Insurance Law Hawaii

Insurance Policy to Protect Hawaii's Coral Reefs

    The New York Times recently reported on an insurance policy issued to the non-profit Nature Conservancy to protect coral reefs in Hawaii. Cihistopher Flavelle, Catrin Einhorn, In a First, Nonprofit Buys Insurance for Hawaii's Threatened Coral Reefs, N.Y. Times, Nov. 21, 2022. 

    If damaged by a storm, coral reefs need immediate attention if they are going to recover. The Nature Conservancy plans a four step process to save damaged reefs:

•     Purchase a policy for all 400,000 acres of coral reefs surrounding the Hawaii island.
•     If reefs are sufficiently damaged by a storm the policy will pay out within two weeks.
•     The Nature Conservancy will ask the State of Hawaii, owner of the reefs, for a permit to repair the storm damage. 
•     Finally, if the state officials issue the permit, the insurance proceeds will pay teams of divers to repair the damage. Crews will have about six weeks     before coral begins to die.

      The payout of proceeds will not depend upon an inspection of the reefs for damage, which would take too long. Instead, the payment of benefits will depend on the force of the winds measured in real time. Under a scheme known as parametric insurance, a storm with winds of 50 knots, or 57 miles per hour, or more will generate a pay out. Such winds are strong enough to cause damage to the reefs, causing large waves that break off pieces of coral or knock tree limbs or other debris into the water, further damaging the reefs.

    The Times reports that reefs act much like sea wall, slowing down the destructive force of waves crashing toward the shore. 

    The two million dollar policy is the first of its kind in the United States for a natural structure. Insuring reefs has been used in Latin America with mixed success.

    

Fifth Circuit Reverses Summary Judgment Award to Insurer on Hurricane Damage Claim

    The Fifth Circuit reversed the district court's grant of summary judgment to the insurer on a property damage claim arising from Hurricane Harvey. Advanced Indicator and Manufacturing, Inc. v. Acadia Ins. Co., 50 F.4th 469 (2022).

    After Hurricane Harvey struck southern Texas in 2017, Advanced submitted a claim to Acadia for damage to its building that it claimed was caused by the hurricane's winds. Acadia sent an adjuster, Nick Warren, as well as an engineer, Jason Watson. Watson determined that pre-existing conditions - including ongoing leaks from deterioration and poor workmanship - caused the damage, rather than winds from Hurricane Harvey. Warren adopted these conclusions in his recommendations to Acadia. Acadia denied Advanced's claim based on these reports.

    Advanced sued Acadia, alleging breach of contract and bad faith. Advanced filed a motion to remand to state court which was denied. Acadia moved for summary judgment arguing that it did not breach the policy and that Advanced could not segregate any damages caused by hurricane from pre-existing damage. The district court granted Acadia's motion, finding that Acadia's denial of Advanced's claim was based on "extensive consideration of the evidence." Further, Advanced failed to carry its burden of showing that covered and non-covered damages could be segregated as required by Texas's concurrent causation doctrine. Finally, the bad faith claim was dismissed because there was no breach of contract.

    On appeal, the Fifth Circuit affirmed the denial of the motion for remand. Turning to the motion for summary judgment, the district court had granted the motion because: (1) it credited Acadia's investigation over Advanced's investigation, essentially finding that Hurricane Harvey did not cause Advanced' damages; and (2) the district court found that because Advanced could not differentiate its pre-existing losses from its Hurricane Harvey losses, its claim failed under Texas's concurrent causation doctrine. 

    The Fifth Circuit found that Advanced presented testimony of a public adjuster who stated that the roofing system "completely failed," and that the damage was caused only by the hurricane. Further, Advance's expert testified at his deposition that the damage was caused by Hurricane Harvey. Finally, prior reports demonstrated that the building was in good shape. Viewing this evidence in a light most favourable to Advanced, a reasonable jury could find that Hurricane Harvey's winds were the cause of the damage to the building 

    Next, the Fifth Circuit turned to the district court's alternative holding that Advanced could not segregate covered losses from non-covered losses, thereby invoking the concurrent causation doctrine. The insured had the burden, but could carry its burden by putting forth evidence demonstrating that the loss came solely from a covered cause or by putting forth evidence by which a jury could reasonably segregate covered and non-covered losses. 

