Insurance Law Hawaii

Claim Against Insured's Agent Dismissed

    The Hawaii Federal District Court dismissed a purported third party beneficiary's claim against the insured's agent. United States Fire Ins. Co. v. Hawaiian Canoe Racing Ass'ns, 2019 U.S. Dist. LEXIS 65829 (D. Haw. April 17, 2019). 

    This was the third recent decision regarding a boating accident in which the underlying plaintiff was injured by a propeller when entering Mark Stevens' boat during the Pailolo Challenge Outrigger Canoe Race. [prior posts here and here]. Hawaiian Canoe Racing Association (HCRA) was insured under U.S. Fire's policy, with other participants in the race named as additional insureds. HCRA's insurance agent, Servco Pacific Insurance, moved to dismiss Stevens' third-party complaint. Stevens alleged that Servo "had a legally recognized duty to procure the appropriate insurance for the reasonably foreseeable scope of injuries that could be suffered during an open ocean canoe race . . ." Stevens asserted he would have been a third-party beneficiary of the appropriate insurance that Servco should have obtained for HCRA. Thus, Servco had independent liability to him. 

    The court noted that under Hawaii law, "[a]n insurance agent owes a duty to the insured to exercise reasonable care, skill and diligence in carrying out the agent's duties in procuring insurance." Quality Furniture, Inc. v. Hay, 61 Haw. 89, 93 (1970). Such a duty is owed to "the extent of the responsibilities that the agent had in rendering help and providing advice to the insured." Macabio v. TIG Ins. Co., 87 Haw. 307, 318 (1998). The nature of the relationship between the agent and the insured had to be scrutinized.

    Here, Stevens was not the insured who obtained the policy through Servco and there was no direct relationship between Servco and Stevens. Nor had Stevens adequately pled he was a third-party beneficiary. He alleged he would have been a third-party beneficiary if Servco had obtained a policy that was appropriate for HCRA. Consequently, there was no contract to examine. Further, Stevens did not allege what the terms of the hypothetical policy would have been. Therefore, the third-party complaint failed to plead sufficient factual allegations to support a reasonable inference that Stevens was a third-party beneficiary of any policy that Servo obtained, or could have obtained, on HCRA's behalf. The third-party complaint therefore failed to state a claim upon which relief could be granted and was dismissed. 

    

Ninth Circuit Reverses Grant of Summary Judgment to Insurer For Fortuitous Loss

    The Ninth Circuit reversed the district court's issuance of summary judgment regarding coverage for damages when the insured's plant had to be shut down due to an accident. Ingenco Holdings, LLC v. Ace American Ins. Co., 2019 U.S. App. LEXIS 10946 (9th Cir. April 15, 2019). 

    Ingenco operated a gas purification plant which converted raw landfill gas into usable natural gas. The final step in the purification process involved the removal of excess nitrogen from the landfill gas. The gas was directed through adsorbent beads, to which nitrogen adhered, contained within pressure vessels.The beads could not withstand the direct pressure of the landfill gas inflow. which, if untreated, could grind the beads down into dust. To reduce the force of the gas flow on the beads, a "diffuser basket" was suspended from the top of each bead-filled pressure vessel. The diffuser basket acted as a shield that prevented the full force of the incoming landfill gas from striking the beads directly. 

    In 2010, metal brackets securing a diffiuser basket broke. This resulted in damage to other components and an eventual shutdown of the entire facility. The plant remained idle for several months as Ingenco investigated alternative nitrogen filtration options and undertook repairs. 

    Ingenco filed a property damage claim with Ace in May 2011. The all-risk policy excluded "faulty or defective material, faulty workmanship, faulty methods of construction . . . unless loss by a peril not otherwise excluded ensues . . ." Ace denied coverage, contending that the losses were not caused by any"external" force, but rather from defects in the diffuser basket. Ace reasoned that without an "external cause" there was no covered loss. Even if there were an external cause, coverage would still be denied under the "defective material," "wear and tear," "deterioration," and other, similar exclusions. 

