Insurance Law Hawaii

Complaint Against Life Insurance Agent Survives Motion to Dismiss

    The plaintiff's suit against her agent for allegedly misleading her regarding certain investment strategies for proceeds of a life insurance policy and fees survived the agent's motion to dismiss. Waldemar v. Golden, 2018 U.S. Dist. LEXIS 204801 (M.D. Fla. Dec. 4, 2018).

    The facts were based upon the allegations in the complaint. Golden, the agent, sold a life insurance policy to plaintiff's husband. After her husband's death, Golden contacted plaintiff and offer his services to handle the investment of the $426,000 life insurance proceeds. Golden gained control of the life insurance proceeds and the money in plaintiff's IRA account. Golden had plaintiff sign an agreement without explaining his $395 per hour fee plus disbursements for any time spent on the matter. 

    When Golden took control of the accounts, the contained $426,319, plus interest from the insurance proceeds and $79,266.34 from the IRA. Plaintiff instructed that the funds were not to be traded until further notice. Nevertheless, Golden started trading the funds and reduced the account by almost $200,000. Golden had charged here $50,000 in fees up to that point. 

    Plaintiff sued and Golden moved to dismiss. Golden argued, among other things, that plaintiff's allegations that she gave oral instructions while the agreement required written instructions. 

    Plaintiff's claims for fraudulent inducement and common law fraud was sufficient. The agreement said Golden would act according to plaintiff's instructions and investment objections which was false in light of what transactions followed. Plaintiff sufficiently stated a claim for breach of fiduciary duty and for negligence. 

    The breach of contract claim was also adequately pled. While Golden was correct in noting that generally oral modifications to written agreements were unenforceable if proscribed by the written agreement, there were exceptions to the rule where, for example, there was detrimental reliance. The agreement obligated Golden to act in plaintiff's best interests, in a matter consistent with her investment objectives and instructions, in good faith, and compliance with applicable laws and regulations. Golden breached these obligations and plaintiff suffered damages as a result. 

Insured Proves Collapse, but Fails to Establish Any Value for Loss

    While the insured was able to carry his burden to show the collapse of a roof, he failed to establish damages under the policy. Iannucci v. Allstate Ins. Co., 2018 U.S. Dist. LEXIS 203687 (N.D. N.Y. Dec. 3, 2018). 

    In 2005, the insured purchased a parcel of land together with a three-story building constructed in 1870. No one resided in the building at the time of purchase or afterward. The building was not well maintained and all utilities were shut off. No work was done on the building between 2005 and 2014. Between 2011 and 2014, the Fire Department issued multiple zoning/ordinance violation notices ordering the insured to make various improvements to the building and property. A notice issued in October 2013 stated that "the roof on your house needs to be replaced." Before any work was done on the roof, however, it collapsed during a snowstorm on February 21, 2014. 

    The insured's all-risk policy excluded loss caused by such things as enforcement of building codes, failure to preserve property, wear and tear, aging, and faulty, inadequate or defective maintenance. The policy covered collapse, however, for "(a) the entire collapse of a covered building structure; (b) the entire collapse of part of a covered building structure; and (c) direct physical loss to covered property caused by (a) or (b)." The collapse had to be "sudden and accidental" and caused by, among other things, weight of snow which collected on a roof.

    On March 5, 2013, the fire department issued a violation notice directing the insured to demolish the building because the roof had collapsed. The City's file indicated that the roof's collapse had been caused by the accumulation of snow. The insured notified Allstate. A claims adjuster visited the property and photographed extensive damage to the building. Allstate denied the claim based upon an expert's report that the cause of the roof collapse was the lack of adequate and timely maintenance. Allstate cited several additional exclusions, including enforcement of building codes, failure to preserve property, wear and tear, and inadequate maintenance in denying the claim. 

    The insured sued and a bench trial was conducted. The court found that the collapse of the roof was sudden, but the "entire collapse" of the building was not. The insured therefore failed to prove that the loss of the building structure was within coverage under the policy, even if the collapse of the roof was covered. 

