Insurance Law Hawaii

Filed-Rate Doctrine Does Not Prevent Challenge to Insurers' Auto Rates During COVID-19 Pandemic

    The federal district court considered a challenge to GEICO's premium rates as unconscionably excessive in light of a reduction in the insurance risk pool due to the COVID-19 pandemic. Thomas v. GEICO Cas. Co., 2023 U.S. Dist. LEXIS 19332 (N. D. Ill. Feb. 6, 2023).

    During the COVID-19 pandemic, there was a reduction in driving. In response to fewer accidents, GEICO instituted a "GEICO Giveback" program, which applied a 15% premium reduction to new and renewed auto insurance policies. Plaintiffs sued, alleging that the premium deduction was insufficient as compared to the overall reduction in GEICO's customers' risk profiles. Therefore, the program was unfair and deceptive, in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. GEICO moved for judgment on the pleadings.

    The issue was whether the "filed-rate" doctrine prevented the court from awarding plaintiffs damages. The doctrine prohibited courts from invalidating or modifying a rate that was filed with a public utility or common carrier's regulator. As a result, plaintiffs generally could not seek damages based on the difference between the actual rate and a hypothetical lawful rate. Deference to regulator agencies was prudent because rate regulation was one of legislative control and was not a judicial function. 

    The court considered whether the Illinois' version of the filed-rate doctrine applied to rates for personal automobile insurance, which were filed with the Illinois Department of Insurance. The Illinois Supreme Court had not addressed the issue. An Illinois intermediate appellate court, however, had found that the filed-rate doctrine was not applicable to auto insurance rates in Illinois. Corbin v. Allstate Corp., 140 N.E. 3d 810 (Ill. Ct. App. 2019). 

    The court adopted the persuasive reasoning in Corbin. One aim of the filed-rate doctrine was deference to the regulatory authority of state regulatory agencies. But when the relevant state agency played no role in insurance rate approval, application of the doctrine made little sense. Accordingly, the court declined to abdicate the responsibility to assess whether GEICO's pandemic-era rates were deceptive or unfair in deference to non-existent state rate-setting authority. Therefore, GEICO's motion was denied. 

    

Ninth Circuit Certifies Virus Exclusion Issue to California Supreme Court

    The Ninth Circuit asked the California Supreme Court to address whether the policy's virus exclusion  was enforceable to preclude coverage for business income losses due to the present of COVID-19 at the insured's properties. French Laundry Partners LP v. Hartford Fire Ins. Co., 2023 U.S. App. LEXIS 2845 (9th Cir. Feb. 6, 2023). 

    French Laundry Partners owned two restaurants in Napa County, California. The restaurants were forced to shut down due to the government orders related to the COVID-19 pandemic. It sought coverage for its economic losses, but Hartford denied the claim. French Laundry filed suit.

    The policy contained a virus exclusion stating that Hartford would not pay for loss caused by the "presence, growth, proliferation, spread or any activity of . . . virus." The exclusion, however, did not apply to coverage otherwise provided by the Fungus, Wet Rot, Dry Rot, Bacteria and Virus - Limited Coverage" provision in the policy. This provision allowed coverage for certain looses casued by virus, assuming virius was the resutl of one of the listed causes. French Laundry argued that the virus exclusion could not be construed to preclude coverage because such a consturction would rend the limited virus coverage illusory.

    Hartford filed a motion to dismiss, which was granted by the district court based on a finding that the virus exlcusion was enforceable and barred any coverage. Since the district court's dismissal, the California Court of Appeal had issued John's Grill, Inc. v. Hartford Fin. Servs. Grp., Inc., 86 Cal. Ap;p. 5th 1195 (2022). In John's Grill, the court analyzed the interaction of a virus exclusion term and a limited virus coverage provision in a policy issued by Hartford, and held that the exclusion could not be enforced because it would render the limited virus coverage illusory. 

