Insurance Law Hawaii

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?

Injury Caused by Drunk Driver is "Accident" Covered by Policy

    Noting that only an insurance company could suggest no coverage for an injury caused by a drunk driver, the Fifth Circuit rejected the insurer's argument. Frederking v. Cincinnati Ins. Co., 2019 U.S. App. LEXIS 19796 (5th Cir. July 2, 2019).

    Carlos Sanchez was driving under the influence of alcohol when he failed to yield the right of way, and collided with a car driving by Richard Frederking. Sanchez was driving a truck while working for Advantage Plumbing Services, who was insured by Cincinnati. 

    Frederking sued both Sanchez and Advantage. The jury held Sanchez and Advantage jointly and severally liable for $137,025 in compensatory damages. It further awarded $207,500 in exemplary damages for Sanchez's gross negligence. 

    Cincinnati agreed to pay Frederking the compensatory damage award, thereby discharging Advantage's liability. But Cincinnati refused to pay Sanchez's exemplary damages. Frederking sued Cincinnati, arguing Sanchez's actions were intentional.

    The policy issued to Advantage covered damages resulting from "accidents." The policy did not define accident. As a matter of plain meaning and common usage, "accident" included the drunk driving collision that gave rise to the dispute. 

    The Supreme Court of Texas defined the term "accident" as a "fortuitous, unexpected and unintended event." Further, "accident" was defined by what it excluded - intentional acts. Automobile collisions were commonly described as "accidents." There was no reason to describe the automobile collision in this case as anything other than an "accident." No one contended that Sanchez intended his vehicle to collide with Frederking's vehicle. Nor did anyone suggest that Sanchez drank in hopes of causing an automobile collision. Therefore, this case fell well within the common understanding of the term "accident." 

    If Cincinnati's contention was correct, a collision caused by texting while driving would not be an accident. The driver made an intentional decision that contributed to the accident. But this was implausible on its face. 

    The court reversed the grant of summary judgment to Cincinnati and remanded the case for further consideration. 

Insurer Timely Denies Claim of Additional Insured

    No defense was owed to the additional insured despite the argument that the insurer's denial was untimely. Houston Cas. Co. v. Cavan Corp. of NY, Inc., 2019 N.Y. Misc. LEXIS 3556 (N.Y. Sup. June 27, 2019).

    Cavan Corporation entered a Construction Management Agreement (CMA), as the construction manager, with Puck Residential Association, LLC, as the owner. Cavan was to build six new residential condominium units in the Puck Building. Cavan secured a CGL policy with Houston Casualty Company (HCC) as required by the CMA. The policy included an additional insured endorsement adding as additional insureds "any person or organization for whom you are performing operations during the policy period when you and such person or organization have agreed in writing. . . that such person or organization be added as an additional insured on your policy." 

    J.D. Wilson Construction Corporation was hired as the project's sidewalk restoration contractor. Richard Wilson, the principle of J.D. Wilson, was allegedly injured at the premises during his work on the project. He sued the Puck Association, Cavan and others. Cavan tendered to HCC, who disclaimed coverage based upon the exclusion for bodily injury arising out of construction management. 

    HCC sued Cavan for declaratory judgment. The Puck Association was allowed to intervene. HCC then amended its complaint to add the Puck Association as a defendant. Cavan and HCC's cross-motions for summary judgment were denied. The appellate division decided, however, that HCC was entitled to summary judgment because the policy did not provide coverage to Cavan. 

    The Puck Association then moved for summary judgment. They contended that while the appellate division determined that the policy did not afford Cavan coverage, they were entitled to summary judgment declaring that HCC must defend and indemnify them in the underlying case because they did not receive a timely notice of disclaimer from HCC as mandated by New York statute. 

    The statute required a written notice disclaiming coverage as soon as reasonably possible. The Puck Association maintained that HCC did not respond to their tender until HCC filed its amended complaint, or a delay of seven months. Therefore, HCC could not rely on the construction management exclusion to deny coverage.

    HCC argued that the appellate division's determination that the policy did not cover Cavan because of the construction management exclusion resolved all of the claims against HCC. Further, HCC contended that they disclaimed coverage as to the Puck Association within 30 days of receiving its tender. 

    The court agreed with HCC and granted it summary judgment.

Contractor Entitled to Defense of Faulty Workmanship Claims

    Applying Montana law, the federal district court found that the insurer owed a defense for faulty workmanship claims against the insured contractor. Atlantic Cas. Ins. Co. v. Quinn, 2019 U.S. Dist. LEXIS 103566 (D. Mont. June 20, 2019).