    The policy stated it did "not cover loss to covered property . . . when :(a) there are two or more causes of loss to the covered property; and (b) the predominant cause(s) of loss is (are) excluded" from coverage. Here, the evidence did not show that any cause was predominant to the weight of snow in directly bringing about the collapse of the roof. Instead, the preponderance of the evidence indicated that the most direct and obvious cause of the collapse of the roof was the weight of the snow. Allstate failed to prove that any of the other causes, such as inadequate maintenance - considered separately or together - predominated over the weight of the snow as the efficient cause of the collapse. 

    Therefore, the insured carried his burden to prove coverage for collapse of the roof. Nevertheless, the insured failed to establish the value of his loss under the policy. The insured failed to provide any evidence regarding the value of the roof or from which to infer its value, e.g., the market value of the building before and after the collapse or the cost of replacing the roof with one of like kind or quality. Allstate, on the other hand, established that the roof was worthless. Accordingly, the insured was not entitled to damages for the loss of the roof. 

Damon Key Team Argues Bad Faith Case Before Hawaii Supreme Court

    Our Damon Key team argued a bad faith case before the Hawaii Supreme Court today, Adams v. Hawaii Medical Service Association, SCWC-15-0000396.

    Pictured below: Joanna Zigler, Rafael del Castillo, Tred Eyerly and Robert Thomas.

Labor Costs Not Excluded From Depreciation When Determining Actual Cash Value

    The court dismissed a class action suit against State Farm which sought to establish that a calculation of actual cash value (ACV) in a homeowners policy could not depreciate the cost of labor. Cranfield v. State Farm Fire & Cas. Co., 2018 U.S. Dist. LEXIS 199618 (N.D. Ohio Nov. 26, 2018)

    Cranfield submitted a claim to State Farm after his home was damaged by a storm. An adjuster inspected the damage and an estimate for repair was sent to Cranfield. The total cost to repair the damage, the replacement cost value, was $4,044.86. State Farm calculated the depreciation amount to be $1,348.57. With the deductible, State Farm sent a net ACV of $842.29 to Cranfield. 

    The policy had a two-step loss settlement provision under which State Farm paid the ACV at the time of loss. Only the ACV was paid until the actual repair was made. Once the repair was completed, State Farm would pay the additional amount that the policy holder actually spent. Cranfield filed a class action suit, challenging the manner which State Farm calculated ACV. He argued that including labor along with materials in the depreciation calculation resulted in an ACV payment that was less than he was contractually entitled. 

    The court disagreed. As used in the policy, ACV was not ambiguous. Black's defined "ACV" as "replacement costs minus normal depreciation" or fair market value. There was nothing in the policy to indicate that the intent of the parties was to limit the definition of ACV to exclude labor from depreciation. The policy did not separately insure the labor and building materials, but the sum total of these parts. Accordingly, the term ACV was unambiguous and State Farm's inclusion of labor in depreciation did not breach the policy. 

Non-compliance With Endorsement Means No Indemnity Coverage

    The insured's failure to verify that subcontractors had CGL policies and to provide a contract stating that the subcontractors would indemnify the insured as required by the policy's endorsement meant there was no coverage for the insured. Cincinnati Spec. Underwriters Ins. Co. v. Milionis Constr., Inc., 2018 U.S. Dist. LEXIS 199658 (E.D. Wash. Nov. 26, 2018). 

    The homeowners filed suit against Milionis, the general contractor for construction of a home. The underlying suit alleged that Milionis breached the parties' agreement by leaving the home unfinished. Cincinnati defended Milionis under a reservation of rights.

    Cincinnati filed for a declaratory judgment while the underlying action was still pending, seeking a declaration that it had no duty to defend or indemnify Milionis. Cincinnati's initial motion for summary judgment arguing that it had no duty to defend was rejected by the court. In a renewed motion after the underlying action was concluded, ?Cincinnati sought a determination that there was no duty to indemnify. 

