Insurance Law Hawaii

Hawaii Appellate Court Finds Agent May Be Liable for Failing to Submit Claim

    After the agent informed the insured there was no coverage and submitting a claim would be a useless effort, the Hawaii Intermediate Court of Appeal reversed the trial court's dismissal of the insured's suit against the agent. Pflueger, Inc. v. AIG Holdings, Inc., 2022 Haw. App. LEXIS 279 (Haw. Ct. App. Sept. 2, 2022).

    In May 2008, Pflueger notified its agent, Noguchi & Associates, Inc., that it had received federal grand jury subpoenas. Noguchi informed Pflueger that the subpoenas did not qualify as a "claim" under two policies issued by National Union. Consequently, Noguchi did not forward a claim or the subpoenas to National Union and did not seek clarification as to whether the grand jury subpoenas were covered under the policies. Pflueger relied upon Noguchi's representations and took no further action until its attorney submitted a demand letter tendering Pflueger's defense to Nation Union nine months later, in February 2009. 

    National Union found the claim untimely. Further, the materials submitted to National Union did not constitute a claim. The policies required the materials submitted to be an indictment, information or similar document to be a claim. 

    Pflueger filed suit against National Union and Noguchi. Pflueger alleged Noguichi was negligent and had made negligent misrepresentations. Pflueger eventually settled with National Union. 

    Prior to trial, the court granted Pflueger's motion for partial summary judgment, finding that the grand jury subpoenas constituted a "claim" as that term was defined in National Union's policy. The jury then returned a special verdict in favor of Pflueger. Noguchi appealed, and the Intermediate Court of Appeal (ICA) vacated the judgment, holding that the circuit court erred in excluding deposition testimony that was essential to Noguchi's defense. 

    On remand, Noguchi moved for summary judgment on the issue of causation, arguing there was no evidence of proximate cause against Noguchi. The circuit court agreed, finding Pflueger had put forth no evidence to establish that Noguchi's conduct was a contributing or substantial factor in National Union's decision to deny coverage. Pflueger appealed.

    The ICA held that the causation issued as framed by Noguchi (i.e., whether National Union would have denied coverage even if Noguchi had timely tendered the grand jury subpoena matter) involved a genuine issue of material fact. The issue of causation was generally left to the fact finder. Whether Noguchi's actions and inactions were legal causes of Pflueger's losses in light of National Union's denial of the claim were issues for the fact finder and could not be decided as a matter of law. The circuit court erred in granting Noguchi's motion for summary judgment. 

No Coverage for Attorney's Fee Award Found to be Sanction

    The court rejected the attorneys' claim that an award of attorney's fees awarded for pursuing a frivolous claim under the Individuals with Disabilities Education Act (IDEA) was not a "sanction" and was covered under the policy Wesco Ins. Co. v. Roderick Linton Belfance, LLP, 2022 U.S. App. LEXIS 18263 (6th Cir. July 1, 2022).

    The lawyers brought claims against schools under the IDEA. They alleged that their clients were not afforded an appropriate education. The district court ruled for the schools. After the claims failed, the schools sought their attorney's fees from the lawyers under IDEA's fee-shifting provision. The schools alleged that the lawyers presented sloppy pleadings, asserted factually inaccurate or legally irrelevant allegations, and needlessly prolonged the proceedings. 

    The lawyers asked Wesco to pay the fees under their professional liability policy. Wesco declined because the fees fell within the policy's exclusion for "sanctions." Wesco then filed a suit for a declaratory judgment that its policy did not apply. The district court granted summary judgment to Wesco.

    The attorneys appealed. The Sixth Circuit noted that "sanctions" were not defined in the policy. Here, however, the award of attorneys' fees was a coercive measure because a court compelled a party or attorney to pay it. IDEA provided for an award of fees to a prevailing party who filed a complaint found to be frivolous, unreasonable, or without foundation. The schools successfully proved this misconduct, and their complaints unambiguously requested "sanctions."  Therefore, the schools' suit thus fell within the "sanctions" exclusion in Wesco's policy. 

    Thanks to blogging colleague, Robert Thomas, for forwarding this case.

Late Notice Bars Insured's Claim for Loss Caused by Hurricane

    The court found that the failure to provide prompt notice of damage caused by Hurricane Irma barred plaintiff's claim for coverage. Garcia v. Scottsdale Ins. Co., 2022 U.S. Dist. LEXIS 149312 (S.D. Fla. Aug. 18, 2022).

    On September 10, 2017, plaintiff's property allegedly suffered damage due to Hurricane Irma. Shortly thereafter, plaintiff observed a water stain on the ceiling of the bedroom which was painted over. She did not take any pictures of the water stain before repainting. Plaintiff reported to her experts that she observed other water stains in various areas in 2017, 2018 and 2019, and that she painted over them each time. She again observed water stains in several rooms in 2020, at which time she became aware of the magnitude of the problem and went to an attorney. Plaintiff did not report her claim until May 27, 2020. 