    The Ninth Circuit certified to the California Supreme Court the following question:

Is the virus exclusion in French Laundry's insurance policy unenforceable beause enforcing it would render illusory a limtied virus coverage provision allowing for the possiblity of coverage for business losses and extra expenses allegedly caused by the presnece and impacts of COVID-19 at an insured's properties, including the loss of business due to the civil authority closure order?

 

    

Insurer Must Defend General Contractor

    Interpreting Massachusetts law, the federal district court determined consequential damage resulting from the insured's faulty work triggered a duty to defend. Capitol Spec. Ins. Corp. v. Dello Russo Enter. LLC, 2023 U.S. Dist. LEXIS 11627 (D. Mass. Jan. 24, 2023). 

    Peta-Gay and Michael Print sued the insured, Dello Russo, who they hired as the general contractor for extensive remodelling and renovation of their building. During the demolition work, certain structural load-bearing walls were removed, including a portion of an exterior bricked masonry wall. Shoring of other parts of the building was inadequate and removal of the masonry wall reduced the structural integrity of the building. Cracks began to appear in the remaining portion of the masonry wall and increased over the next few days. Soon thereafter, the City of Boston determined the building was dangerous and that salvage of the undamaged portions was not feasible. Therefore, the building was demolished.

    Certain Underwriters at Lloyd's, London, filed suit against Dello Russo as subrogee of the Prinns. Dello Russo tendered the complaint to its insurer, Capitol Specialty Insurance Corporation, who defended under a reservation of rights,. Capitol then filed a suit seeking a declaratory judgment that it had no duty to defend or to indemnify. The parties cross-claimed for summary judgment.

    Under Massachusetts law, faulty workmanship was not an accidental occurrence. Coverage was possible, however, when faulty workmanship caused an accident. Here, the home-improvement contract stated that Dello Russo was not hired to demolish the entire building. Therefore, the underlying complaint did not allege that an improperly performed demolition was the accident. Instead, the underlying complaint alleged that as a result of Dello Russo's faulty workmanship during renovations, the building partially collapsed, requiring the demolition of the remaining structure. Therefore, the claims against Dello Russo alleged "property damage" caused by an "occurrence."

    Capitol argued that exclusions (j)(5) and (j)(6) were applicable. These provisions excluded coverage for claims alleging property damage to "[t]hat particular part of real property on which you  . . . are performing operations, if the 'property damage' arises out of those operations," or "[t]hat particular part of any property that must be restored, repaired or replaced because 'your work' was incorrectly performed on it." Capitol contended that as the general contractor, Dello Russo had control over the entire premises, and thus that "particular part" of property meant the entire project.

    The court noted that Dello Russo was not hired to construct, renovate or demolish an entire building. He was required to provide "demo shoring equipment," but not responsible for demolishing or removing any of the building's load-bearing walls. Nor was Dello Russo responsible for demolishing the building's exterior, or any other way performing work relating to the building's exterior walls, windows, foundation, or roof. Rather, Dello Russo's tasks included removing all non-load-bearing walls, and demolishing the building's entire interior residential space. In other works, Dello Russo was obligated to work only a "particular part" of the building: its interior. 

    Therefore, Capitol had a duty to defend. Capitol's motion in regards to the duty to indemnify was premature because the underlying action had not determined liability or adjudicated factual disputes. 

 

Insurer's Communications with In-House Counsel Not Privileged and Not To Be Sealed

    In a case involving the sealing of records generated by an insurance company, the Hawaii Intermediate Court of Appeals found that communications between the insurer and its in-house counsel were not privileged and should not be sealed. Roy v. Government Employees Ins. Co., 2023 Haw. App. LEXIS 13 (Haw. Ct. App. Jan. 23, 2023).

    GEICO employed Stephen Roy as Managing Attorney for its litigation department. One of Roy's duties was to defend GEICO's insureds against lawsuits arising from motor vehicle accidents. Roy sued GEICO, alleging GEICO violated the Hawaii Whistlebloers' Protection Act and defamed Roy. The complaint also alleged GEICO  interfered with Roy's ethical obligations in exercising independent judgment for GEICO's insureds. GEICO never filed a motion to seal or to redact Roy's complaint or any of the exhibits before the lawsuit was settled. When approving the settlement, the court ordered the entire case file sealed.

