Insurance Law Hawaii

Additional Insureds Not Entitled to Notice of Policy's Cancellation

   Defendants were sued in an underlying state court action.  See Riverport Ins. Co. v. Oakland Cmty. Housing, Inc., No. C 08-3883, 2009 U.S. Dist. LEXIS 104472 (N.D. Cal. Nov. 6, 2009).  Defendants were additional insureds under a policy issued by Riverport.  In its coverage action for declaratory judgment, Riverport secured an order awarding summary judgment that determined there was not duty to defend or indemnify. 

   Riverport now moved for summary judgment on defendants' two counterclaims, seeking declaratory relief that defendants were entitled to notice as additional insureds of cancellation of the policy and that Riverside breached its duty of good faith and fair dealing by failing to provide notice of the policy's cancellation.  Under California law, the insurer was only obligated to give notice of a policy's cancellation to named insureds.  Defendants argued that a certificate of liability insurance they received meant they were named insureds.  The court disagreed.  The certificate did not constitute an agreement between Riverport and defendants, but was simply evidence that a policy had been issued.  Therefore, defendants were not entitled to a declaratory judgment that Riverport should have given them notice of cancellation of the policy.

   Moreover, the bad faith claim failed as a matter of law once it was determined defendants were not entitled to notice of cancellation.

Zealous Representation of Insurer's Refusal to Defend Leads to Sanctions

   So much for the zealous representation of an insurer's denial of the duty to defend.  This post at abajournal.com reports when the trial court rejected the insurer's argument it had no duty to defend, an appeal was filed before the Georgia appellate court.  The appellate court found the appeal frivolous and  sanctions of $2500 were awarded against both the insurer and its attorney.  Surprisingly, opposing counsel commended the insurer's attorney for his professionalism during the case.

   Thanks to my Damon Key blogging colleague, Robert Thomas (inverse condemnation.com) for notice of this case.

Landlord Covered as Additional Insured under Tenant's Policy

  An employee of Nava Restaurant was injured when he fell down the stairs while at work.  He sued the property owner, Crescent One Buckhead Plaza, claiming negligent maintenance of the stairs.  Crescent tendered the suit to Nava and its insurer, Transcontinental Insurance Company (TIC), based on the language of the lease and because Crescent was listed as an additional insured under Nava's liability policy.  The lease provided Nava would indemnify and hold Crescent harmless from any loss caused by Nava unless the loss resulted solely from Crescent's negligence.  The lease further provided Nava would secure liability insurance, listing both Nava and Crescent as "named insureds" and that Nava's policy would be primary. 

   Nava's policy named Crescent as an "additional insured" under the policy's "Noncontractor's Additional Insured Endorsement."  This endorsement defined as insureds the "additional insureds . . . whom you are required to add as an additional insured on this policy under a written contract or written agreement."  Nava's policy further provided it was excess for any additional insureds' policies unless a written agreement required the TIC coverage to be primary.  Nevertheless, TIC denied coverage to Crescent because TIC considered its policy excess to Crescent's own policy with Great Northern Insurance Company, ignoring that Nava's lease required that TIC's coverage for Crescent be primary. 

   Crescent filed a third-party claim against Nava and TIC for contribution and indemnification from the plaintiff's claims.  The trial court granted summary judgment to Crescent against both Nava and TIC, and the appellate court affirmed.  The lease clearly required Nava to defend and indemnify Crescent.  Nava would also be liable to the extent the insurance obtained on behalf of Crescent did not provide a full defense and indemnification in favor of Crescent.

   The court further determined that TIC was obligated to defend and indemnify Crescent for plaintiff's claims.  The terms of TIC's policy provided that coverage for Crescent was primary.  Moreover, the Great Northern policy provided it was excess another party's policy to which the named insured was an "additional insured" under the other policy.  Therefore, Great Northern's policy was excess over TIC's policy because Crescent was an additional insured under TIC's policy.

Allegations of Insurers' Fraud for Katrina Flood Claims Survive Motion to Dismiss

   In an opinion primarily concerned with the intricacies of pleading under the False Claims Act, the Louisiana federal district court addressed allegations that insurers shifted Katrina claims from homeowners' to flood policies.  See United States ex rel. Branch Consultants, L.L.C. v. Allstate Ins. Co., No. 06-4091, 2009 U.S. Dist. LEXIS 101155 (E.D. La. Oct. 19, 2009). 