    The policy issued by Cincinnati had an endorsement requiring Milionis to: (1) obtain a formal written contract with subcontractors verifying that they had valid CGL insurance; (2) obtain a formal written contract stating that the subcontractors agreed "to defend, indemnify and hold Milionis harmless from any and all liability;" and (3) verify in the contract that the subcontractors had named Milionis as an additional insured on their CGL policy. 

    On the construction project, Milionis had subcontractors perform all the work. Milionis never sent Cincinnati any subcontractor contracts or proof of Milionis's additional insured status as required by the endorsement. 

    The underlying facts established that there was an occurrence and property damage. But Milionis did not dispute that it did not meet the conditions precedent to coverage - obtaining subcontractor contracts and being named as an additional insured on the subcontractors' liability policies. This was prejudicial to Cincinnati. Milionis's noncompliance with the endorsement left it with no contractual indemnification claims that it would have asserted to compel the subcontractors to contribute to the Milionis's defense or settlement. Moreover, it deprived Milionis of the ability to have direct contractual rights to a defense and coverage from the subcontractors' insurers. Consequently, Cincinnati was left with no other insurers and parties to share in the costs of defending and indemnifying Milionis. 

    Cincinnati was therefore relieved of its duty to indemnify under the policy. 

Insured's Striking Multiple Vehicles Constitutes One Occurrence under Texas Law

    Reversing the district court, the Fifth Circuit found one occurrence after the insured's truck struck multiple vehicles. Evanston Ins. Co. v. Mid-Contenint Cas. Co., 2018 U.S. App. LEXIS 32722 (5th Cir. Nov. 19, 2018).

    An employee of Global Waste Services, LLC, Marlon Diggs, lost control of his Mack truck. At 11:04 a.m., the Mack truck hit a Dodge Ram. Three minutes later, the Mack truck struck a Ford F150. Two minutes after that, the Mack truck approached a toll plaza and caused the series of collisions which were at issue. 

    At 11:09 a.m., the Mack Truck struck a Honda Accord that was waiting in line at the toll plaza. The Mack truck pushed the Accord forward for more than 100 feet into the crash barrels separating two toll lanes, where the Accord came to rest. One passenger in the Accord was seriously injured. The Mack truck continued to travel through the automatic toll lane for 66 feet before striking a Dodge Charger. The Mack truck then struck a tollbooth, causing significant damage. The Mack truck continued pushing the Charger until it crashed into a retaining wall, pinning the Charger between the Mack truck and the wall. The driver of the Charger and Diggs both died. 

    Wrongful death cases were filed in state court against Global. The County made demands for the cleanup and repair of the toll plaza. All claims ultimately settled with contributions from Global's insurers. Mid-Continent insured Global under a commercial auto insurance policy with limits of $1 million per accident. Global had an excess liability policy from Evanston with a $5 million per-accident liability limit. Evanston paid over $5.6 million on various claims. Mid-Continent paid $1 million on one claim. 

    Evanston filed suit seeking reimbursement from Mid-Continent for a portion of the payments Evanston made on behalf of Global. Evanston also sought to recover the entirety of its defense costs. Evanston argued that Mid-Continent incorrectly construed all the collisions occurring after the Mack truck's impact with the Accord to be a single accident. Evanston argued that each separate impact between the Mack truck and another vehicle or object constituted a separate accident subject to separate liability limits. 

    The district court found that two accidents occurred. The collisions between the Mack truck and the Accord and between the Mack truck and the Dodge Charger were separate accidents because they occurred independently, and the former did not lead to the occurrence of the latter. The district court ordered that Mid-Continent, who only paid one million, should have paid $2,045,000 under the various settlements.  Therefore, Mid-Continent was ordered to pay Evanston $1,045,000 plus the costs of defense. 