    Ingenco sued for breach of contract and declaratory relief. The district court granted summary judgment to Ace, agreeing that Ingenco's losses did not result from an "external cause," but rather from an inherent problem in the system, which had been designed to withstand the "external" force at issue, i.e., the landfill gas. The "ensuing loss' exception to the "defective material" exclusion did not apply because there was no covered loss in the first place. Ingenco appealed. 

    The Ninth Circuit noted that the policy did not define the term "external cause." The proper analysis was on whether the loss was fortuitous. This required looking into whether a particular loss was certain to occur, the parties' perception of risk at the time of the policy issuance, and whether the loss could reasonably have been foreseen. The issue was not the fortuity of the process gas or some other cause, but rather whether Ingenco's loss was fortuitous. The court concluded the loss was not inevitable and could not have been reasonably foreseen. Therefore, the loss was fortuitous or, at the very least, there was a triable issue of fact.  

    Therefore, the district court's grant of summary judgment to Ace on the question of whether Ingenco's loss was the result of an "external cause" was reversed. The district court failed to consider the role of fortuity in all risks insurance disputes. 

    The court next considered the ensuing loss provision in the exclusion for faulty or defective material, etc. Ingenco argued that, even if the diffuser basket was defectively designed, and even if its failure constituted an uncovered "internal" cause of loss, the "ensuing loss" exception preserved coverage for the post-failure damage to the adsorbent beads throughout the purification system. Ace's position was that the damage did not result from an "external cause." The court reasoned that the loss of the adsorbent beads did ensue from some prior, but excluded loss or event, whether it was the stream of gas or the failure of the diffuser shield. There was no specific exclusion regarding the loss of the beads. Therefore, even if the diffuser shield suffered from some inherent defect, the subsequent destruction of the adsorbent beads would be covered under the ensuing loss exception. 

    Consequently, the Ninth Circuit reversed the district court grant of summary judgment against Ingenco and remanded the case to the district court for trial. 

    

 

No Coverage for Sink Hole Loss

    The federal district court found there was no coverage under the commercial property policy for loss suffered by the insured condominium association due to a sink hole. Bahama Bay II Condo. Ass'n. v. Untied Nat'l Ins. Co., 2019 U.S. Dist. LEXIS 67487 (M.D. Fla. April 11, 2019).

    The plaintiff condominium association had thirteen buildings inside their complex. On December 9, 2016, a sinkhole appeared near Building 43. The building was vacated and declared unsafe. Plaintiff's board excused Building 43 owners from paying association dues. 

    Plaintiff submitted a claim to the insurer for benefits under the policy. The insurer inspected and accepted coverage for Building 43 under the policy's Catastrophic Ground Cover Collapse (CGCC) provision and issued a check for $290,000 for immediate repairs. The insurer denied coverage for Buildings 42, 44, and 45; repairs to the foundation of all buildings, the retaining wall and outdoor fences; land, landscaping, and patios, uncollected association dues, and condominium unit owner property. 

    Only Building 43 meet the requirements for CGCC coverage, which included:

a) The abrupt collapse of the ground cover:

b) A depression in the ground cover clearly visible;

c) Structural damage to the building;

d) The insured structure being condemned and ordered to be vacated. 

Buildings 42, 44 and 45 had not been condemned or ordered to be vacated. Therefore, the insurer was entitled to summary judgment on the counts seeking coverage for Buildings 42, 44 and 45.

    Coverage for damage to the retaining wall and fence was excluded because they were not connected to any building. Another exclusion barred coverage for patios, foundations of buildings, trees, shrubs or plants. The insurer was entitled to summary judgment on plaintiff's claim for damage on these items. 

    The uncollected association dues for Building 43 were akin to lost business income and an economic loss. The policy only provided coverage for physical property damage, not economic losses. So the insurer was entitled to summary judgment on this claim, as well. 

