Insurance Law Hawaii

Court Denies Insurer's Motion to Dismiss Collapse Claim

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

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

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

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

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

HSBA Presentation for Insurance Coverage Section

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

 

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

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

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

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

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

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

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

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

Insurance Agent Successful in Dismissing Insureds' Claims for Fraud

    The Federal District Court for Hawaii granted Moa Insurance Services Hawaii's (Moa) motion to dismiss the insureds' complaint alleging that they had been forced to purchase worthless surplus lines policies for volcano damage. Aquilina v. Certain Underwriters at Lloyd's Syndicate #2003, 2019 U.S. Dist. LEXIS 165866 (D. Haw. Sept. 26, 2019).

    The insureds purchased surplus lines homeowners insurance policies with the assistance of two retail brokers, Pyramid Insurance Centre, Ltd., and Moa. The policies were underwritten by several syndicates of Lloyd's. Pyramid and Moa placed the policies and worked on the insureds' behalf to procure the insurance. 

    The complaint alleged a "steering scheme" through which various defendants, including Moa and Pyramid, sold surplus lines policies to the insured without complying with obligations under Hawaii law. After the Kilauea Volcano eruption, the insured were denied coverage under the policies for significant damage to their homes and properties. The complaint alleged that defendants unlawfully placed surplus lines insurance instead of more comprehensive coverage, such as was available through the Hawaii Property Insurance Association (HIPA). Selling Lloyd's policies was more lucrative to defendants. 

    One exclusion in the Lloyd's policies precluded coverage for "the peril of lava and/or lava flow causing direct or indirect physical damage or loss of use of the insured property." (Lava Exclusion). The complaint alleged that for a home located in a particularly risky Lava Zone, a homeowner's policy excluding lava coverage amounted to no coverage at all.

    Moa moved to dismiss relying primarily upon Rule 9 (b), Fed. R. Civ. P. Under Rule 9, where a party alleged fraud or mistake, a heightened pleading standard was required. A pleading had to identify the who, what, when, where, and how the misconduct harmed the plaintiff. 

    The court dismissed the insureds' complaint, as to Moa, without prejudice. The claims were based on a single deceptive and fraudulent "scheme to steer" the insureds into purchasing illusory surplus lines insurance that they would not have otherwise purchased. The complaint failed to allege specific facts plausibly giving rise to the insureds' suspicions of a "scheme.' The allegations did not address who made what specific representations or statements to the insureds and when, what representations the insureds relied on, how Lloyd's paying commissions to brokers constituted "improper kickbacks," and how the insureds were "steered" into purchasing the policies. 

  

Equal Access to Justice Act Fee Request Rejected in Flood Case

    The insured's claim for fees under the Equal Access to Justice Act (EAJA) for seeking coverage under a flood policy was rejected. Hampson v. Wright Nat'l Flood Ins. Co., No. 4:19-cv-10083-KMM (S.D. Fla. Aug. 11, 2019)(Order on Motion to Dismiss). The order is here. 

    The insurer did not compensate plaintiff for flood-related damages under the terms of a Standard Flood Insurance Policy (SFIP). The insurer was a Write-Your-Own (WYO) Program insurance carrier participating in the National Flood Insurance Program (NFIP). By statute, a WYO carrier acts as a "fiscal agent" and "fiduciary" of the United States. 

    The insured's property suffered damage from a hurricane. The insured sued the carrier for breach of contract and attorney's fees under EAJA. The insurer moved to dismiss the claim for fees under EAJA. A party could recover fees and costs under the EAJA as the prevailing party in a case "brought by or against the United States . . . unless the court finds the position of the United States was substantially justified." 28 U.S.C. 2412 (d) (1) (A), (b). The statute defined the "United States" to include "any agency and any official of the United States acting in his or her official capacity." However, attorney's fees were not recoverable under the EAJA in cases for breach of an SFIP brought against a WYO program insurance carrier participating in the NFIP because WYO carriers were not considered "agencies" under the EAJA. 

    Here, the insured brought a claim for breach of an SFIP against a WYO carrier participating in the NFIP. Thus, the insured's claims for attorney's fess and cases pursuant to the EAJA were dismissed. 

Hawaii Supreme Court Finds Insurer's Actions Prior to Submission of Claim Can Constitute Bad Faith

     In an issue of first impression in Hawaii, the Hawaii Supreme Court ruled that an insurer's actions before an actual claim is submitted can be considered in determining whether the insurer acted in bad faith. Adams v. Hawaii Medical Service Ass'n, 2019 Haw. LEXIS 263 (Haw. Sept 30, 2019). Disclosure - our firm was co-counsel for the petitioner, Patricia Adams.

