Insurance Law Hawaii

Damon Key Lawyers Co-Author New ABA Construction Publication

   Damon Key construction lawyers Ken Kupchak, Anna Oshiro, Michael Yoshida, Christi-Anne Kudo Chock,  and yours trulyteamed together to draft the Hawai'i chapter of the ABA's recently published, "A State-by-State Guide to Construction & Design Law" (2nd ed.).  The treatise, first published in 1998, serves as a practical guide for the construction industry, enabling users to easily locate design and construction law and contracting practices in all 50 states, in addition to the District of Columbia and Puerto Rico.  The second edition fully updates relevant construction-industry requirements in each state.  The standard format used for each chapter allows the reader to quickly compare how each state handles a particular construction issue.

   A wealth of construction-related information is gathered for each state, including discussions on insurance needs for construction projects, in addition to sureties and bonding.

   Damon Key attorneys are actively involved in construction-related litigation and arbitration, frequently teaming with the firm's insurance coverage lawyers on construction-related matters.

Insurer's Reliance on Mistake to Deny Coverage May be Bad Faith

   Is an insurer exposed to bad faith if it relies upon its own mistake to withhold payment under the policy?  The court answered yes in Lundy Enterprises, LLC v. Wausau Underwriters Ins. Co., No. 06-3509, 2009 U.S. Dist. LEXIS 121295 (E.D. La. Dec. 30, 2009).

   Wausau provided commercial property coverage for the insured's Pizza Hut locations and an office building.  Although the policy included a "Flood Coverage Endorsement" providing coverage for certain flood occurrences, the endorsement excluded properties in certain flood zones.  Prior policies issued to the insured did not include the flood zone exclusions.  The insured later discovered that the current policy was not supposed to have the flood zone exclusions and that Wausau made a mistake in writing the policy. 

   Wausau denied coverage for certain locations damaged in identified flood zones after Hurricane Katrina.  Subsequent to the hurricane, however, Wausau amended the flood endorsement to retract the exclusion of properties in these flood zones.  

   The insured sued, claiming that Wausau relied in bad faith upon its own mistake in writing the policy to deny flood coverage.  In its motion for partial summary judgment, Wausau argued its mistake could not be in bad faith because the Louisiana statute required a knowing act.  Further, the insured could not prove Wausau's actions were arbitrary and capricious. 

   The court refused to dismiss the bad faith claim, however.  The insured's claim for bad faith was not based on Wausau's making a mistake in writing the policy, but rather on Wausau's reliance upon its own mistake in withholding payment under the policy, and failing to pay under circumstances that were unreasonable, arbitrary, and without probable cause.   These issues could not be resolved on a motion for summary judgment.

Intra-Family Transfer of Vehicle Does Not Void Auto Policy

   Coverage for the auto policy holder's daughter was at stake in Morrison v. Secura Ins., No. 286936, 2009 Mich. App. LEXIS 2694 (Mich. Ct. App. Dec. 29, 2009).

   In April 2006, the insured's daughter struck plaintiffs' motorcycle with her Chevrolet Cavalier, causing serious injury to the plaintiffs.  The auto policy listed the mother as the named insured, but both mother and daughter were listed as drivers of three vehicles, including the Cavalier.  Only the daughter drove the Cavalier, however.  The mother paid the policy premiums for the entire year.  Mother and daughter lived at the same residence.  In March 2006, the mother transferred title to the Cavalier to the daughter, who obtained a new title and registered the Cavalier in her own name.

   Secura Insurance denied coverage, claiming the mother did not have an insurable interest in the Cavalier at the time of the accident, making the policy void.  After the trial court granted summary judgment to the mother, Secura appealed.

   The appellate court noted that an insured must have a "insurable interest" to support the existence of a valid automobile liability insurance policy.  Here, the mother had an insurable interest in the Cavalier at the time she purchased the policy and paid the entire year's premiums.  Although public policy forbid the issuance of a policy where the insured lacked an insurable interest, it did not require an otherwise valid policy to become void automatically.  This was particularly true where the actual risk never changed and was fully known by the insurer (i.e., the daughter was always the only driver of the Cavalier).  Further, public policy did not favor terminating what amounted to a family insurance policy upon an an intra-family vehicle transfer.   Therefore, the trial court was affirmed.