    Here, the same evidence that supported Advanced's argument that Hurricane Harvey caused some of its damage supported its argument that Hurricane Harvey caused all of the damage. Both Advanced's public adjuster and expert testified that the hurricane was the sole cause of Advanced's loss. Accordingly, because a jury could reasonably find that all of Advanced's loss came from a covered cause, the concurrent causation doctrine does not bar recovery.

    Because it was possible the breach of contract claim would survive, the bad faith claims was also reversed in error.  Therefore, the district court's decision to grant summary judgment was reversed. 

Defense Owed to Insured Subcontractor, but not to Additional Insured

    Affirming the district court, the Eleventh Circuit agreed that the insured subcontractor was entitled to a defense against claims of faulty workmanship, but no defense was owed to the additional insured subcontractor. Cincinnati Spec. Underwriters Ins. Co. v. KNS Group, LLC, 2022 U.S. App. LEXIS 27949 (11th Cir. Oct. 6. 2022). 

    The general contractor on a project to build a casino and hotel hired GM&P Consulting and Glazing Contractors, Inc. (GM&P) to provide exterior glazing for the building. GM&P enlisted subcontractor KNS to assist it by glazing glass and installing window walls. KNS agreed to provide commercial general liability and other types of insurance, and to indemnify GM&P for liability for damages caused by any of its acts or omissions. KNS acquired a policy from Cincinnati. 

    The casino filed suit against the general contractor and subcontractors, alleging that GM&P installed defective "Glass Facade" and improperly installed windows. GM&P filed a Hird-party complaint against KNS due to KNS's alleged defective construction of the casino.

    Cincinnati filed this coverage lawsuit seeking a declaratory judgment that it had no duty to defend and no duty to indemnify KNS or GM&P in the underlying suit. Cross-motions for summary judgment were filed and the district court ruled that Cincinnati had a duty to defend KNS, but no duty to defend or indemnify GM&P. GM&P appealed and Cincinnati filed a cross-appeal on the district court's determination that it had a duty to defend KNS.

    The Eleventh Circuit first determined there was no duty to defend the additional insured, GM&P. The policy limited GM&P's coverage to "property damage" caused, in whole or in part, by KNS or KNS's agents. The underlying complaint alleged that GM&P was negligent in its furnishing of materials and installation of the Glass Facade. It alleged no negligence by KNS nor any of its agents. Without more, Cincinnati had no duty to defend or indemnify GM&P. 

    The district court's declaration that Cincinnati must defend KNS was all affirmed. The underlying complaint alleged that the Glass Faced supplied and installed by GM&P was "fraught with systemic defects, including loose gaskets between window panels, damaged sealants and panel frame, and misaligned window wall panels creating the risk of property damage." Further, it was alleged that another defendant supplied the glass panels installed by GM&P, which suggested that GM&P's faulty installation could have damaged a separate component of the property - the panels. Thus, when the pleadings were read favourably to the insured, they reasonably could lead to coverage.

    The Eleventh Circuit was not persuaded by Cincinnati's arguments that certain exclusions applied. The court also agreed with the district court that determining a duty to indemnify was premature. 

Insured Granted Right to Amend COVID-19 Complaint

    The California Court of Appeal determined the insured's complaint was properly dismissed, but the lower court erred in not granting leave to amend. Tarrar Enterprises, Inc. v. Associated Indemn. Corp., 2022 Cal. App. LEXIS 811 (Cal. Ct. App. Sept. 22, 2022).

    Tarrar Enterprieses, Inc. operated a utility consultnat business. The premises were closed in March 2020 due to local government orders. This caused Tarrar to suffer loss of business income. Its insurer, Associated, denied Tarrar's claim for "business income loss." Tarrar sued, but the trial court granted Associated's general demurrer without leave to amend. Tarrar appealed.

