Insurance Law Hawaii

Third Circuit Remands Denial of Coverage Based on Expected and Intended Definition of Occurrence

    While affirming the district court's denial of coverage under policies that defined occurrence as an accident, the Third Circuit remanded for further consideration of the policies containing an expected and intended definition of occurrence. Sapa Extrusions, Inc. v. Liberty Mut. Ins. Co., 2019 U.S. App. LEXIS 27668 (Sept. 13, 2019).

    Sapa manufactured aluminum extruded profiles which were used for door and window frames. A pretreatment coating process was used in several aluminum clad windows and doors. Several stages were involved including cleaning and degreasing to remove organic and inorganic materials, chemical etching, and chemical coating to assist with paint adherence. For decades, Sapa supplied profiles to Marvin Lumber and Cedar Company. Marvin incorporated these extrusions with other materials to manufacture aluminum doors and windows. If an extrusion was defective, the whole window or door would have to be replaced. Between 2000 and 2010, Sapa sold 28 million windows and doors.

    Marvin sometimes received complaints from customers that the aluminum parts of windows or doors would corrode. At first, Sapa tried to determine the nature of the problems and fix them. In 2010, Marvin sued Sapa, alleging Sapa made specific warranties to Marvin about its extrusions. Marvin sought monetary damages for economic losses stemming from investigating and responding to consumer complaints, identifying and qualifying alternative extrusion suppliers, replacing the failed extrusions, and experiencing lost sales and profits.  On the eve of trial, the parties settled for a large sum.

    Sapa held 28 CGL policies through eight carriers, covering the relevant period during which Sapa did business with Marvin. Only one carrier, Zurich, accepted the defense under a reservation of rights. Sapa sued the remaining carriers, asserting breach of contract under the 28 policies and seeking a declaratory judgment to recover the cost of the underlying settlement.

    The district court found there was no occurrence under any of the policies and there was no duty to indemnify. 

    The Third Circuit analyzed the policies under Pennsylvania law. Nineteen of the policies defined an "occurrence" as an accident. Under these policies, faulty workmanship did not constitute an accident as required to set forth an occurrence under the CGL policies.  A degree of fortuity was not present in a claim for faulty workmanship.

    Seven policies defined "occurrence" as "an accident, including continuous or repeated exposure to conditions, which results in . . . property damage neither expected nor intended from the standpoint of the Insured." The district court considered these policies together with the "accident" policies. The Third Circuit held the district court should have considered these poliies separately. The expected and intended definition of "occurrence" in these policies was ambiguous. Under the expected and intended definition, an "occurrence' included those conditions not of the same general type which the insured intended to cause.

    Two policies contained the injurious exposure definition of "occurrence."  The definition in these policies was identical to the expected and intended definition, except that it used the term "injurious exposure" instead of "accident. The district court did not analyze these policies separately, despite their unique wording. Therefore, the district court's decision was vacated as it related to these two policies and remanded for further individualized consideration. 

    

Auto Policy Provides No Coverage For Death Caused by Reckless Driving

    The Magistrate Judge for the Federal District Court of Hawaii recommended a finding that there was no coverage under the deceased driver's car rental policy or rental agreement for an accident caused by reckless driving. Praetorian Ins. Co. v. Estate of Apo, 2019 U.S. Dist. LEXIS 164489 (D Haw. Sept. 6, 2019). 

    The decedent was asleep in a rented vehicle when awakened by police. The decedent reversed the auto and collided with an police vehicle. A high speed pursuit then ensued. The decedent drove in the wrong direction on the opposing side of traffic at approximately 90 miles an hour and struck an oncoming vehicle, killing both the decedent the underlying plaintiff. 

    The vehicle driven by decedent had been rented to a friend, who loaned decedent the car. The rental agreement stated "None" for the listing of additional drivers. The agreement also stated, "under no circumstances shall vehicle be used, operated or driven by any other person." Praetorian insured the rented vehicle.

    The underlying lawsuit was filed against the decedent's estate. Thereafter, Praetorian filed an action for declaratory judgment that it had no duty to defend or indemnify. The estate did not answer and Praetorian filed Motion for Default Judgment or for Summary Judgment against the estate. No opposition to the motion was filed. 

    The court found that the decedent was not an insured under the policy. The policy defined "insured" as "you" and/or the rentee. The policy was therefore unambiguous that only the car rental company or the rentee qualified as an insured. The policy also stated it was subject to the terms, conditions, restrictions, and limitations contained in the rental agreement. Consequently, there was no coverage for the estate for the claims asserted in the underlying lawsuit. 

