Insurance Law Hawaii

Reservation of Rights Letter Merely Citing Policy Provisions Inadequate

    In an unpublished opinion, the Fourth Circuit affirmed the district court's finding that the insurers' reservation of rights letters did not provide a basis for denial of coverage. Stoneiedge At Lake Keowee Owners Ass'n Inc. v. Cincinnati Ins. Co., 2022 US. App. LEXIS 34292 (4th Dist. Dec. 13, 2022).

    The Stoneledge AOAO sued the general contractor Marlick Home Builders, LLC and other defendants after construction of 37 units. The complaint alleged construction defects that resulted in water intrusion and other physical damage. Marlick notified its insurers, Cincinnati Insurance Company and Builders Mutual. Various reservation of rights letter were sent by the insurers.

    In the underlying case, a judgment was entered against Marlick totalling approximately $1.6 million. As a judgment creditor of Marlickm, Stoneledge sued Cincinnati and Builders Mutual. The district court granted Stonelege's motion for summary judgment, primarily on the ground that the insurers failed to reserve the right to contest coverage.

    On appeal, the South Carolina Supreme Court's decision in Harleysville Group Insurance v. Heritage Communities, Inc., 803 S.E. 2d 288( S.C. 2017), was controlling. There, the Supreme Court held that "generic denials of coverage coupled with furnishing the insured with a copy of all or most of the policy provisions (through a cut-and-paste method) is not sufficient." In Harleysville, the insurer failed to reserve its rights as to the following issues: whether any damages resulted from acts meeting the definition of occurrence, whether any damages occurred during the applicable policy periods, and what damages were attributable to non-covered faulty workmanship (e.g., the your-work exclusion]. 

    The court found that, at the very least, an insurer should discuss its position as to the various provisions  and explain its reasons for potentially denying coverage. If the reservation of rights was ambiguous, it had to construed against the insurer and liberally in favor of the insured, 

    Here, the letters failed to inform the insureds that the insurers intended to litigate coverage issues and did not apprise the insureds of potential conflicts of interest. Builders Mutual's letter merely referred the insured to certain policy exclusions and summarised the general nature of those exclusions.

    Cincinnatti's letter presented a closer question. It listed certain policy exclusions and noted that "coverage may be limited by several other exclusions and endorsements." The letter continued with respect to whether coverage was triggered in the first place, stating that "it is doubtful that the claim alleges the happening of an 'occurrence'" or the the "claim alleges 'property damage' within the policy definition," and if there is no "occurrence" or "property damage" as defined by the policy, there is "no coverage."

    Under Harleysville, this was still insufficient to reserve the right to dispute coverage as to the policy exclusion. The letter was devoid of any explanation for why Cincinnati found it "doubtful" that there was an "occurrence" or "property damage" within the meaning of the policy. Therefore, the district court's judgment was affirmed. 

    

    

COVID-19 Claim Can be Amended To Consider Endorsements

    Although the court agreed the insured's complaint did not trigger coverage under provisions for business income losses and business access prevention by civil authority, the policy contained other provisions under which the trial court should have granted leave to amend. Boffo Cinemas, LLC v. Fireman's Fund Ins. Co., 2023 Cal App. Unpub. LEXIS 250 (Cal. Ct. App. Jan. 13, 2023). 

    Boffo owned and operated five movie theatres containing on-site restaurants, cafes and bars. It was insured by a commercial business policy issued by Fireman's Fund. When the local government orders at the outset of the pandemic forced Boffo to close its theatres, Boffo submitted a claim for business losses to Fireman's Fund. The claim was denied because there was no direct physical loss of or damage to property.

    Boffo sued Fireman's Fund for breach of contract. Fireman's Fund demurred. Boffo argued the complaint stated a claim under the crisis management and event cancellation and postponement provisions by alleging that its losses were caused by the presence of COVID-19 contamination, causing the shut-down of its theaters. Boffo sought leave to amend in the event the court was inclined to sustain the demurrer to address any deficiencies the court identified. The court granted the demurrer because it did not see how an amended complaint would cure the complaint.

    On appeal, the court agreed the complaint did not state a cause of action for coverage under the policy's business income or civil authority provisions. Further, Boffo could not allege facts implicating a scenario triggering coverage under the business income and civil authority provisions of its policy. 

