Insurance Law Hawaii

Insurer's Motion for Summary Judgment Granted Due to Insured's Failure to Provide Evidence of Bad Faith

    The court granted the insurer's motion for summary judgment when the insured failed to raise a genuine issue of material fact as to whether he insurer acted in bad faith. Dillen v. QBE Ins. Corp. 2025 U.S. Dist. LEXIS 24742 (S.D. Texas Feb. 11, 2025).

    The insureds were away from their home when their pipes froze and burst. The claim was reported to their insurer, QBE Insurance Corporation, the day they returned home. QBE inspected the property and issued a check for $24,412.97, representing the replacement cost value estimated by the field adjuster minus the deductible. The insureds submitted to QBE their own estimate totalling $62,200. QBE reinspected the property and prepared a supplemental estimate totalling $81,613.05. Based on this estimate QBE issued a check for $38,978.63, representing the new Replacement Cost Value of $81,613.05 minus $15,721.45 in depreciation and the prior $24,412.97 payment. Further inspections led to yet another patent by ABE in the amount of $34,249.02.

    The insureds invoked the policy's appraisal provision. An appraisal award  totalled $192,292.69 for the insureds. QBE then issued two new payments of $71,639.46 and $22,854.85. In total, QBE paid $192,292.69. The insureds conceded that QBE paid the amounts contractually owed.

    Nevertheless, the insureds filed suit for statutory violations of bad faith and a breach of the common law duty of good faith. QBE filed a motion for summary judgment.

    The court applied the independent-injury rule applicable in Texas. The rule stated that an insurer's statutory violation did not permit the insured to recover any damages beyond policy benefits unless the violation caused an injury that was independent from the loss of benefits. The insureds did not bring statutory claims to recover the policy benefits they were entitled to because they acknowledged that all policy benefits were paid. Instead, they sought damages in addition to the policy benefits for expenses that they alleged were caused by QBE's violation of the Texas Insurance Code.

    The insureds failed to suggest how they were injured independent from their right to receive policy benefits, nor did they provide such evidence. The insureds claimed that QBE issued payments weeks after an inspection occurred. They also argued that their emails often went unresponded to. The insureds stated they were injured, including claims of mental anguish, because QBE improperly withheld payment of the claim. There was no evidence, however, of damages that did not flow or stem from the denial of policy benefits. Once the benefits were paid, Texas law held that the cause of action could no longer survive without a separate and independent injury. While the claim might be independent from any contractual dispute, the injury was not. Therefore, summary judgment was granted to QBE on the Texas Insurance Code claims.

    Regarding the common law claims for bad faith, the insureds did not offer any evidence that QBE acted either in bad faith or unreasonably in the coverage of their claim. Instead, the insureds only showed evidence of a bona fide coverage dispute which, standing alone, did not demonstrate bad faith. Therefore, QBE's motion regarding a breach of its common law shut of good faith and fair dealing was also granted. 

 

Insureds' Claim for Flood Damage is Time-Barred

    The federal district court granted the insurer's motion to dismiss because the insureds' claim for damages under the Standard Flood Insurance Policy was submitted too late. Caruso v. First Protective Ins. Co., 2025 U.S. Dist. LEXIS 23288 (M.D. Fla. Feb. 10, 2025).

    The insureds' property sustained flood damage during Hurricane Ian. The insureds submitted a claim for their damages. On March 3, 2023, the insurer sent a letter partially denying the claim. Several months later, on September 26, 2023, the insureds submitted a proof of loss, which the insurer denied on June 26, 2024. 

    The insureds filed suit and the insurer moved to dismiss arguing that the claim was time-barred because suit was filed more than a year after its March 3, 2023 denial letter. The insureds argued that the March 2023 letter was not a proper denial to trigger the statute of limitations period. Rather, the argued it was June 26, 2024, denial letter that triggered the statute of limitations. Under the statute, a plaintiff had to institute an action within one year after the date of mailing of notice of disallowance or partial disallowance of the claim. 

    The court determined that the March 2023 letter was a proper disallowance that triggered the one-year limitation period. The letter stated in part, "The adjuster tells us you are claiming payment for the air handler; however, the flood policy will not allow us to pay you for your air handler because it is not considered direct physical loss by or from flood." It also included a Policyholder Rights form, which advised the insureds of their right to appeal or file a lawsuit after their claim is denied. 

