Insurance Law Hawaii

Insurer Waives Challenge to Hourly Rates, Ordered to Pay All Defense Costs

    After ignoring a prior order to pay fees, the insurer was ordered again to pay the total fees incurred without challenge to defense counsel's hourly rates. Chelsea Piers, L.P. v. Colony Ins. Co., 2019 N.Y. Misc. LEXIS 6333 (N.Y. Sup. Ct. Nov. 25, 2019).

    Chelsea Piers was an additional insured on policies issued by Colony to EPS Iron Works, Inc. The court previously denied Colony's motion for summary judgment and granted summary judgment to Chelsea Piers, establishing Colony's duty to defend and to reimburse for past defense costs. Colony, however, failed to reimburse Chelsea Piers for its defense costs. 

    Colony did not dispute that the prior order required it to reimburse Chelsea Piers for past defense costs and defense costs going forward. Nor did Colony challenge the reasonableness of the hours and tasks billed by defense counsel. Rather, Colony contested only the reasonableness of Rivkin Radler's (defense counsel) hourly rates. 

    Colony, however, did not move for a reasonableness hearing on the hourly rates. And Colony did not put forth any evidence suggesting that Rivkin Radler's hourly rates were unreasonably high - not merely higher than Colony would prefer to pay. The court determined that Colony was not entitled to disregard a court order from which it never sought to pay. 

    Colony waived any challenge to the reasonableness of Chelsea Piers' defense costs incurred up to the date of this order. Colony was ordered to pay all defense costs that Chelsea Piers had incurred prior to the date of the order, and for which Chelsea Piers had already provided Colony with property documentation. 

Insured's Reformation Claim Dismissed

    The insured's claim for reformation of the policy after the business interruption coverage was denied was dismissed by the court. Nat'l Compressor Exch., Inc. v. Hanover Ins. Co. Inc., 2019 N.Y. Misc. LEXIS 6370 (N.Y. Sup. Ct. Oct. 23, 2019). 

    On certain days in June and July of  2013, the insured had no telephone service at its offices. A claim for loss of business income was filed under its commercial property policy issued by Hanover. The insured was compensated with $12,069.88 under the policy. Hanover claimed this was full compensation for what was owed under the policy. The policy contained a 100% co-insurance requirement. 

    The insured sued for breach of contract and reformation of the policy, specifically the 100% co-insurance requirement. Hanover moved to dismiss the reformation count in the complaint.

    The court found that the insured failed to state a claim  for reformation based on mutual mistake. A claim for mutual mistake required allegations indicating that the parties had reached an oral agreement and, unknown to either, the signed writing did not express that agreement. The complaint failed to identify the existence of a single mistake, much less a mutual one. While the insured's president may have unilaterally misunderstood the parties' agreement, this did not provide a basis for reformation.

    Nor did the record disclose any fraudulent or negligent misrepresentation on the part of Hanover. There was no allegation that Hanover was ever requested to change the policy coverage from the 100% co-insurance requirement that was originally provided and existed for many years, to a new policy without the co-insurance requirement. The policies dating back to 2009 all contained the 100% co-insurance requirement. The insured received the policy it ordered and had ample opportunity to correct it after its issuance and before the loss. Accordingly, the motion to dismiss the reformation count was granted. 

Watercraft Exclusion Bars Coverage for Serious Bodily Injury

    Coverage for a serious bodily injury was barred under the policy's watercraft exclusion. United States Fire Ins. Co. v. Hawaiian Canoe Racing Ass'n, 2019 U.S. Dist. LEXIS 207564 (D. Haw. Nov. 27, 2019). A related case involving the accident and addressing coverage issues under a policy issued by Great Divide Insurance Company was previously posted here.

