Insurance Law Hawaii

Insured's Claim Against Agent Survives Statutue of Limitations Challenge

   After being sued for failure to secure a policy, the insurance agents sought dismissal of the insured's suit on statute of limitations ground.  Kelly v. Lodwick, 2011 Fla. App. LEXIS 4810 (Fla. Ct. App. April 6, 2011).

   A private school was notified its policy would not be renewed after it lapsed on March 1, 2004 at 12:01 a.m.  The school's insurance agents received a commitment from a second insurer which agreed to issue a new policy.  The insurer required the agents, however, to provide written confirmation indicating that the school desired the policy. The agents failed to provide such written confirmation and the school became uninsured on March 1, 2004 at 12:01 a.m.

   During the afternoon of March 1, 2004, a student was injured due to the alleged negligence of a school employee. When the school notified its insurer, it was informed it had no coverage.

   On April 20, 2005, the student and her mother sued the school.  On January 8, 2009, the parties settled for a final judgment in the amount of $500,000.  In return for an assignment of the school's causes of action against its insurance agents, the plaintiffs agreed abstain from executing on the judgment against the school.  

   On February 9, 2009, the plaintiffs sued the agents.  The agents moved to dismiss, arguing that the four-year statute of limitations commenced on March 1, 2004, when the school discovered it lacked coverage.  The plaintiffs responded that the limitations period commenced when the final judgment was entered on January 8, 2009.  The circuit court granted the motion to dismiss after holding the limitations period commenced on March 2, 2004.

   On appeal, the plaintiffs argued that the statute of limitations did not commence until damages occurred.  Here, damages to the school did not occur until April 20, 2005 at the earliest, when the school was forced to defend itself against the plaintiffs' claims.

   The appellate court agreed with the plaintiffs.  Because the school had no coverage, it had to defend itself against plaintiffs' claims and thereby incurred damages.  Once the school incurred damages, the four-year limitations period commenced.  Thus, the agents motion to dismiss based on the expiration of the limitations period should not have been granted.

Claim for Lost Business Opportunities Survives Summary Judgment

   Lost business opportunities after Hurricane Katrina hit was the issue before the court in Safeguard Storage, Properties, L.L.C. v. Donahue Favret Contractors, Inc., 2011 La. App. LEXIS 391 (La. Ct. App. March 31, 2011).

   Safeguard planned to develop a minimum of twelve to fifteen new self-storage locations each year for several years.  Market evaluations were performed for five different metropolitan locations.  Nineteen new projects were being developed when Hurricane Katrina struck. 

   The hurricane damaged Safeguard's New Orleans area facilities and interrupted the business operations of Safeguard's corporate office and national call center.  Safeguard's office space sustained $30 million in damages. 

   Safeguard sued its insurers, seeking compensation for its damaged property and for lost business opportunities at locations Safeguard was allegedly unable to open due to Hurricane Katrina.  The insurers filed motions for partial summary judgment asserting that Safeguard's lost business opportunities claims for forty years of profits from 36 stores that would have allegedly been built but for Hurricane Katrina were too speculative as a matter of law.  The trial court agreed and granted summary judgment.

   The policies provided that business losses would be adjusted on the basis of actual loss sustained by the insured resulting from interruption of business, "consisting of the net profit which is thereby prevented from being earned."  To determine the amount of loss sustained, consideration was to be given to the experience of the business before the date of damage and to the probable experience had no loss occurred.

   On appeal, the court could not determine as a matter of law that a portion of Safeguard's claims for loss business opportunities was not covered under these provisions.  A projection of earnings was an accepted method of calculating business interruption.  Safeguard contended it developed thirty-eight new storage facilities from 2001 to 2005.  It sustained lost business income due to its alleged inability to build thirty-seven new storage facilities.  A Safeguard expert stated that a conservative estimate for Safeguard's lost business opportunities was $332.5 million.  Whether these estimates were credible was a determination to be made by the finder of fact.  Therefore, the trial court erred in granting the insurers' motion for summary judgment.

Construction Defects Not Covered When Contractor Terminated Prior to Completion

   Whether a contractor who failed to complete construction of a home had coverage for alleged construction defects was at issue in Clarendon Am. Ins. Co. v. Gen. Sec. Indem. Co. of Arizona, 2011 Cal. App. LEXIS 377 (Cal. Ct. App. March 2, 2011). 

      Hilmor Development contracted with the homeowners to serve as general contractor for the construction of a new home. The contract provided Hilmor would construct and complete the residence.  On May 18, 2001, prior to completion of the residence, the homeowners terminated their contract with Hilmor.  Construction of the residence continued without further participation by Hilmor.

   In November 2004, the homeowners sued Hilmor alleging construction defects.  Clarendon insured Hilmor under a CGL policy effective July 1, 2000 to July 2, 2001.  General Security insured Hilmor under a CGL policy effective July 1, 2001 to July 1, 2002.  Under General Security's policy, the products-completed operations hazard provision provided coverage for property damage that occurred after an insured's work was completed.  Further, exclusions j (5) and j (6) barred coverage for property damage that arose out of operations in progress and for repairs to property where "your work" was incorrectly performed on the property.

    Hilmor tendered the suit to Clarendon and General Security.  Clarendon defended.  General Security refused the tender, however, because: (1) Hilmor did not complete all of the work required by the contract prior to the inception of the General Security policy; and (2) the faulty workmanship exclusions barred coverage.

   After Clarendon paid policy limits of $1 million to settle with the homeowners, it sued General Security for contribution.  The insurers filed cross motions for summary judgment. The trial court found General Security's products completed operations hazard coverage did not apply because Hilmor did not complete the job.  Moreover, exclusions j(5) and j (6) precluded coverage arising out of Hilmor's work during construction related to defective work and material. 