    While the March 2023 letter did not explicitly use the word "deny," the clear intent of the letter was to reject part of the claim. The insurer's decision not to cover part of the claim because the loss was not directly caused by flood damage, accompanied by instructions on how the appeal the decision was sufficient to put the insureds on notice that a part of their claim was disallowed. Because the insureds filed suit over a year later, their claim was time-barred. 

Failure to Strictly Adhere to Limitations for Flood Claim Leads to Denial

    The federal district court agreed that the insurer properly rejected the insured's claim for flood damage after suit was not timely filed. 4922 Mgmt. LLC v. Selective Ins. Co. of the Southeast, 2025 U.S. Dist. LEXIS 21173 (M.D. Fla. Feb. 6, 2025). 

    The insured's property suffered damage during Hurricane Ian. Selective was a write-your-own program carrier participating in the National Flood Insurance Program. Selective issued to the insured a Standard Flood Insurance Policy.

    The insured submitted a claim for damages. On May 16, 2023, Selective sent a letter partially denying the claim. The insured filed suit over one year later. Selective moved to dismiss under 42 U.S.C. 4072, which required a plaintiff to institute an action "within one year after the date of mailing of notice of disallowance or partial disallowance" of the claim. Selective issued its letter on May 16, 2023. The insured filed suit on September 25, 2024, so it was seemingly too late. The insured argued, however, that the letter did not constitute a notice of disallowance or partial disallowance that would trigger the limitation period. 

    The court disagreed. The May 2023 letter constituted a partial disallowance under section 4072 because in making a partial payment, the letter advised if the insured did not agree with the decision to "deny your claim," the insured should refer to a summary of rights attached to the letter. 

    The insured further argued that the letter was not a denial because it extended coverage for a portion of the claim. Case law established, however, that the issue of whether the insurer partially accepted an insured's claim had no bearing on the jurisdictional statute of limitations. Since Selective's May 2023 letter partially denied the claim, it triggered the one-year limitations period. 

Excess Policy that Follows Form Does Not Agree to Pay Defense Costs

    The Texas Supreme Court determined that language in the following form excess policy did not obligate it to defend the insured. Ohio Cas. Ins. Co. v Patterson UTI Energy, Inc., 2025 Tex. LEXIS 1123 (Tex. Sup. Ct. Dec. 20, 2024).

    Patterson provided oil-and-gas equipment and services. Patterson was insured by a primary policy and multiple layers of excess coverage. For the 2017-2018 policy year, Patterson bought several lines of insurance through its broker, Marsh USA, Inc. The underlying policy was an umbrella policy issued by Liberty Mutual Insurance Europe, Ltd. Among the excess policies Patterson obtained through Marsh was one from Ohio Casualty Insurance Company.

    Patterson was sued in multiple lawsuits regarding a drilling-rig accident. Patterson settled the lawsuits after extensive litigation. The settlements and the litigation's defense expenses triggered the Ohio Casualty excess policy after the lower level policies were exhausted. Ohio Casualty funded portions of the settlements but refused to indemnify Patterson for any defense expenses.

    Patterson sued Ohio Casualty and Marsh. Competing motions for summary judgment regarding whether the Ohio Casualty policy covered defense expenses were filed. The trial court granted Patterson's motion and denied Ohio Casualty's. The court determined that the defense costs were covered under the Ohio Casualty policy because the policy did not clearly and unambiguously exclude the coverage for defense costs provided by the underlying primary policy. 

    The court of appeals affirmed. The excess policy was a "follow form" policy that did not unambiguously exclude defense expenses. Therefore, the excess policy also covered these expenses. The matter was appealed to the Texas Supreme Court. 

  The Ohio Casualty excess policy promised to pay the amount of "loss" in excess of the underlying limits. "Except for the terms, conditions, definitions and exclusions of this policy, the coverage provided by this policy will follow the [underlying policy]." Loss was defined as:

those sums actually paid in the settlement or satisfaction of a claim which [Patterson is] legally olibgated to pay as damages after making proper deductions for all recoveries and salvage. 

