Insurance Law Hawaii

Additional Insured Has No Coverage for Operations Completed

   Whether coverage existed for property damage occurring after the subcontract finished its work on the project was the issue presented in United Fire & Cas. Co. v. Boulder Plaza Residential, LLC, 2011 U.S. App. LEXIS 1694 (Jan. 27, 2011).

   Boulder Plaza Residential, LLC ("BPR"), a real estate developer, and McCrery & Roberts Construction Co. ("M&R") entered a contract in which M&R agreed to serve as the general contractor for the interiors of condominiums BPR was building.  The contract provided M&R would indemnify BPR from claims "arising out of or resulting from performance of the Work, . . . but only to the extent caused in whole or in part by negligent acts or omissions of the Contractor or Subcontractor. "

   M&R subcontracted with Summit Flooring, LLC to install hardwood floors in the condominiums.  Summit agreed "to indemnify and save M&R harmless against all claims for damage to persons and property growing out of the execution of the work." 

   Summit obtained a CGL policy from United Fire covering "bodily injury" or "property damage" caused by any "occurrence" which subjected Summit to liability.  M&R was listed as an Additional Insured in an endorsement.  The endorsement provided coverage only with respect to Summit's liability which could be imputed to M&R directly arising out of Summit's ongoing operations. 

   Upon completion of the condominiums, owners notified BPR of damage to the floors.  BPR notified M&R.  M&R sent a claim to United Fire.  After investigation, United Fire determined the floor damage was caused by excessive moisture in the concrete floor and the wood floors at the time of installation, but that Summit's work was sound.  Accordingly, United Fire denied coverage to M&R. 

   When BPR sued M&R and Summit, M&R requested a defense. United Fire denied coverage because the policy only covered M&R with respect to Summit's "ongoing operations." The underlying complaint alleged that damage to the floors was first observed only after Summit had completed installation.  M&R eventually settled and assigned its claims against United Fire to BPR.  United Fire filed suit for a declaratory judgment that it had no duty to defend or indemnify M&R.  

   The district court granted summary judgment to BPR.  United Fire then sought reconsideration based upon a subsequent decision by the Colorado Court of Appeals, General Security Indemn. Co. of Arizona v. Mountain States Mut. Cas. Co. General Security held that a claim for damages arising from poor workmanship, standing alone, did not allege an accident that constituted a covered occurrence.  Based on General Security, the district court granted reconsideration, concluding there was no duty to defend or indemnify.

   On appeal, the Tenth Circuit noted the Colorado legislature had enacted legislation providing that "in interpreting a liability policy issued to a  construction professional, a court shall presume that the work of a construction professional that results in property damage, including damage to the work itself or other work, is an accident."  Nevertheless, the court felt it could resolve the issue of whether a duty to defend or indemnify was owed without reference to General Security or the legislation.

   Any claimed damage was alleged to have arisen after operations were completed.  Under the additional insured endorsement, which limited coverage to liability arising out of the insured's ongoing operations, there was no duty to defend or indemnify M&R.  Therefore, the district court decision was affirmed.

Hawaii Supreme Court Affirms Denial Cancellation of Policy Based on Misrepresentation

   In October, we reported here that the Intermediate Court of Appeals affirmed the cancellation of a policy based on the insured's misrepresentation of the type of vehicle being insured.  The Hawaii Supreme Court recently affirmed the ICA's decision.  See Farmer v. Pacific Speciality Ins. Co., 2011 Haw. LEXIS 28 (Haw. Feb. 7, 2011).

   Farmer purchased a used motorcycle from a third party.  The motorcycle was later stolen.  Farmer had a policy insuring a 2000 Harley-Davidson.  After the motorcycle was stolen, it was determined that bike was not a Harley Davidson, but a kit bike that was obtained through a magazine.  The insurer refunded the insurance premiums paid by Farmer and rescinded the policy.

   Farmer sued the insurer, seeking $20,000 for the amount owed Farmer on his claim for the stolen Harley Davidson.  The district court found that the motorcycle was not a Harley-Davidson.  Further, although Farmer had not engaged in fraudulent misrepresentation, he had made a material misrepresentation that the motorcycle was a Harley-Davidson in the insurance application.  Therefore, the district court entered judgment in favor of the insurer and against Farmer.