    On appeal, the issue was whether the Mack truck's collisions near the toll plaza constituted one accident or multiple accidents under the language of Mid-Continent's policy. The policy defined "accident" to include "continuous or repeated exposure to the same conditions resulting in 'bodily injury' or 'property damage.'" Under the "Limit of Insurance" provision, the policy stated that "regardless of the number of covered autos, insureds, premiums paid, claims made or vehicles involved in the accident, the most Mid-Continent would pay for the total of all damages resulting from any one accident was the policy limit of one million dollars. 

    Under Texas law, the court applied the "cause" approach in interpreting the policy. In interpreting the meaning of an "occurrence, Texas courts focused on the events that caused the injuries and gave rise to the insured's liability, rather than on the number of injurious effects. Other jurisdictions adopted an "effects" approach in which each separate claim arising from the insured' negligence was considered a separate occurrence. 

    Under the cause test, the appropriate inquiry was whether there was one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damage. If so, then there was a single occurrence. If the chain of the proximate causation was broken by a pause in the negligent conduct or by some intervening cause, then there were multiple occurrences, even if the insured's negligent conduct which caused each of the injuries was the same kind of negligent conduct. 

    Here, the chain of causation remained unbroken. the ongoing negligence of the runaway Mack truck was the single "proximate, uninterrupted, and continuing cause" of all the collisions. The language of the policy provided that all injuries - no matter the number of vehicles involved or the number of claims made - arising from continuous or repeated exposure to substantially the same conditions were considered a single accident. The broad language of the policy had to be given effect. There was one accident under the policy.

    Therefore, the district court was reversed and judgment was rendered in favor of Mid-Continent. 

Deterioration Known To Insured Forecloses Collapse Coverage

   The insurer properly denied coverage for collapse of a building when the insured knew from an expert’s examination that the walls of his house were deteriorating. Jaimes v. Liberty Ins. Corp., 2018 U. S. Dust. LEXIS 198224 (D. Colo. Nov. 21, 2018). 

   The insured discovered a crack in the wall of his home. He hired Anchor Engineering to inspect. Anchor found a large bulge in the south wall. Several problems with deterioration were noted in the basement. The structure of the house was unstable and dangerous.

   The insured filed a claim with his homeowners insurer, Liberty. The claim was  denied because damage to the wall was the result of deterioration. 

   The south wall of the house later collapsed. The insured submitted a second claim. Liberty again denied the claim because the collapse was the result of deterioration of the wall. The insured sued.

   The policy covered collapse of any part of a building caused by hidden decay. Liberty argued there was no coverage for the first claim because no wall had collapsed. The insured argued the cracking wall was subsumed into his second claim and should be covered as hidden decay. For purposes of this decision, the court agreed the first claim was subsumed into the second claim. 

   Nevertheless, there was no coverage. There were several statements in the Anchor letter that would put a reasonable person on notice that there was decay in the house. For example, the letter stated that in the basement, a number of floor joist ends had deteriorated. Further, mortar deterioration was severe. 

   The parties agreed that the terms deterioration and decay were interchangeable. Accordingly, there was no genuine dispute about the fact that Anchor communicated with the insured that there was decay around the wood bearing plate in the foundation wall and in floor joists. The insured should have understood the decay that Anchor observed was related to his explanation of the south wall - the wall that eventually collapsed. Therefore, the insured reasonably should have known of the decay before the collapse occurred. 

   Therefore, the collapse was not caused by hidden decay and there was no coverage under the policy. 

Eighth Circuit Affirms Judgment for Bad Faith after Insured's Home Destroyed by Fire

    The Eighth Circuit affirmed the district court's judgment that the insurer acted in bad faith when it denied the insured's claim based upon misrepresentations in the application after destruction of his house by fire. Hayes v. Metropolitan Pro. and Cas. Ins. Co., 2018 U.S. App. LEXIS 31813 (8th Cir. Nov. 9, 2018).

