Insurance Law Hawaii

Fire Policy Denying Coverage to Innocent Insureds is Invalid

   The California Supreme Court considered whether coverage could be denied to innocent insureds whose home was damaged when their son, a co-insured, intentionally set fire to the home.  See  Century-National Insurance Co. v. Garcia, 2011 Cal LEXIS 1392 (Cal. Feb. 17, 2011).

   After the insureds, husband and wife, suffered substantial damage to their home, Century-National Insurance Company denied coverage.  Century-National then filed suit seeking a declaration that it had no duty to pay for the loss because the policy excluded coverage for the intentional acts or criminal conduct of "any insured."  The insureds filed a cross-complaint alleging breach of contract and breach of the implied covenant of good faith and fair dealing.

   Century-National demurred to the cross-complaint, contending that the intentional acts exclusion barred any recovery because the son intentionally set the fire.  The trial court agreed with Century-National, concluding that (1) the policy defined the term "any insured" to include relatives of the insured who lived on the insured property, and (2) the Insurance Code section 533 expressly set forth California's public policy of denying coverage for willful wrongs.  The Court of Appeal affirmed.

   The California Supreme Court reversed and remanded.  The Insurance Code also required that fire insurance policies be set forth on a standard form.  Further, coverage was required to be substantially equivalent to or more favorable to the insured than coverage contained in the standard form. 

   The Supreme Court analyzed the Century-National policy against this standard.  Intentional loss was defined in the policy to mean "any loss arising out of any act committed by or at the direction of any insured having the intent to cause a loss." This provision meant if one insured committed acts for which coverage was excluded, the exclusion applied to all insureds with respect to the same occurrence.  Consequently, under this policy, the insureds could not recover against Century-National because, even if they were innocent of wrongdoing, their fire losses were caused by another insured, who acted intentionally and criminally.

    The statutorily required standard form contained no express exclusion for losses caused by intentional acts or criminal conduct.  Section 533, however, stated, "[a]n insurer is not liable for a loss caused by the wilful act of the insured."  Use of the term "the insured" was significant.  Unlike the policy exclusions that referred to "an" insured or "any" insured, exclusions based on acts of "the" insured were construed as not barring coverage for innocent co-insureds.  Allowing section 533 to provide coverage for an innocent insured when a co-insured committed arson advanced the legislative objection.  On the other hand, enforcing the Century-National intentional acts exclusion against innocent insureds did not. 

   Therefore, the Century-National policy provided coverage that was markedly less favorable to insured than the coverage provided in the standard form.  Consequently, the intentional acts exclusion was invalid.

   Thanks to my Damon Key blogging colleague, Robert Thomas (www.inversecondemnation.com), for sending this case my way.

Insured's Failure to Comply with Pilot's Warranty Negates Aviation Coverage

   Is the insured entitled to coverage if it substantially complies with a policy's pilot warranty requiring completion of ground and flight courses?  The Ninth Circuit, applying California law, answered no in Trishan Air, Inc. v. Federal Ins. Co., 2011 U.S. App. LEXIS 3003 (9th Cir. Feb. 16, 2011).

   Trishan Air, Inc. purchased an aviation insurance policy from Federal.  The policy included a pilot warranty that required pilots to complete ground and flight courses, including simulator training, for the make and model of the covered aircraft.  The pilot warranty covered not only chief pilots, but also second-in-command pilots.  A binder for the policy included a pilot warranty endorsement that called for these training requirments.  

   After an accident involving one of Trishan's corporate jets, Federal denied coverage because the co-pilot had not undergone the required training.  Trishan sued alleging breach of contract.   It argued that the co-pilot had received approximately 8-10 hours of training consisting of static cockpit simulation of procedures, emergency procedures, instrumentation and other operations of the aircraft.  Trishan's expert testified that this training was very similar to simulator training and in some cases better.  Nevertheless, the district court granted summary judgment in favor of Federal because Trishan had not strictly complied with the pilot warranty. 

   The Ninth Circuit affirmed. California courts required strict compliance with insurance warranties.  Trishan argued that the warranty was a mere condition of the insurance policy, requiring only substantial compliance.  This argument, however, ignored the dichotomy between conditions relating to basic coverage, such as notice provisions, and conditions, like the pilot warranty, that were an element of the fundamental risk insured.  If Trishan's argument was accepted, an insured could assert that merely substitute performance, based on the insured's subjective selection, was all that was needed to receive coverage.

   Thanks to my Damon Key colleague, Mark Murakami (http://www.hawaiioceanlaw.com/) for sending this case down the hall. 

Fourth Circuit Adopts Strict Interpretation of Time Frame in Which to Apply for Benefts

   The claimant's request to modify her permanent partial disability award under the Longshore Harbor and Worker's Compensation Act (LHWCA) was ruled untimely since she waited several years after her initial compensation award.  See Wheeler v. Newprot News Shipbuilding and Dry Dock Co., 2011 U.S. App. LEXIS 2889 (4th Cir. Feb. 15, 2011).

   The claimant was injured in 1992.  She was awarded permanent partial disability compensation, as well as a period of temporary total disability compensation.  She later sought continuing permanent total disability compensation.  After the employer contested, the administrative law judge issued an order denying the claim for permanent total disability compensation.  The Benefits Review Board affirmed on September 12, 2003.  No further appeal was taken.

   After the 2003 decision, the employer continued to authorize and pay for regular medical treatment for the claimant's knees.  On September 13, 2007, claimant submitted a request for modification of her permanent partial disability award under Section 22 of the LHWCA, again seeking total disability benefits.  The ALJ rejected the request as untimely because it was not filed within one year "after the date of the last payment of some compensation" or "after the rejection of a claim," as required in Section 22.  Although the claim was submitted within one year of the employer's last payment of medical benefits, it was filed more than four years after the Board's last order in 2003 denying the claim for permanent total disability compensation.

   Section 22 allowed the Director to review a compensation case and issue a new compensation order terminating continuing, reinstating, increasing or decreasing the compensation "at any time prior to one year after the date of the last payment of compensation."  The issue before the Fourth Circuit was the meaning of the term "compensation."  If "compensation" included the payment of medical benefits, then the claim for modification was arguably timely.

   The court first noted that the plain language of Section 22 did not clearly indicate that "compensation" either included or excluded medical payments.  Therefore, the meaning of "compensation" in Section 22 was ambiguous. 

   The legislative history, however, showed that Congress's inclusion of the one-year limitations period was not accidental.  While Section 22 was intended to broaden the grounds on which an award could be modified, it also strictly limited the period in which a request to modify could be filed.  Therefore, the Section 22 limitation period could not be construed to limit its force.  Furthermore, the interpretation urged by the claimant would mean the statute of limitations could be extended indefinitely by seeking medical treatment related to a covered injury and getting paid, thereby triggering anew the one-year period.

   Consequently, the court concluded that interpreting "payment of compensation" in Section 22 to exclude an employer's payment of medical benefits was most harmonious with the purpose of the statute's limitations period and the Act as a whole.

   Thanks to may Damon Key blogging colleague, Mark Murakami  (www.hawaiioceanlaw.com), for sending this case down the hall.