   The Supreme Court affirmed. The district court relied on Haw. Rev. Stat. sec. 431:10-209, which provided, in part, "A misrepresentation shall not prevent a recovery on the policy unless made with actual intent to deceive or unless it materially affects either the acceptance of the risk or the hazard assumed by the the insurer." 

   Farmer's argument on appeal was that he did not misrepresent the manufacture of the motorcycle as being Harley-Davidson.  He stated that he simply provided the certificate of title for the motorcycle which indicated that it was a Harley-Davidson.  An employee of the insurer, however, testified that when completing the insurance application, Farmer told her that the motorcycle was a Harley-Davidson, in addiction to giving her the certificate of title.  This testimony provided substantial evidence to support the district court's finding that Farmer had made a misrepresentation regarding the manufacturer of the motorcycle.

Guest Post On Title Insurance

   Today, we link to a guest post from DoorFly.com addressing the need for title insurance.  The link to the full post is http://blog.doorfly.com/articles/2011/what-is-title-insurance-and-why-do-we-need-it/.  [post here].

   By way of introduction, the post explains:

If you’ve ever bought a home or a piece of real estate, you have probably heard the term title insurance used during the process. Often times it is something you were told you needed to have and pay for but you really didn’t understand what it was or why you needed it. If you have never purchased real estate of any kind, then you may not even have heard of title insurance before. The goal of this article is to provide you with some understanding of what title insurance is and why we need to purchase it when we purchase property.

    The post continues by addressing the need for title insurance:

The main reason that title insurance exists and is considered a necessity in the United States, is because of our system of land records. Land title records is one area that the United States government has chosen not to control. You may legally sell and buy property without recording the transaction with the government in the United States. Because of this, the possibility of misrepresentation or unexpected liens showing up after a real estate transaction are quite possible. In spite of this fact, you seldom hear of challenges to ownership or liens being filed on property that has been transferred. The reason for that is title insurance and the title searches that precede it.

   Thanks to DoorFly.com for sharing its informative explanation on title insurance.

No Coverage Where Contract's Indemnity Provision Never Triggered

   Whether the insurer was obligated to indemnify its insured for potential liability under a contractual indemnity provision was at issue in Farmers Ins. Exchange v. RNK, Inc., 2011 U.S. App. LEXIS 1255 (1st Cir. Jan. 21, 2011).

   RNK, a telephone company, and Ripple, a company providing conference services including chat lines, entered an Agreement in 1999.  RNK agreed that Ripple would install at RNK's premises electronic equipment necessary for Ripple to provide conferencing services to its customers.  In order for Ripple's chat lines to function, a call had to travel over RNK's network and through Ripple's hardware and software.  Under paragraph three of the Agreement, Ripple would "indemnify RNK and hold harmless from and against all damage claims associated with any equipment of Ripple."  Paragraph ten provided Ripple would indemnify RNK from claims arising from all "marketing" and "content."

   In 1998, the New York Public Service Commission issued an order addressing the blocking of chat lines.  The purpose of the order was to protect minors by providing end-users the ability to block the completion of telephonic communications.  RNK never complied with implementing the regulatory order.

   In 2005, Jane Doe sued RNK, alleging it failed to comply with the regulatory order by not assigning blockable telephone numbers to chat lines.  As a result, she was improperly able to gain access to a chat line through which she met several individuals who eventually sexually assaulted her. 

   RNK's insurer settled the Doe Lawsuit and then, in the name of RNK, sought indemnity from Ripple and Ripple's insurer, Farmers.  RNK argued the Agreement required indemnification from the claims asserted in the Doe Lawsuit.

   Farmers filed for a declaratory judgment against both Ripple and RNK, seeking a ruling that it had no duty to defend or indemnify RNK in the Doe Lawsuit.  The district court denied RNK's motion for summary judgment and granted Farmers and Ripple's motion for summary judgment.