Policy's Failure to Define "Additional Insured" Leads to Expansive Definition

   Although the excess insurer sought a narrow reading of "additional insured," the policy's failure to define the coverage allowed a broad reading of the term in Kerrigan v. RM Associates, Inc., No. 100316/08, 2009 N.Y. App. Div. LEXIS 9517 (N.Y. App. Civ. Dec. 29, 2009).

   The decedent was killed in a construction accident.  His Estate sued various contractors, alleging that the decedent had agreed to provide work, labor and services to Erin Erectors.  One of the contractors counterclaimed against the Estate for contractual indemnification.  In this coverage action, the Estate and Erin sued for indemnification coverage under an excess policy issued to Erin by Westchester Fire Insurance Company.

   Westchester's policy listed Erin as the only "named insured," and defined the term "insured" to include, at Erin's option, any person, other than Erin, "included as an additional insured" in the underlying comprehensive general liability policy.  The underlying policy listed Erin and the decedent as named insureds, but listed no additional insureds.  Utilizing a strict interpretation, the lower court held because the decedent was not listed as an additional insured in the CGL policy, he was not covered under the excess policy.

   On appeal, Plaintiffs argued the decedent was an "additional insured" within the meaning of Westchester's policy because he was a named insured in the underlying CGL policy.   The appellate court agreed.  The term "additional insured" was not defined in either the CGL or the excess policy.  An ordinary interpretation of "additional insured" in the excess policy would mean anyone other than the "named insured" in the excess policy (i.e., Erin) who was insured under the underlying CGL policy (i.e., the decedent).  Therefore, the estate was also covered by the excess policy.

Insurer's Summary Judgment Motion Denied Where Property's Value at Issue

   The insured's home was extensively damaged by wind and rain resulting from Hurricane Katrina.   See Belonga v. Auto Club Family Ins. Co., No. 09-476, 2009 U.S. Dist. LEXIS 118643 (E.D. La. Dec. 21, 2009).  When purchased in 2003, the home was appraised at $114,000.  An adjuster addressing the insured's flood claim reported, however, the home had a cash value of $190,000.

   The insured held a homeowner's policy issued by Auto Club.  She filed suit seeking payment of her full policy limit for damage to dwelling, plus other structures and contents.  She had received only $25,870 for wind damage to her residence and $2,932 for wind damage to other structures.  Pursuant to a flood policy, the insured also received $94,000 for flood damage to her dwelling.  Therefore, the insured had received a total of $119,870 for damage to her home caused by flood, wind, and wind driven rain. 

   Due to contested issues of fact, Auto Club's motion for summary judgment was denied.  The insured was entitled to recover any previously uncompensated losses that were covered by her homeowner's policy and which, when combined with her flood proceeds, did not exceed the value of her property.  The value of the insured's property was a material fact.  The insured had submitted a report indicating the cash value of her home was $190,000, an amount exceeding the total amount of insurance proceeds she had received.

   Further, although the insured had testified in her deposition that she was not pursuing damages for other structures, her expert's report stated there had been hurricane-related damage to the insured's other structures.  The court discounted the deposition testimony, which likely resulted from her lack of understanding of her policy and not from an intent to abandon her claim for damage to other structures. 

Subsidence Exclusion Bars Coverage For Landslide Damage

   The applicability of a policy's land subsidence exclusion was considered by the court in City of Carlsbad v. Insurance Co. of the State of Pennsylvania, No. D053843, 2009 Cal. App. LEXIS 2025 (Cal. Ct. App. Dec. 17, 2009).

   The insured City of Carlsbad negligently maintained and repaired a fire hydrant and water line located above a condominium complex.  Consequently, the slope above the complex became saturated with water and failed, causing a landslide that damaged or destroyed 15 units and damaged the common areas.