    Finally, plaintiff made no argument that condominium property within individual units, owned by unit owners, qualified as Covered Property under the policy. Florida law was clear that property insurance issued to a condominium complex did not cover property within individual units. Therefore, the claim was properly denied by the insurer. 

    The insurer argued that plaintiff failed to mitigate damages. Whether plaintiff took "all reasonable steps to protect the property and whether other reasonable steps existed and should have been taken were questions of fact for a jury. Summary judgment for this proposition was denied. 

    

 

    

TTIPS Property Insurance Conference

ABA's TTIPS Property Insurance Conference today. Our panel discussed "Erosion of the Direct Physical Loss Requirement" in property policies in Austin, Texas.

 

Insurer Incorrectly Relies Upon "Your Work" Exclusion to Deny Coverage

    The Eleventh Circuit reversed the district court's determination that there was no coverage based upon the policy's "your work" exclusion. Southern-Owners Ins. Co. v. Mac Contractors of Fla, LLC, 2019 U.S. App. LEXIS 10689 (11th Cir. April 11, 2019). 

    Mac Contractors contracted with the homeowners to custom build their home. After construction began, Mac left the site before completing the project and before the issuance of a certificate of occupancy. The homeowners sued, alleged damage to wood floors and the metal roof. 

    Southern-Owners originally agreed to defend under the CGL policy, but later withdrew the defense and filed this action for declaratory relief. The parties cross-filed motions for summary judgment. Southern-Owners argued that the "your work" exclusion applied to bar coverage. The "your work" exclusion barred coverage for "'property damage' to 'your work' arising out of it or any part of it and included in the 'products' completed operations hazard.'" The "products' completed operations hazard" included all "'property damage' occurring away from premises you own or rent and arising out of . . . 'your work' except . . . (1) products that are still in your physical possession; or (2) work that has not yet been completed or abandoned." 

    The district court found that the "your work" exclusion applied and granted summary judgment to Southern-Owners. 

    On appeal, Mac argued that the underlying complaint was silent as to the timing of damages and could reasonably be construed to allege "property damage" occurring during ongoing operations, i.e., before Mac abandoned the project. Mac argued the property damage occurring before the work was "completed" or "abandoned" was not included in the "products-completed operations hazard" and fell outside the "your work" exclusion. The "your work" exclusion applied to only property damage included in the "products-completed operations hazard." 

    The Eleventh Circuit agreed. Although the underlying allegations were silent as to the timing of the damages, the allegations could be reasonably construed to alleged damages that occurred during ongoing operations. The homeowners alleged that Mac failed to remediate damage to the wood floors and metal roof despite its assurances that the damages would be fixed. The district court's judgment was vacated and the case remanded for further proceedings. 

    

Insured's Commercial Property Policy Deemed Excess Over Unobtained Flood Policy

    The court granted the insurer's motion for summary judgment, deciding that there was no breach of the policy for failure to pay for flood damage when the insured failed to obtain a policy under the National Flood Insurance Program (NFIP). 570 Smith St. Realty Corp. v. Seneca Ins. Co. Inc., 2019 N.Y. Misc. LEXIS 1773 (N.Y. Sup. Ct. April 4, 2019).

    The insured's property in Brooklyn was insured by Seneca. Included in the policy was flood coverage in the amount of $1 million with a $25,000 deductible. While the policy was in effect, Hurricane Sandy hit, damaging the property. Plaintiffs timely filed a claim seeking reimbursement of up to policy limits. Seneca paid only $35,883 and later made an additional payment of $33,015. 

    The insured sued for, among other things, breach of the policy for failure to properly indemnify for the losses. Seneca moved for partial summary judgment dismissing the breach of policy claims. Seneca pointed out that the "Other Insurance" provision in the Flood Coverage Endorsement of the policy stated that if the loss was eligible to be covered under a NFIP policy, but there was no such policy in effect, the insurer would only pay for the amount of loss in excess of the maximum limit payable for flood damage under the policy. The maximum NFIP coverage was $500,000. The insured's loss caused by flood was less than $500,000.