    As a result, the court found and recommended that the Motion be granted and that default judgment be entered against the estate and in favor of Praetorian. 

    

Contractor Entitled to Defense for Alleged Faulty Workmanship of Subcontractor

    Applying Nevada law, the Federal District Court in Florida found that the general contractor was entitled to a defense of claims based upon alleged faulty workmanship of a subcontractor. KB Home Jacksonville LLC v. Liberty Mutual Fire Ins. Co, 2019 U.S. Dist. LEXIS 151235 (M.D. Fla. Sept 5, 2019).

    KB Home completed six residential developments utilizing various subcontractors. One subcontractor was Florida State Plastering, LLC (FSP) for installing stucco. Eighty-eight complaints against KB Home implicated FSP's stucco work. Plaintiffs alleged that the stucco subcontractor's work suffered from construction defects, causing damages not only to the exterior stucco, but also the underling wire lath, paper backing, house wrap, wood sheathing, interior walls, interior floors and other property. 

    Ironshore insured FSP under a CGL policy. KB Home was an additional insured for liability for property damage caused by "your work." KB Home was also insured under its own CGL policy with Liberty Mutual. Both insurers refused to defend.

    KB Home filed suit for a declaratory judgment. Liberty Mutual then agreed to defend. Ironshore argued that KB Home was not entitled to partial summary judgment because there were material facts in dispute. The court concluded that the underlying complaints alleged "property damage," caused by an "occurrence" of FSP's allegedly faulty workmanship. Further, there were allegations of damage to property other than FSP's own work. The underlying complaints alleged that FSP's faulty stucco installation caused damage to paper backing, house wrap, wood sheathing, interior walls and interior floors. 

    Ironshore next argued it still had no duty to defend because Liberty Mutual was providing KB Home a defense. The court disagreed. The presence of multiple insurers did not excuse any single insurer from fully defending the insured. Therefore, KB Home's motion for partial summary judgment was granted to the extent Ironshore had a duty to defend. 

    

Insurer's Attempt to Strike Experts in Collapse Case Fails

    The insurer's efforts to exclude two of the insured's experts in a collapse case were unsuccessful. Hudon Specialty Ins. Co. v. Talex Enterprises, LLC, 2019 U.S. Dist. LEXIS 150148 (S.D. Miss. Sept. 4, 2019).

    The insureds' building collapsed. The remaining portions of the building required immediate stabilization. The insureds hired Mr. Laird, an engineer, to prevent further property destruction. The insured designated Mr. Laird as a non-retained expert for trial. Mr. Laird's report claimed that the collapse was caused because the building had been re-roofed many times without removal of the degraded underlying roofing materials, thereby adding additional weight to the roof structure. 

    The insureds also designated Steve Cox as a non-retained expert. Mr. Cox was an architect who owned property neighboring the building that collapsed. He opined that the building collapsed because of the condition of very old mortar and not because of water standing on the building roof or because of roof repairs. 

    Hudson sought to strike these two experts because their opinions were inconsistent with the admitted facts. A document produced by the insureds stated that a large amount of rainwater had collected on the roof and the weight of the rainfall was the proximate cause of the collapse. Hudson claimed that this statement qualified as a judicial admission, removing the question of causation from contention. The court disagreed that the statement was a judicial admission because it did not form any part of the pleadings. The statement may have been an evidentiary admission that could be controverted or explained by the parties. 

    Hudson also argued that neither expert testified that the mortar decay which alleged caused the collapse was not plainly visible. Therefore, the testimony could not be relevant because the building decay had to hidden from view to trigger the policy. But the determination of whether the policy was triggered would be based on testimony and cross-examination.

    Hudson also sought to strike Mr. Laird because he had been retained to insist the insureds to preserve the property before suit was ever filed. The mere fact that he was retained to provide expert testimony did not make him a "specially employed expert" who was solely retained to provide testimony at trial and was not involved in other ways in the case. Mr. Laird would testify as to the opinion he formed during his employment by the insureds as he worked to stabilize the building. Therefore, he was correctly designated as a non-retained expert.

    Therefore, the expert opinions put forth by the insureds satisfied the Daubert standard and were both relevant and reliable. 