    The trial court, however, should have granted Boffo leave to amend to attempt to state a cause of action for coverage. The crisis management coverage endorsement provided that Fireman's Fund would pay for the actual loss of crisis event business income sustained due to the necessary suspension of operations during the crisis event period of restoration. The policy defined a covered crisis event to include "premises contamination." This included premises contamination by communicable disease. The court could not say conclusively it was impossible for Boffo0 to make out a factual scenario sufficient to trigger coverage. 

    The same conclusion was reached with respect to Boffo's ability to allege coverage under the policy's event cancellation and postponement expense reimbursement endorsement. This endorsement covered non-refundable expenses incurred in connection with a covered special event cancelled due to acts of civil authority that prevented access to the described premises. The trial court erred by denying Boffo live to amend to attempt to state a cause of action for coverage under this provision

Hawaii Supreme Court To Decide Agent's Alleged Negligence in Failing to Submit Claim

    The Hawaii Supreme Court granted certiorari in a case involving an agent's alleged negligence in deciding not to submit a  claim. Pflueger, Inc. v. AIU Holdings, Inc., 2023 Haw. LEXIS 3 (Haw. Ct. App. Jan. 6, 2023). Our post on the Intermediate Court of Appeals decision is here.  

    The insured received a subpoena and informed the agent. The agent responded that a subpoena was not considered a "claim" and did not submit the claim to the insurer. Later, the insured's attorney submitted the claim which was denied as untimely. The insured settled with the insurer, but continued the lawsuit against the agent.

    The jury found in favor of the insured, but the Intermediate Court of Appeals vacated the judgment. On remand, the trial court granted summary judgment to the agent because the insured had put forth no evidence to establish that the agent's conduct contributed to the insurer's denial of the claim. In the second appeal, the Intermediate Court of Appeals found the causation issue, i.e., whether the insurer would have denied coverage had the claim been timely submitted, raised an issue of material fact that should be left to the fact-finder. Therefore, the circuit court erred in granting the motion for summary judgment. 

    The dispute now moves to the Supreme Court.

    Thanks to my partner and blogging colleague, Mark Murakami, for notice of the cert. grant. 

Pennsylvania Superior Court Affirms Finding of Direct Physical Loss in COVID-19 Claim

    After the Court of Common Pleas granted summary judgment to the insured on its business interruption claim, the Pennsylvania Superior Court affirmed. Ungarean v. CNA & Valley Forge Ins. Co., 2022 Pa. Super. LEXIS 467 (Pa. Super. Ct. Nov. 30, 2022). 

    Timothy Ungarean operated a dental practice. As a result of the pandemic, Ungarean had to close his dental practice to the public expect for emergency dental procedures. This caused a drastic loss in income, causing him to furlough employees and suffer other harmful consequences. Ungarean filed a claim with CNA for loss of business income due to the physical loss of or damage to his property. CNA denied coverage because Ungaren's dental practice did not suffer physical damage. 

    Ungaren filed a class action suit and moved for summary judgment. The trial court granted the motion, holding that Ungaren had suffered a direct physical loss of his dentil practice and was therefore entitled to business interruption coverage under the policy.

    The trial court noted that the CNA policy provided coverage for "direct physical loss of or damage to the property . . ." CNA wrote the phrase in the disjunctive, meaning that "direct physical loss" must mean something different from "direct physical damage." The definition of "loss" included the loss of possession or deprivation of the property, whereas damage did not. It was therefore reasonable to find that "loss of property' included the act of being deprived of the physical use of one's property. The Superior Court was convinced the trial court's reasoning was correct and resulted in a reasonable interpretation of the CNA policy.    

    Further, none of the exclusions were applicable. The "contamination by other than pollutants" exclusion did not apply. Nor did the exclusion for "wet rot, dry rot, and microbes" did not apply to the facts of this case. 

    CNA also sought to invoke the "Ordinance or Law" exclusion. The exclusion barred coverage for loss due to the enforcement of "any ordinance or law regulating the construction, use or repair of any property." The inclusion of "construction" and "repair" with "use" indicated that the exclusion related to the physical structural integrity of the property. The physical structural integrity of the properties was not at issue and the narrow application of the exclusion was unavailable to CNA. 