    Scottsdale inspected the property twice before denying coverage because no damage from a covered cause of loss was observed during the inspections. Scottsdale also reserved rights based on plaintiff's failure to give prompt notice of the loss as required by the policy. Both plaintiff's experts and Scottsdale's experts found evidence of repairs to the roof before and after Hurricane Irma based on aerial satellite photographs of the property. Scottsdale received no documentation regarding the condition of the property immediately after Hurricane Irma and no documentation of wind damage to the property after the alleged date of loss, but before any repairs. 

    Plaintiff filed suit and Scottsdale moved for summary judgment. The observation of roof repairs following Hurricane Irma indicated plaintiff was aware of damage for years before she reported the claim. Therefore, the notice was not prompt as a matter of law. 

    There was a presumption that Scottsdale suffered prejudice. Plaintiff was unable to rebut the presumption. Therefore, Scottsdale was entitled to summary judgment.

    

Insurer Fails to Establish Prejudice Due to Late Notice

    Summary judgment awarded to the insurer was reversed because the insurer presented no evidence of prejudice caused by untimely notice. Perez v. Citizens Prop. Ins. Corp., 2022 Fla. App. LEXIS 5435 (Fla. Ct. App. Aug. 10, 2022).

    The insureds' home suffered water damage due to Hurricane Irma around September 10, 2017. A claim was submitted to Citizens on November 27, 2018. Citizens had an independent adjuster inspect, but then denied the claim due to untimely notice. 

    The insureds sued and Citizens moved for summary judgment. Citizens argued it was prejudiced because it could not confirm the cause of the loss or the property damage attributed to it.

    The court agreed that the insureds' notice was untimely. The insureds were notified by tenants renting the property that leaks appeared around the time of Hurriane Irma. The policy language, however, placed the burden to rebut the presumption of prejudice caused by late notice on Citizens. Whether the insurer was prejudiced was a question of fact. Citizens failed to demonstrate any prejudice due to the untimely notice.

    Therefore, the summary judgment decision was reversed. 

    

South Carolina Supreme Court Finds Presence of COVID-19 is Not "Direct Physical Loss or Damage"

    Answering a certified question, the South Carolina Supreme Court determined that the presence of COVID-19 and/or government shutdown orders did not constitute "direct physical loss or damage" to property. Sullivan Mgmt. v. Fireman's Fund Ins. Co., 2022 S.C. LEXIS 90 (S.C. Sup. Ct. Aug. 10, 2022).

    Sullivan Management, LLC operated restaurants in South Carolina. After government shutdown orders were issued, Sullivan filed a claim for business interruption with Fireman's Fund. The claim was denied and Sullivan filed suit. The federal district court certified the following question to the South Carolina Supreme Court:

Does the presence of COVID-19 in or near Sullivan's properties, and/or governmental orders, which allegedly hinder or destroy the fitness, habitability or functionality of property, constitute "direct physical loss or damage" or does "direct physical loss or damage" require some permanent dispossession of the property or physical alteration to the property.

    Fireman's relied upon policy language affording coverage during the "period of restoration," which was the time it took to repair, replace, or rebuild the property. The restoration provision would be mere surplusage if the phrase in question were construed as broadly as Sullivan requested. The court agree with Fireman's. 

    The mere loss of access to a business was not the same as direct physical loss or damage. Although the government orders affected business operations, these restrictions did not cause any direct physical loss or damage. Loss connoted destruction, meaning it was broader than the term damage. A property that suffered physical loss was damaged, but the converse was not necessarily true because a property could suffer damage without enduring destruction or loss. 

    Moreover, the policy's restoration period provision limited business interruption coverage during the period of restoration, or put differently, the time for the physical loss or damage to be repaired, rebuilt, or replaced with reasonable speed and like kind and quality. Without a physical alteration to property, there would be nothing to repair, rebuild or replace. This further demonstrated that direct physical loss or damage required something material and tangible.

 

Louisiana Court of Appeals Denies Insurer's Motion for Rehearing on COVID-19 Claim

    After reversing the trial court's denial of the insured's petition for declaratory judgment on a business interruption claim, the Louisiana Court of Appeals denied the insurer's motion for rehearing en banc. Cajun Conti LLC v. Certain Underwriters at Lloyd's, 2022 La. App. LEXIS 1278 (La. Ct. App. Aug. 8, 2022).

    Cajun Conti LLC d/b/a Oceana Grill was one of the first insureds to file a lawsuit after denial of its business interruption claim caused by the pandemic. Oceana suspended operations to comply with government shut-down orders. It eventually reopened, but with reduced capacity to curtail the spread of COVID-19 particles on the premises. In addition to reducing its capacity, Oceana decontaminated its restaurant to clean surfaces of the viral particles.

