Insurance Law Hawaii

Trial Court Errors By Ordering Appraisal Before Coverage Established

   After the insureds' home was damaged by Hurricane Wilma, they filed a claim for reimbursement.  Sunshine paid the claim and closed the file.  See Sunshine State Ins. Co. v. Corridori, No. 4D09-2502, 2010 Fla. App. LEXIS 915 (Fla. Dist. Ct. App.Feb. 3, 2010).  Two years later, the insureds submitted a "supplemental" claim for damage discovered by a public auditor.  Sunshine required a sworn proof of loss to be submitted within 90 days and examinations under oath.  The insureds did not comply with the deadlines, and their late submission was incomplete and inaccurate.  Consequently, Sunshine denied the new claims, concluding that the damages  were not "supplemental" to the original damages and that the insureds had breached the policy by failing to comply with the proof of loss requirements.

   The insureds the sued to compel an appraisal.  Without taking any evidence, the trial court concluded the new claim was supplemental and that the insureds had not breached the policy.  An appraisal was ordered.

   The appellate court reversed.  Only after a court established that the losses were covered by a policy could the losses be appraised.  The parties disputed whether the claimed losses were covered by the policy and whether the insureds complied with the policy requirements.  The trial court, without taking any evidence, did not resolve the factual issues to support its determination of coverage.  Therefore, the case was remanded for further proceedings.

Additional Insured Survives Summary Judgment on Duty to Defend

   Does a policy's Blanket Additional Insured Endorsement bar primary coverage for an additional insured with a policy of its own?  Although the court answered yes in Kummer Enter., Inc. v. HBE Corp., No. 1:09-cv-109, 2010 U.S. Dist. LEXIS 6403 (W.D. Mich. Jan. 27, 2010), it nevertheless determined the additional insured was entitled to a defense under the policy.

   Plaintiff was awarded a general contract to build an addition to a medical building.  WPM, Inc. was retained as a subcontractor to excavate the basement for the addition.  Under the subcontract, WPM agreed to indemnify Plaintiff for WPM's failure to maintain safe working conditions.  WPM was also required to obtain comprehensive general liability insurance naming Plaintiff as an "additional insured."

   Subsequently, a WPM employee was injured.  The employee sued Plaintiff, who filed a third-party complaint against WPM seeking indemnification. 

    After coverage for defense and indemnity was denied, Plaintiff sued the insurer.  The court agreed Plaintiff was an additional insured under the policy.  The policy's Blanket Additional Insured Endorsement, however, limited coverage under two provisions: (1) the "Your Negligence" provision contained in Section B (1); and (2) the "Excess Insurance" provision contained in Section C (2).

   The Section B (1) provision stated a person or organization was an additional insured "solely for liability due to your negligence specifically resulting from 'your work' for the additional insured." In the underlying suit, there was a possibility that Plaintiff could be held liable for the negligence of WPM.  For example, the jury could determine that WPM's assumed responsibility for the safety of its workers, but still assess liability against Plaintiff.  Therefore, the B (1) limitation did not preclude Plaintiff's summary judgment claim for a defense.

   The Section C (2) provision stated the insurance was excess of any other policy held by the additional insured unless a written agreement specifically required that this policy was a primary policy.  In a majority of jurisdictions, this provision required that the written agreement explicitly state that an additional insured's coverage would be primary before extending coverage to the additional insured.  Here, neither the subcontract, the certificate of insurance, nor any other document satisfied this requirement.  Consequently, the insurance available to Plaintiff as an additional insured was excess of any other policy Plaintiff might have.

   Nevertheless, there was no evidence that other policies existed which could provide primary coverage for the employee's claim.  Therefore, the C (2) limitation left open the possibility that damages assessed against Plaintiff in the underlying suit would be covered by the policy.  Again, Plaintiff was entitled to summary judgment on its claim for a defense.

Insurer's Delay Waives Right to Appraisal

   How long can an insurer wait after denying coverage before insisting upon an appraisal?  In Sanchez v. Prop. and Cas. Ins. Co. of Hartford, No. H-09-1736, 2010 U.S. Dist. LEXIS 6295 (S.D. Tex. Jan. 27, 2010), waiting eleven months after a coverage dispute became clear waived the insurer's right to invoke an appraisal.

