Insurance Law Hawaii

Blog Challenge for Law Students

   Lexis Nexis Insurance Law Center is sponsoring a blog challenge for law students who wish to submit a post about the insurance topic of their choice.  Prizes include an Amazon Kindle, a complimentary subscription to the New Appleman on Insurance Law Library Edition, and a spot on the Insurance Law Center's New Appleman blogging team. The information can be downloaded here. Download Lexis Law School Extreme Blog Challenge.

   Thanks to Professor Hazel Beh, William S. Richardson School of Law, for providing this information.

Settlement for Hurricane Destruction Not Upset by Insurer's Additional Payment

   Can an insured who settles with the insurer pursuant to a mediation program later reject the settlement and seek additional coverage?  The Fifth Circuit denied such relief to the insured in Wiley v. State Farm Fire and Cas. Co., No. 09-60191 (5th Cir. Oct. 9, 2009).

    The insured's home was reduced to a slab by Hurricane Katrina.  State Farm rejected his claim based on the water damage exclusion and anti-concurrent cause provision in the policy.  The parties, however, entered the Mississippi Department of Insurance Hurricane Katrina Mediation Program, and in 2006 signed a settlement agreement.  After being told by State Farm that his entire claim would be denied because his home had been destroyed by storm surge, the insured released all known claims in exchange for $80,235. 

   In a 2007 letter, State Farm offered an additional $26,798 in exchange for another release after an agreement between State Farm and the Mississippi Department of Insurance was reached.  The insured rejected the second offer and brought suit to recover additional sums under his homeowner's policy.  The insured claimed he had learned that wind, and not solely storm surge, had caused part of the damage to his home.  Nevertheless, the district court granted summary judgment to State Farm.

   The Fifth Circuit affirmed.  The 2006 Settlement unambiguously represented a "full, complete and total final payment" for all insured damages that were known to the insured at the time of the settlement.  The 2007 offer was not an admission by State Farm that the original payment was incorrect, but preserved the status quo established by the 2006 settlement.  Further, the 2007 letter and additional payment offer was issued pursuant to negotiations between State Farm and state regulators, and the insured was not a party to the negotiations. 

  

Dismissal of Excess Carriers Reversed

   The insured Condominium Association had primary and excess coverage.  See El-Ad Residences at Miramar Condo. Assoc. v. Mt. Hawley Ins. Co., 2009 U.S. Dist. LEXIS 92216 (S.D. Fla. Sept. 24, 2009).  Significant property damage was caused by Hurricane Wilma.  The insured alleged that three years after the hurricane, the insurers failed to adjust or settle claims for damages. 

   The insured filed suit seeking a declaratory judgment to determine the enforceability of the policies and the scope of the damage.  Claims for breach of contract and the breach of the implied warranty of good faith and fair dealing were also included.  The insurers moved to dismiss.  The excess insurers aruged exhaustion of the primary insurance was a condition precedent to their liability.  The court disagreed because it was not apparent from the face of the complaint and attached policies that it was beyond doubt that the insured could prove no set of facts in support of this claim.

   Further, the insured was entitled to declaratory relief to determine whether it had a valid and enforceable right to coverage and the total damages sustained from Hurricane Wilma.  Finally, although Florida recognized a cause of action for breach of implied warranty of good faith and fair dealing, here the claim was duplicitous of the breach of contract claim. Both relied on the same facts, i.e., that defendants failed to promptly determine the value of the insured's loss.  Therefore, the breach of implied warranty claims were dismissed without prejudice.

Helicopter Crash Not Covered as "Common-Carrier Accident"

   When plaintiff's husband was killed in a helicopter accident while being transported to work in the Gulf of Mexico, the insurer paid $40,000 under the "Other Accident" provision of the accident insurance policy instead of $150,000 under the "Common-Carrier Accidents" provision.  See Smith v. American Family Life Assurance Co. of Columbus, No. 08-31032 (5th Cir. Sept. 28, 2009).

   The policy defined "Common-Carrier Accidents" as those "involving a vehicle . . . to transport passengers for a fee.  Common-carrier vehicles are limited to airplanes, trains, buses, trolleys and boats that operate on a regularly scheduled basis between predetermined points or cities.  A taxi is not a common-carrier vehicle."  "Other Accidents" were those "not classified as Common Carrier Accidents . . . ."  