    Therefore, the court agreed that the flood coverage under the policy, as reflected in the Other Insurance provision, was excess with respect to the NFIP eligible property. Accordingly, Seneca's motion for partial summary judgment was granted.     

Subcontractor Entitled to Defense for Defective Work Causing Property Damage Beyond Its Scope of Work

    The Illinois Court of Appeals found the subcontractor was owed a defense for alleged property damage caused by its faulty workmanship, but outside its scope of work. Acuity Ins. Co. v. 950 W. Huron Condo. Ass'n, 2019 Ill. App. LEXIS 208 (Ill. Ct. App. March 29, 2019).

    The condominium association sued its general contractor, Belgravia, for alleged defects allowing water to infiltrate and cause damage. Belgravia filed a third-party complaint against its subcontractors, including the carpentry subcontractor Denk & Roche. Denk & Roche held a CGL policy with two insurers during the relevant period, one with Cincinnati Insurance Company for the period January 1, 2000 through June 1, 2007, and another with Acuity Insurance Company, effective June 1, 2007, through December 31, 2013.

    Denk & Roche tendered its defense to both insurers. Cincinnati agreed to defend and contributed to a settlement of the AOAO's claims. Acuity denied a defense, contending that the underlying claims did not trigger a duty to defend. Acuity's declaratory judgment suit sought a determination that it had no duty to defend. Cincinnati intervened and argued it was entitled to equitable contribution from Acuity.

    On cross-motions for summary judgment, the trial court found that Acuity had no duty to defend.

    On appeal, the court noted that while a CGL policy would not insure a contractor for the cost of correcting construction defects, damage to something other than the project itself did constitute an occurrence under a CGL policy. Here, the duty to defend Denk & Roche turned n what qualified as damaged beyond "the project itself" where the insured was a subcontractor performing discrete work on a project and the subcontractor had no control over other aspects of the project. 

    From the eyes of the subcontractor, the "project" was limited to the scope of its own work. The precise nature of any damage that might occur for something outside of that scope was as unknown or unforeseeable as damage to something entirely outside of the construction project. Therefore, when the underlying complaint alleged that a subcontractor's negligence caused something to occur to a party of the project outside of the subcontractor's scope of work, there was an occurrence under a CGL policy, even though it would not be an occurrence from a general contractor or developer's perspective. Consequently, the court drew a major distinction between coverage for faulty workmanship performed by a subcontractor versus a general contractor or developer. Summary judgment for Acuity was reversed.

    The court also found that Cincinnati was entitled to equitable contribution from Acuity for undertaking the subcontractor's defense. The case was remanded for a determination on the exact amount of contribution to be made. 

 

 

 

Trial Court's Award of Contractual Fees to Public Adjuster Overturned

    A judgment awarding the public adjuster his compensation for work performed under contract was remanded for further proceedings by the Hawaii Intermediate Court of Appeals. Joslin v Ota Camp-Makibaka Ass'n, 2019 Haw. App. LEXIS 155 (Haw. Ct. App. April 5, 2019). 

    A fire destroyed the homeowners' residence on September 19, 2013. The property was subject to the bylaws of the Association of Apartment Owners of Ota Camp. The Association had a policy with Alterra Excess & Surplus Insurance Company and submitted a claim for all units damaged in the fire. The Association's adjuster came the following day to inspect the site.

   Separately, Robert Joslin, public adjuster, entered a contract with the homeowners to adjust their claim in exchange for twelve-percent of any insurance proceeds obtained. Over the next several months Joslin pursued insurance proceeds from Alterra on behalf of the homeowners. On December 18, 2013, Joslin filed a complaint with the Insurance Division arguing that Alterra had failed to timely make payments on the claim. 

