Insurance Law Hawaii

Hawaii Federal District Court Denies Title Insurer's Motion for Summary Judgment

    In a rare title insurance dispute before the federal district court in Hawaii, the court denied the insurer's motion for summary judgment while granting the insured's motion for summary judgment. First  Am. Title Ins. Co. v. GS Industries, LLC, 2021 U.S. Dist. LEXIS 240601 (D. Haw. Dec. 16, 2021).

    GS Industries, LLC took ownership of a parcel of real property located fronting Waipa Lane in Honolulu. The property used four buildings and a parking area for 50 cars. GS obtained a title insurance policy from First American. The policy insured GS' fee simple interest in the property in the amount of $3,500,000. The policy insured GS "against loss or damage, not exceeding $3,500,000, sustained or incurred by GS by reason of . . . not right of access to and from the land,." The policy did not identify any issues with access to the property and did not define "access." 

    A portion of Waipa Lane was owned by the City and County of Honolulu. Parcel 86 and Parcel 91 on Waipa Lane were privately owned. (Private Waipa Lane Parcels). Vehicular access to (ingress) and from (egress) the property was via Waipa Lane. Ingress was made via the publicly owned portion of Waipa Lane. Vehicular egress was made via the Private Waipa Lane Parcels. The City of Honolulu maintained the Private Waipa Lane Parcels and considered them to be pubic. None of the owners of Parcels 86 or 91 notified GS of their intent to block the use of Waipa Lane. 

    GS leased the property to Cedar Assembly of God Church. The Church applied for affordable housing exemptions from the Department of Planning and Permitting (DPP). DPP issued a Notice of Incomplete Application. The Notice stated that a portion of Waipa Lane was privately-owned and the Church had not shown any legal right to use the same. 

    GS tendered a claim to First American, contending that coverage was implicated under the title insurance policy because the Church lacked a right of access from the property. The lack of road access prevented GS from obtaining permits needed to develop the property. The claim requested that First American reimburse GS for the purchase price of an interest of one of the Private Waipa Lane Parcels, which would cost approximately $10,000. 

    First American denied the claim because (1) the policy did not insure vehicular access to and from the property and (2) two exclusions applied. The first exclusion barred coverage for governmental regulations restricting the occupancy, use or enjoyment of land. The second exclusion applied to "any governmental policy power" or "defects, liens, encumbrances, adverse claims, or other matters resulting in no loss or damage to GS."

    First American filed suit seeking a declaratory judgment that: (1) the policy did not cover any loss due to the lack of vehicular access from the property; and (2) any loss was subject to the two exclusions. The parties filed motions for summary judgment. 

    The primary dispute was over the term "access." The policy insured against "No right of access to and from the Land." There was no disputed that GS' vehicular access from the property was compromised because it was dependent on the owners of the Private Waipa Lane Parcels. 

    The court found that the plain and ordinary meaning of access included vehicular access. The policy could not be limited to insuring pedestrian access, as First American argued, because insuring pedestrian access in Honolulu's urban sprawl would be virtually meaningless. It was difficult to conceive of how property would not have pedestrian access and where insurance would therefore be of any value. If insuring "access" was to have any meaning, it must have been meant to insure access beyond that of the pedestrian variety. Therefore, "access" was ambiguous and construed in favor of GS. 

    First American contended that even if lack of vehicular access was insured under the policy, GS did not sustain any loss or damage. GS' access to the Private Waipa Lane Parcels had never been restricted and any suggestion that access might be restricted in the future was speculative. GS, however, contended that it had suffered loss because the property's value was significantly diminished by its lack of legal access. The court agreed.

    Finally, the court determined the exclusions did not apply. First American argued that GS suffered no loss under the Notice. The Notice, however, was not the basis for GS' alleged loss. Instead, it was the alleged diminution in value of the property. Therefore, the governmental regulation and policy power exclusions were not implicated.

    Accordingly, First American's motion for summary judgment was denied, GS' motion was granted to the extent set forth in the opinion.

Summary Judgment Granted to Insurer for Hurricane Damage

    The insurer's motion for summary judgment, contending there was no coverage for hurricane damage, was granted. Laurence v. Liberty Ins. Corp., 2021 U.S. Dist. LEXIS 227807 (S.D. Texas Nov. 29, 2021). 