    The appellate court noted another Court of Appeal in Marina Pacific Hotel& Suites, LLC v. Fireman's Fund Ins. Co., 81 Cal. App. 5th 96 (2022), ruled for the insured because it pled "direct physical loss or damage" and state a claim for breach of the insurance policy. The trial court's disbelief of the allegations, whether ultimately reasonable or not, were reversed. 

    Here, Tarrar's complaint did not allege the necessary "direct physical loss of or damage to property," so the demurrer was properly granted. However, Tarrar argued in the trial court that if the demurrer was sustained, it should be granted leave to amend. The trial court ruled to the contrary.

    The Court of Appeal held that denial of leave to amend was approriate only when it conclusively appeared that there was no possiblity of alleging facts under which recovery could be obtained. Thus, denail of leave to amend was error. 

 

Court Affirms Duty to Defend Additional Insured Contractor

    The appellate court affirmed the lower court's ruling that the insurer must defend. Main St. Am. Assurance Co. v. Merchants Mut. Ins. Co., 2022 N.Y. App. Div. LEXIS 5507 (N.Y. App. Div., Oct. 7, 2022). 

    XL Construction Services, LLC was the contractor on a construction project. Timothy J. O'Connor was insured when performing drywall finishing as a self-employee subcontractor on the project. As part of a written indemnification and insurance agreement between the parties, O'Connor was obligated to obtain insurance for the benefit of XL Construction. O'Connor was insured by Merchants Mutual Insurance Company under a policy containing an additional insureds endorsement that provided coverage to a party where required by a written agreement, but "only with respect to liability for 'bodily injury' . . . caused in whole or in part, by . . . [O'Connor's] acts or omissions."

    The trial court found there was a duty to defend and entered judgment that Merchants Mutual was obligated to provided a defense to XL Construction.

    On appeal, Merchants Mutual relied upon the endorsement language restricting coverage for an additional insured only when "there was injury proximately caused by the named insured." The underlying complaint sought damages for violations of the state labor law. Nonetheless, there could be more than one proximate cause of an injry. The underlying complaint suggested a reasonable possibility that O'Connor's own negligence was a proximate cause of his injuries. The fact that the underlying complaint alleged labor law violations on the part of XL Construction and not negligence by O'Connor himself, was of no consequence because the allegations in the complaint brought the claim potentially within the policy provisions and triggered a duty to defend XL Construction as an additional insured.

    Therefore, the judgemt was affirmed.

No Coverage for Subcontractor's Faulty Workmanship

    Finding faulty workmanship that did not cause property damage beyond the subcontractor's work, the court found there was no coverage under the CGL policy. Middlesex Ins. Co. v. Dixie Mech., Inc., 2022 U.S. Dist. LEXIS 175190 (N. D. Ga. Sept. 27, 2022). 

    The case involved a construction project on Elba Island, Georgia. IHI E&C International Corporation (IHI) filed suit against Robinson Mechanical Contractors ("Robinson") for faulty construction work, including a pipe rack and process module installation. The pipe racks allegedly contained defective welds. Robinson filed a third-party complaint against Patriot Modular, Inc. (Patriot), Robinson's subcontractor, for faulty work for IHI. Finally, Patriot filed a fourth-party complaint against Dixie Mechanical, Inc. (Dixie), alleging it subcontracted with Dixie to perform fabrication, welding, testing, and inspection of pipes under Patriot's subcontract with Robinson. Patriot contended that to the extent it was found liable to Robinson for any defective work, delays or breaches of contract for Dixie's work, Patriot was entitled to recover such amounts from Dixie.

    In this case, Dixie's insurer, Middlesex Insurance Company, sought a declaration that it had no duty to defend or to indemnify Dixie. Middlesex contended that the claims of faulty workmanship in the underlying complaints constituted neither an "occurrence" nor "property damage."