   The helicopter was owned and operated by Rotorcraft Leasing Company, LLC.   Rotocraft conducted the doomed flight under a contract that allowed the decedent's employer to request chartered helicopter transport for its workers to offshore platforms in the Gulf as needed.  The insurer refused to classify the accident as a "Common-Carrier Accident" because the helicopter was not operated on a "regularly scheduled basis between predetermined points or cities."

   Plaintiff sued.  She prevailed on summary judgment after the district court found the definition of "Common-Carrier Accidents" ambiguous.  Because a "taxi" was not a "common-carrier vehicle," the list of covered vehicles was non-exhaustive.  Further, the policy excluded a taxi but failed to make any mention of a helicopter. The district court, however, never addressed the policy's requirement that a "common-carrier vehicle" operate on a regularly scheduled basis between predetermined points or cities.

   The Fifth Circuit reversed.  The policy's "regularly scheduled" requirement was not ambiguous and plaintiff failed to satisfy it.  Nor was there any evidence that the helicopter flight had been regularly scheduled between predetermined points or cities.  The National Transportation Safety Board determined the flight was operated under an "On-demand Air Taxi" certificate and described the flight as "non-scheduled." 

Insurer Must Defend Claims for Emotional Distress

   In Kreger v. General Steel Corp, No. 07-575, 2009 U.S. Dist. LEXIS 88074 (E.D. La. Sept. 23, 2009), the federal district court in Louisiana was placed in a difficult position of predicting whether a Colorado Supreme Court would find a duty to defend a claim for emotional distress.

   In the underlying suit, plaintiff sought damages from the insured for fraud, unfair and deceptive trade practices, conspiracy, negligence, negligent misrepresentation, fraud in the inducement, breach of contract and detrimental reliance. The complaint alleged no physical harm, but included a claim for damages for "severe mental anguish and emotional damages."  The plaintiff claimed in his deposition that the stress of the dispute caused him to lose sleep for eight months.  The insurer denied a defense, contending none of the allegations triggered coverage under the CGL policy.  

   The Louisiana court first had to decide whether Louisiana or Colorado law controlled.  Relying on Louisiana choice of law rules, it was determined this dispute between a Colorado insurer and Colorado insured over a policy issued in Colorado was properly determined by Colorado law.

   Making its best judgment on how the Colorado Supreme Court would rule on whether the insurer must defend a claim for emotional distress, the Louisiana court noted Colorado sets a high bar for insurance companies seeking to avoid their duty to defend.  Accordingly, the alleged negligence claim constituted an occurrence under the policy for purposes of determining whether there was a duty to defend.  The alleged loss of sleep causing the physical manifestation of emotional distress was enough to trigger a duty to defend.

Corban Presents Well-Reasoned Analysis of Anti-Concurrent Causation Clause

   Having now read the full Corban decision, I am impressed with the clarity of the analysis set forth in the opinion.  See Corban v. United Services Automobile Assoc., 2009 Miss LEXIS 481 (Miss. Sup. Ct. Oct. 8, 2009).  The Mississippi Supreme Court carefully considered the facts, offered a common sense analysis to the anti-concurrent causation clause, and determined the provision had no application to the facts at hand.  The case has implications for Hawai`i because homeowners' policies issued here typically include an anti-concurrent causation clause.

    The Corban's home suffered significant damage from Hurricane Katrina.  They held both homeowner's and flood policies with USAA, and submitted a claim for $1,607,926.  USAA hired an engineer who determined all of the first floor damage was caused by flood.  Therefore, coverage was limited to replacing the roof and repairing some of the damage around the house.  The Corbans eventually received $433,903.77 from USAA (the maximum payment of $350,000 under the flood policy and $83,903.77 under the homeowner's policy), leaving $1,174,022 in claimed losses unsatisfied.

   When the Corbans sued, USAA's motion for partial summary judgment was granted.  The trial court judge found "storm surge" was within the definition of "water damage" and therefore an excluded peril.  The anti-concurrent causation clause was unambiguous, but barred coverage for any damage caused by water or caused concurrently or sequentially by wind and water in combination.