   The case centered on "Write Your Own" ("WYO") flood policies, which allow private insurers to issue standard, government-guaranteed flood insurance policies in their own names.  Private insurers then act as fiscal agents of the United States and are responsible for adjustment, settlement, payment and defense of claims under the policies.  Payments under the policies, however, are ultimately made by the United States.  The government paid approximately 162,000 Katrina-related flood damage claims by May 2006.  Given the strain of processing so many claims, standards for submitting proofs of loss were relaxed.  When policyholders did not dispute the insurer's adjustment, the proof of loss requirement was waived and the claim was paid on the basis of the adjuster's report.

   Plaintiff Branch Consultants sued on behalf of the United States under the False Claims Act the WYO insurers and adjusters who were involved in the adjustment of flood claims after Katrina.  Branch alleged that defendants moved the costs of paying for wind damage to the government by fraudulently claiming that the damage was caused by flood.  Defendants moved to dismiss because the suit was based upon a public disclosure of the fraud and Branch was not the original source of its allegations, as required by the False Claims Act.

   To resolve the motion to dismiss, the court canvassed the specific allegations and the extent to which the public had previously been made aware of the alleged fraud.  For example, a FEMA administrator had testified before a Senate committee about the conflict of interest arising from the structure of the WYO program because the insurers had the opportunity and incentive to overstate flood damage to covered properties at the expenses of taxpayers.  Louisiana Representative Gene Taylor had testified before a House committee about the same conflict of interest issues.  This led to passage of legislation authorizing an investigation into whether the WYO insurers improperly attributed damage from Katrina to flooding covered under flood policies rather than to windstorms covered by policies issued by the insurers.  SeeDepartment of Homeland Security Appropriations Act, Pub. L. No. 190-295 (2006).  The defendants also noted news reports covering the alleged fraud.  Given the congressional and administrative testimony and media coverage that preceded Branch's complaint, the allegations had been publicly disclosed for purposes of the FCA.

   Nevertheless, a suit based upon a public disclosure was not barred under the FCA if the realtor was the original source of the information in its complaint.  Here, the complaint established direct knowledge of the fraud because of the realtor's own efforts.  The complaint described in detail the results of Branch's examination of 57 properties, listing each address, the insurer, a description of the damage, the amount of flood insurance paid, and Branch's determination of the actual amount of flood damage.  Consequently, Branch had both direct and independent knowledge of the information upon which its allegations were based.  It therefore qualified as an original source for purposes of the FCA and the Court was not deprived of jurisdiction.

   Because claims against three adjusters failed to sufficiently allege fraud, however, they were dismissed without prejudice.  Branch was given the opportunity to amend its complaint to allege an adequate factual basis for its allegations against these adjusters.  As to the other defendants, Branch had pleaded the existence of a broad scheme to defraud the government and provided numerous individual examples that were allegedly part of the scheme. Therefore, the remainder of the motion to dismiss was denied.

   This promises to be an interesting case which will be worth keeping an eye on it as it develops.

Motion for Remand Denied in Hurricane Ike Case

   Fourteen months after Hurricane Ike hit the Gulf coastline of Texas, the initial onslaught of litigation is starting to surface in reported decisions.  Our first post of undoubtedly many Hurricane Ike cases to come addresses a motion for remand after a coverage dispute was removed to federal court.  See Lakewood Chiropractic Clinic v. Travelers Lloyds Ins. Co., No H-09-1728, 2009 U.S. Dist. LEXIS 99854 (S.D. Tex. Oct. 27, 2009).

   The insured filed a claim with Travelers for hurricane damage to its office in Houston and business interruption losses.  Travelers assigned an adjuster, Nate Stanton, who denied the claim after finding that the amount of damage was less than the policy's deductible.  The insured' s attorney sent a demand letter, disputing the estimation of damage and alleging that Traveler's adjuster appeared to have violated the Texas Insurance Code in the handling of the claim.  Thereafter, a second adjuster, Sonja Victor, wrote to ask the insured for permission to have an engineer inspect the claimed exterior damage.  The insured refused.  Victor then wrote another letter, asserting that the policy required the insured to permit a further inspection.

   In April 2009, the insured sued Travelers and Victor in state court.  The defendants removed based on diversity, claiming that Victor was improperly joined in order to defeat diversity jurisdiction.  Travelers was a citizen of Connecticut, and both the insured and Victor were Texas citizens.  The insured moved to remand.