    When Hurricane Harvey hit, Mike Laurence held a homeowner's policy from Liberty Insurance Corporation and a contractor policy for his business, Pride Plumbing, Inc., issued by State Farm Lloyds. Laurence's property suffered water damage during the storm. State Farm investigated and concluded that all but a small amount, within the policy's deductible, was from flood damage and excluded. Laurence sued.

    The property covered by the State Farm policy included Laurence's home, Pride Plumbing's office and two sheds. Pride Pluming did not own or lease any of the buildings on the property. Laurence testified in his deposition that the only damage to his property not caused by flood water was to three buildings from fallen tree limbs and equipment from his business. 

    State Farm argued it was entitled to summary judgment because the policy did not cover damage to buildings, but only business personal property. The evidence showed no damage over $1,000 from wind-driven water. A State Farm inspector found no damage consistent with the effects of wind. Instead, he found flood debris lines that were approximately seven feet above the floor. Laurence did not respond to the State Farm argument that the policy did not cover buildings. 

    The record presented undisputed facts showing that there was no covered unpaid damage caused by wind as opposed to flood water. Nor did Laurence point to any evidence to show that his business personal property not damaged by flood water exceeded the deductible of $1000.

    Therefore, State Farm's motion for summary judgment was granted and clams against State Farm were dismissed with prejudice. 

New York Court Denies Injunction to Prevent Out-of-State Suit

    The Appellate Division of the Supreme Court refused to grant an injunction to the insurer to prevent a pending suit in Washington state. North Am. Elite Ins. Co. v. Space Needle, LLC, 2021 N.Y. LEXIS 6792(N.Y. App. Div. Dec. 2, 2021).

    In 2019 Seattle based Space Needle, LLC procured a policy from Elite, a New Hampshire company authorised to sell insurance in the state of Washington. The policy covered business interruption with limits of $160 million and provided that the laws of the State of New York "shall govern the construction and interpretation" of the policy and that the parties submitted to the "exclusive jurisdiction" of New York State courts. 

    In March 2020, Space Needle notified Elite of a business interruption loss claim due to the city and state governments' COVID-related closure of the Space Needle to the public. Space Needle requested a coverage determination under Washington law concerning the policy coverage provisions and exclusions.    

    Elite sued in New York seeking a declaration that it owed no coverage to Space Needle for its COVID-related losses under the policy. Elite also moved for a preliminary injunction to prevent a similar suit from going forward in Washington. The Supreme Court denied Elite's motion because it did not show a likelihood of success on the merits or the balance of equities in seeking to enforce the New York exclusive forum selection clause.

    The Appellate Division agreed. As an insurer authorised to sell insurance in Washington, Elite was required to comply with the Washington Insurance Code's prohibition against choice-of-law and forum selection clauses in policies sold in Washington. The code provided that no insurance issued in Washington "shall contain any condition, stipulation or agreement (a) requiring it to be construed according to the laws of any other state or country . . . or (b) depriving the courts of this state of the jurisdiction of action against the insurer. . ." Elite did not demonstrate that the equities tip in its favor where it was attempting a blatant end run around of Washington's prohibition against choice-of-law and forum selection clauses. The clauses were void under the Washington law with which Elite agreed to comply. Elite should have known that by participating in the Washington insurance market, it had an obligation not to include such clauses. 

    

Insurer's Motion for Summary Judgment on COVID-19 Claim Denied, Case Set for Trial

    The Ohio Court of Common Pleas granted the insured's motion for summary judgment, denied the insurer's motion for summary judgment and and set the COVID-19, business interruption case for trial on damages. McKinley Dev. Leasing Co. v. Westfield Ins. Co., 2021 Ohio Misc. LEXIS 885 (Ohio Ct. Pleas Nov. 14, 2021). 

    McKinley owned several commercial properties and had multiple leases with small and larger businesses. When the governor and Department of Health ordered shutdowns at the beginning of the pandemic, tenants could not pay rent, causing substantial business income losses to McKinley. McKinely filed a claim under its property policy with Westfield and coverage was denied. McKinley sued for breach of contract and bad faith.