    Brent Adams was diagnosed with a rare cancer, stage III multiple myeloma, in August 2006. His doctors advised a tandem stem cell transplant, under which he would receive a transplant of his own stem cells (autologous or "allo" transplant) followed by a stem cell transplant from a matched sibling donor (allogenic or "allo" transplant). Brent informed his health insurance provider, Hawaii Medical Service Association ("HMSA") of his intent, on the advice of his doctors, to pursue the auto and allo transplants. 

    HMSA directed Brent to seek treatment at City of Hope in Duarte, California. HMSA's case manager maintained a log of communications to oversee Brent's case. The log demonstrated that Brent's wife, Patricia Adams, told HMSA that she and Brent and were leaving for City of Hope on December 11, 2005 for testing and consultation. Patricia's declaration stated that she told HMSA that Brent would seek the auto and allo transplants at City of Hope and asked HMSA if anything else was needed to inform HMSA of the treatment plan. HMSA did not provide any further instructions. 

    On December 15, 2005, Brent's doctor at City of Hope, Dr. Stein, submitted a precertification request for an auto transplant. The request noted that Brents' siblings would be tested to determine if they could serve as donors, in which case Brent would pursue an allo transplant following the auto transplant. HMSA approved the auto transplant. HMSA, however, informed Dr. Stein that it would only pay for the testing of potential donors for the sibling that provided a match. 

    Brent underwent the auto transplant in January 2006. Dr. Stein then contacted HMSA regarding Brent's participation in a clinical trial for stem cell transplants in preparation for the allo transplant. HMSA informed Dr. Stein he should contact the precertification division and recommend that he submit data supporting the efficacy of the clinical trail. In January and February 2006, Brent and Patricia communicated numerous times with HMSA about Brent's desire to do the allo transplant. On January 17, 2006, HMSA informed Patricia that Dr. Stein had not submitted a precertification request for the allo transplant. On February 22, 2006, Brent informed HMSA that one of his siblings appeared to be a match and he hoped to pursue the allo transplant. HMSA again noted that a precertification request had to be submitted and advised Brant that "in terms of the care plan, the goals remain appropriate and on target." Patricia informed HMSA a couple of weeks later that they were "desperately trying to avoid any delays." 

    On March 2, 2006, Dr. Stein submitted a percertification request for the allo transplant. Four days later, HMSA denied the procedure because it was "investigational." The Adams were taken by surprise, viewing the denial as an abrupt change by HMSA, especially when Brent had a matched sibling donor. After an appeal to the circuit court, HMSA finally covered the allo transplant in 2007, but Brent died approximately one year later. 

    Before Brent died, he and Patricia filed suit for breach of contract, bad faith and additional claims. The circuit court granted HMSA's motion for summary judgment on all claims. The Intermediate Court of Appeals ("ICA") affirmed on the breach of contract claim, but vacated the circuit court's grant of summary judgment on the bad faith claim. The ICA held it could not conclude, as a matter of law, that HMSA reasonably handled Brent's claim for the allo transplant.  

    On remand, HMSA argued it denied coverage two days after the precertification request was submitted, so its handling of the claim was objectively reasonable. The circuit court agreed and again granted summary judgment on the bad faith claim to HMSA. The ICA affirmed, determining that no genuine issues of material fact existed as to whether HMSA mishandled the claim. HMSA denied the precertification request within the time period required under HMSA's Plan. Until a request was submitted, there was no claim for HMSA to process. The ICA noted that "the duties of good faith and fair dealing implied in every insurance contract arise after the insured complies with the claims procedure described in the insurance policy."

    On appeal, the Supreme Court considered whether, viewing the evidence in the light most favorable to Patricia, the record contained evidence establishing that HMSA committed the tort of bad faith by unreasonably handling Brent's claim for an allo transplant. The Court considered the conduct of the parties before and after the formal submission of the claim to determine whether the insurer acted reasonably. The covenant of good faith and fair dealing required HMSA to act in good faith before and after the formal submission of the claim. The record contained facts that suggested HMSA had unreasonably handled Brent's claim. This included the fact that HMSA was aware that Brent was considering the allo transplant on December 15, 2005, but did not inform him that the allo transplant would not be covered until after a formal plan was submitted on March 2, 2006. Further, HMSA was aware that Brent was testing his five siblings to seek a match for the allo transplant, but did not tell Brent the procedure was not covered. 

    Accordingly, HMSA's duty of good faith and fair dealing arose based upon the insurance contract entered with Brent. Evidence of HMSA's conduct during its relationship with Brent raised genuine issues of material fact as to whether HMSA unreasonably handled Brant's claim for an allo transplant. The ICA's judgment on appeal was vacated, as was the circuit court's order granting summary judgment to HMSA on the bad faith claim. The case was remanded to the circuit court. 