    The court agreed. "Occurrence" had to cause "property damage" and the insured had to incur a liability to pay "damages because of such property damage." Coverage for property damage under a CGL policy required damage to property other than the work itself, and the insured' liability for such damage would have to arise from negligence. The only reasonable interpretation of the allegations in the underlying complaints was that the asserted damages resulted from Dixie's allegedly faulty workmanship under the subcontract and affected only the construction project.

    Therefore, judgment was entered in favor of Middlesex. 

Coverage for Collapse Ordered on Summary Judgment

    A collapsed floor in a restaurant was found to be covered. J&J Fish on Center Street, Inc. v. Crum & Forster Spec. Ins. Co., 2022 U.S. Dist. LEXIS 163661 (D. Wis. Sept. 12, 2022).

    J&J Fish rented property from Vision. Vision was obligated to keep the premises insured under an all-risk policy. Vision was also responsible for maintaining and repairing the property "including the slab flooring exterior walls of the premises." Vision never obtained insurance on the building, but J&J Fish secured a commercial property policy from Crum & Forster.

    On May 29, 2020, approximately 25% of the building's slab floor, the section beneath the walk-in cooler, collapsed into the crawl space below. Dr. Daniel Wojnowski inspected the crawl space and observed overall dampness as well as a pool of water in the space. He concluded that the collapse occurred because the steel support beams and steel elements of the floor corroded after prolonged exposure to moisture. Based on this report, Crum & Forster denied coverage. J&J Fish sued and the parties moved for summary judgment.

    The policy covered collapse, which meant an abrupt falling down or caving in of a building or any part of a building. Further, if the collapse was caused by decay that was hidden from view, it was covered. 

    Here, 25% of the building's floor fell three-and-a-half feet into the crawl space overnight. On its face, it was a sudden and unexpected fall or drop that rendered part of the building unfit for use as a restaurant.

    Crum & Forester raised several arguments against coverage. First, it claimed the events did not amount to a collapse because the policy did not consider a collapse to include a building or an part of a building to be in damage of falling down or caving in. But here, the slab floor was no longer "in danger of falling down" because that danger was long-passed with the floor already having fallen.

    Crum and Forster next argued that the decay causing the collapse was not hidden from view because it could be observed from within the crawl space. Dr. Wojnowski, equipped with a flashlight, entered the crawl space on all fours and observed the decay. But the problem with this argument was that "hidden" was a matter of degree. Under the plain meaning of the term, decay that was concealed within a cramped, unlit space was "hidden from view."

    Crum & Forster also relied on exclusions expressed in the policy in sections other than Section D which addressed collapse. The court held that Crum & Forster could not rely on these exclusions to oust coverage under section D, and J&J Fish was entitled to summary judgment on the question of liability.

    Finally, the court held that Crum & Forster was entitled to subrogation against Vision pursuant to the lease between Vision and J&J Fish. Vision breached the lease by (1) failing to acquire property insurance and (2) failing to maintain the slab floor. 

Injured Parties Granted Right to Intervene in Insurer's Coverage Action

    The federal district court granted the injured parties' motion to intervene in the insurer's coverage action because there was a protectable interest in being compensated for their injuries. Island Premier Ins. Co. v. Campus, 2022 U.S. Dist. LEXIS 179787 (D. Haw. Sept. 30, 2022).

    Defendant Terrence Campos was involved in a auto collision while operating a vehicle owned by a third party, Jamie Barinas. Two underlying lawsuits were filed against Campos in state court.  Island Premier Insurance Company issued both an auto policy and an umbrella policy to Jamie Barinas that were in effect at the time of the accident. 

    Island filed the coverage action seeking a declaratory judgment that the two policies issued to Barinas did not provide coverage to Defendant Campos. The victims in one accident, Sanghyuk Hong and Mi Yon Hong, moved to intervene in the coverage action, asserting that they had an interest in the court finding that Island had a duty to indemnify. 

    The court found that the movants had a significant protectable interest. They sought damages in the Hawaii state court lawsuit as a result of the injuries they sustained. Their ability to be compensated turned on whether Island had a duty to indemnify Defendant Campos for the collision. 