    The court previously denied Westfield's motion to dismiss. Subsequently, McKinley filed a motion for summary judgment based upon the court's earlier ruling that the policy language was ambiguous. Westfield filed a cross-motion requesting the court to review the caselaw across the country and reverse its prior ruling finding the policy to be ambiguous. 

    The court found it "astounding" that the Westfield policy did not define the critical policy terms, "direct," "physical," "loss" or "damage." It was hard to believe that Westfield would not find it important for the insured to understand when purchasing the lengthy policy and making premium payments. Policyholders had the right to have a clear understanding of what they received in return. Given the spectrum of accepted interpretations for these terms in other decisions, the court interpreted the disputed language in Westfield's policy in favor of McKinley. 

    Westfield next relied upon the policy's virus exclusion which barred coverage for "loss or damage caused by or resulting from any virus, bacterium, or other microorganism that induces or is capable of inducing physical distress, illness or disease." Again, the court agreed with McKinley that the exclusion was reasonably susceptible of more than one interpretation. 

    Westfield also raised Civil Authority Coverage. Under this provision, Westfield agreed to pay for loss of income caused when covered causes of loss caused damage to other properties within one mile of McKinley's properties and resulted in an order by civil authority that prohibited access to McKinley's properties. Here, it was clear that the pandemic had caused damage to properties surrounding McKinley's properties, resulting in dangerous physical conditions for which Ohio Civil Authority orders were issued, preventing access to McKinley's properties. As a result, the language in the policy was susceptible to more than one reasonable interpretation and did not preclude coverage. 

    Finally, the court granted Westfield's motion on the bad faith and punitive damages claims. There was sufficient case law to support Westfield's reasonable justification for denying coverage. 

    The court set a trial date for damages.

 

    

Issues of Fact Prevent Insurer's Summary Judgment Motion in Collapse Case

    The insurer's effort to dismiss the insured's collapse case by motion for summary judgment failed. Bitters v. Nationwide Gen. Ins. Co., 2021 U.S. Dist. LEXIS 228523 (E.D. Pa. Nov. 30, 2021). 

    The insured alleged that there was a "sudden and accidental direct physical loss" to his home caused by collapse due to hidden insect damage to the foundation. The insured came home to find the floor of a bedroom dropped down to the cement slab below. He filed a claim with Nationwide, but coverage was denied. Suit was filed and Nationwide moved for summary judgment. 

    The policy provided coverage for a sudden and accidental collapse caused by hidden insect damage. A building or part of a building was not considered in the state of collapse if it was standing, even if it was in danger of falling low or caving in. 

    The court first found that that Nationwide had the burden of proof. The collapse provisions were in a grant of coverage under the Additional Property Coverage Section of the policy but limited by exclusions, rather than exceptions to exclusions. Because Nationwide sought to disclaim coverage based on a policy exclusion, it bore the burden of proving the applicability of the exclusion as an affirmative defense.

   The court then found disputes of material facts from which a juror could find for the insured. First, the parties disputed the amount that the floor dropped during the incident. Whether the floor fell a few inches or all the way to the floor remained a genuine dispute of material fact. The dispute as to the height of the drop was material because the insured alleged the "falling down" of a part of a building structure while Nationwide maintained that it merely settled. The policy was unambiguous in that it specifically provided that collapse need not have involved the entire property and could instead be just a "part of a building."

    Further, the parties disputed the cause of the collapse. The insureds' experts attributed the cause of the collapse to insect damage. Nationwide's experts attributed the loss to insect and water intrusion damage. This created another issue of genuine fact, which meant Nationwide's motion was denied. 

Primary D&O Policy Must Defend Despite Other Insurance Provision

    The federal district court found that the D&O carrier had a duty to defend despite the insurer's argument that its policy was excess to the employment practices policy. TriPacific Capital Advisors, LLC v. Federal Ins. Co., 2021 U.S. Dist. LEXIS 222497 (D. Calif. Nov. 15, 2021).

    Geoffrey Fearns was President of TriPacific (Tripac), a financial services company that managed institutional capital for residential construction projects. Tom Mahathirath, a former executive at TriPac, sued his former employer and Fearns seeking compensatory damages of not less than $8.9 million. The suit was tendered to Chubb and Travelers Casualty and Surety Company of America. 

