Insurance Law Hawaii

Motion to Dismiss Policyholder's COVID-19 Claim Denied

    The court denied the insurer's motion to dismiss a preschool's claim for business interruption due to COVID-19. An endorsement provided coverage for shutdowns by order or recommendation of government authorities due to a communicable disease. Baldwin Acad., Inc. v. Markel Ins. Co., 2020 U.S. Dist. LEXIS 239916 (S.D. Calif. Dec. 21, 2020). 

    The preschool closed on March 15, 2020, when a parent who tested positive for COVID-19 had repeatedly visited the school during the prior week. Moreover, the county and state imposed stay at home orders. Therefore, the preschool submitted a business income loss claim to Markel. The claim was denied and the preschool filed suit. Markel moved to dismiss.

    The preschool sought coverage under a "Communicable Disease Endorsement" which provided coverage for loss of business income resulting from communicable diseases. The endorsement stated that a shutdown or suspension of operations must  be ordered or recommended by a government authority and "result from a Covered Cause of Loss," which included "'Communicable disease' such as, but not limited to meningitis, measles, or Legionnaire's disease . . ."

    There was no dispute that COVID-19 was a "communicable disease." Markel argued there was no coverage because (1) there was no outbreak at the preschool; (2) the closure was voluntary, occurred before the issuance of government orders, and this was not the result of an order or recommendation from a governmental authority; and (3) any government-ordered closure was not caused by and did not result from anything that happened at the preschool. 

    The court disagreed. The preschool stated a claim sufficient to survive summary judgment. First, the preschool plausibly alleged the existence of an "outbreak" of COVID-19 at the school. Second, the preschool plausibly alleged that the shutdown of operations was the result of an order or recommendation from the mayor and governor. These allegations were sufficient to state a plausible claim for coverage. The court declined to decide whether the preschool's claim was outside the scope of the endorsement's coverage as a matter of law.

 

Claim Against Broker Survives Motion to Dismiss

    The insured's complaint against its broker for failure to secure adequate coverage survived a motion to dismiss. Broecker v. Conklin Prop., LLC, 2020 N.Y. App. Div. LEXIS 7399 (Dec. 2, 2020). 

    Conklin Property, LLC purchased real property and entered into a contract with JJC Contracting, Inc. for construction and renovation of the property. The broker, Total Management Corp. (TMC) was retained by Conklin to secure insurance for the construction phase of the renovation project. During the renovation, an employee of JJC was injured at the property and died. The employee's estate then sued Conklin. US Underwriters, the insurer, disclaimed coverage pursuant to an exclusion for bodily injury to contractors and subcontractors and their workers.

    Conklin then sued TMC for failure to procure coverage for injury to contractors, subcontractors, and their workers. The complaint further alleged that TMC was negligent in failing to exercise due care in procuring coverage that satisfied Conklin's insurance needs. The allegations in the complaint addressed TMC's assessing Conklin's insurance needs based on its review of the construction contract with JJC. The complaint further alleged Conklin relied on Conklin's expertise. These allegations were sufficient to plead the existence of a special relationship necessary to sustain a negligent misrepresentation cause of action. 

Coverage For Computer Fraud Claim Denied

    The court found there was no coverage for the property management company after a fraudster sent a false email with wiring instructions, causing a loss of $200,000. Ernst & Haas Mgmt. Co. v. Hiscox, Inc., 2020 U.S. Dist. LEXIS 218379 (C.D. Calif. Nov. 5, 2020). 

    Ernst & Haas (E&H) employee Krystale Allen, an accounts payable clerk, received an email from someone she thought was David Haas, a managing broker at E&H. However, the email was from an unknown person posing as Haas. The email attached an invoice for $50,000 to be sent to Zang Investments, LLC, which Allen processed and paid by wire transfer. Later, a second email from the imposter attached an invoice for $150,000 to be sent to Zang by wire transfer. Again, Allen facilitated the wire transfer. A third request from the imposter requested payment of $470,000 to be sent to Zang. Allen forwarded the third email to Haas to confirm its authenticity and discovered that Haas had not sent the email or the two prior payment requests. 

    E&H submitted a claim for $200,000 to Hiscox. The claim was denied and E&H filed suit. Hiscox moved to dismiss. 

    The policy covered computer fraud which required losses to result directly from the use of a computer to fraudulently cause the wire transfers. Here, E&H authorised its bank to initiate the wire transfers from its account, albeit through an unwitting employee. E&H did not allege that Allen was an unauthorised user or hacker, or that the imposter somehow subverted E&H's computer system in the transfer of funds to Zang. Therefore, the imposter's conduct did not constitute computer fraud under the policy because the wire transfers were authorised and the imposter's fraudulent emails did not directly cause the transfer of any funds.