    Ed Wagner was a GEICO policy holder. His insured vehicle was damaged and he submitted a claim to GEICO. A dispute arose over GEICO's repair estimate. Wagner became a vocal critic of GEICO by submitting testimony to the Hawaii state House of Representatives, creating his own YouTube channel, and posting a story about GEICO on an internet website. 

    After dismissal of the Roy lawsuit, Wagner sent a letter to the circuit court Chief Judge with an unfilled motion to unseal the Court's file in the Roy case. After a hearing, the circuit court entered an order to unseal. The court determined that the prior sealing order failed to satisfy the procedural requirements for public notice and findings to support the sealing. The court ordered the clerk to unseal the file, but delayed implementation of the order to allow GEICO to file a motion to re-seal and file redacted versions of specific documents in the file. GEICO filed its motion, but it was denied based on Wagner's constitutional right of access to court proceedings and records. 

    GEICO appealed. It contended some of the exhibits in the file were subject to the attorney-client privilege. GEICO argued an email contained confidential communications created by Roy acting in his capacity as in-house counsel for GEICO. The document was made to facilitate his professional legal services between both GEICO and GEICO's insureds. The second email contained communications to Roy solicited by GEICO's staff counsel director requesting legal advice and analysis from Roy in his capacity as in-house counsel. GEICO made similar assertions of privilege regarding the paragraphs of the complaint it sought to reseal. 

    The circuit court found that the communications with Roy did not solicit legal advice. Instead, there were discussions between GEICO's staff counsel and his supervisor questioning GEICO's policy about what staff counsel may tell staff counsel's client, GEICO's insured, about whether GEICO would indemnify its insured for liability in excess of policy limits in cases where GEICO rejectrd a policy limits settlement demand. Similarly, none of the allegations contained in the complaint were protected by attorney-client privilege. GEICO was not asking Roy for legal advice and Roy did not offer legal advice to GEICO as GEICO's lawyer. 

    Therefore, the circuit court did not err in determining that GEICO failed to meet its burden to prove that the communications were made for the purpose of facilitating the offering of professional legal services by Roy to GEICO. Further, the circuit court did not err in finding the communications were not protected by work product because GEICO failed to establish the materials were created in anticipation of litigation. Finally, the complaint did not reveal trade secrets with regard to GEICO's managing litigation, specific techniques and alleged practices for creating and enforcing GEICO's internal policies, or metrics for ensuring control of costs and calculating remuneration of employees. 

    Therefore, the unsealing order was affirmed.

    Special thanks to my Damon Key blogging colleague, Mark Murakami, for forwarding this case. 

    

Insurer Ordered to Participate in Appraisal

    The court found that the insured's request for an appraisal was timely and ordered the insurer to participate. Cloisters of Naples, Inc v. Landmark Am. Ins. Co., 2023 U.S. Dist. LEXIS 6884 (M.D. Flag. Jan. 13, 2023).

    A hurricane damaged Cloisters, a condominium. Cloisters made a claim under its commercial insurance policy with Landmark. Landmark acknowledged coverage but failed to pay what Cloisters thought was needed. Cloisters sued.

    The policy had a standard appraisal provision, but another clause had a suit litigation provision requiring a request for appraisal within two years after physical loss to the property. The dispute was whether Florida law, allowing  appraisal clauses to be valid for 130 years, or Georgia law, which had no such extension on requesting an appraisal.  Landmark contended the contract was formed in Georgia, so its law should apply. Florida followed the lure of lex loci, which provided that the law of the jurisdiction where the contract was executed governed.

    The court determined that Florida had the most significant relationship to the transaction. The insured property was in Florida, the insured was a Florida citizen, and the hurricane damage occurred in Florida. Under Florida law, Landmark was obligated to participate in the appraisal. Plaintiffs' Motion to Compel Appraisal was granted.