    Chubb issued an Asset Management Protector Policy, which included a Directors and Officers Liability Coverage Part. The maximum aggregate limit of liability for all loss was $5,000,000. The D&O Coverage had aggregate limits of liability of $5,000,000 with a retention of $150,000. The policy included a duty to defend. The policy also had an Other Insurance Provision which stated if any loss was insured under another policy, the other policy would cover such loss until the policy was exhausted.     

    Travelers issued a Wrap policy which included an Employment Practices Liability coverage section. Travelers also had a duty to defend. 

    Travelers agreed to defend under a full reservation of rights, but never paid anything towards the defense. Chubb declined coverage because the Travelers policy applied based upon the Other Insurance provision, making the Chubb policy excess.

    Fearns moved for summary judgment, seeking a ruling that Chubb's obligation to defend and indemnify was primary. Chubb argued, among other things, that the self-insured retention had not been met. Under California law, however, the duty to defend was not impacted by a self-insured retention. The duty to defend arose immediately upon tender of the claim to the insurer. While a self-insured retention had to be paid before the existence of coverage, it did not impact the immediacy of the duty to defend. Further, nothing in the Chubb policy required the insured to satisfy any retention as a condition of the duty to defend. Therefore, the duty to defend existed regardless of whether or not the self-insured retention had been met. 

    Next, the court held that, under California law, the Other Insurance clause did not change Chubb's obligation to Fearns to provide a defense against Mahathirath's action. Such clauses had no bearing on the insurers' obligation to the policyholder and were limited to governing obligations amongst the insurers. While Chubb's Other Insurance provision may control the ultimate allocation of costs between the insurers, it was not relevant to a dispute between the insured and the insurer. The Other Insurance provision did not change Chubb's duty to defend, which attached immediately upon tender and required a full defense of the action. 

    Accordingly, Chubb breached its duty to defend and no longer controlled the defense. Summary judgment was granted to the insured. 

Insurer Has Duty to Defend Sexual Abuse of Minor Claims

    The court granted summary judgment to the school district, finding the insured was entitled to a defense against sexual abuse claims alleged against its employee. West Bend Mut. Ins. Co. v. Cmty. Unit Sch. Dist. 300, 2021 Ill. App LEXIS 622 (Ill. App. Ct. Nov. 12, 2021).

    The School District rented space to the Bays & Girls Clubs for after school programs. As part of the agreement, the District was named as an additional insured under the Club's CGL policy with West Bend.

    In 2018 and 2019, the District and Club were named as defendants in several complaints filed by unnamed minors. The complaints alleged the minors were abused by the Club's instructor, Carlos Bedoya. The complaints alleged claims for willful and wanton hiring and retention of Bedoya (Count I) and wilful and wanton supervision of Bedoya (Count V). Each count also alleged that the District "knew or should have known" of the potential abuse.

    The complaints were tendered to West Bend, who defended under a reservation of rights. West Bend then sued for a declaratory judgment that it had no duty to defend or to indemnify. The parties cross-moved for summary judgment.

    West Bend argued there was no occurrence and that the policy's physical abuse and sexual molestation liability endorsement barred coverage. The endorsement provided, in part:

We will pay those sums the insured becomes legally obligated to pay as damages because of "physical abuse," "mental injury" or "sexual molestation" arising out of the negligent:

. . .

    (c) supervision;

. . .

    (e) or retention of any person for whom the insured is legally responsible.

    The District argued that the willful and wanton theories raised against it did not defeat West Bend's duty to defend, because willful and wanton conduct is a form of negligence. The trial court granted the District's Motion and denied West Bend's Motion. The trial court found that willful and wanton conduct was "a heightened form" of negligent conduct.

    On appeal, the District argued that the underlying complaints alleged that the District had a duty to exercise reasonable care and acted willfully and wantonly in the hiring, retention, and supervision of Bedoya. The complaints also alleged the District "knew or should have known" of the potential abuse. Thus, the underlying complaints alleged a negligence standard of care.