    Hayes' home was insured by Met under a homeowner's policy. Hayes used the detached garage as part of a home base for his plumbing business. He also rented out the second and third levels of the residence to a tenant and her two children. When Hayes applied for the policy in 2007, Met argues he indicated on the application that the premises were not used to conduct business, and were not used as rental property. 

    The application, however, was a confusing document. Hayes testified that he did not recall personally completing the application in 2007, that he worked with an independent insurance agent when it was filled out, and it was signed with his signature stamp used by his sister. With regard to the tenants, the form asked whether "the residence was held exclusively for rental?" The pre-printed "x" was marked out next to the letter "N" in answer to the question. Regarding the business, the form asked whether "any farming or other business was conducted on the premises?" Again, a box indicating "no" was marked with a preprinted x. Hayes testified that while he did maintain some plumbing supplies at the property, very little of the plumbing equipment was located in the detached garage due to limited space. Further, he had a separate commercial business policy to cover the plumbing business in the detached garage. 

    On January 24, 2013, the home was destroyed by a fire. Hayes filed a claim with Met. Met made a notation as of January 28, 2013 that it believed the fire was intentionally set. By January 29, 2013, Met knew that Hayes was operating part of his business at the detached garage near the premises, and that he leased the upper portion of the premises to tenants. 

    Yet, Met did not deny the claim until August 5, 2014. It cancelled the policy ab initio based upon material misrepresentations, and enclosed a check for all premiums Hayes had paid, with interest. Hayes returned the premium check. Met also sent a check to Hayes' bank for $127,342.97 to satisfy the balance due on Hayes's mortgage.  

    Hayes sued Met in October 2014 for breach of contract and bad faith denial/investigation. The district court dismissed the breach of contract claim as time-barred. The court, however, entered judgment in favor of Hayes on the bad faith claim. The court found that the insurance application was completed by the independent insurance agent and signature stamped by Hayes's sister. Further, the application contained ambiguous questions. Accordingly, there was a lack of evidence that Hayes knowingly provided false answers on the application with the intent to deceive. Damages in the amount of $439,455, and attorneys' fees of $86,160 were awarded to Hayes. 

    The Eighth Circuit affirmed. Met could not insulate itself from a bad faith claim by creating the fiction that a contrct never existed by voiding or rescinding it "ab initio." Hayes met his burden of proving the elements of bad faith under Nebraska law - Met had no reasonable basis for denying the claim and did so with knowledge or with reckless disregard of that fact. 

    The damage award was affirmed. The district court properly calculated the economic damages Hayes suffered as a result of Met's bad faith refusal to pay pursuant to the provisions of the improperly rescinded contract. Finally, the attorneys' fees award was also affirmed. 

Certified Question Asks Washington Supreme Court Whether Insurer is Bound by Contradictory Certificate of Insurance

    The Ninth Circuit certified a question to the Washington  Supreme Court as follows:

Under Washington law, is an insurer bound by representations made by its authorized agent in a certificate of insurance with respect to a party's status as an additional insured under a policy issued by the insurer, when the certificate includes language disclaiming its authority and ability to expand coverage?

T-Mobile USA Inc. v. Selective Ins. Co lf Am., 2018 U.S. App. LEXIS 31863 (9th Cir. Nov. 9, 2018). 

    In 2010, T-Mobile entered into a Field Services Agreement (FSA) with Innovative Engineering, Inc. under which Innovative would provide services in connection with the construction of rooftop cellular antennae towers in New York City. The FSA required Innovative to maintain general liability insurance naming T-Mobile as an additional insured, and required that Innovative provide T-Mobile with certificates of insurance documenting the coverage. Innovative obtained coverage from Selective Insurance Company of America. 