    The policy also covered losses resulting from a fraudulent instruction, defined as a "written instruction initially received by You which purports to have been transmitted by an Employee but which was in fact fraudulently transmitted by someone else without Your or the Employee's knowledge or consent." The emails from the imposter did indeed qualify as "fraudulent instructions." However, the provision only covered losses "resulting directly" from a fraudulent instruction "directing a financial institution" to transfer funds from an E&H account. Here, the imposter's emails did not direct a financial institution to transfer any funds. Rather E&H alleged that the imposter directed an E&H employee to process invoice payments by wire transfer. Therefore, E&H's losses did not "result directly" from the imposter's "fraudulent instructions" because the communications did not direct E&H's bank to transfer the $200,000 E&H seeks to recover

    Therefore, Hiscox's motion for summary judgment was granted.

Food Poisoning From One Restaurant Over Several Days Equals One Occurrence

    The court found the was a single occurrence when 124 separate cases of food poisoning were allegedly caused by one restaurant over a four-day period. Travelers Cas. Ins. Co. of Am. v. Mediterranean Grill & Kabob Inc., 2020 U.S. Dist. LEXIS 210212 (W.D. Texas Nov. 4, 2020).

    Nearly 200 cases of food poisoning from salmonella bacteria were reported to city officials after all patrons ate at Pasha Mediterranean Grill. Pasha was sued in seven different lawsuits. Pasha was insured by Travelers under a policy with a $1 million "per occurrence" limit and a $2 million "aggregate" limit. Some of the underlying claims settled with Travelers paying approximately $450,000 of its $1 million "per occurrence" limit. Travelers offered the remainder of the $1 million limit to settle the remaining 124 claims, but the offer was rejected. 

    Travelers filed for a declaratory judgment against Pasha and the remaining 124 claimants. Travelers moved for summary judgment.

    The court agreed that several events "caused" a pause or interruption in the injuries in the underlying lawsuits, including when Pasha closed each night, as well as each time a new batch of food was prepared. However, only one cause gave rise to Pasha's liability and that was the allegedly contaminated food. Under Texas' "cause" analysis, there was a single, continuous event that both allegedly caused the injuries in the underlying suits and gave rise to Pasha's liability. Therefore, the food poisonings were a single "occurrence" under the policy. 

    Summary judgment was granted to Travelers. 

    

Court Denies Motion to Dismiss Plausible Allegations Under Portions of Virus Exclusion

    The court granted in part, denied in part, the insurer's motion to dismiss after examining portions of the policy's virus exclusion. Barbershop v. Twin City Fire Ins. Co., 2020 U.S. Dist. LEXIS 211152 (W.D. Texas, Nov. 4, 2020).

    The insured was a barbershop and grooming supply retailer. On March 31, 2020, government orders temporarily closed the insured's business until May 5, 2020, due to COVID-19. The insured submitted a claim for business interruption to its carrier, Twin City. The claim was denied because the coronavirus did not cause property damage at the insured's place of business. Further, the policy had a virus exclusion which provided limited coverage not available under the facts here. 

    The insured argued that Twin City could have easily expressly excluded pandemics from coverage, but it did not do so. Instead, the term "virus" was grouped with things that are not disease-causing agents, such as "wet rot" and "dry rot." Therefore, the exclusion could be understood to exclude the presence of virus that was "akin to rot," whlch would not include a global pandemic.

    The insured further argued that the Virus Endorsement included coverage for viruses. Up to 30 days of coverage for business interruption was permitted if "losses or damage to property caused by . ..virus caused a suspension of operations." The court held that the insured pled a plausible claim for relief pertaining to coverage under this provision in the Virus Endorsement. The motion to dismiss was denied as it related to this provision. 

COVID-19, Business Interruption Claim Survives Motion to Dismiss

    The federal district court in Virginia denied the insurer's motion to dismiss the insured's claim for losses due to COVID-19. Elegant Massage, LLC v. State Farm Mut. Auto. Ins. Co., 2020 U.S. Dist. LEXIS 231935 (E.D. Va. Dec. 9, 2020).

    Elegant Massage owned and operated its business providing therapeutic massages. Due to local and state orders that limited occupancy to 50% and required six feet between workstations for spas, Elegant voluntarily closed its operations on March 16, 2020, and remained closed through May 15, 2020. Elegant suffered a complete loss of income after closing on March 16, 2020. 