    The Quinns contracted with Brunner Homes and Construction to build a custom home. The contract required Brunner to complete the home 300 days after work commenced. Otherwise, Brunner would be responsible for 0.5% of the contract price for every day beyond that date that the home remained unfinished.

    On September 25, 2017, the Quinns sued Brunner for negligence, breach of contract, and construction default, among other things. The Quinns sought $3,728.45 per day for each day past the completion date, or $2,624,828. 

    Atlantic agreed to defend under a reservation of rights, but sued seeking a declaration that it had no duty to defend or indemnify. 

    Under Montana law, faulty workmanship could be an occurrence if the consequences were not objectively intended or expected by the insured, notwithstanding the work was intentional. The records was sparse regarding Brunner's alleged faulty workmanship. The Quinns' complaint alleged construction issues with the roof, concrete, the decks, drywall, plumbing, framing, trim work, paint, windows, doors, tile, venting, leaking and cracking, resulting in water damage, water stains, destruction of personal property, stained floors, and other damage to tangible property. 

    Atlantic did not present any evidence that Brunner intended or expected these damages. Therefore, factual development was needed to determine whether Brunner's alleged faulty workmanship was a covered occurrence.

    Atlantic argued that even if the alleged faulty workmanship was an occurrence, the resulting property damage was not covered because of Exclusion 2 (j) (6). The exclusion removed from coverage "property damage" to property "that must be restored, repaired or replaced because your work was incorrectly performed on it." However, the products-completed operations hazard restored coverage for property damage that occurred after the work was completed. Atlantic argued that the products-completed operations hazard was inapplicable because the Quinns' home was not completed, but the record suggested otherwise. Specifically, the Quinns' discovery requests indicated that they took occupancy of the home, putting it "to its intended use." The record was unclear as to when the alleged property damage occurred. Accordingly, summary judgment on Atlantic's duty to indemnify was improper. But because coverage was a possibility, Atlantic had a duty to defend against the claims in the underlying complaint.

    The liquidated damages accruing at 0.5% of the home price per day were not covered and Atlantic had no duty to indemnify for those damages. Whether Atlantic had a duty to indemnify for the remaining breach of contract claims could not be determined as a matter of law at this time. 

Broker's Collateral Estoppel Argument Fails

    The broker's motion to dismiss the insured complaint for negligence based upon collateral estoppel was unsuccessful. Gjonaj Realty & Mgt. Corp. v. Capacity Group of NY LLC, 2019 N.Y. App. Div. LEXIS 4880 (N.Y. App. Div. June 18, 2019). 

    The insured was sued in a personal injury action. A default judgment was entered against the insured. On appeal, the court noted that the insured's excuse that they relied upon their agent's representations that the complaint had been forwarded to the insurer, when in fact the broker had failed to do so, was not reasonable. 

    The insured then sued the broker for its negligently misrepresenting that they forwarded the complaint to the insurer. The broker moved to dismiss, contending that the insured should be collaterally estopped from relitigating in this action the issue of reasonableness of their reliance on the broker's representations. The trial court denied the broker's motion to dismiss.

    The appellate division affirmed. The insureds were not collaterally estopped from litigating the reasonableness of their reliance on the broker's representations because the requisite identity of issue which was necessarily been decided in the prior action and is decisive of the present action was lacking. 

    

Hawaii Act 070 Requires Registration of Trade Names

    Act 070, signed in to law by the governor on June 7, 2019, requires insurers to register any trade name with the Business Registration Division (BREG), Department of Commerce and Consumer Affairs (DCCA), prior to the use or change of a trade name to sell, solicit, or negotiate insurance in Hawaii. Upon registration of the trade name with BREG, the licensee may apply with the Insurance Division's Licensing Branch to add or remove a trade name on an active insurance license by using the preapproved form (Form NTA), available on the BREG Division's website. Act 070 takes effect on October 2, 2019.

    Any existing licensees using unregistered trade names need to register their trade name with BREG. The Insurance Division does not monitor whether a trade name is currently registered, so it is the responsibility of the licensee to take appropriate action. If the application for use or change of a tradename is substantially identical to a legal name or trade name of a revoked license, the insurance commissioner will deny the use of the trade name on the insurance license. 