    Lloyd's denied coverage because there was no "direct physical loss or damage." Oceana filed suit. After a bench trial, the court denied Oceana's petition for declaratory judgment. The court of appeals found the policy to be ambiguous and capable of more than one reasonable interpretation in regards to lost business income. The ambiguity was construed in Oceana's favor and the trial court judgment was reversed. Lloyd's now sought a rehearing.

    The court noted that the policy provided coverage for the insured's "period of restoration" following "direct physical loss of or damage to the property" due to a suspension of business operations. "Suspension" was defined in the policy as a cessation or slowdown of business activities. In defining "suspension" to include a slowdown of business activities, this provision did not appear to require that the property be completely uninhabitable or unusable in order for coverage to prevail. 

    There was also an ambiguity in the policy. Lloyd's position that the insured must fully lose use of the property was one reasonable interpretation. However, another equally reasonable interpretation was that a covered loss was the inability to fully utilize the property, as argued by Oceana. 

    The motion for rehearing raised no new issues and the court did not err in reversing the trial court's judgment.

    

No Duty to Defend under Homeowner's Policy Where No Occurrence, No Property Damage

    The federal district court for the district of Hawaii granted the insurer's motion for summary judgment determining there was not duty to defend and no duty to indemnify the insured under a homeowner's policy. Allstate Ins. Co. v. Rosfeld, 2022 U.S. Dist. LEXIS 139123 (D. Haw. Aug. 4, 2022). 

    The insured homeowners were sued in the underlying case for alleged failure to disclose poor flooding and plumbing issues during a December 2016 sale of the residence on Kauai. The disclosure statement purportedly made false representations and omitted material facts regarding various issues with the residence. The disclosure statement noted no sewage, drainage, water-related, or grading problems on the property, no damage to structures from flooding or leaks, no defects in the foundations or slabs, and no defects in the interior walls, baseboards or trim despite the insureds having experienced such issues during their ownership. The underlying complaint further alleged that the property had a history of drainage problems dating to 2006 and 2007, which the insureds knew about, or should have known about, when completing the disclosure statement. The insureds made a claim with Allstate in 2014 under their flood and homeowners policies for flooding or seepage into the basement of the house.

    The insured tendered the underlying lawsuit to Allstate, who defended under a reservation of rights. Allstate then filed this suit in federal district court for a declaration that it had no duty to defend or indemnify the insureds. Allstate moved for summary judgment.

    The court determined there was no property damage alleged in the underlying suit. The complaint alleged that after they moved in, the plaintiffs discovered "numerous cracks in the concrete slab (many of which appeared to be covered with concrete caulk or liquid filler." The negligence claims in the underlying case were based on the insureds' failure to disclose the repairs, not that the repairs were negligent and caused further property damage. 

    There was also no "occurrence" alleged in the underlying case. The underlying complaint alleged that the insureds' actions or omissions were entirely intentional, not accidental. The underlying complaint alleged that the insureds knew about flooding and plumbing defects - for example, having warned a neighbor about them and having made an insurance claim for certain damages  - prior to selling the property, and yet failed to disclose those material conditions. Accordingly, Allstate owed no duties. 

    The insureds' cross-claim for bad faith was also dismissed. The insureds produced no evidence of bad faith to create an issue of fact at the summary judgment state. 

 

Actual Cost Value Includes Depreciation of Repair Labor Costs

    The court granted the insurer's motion to dismiss after determining that benefits paid for actual cost value (ACV) did not include repair or replacement labor costs. Shahan v. Allstate Vehicle & Prop. Ins. Co., 2022 U.S. Dist. LEXIS 135488 (W.D. La. July 29, 2022).

    Hurricane Laura damaged the insured's home. She filed a claim with Allstate under her homeowners policy. Allstate issued payment. The insured filed suit alleging Allstate wrongfully withheld amounts by depreciating labor when calculating the ACV of the damaged property. Allstate moved to dismiss.

    The policy was a replacement cost policy where the insured would receive the actual cash value of her insured property when it was damaged or destroyed by a covered peril. ACV was calculated by taking the repair/replacment which included both material and labor, and then deducting for depreciation. If no repairs or replacements were made, the insured was paid the ACV. If repairs or replacement was done, Allstate reimbursed the insured for the depreciation deduction. The insured challenged Allstate's refusal to pay 100% of the future labor costs, without any depreciation, even if the insured did not replace or repair the damaged property. 

    Some courts agreed with the insured's interpretation that ACV was indemnity coverage intended to return the policyholder back to the status quo, which would never be accomplished if repair labor was withheld. This court did not agree with the insured, however. 