    Comparing the allegations of the underlying complaints with the West Bend policy, the court of appeals found that the alleged facts potentially fell within the policy's coverage for certain negligent acts. Therefore, the trial court correctly awarded summary judgment on the issue of whether the underlying complaints willful and wanton allegations triggered a duty to defend. The allegations potentially alleged ordinary negligence. It was possible that, ultimately, the underlying plaintiffs could prove the elements of an ordinary negligence claim but be unable to establish the heightened mental state required to show willful and wanton misconduct/gross negligence. In such a case, the allegations would fall within the policy's coverage for certain negligent acts.

 

 

Insurer's Motion to Dismiss Business Interruption, COVID-19 Claims Under Pollution Policy Fails

    The insurer was unsuccessful in seeking to dismiss business interruption claims due to COVID-19 under a pollution policy. New York Botanical Garden v. Allied World Assur., 2021 N.Y. Misc. LEXIS 6012 (N.Y. Sup. Ct. Oct.15, 2021).

    The insured was forced to cease operation after executive orders by the governor and mayor were issued in March 2020. The insured also had to reduce its in-person workforce by 100%. The insured's claim for business interruption and contingent business interruption were denied by Allied. The insured sued for a declaratory judgment.

    Allied moved to dismiss, arguing that the executive orders were issued for prophylactic reasons in an effort to mitigate the spread of the virus. They were not issued solely to address the presence of COVID-19 at any non-insured owned location, but were issued broadly to limit the risk of spreading the COVID-19 virus. The insured responded that its broader pollution liability policy was not a typical civil authority policy that required the physical loss or damage to property. 

    The policy covered "business interruption costs resulting from business interruption caused solely and directly by a pollution incident." Allied conceded that COVID-10 was a "pollution incident." "Contingent business interruption" was defined as "the necessary suspension of your operations at a location owned by or leased to you as a result of an order by a government body or authority denying access to the location owned by or leased to you . . ." Finally, business interruption costs were those costs "resulting from contingent business interruption only, the date and time the insured is allowed access to the location owned by or leased to you on an other-than-temporary basis."

    The business interruption costs allowed the insured temporary access to its premises during the applicable period. Therefore, a complete denial of access to the insured's property was not required to trigger contingent business interruption coverage. 

    Further, contrary to Allied's arguments, the policy did not require physical damage to the insured's property.

    The court also denied Allied's request to dismiss the bad faith count. 

Hawaii District Court's Dismissal of Insurance Related Declaratory Judgment Action Upheld by Ninth Circuit

    While a district court can decline to exercise jurisdiction over a declaratory judgment action, here the declaratory claims were joined with an independent monetary claim. The insured filed a counterclaim for monetary relief, but only if the court first exercised jurisdiction over the insurer's claim for declaratory judgment. Could the district court still decline jurisdiction? Argonaut Ins. Co. v. St. Francis Med. Cir., 2021 U.S. App. LEXIS 34218 (9th Cir. Nov. 16, 2021).

    The underlying state action involved former students of Kamehameha Schools alleging sexual abuse by a doctor from the late 1950s through the early 1980s. Because the doctor had practiced at St Francis Medical Center, Kamehameha Schools filed crossclaims against St. Francis, which sent the crossclaims to its insurer, Argonaut. The insurer agreed to defend under a reservation of rights. 

    Argonaut the filed for declaratory judgment in federal court to determine what rights and duties Argonaut owed St. Francis. In its answer, St. Francis asserted the district court should decline jurisdiction because the claim presented solely issues of state law during the pendency of parallel proceedings in state court. St. Francis also filed two counterclaims, the first mirroring Argonaut's declaratory judgment requests for relief and the second seeking monetary relief because Argonaut breached its duty of good faith and fair dealing. St. Francis asserted its counterclaims, however, only if the court asserted jurisdiction over Argonaut's declaratory relief claim. 

    The district court agreed with St. Francis, holding that notwithstanding get monetary counterclaim, it had discretionary jurisdiction over Argonaut's declaratory claims and the relevant facts supported declining jurisdiction. Argonaut appealed.

    The Ninth Circuit held that St. Francis did not waive its threshold defense by not raising it in a motion. Here, St. Francis raised its threshold defense by answer. Such defenses were preserved even if coupled with counterclaims. 