    The policy contained an Additional Insured (AI) Endorsement that extended "additional insured" status to any entity with whom Innovative entered into a written contract requiring Innovative to add that entity as an additional insured. In 2012, Selective's authorized agent and insurance broker, the Van Dyke Group, Inc. (VDG) issued a Certificate of Insurance (COI) to T-Mobile. The COI stated that T-Mobile, as the certificate holder, "is included as an additional insured" under the Policy. But it also stated that the COI "is issued as a matter of information only and confers no rights upon the certificate holder," "does not affirmatively or negatively amend, extend or alter the coverage afforded by" the Policy, and "does not constitute a contract between the issuing insurer 's authorized representative or producer and the certificate holder." The COI further warned that "if the certificate holder is an Additional Insured, the policy must be endorsed." This was apparently never done.

    In 2009, the owner of the building on which the cell towers were placed informed T-Mobile and Innovative of alleged property damage that resulted from Innovative's earlier work on the rooftop. Innovative and T-Mobile tendered claims to Selective. In April 2013, the building owner sued T-Mobile and Innovative. 

    Selective agreed to defend Innovative, but denied the tender from T-Mobile because T-Mobile did not appear in the Selective policy named as an insured and did not qualify as an additional insured.

    T-Mobile filed suit and sought partial summary judgment, arguing that the 2012 COI issued by Selective's authorized agent stated that T-Mobile was an additional insured. The district court denied T-Mobile's motion and granted Selective's cross-motion for summary judgment.

    On appeal, the Ninth Circuit noted there were two competing principles under Washington insurance law presented by the case. First, under Washington law, an insurer was bound by all acts of its agent which were within the scope of the agent's real or apparent authority. Second, under Washington law, the purpose of issuing a COI was to inform the recipient that insurance had been obtained. 

    Washington law was therefore conflicted on whether Selective was bound by VDG's representation in the 2012 COI that T-Mobile was an additional insured under the Policy. The Ninth Circuit concluded hat the proper course of action was to certify the issue to the Washington Supreme Court. 

    

Forest Fire Constitutes One Occurrence

    The Wisconsin Supreme Court determined that a fire damaging several properties arose from one occurrence. Secura Ins. v. Lyme St. Croix Forest Company, LLC., 2018 Wis. LEXIS 579 Oct. 30, 2018). 

    A fire broke out on forest land owned by Lyme St. Croix Forest Company. Known as the "Germann Road Fire," it burned 7, 442 acres over three days. Real and personal property belonging to many individuals and businesses were damaged. The fire allegedly began while equipment owned by Ray Duerr Logging, LLC was being repaired. Flames quickly spread from dry grass to a pile of recently felled trees and spread to the surrounding forest. 

    Secura insured Duerr under a CGL policy. The policy had a $2 million general aggregate policy limit and a $1 million per-occurrence limit. The policy also had a "Logging and Lumbering Operations Endorsement" with a $500,000 per-occurrence limit for property damage due to fire. 

    Secura filed suit for a declaratory judgment to determine its coverage obligations. Secura argued in its motion for partial summary judgment that the Germann Road Fire was a single occurrence. Therefore, the $500,000 policy limit from the endorsement applied rather than the $2 million aggregate limit. The circuit court rejected Secura's argument, finding that "each 'seepage' of fire onto another's property constituted a separate occurrence for purposes of the policy." The court of appeals affirmed, finding there was an occurrence each time the fire spead to a new piece of property and caused damage.

    On appeal, the Supreme Court noted that Wisconsin followed the "cause theory" in determining whether there was a single occurrence or multiple occurrences. Under the cause theory, where a single, uninterrupted cause resulted in all of the injuries and damage, there was one occurrence. Some jurisdictions followed the effect theory where each accident must be construed from the point of the view of the person whose property was damaged. Pursuant to the effect theory, there would be an occurrence when the separate property of each claimant was damaged. 

    The Supreme Court disagreed with the analysis of the court of appeals. If there was an occurrence each time a fire refueled and expanded, then a fire, which is constantly refueling and expanding, would result in an unfathomably large number of occurrences regardless of how many property lines it crossed. Therefore, the court concluded the Germann Road Fire constituted a single occurrence and the $500,000 per-occurrence limit applied to the property damage.