   The First Circuit affirmed.  The Doe Lawsuit alleged that RNK's tortious failure in violation of the regulatory order to assign blockable codes to the chat lines was the proximate cause of her damages.  RNK contended that this claim was covered under paragraphs three's indemnification obligation.  RNK argued Doe's claim was associated with Ripple's "equipment" because the chatline would have never operated without Ripple's equipment, and, without the chat line, the Doe Lawsuit would have never arisen.  The First Circuit found it was unreasonable to find that paragraph three required Ripple to indemnify RNK against all claims that could somehow be traced back to the existence of Ripple's chatlines.  Instead, the indemnification obligation related to claims specifically caused by Ripple's tangible equipment located in RNK's premises. 

   RNK also sought indemnification under paragraph ten of the Agreement.  It was clear, however, that the purpose of paragraph ten was to protect RNK from possible unlawful conduct by Ripple.  Ripple did not agree under paragraph ten to indemnify RNK for claims arising from conversations of third party customers that Ripple did not generate and could not monitor.  

  Accordingly, Ripple had no indemnification obligations under the Agreement and Farmers' obligations under Ripple's policy were not triggered.

Ninth Circuit Judge Clifton Addresses Hawaii Bar's Litigation Section

   This past Friday, Judge Richard R. Clifton of the U.S. Ninth Circuit Court of Appeals gave an informative and entertaining presentation to the Litigation section of the Hawaii State Bar Association.  The title of the presentation was, "Practice Pointers for Appeals: Procedure, Briefing and Oral Argument."

   Judge Clifton started with some personal background.  Born and raised in Chicago, he is a life-long, die-hard Chicago Cubs fan.  He also spent some of his formative years in Indiana.  His first trip west was while he was in law school at Yale.  He liked the change of scenery while clerking one summer for a San Francisco law firm.  He went back to school and applied for a clerkship with Judge Choy of the Ninth Circuit.  Judge Choy broke his long-standing practice of hiring graduates of Harvard law school when he chose Judge Clifton in 1975.  Judge Clifton fell in love with Hawaii and decided to stay upon completion of his clerkship with Judge Choy.

   While in private practice, there were few attorneys in Hawaii or the mainland that specialized in doing appellate work, something that appealed to Judge Clifton.  He eventually had 5-6 arguments before the Ninth Circuit and a dozen or so with the Hawaii Supreme Court and Intermediate Court of Appeals.  Having served on the Ninth Circuit since 2002, he has now observed thousands of oral arguments.  He admitted the view is better from the bench where he now sits.

   Judge Clifton spoke fondly of the Ninth Circuit's main court house at Seventh and Mission in San Francisco.  Although the building was planned and budgeted to be five stories, poor soil reduced construction to only three stories.  The money saved by constructing a three story building was spent on the interior, which culminated in beautiful, spacious court rooms and offices with marble and wood paneling.

   Judge Clifton next launched into ten points that every lawyer should observe in briefing and argument.

   1)  Get to the point.  Judge Clifton revealed that Ninth Circuit judges have 3000 to 4000 pages of briefing to read each month, and this does not include the record on appeal or other documents that may be filed with an appeal.  So each litigant is competing with lots of other cases.  Therefore, it is critical for the advocate to get to the point as quickly as possible.  To do this, limit the arguments presented to the good ones.

   The Ninth Circuit only grants oral argument on about one half of the cases decided on the merits.  If you don't get to the point quickly, you may never get oral argument.  Your strong points will be lost and the court will not decide the case is worthy of argument. 

   It is problematic if strong points are buried in the appellate brief.  The advocate should start with strength.  Edit out extraneous matters that do not matter to the appeal.  Never assume the court knows the case as well as you do.  Explain the case in a summary at the beginning of the brief so that the review of facts makes sense to the court and are not read in a vacuum.   

   2)  Simplify the case.  Judge Clifton believes the best thing about being a judge is that you get to do the right thing.  He advised lawyers should keep this in mind when arguing the case.  Explain in the brief why your client should prevail.  Package your argument so that the judge will be convinced your client should win.

   To test your arguments, present them to a non-lawyer for critique.  If he or she does not understand what you are saying, your presentation needs revision and/or simplification.

   3)  Keep the judge's perspective in mind.  The advocate should prepare by thinking what will be persuasive to the judge.  Anticipate questions the court might ask.

   4)  Focus on your target reader (or listener).  Place yourself in the seat of the reader.  Ask yourself: (1) what does the reader need to know;  (2) what can the reader absorb?  The argument or discussion section should reference facts that are important instead of assuming that the reader will recall all of the facts set forth in your factual summary. 