    The Hawaiian Canoe Racing Association (HCRA) was a sponsor of the 2016 Pailolo Challenge Outrigger Canoe Race on September 17, 2016, from Kapalua, Maui to Kaunakakai, Moloka`i. Mark Stevens agreed to provide and operate an escort boat, the Ohana, for one of the teams. Before the Ohana began escorting the underlying plaintiff's team to the staging area, Steven's hat flew into the water. The underlying plaintiff went into the water to retrieve the hat. As she re-entered the boat from the rear, the Ohana reversed and a propeller struck the plaintiff, causing significant injuries. Her left leg was eventually amputated. 

    The plaintiff sued Stevens, alleging he was negligent or grossly negligent in operating the Ohana. HCRA was also sued for negligence and for failure to obtain sufficient liability insurance prior to the event. 

    HCRA tendered to its insurer, U.S. Fire, who had issued a Marine Policy. Coverage was denied. U.S. Fire sued for a declaratory judgment and moved for summary judgment. 

    U.S. Fire argued that Watercraft Exclusion A applied because the bodily injury arose out of the use of the Ohana, a watercraft. The exclusion applied if the watercraft was either owned by, operated by, rented to loaned to or chartered to an insured. The court found that an insured from HCRA contracted with Stevens to secure his operation of the Ohana as an escort boat. The injuries, occurring when the underlying plaintiff re-entered the Ohana, arose from the operation of the Ohana. 

    The court found that the Ohana was chartered by an insured, an individual from HCRA. The policy also included a Charterer Endorsement which provided coverage for the claims alleged in the underlying action if the Ohana was one of the covered watercraft under the policy and none of the exclusions applied. The Ohana, however, was not listed as a covered watercraft, so the Charterer Endorsement did not apply. 

    The court therefore found that, as a matter of law, U.S. Fire did not have a duty to defend, nor a duty to indemnify HCRA or any other insured in the underlying action. 

 

Accident Outside of Insured Location Not Covered

    The federal district court found there was no coverage for injury caused by an explosion at a recycling facility. Mountain West Farm Bur. Mut. Ins. Co. v. Jackson, et al., 2019 U.S. Dist. LEXIS 202319 (E.D. Wash. Nov. 21, 2019).

    Tim and Roberta Jackson owned Ibex Construction, located in Spokane, Washington. The Jacksons contracted with Reinland Auctioneers to clear the Ibex Construction property of scrap metal and old equipment. Reinland contracted with Gordon Beck to remove certain pieces of scrap metal from the property. Beck loaded the bigger pieces of scrap metal, including a 55-gallon unmarked metal tank, into a dump truck. After the truck was driven to the recycling facility, the metal, including the unmarked tank, was loaded into a crusher. When the tank was crushed, it exploded and chlorine gas was released, causing considerable injuries and death to nearby persons working at the recycling facility. 

    Suit was filed by an individual injured in the explosion against many defendants, including the Jacksons. The Jacksons had a policy from Mountain West for insured locations. The policy defined "insured locations" as all locations shown in the Declarations where a farm or residence premises was maintained. 

    Mountain West filed a declaratory judgment action against the Jacksons and moved for summary judgment. The court found that "insured location" required that the covered locations be shown in the Declarations. The only location shown in the Declarations was a residence of the Jacksons in Montana. The Spokane property was not covered because it met the definitions of "locations not Insured," i.e., any location that the insured owned, rented, leased or controlled, other than the "insured location." While the Jackson's owned the Spokane property where the tank was located, that property was not an "insured location" and the exclusion applied. 

    Consequently, there was no coverage for any claim against the Jacksons as a result of the explosion that occurred in Spokane, Washington. 

    

Policy Lanuage Expressly Prohibits Replacement of Undamaged Material to Match Damaged Material

    Construing an all-risk Businessowners Policy, the court found that the policy language did not required replacement of undamaged material match materials that were damaged. Pleasure Creek Townhomes Homeowners' Ass'n v. Am. Family Ins. Co., 2019 Minn. App. Unpub. LEXIS 1095 (Minn. Ct. App. Nov. 25, 2019).