    Ohio Casualty agreed that the settlement amounts were "damages" under this definition and were covered as "loss." But Ohio Casualty submitted that Patterson's own legal expenses did not qualify as "loss" because they did to constitute "damages." The Supreme Court agreed that the excess policy did not cover attorney's fees as "loss." 

    Patterson relied too much on the excess policy's "follow-form" status. Patterson argued that the excess police was bound by the underlying policy's coverage choice unless the excess policy repudiated that choice rather than simply providing a different kind of coverage. The excess policy specified that it covered "loss," a term for which it provided its own definition. That definition referred to "damages" - a term that, without more, did not include defense expenses. The excess policy confined its coverage to sums paid to an adverse party, like the personal-injury claimants who sued Patterson after the drilling-rig incident.

    Therefore, the judgment of the court of appeals was reversed. Judgment was rendered for Ohio Casualty. The case was remanded for Patterson to pursue its negligence claims against Marsh. 

ABA's ICLC Insurance Conference

    We presented at the ABA's  Insurance Coverage Litigation Committee's annual seminar in Tucson yesterday. We delved into "The Ins and Outs of Outside Adjusters."  Thanks to my co-presenters, Karin S. Aldama, Esq., from Gallagher Kennedy and Rina Carmel, Esq., from Anderson, McPharlin & Conners LLP. 

 

California Court of Appeal Finds Lingering Smoke From Wildfire is not Direct Physical Loss

    On the heals of a decision from a federal district court that smoke damaged was a direct physical loss, the California Court of Appeal affirmed the trial court's grant of summary judgment to the insurer regarding the insureds' claim for loss due to smoke damage. Gharibian v. Wawanesa General Ins. Co., 2025 Cal. App. LEXIS 64 (Cal. Ct. App. Feb. 7, 2025). The prior, federal case, Bottega, LLC, et al. v. National Surety Corporation-Chicago, IL, 2025, U.S. Dist. LEXIS 5666 (N.D. Cal. Jan. 10, 2025) is here.

    On October 10, 2019, the Saddle Ridge wildfire began in the foothills of northern Los Angeles County. The fire burned about half a mile away from plaintiffs' property. Plaintiffs' property did not suffer any burn damage. Debris still entered their home, however, with more debris falling outside their home and in their swimming pool. While there was the smell of wildfire smoke, it dissipated over time. 

    Plaintiffs' insurer, Wawanesa General Insurance Company, sent PuroClean to inspect the property. PuroClean prepared an estimate of $4,308.90 for what it would cost to clean the property. Plaintiffs did not hire PuroClean to do the work. 

    Plaintiffs hired L.Y. Environmental, Inc., to inspect the property and write a report. The engineer who inspected testified that soot and ash were present at the property. But, soot by itself did not physically damage a structure. And ash only created physical damage to a structure if left on metal or vinyl and was then exposed to water. The engineer did not find any evidence of rusting metal or oxidised vinyl. He further confirmed that there was no burn or heat damage at the property. Thus, he concluded that the home could be fully cleaned by wiping the surfaces, vacuuming, and power washing the outside.

    Thereafter, Wawanesa paid plaintiffs $2,308.90, representing the PuroClean estimate less the $2,000 deductible. 

    Plaintiffs did not hire professional cleaners and instead cleaned the interior and exterior of their home, including the pool, on their own. Plaintiffs were not aware of anything at their property that was physically damaged. 

    Plaintiffs then retained The Croisdale Group Inc. to estimate the cost of cleaning the house. Croisdale prepared an estimate of $35,553.10, which included general cleaning, as well as interior painting, exterior wood and stucco painting, replacement of attic insulation, swimming pool work, and cleaning the HVAC system. 

    After another inspection, PuroClean revised its estimate to $20,718.09 to include disputed cleaning services. Wawanesa issued supplemental checks totalling $16,409.19, bringing the total payments to $20,718.09. Wawanesa also paid an additional $2,400 for pool cleaning. 

    Plaintiffs filed suit against Wawanesa, alleging claims for breach of contract and breach of the duty of good faith and fair dealing. Wawanesa moved for summary judgment, arguing there was no evidence of a physical loss. The trial court granted the motion. 