Hurricane Damage Not Covered for Home Owner Not Named in Policy

    The court granted the insurer's motion to dismiss because, although there was coverage for the property under the mortgagee's policy, the home owner was not a named or additional insured under the policy. Cart v. Great Am. Assur. Co., 2023 U.S. Dist. LEXIS 6207 (W.D. La. Jan. 12, 2023). 

    Plaintiffs' property was damage by Hurricanes Laura and Delta. Because Plaintiff failed to maintain homeowner's hazard insurance subject to the mortgage, Rushmore Management Services procured a force-placed lender policy on the property through Great American. Plaintiffs filed suit asserting breach contract claims. Great American moved to dismiss.

    The policy stated the policy did not "provide coverage for the interest or equity of the mortgagor. This is creditor placed insurance, protecting our mortgage interest, subject to policy terms and conditions." The policy identified the "named insured" as the creditor or lending institution servicing the mortgage interest on the property. 

    The lender-placed policy clearly did not name Plaintiffs as insureds, additional insureds, and did not indicate that Plaintiffs were third-party beneficiaries. Therefore, the motion to dismiss was granted.

Court Denies Insured's Motion to Dismiss Complaint Seeking to Compel Appraisal

    The court denied the insured's motion to dismiss after the insurer filed suit to compel an appraisal. Allied Trust Ins. Co. v. Tsang, 2023 U.S. Dist. LEXIS 352 (E.D. La. Jan. 3, 2023). 

    The insureds reported damage to their property arising from Hurricane Ida. The insurer, Allied Trust, investigated and determined that the covered damage was $1,978.18, which was less that the policy's deductible. The insureds estimated that the covered damage was $135,270.78. 

    Allied Trust invoked the appraisal provision. Allied Trust later filed suit alleging the insureds failed to comply and participate in the appraisal. The insureds moved to dismiss the complaint as moot. In their motion, the insureds argued that because they were now complying with the appraisal clause, all relief sought by Allied Trust had either already occurred or was currently underway. 

    The court noted that the insureds conceded that at least some of the relief sought remained underway. Because the appraisal process had not concluded, the alleged noncompliance could recur. Therefore, the insureds failed to meet the heavy burden of showing that their non-compliance could not reasonably be expected to start again. The motion to dismiss was therefore denied. 

Dobbs’ Impact on Coverage Issues

   Our panel spoke at the ABA, Section of Litigation, Insurance Litigation Committee’s annual seminar today in Tucson. We addressed the impact of the Supreme Court’s overruling the Roe case in Dobbs v. Jackson Women’s Health Organization.

California Court of Appeals Reverses Denial of COVID-19 Claim Based on Virus-Specific Endorsement

    The California Court of Appeal reversed the trial court's grant of the insurer's demurrer on a COVID-19 claim and remanded the case for further proceedings. John's Grill v. Hartford Fin. Servs. Group, 2022 Cal. App. LEXIS 1056 (Cal. Ct. App. Dec. 27, 2022). 

    John's Grill had two insurers, Hartford and Sentinel. Hartford's motion to quash service of summons was granted by the trial court and affirmed by the appellate court. Sentinel's policy had customised trigger-of-coverage language that was virus-specific. The Sentinel endorsement (1) contained an affirmative grant of coverage specifically for "loss or damage" caused by a virus; and (2) a special definition of 'loss or damage" that included "direct physical loss or direct physical damage to" property, but was broad enough to encompass pervasive infiltration of virus particulates onto the surfaces of covered property, which is what John's Grill alleged here.

    The policy's Limited Fungi or Virus Coverage Endorsement included provisions: (1) that added limited coverage in certain circumstances for "loss or damage" "caused by" "virus", subject to certain conditions requiring that the virus was the "result of" one or more of a list of enumerated causes, and (2) that excluded any "loss or damage caused directly or indirectly by" the "presence, growth, proliferation, spread or any activity of . . . virus," subject to an exception where the loss or damage fell within the Limited Virus Coverage. 

