Insurance Law Hawaii

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

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

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

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

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

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

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

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

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

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

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

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

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

Court Rejects Remand and Argument that Insurance Agent Fraudulently Joined

    The federal district court refused to remand the case for lack of subject matter jurisdiction despite the insurer's argument that plaintiffs fraudulently joined their insurance agent as a defendant. Goostree v. Liberty Nat'l Life Ins. Co., 2019 LEXIS U.S. Dis. LEXIS 100604 (N.D. Ala. June 17, 2019).

    Plaintiffs filed a putative class action consisting of people in Alabama who purchased or owned life insurance policies through Liberty National for which their premiums paid exceeded their death benefits payable. Liberty National's agent, Robert D. Brice, was also a defendant. Bice had been the insurance agent for Mr. and Mrs. Padgett since 1985. According to the complaint, Bice knew the Padgetts were in their 80's and that Mr. Bic was retired and receiving social security. Nevertheless, Bice recommend that the Padgetts buy multiple insurance policies, for which the premiums collectively exceeded $14,000 per year. Bice continuously represented to the Padgetts that such additional insurance was beneficial to them despite his knowing that each successive policy would cost more in premiums than the death benefit payable under the policy. 

    Liberty National removed the case to federal court, alleging that the court had diversity of citizenship jurisdiction and that the court should disregard the citizenship of Mr. Bice because plaintiffs fraudulently joined him as a defendant. Liberty National also alleged the court had jurisdiction under the Class Action Fairness Act. Liberty National and Bice each filed a motion to dismiss. 

    The case considered subject matter jurisdiction. Bice was not a party to any of the insurance contracts. Bic did not sign the contract on behalf of Liberty National. The only parties were the Padgetts and Liberty National. The Padgetts did not allege that Bice acted in any capacity other than that of Liberty National's agent. 

    Holding an insurance agent liable for breach of contract for failing to procure insurance differed from holding an insurance agent liable for the alleged excessive premiums charged by the insurer. The Padgetts did not argue that Bic failed to procure an insurance policy. Instead, they alleged that Bice procured policies unsuitable for the Padgetts' needs. Because Alabama law prevented any agent from being held liable for his principal's alleged breach of contract, the Padgetts had no possibility of asserting a valid breach of contract cause of action against Bice.

    The Padgetts also alleged that Bice breached the covenant of good faith and fair dealing. Because the court was considering whether the Padgetts fraudulently joined Bice and not whether the Padgetts failed to state a claim against Bice under F.R.C.P. 12 (b) (6), the court only had to determine whether a possibility existed that the Padgetts stated a claim against Bice. The court could not say with certainty that no Alabama state court would find that a special relationship existed between Bice and the Padgetts. Because the possibility of a claim against Bice for breach of the duty of fair dealing existed due to an alleged special relationship with Bice, the court determined that the Padgetts did not fraudulently join Bice. 

    Therefore, the court did not have diversity jurisdiction. The court would provide the parties an opportunity to brief whether it had subject matter jurisdiction under the Class Action Fairness Act.

Insurer's Motion for Judgment on the Pleadings Over Construction Defect Claims Denied

    The insurer was unable to escape coverage obligation over claims for construction defects when its motion for judgment on the pleadings was denied. Jei Solutions v. Burlington Ins. Co., 2019 U.S. Dist. LEXIS 95068 (E.D. La. June 4, 2019). 

    JEI was hired as a contractor to renovate a building. JEI subcontracted the entire scope of work to Ja'Lia Construction, LLC. Before the project was completed, the owner unilaterally terminated the contract and filed an arbitration demand against JEI, seeking damages for faulty workmanship. Burlington denied coverage and a defense on the ground that an alleged breach of contract did not constitute an "occurrence." 

    Ultimately, an adverse judgment was rendered against JEI for $89,239.25. JEI then sought to recover this amount from Burlington. Burlington moved for judgment on the pleadings or summary judgment. 

    The court found that JEI's failure to perform the work called for in the contract did not constitute "property damage" caused by an "occurrence," and Burlington correctly noted that defects in construction, alone, did not trigger coverage under a CGL policy. However, coverage was triggered when the defect caused physical injury to tangible property. Here, the arbitrator awarded damages against JEI for inadequate and incomplete work. The list of damage in the arbitration included damage resulting from poor workmanship, such as:

• inside/outside wall showed signs of water damage from roof leak
• Places where outside could be seen form inside
• stud integrity weakened by excess cutouts. 