    

   

Endorsements Preclude Coverage for Alleged Faulty Workmanship

    The court found coverage for alleged faulty workmanship was barred by the Combination Construction Related Endorsement and Roofing Endorsement. Evanston Ins. Co. v. A&S Roofing, 2019 U.S. Dist. LEXIS 142828 (W.D. Okla. Aug. 22, 2019).

    In 2010, A&S entered into a subcontract with the contractor to replace roofs on three buildings owned by Oklahoma Property Investors (OPI). Eagle was a subcontractor of A&S that installed the roofing. After the roofs were replaced, OPI filed suit against A&S, alleging that A&S provided 15-year warranties for the roofing work performed on the three buildings and that A&S breached each warranty by performing the work in a poor manner, resulting in failures to each of the roofs. OPI sought monetary relief including damages to its properties, of its tenants, and costs of repairs to its properties. 

    A&S's insurer, Evanston, denied coverage. Evanston pointed to the"legally obligated to pay" language of the CGL policy and argued coverage only extended to tort-based claims. Evanston argued the OPI lawsuit did not allege any tort claims, only warranty claims arising from contract. Second, Evanston contended the alleged "poor craftsmanship" giving rise to the claims in the OPI lawsuit that did not constitute an "occurrence" under the policy. 

    A&S argued that OPI's claims sounded in negligence. The court found that the OPI lawsuit alleged claims that arguably sounded in both contract and tort. Although the word "negligence" did not appear in the complaint, the claims alleged a breach of warranty due to the work being performed in "a poor craftsmanship like manner" and sought damages proximately caused by the poor performance of that work, i.e., damage to OPI's properties (other than costs of repair or replacement) and damage to the property of OPI's tenants. Such proximately-caused damages sounded in tort. Evanston was entitled to a declaratory judgment that it had no duty to indemnify with respect to the contract-based claims. But because the OPI lawsuit included allegations which rose the potential of liability with respect to tort-based claims, Evanston was not entitled to a declaratory judgment that the "legally obligated to pay" coverage language applied to relieve Evanston of its duty to defend.

    Regarding an "occurrence," faulty workmanship gave rise to an occurrence where, as here, the work was not that performed by the insured but by a subcontractor of the insured, the property damage was not caused by purposeful neglect or knowingly poor workmanship and the damage included damage to the non-defective work product of the contractor and damage to the third-party property. Here, the undisputed factual record showed that Eagle, a subcontractor of A&S, installed the roofing. Accordingly, the court denied Evanston's summary judgment motion on grounds no occurrence triggered coverage. 

    But the Combination General Endorsement exclusion barred coverage for breach of contract. Further, the Roofing Endorsement precluded coverage for operations involving membrane roofing. Evanston's expert had found that membrane roofing was installed on the OPI buildings. Therefore, Evanston had neither a duty to indemnify nor a a duty to defend and was entitled to summary judgment. 

Insured's Remand of Bad Faith Action Granted

    The federal district court agreed remand of the insured's bad faith action to state court was appropriate. Kavanaugh v. Nat'l Union Fire Ins. Co., 2019 U.S. Dist. LEXIS 138465 (C.D. Calif. Aug. 15, 2019).

    The insured sued National Union and Great American Insurance Company in state court for failing to defend him in three civil actions. In the alternative, claims were brought against Gallagher Risk Management Services, Inc. and Chelsea Laing for professional negligence in failing to broker and procure adequate insurance for him. Laing acted as an "agent and/or broker and procured at least one of the policies at issue." 

    Gallagher removed the action based on federal diversity jurisdiction. Although Laing was a citizen of California, Gallagher argued she was fraudulently joined and was a sham defendant, so her citizenship should be disregarded for purposes of diversity jurisdiction. The insured moved to remand because Laing was a proper defendant. 

    The court noted that where a non-diverse defendant was fraudulently joined, there was no diversity. A non-diverse defendant was fraudulently joined if the plaintiff failed to state a cause of action against a resident defendant, and the failure was obvious according to the settled rules of the state. Courts recognized a strong presumption against fraudulent joinder, which had to be proven by clear and convincing evidence. 

    Gallagher argued that Laing's status as an employee of Gallagher precluded any personal claims against her. In California, the "dual agency" exception to the general rule for holding agents liable was recognized. Gallagher argued that Laing was authotized to transaction business on behalf of Gallagher and her business address was at the Gallagher offices. This did not address the insured's allegation that Laing was acting as a dual agent for both the insured and Gallagher.