    Finally, because access to the property was prohibited by an action of civil authority, the Civil Authority provision applied. 

Motion to Dismiss COVID Claim Granted in Part, Denied in Part

    The insurer's motion to dismiss the insured's claim for business losses due to COVID-19 was granted in part, denied in part. SRL v Zurich Am. Ins Co., 2022 U.S. Dist. LEXIS 210058 (N.D. Ill. Nov. 21, 2022). 

    Excelsior owned and managed the Westin Excelsior Rome, a luxury hotel in Rome. The hotel suffered business income losses with the onset of the pandemic.While the hotel was not forced to close, its bookings decreased to virtually nothing. The Excelsior's complaint alleged that the COVID-19 virus was present in and around the hotel as multiple guests and at least six employees tested positive for COVID-19. It further alleged that the virus attached to interior property and was in the air. 

    Excelsior was insured under a commercial property policy issued by Zurich. The court agreed there was no direct physical loss because no structure suffered damage. Among the coverages under the policy, however, was a "Cancellation of Bookings" provision. Zurich agreed there was coverage under this provision, but argued that Excelsior had already reached its annual limit for Cancellation of Bookings claims.

    Zurich relied upon a declaration from one of its executives claiming that "the Policy's annual aggregate 'limit under the Cancellation of Bookings provision has been fully paid, thereby exhausting this potential available coverage." The court determined that Excelsior's claim under the Cancellation of Bookings provision survived dismissal. Zurich could later move for summary judgment on the claim.

    The court also denied Zurich's motion in so far as it sought a declaratory judgment that it was entitled to coverage under the policy. Because Excelsior's claim for coverage under the Cancellation of Bookings provision survived, Zurich's argument that Excelsior's declaratory judgment claim should be dismissed for failure to state a claim lacked merit as to that provision. 

Court Grants Partial Summary Judgment on Conversion Claim Against Insurer

    Although the court was incredulous that the parties were disputing the possession of a gate opener allegedly damaged in a lightning strike, it granted the insured's motion for partial summary judgment finding the insurer had converted the gate opener. Privratsky v. Liberty Mut. Fire Ins Co., 2022 U.S. Dist. LEXIS 196002 (D. Haw. Oct. 27, 2022). (Full disclosure, our office is co-counsel for the insured).

    Mr. Privratsky alleged his home on Maui was struck by lightning which caused an electrical surge. The home and personal property were damaged. The alleged cost of repair work at one point was as much as $325,000. A claim was submitted under a homeowner's policy issued by Liberty Mutual. Liberty paid for only some of the damage. Privratsky filed suit alleging three causes of action for: (1) declaratory judgment that the losses were covered by the policy issued by Liberty; (2) bad faith; and (3) conversion of personal property, namely, the damaged gate operator.

    Privratsky filed a motion for partial summary judgment on the conversion claim, arguing that after taking the gate operator during an inspection, Liberty refused to return it despite multiple demands to do so. 

    Hawaii courts required the following with respect to conversion: (1) a taking form the owner without his consent; (2) an unwarranted assumption of ownership; (3) an illegal use or abuse of the chattel; and (4) a wrongful detention after demand. Freddy Nobriga Enters., Inc. v. Dept of Haw. Home Lands, 295 P. 3d 993, 999 (Haw. Ct. App. 2013). The parties disagreed over whether each of these acts had to be proven to establish Liberty's conversion or whether any one, if proven, would suffice. The court agreed with Privratsky that, in Hawaii, any one of the four acts, if proven would establish a claim for conversion. 

    Here, Privratsky owned the gate operator. After the lightning strike, Liberty sent an inspector to the home who removed the gate operator and took it with him. On numerous occasions, Privratsky requested the return of the gate operator, but Liberty refused to do so. Instead, Liberty remained in possession of the gate operator.

    The court found these facts were sufficient to prove liability on the conversion claim because Privratsky had demanded the return of his property and it had been refused. Therefore, Privratsky's motion was granted and Liberty's counter-motion for partial summary judgment was denied. 