    Nevertheless, Burlington argued that coverage was barred by exclusions j (5) and (6), which excluded:

"Property damage" to:

(5) that particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the "property damage" arises out of those operations; or

(6) that particular part of any property that must be restored, repaired, or replaced because "your work" was incorrectly performed on it. 

Paragraph (6) of this exclusion does not apply to "property damage" included in the "products-completed operations hazard."

. . . 

16. Products-completed operations hazard

a. Includes all "bodily injury" and "property damage" occurring away from premises you own or rent and arising out "your product" or "your work" except:

(1) Products that are still in your physical possession; or

(2) Work that has not yet been completed or abandoned . . .

    The "work product" exclusions reflected the insurer's intent to avoid the possibility that coverage under a CGL policy would be used to repair and replace the insured's defective products and faulty workmanship. Importantly, exclusions j (5) and j (6) applied only while the insured's work was in progress. When the work was complete, the products complete operations hazard provision provided coverage for property damage arising out of faulty work. 

    If the damage considered in the arbitration occurred while JEI's work was ongoing, exclusions J (5) and j (6) barred coverage. But if the damage occurred after the owner terminated the contract, they would not. There was a genuine question of fact as to when the covered property damage occurred and, therefore, whether coverage was barred by j (5) and j (6). Accordingly, the motion was denied. 

 

Care, Custody and Control Exclusion Does Not Bar Coverage For Alleged Construction Defects

    Reversing the lower court, the California Court of Appeal found that the care, custody and control exclusion was not applicable to bar coverage for the general contractor as the additional insured under the subcontractor's policy. McMillin Homes Constr. v. Nat'l Fire & Marine Ins. Co., 2019 Cal. App. LEXIS 514 (Cal. Ct. App. June 5, 2019).

    McMillian was the developer and general contractor on the housing project. It hired Martin Roofing Company, Inc. to do the roofing job for the project. Martin secured a general liability policy from National Fire that named McMillian as an additional insured. By endorsement, the policy excluded coverage for damage to property in McMillin's "care, custody, or control" (CCC exclusion).

    In 2014, homeowners sued McMillin for construction defects. The complaint alleged water intrusion and damage caused by roofing defects. McMillin tendered its defense to National Fire. Coverage was refused. Suit was filed and the trial court entered judgment in favor of National Fire. 

    The Court of Appeal reversed. The policy provided coverage to McMillin as an "additional insured" with respect to liability arising out of:

A. Martin's ongoing operations performed for McMillin and

B. Acts or omissions of McMillin in connection with its general supervision of such operations.

    National Fire argued that the CCC exclusion in the additional insured endorsement barred coverage. The endorsement did not cover:

Property damage to Property in the care, custody, or control of the additional insured(s) or over which the additional insured(s) are for any purpose exercising physical control.

Because McMillin was the general contractor on the project, any damage alleged while the homes were being built would have been to property in McMillin's care, custody, or control. McMillin contended that the CCC exception applied only where the insured had exclusive or complete control over the damaged property. 

    The CCC exclusion had been judicially construed to require exclusive or complete control.  Therefore, the provision was not ambiguous. Here, Martin agreed to furnish all labor, materials, and equipment needed to do the roof job. It was primarily and directly responsible for the activities and conduct of its employees. All materials, equipment and tools remained Martins property until they were integrated into the structure and approved by McMillin. Martin and McMillin shared control over Martins roofing work. Accordingly, National Fire did not prove the CCC exclusion rendered coverage for the claims was an impossibility. 

    Therefore, National Fire owed a defense and the judgment was reversed. 

Alabama Supreme Court Reverses Determination of Coverage for Faulty Workmanship

    Although the lower court held that the insured contractor was entitled to coverage and indemnification under a CGL policy despite claims based upon faulty workmanship, the Alabama Supreme Court reversed. Nationwide Mut. Fire Ins. Co. v. David Group, Inc., 2019 Ala. LEXIS 52 (Ala. May 24, 2019).