   Providing a framework for the court is important in oral argument.  Tell the court at the outset the important points you wish to cover. Then your points are out there in case you run out of time in making your planned presentation.

   Finally, use a rebuttal as a "commando raid."  It is only necessary to hit the important points.  If this seems unnecessary, simply restate the theme of your case and take your seat.

   5)  Give the case a fresh look.  Not everything that happened below is important on appeal.  Only the important issues raised on appeal should be addressed.  Judge Clifton pointed out if you are still arguing about discovery that was contentious at the trial level, you are probably presenting a losing argument on appeal.  Discovery disputes are typically not important on appeal.

   6)  Maintain your credibility. If you miscite a case, you loose credibility with the court.  If the other side does not catch the miscite, one of the judge's law clerks surely will.  If you question whether a case truly supports your proposition, it may be best to have a colleague review the case and help you decide.

   7)  Know the record.  Briefs frequently contain statements that are not supported in the record. Support your statements with cites to the record.  Be familiar with the record at oral argument so you can assist the court find what supports your argument.  If the court knows the record better than the lawyer, there is no point in the lawyer participating in oral argument.  It also does not help the court to excuse your ignorance of the record by claiming your were not the trial lawyer.  If you don't know the record, you are not able to assist the court.

   8)  Be user-friendly in written filings. Draft your brief so it is easy to read.  Tab the record to assist the court in finding important portions referred to in your brief.  The use of a table of contents and summary should be maximized.  Judge Clifton explained he often uses the table of contents as an outline of the brief so he can quickly locate an argument or factual description.

   9)  Appreciate questions from the bench.  If questions come from the bench, the lawyer should be happy and make a sincere effort to answer the question.  Oral argument is the judge's time for hearing from the lawyer on issues that matter to the court.  So the advocate should listen carefully to the questions and use the opportunity to open a dialogue with the court.  When asked a hypothetical question from the bench, don't respond with, "that's not this case."  The court may be interested in determining how this case fits in with other cases. 

   10)  Comply with the applicable rules.  Judge Clifton confided he does not keep up with all changes in the pertinent rules.  That is the job of the lawyer.  Judge Clifton counseled that the rules are disregarded at the lawyer's own risk.  There are numerous resources to assist with understanding the rules: treatises and websites offer help.

   Judge Clifton's ten main points from his handout at the presentation are here. 

   In response to questions, Judge Clifton stated the court's mediation program has been a success.  Parties like the fact that the court's mediator is paid for by the court.

   Five judges currently sitting on the court previously served as law clerks for Ninth Circuit judges. 

  When asked how much influence law clerks have in arriving at decisions, Judge Clifton pointed out that each active judge has four law clerks.  Each clerk is able to devote much more time to an individual case than he.  Further, a judge has duties other than deciding cases.  There are administrative duties, sitting on the motion panel, etc.  Judge Clifton believes he devotes 1/6 of the time on a case that his law clerk does.  Therefore, he tells his clerks that their real job is "to save me from myself. Show me where my inclination is wrong."  

   Thanks to Judge Clifton for taking the time to conduct a very informative, worthwhile session with the HSBA Litigation section.

Tucson ABA Insurance Coverage Seminar March 3-5

   This year's annual ABA, Section of Litigation, Insurance Coverage Litigation Committee CLE Seminar will be held in Tucson on March 3-5, 2011.  The conference will offer a number of timely, comprehensive sessions on such insurance-related issues as coverage for natural and not-so-natural disasters, litigation over construction claims, emerging issues in the health care industry, etc.  The program's brochure is here.

   Again this year, I will be on a panel for a session entitled, "Ensuing Loss: Deny My Claim If You Must, But Cover My Resulting Loss."  We will address the varying interpretations of ensuing loss provisions in deciding whether loss resulting from an excluded loss is covered nonetheless.

    Hope to see you in Tucson.

Similar to Hawaii, South Carolina Seeks to Legislate Coverage for Construction Defects

   This post from today's BusinessInsurance.com addresses legislation introduced in South Carolina seeking to extend coverage for construction defects under CGL policies.  We posted on a similar effort underway in Hawaii to expand coverage for construction defects under SB1194.