    

Denial of Insurer's Motion to Dismiss COVID-19 Case Affirmed

    The Appellate Division of the Supreme Court of New York affirmed the lower court's denial of the insurers motion to dismiss COVID-19 claims. Tina Turner Musical LLC v. Chubb Ins. Co. of Europe SE, 2022 N.Y. App. Div. LEXIS 6758 (N.Y. App. Div. Dec. 6, 2022). The case is  here. 

    The insured sought policy benefits for losses due to the cancellation of its Broadway show during the COVID-19 pandemic. Chubb denied the claim under the policy's communicable disease exclusion. The exclusion precluded coverage for:

[A]ny loss directly or indirectly arising out of, contributed to by, or resulting from . . . any communicable disease or threat or fear of communicable disease . . . which leads to: (1) the imposition of quarantine or restriction in movement of people or animals by any national or international body or agency; (2) any travel advisory or warning being issued by a national or international body or agency.

    The exclusion did not clearly and unmistakably preclude from coverage losses caused by communicable diseases that were of such a systemic nature as to lead to quarantine or travel advisory orders by a national or international body or agency. The court found that it precluded from coverage losses resulting from quarantine or travel advisory orders issued by a national or international body or agency in response to a communicable disease. Here, the insured's losses stemmed from Executive Orders issued by the New York State Governor and New York City Mayor banning performances and gatherings in theaters. Therefore, the exclusion did not apply. 

    The insured's claim for consequential damages was adequately pled and the denial of Chubb's motion to dismiss was affirmed. 

West Virginia Supreme Court Receives Certified Question on Trigger of Coverage

    The Fourth Circuit sought guidance from the West Virginia Supreme Court regarding the proper trigger of coverage for latent illnesses due to exposure to chemicals that leaked from tanks. Westfield Ins. Co. v. Sisterville Tank Works, Inc., 2022 U.S. App,. LEXIS 31403 (4th Cir. Nov. 14, 2022). 

    The tanks were manufactured by Sisterside Tank Works (STW). The underlying claimants had their illnesses diagnosed between 2014 and 2016, but the illnesses were allegedly caused by hazardous chemical exposure dating back to the 1960s. The claimants sued and STW defended itself against claims alleging that its negligence in manufacturing its products contributed to the illnesses. 

    Westfield provided some form of coverage to STW between 1985 and 2010. The federal district court ordered summary judgment in favor of STW, finding that Westfield owed STW coverage under the 1985-1989 policies. 

    Westfield appealed. It contended that the district court applied the wrong theory to determine when insurance coverage was triggered under West Virginia law. Finding no controlling authority in West Virgina, the Fourth Circuit certified the following question to the West Virgina Supreme Court:

At what point in time does bodily injury occur to trigger insurance coverage for claims stemming from chemical exposure or other analogous harm that contributed to development of a latent illness?

    It was uncontested that Westfield did not provide insurance to STW in 2014-2016, the years that the claimants' illnesses were diagnosed. The critical issue was whether Westfield owed coverage to STW when bodily injury occurred under the Westfield policies so as to trigger coverage for a latent bodily injury or illness. 

    Westfield argued that the manifestation theory of coverage should apply, while STW argued for application of the continuous theory of coverage. The district court applied a continuous coverage theory to this case, determining that any policy in place throughout the alleged period of harm was triggered by those claims. Federal district courts in West Virginia had concluded that the state law called for application of the manifestation theory in similar contexts.

    The Fourth Circuit therefore certified the question to the West Virginia Supreme Court.

    Under Hawaii law, the continuous injury trigger applies in situations as described in this case. See Sentinel  Ins. Co., Ltd v. First Ins. Co. of Hawaii, Ltd., 76 Haw. 277, 875 P.2d 894 (1994).

No Coverage for Alleged Misrepresentation Claim

    The court found there was no coverage for a misrepresentation claim against the insured sellers of a residence. Am. Family Mut. Ins. Co. v. Coyne, 2022 U.S. Dist. LEXIS 186417 (E.D. Mo. Oct. 12, 2022).