    The Ninth Circuit went on to hold that the district court properly evaluated factors under Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942) and Gov't Emps. Ins. Co. v. Dizol, 133 F.3d 1220 (9th Cir 1998) in declining jurisdiction. The district court noted: (1) there was related litigation in state court involving St Francis; (2) insurance law was an area regulated by the states; (3) there was no compelling federal interest in the case; (4) dismissing this case would discourage forum shopping; (5) dismissal would avoid duplicative litigation on any overlapping issues; (6) proceeding with this case in federal court would entangle the state and federal court systems; (7) state court would be as convenient a forum as federal court for this case. 

    Accordingly, the district court properly held that conditionally pled counterclaims did not trigger mandatory jurisdiction over declaratory claims. 

California Court of Appeal Shoots Down COVID-19 Business Interruption Claim

    The California Court of Appeal affirmed the trial court's dismissal of the insured's business interruption claim based upon COVID-19 government shutdown orders. The Inns by the Sea v. California Mut. Ins. Co., 2021 Cal. App. LEXIS 956 (Calif. Ct. App. Nov. 15, 2021). The Inns is the first state appellate court decision in the country on coverage for COVID-19 claims.

    The case presented an issue of first impression for a California appellate court: did a property policy provide coverage for business loss of income due to the COVID-19 pandemic? 

    The Inns by the Sea (Inns) owned five lodging facilities along the California coast. Due to government orders issued in March 2020, the Inns closed its facilities. Inns then submitted its claim to California Mutual, who quickly denied the claim, stating that loss of business due to reasons other than covered physical damage was beyond the scope of the policy. 

    Inns filed suit. The complaint alleged that the closure orders were issued in direct response to dangerous physical conditions, and prohibited Inns from selling any rooms to the public, therefore forcing Inns to close and lay off nearly all of its workers. Further, the closure orders were made in direct response to the continued and increasing presence of the coronavirus on Inns' property and around its premises. The trial court granted California Mutual's demurrer. 

    The appellate court noted that the presence of the virus throughout the county and state, not the presence of the virus specifically on Inns' premises, gave rise to the orders, leading to Inns' suspension of operations. Therefore, Inns could not argue the the presence of the COVID-19 virus on its premises was what caused the premises to be uninhabitable or unsuitable for their intended purpose. Accordingly, despite Inns' allegation that the COVID-19 virus was present on its premises, it did not identify any direct physical damage to property that caused it to suspend it operations.

    Inns argued that regardless of the physical presence of the COVID-19 virus, it adequately pled direct physical loss by alleging "the loss of use, function, and value of its property." This argument failed because it collapsed coverage for "direct physical loss" into "loss of use" coverage. The policy could not reasonably be interpreted to cover mere loss of use when the insured's property suffered no physical loss or damage. 

    The policy's reference to the "period of restoration" further supported the conclusion that mere loss of use, without any other physical impact to Inns' property, was not sufficient to trigger the business income coverage. The "period of restoration" was defined as ending on the earlier of "(1) the date when the property should be repaired, rebuilt or replaced with reasonable speed and similar quality; or (2) the date when business is resumed at a new permanent location." This language focusing on repairing, rebuilding or replacing property implied that the "loss" or "damage" that gave rise to business income coverage had a physical nature that could be physically fixed or removed to a new location. Accordingly, Inns did not allege "direct physical loss of" property based on the fact that it lost the ability to use its physical premises to generate income.

    Inns also argued that although many first party property policies contained an express exclusion for loss or damage resulting "from any virus," no such exclusion was included in this policy. Failure to included a virus exclusion was prima facie proof that the insurer actually intended to provide coverage for virus losses by not taking advantage of a specific exclusion. The court disagreed. Inns was improperly attempting to rely on the absence of an exclusion to create an ambiguity in an otherwise unambiguous insuring clause. 

    Finally, Inns argued that the Civil Authority coverage applied because its complaint alleged that the government orders were made in direct response to the continued and increasing presence of the coronavirus, a dangerous physical condition on and around its property. The court disagreed, however, because the plain language of the orders showed that they were not based on "direct physical loss of or damage to property" to other premises as required to establish Civil Authority coverage. 

    Therefore, the trial court did not abuse its discretion in sustaining the demurrer to the complaint.