    Elegant had an all risk commercial property policy with State Farm. Elegant's claim for business losses was denied by State Farm because Elegant had voluntarily closed its business when there was no civil order to do so and there was no known damage to the business space resulting from COVID-19.

    Elegant sued. On State Farm's motion to dismiss, the issue was whether the closure was a fortuitous loss which caused a "direct physical loss" to Elegant's commercial property. The court found that the phrase "direct physical loss" had been subject to a spectrum of interpretations in Virginia on a case-by-case basis, ranging from direct tangible destruction of the covered property to impacts from intangible noxious gasses or toxic air particles that made he property uninhabitable or dangerous to use. After surveying various cases, the court found that while the spa was not structurally damaged, it was plausible that Elegant experienced a direct physical loss when the property was deemed uninhabitable, inaccessible and dangerous to use by the orders because of the high risk for spread of COVID-19. Therefore, Elegant submitted a good faith plausible claim to State Farm for a "direct physical loss'"covered by the policy. 

    The Civil Authority Coverage did not apply, however, because Elegant had not shown a causal link between any physically damaged or dangerous surrounding properties proximate to the insured property and a civil authority prohibiting Elegant from accessing or using their property. 

    The policy included a Virus Exclusion, to which the court next turned. Loss caused by fungi, virus or bacteria was excluded whether other causes acted concurrently or in any sequence with the excluded event to produce the loss.The court found that the Virus Exclusion did not apply here and that the anti-concurrent theory had not been established as law in Virginia.

    To be enforceable, the insurer had to draft the language of an exclusion that plainly and clearly set forth any limitation or coverage to the insured. The exclusion here particularly dealt with the "growth, proliferation, spread or presence" of "virus, bacteria or other microorganism" just as it applied to "fungi or wet or dry rot." The language supported the interpretation that the Virus Exclusion applied where a virus had spread throughout the property. There had to be a direct connection between the exclusion and the claimed loss endnote and not a tenuous connection anywhere in the chain of causation. In other words, although the Virus Exclusion did require that the virus was the cause of the loss, the connection had to be the immediate cause in the chain. Here, Elegant alleged that the local and state orders were the sole cause of the loss. Therefore, State Farm filed to meet its burden to show that the Virus Exclusion applied to Elegant's claim. 

Adding Negligent and Fraudulent Misrepresentation Claims in Amended Complaint against Broker Upheld

    The court approved the magistrate's decision granting a motion to amend the complaint against the broker for negligent misrepresentation and negligent misrepresentation. Ashford Locke Builders v. GM Contrs. Plus Corp., 2020 U.S. Dist. LEXIS 196646 (E.D. N. Y. Oct. 22, 2020). 

    The broker challenged the amended complaint, arguing that plaintiffs had not stated a cause of action for negligent or fraudulent misrepresentation because the broker did not make any misrepresentations to plaintiff nor did plaintiff plausibly allege justifiable reliance. For the negligent misrepresentation claim, the magistrate judge found that (i) the plaintiff had plausibly alleged that the broker was negligent in failing to obtain workers' compensation coverage, (ii) the plaintiff justifiably relied on the Certificate of Insurance, believing it covered workers' compensation, and (iii) it was reasonably foreseeable that the plaintiff would suffer injury. These allegations were sufficient at the pleading stage.

    The magistrate judge also found that plaintiff plausibly alleged fraudulent misrepresentation. The plaintiff alleged that it had a special relationship with the broker, that the broker intentionally provided misleading information regarding insurance coverage, and that the plaintiff reasonably relied on that information. These allegations were also sufficient at the pleading stage. 

    Finally, the broker objected to the magistrate's conclusion that "the plaintiff was entitled to damages that were in excess of the coverage the policy would have provided had coverage been procured" for its claims of negligent and fraudulent misrepresentation. For alleged tortious conduct, New Jersey law allowed damages in excess of the policy coverage if the plaintiff established negligent or fraudulent misrepresentation. 

Insurer's In-House Counsel's Involvement in Coverage Decision Opens Door to Discovery

    The Mississippi Supreme Court held that the insurer must produce written communications from and make available for deposition the in-house counsel who orchestrated the denial of coverage. Travelers Pro. Cas. Co. of Am. v. 100 Renaissance, LLC, 2020 Miss. LEXIS 409 (Miss. Oct. 29, 2020). 

    An unidentified driver struck a flagpole owned by the insured Renaissance, causing $2,134 in damages. Renaissance filed a claim with Travelers for uninsured-motorist coverage. The Travelers' claims handler, Charlene Duncan, determined there was no coverage because the flagpole was not a covered auto. Before corresponding with the insured, Duncan sought legal advice from Travelers' in-house counsel, Jim Harris. 