   The insured's home was damaged by Hurricane Ike on September 12, 2008.  In late October, the insured reported a claim to Hartford.  The claim encompassed wind damage to the back door and to a pipe stack on the roof.  Wind damage was also reported as the cause of cracking of bricks on the outside of the house and for damage to sheetrock on the interior walls.  A Hartford claims adjuster inspected and concluded that only the damage to the back door was covered.  Therefore, she concluded the total amount of damage was only $150, which was below the deductible of $5,850.  A letter declining to make any payment was then sent by Hartford.  An enclosed itemized repair estimate failed to address damages to the exterior and interior walls, and the pipestack on the roof.

   On November 1, 2008, the insured called and complained to the Hartford adjuster that she had failed to consider all of the damage.  The adjuster responded that other areas were excluded because the damage was not caused by the Hurricane.

   On April 29, 2009, the insured filed suit.  On October 15, 2009, Hartford wrote the insured seeking to invoke the policy's appraisal clause.  After the insured objected, Hartford filed a motion to compel an appraisal.  The insured argued that Hartford waived the appraisal by denying liability and failing to timely request the appraisal.

   The court determined that Texas courts would hold that Hartford waived its right to an appraisal.  The appraisal clause contained no time frame for invoking the procedure.  However, when the insured called the adjuster to complain about the limited coverage, it was clear the parties had reached an impasse on the amount of damages caused by the Hurricane.  At this point, Hartford was on notice that it had the right to invoke the appraisal clause.  Hartford, however, waited for over eleven months to act. 

Neglience Claim Against Insurer For Failure to Recommend Coverage Survives Summary Judgment

   The insureds' negligence claim against the insurer for failing to recommend the purchase of business interruption insurance survived the insurer's motion for partial summary judgment in St. Augustine High School v. Underwriters at Lloyd's of London, No. WMN-08-CV-2518, 2010 U.S. Dist. LEXIS 6570 (D. Md. Jan. 27, 2010).

   St. Joseph Society was the owner and operator of St. Augustine High School, which was damaged by Hurricane Katrina.  The insurer argued there was no evidence St. Joseph had been damaged by the alleged negligence in failing to recommend business interruption coverage.  St. Joseph argued, however, it suffered losses as the owner and operator of St. Augustine.  Further, St. Joseph had to loan money to St. Augustine because it had no business interruption coverage, causing St. Joseph to lose investment income.  Moreover, St. Joseph was a named insured on the policy it purchased for St. Augustine High School and would have been entitled to any insurance payments.

   The insurer, on the other hand, argued that where a policy insuring loss to property names multiple assureds, each assured can only recover for the loss sustained by that insured, according to its interest.

   The insurer's motion for partial summary judgment was denied.  Whether St. Joseph could be found to have been damaged as a result of its ownership and operational responsibility for St. Augustine, its loss of investment income, or as one of the named assureds on the policy was a question of fact. 

Claims-Made Policies - Avoiding Minefields

   An informative teleconference on Claims-Made policies was recently hosted by Strafford.  Here are some take-away points. 