    On February 10, 2014, Alterra's third party administrator, Engle Martin & Associates, sent a check to Joslin for $231,940 made out to the Association, the homeowners and Joslin. 

    On February 10, 2014, Joslin sent a letter to the homeowners with the check for their signature. The letter stated that the check would be deposited into a client trust account, the fees would be removed, and a new check issued from Joslin. The letter included an invoice for services totaling $28,992.31. 

    The Association's legal counsel sent an email to the property manager on February 14, 2014, stating that under the bylaws, the Association was responsible for the repair of the unit. Thus, if the Association signed the check over to the homeowners and they did not repair the unit, the Association would breach its duty and be liable to the new owners of the unit. The lawyer also wrote to Engle Martin, asking that the check be cancelled and reissued as payable to the Association as the sole payee. 

    Joslin then sued the homeowners and the Association, seeking a declaratory judgment that as a public adjuster, he had an equitable lien against the insurance proceeds, a finding that the Association was unjustly enriched, and that the homeowners breached their contract with Joslin. The circuit court granted Joslin's motion for summary judgment in so far as he was entitled to have his commission paid from the insurance proceeds as a public adjuster under Haw. Rev. Stat. 431:9-230. Further, the homeowners breached their contract with Joslin and he conferred a benefit on the Association, but there was a genuine issue of material fact as to the amount of value actually conferred. Joslin was also awarded fees.

    The Court of Appeals found that Haw. Rev. State. 431:9-230 did not provide authority for Joslin to be paid commissions out of the insurance proceeds paid under the Association's policy. Instead, the statute addressed an adjuster's responsibilities as trustee "for all premium and return premium funds received or collected under this article. The plain meaning of "premium" meant the amount paid at designated intervals for insurance. Therefore the appellate court disagreed with the circuit court that Joslin was entitled to commissions based on Haw. Rev. Stat. 431:9-230.  

    Instead, the applicable statute was Haw. Rev. Stat. 514B-143 (f), which provided that "any loss covered by the property Policy . . . shall be adjusted by and with the association. The insurance proceeds for that loss shall be payable to the association . . ." Accordingly, the circuit court erred in granting Joslin summary judgment on the declaratory judgment claim. 

    The appellate court also found that genuine issues of material fact existed as to whether the Association was unjustly enriched by the actions of Joslin, including whether he conferred a benefit upon the Association by causing Alterra to issued a payment for $231,940 and whether the Association's retention of the money resulting from Joslin's labor and expertise without compensating him was unjust. There also remained genuine issues of material fact as to whether the Association was unjustly enriched by the activities of Joslin. 

    The court determined Joslin was not entitled to an equitable lien against the proceeds paid by Alterra because the funds had been interpleaded. The funds would be distributed by the Clerk of Court in accordance with the final judgment in the case.

    Finally, the award of attorneys fees to Joslin was reversed. Because he did not have a statutory right to receive his commissions from the insurance proceeds under the Association's policy and the circuit erred in granting Joslin summary judgment on the declaratory judgment claim, the court also erred in awarding him fees.

    The case was remanded to the circuit court for further proceedings. 

Cross-Claim Against Co-Insureds Dismissed Without Prejudice

    In a case related to Great Divide Ins. Co. v. Hawaiian Kamali`i, 2019 U.S. Dist. LEXIS 43106 (D. Haw. March 15, 2019) [post here], the Federal District Court for the District of Hawaii confronted issues created by a cross-claim for one of the purported insureds. United States Fire Ins. Co. v. Hawaiian Canoe Racing Ass'ns, 2019 U.S. Dist. LEXIS 55034 (D. Haw. March 29, 2019). 

    Similar to Great Divide, this case also involved coverage for an accident during the 2016 Pailolo Challenge Outrigger Canoe Race. In this case, US Fire filed a complaint for Declaratory Judgment against the Associations organizing the race and Mark Stevens, seeking a ruling that there was no duty to defend or indemnify. Stevens was operating an escort vessel for the race. When Stevens' hat blew off before his team reached the start line, the underlying plaintiff entered the water to retrieve the hat. Upon re-entering the boat, she was injured when her leg was caught in the vessel's propellers. She sued the Associations and Stevens.