    The Corbans filed an interlocutory appeal.  The Mississippi Supreme Court considered three issues: (1) did the trial court err in finding that "storm surge" was included in the "water damage" exclusion; (2) did the trial court err in finding that the anti-concurrent causation clause was applicable; (3) which party bore the burden of proof?

   The Supreme Court rejected the Corban's argument that "storm surge" was a covered peril because it was not included in the definition of "water damage."  "Storm surge" was plainly encompassed within the "flood" or "overflow of a body of water" portions of the policy's "water damage" exclusion.

   The Court next focused on the anti-concurrent causation clause, which excludes listed categories of loss "regardless of any other cause or event contributing concurrently or in any sequence to the loss."  The terms analyzed by the Court were "loss," "concurrently," and "in any sequence."

   Regarding "loss," the Court criticized other courts, including the Fifth Circuit Court of Appeals, for conflating the terms "loss" and "damage."  "Loss" typically follows "damage" to property.  Policies do not cover or exclude "damage," but focus on coverage or exclusion of "loss."  The insured's right to be indemnified for a covered loss vests at the time of loss.  Here, the Corbans were entitled to recover for all covered "direct, physical losses" to the property, unless excluded.

   The Mississippi Supreme Court shined in its analysis of the term "concurrently."  The Court reasoned the anti-concurrent causation clause only applied when perils acted in conjunction, as an indivisible force, occurring at the same time, to cause direct physical damage resulting in loss.  Under such circumstances, the Court accepted the Fifth Circuit's interpretation of the clause to exclude coverage.  The facts presented in the Corban case, however, did not include an "indivisible" force (wind and flood), occurring at the same time, causing direct physical damage resulting in simultaneous loss to the property.  Here the perils (wind and flood) acted in sequence, not concurrently, i.e., at different times, causing different damage, resulting in separate losses.

   Next, the Court found the phrase "in any sequence" in the policy troubling.  Because loss occurred when the insured suffered deprivation of physical damage to property, the phrase "in any sequence" could not divest an insured's right to indemnity for a covered loss.  This interpretation was consistent with other provisions in the policy which clearly stated indemnity to the insured was established at the time of the loss.

    Considering all of these key terms in the anti-concurrent causation clause together, the provision did not apply here.  The same loss with multiple causes, some covered (wind) and some not (flood), was simply not at issue.  

   Finally, the court considered the burden of proof.  Under "Coverage-A - Dwelling" and "Coverage B - Other Structures," the Corbans were required to prove a "direct, physical loss to property."  Thereafter, USAA had the burden to prove, by a preponderance of the evidence, that the causes of the losses were excluded by the policy, i.e., flood damage.  USAA had to indemnify the Corbans for all losses which USAA could not establish, by a preponderance of the evidence, to have been caused or concurrently contributed to by flood damage.

   With these straight-forward interpretations of the policy provisions, the case was remanded for trial.  It is not surprising that the Mississippi Supreme Court repeatedly referred to and complimented another well-reasoned decision interpreting the anti-concurrent causation clause, Judge Senter's decision in Dickinson v. Nationwide Mut. First Ins. Co., 2008 WL 1913957 (S.D. Miss. 2009) [reviewed here].  Together, the Corban and Dickinson decisions suggest it will be a rare case in which the anti-concurrent causation clause actually applies to deny coverage.   It is difficult to imagine circumstances under which multiple perils (wind and flood) act concurrently to cause the same property damage. 

Mississippi Supreme Court Rules Anti-Concurrent Causation Clause Inapplicable

   The Biloxi Sun Herald reports here that the Mississippi Supreme Court reversed today the trial court in Corban v. United Serv. Auto., No. 2008-IA-00645-SCT (Miss. Sup. Ct. Oct. 8, 2009).  We previously reviewed the Corbin case here, here and here.  The unanimous decision of the Mississippi Supreme Court is here. 

   One important issue before the Court was the impact on the anti-concurrent causation clause.  The trial court had ruled the anti-concurrent causation clause was to be applied as interpreted by the Fifth Circuit Court of Appeals, thereby barring coverage for damage caused by water or caused concurrently or sequentially by wind and water.  The Mississippi Supreme Court reversed, holding the anti-concurrent causation clause was inapplicable in Corban because the wind and water losses were separate or in sequence, not one indivisible force.  The case now goes back to the trial court.