    The Court of Appeals affirmed. Under California law, direct physical loss or damage to property required a distinct, demonstrable, physical alteration to property. The physical alteration did not have to be visible to the naked eye, nor did it have to be structural, but it had to result in some injury to or impairment of the property as property. Here there was no evidence of any "direct physical loss the the property." The wildfire debris did not alter the property itself in a lasting and persistent manner. Any debris was easily cleaned or removed from the property. Such debris did not constitute "direct physical loss to property." 

    The judgement of the trial court was affirmed. 

Back to Tucson for Insurance Coverage Litigation Committee's Annual Seminar

    Headed to Tucson this week to attend the ABA's annual Insurance Coverage Litigation Committee seminar. Always great presentations and discussions on a variety of coverage topics. Along with my co-panelists, Rina Carmel and Karin S. Aldama, we will lead a discussion on The Ins and Outs of Outside Adjusters. Looking forward to it, as always.

 

Smoke and Soot Constitute Direct Physical Loss

    The federal district court found that smoke and soot contamination rendered the property unfit for normal use, meeting the standard for "direct physical loss" under the policy language for recovery of business income. Bottega, LLC, et al. v. National Surety Corporation-Chicago, Il, 2025 U.S. Dist. LEXIS 5666 (N.D. Cal. Jan. 10, 2025). 

    Bottega, a restaurant in Northern California, held a policy issued by National Surety which provided for loss of Business Income due to the necessary suspension of operation. The policy provided, "The suspension must be caused by direct physical loss of or damage to property at the premises described in the Declarations."

    On October 8, 2017, a series of fires began in the area. The following day, the governor proclaimed a state of emergency closing various roads from approximately October 9 to 18, 2017, restricting access to the insured property. The fires did not reach the insured's property, but came very close. Bottega closed on October 9, 2017. The restaurant partially reopened the following day so that food could be provided and served to first responders. Bottega remained in operation throughout the fires except for the closure on October 16, 2017. 

    Bottega submitted a Property Loss Notice. National Surety paid $108,190 for business income lost. A year after the fire, a site inspection occurred. Smoke damage was found. Bottega then submitted to National Surety claims for smoke damage as well as lost business income. The claim was rejected by National Surety because operations were not suspended due to loss of or damage to insured property. 

    Bottega sued, contending they continued to experience business income losses for an extended period of time well beyond the two-week time period provided for under the Civil Authority provision of the policy. The parties cross-moved for summary judgment.

    The court noted that to trigger the Business Income Coverage provision, the insured had to establish (1) a suspension of operations (2) caused by (3) direct physical loss of or damage to the property (4) resulting from a Covered Cause of Loss. 

    The record established as an undisputed fact Bottega's operations were suspended within the meaning of the policy. Further, based on admissions from National Surety, the record established as a matter of undisputed fact that the fires caused direct physical loss and damage to Bottega. National Surety admitted: (1) the fires caused smoke, soot, and/or ash damage to the insured locations; (2) the fires caused a direct physical loss to the insured locations; and (3) the fires caused direct physical damage to the insured locations. These admissions conclusively established physical loss or damage to the insured property. 

    The summary judgment record also established as an undisputed fact the direct physical loss or damage resulted from a Covered Cause of Loss. 

    There was, however, a genuine dispute of fact as to the reason for Bottega's closure on October 9, 2017. Bottega argued the restaurant could not operate in its then condition as it was inundated with smoke, soot, ash, and char. National Surety contended that operations were suspended when access to the insured premises was prohibited by order of civil authority, as opposed to loss of or damage to insured property. 

    The court determined there was a genuine dispute of fact as to whether Bottega's closure was caused by smoke damage. Both motions for partial summary judgment were denied. 

    

Collapse Claim Denied After Insured's Failure to Meet Suit Limitation Deadline

    The insured's claim for collapse of a building was denied after failing to file suit within the two-year limitation set forth in the policy. 94 Broad Street, LLC v. The Hartford Financial Services Group, Inc., 2025 Conn. Super. LEXIS 112 (Conn. Super. Ct. Jan. 24, 2025).