   To determine if there was diversity jurisdiction, the district court considered whether the insured had a reasonable possibility of recovering against defendant Victor.  The complaint alleged defendants were liable jointly for: (1) breach of the insurance contract; (2) violations of the Texas Insurance Code; (3) violations of the Texas Deceptive Trade Practices Act; and (4) fraud.  The first claim failed against Victor because an she was not in a contractual relationship with the insured and could not be liable for breach of contract.

   Both the Texas Insurance Code and Deceptive Trade Practices Act, however, recognized claims against adjusters.  Nevertheless, the complaint failed to allege facts illustrating what actions were attributable to Victor individually.  Instead, the allegations against Victor were merely a verbatim recitation of portions of the Texas Insurance Code.  Nate Stanton, not Victor, was the first claims adjuster that performed the original investigation, estimated the amount of loss, and denied the claim.  Victor's subsequent letters merely established she had some involvement in a further investigation of the claim after Stanton denied it.  There was nothing in the letters, nor anywhere else in the record, from which one could find that the insured had a reasonable possibility of recovering on any claim against Victor.  Accordingly, the Motion for Remand was denied.

  

Policy Covers Insured In Third Party Claim by Longshoreman

   Note today's post [here] by my Damon Key colleague, Mark Murakami, regarding coverage for a claim related to the Longshore Harbor and Workers Compensation Act.  See Bayou Steel Corp. v. Evanston Ins. Co., No. 08-31206 (5th Cir. Nov. 10, 2009).  The policy excluded coverage for injuries imposed on the insured by contract with respect to claims made pursuant to the LHWCA.  Nevertheless, the insured facility owner was covered under the policy when sued by a stevedore who was injured while unloading a barge.  The stevedore's claims against a third party were not "pursuant to" the LHWCA.

Statute of Limitations for Katrina Claim not Tolled by Insurer's Negotiations

   In Landry Architecture, LLC v. Valley Forge Ins. Co., No. 09-3974, 2009 U.S. Dist. LEXIS 99109 (E.D. La. Oct. 23, 2009), the insured's claims for business income losses resulting from Hurricane Katrina and breach of the implied covenant of good faith and fair dealing did not survive the insurer's motion to dismiss on statute of limitations grounds.  

   The insured purchased a property policy from Valley Forge in August 2002.  The policy was renewed on an annual basis thereafter.  In June 2002, Valley Forge issued a notice that Landry's policy would no longer cover business income loss resulting from windstorm or hail.  The insured renewed its policy in August 2004 and again in August 2005.  Therefore, the policy in effect during Hurricane Katrina was in place almost four years before the insured filed suit. 

   Valley Forge tendered $32,741 in February 2009, but denied claims for business income loss.  The insured filed suit on May 29, 2009.  Valley Forge moved to dismiss based on a two year statute of limitations for Katrina-related claims.  The district court noted that Hurricane Katrina struck August 29, 2005, at which point the prescriptive period began to run.  The insured's claims, filed four years later, were therefore barred on the face of the complaint.

   The insured raised various theories to argue the statute of limitations was tolled.  The court disagreed with each.  First, Valley Forge's investigation, adjustment, and negotiation of the claim did not toll the prescription period under Louisiana law.  Second, the tender of $32,741 did not interrupt or toll the prescriptive period.  Third, the insured's bad faith count could not survive even though it was not based upon a claim for breach of an insurance contract.  Under a Louisiana statute, a litigant had to first have a valid, substantive underlying claim upon which insurance coverage was based in order to pursue a bad faith claim.

   Interestingly, this third claim would probably survive a motion to dismiss on similar grounds in a Hawai`i court.  Under Hawai`i law, an insurer can breach the implied covenant of good faith and fair dealing even if benefits are not due and owing under the policy.  See The Best Place, Inc. v. Penn Am. Ins. Co.,82 Hawai`i 120, 133, 920 P.2d 334, 347 (1995)(quoting Rawlings v. Apodaca, 726 P.2d 565, 573 (Ariz. 1986)("The implied covenant is breached, whether the carrier pays the claim or not, when its conduct damages the very security which the insured sought to gain by buying insurance"); Wailua Assoc. v. The AETNA Cas. & Sur. Co., 27 F. Supp. 2d 1211, 1220 (D. Haw. 1998)(bad faith delay in appraising and investigating claim).

Default Judgment Against Insured Does Not Bar Injured Party from Pursing Coverage Case

   A default judgment against the insured should not deprive the injured party from pursuing the coverage litigation according to the Ninth Circuit's decision in Westchester Fire Ins. Co. v. Northwest Airlines, Inc., No. 07-17383, 2009 U.S. App. LEXIS 23718 (9th Cir. Oct. 28, 2009).  