   The homeowners association sued the City, seeking damages for property damage and emotional distress suffered by the individuals.  The insurer defended the City under a reservation of rights.  The City settled for $12.6 million.  The insurer indemnified for the bodily injury claims, but denied coverage for the property damage claims based on the subsidence exclusion.  That exclusion barred coverage for "any property damage arising out of land subsidence for any reason whatsoever."  The trial court granted the insurer's motion for summary judgment.

   The Court of Appeal affirmed.  The City argued the exclusion was not meant to apply to landslides caused by man-made forces such as negligent repairs to a fire hydrant.  Examining the plain language of the exclusion, the court decided the broad term, "for any reason whatsoever," covered any cause, man-made or otherwise.

   The Court next considered the City's argument that it was entitled to indemnification under the efficient proximate cause doctrine.  Under the doctrine, when a loss is caused by a combination of covered and excluded risks, the loss is covered if the covered risk was the efficient proximate or predominant cause of the loss.  The Court noted that the efficient proximate cause doctrine applied in first party cases.  In third party cases such as this case, the concurrent proximate cause doctrine applied.  The concurrent proximate cause doctrine was utilized only where there were two negligent acts or omissions by the insured, one of which, independent of the excluded cause, made the insured liable for the injury.  Such a situation did not exist here.  Given the language of the exclusion, the peril of land subsidence was not covered, regardless of the cause.

   Thanks to my fellow Damon Key blogger, Robert Thomas (inversecondemnation.com), for alerting me of the City of Carlsbad decision.

Insurer May Have Duty to Indemnify Even Where No Duty to Defend

   The Texas Supreme Court recently held that an insurer may have a duty to indemnify even if the duty to defend never arises.  See D.R. Horton-Texas, Ltd. v. Markel Int'l Ins. Co, Ltd., No. 06-1018, 2009 Tex. LEXIS 1042 (Tex. Dec. 11, 2009).

   The homeowners purchased their house from D.R. Horton.  After moving in, defects were found in the chimney, roof, vent pipes, windows, window frames and flashing around the roof and chimney.  These defects allowed water to enter the house, eventually causing mold damage.  Consequently, D.R. Horton was sued by the homeowners.  D.R. Horton claimed its subcontractor, Rosendo Ramirez, performed masonry work on the home and other repairs which contributed to the alleged defects.

   Ramirez had a CGL policy with Markel which named D.R. Horton as an additional insured, allowing coverage for claims against D.R. Horton arising from Ramirez's work.  Markel, however, refused to defend D.R. Horton because the underlying plaintiffs' petition did not allege Ramirez's work was defective. 

   After defending the suit on its own and reaching a settlement, D.R. Horton sued Markel for reimbursement of defense costs and the settlement payment.  In its summary judgment motion, Markel argued it had no duty to defend under the eight-corners rule because the underlying petition did not contain allegations triggering coverage.  D.R. Horton attached to its opposition affidavits, inspection reports, depositions from the underlying case and mold investigation reports to establish Ramirez's negligence.  Ignoring this evidence outside the allegations of the complaint, the Court of Appeals affirmed.  The court reasoned that because Market had no duty to defend, it also had no duty to indemnify.

   The Texas Supreme Court rejected this reasoning.  Facts established in the underlying suit controlled the duty to indemnify, not allegations in the complaint.  This was especially true when the underlying liability dispute was settled before a trial on the merits, leaving no opportunity to develop the evidence.  Accordingly, regardless of reliance on the eight-corners rule to determine the duty to defend, evidence could be introduced in the coverage litigation to establish or refute the insurer's duty to indemnify.  Consequently, the case was remanded to the trial court.

   Notably, Hawai`i law allows the insured to go beyond the eight-corners of the underlying complaint and policy language to establish a duty to defend.  In Dairy Road Partners v. Island Ins. Co., 92 Hawai`i 398, 414, 992 P.2d 93, 117 (2000), the Hawai`i Supreme Court determined an insured, but not the insurer, can rely on extrinsic evidence to clarify the underlying allegations and demonstrate a duty to defend.