    There was no ambiguity in the policy. The insured attempted to create an ambiguity where none existed. The policy here could not be interpreted to pay the insured for all future labor costs, which have not yet, nor may they ever be, incurred. Depreciation was the actual value of the damaged property reduced by a time factor depending upon the life expectancy of the property. ACV was the replacement of that property, less the depreciation. 

 

Failure to Allege Property Damage Within Policy Period Defeats Insured's Claim

    The insured's inability to determine when water damage occurred meant it could not pursue claims of property damage against the insurers. Creek v. State Farm Fire & Cas. Co., 2022 U.S. Dist. LEXIS 116939 (W.D. Wash. July 1, 2022). 

    Gold Creek Condominium complex experienced water damage. The complex was completed in 1982. The owners sued State Farm and Travelers under all-risk policies when tenders for the damage were denied. 

    In 2017, Creek hired an expert to investigate deterioration due to water intrusion. The expert noted that "water intrusion had been evident in the exterior walls, soffits, terraces, handrails and elevated entry walkways for some time." Thereafter, Creek tendered claims for property damage to State Farm and to Travelers.

    In January 2020, a joint exploratory investigation was conducted with representatives from Creek, State Farm and Travelers participating. Exploratory opening were made.so that the gypsum sheathing could be seen. Only one of the openings did not have water damage to the gypsum and it was in an area that was sheltered from wind-driven rain. 

    State Farm's expert found improper construction of the exterior walls and failure to adequately maintain the building enclosure system at the exterior walls led to rainwater infiltrating in during the frequent rainfall. Creek's expert opined that water intrusion, in the form of rainwater events, including wind-driven rain, was the primary causes of the water damage. At a deposition, Creek's expert acknowledged that he could not look at deteriorated gypsum sheathing plywood siding or wood framing and develop an opinion as to how long it took to deteriorate. Finally, Travelers' expert opined that the original construction deficiencies, poorly implemented repairs, inadequate maintenance, and genenal wear and tear had contributed to ongoing water infiltration at the exterior walls, walkways, and decks. Based on these reports, both State Farm and Travelers denied coverage.

    Creek filed suit for breach of contract and all parties moved for summary judgment. The court granted State Farm's motion based upon the one-year limitations provision of the policy. It stated that no action could be brought unless within one year after the occurrence causing loss or damage. "Occurrence" was defined as "an accident, including continuous or repeated exposure to conditions, which results in property damage. Therefore, Creek had to demonstrate the damage occurred during the policy period of 1989 to 1990, or not more than one year after the wind-driven rain caused the loss. The language of the policy did not depend on when the loss happened but when the "occurrence causing the loss' happened." The evidence did not give an reliable date of when the loss or damage occurred, so the policy was not triggered. 

    Travelers' motion also argued Creek could not prove that covered physical damage "commenced" during the policy's effective period. The policy provided that "Travelers will cover loss or damage commencing . . . during the policy period shown in the Declarations." Creek failed to identify instances of new damage during the Travelers policy's period to trigger coverage. Therefore, Travelers' motion also granted.

Hawaii Federal District Court Remands COVID-19 Business Interruption Case to State Court

    The federal district court for the district of Hawaii determined the insured's COVID-19 claims were novel and undecided by Hawaii state courts and remanded the case. Hawaii Theatre Center v. Am. Ins. Co., 2022 U.S. Dist. LEXIS 152836 (D. Haw. Aug. 25, 2022). 

    The Theatre sought coverage under its commercial property policy for business losses caused by the COVID-19 pandemic. American Insurance denied the claim. The Theatre filed suit in state court seeking a declaratory judgment on the coverage issues. American Insurance removed the case to federal court and the Theatre sought a remand because the case involved a determination of novel and important issues of insurance law not yet addressed by Hawaii courts. American Insurance countered that many federal courts had addressed similar issues and that no other relevant factors supported remand.

    The court determined that it had subject matter jurisdiction based upon diversity, but had discretion in deciding whether to grant jurisdiction in a declaratory relief action based on diversity. The court's discretion was governed by the factors in Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942). 

    In apply the factors, the court found there was no parallel state proceeding. However, the state law issues were novel and unsettled, having yet to be decided by Hawaii courts. If the court retained jurisdiction, it would be required to determine whether the Theatre's alleged losses and damages from COVID-19 constituted "direct physical loss of or damage to property" as contemplated by the policy. Nevertheless, American Insurance urged the court to retain jurisdiction and denied the issues because other district courts had done so when faced with similar arguments about the novelty of the COVID-19 pandemic. The cases cited by American Insurance, however, did not demonstrate that courts regularly rejected requests to remand cases addressing novel and unsettled issues related to the pandemic. Some of the courts exercised jurisdiction because non-declaratory relief claims were joined, and in other cases, the courts did not conduct a Brillhart analysis. 

   Finally, the court found there was no compelling federal interest, forum shopping or duplicative litigation in state court.

    Consequently, the court granted the Theatre's motion for remand.