   Similar to Hawaii's effort through SB1194 to correct the Intermediate Court of Appeal's decision in Group Builders, Inc. v. Admiral Ins. Co., 123 Haw. 142, 231 P.3d 67 (Haw. Ct. App. 2010), the South Carolina legislation seeks to overturn a decision by its Supreme Court, holding that faulty workmanship by a contractor or subcontractor cannot be considered an occurrence under a CGL policy.  The South Carolina legislation is H.B. 3449 and S.B. 431.  BusinessInsurance.com notes that insurance groups oppose the legislation.

   The post also refers to the current situation in Hawaii, post-Group Builders:

Even though construction defects are not considered an occurrence in some states, some insurers have chosen to treat them as such. A controversial ruling in Hawaii last year that damage resulting from defects does not constitute an occurrence triggering coverage under a CGL policy prompted some underwriters to alter policy language to make it clear that they intended to pay such losses.

 

Legislative Bill Seeks to Address Group Builders' Decision on Construction Defects

   In Group Builders, Inc. v. Admiral Ins. Co., 123 Haw. 142, 231 P.3d 67 (Haw. Ct. App. 2010) [decision here], the Hawaii Intermediate Court of Appeals determined that construction defects did not arise from an occurrence and therefore were not covered under a CGL policy.  [See our Group Builders' post here].  Bills were recently submitted to the Hawaii State Legislature in an effort to rectify the Group Builders' decision.

   The bills are identified as SB1192, HB939 and HB929.  They are patterned after a Colorado statute, Colo. Rev. Stat. sec. 13-20-808, seeking to overturn an appellate court decision, General Security Indemnity Co. of Arizona v. Mountain States Mutual Cas. Co., 205 P.3d 529 (Colo. Ct..App. 2009).  Similar to Group Builders, General Security held that damages from faulty workmanship did not arise from an occurrence.  Ironically, Group Builders relied heavily upon the General Security's outline of the majority/minority positions regarding construction defects.

   The Senate Committee on Commerce and Consumer Protection will conduct a hearing on SB1192 in Conference Room 229 on Wednesday, February 9, 2011 at 8:30 a.m.  The bill states that Group Builders "does not properly consider a construction professional's reasonable expectation that an insurer would defend the construction professional against an action or notice of claim."  Courts are instructed to "presume that the work of a construction professional that results in property damage, including damage to the work itself or other work, is an accident unless the property damage is intended and expected by the insured."

   The bill further states that the Act "shall apply to all insurance policies currently in existence or issued on or after the effective date of this Act."  Whether inclusion of existing policies in the bill could withstand a constitutional attack on impairment of contracts remains to be seen.

   We will track the progress of these bills.  Also on the construction defect front, several cases are brewing in the Hawaii state circuit courts and in the federal district court which seek to challenge the holding in Group Builders. 

Policy Language Provides No Coverage for Additional Insured

   The plaintiff was a developer of a subdivision.  See Standard Pacific of the Carolinas, LLC v. Amerisure Ins. Co., 2011 U.S. Dist. LEXIS 963 (D. S.C. Jan. 5, 2011).  Pursuant to a contract, it hired Matthews Construction as general contractor to build the subdivision.  Matthews agreed to providea general liability policy from Amerisure naming plaintiff as an additional insured.  

   Plaintiff, Matthews and others were sued by Terry Shortt for injuries suffered when he fell off a bike while riding over a deteriorated section of an asphalt path in the subdivision.  The complaint alleged defendants were jointly and severally liable for Shortt's injuries because of their negligence in the design, development, construction, management, and maintenance of the asphalt path.

   Amerisure refused to defend plaintiff, arguing the Shortt claim did not arise out of Matthew's ongoing operations.  The injury occurred several years after Matthews had completed work on the subdivision.  Amerisure argued the policy covered the plaintiff for Matthews' ongoing operations only, not finished and completed work. 

   The policy limited coverage to the ongoing operations of the contractor performed for the additional insured.  The policy allowed for "your work" coverage only if the written contract required "your work" coverage or wording to the same effect.  Nowhere in the written agreement did Matthews agree to provide the equivalent to "your work" coverage.  The plain language of the agreement didnot amount to wording to the same effect of "your work."  Therefore, Amerisure had no duty to defend.