoken directly on the issue of reimbursement. Courts had held that a unilateral reservation of rights letter could not itself create rights not contained in the policy. Decisions finding that an insurer was entitled to reimbursement of defense costs were based on a finding that there was a contract implied in fact or law, or a finding that the insured was unjustly enriched when its insurer paid defense costs for claims that were not covered by the policy. On the other hand, in paying defense costs pursuant to a reservation of rights, the insurer was protecting itself at least as much as it was protecting its insured. Thus, the court could not say that an insured was unjustly enriched when its insurer accepted a defense in order to protect its own interests, even if it was later determined that the insurer did not owe a defense. 

    Because the Nevada Supreme Court had not spoken directly on the issue of an insurer's entitlement to reimbursement of defense costs under a reservation of rights, the following question was certified to the court: 

Is an insurer entitled to reimbursement of costs already expended in defense of its insureds where a determination has been made that the insurer owed no duty to defend and the insurer expressly reserved its right to seek reimbursement in writing after defense had been tendered but where the insurance policy contains no reservation of rights?