"Occurrence," "Bodily Injury" Adequately Alleged, Triggering Defense

    The court determined that there was a duty to defend despite the insurer's contention that no "occurrence"  or "bodily injury" had been alleged. Zurich Am. Ins. Co. v. Electricity Main, LLC, 2019 U.S. App LEXIS 18074 (1st Cir. June 17, 2019).

    Electricity Maine, LLC had a D&O policy with Zurich. In November 2015, a class action was brought against Electricity Maine. Two customers sought to represent a class of nearly 200,000 of the company's customers. The complaint alleged that Electricity Maine had engaged in misconduct that resulted in customers receiving higher bills than Electricity Maine had represented they would be. 

    Electricity Maine tendered notice of the suit to Zurich. Zurich filed for a declaratory judgment that it had no duty to defend because the underlying action failed to allege that Electricity Maine engaged in conduct that qualified as an "occurrence" or that caused any "bodily injury." The parties cross-moved for summary judgment and the district court ruled for Electricity Maine.

    The First Circuit noted that the complaint in the underlying case set forth a number of claims for intentional torts, but also included a claim for "negligence" and a claim for "negligent misrepresentation." Zurich argued that the facts alleged in the complaint made it impossible to sustain the fiction that Electricity Maine was "negligent" and expected no harm to its customers. When the complaint incorporated by reference the same factual allegations into its claims for for negligence and negligent misrepresentation, they were not necessarily read as alleging that Electricity Maine acted intentionally rather than inadvertently. Such claims did not require proof of intentional conduct. The court acknowledged that the negligent misrepresentation claim or the negligence claim may not have merit. But even a broad, conclusory allegation, such as negligence that is legally insufficient to withstand a motion to dismiss will trigger an insurer's duty to defend whenever the allegations showed a potential that liability would be established under the policy. 

    Regarding "bodily injury," the policy's definition included "mental injury, shock or fright resulting from bodily injury." The definition did not state that it excluded coverage for "bodily injury" caused by those markers of emotional distress. Because Maine law required the court to construe ambiguous language in favor the the insured, the court rejected Zurich's restrictive construction of the policy. 

    Therefore, the district court's granting of summary judgment to Electricity Maine was affirmed. 

Breach of Contrat Claim Barred by Suit Limitation Provision, Bad Faith Claim Barred by Statute of Limitations

    The insured's breach of contract and bad faith claims were dismissed based upon the suit limitation provision and the statute of limitations. Mail Quip, Inc. v. Allstate Ins. Co., 2019 U.S. LEXIS 87923 (E.D. Pa. May 23, 2019). 

    Plaintiff alleged that on March 17, 2015, an ink cartridge refill machine used in its business was "misappropriated." The machine was insured by Allstate through a Commercial Property policy which insured for theft of machinery and equipment. Plaintiff alleged that it discovered the misappropriation of the machine on April 6, 2017, when it saw the machine listed for sale on eBay by an entity unknown to Plaintiff. Plaintiff alleged it never received any compensation for the sale of the machine. The machine had a value of $10,429 at the time of the theft. Plaintiff alleged it filed a claim with Allstate, but did not allege the date it did so.

    Allstate moved to dismiss. The suit limitation provision required an action be brought within two years after the date on which the direct physical loss or damages occurred. The Amended Complaint alleged that the date of loss was March 17, 2015, but suit was not filed until January 16, 2019. Plaintiff argued that Allstate could not enforce the suit limitation provision without a showing of prejudice. The court disagreed. Under Pennsylvania law, an insurer did not have to prove prejudice to enforce the suit limitation provision. 

    Allstate also moved to dismiss the bad faith claim, arguing it was untimely under the two-year statute of limitations. Plaintiff argued that the court could not consider the denial letter attached to Allstate's motion to dismiss. The amended complaint alluded to plaintiff's benefits being denied but did not state when it submitted its claim to Allstate or what the outcome of the claim was. If the court were to ignore this denial of benefits, and specifically the date on which the benefits were denied, a plaintiff with a legally deficient claim could survive a motion to dismiss simply by failing to attach a dispositive document on which it relied.

    The notice of denial showed that Allstate denied plaintiffs claim for benefits relating to the misappropriation of the machine on February 3, 2016. This allowed plaintiff two years, or until February 3, 2018, to file a claim for bad faith under the statute. Yet, plaintiff did not file its claim until January 16, 2018, almost a year too late. Therefore, the bad faith claim was untimely and had to be dismissed.