Insurance Law Hawaii

Hawai`i Court Finds Duty to Defend Allegations of Defamation, Assault and Battery

     In Allstate Ins. Co. v. Gadiel, Civ. No. 07-00565, 2008 U.S. Dist. LEXIS 90923 (D. Haw. Nov. 7, 2008), the court considered whether Allstate must defend a landlord in an action filed by his tenant. 

     The tenant alleged assault and battery, defamation, and intentional and negligent infliction of emotional distress.  Based on the homeowner's policy, Allstate defended under a reservation of rights, but filed an action for declaratory relief to establish there was no duty to defend.  Allstate argued that because a reasonable insured would have anticipated harm resulting from intentional conduct, the conduct did not constitute an "occurrence."

    The district court determined the record did not establish that the alleged injuries were a foreseeable result of the landlord's disputed conduct.  The insured provided evidence that he believed the alleged defamatory statements made about the tenant were true.  Consequently, at minimum there was a question of fact as to whether the allegedly defamatory statements constituted an "occurrence."  Further, the policy's intentional act exclusion, excluding coverage for any bodily injury that was intended or should have been expected by the insured, did not bar coverage because there remained a question of fact as to the insured's intent regarding his conduct as alleged in the complaint.

Hawai`i Supreme Court Holds Record Review is Not Independent Medical Exam

   The Hawai`i Supreme Court recently affirmed the Intermediate Court of Appeal, deciding that a medical record review was not independent medical examination.  See Gillian v. Government Employees Ins. Co., 2008 Haw. LEXIS 254 (Haw. Oct. 29, 2008).  We reported on the ICA's decision here. 

    Gillian was injured in an auto accident while a passenger in a car insured by GEICO.  Gillian received personal injury protection benefits.  GEICO questioned benefits which Gillian received several months after the accident, and hired its own doctor to review Gillian's medical records.  Upon review of the records, GEICO's doctor determined Gillian was not entitled to coverage for all of the medical services provided.

    Gillian sued, contending GEICO had hired an independent medical examiner, Dr. Hector, without first seeking Gillian's consent in violation of Haw. Rev. Stat. 431:10C-308.5.  The statute permits an insurer to use an "independent medical examination" to review a claimant's treatment.  Haw. Rev. Stat. 431:10C-308.5 (b). The independent medical examiner must be selected by mutual agreement of the insurer and insured.  Id.  GEICO did not seek Gillan's consent before hiring Dr. Hector, however.  GEICO contended mutual consent for a medical record review was unnecessary because it did not constitute an "independent medical examination."  The trial court found this procedure violated Haw. Rev. Stat. 431:10C-308.5, but the Intermediate Court of Appeals reversed.

    In its analysis, the Supreme Court found the term "independent medical examination" in Haw. Rev. Stat. 431:10C-308.5 (b) ambiguous. Therefore, the Court deferred to the Insurance Commissioner's interpretation.  The Commissioner had previously determined a record review without a physical examination did not qualify as "an independent medical examination" within the meaning of Haw. Rev. Stat. 431:10C-308.5 (b).   Therefore, the Supreme Court affirmed the Intermediate Court of Appeals, holding that an actual examination was an essential aspect of an "independent medical examination" under Haw. Rev. Stat. 431:10C-308.5 (b).  

Percentage Fees Awarded Under Workers' Compensation Statute Unfair

     If attorney fees based on a percentage of damages are unreasonably low, should the court depart from the statutory percentage and award reasonable fees?  The court did so in Murray v. Mariner Health and Ace USA, No. SC07-244, 2008 Fla. LEXIS 2011 (Fla. Oct. 23, 2008).

     Petitioner, a nurse, sought workers compensation benefits, including attorney fees, after suffering injury.  The employer and its insurer denied benefits.  At an administrative hearing, $3,244.21 in benefits were awarded.  The Florida fee statute provided fees equal to 20 percent of the first $5000 of benefits secured.  Elsewhere, the statute granted the successful claimant "reasonable attorney fees" from the employer and insurer.  At a hearing on fees, evidence was presented that the prevailing rate in workers' compensation cases was established at $200 per hour.  Nevertheless, the hearing officer award fees of $684.84, or $8.11 per hour, under the statutory formula.

    On appeal, the Florida Supreme Court found an ambiguity because the statute called for "reasonable" attorney fees while simultaneously requiring use of a formula that could produce an unreasonable result.  The Court turned to rules of statutory construction.  Where two statutory provisions were in conflict, the specific provision controlled the general provision.  The provision awarding "reasonable attorney fees" was more specific and controlling.  Further, if the formula provision controlled, the reasonable fee provision would be rendered meaningless because the formula could result in adequate fees in some cases and excessive fees in other cases.