    The policy covered the Association's 14 townhome buildings. In June 2017, a hail storm damaged siding on all 14 buildings. An appraisal panel included the cost to replace the undamaged, faded siding in its appraisal award so that it would match the new siding. American Family refused to pay this component - which was appraised at about $211,382 - of the award. 

    An exclusion in the policy provided,

We will not pay to repair or replace undamaged material due to mismatch between undamaged material and new material used to repair or replace damaged material. 

We do not cover the loss in value to an property due to mismatch between undamaged material and new material used to repair or replace damaged material. 

After declining to pay for the undamaged mismatched siding, American Family moved for summary judgment, which the district court granted, finding that the policy excluded coverage.

    The appellate court affirmed. The Minnesota Supreme Court in Cedar Bluff Townhome Cond. Ass'n v. Am. Family Mut. Ins. Co., 857 N.W. 2d 290 (Minn. 2014), found that the mismatch between the old siding and new siding available constituted a covered loss, and obligated American Family to pay to replace all of the siding. But the policy in Cedar Bluff had no matching exclusion. Therefore, this case was distinguishable and the district court's granting of summary judgment to American Family was affirmed. 

Ninth Circuit Affirms Insurer's Breach of Contract and Duty of Good Faith and Fair Dealing

    The Ninth Circuit agreed with a jury that the insurer breached the farm insurance policy and the duty of good faith and fair dealing in denying a claim for, among other things, theft of cattle. Chatelain v. Country Mut. Ins. Co., 2019 U.S. App. LEXIS 34530 (9th Cir. Nov. 20, 2019).

    The Chatelain's sought coverage from Country Mutual for property damage, stolen cattle and missing equipment after evicting the Brauns from their farm. The district court held that the policy's conversion exclusion was ambiguous. Under Oregon law, conversion could include anything from the outright, blatant kind of theft to the most innocent conversion. Therefore, if Country Mutual intended to limit coverage based on differences between conversion and the statutory definition for theft, it could have drafted an exclusion so stating. But the policy left "conversion" entirely undefined.

    The district court also denied Country Mutual's motion for judgment as a matter of law after finding that the Chatelains were entitled to damages for lost milk production based on the poilcy's coverage of "loss caused by . . . theft." Under Oregon law, where a peril specifically insured against set other causes in motion which, in an unbroken sequence and connection between the act and final loss, produced the result for which recovery was sought, the insured peril was the proximate cause of the entire loss. 

    Nor was Country Mutual entitled to a new trial on the vandalism claim because the Chatelains presented sufficient evidence that the Brauns willfully or maliciously damages the Chatelains' property through extensive damage to the main farm house and other structures. 

    

Connecticut Supreme Court Further Refines Meaning of "Collapse"

    Connecticut courts have been inundated with collapse cases the past couple of years due to insureds' living in homes that were constructed with defective concrete manufactured by J.J. Mottes Concrete Company. In a duo of cases, the Connecticut Supreme Court responded to a certified question from the U.S. District Court, holding that collapse required that the building be in imminent danger of falling down. Vera v. Liberty Mut. Fire Ins. Co., 2019 Conn. LEXIS 339 (Conn. Nov. 12, 2019). 

    Plaintiffs had resided in their home since 2009. The home was built in 1993. In August 2015, after learning about the problem of crumbling basement walls affecting homes in their community due to cement manufactured by Mottes, they retained a structural engineer to evaluate their basement walls. The engineer found spider web cracking approximately 1/16 of an inch wide in the basement walls and three small vertical cracks. There were no visible signs of bowing. The engineer did not find that the walls were in imminent danger of falling down, but recommended that the basement walls be replaced. 

    Plaintiffs submitted a claim under their homeowners policy to Liberty Mutual. The claim was denied. The policy did not define collapse, but stated that collapse did not include "settling, cracking, shrinking, bulging or expansion."