    The appellate court started with the policy's insuring agreement. The key triggering phrase in the Limited Virus Coverage grant was simply "loss or damage," which contemplated the possibility that a virus could cause physical damage to covered property and include the costs of "removal" of "virus."

    Under California law, the court was concerned with giving an affirmative grant of coverage its fullest reach, in accord with its text and structure, while resolving ambiguities in accordance with the reasonable expectations of the insured. The applicability of the Virus Exclusion could be determined only after the threshold question was answered, keeping in mind the exclusion was given narrow scope.

    The court further decided that the federal case law relied upon by Sentinel was from federal district court judges sitting in diversity and not binding. Few applied California insurance coverage law and focused on policy language different from that at issue here.

    Therefore, (1) the insuring agreement in the Limited Virus Coverage was broad enough to encompass forms of property "loss" that did not involve physical alteration of property; (2) John's Grill alleged enough to warrant giving it another opportunity to plead that its claim fell within the scope of the Limited Virus Coverage grant; (3) the Specfied Causes Clause, construed broadly, as Sentinel urged, would leave John's Grill with no virus coverage and would be illusory; and (4) turning to the exclusionary language, it was premature to say whether the Virus Exclusion applied, since that exclusion was subject to an exception wherever there was coverage under the Limited Virus Coverage provisions. The applicability of the exception could not be dete3rmined until the issue of coverage was decided. 

 

    

 

Insurer's Appeal of Jury Verdict Rejected by Tenth Circuit

    After a jury awarded damages related to the insurer's delayed payment under the claim and the insurer's post trial motions to set aside the verdict were denied, the Tenth Circuit affirmed. US General, LLC v. GuideOne Mut. Ins. Co., 2022 U.S. App. LEXIS 34066 (10th Cir. Dec. 12, 2022). 

    Crossroads American Baptist Church submitted a claim to GuideOne for hailstorm damage. Crossroads hired US General as the general contractor to perform the repairs and later assigned its interest in the insurance policy to US General.

    Numerous disputes arose between Crossroads and GuideOne regarding the cost of the repairs. There were delayed payments and portions of the repairs were never paid for. The delayed payments meant GuideOne's ability to begin making the repairs was hindered because it was more expensive to start and stop a project. 

    Crossroad brought suit. It alleged breach of contract based on GuideOne's refusal to pay $70,000 requested for electrical and HVAC work, and for unreasonable delay of payment under a Colorado statute. US General was joined as a plaintiff.

    The case proceeded to a jury trial. The district court drafted jury instructions and the verdict form. GuideOne said it had no objections. The jury verdict form required the jury (1) to indicate whether GuideOne was liable on each of US General's two claims, and (2) to state the amount of damages for each claim on which it found liability.

    The jury returned a verdict in favor of US General on both claims. On the breach of contract claim, the jury found that US General had not suffered any general damages, but awarded $1 in nominal damages. On the unreasonable delay claim, the jury found that GuideOne had unreasonably delayed payment of $155,700 in insurance benefits before the date the complaint was filed and $136,700 after that date. GuideOne did not object or argue that it was inconsistent.

    In GuideOne's motion to amend the judgment under Rule 59 (e), Fed. R. Civ P., it argued that (1) US General could obtain only $1 for unreasonable delay damages because the jury found only $1 of nominal damages on the breach of contract claim, and (2) insufficient evidence supported the unreasonably delay claim. The district court denied GuideOne's motion to amend the judgment and awarded US General's motion for double damages and attorney fees under the Colorado statute. GuideOne appealed.

    The Tenth Circuit first found that GuideOne waived the argument on damages for unreasonable delay by failing to object to the verdict when the jury rendered it. When a jury returned its verdict, a party that believed the verdict was inconsistent had to object before the jury was discharged. 

    The Tenth Circuit also affirmed the award of attorneys fees. The district court accepted US General's calculation of fees based on the hours billed and the proposed hourly rates. On appeal, GuideOne did not show that the district court erred in finding the fees to be reasonable. Therefore, the fees award was affirmed.