    The insured provided maintenance services for Northwest Airlines at the McCarran International Airport in Las Vegas.  The insured's liability policy required prompt notice of any possible claim be given the insurer.

   In February 2002, an aircraft owned by Northwest was damaged when it rolled down an embankment.  An employee of the insured was in the cockpit at the time of the incident.  The insured did not report the incident to Westchester.  A few months later, Northwest wrote and notifiedthe insured of Northwest's claim and requesting that the insured forward the correspondence to Westchester.  The insured still did not notify Westchester.

   In November 2003, Northwest directly notified Westchester of the accident and the claim against the insured.  This was Westchester's first notice of the claim.  Westchester commenced efforts to contact the insured and remind it of obligations under the policy.  When the insured was finally contacted, it promised to send to Westchester documents related to the claim, but the documents were never provided. 

   Northwest filed suit in Minnesota and secured an default judgment against the insured for $10.6 million.  Westchester issued a denial of coverage letter to the insured based on failure to cooperate and failure to notify Westchester of the Minnesota lawsuit.

   Westchester then filed an action for declaratory judgment that the insured had breached its duties under the policy and the insurer had no duty to defend or indemnify.  Northwest was allowed to intervene.  Westchester made repeated attempts to depose the insured, but the insured never attended the scheduled depositions.  Westchester moved to strike the insured's answer or compel the deposition.  The court granted the motion to compel, but denied the motion to strike.  When the insured still failed to attend scheduled depositions, however, the court granted the motion to strike and entered a default judgment against the insured under Rule 37 (d) for failure to respond to discovery.  Subsequently, an order entered judgment in favor of Westchester and against all defendants, including Northwest.

   Northwest appealed.  Northwest argued it was entitled to defend against Westchester's declaratory judgment action in its own right and that the district court should not have entered a default judgment against all defendants based on the insured's failure to appear for a deposition. 

   In an opinion by Judge Clifton (of Hawai`i), the Ninth Circuit agreed.  A default entered against an insured should not prevent an injured third party from proceeding on its own behalf.  Northwest was not responsible for the insured's failure to appear for the deposition.  

   Westchester argued that Northwest could not prevail because the insured failed to give proper notice of the claim as required under the policy.  Although this argument might eventually prevail, the default and subsequent judgment did not result from a determination that the insured's failure to notify the insurer about a potential claim relieved the insurer from liability.  Northwest was entitled to present arguments to establish coverage and have them adjudicated on the merits.

   

Assignee of Policy Must Comply with Request for Examination Under Oath

   Whether an assignee is required to respond to the insurer's invocation of an Examination Under Oath ("EUO") clause was at issue in Shaw v. State Farm Fire and Casualty Co., 2009 Fla. App. LEXIS 15930 (Fla. Ct. App. Oct. 23, 2009). 

   After the insured was involved in an auto accident, he received medical care from appellants.  The insured assigned of his No-Fault benefits and cause of action to recover those benefits to appellants, the insured's health care providers. 

   When appellants presented a claim to State Farm for services rendered to the insured, State Farm requested that appellants appear for an EUO pursuant to the terms of the policy.  The policy required "any person or organization making claim or seeking payment. . . must, at our option, submit to an examination under oath . . . ."  State Farm suspected the claim submitted by appellants was fraudulent.  Appellants then filed an action for declaratory relief seeking a judgment that they were not required under the policy provision to attend the EUO.  The trial court entered a final summary judgment concluding appellants failed and refused to comply with the EUO provisions, which was a condition precedent to making a claim for policy benefits.

   The appellate court affirmed.  Prior Florida cases which did not require the assignee to attend an EUO were distinguishable based on the policy language.  In one case, the EUO provision required "a person who suffers a bodily injury and makes a claim under the policy shall answer questions under oath."  See Marlin Diagnostics v. State Farm Mut. Auto. Ins. Co., 897 So.2d 469 (Fla. Ct. App. 2004).  Unlike the EUO in this case, the specific provision in Marlin required only the person who suffered the bodily injury to attend the EUO.  In response to Marlin, State Farm amended its policies to require that "any person or organization making claim or seeking payment" be examined.  Therefore, once the assignment was made, State Farm could no longer require the insured to attend the EUO, but could require the assignees of the policy to do so.

   The following question was certified to the Florida Supreme Court: Whether the EUO provision in State Farm's policies is a condition precedent that must be complied with when a medical care provider takes an assignment of no-fault benefits and cause of action from the insured without specifically agreeing to be bound by that condition?