    The David Group (TDG) specialized in custom-built homes. The Shahs purchased a newly built home from TDG in October 2006. After moving in, the Shahs experienced problems with their new home that TDG was unable to correct. In February 2008, the Shahs sued TDG. The complaint alleged that serious defects existed, resulting in health and safety issues, building code violations, poor workmanship, misuse of construction materials, and disregard of property installation methods. The case went to arbitration and an award of $12,725 was issued to the Shahs.

    Nationwide was TDG's CGL carrier and initially defended TDG. After Nationwide withdrew its defense, TDG sued seeking a judgment declaring that Nationwide was obligated to defend and indemnify. The trial court denied Nationwide's motion for summary judgment and issued a partial summary judgment in favor of TDG on the issue of coverage. Nationwide appealed. 

    Nationwide argued that the "defects" alleged by the Shahs and identified by the arbitrator were the result of faulty work performed by TDG. The defects were not "occurrences" under the policy. The court had repeatedly held that faulty workmanship itself was not an occurrence under a CGL policy. Faulty work could lead to an occurrence and trigger coverage under a CGL policy if the work subjected personal property or other parts of the damaged structure to continuous or repeated exposure to some other general harmful condition, and, as a result, personal property or other parts of the structure were damaged. The complaint alleged faulty workmanship, but did not allege additional or resulting damage to their house or to their personal property as a result of the faulty workmanship. 

    Under these circumstances, there was nothing demonstrating that there was property damage or personal injury resulting from an occurrence that triggered coverage under a CGL policy. The trial court's judgment was reversed.

Endorsement Excludes Replacement of Undamaged Property with Matching Materials

    The court approved the insurer's endorsement which stated the insured would not pay for undamaged property in order to match damaged property. Noonan v. Am. Family Mut. Ins. Co., 2019 U.S. App. LEXIS 15545 (May 24, 2019).

    After hail and wind damaged part of the roof in the insureds' home, American Family inspected the roof and determined that it had suffered $12,000 in damage. The insureds disputed this amount and demanded an appraisal to provide a binding estimate of the amount of loss. American Family asked the appraisers to divide their estimate into two categories - one for replacing damaged shingles and another for replacing undamaged shingles that would not match those needed to replace the damaged ones. The appraisers did not do so. They instead found that replacing the entire roof would cost $141,000 and noted there was a matching issue because alternative products did not match the current shingles on the roof.

    Of the $141,000 needed to replace the entire roof, American Family estimated that $87,232.98 was due to the costs of matching. The insureds sued. The district court remanded the case to the appraisers to clarify the award by differentiating the costs attributable to the actual roof damage from those attributable to shingle matching. The appraisers clarified the award and reported that actual damages were $66,619, meaning that $74,381 was attributable to matching. American Family then paid the actual damages, less the deductible, but refused to pay the rest. 

    An endorsement stated that American Family would "not pay to repair or replace undamaged property due to mismatch between undamaged material and new materials used to repair or replace damaged material." The district court denied American Family's motion for summary judgment. The court found that the endorsement did not apply to the policy because the endorsement did not say it applied to a prior endorsement which deleted and replaced the portion of the policy titled "Loss Value Determination." 

    The Eighth Circuit reversed and found that the matching exclusion did apply. The first page of the policy explicitly said that the endorsement applied and a copy of the endorsement was physically attached to the policy. 

    

Hurricane Insurers Must Submit Data Call Worksheet to Hawaii Insurance Commissioner

    The Hawaii Insurance Commissioner has issued Memorandum 2019 3R, requiring insurers writing residential hurricane coverage at any time in the last 15 years to submit a data call worksheet, or completed survey, to the Insurance Division. The Commissioner explains the information is requested to capture Hawaii-specific information on residential hurricane coverage through a separate data call. The worksheet should be submitted to the Insurance Division by August 30, 2019. 

    Pursuant to Haw. Rev. Stat. 431:2D-114, any information submitted shall be treated as confidential and privileged, It shall not be subject to subpoena and shall not be subject to discovery or admissible in evidence in any private civil action. 

Motion to Strike Insurer's Expert Opinion Granted

    The court granted the insured's motion to strike the testimony of the insurer's expert because the opinion lacked sufficient explanation or analysis. Affinity Mut. Ins. v. Thacker Air Conditioning Refrigeration Heating, 2019 U.S. Dist. LEXIS 84713 (N.D. Ind. May 20, 2019). 