    Plaintiffs sued in state court and Liberty Mutual removed to the federal district court. Liberty Mutual moved for summary judgment, arguing that plaintiffs could not establish a substantial impairment of the structural integrity of the basement walls without proof that the walls were in imminent danger of falling down or caving in. The federal district court certified a question to the Connecticut Supreme Court, asking the Supreme Court to clarify the meaning of the term "collapse" when the term was not defined in a homeowner's policy. 

    The seminal case in Connecticut was Beach v. Middlesex Mut. Assurance Co., 532 A. 2d 1297 (1987), where the court held that "collapse," when not defined in the policy, was sufficiently ambiguous to include coverage for any substantial impairment of the structural integrity of the insured's home. Now the court considered whether "collapse" also required that the building be in imminent danger of falling down or caving in. 

    The court held that to meet the substantial impairment standard, an insured whose home had not actually collapsed had to present evidence demonstrating that the home nevertheless was in imminent danger of such a collapse. In other words, the insured had to show that the building was in imminent danger of falling down or caving in. 

 

Hawaii Federal District Court Decides Choice of Law Dispute In Insured's Favor

    The federal district court, District of Hawaii, denied the insurers' motion to dismiss a claim asserted by the insured under Nevada's unfair practices statute. Puna Geothermal Venture v. Allianz Global Risks US Ins. Co., 2019 U.S. Dist. LEXIS 211661 (D. Haw. Dec. 5, 2019).

    Puna Geothermal's power plant was damaged on the Big Island when the Kilauea volcano erupted in May 2018. The plant has remained closed. The insurers denied the claim. Puna Geothermal sued the insurers, including an unfair practices claim under Nevada Revised Statutes sec. 686A.310 (1). The statute provided it was an unfair practice to misrepresent to insureds or claimants pertinent facts or policy provisions relating to any coverage at issue. The insurers argued that the unfair practices claim should be dismissed because Hawaii law, not Nevada law, applied. 

    The policies had a choice of law provision stating that, "[t]his policy shall be governed by the laws of the State of Nevada."

    Puna Geothermal argued that ties to Nevada included the policies were purchased by a Nevada entity. The insurers argued that the policy insured property located in Hawaii, a Hawaii partnership was an insured, and the decision to deny coverage was made in a third state. 

    The court noted that both states applied similar principles in deciding choice of law issues. First, when interpreting a policy, both states asked what a reasonable person in the position of insured would have understood the contract to mean. Second, both states also instructed courts to interpret contracts n a manner that effectuates the intent of the parties. Third, both the Hawaii and Nevada Supreme Courts looked to California law when their own law was silent on a particular issue. Under California law, sophisticated parties would not intend that the laws of multiple jurisdictions would apply to a single controversy having its origin in a single, contract-based relationship. 

    These principles supported a broad interpretation of the policies' choice-of-law clauses. An ordinary person reading that the policy was governed by the laws of the State of Nevada would expect Nevada law to apply to any dispute related to the agreement. 

    Therefore, the court read the choice-of-law provisions in the policies broadly as providing that Nevada law applies to any claims arising out of the parties' contractual relationship even if those claims were not contract claims. The choice-of-law clauses permitted Puna Geothermal to bring an unfair practices claim based upon the Nevada statute. The insurers' motion to dismiss was denied. 

    

Cyber Breach Claim Survives Insurer's Motion to Dismiss

    AIG's Motion to Dismiss the insured's claim based upon a fraudulent transfer of funds was largely denied by the court. SS&C Tech. Holdings v. AIG Spec. Ins. Co., 2019 U.S. Dist. LEXIS 194196 (S.D. N. Y. Nov. 6, 2019).

    SS&C was a global provider of software and software-enabled services. In March 2016, unknown third parties using stolen credentials sent transfer requests via e-mail to SS&C, falsely claiming to be acting on behalf of Tillage Commodities Fund, L.P. Over the court of three weeks, SS&C transferred over $5.9 million from Tillage's accounts to certain bank accounts in Hong Kong, as requested by the fraudsters. 