    US Fire defended all defendants, but filed its Declaratory Judgment suit. Stevens filed a cross-claim against the Associations. alleging (1) they were negligent in failing to obtain the appropriate insurance for the event, and (2) he was entitled to implied indemnification  and/or equitable subrogation. The Associations moved to dismiss the cross-claim because it failed to state a claim upon which relief could be granted and was duplicative of the cross-claim Stevens filed in Great Divide and in the underlying action.

    The court granted dismissal of both counts because Stevens did not adequately plead damages to support negligence. Stevens argued he had suffered monetary damages by having to pay legal fees to defend US Fire's action but such damages were not properly pled in the cross-claim. Stevens was given leave to amend.

    Anticipating the amended cross-claim, the court determined that just because Stevens filed a similar cross-claim against the Association in Great Divide, it did not affect the analysis of whether the cross claim would be dismissed for failure to state a claim. The two cross-claims were not necessarily duplicative. In this case, the cross-claim arguably addressed the issue of whether the Associations were required to ensure that Stevens was covered under the policy, whereas the Great Divide cross-claim arguably addressed the issue of whether the Associations were required to ensure that Stevens was covered under the policy that Great Divide issued. Stevens had filed similar cross-claims in the underlying action, but the court could not find that they were duplicative of the instant cross-claim based upon the current record. 

    Considering whether the cross-claims should be stayed until the underlying action was completed, the court noted that the underlying action was filed first. Moreover, the issues related to liability for the underlying plaintiff's injury were squarely presented in the underlying action. Based upon these persuasive factors, the stay of proceedings on the cross-claim was granted. The stayed proceedings on the cross-claim were also severed from the other claims in the Declaratory Judgment action. 

    

    

 

    

Property Damage to Insured's Own Work is Not Covered

    The Michigan Court of Appeals found there was no coverage for a lawsuit filed against the insureds for faulty workmanship. Skanska United States Bldg. v M.A.P. Mech. Contrs., 2019 Mich App. LEXIS 529 (Mich. Ct. App. March 19, 2019).

    Contractor Skanska United States Building was the construction manager on a renovation project for the medical center. The heating and cooling portion of the project was subcontracted to M.A.P. Mechanical Contractors (MAP). MAP had a CGL policy from Amerisure Insurance Company. Skanska and the medical center were named as additional insureds on the policy. 

    After installation of the steam boiler and related piping, it was discovered that the heating system did not function property. Skanska discovered that MAP had installed some of the expansion joints backward, causing damage to concrete, steel, and heating system. The medical center sent a demand to MAP. Skanska performed the repairs and replaced the damaged property. Skanska then submitted a claim to Amerisure, which was denied.

    Skanska filed suit against MAP and Amerisure. The trial court denied Amerisure's motion for summary judgment. The court found that the parties injured by MAP's negligence did not anticipate, foresee or expect backward expansion joints or property damage to the entire length of the underground steam lines. Michigan courts had consistently focused on the particular property damaged to determine whether an "occurrence" had happened. The unforeseen incident meant an "occurrence" may have happened, which triggered Amerisure's duty of coverage. 

    The court of appeals found that the trial court had erred. It was well established that an "occurrence' could not include damages for the insured's own faulty workmanship. Consequently, there was no "occurrence" here. Amerisure presented evidence to demonstrate that all of the repair and replacement work was within the scope of Skanska's original project. Once Amerisure presented this evidence, the burden shifted to Skanska to present evidence that the repair and replacement work included tasks or property beyond the scope of the original project. 

    Amerisure was entitled to judgment as a matter of law because coverage was not triggered due to lack of an "occurrence" and there were no genuine issues of material fact that the only damage was to Skanska's own work product, or that of its subcontractor.