     Hawai`i has a fee shifting statute allowing the prevailing party in assumpsit cases to receive fees up to 25% of the judgment.  Haw. Rev. Stat. 607-14.  An insured, however, would likely seek fees under the fee statute provided in the Insurance Code, Haw. Rev. Stat. 431:242, which allows  reasonable attorney's fees when the insurer contests coverage and is ordered by a court to pay benefits under the policy.

Business Interruption Deductible Presents Issue of First Impression

     If a policy's deductible does not apply to "ensuing loss or damage," is indirect business interruption an ensuing loss?  The court in RTG Furniture Corp. v. Industrial Risk Insurers, 2008 U.S. Dist. LEXIS 85237 (S. D. Fla. Oct. 9, 2008) faced this issue, noting it was a question of first impression nationwide.

    The insured had an all risk policy with a $5 million "Name Storm Occurrence Deductible" ("NSO Deductible").  The NSO Deductible applied a $50,000 deductible for all losses arising out of any one occurrence.  For losses resulting from a Named Storm Occurrence, however, a maximum deductible of $5 million for each occurrence applied.  However, the deductible did not apply to "ensuing loss or damage not otherwise excluded."  

    The insured made a claim for business interruption losses caused by three hurricanes in 2004.  It maintained all its losses "ensued" from the Hurricanes and therefore fell outside the $5 million NSO Deductible.  It argued "ensuing" loss implied an element of indirect loss.  The losses sustained by the insured did not derive from direct physical damage to the store location claiming the loss, but rather from intervening acts of civil authority, interrupted ingress/egress, power interruptions, etc. which interrupted business at store locations, but there was no direct physical damage.

    The insurer refused to pay the claims, contending the losses did not exceed the $5 million NSO Deductible.  It argued the claimed losses were not "ensuing" because they were not wholly separate and distinct from loss caused by the peril (windstorm) which was subject to the Deductible.

    Both parties moved for summary judgment.  The policy did not define "ensuing loss."  Neither party cited cases which demonstrated the use of the phrase in a policy deductible.  Therefore, the court determined the meaning of the term "ensuing loss" as used in the NSO Deductible was ambiguous.  Therefore, extrinsic evidence could be considered to determine the intent of the parties and to clarify the ambiguity.  The court denied both motions for summary judgment on the construction of the NSO Deductible because a genuine issue of fact on the issue of the parties' intent existed.

Insured's Waiver of Insurer's Credit for Workers' Compensation Does Not Negate Coverage

     Does the insured breach the policy by waiving the insurer's right to a credit for workers' compensation?  In Travelers Prop. Cas. Co. of Am. v. ConocoPhillips Co., No. 06-15664 (9th Cir. Oct. 20, 2008), the Court held the policy was not breached by the insured's waiver.

     During a fire at the insured's refinery, several workers were killed and many others injured.  As a result, various actions were filed against the insured, including civil lawsuits and claims with the California Workers' Compensation Board (WCAB).  Travelers provided workers compensation for the insured.

     As part of the settlement of the civil lawsuit, the insured agreed, without the express consent of Travelers, to waive the right to statutory credit against future workers compensations benefits.  The WCAB subsequently awarded workers' compensation benefits to the injured workers.  

     Travelers petitioned the WCAB for a credit of the settlement amount against any future benefits that Travelers would have to pay the workers based on a California statute that provided once the employee received compensation provided by the Board and secured a judgment or settlement of civil damages, the employer would be relieved from paying further compensation to the employee.  The WCAB denied the petition, finding that the insured had waived Traveler's right to a credit under the statute. 

     Traveler's sued for declaratory relief arguing the policy had been breached, but the district court granted summary judgment to the insured.

     The Ninth Circuit affirmed. The Excess Payments portion of the policy stated the insured was responsible for any payments in excess of the benefits regularly provided by the workers compensation law. Travelers argued the insured breached this provision because the "benefits regularly provided" included the right to a credit under the California statute. Further, because the workers' compensation benefits that Travelers was paying would have been less had the insured not waived the credit, Travelers was forced to make "excess" payments when the credit was waived. The Ninth Circuit disagreed. The fact that the amount of workers' compensation benefits might have been reduced because of other money paid to the workers in the civil lawsuits did not increase the workers' compensation benefits paid to the workers beyond the "regularly provided" amount required by the workers' compensation law.

     Elsewhere, the policy instructed the insured not to voluntarily make payments, assume obligations, or incur expenses, except at the insured's own cost. The Ninth Circuit determined this provision only pertained to voluntarily making payments or incurring expenses and not to a non-monetary requirement simply to refrain from doing something. The insured did not voluntarily make payments, assume obligations, or incur expenses when it waived the right to the statutory credit.