Insurer Granted Summary Judgment on Denial of Construction Defect Claim

    The court granted the insurer's motion for summary judgment, confirming there was no duty to defend or indemnify a construction defect claim against the insured. Fontaine Bros. v. Acadia Ins. Co., 2019 U.S. Dist. LEXIS 148056 (D. Mass. Aug. 29, 2019). 

    The City of Worcester contracted with Fontaine Brothers, Inc. to install a new ice refrigeration system at the City's indoor ice rink. After construction, the condensers in two chiller units eroded and stopped operating. 

    The City sued Fontaine for the costs of leasing temporary chillers and installing new ones. The City alleged that Fontaine installed condensers with carbon steel tubes instead of contractually required stainless stell tubes.Further, Fontaine and its subcontractors did not adequately maintain the condensers, in breach of the contract.

    Fontaine's insurer, Acadia Insurance Company, denied coverage. Fontaine sued Acadia. The court noted that the City's complaint plainly alleged faulty workmanship by Fontaine. However, the City's complaint did not allege that Fontaine intended the condensers to corrode and left open the possibility that Fontaine was unaware of any potential problem or did not foresee the corrosion likely to result from the use of carbon steel components or the maintenance work being done by its subcontractor. Therefore, the Cit's complaint did not foreclose the possibility that the corrosion resulting from Fontaine's alleged faulty workmanship and maintenance might be shown to be an unforeseen or unintended consequence of reckless or negligent conduct. Accordingly, it was possible that there was an occurrence under the policy language. 

    But the court found that a  business risk exclusion applied to relieve Acadia of any duty to defend or indemnify. The Impaired Property Exclusion, subsection (m), excluded "property damage to impaired property or property that has not been physically injured, arising out of (1) A defect, deficiency, inadequacy or dangerous condition in 'your product' or 'your work'; or (2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms." The damage and resulting loss arose from Fontaine's work in the form of faulty parts or equipment and Fontaine's failure to perform an agreement in accordance with its terms. Further, the property was "restored to use" by the removal and repair of Fontaine's product and work. The faulty condensers were equipment furnished in connection with work or operations performed by Fontaine or on its behalf, and the condensers impaired the operations of the ice rink. 

    Because the complaint left open no question that the Impaired Property exclusion applied, Acadia had no duty to defend or indemnify. 

Damon Key Colleague Robert Thomas Honored

    My partner and blogging colleague [blog here] at Damon Key, Robert Thomas, received a well-deserved appointment this week. Robert will serve as a new member of the American Law Institute and will bring his expertise to ALI. ALI clarifies the law through Restatement, Principles, and Model Codes. Among his many talents, Robert is an expert in inverse condemnation and appellate work. Congratulations, Robert.

Certified Question Asks Texas Supreme Court About Use of Extrinsic Evidence In Determining Duty to Defend

    The Fifth Circuit certified a question to the Texas Supreme Court about the use of extrinsic evidence in determining the insurer's duty to defend. State Farm Lloyds v. Richards, et al, 2019 U.S. App. LEXIS 27221 (5th Cir. Sept. 9, 2019).

    The insureds' grandson was killed in an all-terrain vehicle accident while under their temporary care. The child's parents sued the insureds, alleging they were negligent in failing to supervise and instruct the child. The insureds sought a defense from State Farm under their homeowners' policy. State Farm defended under a reservation of rights, but sought a declaration there was no duty to defend or indemnify from the federal district court. 

    State Farm filed a motion for summary judgment, contending two exclusions barred coverage. The "motor-vehicle exclusion" exempted coverage for bodily injury arising from the use of an ATV while off the insureds' premises. In support of the summary judgment motion, State Farm attached a vehicle crash report showing that the accident occurred away from the insureds' premises, as well as the insureds' admissions that the accident occurred off an insured location. The "insured exclusion" barred coverage for bodily injury to an insured, which included relatives who were residents of the household or under 21 years of age. State Farm attached the insureds' admission that they were the child's grandparents, as well as an order appointing them as joint-managing conservators.

    The district court found the extrinsic evidence satisfied both exclusions, and granted summary judgment to State Farm. The district court ruled that the eight-corners rule did not apply if a policy did not include language requiring the insurer to defend "all actions against its insured no matter if the allegations of the suit were groundless, false, or fraudulent." 

    The Texas Supreme Court had hinted in prior cases that extrinsic evidence could be relied upon in narrow circumstances as an exception to the eight-corners rule. But the court had never adopted the rule. Therefore, the Fifth Circuit asked whether the policy-language exception to the eight-corners rule was a permissible exception under Texas law.