    The insured had a policy with the Hartford for its mixed-use building. The policy had a suit limitation provision which prevented an insured from filing suit two years after the date that direct physical loss or physical damage occurred. 

    In late 2018, the insured had a sewer back up problem and made repairs. On October 6, 2020, the insured filed a claim with the Hartford. The Hartford assigned a claim file with the dat of loss as December 9, 2018. Around October 6, 2020, the insured informed the Hartford that the rear of its building was collapsing, the collapse was contemporaneous with the sewer line back up, and the insured believed the collapse was caused by the sewer line back up. The Hartford denied coverage on August 18, 2021, due to its engineer's report. The insured's engineer then investigated the collapse and opined that the collapse was caused by the sewer line back up and the soil compacting which weakened the rear of the building. The Hartford still refused to cover the loss.

    On September 15, 2022, the insured filed suit against the wrong entity, The Hartford Financial Service Group. On April 21, 2023, the insured commenced an action against the correct entity. 

    The Hartford filed a motion for summary judgment arguing that the suit was filed too late. The Hartford argued the date of loss was late 2018, or December 9, 2018, and the insured did not file suit until after the two years limitation had lapsed on either September 15, 2022 (against the wrong defendant) or April 21, 2023 (against the correct defendant). The insured argued that it did not file the claim until October 6, 2020, and therefore within the two years limitation.

    The policy stated that "[n]o one may bring a legal action against us under this insurance unless . . . [t]he action is brought within 2 years after the date on which the direct physical loss or physical damage occurred." Therefore, the plain terms of the policy demonstrated that the provision ran from the date of loss, not when the claim was filed.

    It its complaint, the insured alleged that "in late 2018" the building collapse "was contemporaneous with the sewer line backing up . . . was caused by the same event [the sewer back up] . . . and that "the sewer line failure/backup was the proximate cause of the collapse . . ."  Further, the Hartford's correspondence with the insured listed the "date of loss" as December 9, 2018. Finally, the insured's engineer claimed that additional sagging had been happening since 2018, not that the sagging started in 2019. Therefore, the date of loss was December 9, 2018. The insured did not comply with the policy's two year suit limitation.

 

Court Denies Insurer's Motion for Summary Judgment on Breach of Contract Claim and Further Denies Motion to Exclude Insured's Expert

    The court denied the insurer's Motion for Summary Judgment seeking to dismiss the insured's breach of contract claim. The court also denied the insurer's Daubert motion to exclude the insured's expert witness. Ram Krishana Inc. v. Mt. Hawley Ins Co., 2025 U.S. Dist. LEXIS 18912 (S.D N.Y Feb. 3, 2025).

    The insured owned property in Louisiana operated as a Motel 6 (Hotel Property). A restaurant was located at an adjoining address (Restaurant Property) owned by ANK Holdings, LLC, with two members: the same Mukesh and Kailash Zveri who owned the Hotel Property. Mt. Hawley issued a policy covering the Hotel Property and the Restaurant Property. 

    On August 27, 2020, the insured notified Mt. Hawley of a claim for damage to the Properties caused by Hurricane Laura. Mt. Hawley retained Engle Martin to inspect the Properties. Engle Martin spoke with Roger Newman, one of the insured's public adjusters, who informed Engle Martin that he "estimated the necessary repairs will exceed $2,000,000 Engle Martin submitted reports to Mt. Hawley, which included Mr. Newman's loss estimate. Mt. Hawley also hired JS Held, a building consultant, to help with the adjustment of the claim. During this time, the Properties were further damaged by Hurricane Delta.

    In December 2020, Mt. Hawley made a $250,000 payment to the insured as an advance. In connection with the payment, Mt. Hawley requested that the insured execute a partial proof of loss for the advance payment. Mt. Hawley issued subsequent payments of $18,664.21 and $46,376.35, but did not require additional proofs of loss for these payment.

    The insured did not submit an additional proof of loss form. Mt. Hawley renewed its "Request for Information" and sought additional information for review and consideration. The insured did not respond. Mt. Hawley did receive an estimate for water mitigation work from Roadrunner kConstruction and had previously been informed by the insured's public adjuster that he estimated repairs would exceed $2,000,000. 