  

Delaware Court Delves into Anti-Assignment and Allocation Issues

   The Delaware Court of Chancery recently issued a detailed, scholarly opinion addressing anti-assignment provisions and the proper allocation for asbestos-related claims.  See Viking Pump, Inc. v. Century Indemn. Co., 2009 Del. Ch. LEXIS 180 (Del. Ct. Ch. Oct. 14, 2009).  Significantly, in determining the anti-assignment clauses did not bar assignment of the policies, the court departed from the reasoning utilized by the the Hawai`i Supreme Court in Del Monte Fresh Produce (Hawaii), Inc. v. Firemans' Fund Ins. Co., 117 Haw. 357, 183 P.3d 734 (2007).

   Prior to the mid-1980's, both Warren Pumps and Viking Pump were independent companies that had been acquired by Houdaille Industries, Inc.  Houdaille divested itself of Warren Pumps in 1985 through an asset sale to New Warren.  Subsequently, Houdaille sold Viking Pump to New Viking in 1987. 

   The new companies, New Warren and New Viking, were sued for asbestos exposure claims by plaintiffs who asserted that they were injured by Viking and Warren's use of asbestos while those businesses were operated by Houdaille.  Houdaille had three layers of insurance coverage: primary liability policies; umbrella excess policies; and additional layers of excess coverage.  Liberty Mutual provided the first two layers of insurance, while the Excess Policies were provided by twenty separate insurers who issued forty-five separate policies.  The policies all provided "occurrence-based" coverage, protecting Houdaille from liability for any injury for which Houdaille was liable that occurred during the policy period.  This phase of the litigation addressed coverage of the new companies under the Excess Policies.

   Anti-Assignment Provisions

   The court first considered whether Houdaille agreed to assign its rights under the Excess Policies to New Warren and New Viking.  An amendment to the asset sale agreement to New Warren specifically gave the buyer Houdaille's insurance rights under the Excess Policies.  After a detailed analysis of the Assignment and Assumption Agreement and the Stock Purchase Agreement with the New Viking, the court determined the insurance rights to the Excess Policies for pre-existing liabilities were assigned to New Viking.

   The Excess Insurers argued the assignments to New Warren and New Viking were void because the Excess Insurers did not consent.  The policies typically provided, "assignment of interest under this policy shall not bind the insurer until its consent is endorsed hereon."  The Excess Insurers relied on the California Supreme Court's holding in Henkel Corp. v. Hartford Accident and Indemn. Co., 129 Cal. Rptr. 2d 828 (Cal. 2003), to argue the anti-assignment provisions barred assignment of rights under the policies.  The Hawai`i Supreme Court followed Henkel in Del Monte v. Firemans' Fund.  In Henkel and Del Monte, the courts found the anti-assignment clauses barred a transfer of insurance claims because even though the underlying tort had already occurred, the insured loss had not been reduced to a fixed amount at the time of the assignment.

   Nevertheless, applying New York law, the Delaware court determined the anti-assignment clauses were unenforceable.  New York law did not permit anti-assignment clauses to bar the transfer of "post-loss claims," or claims for losses that had already happened.  Once the insured-against loss occurred, there was no issue of an insurer having to insure against an additional risk. 

   Allocation of Coverage

  Turning to the allocation issue, the insurers promoted the "pro rata" approach, while the insureds urged the "all sums" concept.  The "pro rata" formula meant any given insurer, having agreed to insure Houdaille for a fixed period of time, was only responsible for some "pro rata" share of the liability the insured owed to an asbestos plaintiff who suffered harm due to exposure through several policy periods.  In contrast, under the "all sums" approach, a policy would be responsible for all liability that flowed from a covered occurrence up to policy limits.  

   The court noted that New York courts look to the intent of the parties to resolve competing interpretations of policy language.  The all sums approach was the one embraced by the Houdaille Policies.  Reading the policies in their entirety, they included either a "non-cumulation provision" or a "prior insurance provision."  Under these clauses, recovery under one policy reduced an insured's recovery from policies in effect in other periods from the same occurrence (e.g., continuous asbestos exposure), and an insurer had to pay for injuries caused by that occurrence that continued into other periods.  The non-cumulation and prior insurance provisions could not sensibly be applied within a pro rata allocation scheme.  Instead, the effect of these clauses was to keep an insured from "stacking" coverage so as to exceed the limits of individual policies.