Court Denies Insurer's Motion to Dismiss Collapse Claim

    Facing yet another collapse claim based upon alleged poorly mixed cement, the Federal District Court in Connecticut denied the insurer's motion to dismiss. Oliveria v. Safeco Ins Co., 2019 U.S. Dist. LEXIS 147256 (D. Conn. Aug. 29, 2019).

    In 1993, the insureds' purchased their home that had been built in 1986. Safeco insured the property. In February 2017, the insureds noticed that the basement walls had a series of cracks. They consulted professionals and learned that the cracking was due to a chemical compound found in certain concrete walls constructed in the late 1980s with concrete most likely from the J. J. Mottes Concrete Company. 

     The insureds submitted a claim to Safeco  for the substantial impairment to the structural integrity of their basement walls. Safeco denied the claim. The insureds filed suit. Safeco moved to dismiss. 

    Safeco first argued that the claims were untimely because Safeco insured the property until 2012, and the insureds did not sue until 2018. A suit limitation provision in the policy required suit to be filed within one year of the loss. Federal District Courts in Connecticut had determined that the date on which the insured learned or should have learned of the covered loss triggered the limitation. Safeco's policy contemplated property damage coverage for "repeated or continuous exposure." More than one reasonable interpretation of this language was possible. Therefore, the policy could trigger coverage. Consequently, the insureds stated a plausible claim for relief that survived a motion to dismiss. 

    The claim for Safeco's breach of the contract was also more properly decided at the summary judgment stage. Safeco also sought dismissal for the Connecticut Unfair Insurance Practices Act and Connecticut Unfair Trade Practices Act claims. The insureds alleged that Safeco denied coverage of similar claims in cases with similar factual circumstances. Thus, they sufficiently alleged a general business practice of unfair settlement handling and sufficiently stated a plausible claim for relief that survived a motion to dismiss. 

HSBA Presentation for Insurance Coverage Section

    I was honored to be a panel member at the recent Hawaii State Bar Association convention for the Insurance Coverage Section. I spoke on coverage for flood, volcanoes, and climate change.

 

Pro Se Plaintiff's Motion to Dismiss Federal Claim against Carrier Without Prejudice Denied

    The Hawaii federal district court denied the pro se plaintiff's motion to dismiss his claim against the carrier without prejudice. Greenspon v. AIG Specialty Ins. Co., et al., 2019 U.S. Dist. LEXIS 144148 (D. Haw. Aug. 23, 2019). 

    Greenspon secured a default judgment against AIG's insured in state court in 2014. In November 2018, AIG removed the case to federal district court. Greenspon filed a motion to remand.  On February 25, 2019, the court denied Greenspon's motion for remand because Greenspon had not asserted a claim against the sole in-state party, a law firm, rendering the law firm's presence as a defendant improper and resulting in its exclusion when determining diversity. 

    Greenspon sought reconsideration of the denial of his motion for remand because AIG sought to intervene in the state case that was revived by the filing of a Special Proceeding in state court by AIG to set aside the default judgment. The 2014 Lawsuit and Special Proceeding were consolidated by the state court. The federal court denied Greenspon's motion for reconsideration. 

    AIG then moved for judgment on the pleadings. Greenspon did not oppose dismissal of AIG and the law firm but asked that dismissal of both defendants be without prejudice. The court grant dismissal of both defendants without prejudice and instructed Greenspon to file an amended complaint against either or both parties. Greenspon did not file an amended complaint. 

    Greenspon then filed the instant Motion to Withdraw and Dismiss Claims Without Prejudice. He argued that the pending state court proceedings were duplicative and related to the insurance coverage proceedings in the federal court and that AIG had voluntarily entwined itself in the state-court proceedings. Pending before the state court were Greenspon's motion for summary judgment and AIG's motion to dismiss Greenspon's counterclaim.

    The court found that Greenspon was entitled to dismiss this case and remove himself from federal jurisdiction in favor of pursuing the matter in state court. However, any dismissal had to be with prejudice. Because Greenspon had not pleaded his motion in the alternative, to seek dismissal with prejudice, the motion was denied. This motion represented Greenspon's third attempt to have the federal case heard in state court in contravention of the courts unambiguous determination that it was properly in federal court. Greenspon sought to game the judicial system by doing an end run around the court's previous decision to exercise jurisdiction over this matter. 

    If Greenspon wished to dismiss his claims with prejudice, he was instructed to notify the court and opposing counsel.