    Aaron and Tobi Beckman purchased a home from Denise Coyne. The Bockmans alleged in the underlying suit that Coyne represented that the property had a "2-car garage." A disclosure statement signed by Coyne stated she had disclosed all conditions which might lower the value of the property or adversely affect the Bockman's decision to buy the property. After purchasing the property, the Bockmans learned that they could not fit their two vehicles in the attached garage. The Bockmans alleged that substantial remediation was necessary to expand the depth of the garage to fit two cars within it. 

    The underlying suit alleged that Coyne had was engaged in fraud, misrepresentation and concealment by omitting material facts in connection with the sale of the home. Coyne allegedly engaged in negligent misrepresentation by failing to inform the Bockmans of the depth of the attached garage. 

    American Family issued a homeowners policy and a personal liability umbrella policy to Coyne. American Family filed a declaratory judgment action against the Bockmans and Coyne seeking a declaration that there was no insurance coverage afforded under either policy. 

    The Bockmans contended that the underlying complaint alleged an "occurrence" under the policies. The underlying complaint alleged that the negligent misrepresentation resulted in the Bockmans' loss of use of the property. The court observed that the negligent misrepresentation claim may qualify as an "occurrence." However, the underlying complaint did not clearly allege "property damage" under the policies.

    The Bockmans admitted that there was no physical harm to tangible property, but argued they experienced a "loss of use" of the two-car garage because it did not accommodate their vehicles. The umbrella policy included provisions stating that "loss of use of tangible property that is not physically injured" was a covered loss. 

    The court held that the underlying complaint did not allege "property damage" because the purported damage to the garage predated the Bockmans' purchase of the house and was not caused by the alleged occurrence. The Bockmans merely asserted that they subjectively experienced a diminution in value of their property because they were unable to fit their vehicles into the garage. They colud not show that the representations caused the garage to decrease in size or experience any other physical change. The court also noted that the garage could fit two smaller cars. Further the Bockmans could have used the garage for storage or other uses.

    The court therefore granted summary judgment in favor of American Family. 

Ninth Circuit Narrows Scope of Coverage for "Damages Because of 'Bodily Injury'"

    The Ninth Circuit, applying Oregon law, limited the scope of the insuring agreement for "damages because of 'bodily injury'" and found there was no duty to defend. Bliss Sequoia Ins. & Risk Advisors, Inc. v. Allied Prop. & Cas. Ins. Co., 2022 U.S. App. LEXIS 29905 (9th Cir. Oct. 27, 2022). 

    In 2014, the operator of the water park sought professional risk-management advice from Bliss Sequoia Insurance and Risk Advisors, Inc. regarding coverage sufficient to insure the water park. Bliss procured coverage with an overall limit of $5 million. 

    One year later, a six-year-old was seriously injured in a near-drowning incident at the water park, allegedly due to the park's insufficient staffing of lifeguards. The boy's family sued the park, which ultimately settled for $49 million. The water park's liability coverage was $44 million short.

    As part of the settlement agreement with the injured boy's family, the water park assigned its claims against Bliss to the family. The family sued Bliss, who tendered to its general liability insurer, Allied Property and Casualty Insurance, to defend and indemnify against the professional negligence claims. Bliss argued that the insuring agreement promising to pay sums that Bliss "becomes legally obligated to pay as damages because of 'bodily injury'" triggered coverage. Allied denied coverage, however, and Bliss filed suit in the District of Oregon.The district court granted summary judgment to Allied, concluding that the claims against Bliss did not arise "because of bodily injury,"

    Bliss appealed and asserted that the claims against it for professional negligence arose "because of" the child's bodily injury. If "because of" was understood in its broadest possible sense, Bliss had a point. The child's injury caused his family to sue the water park, which in turn caused the park to sue Bliss for professional negligence.

    This went too far, however. While Bliss's liability would not have been incurred but for the child's injury, it was equally true that it would not have been incurred but for the construction of the water park years before. Bliss's professional-negligence claims did not involve damages "because of bodily injury."

    The phrase "because of bodily injury" included only damages that reasonably or foreseeably resulted from bodily injury - not just any that may arise in a chain of lawsuits connected in some way to someone's injury. The family's personal injury suit against the water park arose "because of bodily injury," but the claims of professional negligence did not. Allied had no duty to defend or indemnify Bliss.