    Gallagher failed to meet its burden of demonstrating by clear and convincing evidence that a jury could not possibly find Laing liable under a dual agency principle. Based on the allegations in the complaint, Laing faced potential liability, and her status as an employee of Gallagher did not shield her from such liability. She was not a sham defendant and the court could not discount her citizenship. Accordingly, the court lacked subject matter jurisdiction and the case was remanded. 

Court Grants Motion to Dismiss Negligence Claim Against Flood Insurer

    The insurer successfully moved to dismiss the insured's negligence claim and demand for jury trial, leaving only the insured's breach of insurance contract claim under the National Flood Insurance Program (NFIP). La Mirage Homeowners Association Inc. v. Wright National Flood Ins. Co., 2019 U.S. Dist. LEXIS 147667 (S.D. Tex. Aug 29, 2019). 

    Hurricane Harvey damaged three of insured homeowner's association condominium's buildings. Wright National Flood Insurance Company was the insurer pursuant to the NFIP when the hurricane damaged the insured's property. The insured alleged that Wright breached the policy by underpaying on the flood loss claims and by not initiating the appraisal the insured demanded. The insured sought recovery for negligence, consequential damage, statutory penalties, attorney's fees and pre-and-post judgment interest. 

    Wright moved to dismiss the extra-contractual claims and to strike the jury demand. 

    The NFIP's regulations allowed homeowners to purchase policies either directly from FEMA or from private insurers that functioned as Write Your Own (WYO) providers and fiscal agents of the United States. The Fifth Circuit had previously held that state law tort claims arising from claims handling by a WYO were preempted under federal law. The court, therefore, was faced with the issue of whether the insured's claims of negligence, attorney's fees, statutory penalties, and interest were policy-handling claims which were preempted by federal law.

    To determine whether a plaintiff's claims arose from claims  handling, courts looked to the status of the insured at the time of the interaction between the parties. If the individual was already covered and in the midst of a non-lapsed policy, the interactions between the insurer and insured were claims-handling subject to preemption. Here, the insured was covered by Wright at the time the dispute arose. Therefore, the insured's extra-contractual allegations were claims-handling claims and preempted. 

    The Insured's jury demand was based on the negligence claim. Because the negligence claim is preempted, and FEMA is presumed to be paying both the litigation expenses and any resulting damage award of the contractual claim, the insured had no right to a jury trial. 

    Likewise, the insured's claim for statutory penalties, attorney's fees pre-judgment and post-judgment interest were not recoverable against a WYO carrier. The partial motion to dismiss with prejudice was granted, leaving the insured'clam for breach of contract under the NFIP as the sole claim regaining before the court. 

    

    

Insurer's Quote on Coverage for Theft by Hacker Creates Issue of Fact

    The appellate court found that the insurer's quote created an issue of fact on whether loss caused by a computer hacker would be covered. Metal Pro Roofing, LLC v. Cincinnati Ins. Co., 2019 Ind. App. LEXIS 355 (Ind. Ct. App. Aug. 9, 2019). 

    The insureds, Metal Pro Roofing, LLC and Cornett Restoration, LLC ("LLC's") discovered that their bank accounts had been hacked and over $78,000 stolen. They submitted claims to their insurer, Cincinnati. Coverage was denied, and the LLCs filed suit. Cross-motions for summary judgment were filed, and the court granted summary judgment to Cincinnati. 

    The "Forgery or Alternation" coverage applied to losses resulting directly from the "'forgery' or alteration of checks, drafts, promissory notes, or similar written promises, order or directions to pay a sum of money." "Forgery" was defined as "the signing of the name of another person or organization with the intent to deceive." The LLCs did not cite any evidence that the hacker "signed" anything, let alone that they signed "the name of another person or organization." 

    The "Inside the Premises" coverage applied to losses resulting directly from "'theft' committed by a person present inside the business's 'premises' or 'banking premises.'" The policy defined "premises" as "the interior of that portion of any building you occupy in conducting your business." There was no evidence that the person who committed the thefts was inside the LLCs' buildings or a bank building. 

    The LLCs also argued that even if their computer-hacking losses did not fall under the policy's coverage, certain language in Cincinnati's quotes for that coverage led them to believe that such losses would be covered if they purchased the policy. The quotes said, in part, "While you've taken precautions to protect your money and securities, you run the risk of loss from employees, robbers, burglars, computer hackers and even physical perils such as fire." It would be reasonable for an insured to read this language to mean, "If you want to be covered for theft by computer hackers, you should buy this endorsement."

    Therefore, the court reversed the trial court's summary judgment order and remanded the case for trial.