    Therefore, the motion to intervene ws granted. 

    

Insured's Failure to Challenge Trial Court's Application of Exclusion Makes Appeal Futile

    The Texas Court of Appeals affirmed the trial court's granting of summary judgment to the insurer because the appeal failed to challenge the exclusion under which the insurer found no coverage. Sosa v. Auto Club Indemn. Co., 2022 Tex. App. LEXIS 6520 (Tex. Ct. App. Aug. 30, 2022).

    Sosa's house was damaged during Hurricane Harry on August 26, 2017. Sosa filed a claim with Auto Club. She reported that two feet of floodwater had entered her home, her roof was missing shingles and was leaking, and she had sustained interior damage. An adjuster estimated the cost to prepare the roof damage was $1,191.96, less that her deductible. Auto Club determined that any remaining damage was caused by flood water, which was expressly excluded from coverage. 

    On November 11, 2020, Sosa filed suit against Auto Club for breach of the policy. Among other things, she argued the adjuster spent minimal time at her home inspecting and was inexperienced. In its answer, Auto Club asserted Sosa's claim was time-barred by the statute of limitations. Sosa then filed an amended complaint and changed the date of the loss from August 26, 2017, to June 28, 2019. 

    Auto Club filed a motion for summary judgment, primarily arguing the suit was time-barred by both the statute of limitations and the two-year limitations period in the policy. The trial court granted summary judgment to Auto Club.

    On appeal, Sosa primarily agued hat her loss occurred in June 2019, not during Hurricane Harvey in 2017. Therefore, the lawsuit filed in November 2017 was not time-barred. She did not challenge the summary judgment order on the ground that her claimed damages were covered under the policy. Her appellate brief did not mention flood or surface water.  

    Sosa did not ague that the trial court erred by granting summary judgment on the ground that her policy excluded coverage for her damages because they resulted from flood or surface water. This ground independently supported summary judgment in Auto Club's favor because Auto Club was not liable for damages expressly excluded under Sosa's homeowner's policy. Therefore, any other error about which Sosa complained on appeal was harmless in light of the unchallenged ground. 

Contractor Owed a Defense

    The Illinois Appellate Court reversed the lower court and found that the insured contractor was entitled to a defense for alleged construction defects. Acuity v. M/I Homes of Chicago, LLC, 2022 Ill. App. LEXIS 393 (Ill. Ct. App. Sept. 9, 2022).

    The owners association (AOAO) sued M/I Homes for breach of contract and the implied warranty of habitability due to alleged defects. The AOAO alleged that the defects caused physical injury to the townhomes. There was resulting property damage such as damage to other building materials, windows and patio doors, and water damage to the interior of units. M/I Homes requested a defense from Acuity, but the request was denied. 

   Acuity filed a complaint for declaratory judgment against M/I Homes and the AOAO, seeking a declaration that it had no duty to defend. Cross-motion for summary judgment were filed. Acuity argued that the actual property the insured was working on did not constitute covered property damage caused by an occurrence. M/I Homes contended that there was damage to other property that was beyond repair and replacement of the construction work. 

    The trial court granted summary judgment to Acuity and denied M/I Homes' motion. M/I Homes appealed. M/I Homes argued that the allegations of damage to "other property" in the underlying complaint referred to "property other than the townhomes themselves (i.e. property other than the contractor's work product)" and was sufficient to qualify as property damage. This was also an occurrence because the underlying complaint alleged that damage was an accident caused by the defective work of the subcontractor and was neither expected nor intended by M/I Homes. 

    Acuity argued that the allegations of damage to "other property" were not enough to trigger its duty to defend. The allegations were unconnected to a theory of recovery and the underlying complaint failed to both identify the owner of the "other property' and explain how the AOAO had standing to sue for the damage to that property. 

    The court noted that the underlying complaint simply alleged, in the broadest possible terms, that there was damage to "other property." These allegations were sufficient to trigger Acuity's duty to defend. The case was remanded to enter summary judgment in favor of M/I Homes on the duty to defend.