    Renaissance sued Travelers for coverage and bad faith. Renaissance then took Duncan's deposition and asked that she explain both the denial letter and the reasons Travelers denied the claim. Duncan repeatedly said she did not know the basis of the denial and that she had consulted with Harris. 

    Travelers  later paid  for the damage to the flagpole, but Renaissance continue to litigate its bad faith claim. Travelers moved for summary judgment. Renaissance asked for a continuance to conduct additional discovery, including the production of emails between Duncan and Harris and the deposition of Harris. The court ordered that the emails be produced for in camera review. The court then found that Travelers had waived the attorney-client privilege as it related to Harris. The court ordered that the emails be produced and Harris be deposed. Travelers filed an interlocutory appeal. 

    The Mississippi Supreme Court affirmed. The attorney-client privilege did not apply. Although Duncan signed the denial letter, it was prepared by someone else, most likely Harris. If so, Harris did not act as legal counsel by giving advice to Duncan to include in the denial letter. Instead, the denial letter contained Harris's reasons to deny the claim. 

    Travelers was ordered to produce the written communications between Duncan and Harris and to produce Harris for a deposition to discover his knowledge about Travelers' basis for denial of the claim. 

    

No Coverage for Collapse of Building

    Damage to a building caused by the break of a water pipe was not a collapse under the policy. Naabani Twin Stars v. Travelers Cos., 2020 U.S. Dist. LEXIS 196443 (D. N. M. Oct. 22, 2020).

    An underground water line ruptured on plaintiffs property This caused a collapse under the adjacent parking lot, which in turn caused land beneath the building go change positions and damage the building. A geotechnical consultant concluded that a material change in the site conditions occurred as a direct result of the rupture of the water pipe in the parking lot, and that those changes directly affected the settlement of the building.

    Travelers denied coverage for the damage. Travelers concluded that the building settlement was the result of subsurface movement, which invoked the earth movement exclusion. Travelers inspection concluded that the building was not in a state of collapse. The policy defined collapse as "an abrupt falling down or caving in of a building or structure, or any part of a building or structure, with the result that the building, or part of the building, cannot be occupied for its intended purpose."

    Plaintiff sued and Travelers moved for summary judgment. 

    The court found that the definition of "collapse" was clear and unambiguous. The court could not find any evidence to show that plaintiffs' building suffered a "collapse" as defined by the policy. The damage to the building fell squarely within the definition's exclusion, which did not cover standing buildings with "cracking, bulging, sagging, bending, leaning, settling, shrinkage, or expansion." Plaintiff did not identify any evidence of the building "falling down or caving in."  Instead, plaintiff contended the building was in danger of falling down or caving in. 

    Plaintiff also argued that the efficient proximate cause of the damage was the ruptured water pipe. But the policy's anti-concurrent causation clause displaced any benefit Plaintiffs might receive from the efficient proximate cause doctrine. To find otherwise would be to rewrite the policy. 

    Finally, the earth movement exclusion was applicable. The provision barred coverage for "loss caused directly or indirectly by any earth movement, whether natural or man-made, including  . . . earth sinking, rising or shifting, including soil conditions which cause settling. . ." Here the evidence was clear that the damage was caused by shifting soil, itself caused by the underground water movement. 

    Travelers' motion for summary judgment was granted. 

Ninth Circuit Affirms Denial of Coverage in Wrongful Death Action

    The Ninth Circuit affirmed the district court's granting of summary judgment to the insurer, agreeing there was no coverage for the defendant in a wrongful death action. National Fire & Marine Ins. Co. v. Hampton, 2020 U.S. App. 33215 (9th Cir. Oct 21, 2020).

    The wrongful death compliant alleged, and the defendant doctor's plea agreement supported, that defendant wilfully violated federal controlled substances laws, and that this violation resulted in the death of Diana Hampton. The professional liability policy excluded coverage for "[a]ny loss arising from, or in connection with . . . any event, health care event, or managed care event when intertwined with, or inseparable from . . . any willful violation of any law . . ." Therefore, there was no coverage for willful violations of the law. The exclusion clearly applied to this case. There was no duty to defend because there was no potential for coverage.

    Defendant sought a Rule 56 (d) continuance in order to conduct further discovery, but this was denied by the district court. The Ninth Circuit affirmed this as well because the affidavit submitted by the Estate in support of is request sought discovery related only to defendant and Hampton's doctor-patient relationship and the cause of Hampton's death. It did not seek any information necessary to accurately interpret the terms of defendant's professional liability policy such that the discovery would preclude summary judgment.