    On May 24, 2021, the insured invoked the policy's appraisal provision. Mt. Hawley's counsel wrote to the insured seeking clarification for the appraisal demand since "the correspondence does not set forth the Insured's contention regarding the amount of loss or provide any information or documentation that would allow Mt. Hawley to understand what the Insured's contention is regarding that number."  Mt. Hawley also reiterated previous requests for documentation, including work performed by Roadrunner Restoration and files with moisture level information, and requested that the insured provide a signed, sworn proof of loss. Other that the December 2020 Partial Proof of Loss, the insured did not submit any additional proofs of loss.

    The insured performed repairs to the roof and additional portions of the Hotel Property, spending approximately $1,600,000. 

    The insured sued Mt. Hawley. Cross motions for summary judgment were filed. Mt. Hawley also filed a Daubert motion to exclude the testimony of the insured's expert, Jeffrey Major. Mt. Hawley's motion for summary judgment challenged the insured's breach of contract claim arising out of Mt. Hawley's failure to timely pay funds owned under the policy for losses arising from Hurricanes Laura and Delta.

    On the breach of contract claim, Mt. Hawley contended that the claim was barred due to the insured's failure to submit a signed proof of loss form setting forth its amount of loss, as required by the policy, and that the Partial Proof of Loss did not satisfy the policy's requirements because it did not set forth the full and complete amount of the loss.

    The court disagreed that the insured's failure to file an additional proof of loss form barred its claim. Mt. Hawley identified no policy language requiring the submission of additional proofs of loss. The insured did provide additional information regarding the loss, including the estimate from the insured's public adjuster that repairs would exceed $2,000,000, as well as the insured's position stated in its request for appraisal that the full Building Policy limits were properly due based on the "devastating amount of damage to the Insured Hotel." Based on this information, the insured's claim was not barred for failure to file an additional proof of low. 

    The court also rejected Mt. Hawley's argument that the insured's failure to submit an additional "complete" signed, sworn proof of loss in connection with its appraisal request was a bar to coverage. There was no separate proof of loss requirement in the policy for the appraisal process. The appraisal provision required only that the insurer and insured "disagree on the value of the property or the amount of the loss." The insured's letter invoking appraisal informed Mt. Hawley that it "disputed the amount of the loss" because the "$250,000 in policy benefits were inadequate to complete the necessary repairs and made a demand for the full Building Policy limits to be tendered. This satisfactorily informed Mt. Hawley that there was a disagreement as to the amount of loss and provided information regarding the loss amount. Consequently, Mt. Hawley was not entitled to summary judgment on the breach of contract claim. 

    The court next determined that the insured did not have an insurable interest in the Restaurant Property because the property was owned by ANK Holdings. The court also granted Mt. Hawley's motion regarding the insured's claim for replacement costs for repairs to the Main Building. The parties did not dispute that the insured had not made all of the repairs for which it sought replacement costs, including to the Main Building. Under the policy and New York law, the insured was required to actually repair or replace the damaged property before making a claim for replacement costs. The court granted Mt. Hawley's motion ruling that the insured could not recover replacement costs for repairs it had not yet made.

    Finally, the court turned to Mt. Hawley's motion to exclude the testimony of Jeffrey Major, the insured's expert on causation and amount of loss. Mr. Major estimated that the actual cash value of the loss was $1,342,605.08 after relying on estimates calculated in a software program called 'Xactimate. Mr. Major not only used the program, but, instead of using the program's default prices, Mr. Major put in his own prices. 

    Mt. Hawley did not question Mr Major's qualifications, but argued his opinions were unsupported and unreliable based on the price inputs underlying his cost estimates using Xactimate. Mt. Hawley submitted that Mr. Major's opinion were unreliable because the cost information was based only on his general experience and no documentation or objective substantiation for those estimates weas provided. The court disagreed that Mr. Major should be disqualified on this basis. Mr. Major identified the particular prices that he independently input into Xactimate and explained that the costs came from builders who did work in the storm that damaged the insured's property and his own experience in adjusting similar claims. His opinions could be challenged on cross examination. Mt. Hawley's motion to exclude Mr. Major's testimony was denied.