   More to follow on Corban after an opportunity to review the opinion.   

Federal Court Without Jurisdiction Where Policy is not a Maritime Contract

    Whether the federal court has jurisdiction over a coverage dispute of a purported maritime policy was the issue in New Hampshire Ins. Co. v. Home Savings and Loan Co. of Youngstown, Ohio, No. 08-3902, 2009 U.S. App. LEXIS 21133 (6th Cir. Sept. 24, 2009). 

   National Marine, a yacht dealer and marina operator, purchased a "Yacht Dealer/Mariana Operator's" general liability policy from New Hampshire Insurance Company ("NHIC").  The policy insured National Marine against loss or damage to its inventory, loss or damage to third-party property while in its custody, personal injury or property damage occurring on its boats or at its marina, and loss or damage to its tools and equipment.  The policy also had "Truth in Lending Errors and Omissions Liability Coverage," to insure against "damage due to the unintentional violation of any Federal or State Consumer Credit Act."

   National Marine was sued in state court for fraudulent misrepresentations and failure to deliver boats with clean title.  National Marine sought coverage under the "Truth in Lending" provision of the policy.  NHIC provided coverage under a reservation of rights, but then sued in federal court to resolve the coverage issues.  NHIC asserted jurisdiction under 28 U.S.C. 1333(1), federal maritime jurisdiction.  The complaint requested the policy be rescinded for misrepresentation or a declaration that there was no coverage.  The district court assumed jurisdiction under 1333(1), but dismissed NHIC's action, concluding it had discretion to accept or deny jurisdiction under the Declaratory Judgment Act. 

   The Sixth Circuit questioned whether federal jurisdiction existed under 28 U.S.C. 1333(1) and whether the underlying claims arose under a "maritime contract."  Ultimately, the court determined the policy was not a maritime contract because its primary object did not relate to maritime commerce.  Instead, the policy related to boats as objects of commerce, i.e., "stock for sale", and not as agents of maritime commerce.  Further, the marina operations portion of the policy related to fixed structures such as wharves instead of particular vessels.  Consequently, although the district court properly dismissed the case, dismissal was appropriate due to lack of subject matter jurisdiction. 

Policy Covers Damaged Inventory Protected By Tarp In Outside Location

   A typical "open peril" policy excludes payment for loss of personal property left "in the open."  In Twenhafel v. State Auto Prop. and Cas. Ins. Co., No. 08-4275, 2009 U.S. App. LEXIS 20373 (7th Cir. Sept. 14, 2009), the court determined that storm-caused damage to insured's raw wood inventory stored outside under a tarp was not excluded by the policy.

   The insured manufactured kitchen and bathroom cabinets.  Wood used to make cabinets was stored outside under a heavy, industrial tarp.  The tarp was secured with six-by-six oak beams and large concrete blocks weighing ninety pounds each placed on top of the tarp.  A violent storm lifted the tarp and dropped the beams and blocks on the roof of a building 150 feet away.  The exposed wood inventory was damaged by the rain. 

   The insured submitted a claim to State Auto.  The claim was denied under an exclusion stating the insurer would not pay for loss or damage caused by or resulting from "rain, snow, ice or sleet to personal property in the open."  The phrase "in the open" was not defined in the policy.

    The insured sued.  The district court determined because the inventory was covered by an industrial tarp, it was not exposed the elements and not in the open.  Summary judgment was granted to the insured. 

   On appeal, it was noted the case presented an issue of first impression in the Seventh Circuit.  State Auto relied on Victory Peach Group, Inc. v. Greater N.Y. Mut. Ins. Co., 707 A.2d 1383 (N.J. Super. Ct. App. Div. 1998), where the phrase "in the open" was equated with being left outdoors without protection from the elements.  There, personal property was stored in a building in which the roof was being repaired.  The workers nailed three large tarps over portions of the damaged roof for protection during the night.  Nevertheless, the personal property was damaged by rain when the tarps blew off the roof.  The damaged property was covered because it was in the building and not outside, exposed to the elements.

    The Seventh Circuit disagreed that Victory Peach meant only property stored inside a building was entitled to coverage.  The phrase "in the open" meant being left exposed to the elements, or, in other words, being unprotected from the elements.  Therefore, the loss to the wood inventory was covered under the terms of the policy.