    Tillage sued SS&C for gross negligence. The case was ultimately settled.

    SS&C held a policy from AIG to protect losses resulting from claims against SS&C due to its negligence, errors or omissions, relating to the performance of its professional services. AIG agreed to defend the underlying case, but denied indemnity coverage based upon exclusions in the policy. SS&C sued AIG for (1) breach of contract; (2) declaratory judgment that there was coverage under the policy; and (3) breach of the implied covenant of good faith and fair dealing. 

    Exclusion 3 (a) of the policy denied coverage for losses in connection with claims alleging dishonest, fraudulent, criminal or malicious acts, errors or omissions . . ., "provided, however, AIG will defend suits that allege any of the foregoing conduct, and that are not otherwise excluded until there is a final judgment . . . at which time the Insureds shall reimburse AIG for Defense Costs." 

    AIG argued that the first clause before the "provided, however," meant that the exclusion applied not only to "dishonest, fraudulent, criminal or malicious acts, errors, or omissions by its insured, but also broadly to such acts committed by third-party fraudsters, such as here. The argument failed. Coupling the first clause with the "provided, however" clause of the same sentence clearly indicated that Exclusion 3 (a) applied only to dishonest, fraudulent, criminal or malicious acts committed by SS&C, and not to acts such as committed by third-party fraudsters. At the very least, an ambiguity existed, which construed in favor of SS&C. 

    The court agreed to dismiss the second count for declaratory judgment because it was duplicative of the other counts. The third count on bad faith survived the motion to dismiss, however. If SS&C's allegations were true, AIG improperly invoked Exclusion 3 (a) to deny coverage and AIG impaired SS&C's contractual rights. The fact that AIG engaged in allegedly pretextual reading of the policy to deny coverage could qualify as an act of bad faith. 

Insurer Awarded Summary Judgment on Collapse Claim

    The Eleventh Circuit agreed with the insurer that there was no coverage for a collapse under the policy. S.O. Beach Corp. v. Great Am. Ins. Co.,2019 U.S. App. LEXIS 32569 (11th Cir. Oct. 31, 2019).

    S.O. Beach Corporation and Larios on the Beach, Inc ("Larios") owned a building in Miami Beach. Sometime between march 4, 2012 and April 10, 2013, Larios discovered that parts of the first three floors of its building had caved in to varying degrees. The primary cause of the collapse was a wooden support beam that had severely rotted. Larios found a broken pipe that was gushing water onto the beam, causing deterioration. Larios was forced to evacuate the building until the damage was repaired. 

    Larios submitted a claim under its all-risk policy with Great American. The policy required that a collapse an "abrupt falling down or caving in of a building or any part of a building" to be covered. Before a coverage decision was made, Larios sued for breach of contract. The parties filed cross-motions for summary judgment. The district court granted Great American's motion and denied Larios' motion. 

    On appeal, the court noted that Larios carried its initial burden under the all-risk policy of showing that a loss - the purported collapse - happened while the policy was in effect. The burden shifted to Great American to prove that the cause of the purported collapse was excluded under the terms of the policy. Great American produced documentary evidence along with testimony from expert witnesses and fact witnesses showing that the purported collapse was gradual, not abrupt. 

    Therefore, the burden shifted back to Larios to prove that an exception to the exclusion applied. Larios argued the policy was ambiguous. But the court found there was no conflict between explicitly covering collapses that resulted from a gradual cause like decay and limiting coverage to collapses that were abrupt. Decay was just one of over a dozen covered causes listed in the policy's collapse coverage provisions. Some of the causes were abrupt, like "lightning" or an "explosion." Others were more gradual, like "decay" or "water damage." But regardless of whether the cause of a collapse was gradual or abrupt, the collapse itself was covered only if it was abrupt. Larios' contention that the collapse provisions were ambiguous was rejected and the district court was affirmed.