• Most claims-made policies require the insured to report an event that will likely give rise to a claim in the future.  If the reported event eventually evolves into a claim, the insurer will treat the claim as if it were first made during the policy period when the initial report was made.
• Ideally, the policy includes a "claims-made-and-reported form" allowing the insured an additional period of time after the policy period expires to report a claim first made during the policy period.
• An Incident Reporting Provision is different from a claim-reporting extension.  An "incident" must typically be reported in sufficient detail prior to the expiration of the policy.  Therefore, "claim" and "incident" are not synonymous.
• Although a claims-made policy may have an extended reporting period after the policy period, insurers may deny such benefits to a renewing policy holder who first reports a claim from a prior policy period when it is first reported during a renewed policy period.  
• Many claims-made policies require "Notice of Circumstances" as follows:  "If during the Policy Period an Insured shall become aware of any circumstances which may reasonably be expected to give rise to a Claim being made against an Insured and shall give notice to the Insurer of the circumstances, then a Claim which is subsequently made against such Insured and reported to the Insurer shall be considered made at the time such notice of such circumstances was given." 
• A "Notice of Circumstances" to the insurer should include: (1) the nature of the transaction or circumstance; (2) the names of the claimants; (3) the laws or regulations forming basis for alleged liability.
• The insured should take full advantage of a "Notice of Circumstances" provision to eliminate any doubt regarding requirements for giving notice of a claim.  Compliance with such a provision avoids risk of late notice.  Further, giving notice of circumstances avoids a potential misrepresentation in the renewal application. 
• Some claims-made policies have self-insured retention requirements.  Unless the policy specifies otherwise, all notice requirements apply to claims within the applicable retention period.  Defense-handling procedures within the retention may vary widely depending on the policy.  

   Thanks to the three panel members who led the teleconference: Frederick J. Fisher, E.L.M. Insurance Brokers, El Sugundo, Calif.; Anthony Bartell, McCarter & English, Newark, N.J.; and David S. White, Thompson & Knight, Dallas, Tx.

Tucson ABA Insurance Conference Scheduled for Early March

   The ABA, Section of Litigation, Insurance Coverage Litigation Committee's annual insurance seminar will be held again this year in Tucson from March 4-6, 2010.  As always, this year's conference will offer a number of informative, cutting edge sessions on a variety of insurance-related topics.  Participants from across the country with varying perspectives on insurance coverage will attend.  The conference agenda is here. 

   I am on a panel for a session entitled, "Who Pulled the Trigger? Applying Manifestation or Injury-in Fact Trigger to First Party Property Policy."  We will address a growing trend in which the injury-in-fact trigger, instead of the manifestation trigger, is applied to continuous property damage occurring over several policy periods.  Deciding which trigger is applicable is important, of course, where there is continuing property damage.  Use of the injury-in-fact trigger may invoke several policies for the years during which the damage occurred.

   Hope to see you in Tucson. 

Absence of Property Damage Negates Defense of Suit Alleging Illegal Landfill

   The insureds' property was rented from the State of Hawai`i .  See State Farm Fire and Cas. Ins. Co. v. Ramirez, No. 08-00557, 2010 U.S. Dist. LEXIS 5045 (D. Haw. Jan. 22, 2010).  The insureds and the State were sued by neighbors for a dumpsite/landfill maintained on the property.  The underlying complaint alleged the State had cited the insureds for dumping construction debris, coral debris, dredge material and black-top pieces without a permit.  The underlying complaint requested orders declaring that the insureds violated City and County grading ordinances and the site was a nuisance, but no damages were sought.

   The insureds' homeowners' policy with State Farm named the State as an additional insured.  State Farm defended the underlying action under a reservation of rights, but then filed suit in federal court for a declaration of its coverage obligations.  

   The policy covered liability for claims or suits against the insureds and State "for damages because of . . . property damage . . . caused by an occurrence."  "Property damage" to the property of others caused by an insured was  also covered.

   The district court granted State Farm's motion for summary judgment.  The underlying complaint did not allege property damage.  Plaintiffs were not seeking money damages for "physical damage to or destruction of their tangible property."  Instead, plaintiffs sought an order requiring the insureds and the State to remove the dumpsite/landfill. 

   Nor were the plaintiffs seeking damages to reimburse them for remediating the property themselves.  Instead, the insureds and the State were seeking to have State Farm reimburse them for any costs the incurred in remediating their own property because of actions they allegedly took.  The policy excluded from coverage, however,  "property damage to property currently owned by an insured" and "property damage to property rented to, occupied or used by or in the care of any insured."  

   Finally, the court rejected the argument that State Farm should be estopped from denying coverage because it provided a defense in the underlying case.  State Farm had repeatedly informed the insureds it was providing a defense under a reservation of rights.  Hawai`i case law held that an insurer could be estopped from denying coverage when an insured detrimentally relied on representations of the insurance company and such reliance was reasonable.  See AIG Hawai`i Ins. Co., Inc. v. Smith, 78 Haw. 174 (1995).  Here, neither the State nor the insureds had detrimentally relied on State Farm.