    The insured owned a market that needed renovations. The roof over an addition to the market extended from the wall of the extension to the top of the existing roof. The area between the old and new roofs was filled with blown-in insulation, so that the structural support from the new overbuilt roof was not visible. The weight of the overbuilt roof rested on top of the existing roof at the point where they met. This added additional weight on the trusses supporting the main roof. 

    In 2014, the market upgraded the building with heating and insulation. Thacker was a subcontractor for work on the hearing system. Six gas furnaces, spaced about 35 feet apart along the length of the building, were placed by Thacker. The total weight of each unit was estimated at 280 pounds. 

    In February 2015, a snowstorm resulted in 14 to 15 inches of heavy, wet snow accumulating on the roof. Employees of the market got on the roof to shovel off the snow. A truss broke and a large portion of the roof collapsed.

    The market sought coverage from Affinity. Affinity then sued Thacker, asserting claims for negligence and breach of warranty, arguing that Thacker was at fault for the collapse. 

    Affinity retained Daniel Honig, a structural engineer, who issued a report that the roof collapsed because of Thacker's placement of the heating units. Thacker moved to strike Honig's opinion.

    The court could not discern any logical explanation or methodology in Honig's report for how he reached his opinion that the heating units caused the collapse. Honig noted that the roof should not have collapsed because the building code required roofs to sustain about twice the amount of weight as the snowstorm here would have added. He did not tie that into his opinion that the heating units caused the collapse. He did not opine that the building complied with the code prior to the installation of the heating units, such that fault for the collapse could be attributed to those units. Instead, he opined that "there was significant structural loading capacity deficiencies within this preexisting roof framing system." An admission that the structure was defective even before the heating units were installed would seem to call for an analysis of that structure's capacity and whether it would have been able to withstand the snow even without the addition of the heating units. 

    The lack of analysis and explanation was fatal to Honig's opinion. The motion to strike was granted. 

Punitive Damage Award for Bad Faith Upheld

    Punitive damages that were reduced by the trial court to $1 million fro $4 million were affirmed by the appellate court. Mazik v. Geico Gen. Ins. Co., 2019 Cal. App LEXIS 454 (Cal. Ct. App. May 17, 2019). 

    Mazik was injured in a serious auto accident. He was diagnosed with a "grossly comminuted fracture of the left calcaneus," i.e., heel bone. Mazik's expert at trial described the injury to the heel as "devastating." Surgery was not an option because the bone had burst into to many pieces. The expert testified that Mazik would have a lifetime of chronic pain and issues related to his heel injury. 

    Mazik received $50,000 from Mercury Insurance Company, the insurer for the driver of the other car involved in the accident. Mazik submitted a claim to Geico, his insurer for underinsured motorist coverage, in the amount of the policy limits $50,000 after the offset from the $50,000 he had already received. 

    Geico initially offered $1000, then $13,800, then $18,000, then $18,887. An IME requested by Geico found that Mazik's injury did not restrict his occupation as a teacher and that no further medical care was indicated. His prognosis was "good." 

    An arbitration took place, and the arbitrator issued an award of the full policy limits. Geico finally paid Mazik $50,000.

    Mazik filed his bad faith action and the jury returned a verdict in Mazik's favor. Compensatory damages of $313,508 and punitive damages of $4 million were awarded. The trial court reduced the punitive damage award to $1 million.

    California law allowed punitive damages against the insurer when an "officer, director, or managing agent" was involved in any act of bad faith and acted with "oppression, fraud, or malice." A regional liability administrator from Geico, Lon Grothen, had initially rejected Mazik's $50,000 claim and offered $1,000. Grothen testified that his job was to establish settlement standards within his region. The court found there was sufficient evidence for the jury to conclude that Grothen engaged in oppressive conduct by ignoring information concerning the extent of Mazik's injuries for the purpose of saving Geico money. He approved unreasonably low offers to Mazik that ignored medical records showing the serious and permanent nature of the injuries. The jury could have reasonably found that Grothen ratified such egregious conduct in approving settlement offers that ignored Mazik's serious injuries.

    Therefore, the punitive damages award was affirmed.