Underlying Case Stayed for Development of Facts

   This cases touches on both maritime law and insurance coverage.  Therefore, the initial question was which office blog should do the post: our blog or hawaiioceanlaw.com, authored by  Damon Key blogging colleague, Mark Murakami?  Easily resolved: Mark found the case, but passed it on to us.

   In Fireman's Fund Ins. Co. v. Sneed's Shipbuilding, Inc., No. 08-4882, 2010 U.S. Dist. LEXIS 4835 (E.D. La. Jan. 4, 2010), Superior Shipyard and Fabrication, Inc. contracted with the insured, Sneed, to build a dry dock.  When defects were discovered in the dry dock, Superior sued Sneed in state court, alleging that the dry dock failed to meet contract specifications and that the parties' warranty had been breached.  Sneed tendered the defense to its insurers pursuant to a builder's risk policy issued by Firemen's Fund and a marine general liability policy from Federal Insurance Co.  Both insurers denied coverage based on exclusions in their policies. Superior eventually amended its complaint to include the insurers as defendants under the Louisiana Direct Action Statute. 

   Firemen's Fund and Federal then sued Sneed for declaratory relief in federal court based on federal maritime and diversity jurisdiction.  Sneed moved to dismiss, arguing there was no justiciable case or controversy because resolution of any disputed coverage would be necessary only if a state court judgment was entered against Sneed.  In the alternative, Sneed argued the case should be dismissed or stayed in the interests of judicial economy in light of the pending state case. 

   The district court first determined an actual case or controversy existed.  The insurers sought a declaration of their actual liability under their respective policies.  Sneed made an actual claim against each insurer.  Further, the insurers had been directly sued by Superior in state court.  Consequently, the insurers' obligations were not hypothetical.

   Next, the district court ruled that dismissal of the insurers' suit was inappropriate.  The underlying state action would not resolve all of the defense and indemnity issues raised by the insurers in the federal case.  Nevertheless, because the underlying state case was set for trial within the year, a stay of the declaratory judgment action was granted to avoid duplicative litigation.

Knowing Wrongful Act Exclusion Held Ambiguous

   A psychologist was entitled to coverage after the court determined the professional liability policy's Knowing Wrongful Act Exclusion was ambiguous.  See Am. Home Assurance Co. v. Pope, No. 08-2848, 2010 U.S. App. LEXIS 516 (8th Cir. Jan. 11, 2010).

   Sparing you of the tortuous procedural history (running on three tracks: arbitration; up and down the Missouri state courts; three appeals to the Eighth Circuit), we cut right to the chase.  The insured psychologist's patient was a minor victim of sexual abuse by a foster parent. The psychologist never notified state officials of the abuse, although he was obligated by law to do so.

   When the victim sued the psychologist, American Home denied coverage under the Knowing Wrongful Act Exclusion.  The district court found the insured knew of his duty to report sexual abuse to authorities, yet intentionally concealed the abuse.  Therefore, there was no duty to indemnify.

   The Eighth Circuit reversed.  There were two policy provisions at issue.  First, American Home agreed " to pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of any wrongful act committed during the policy period by the Insured . . . ."  "Wrongful act" was defined as "any actual or alleged negligent act . . . ."  The second provision excluded "any wrongful act committed with knowledge that it was a wrongful act." 

   Comparing what was covered with what was excluded demonstrated the ambiguity.  A "wrongful act" defined as "any negligent act" was insured, yet liability for a knowingly wrongful act was excluded.  Predictably, the parties presented two interpretations of the competing provisions.  American Home argued because the insured knew he had a duty to report and violated the duty, a knowingly wrongful act was committed, thereby negating coverage.  The insured, on the other hand, contended that the Knowingly Wrongful Act Exclusion excluded intentional, not negligent, conduct, which required a showing that the insured intended to harm the victim.  Given this ambiguity, the court adopted the construction most favorable to the insured, obligating American Home to insure the negligent conduct.