   The appellate court affirmed.  It was undisputed Hilmor did not complete the work he was hired to do.  Therefore, the completed-operations hazard did not provide coverage.

   Under exclusion j (5), the insurer was not obligated to indemnify a policyholder for property damage that occurred while the insured was performing operations on the property.  Coverage was also excluded under paragraph j (6) because the homeowners alleged "defects and deficiencies" in their residence due to poor workmanship and/or materials.  Therefore, summary judgment was properly granted to General Security.

   Thanks to my Damon Key blogging colleague, Robert Thomas  (www.inversecondemnation.com) for the heads up on this case.

Damage from Faulty Indoor Sprinkler Covered as Ensuing Loss

   Among the range of issues addressed by the court was an ensuing loss provision in Five Star Hotels, LLC v. Ins. Co. of Greater New York, 2011 U.S. Dist. LEXIS 31313 (S.D. N.Y. March 24, 2011).

   In December 2005, Five Star installed an upgraded automatic sprinkler system in each room of its hotel.  On December 24, 2008 two couplings in the sprinkler system on the tenth and eleventh floors of the hotel burst.  Before the water flow could be turned off, extensive property damage was caused as the water flowed to the lower floors.  An investigation determined the cause of the accident was a rupture caused by freezing of the water within the pipes. 

   Five Star notified its insurer, Insurance Company of Greater New York (GNY).  A reservation of rights letter was issued in January 2009, informing Five Star that a further investigation had to be completed before a coverage determination could be made.  Two policy provisions were cited.  First, the policy's Protective Safeguards Endorsement required the insured to "maintain" an automatic sprinkler system.  Second, the policy excluded faulty, inadequate or defective workmanship or repair.  The ensuing loss provision, however, stated if the faulty workmanship resulted in a covered cause of loss, the insurer would pay for the loss caused by that covered cause of loss.

   By May 2009, Five Star informed GNY that it was in danger of losing its franchise license and requested a coverage decision by May 25, 2009.  GNY responded that it could not complete its coverage determination until more testing was completed on the pipes.  In June, Five Star surrendered its franchise license because it was unable totell the franchisor when it could commence reconstruction and reopen the hotel.

   Finally, on September 17, 2009, GNY determined that the accident was caused by the freezing expansion of the water inside the pipe system and denied coverage.  Five Star sued for breach of the policy and for bad faith.

   On cross motions for summary judgment, the court first considered whether Five Star had "maintained" a sprinkler system under the Protective Safeguards Endorsement.  GNY argued that by failing to prevent the system from freezing, Five Star breached its obligation to "maintain" the system.  Five Star argued it was merely required to keep the sprinkler system in place and not remove or disable it.  The policy did not define "maintain."  The court found the term susceptible to different meanings and therefore ambiguous.  Consequently, the interpretation favoring Five Star was adopted, meaning Five Star's claim was not barred for failure to comply with the Protective Safeguards Endorsement.

   Turning to the ensuing loss provision, covered losses under the policy included "leakage from fire extinguishing equipment."  Therefore, damage resulting from a frozen and leaking sprinkler system was a covered cause of loss.  Because of the ensuing loss provision, the exclusion for faulty design or faulty maintenance did not bar coverage for water damage resulting from the frozen sprinkler system.

   Finally, GNY's motion seeking dismissal of the bad faith claim was premature because Five Star was entitled to conduct discovery.  The court noted that there was virtually no case law supporting GNY's interpretation of the Protective Safeguards Endorsement or the design defect/faulty maintenance exclusion.  Further, there was evidence of significant delays in GNY's investigation.

Lack of Coverage for Named Insured Does Not Negate Coverage for Additional Insured

   Although the commercial auto policy excluded coverage for the named insured, coverage was still possible for the additional insured.  Great West Casualty Co. v. Terminal Trucking Col., LLC, 2011 U.S. Dist. LEXIS 30356 (D. S.C. March 22, 2011).

   Wellman, Inc. sold bales of polyester fiber to Milliken & Company.  Wellman contracted with Terminal Trucking Company to deliver the bales of fabric to Milliken.  In August 2007, Wellman loaded a trailer with bales of fabric and a Terminal driver delivered the loaded trailer to Milliken.  Before leaving, the driver unhitched the trailer from his truck and left the trailer on Milliken's property, as instructed by a Milliken employee. 

   The next morning, Sutton, a Milliken employee, approached the trailer to unload the fabric.  A bale inside the trailer fell through the door, hit Sutton, and caused serious injury.

   Sutton sued Terminal and Wellman.  Terminal had a commercial general liability policy and a commercial auto insurance policy with Great West Casualty Company.  Wellman was an additional insured on both policies.  Great West sued for a declaratory judgment, contending there was no coverage for either Terminal or Wellman.

   On motions for summary judgment, the court found there was no coverage under the CGL policy.  An exclusion for aircraft, auto or watercraft provided there was no insurance for bodily injury arising out of the loading or unloading of a trailer.  This exclusion applied not only to the named insured, Terminal, but also to the additional insured, Wellman.  An endorsement stated that coverage provided to the additional insured was subject to all exclusions in the policy.

   Nor was Terminal covered under the commercial auto policy.  The Completed Operations exclusion provided when all work was completed at a site, there was no coverage.  The additional insured endorsement for the auto policy provided coverage for liability based on "the conduct of an 'insured' . . . and only to the extent of that liability."  Unlike the CGL policy, however, the additional insured endorsement did not incorporate all of the exclusions.  Therefore, the Completed Operations exclusion did not apply to Wellman.

   Nevertheless, coverage was available only if Wellman was ultimately found liable for damages resulting from Terminal's conduct.  Sutton alleged the bales of fiber were improperly loaded,the bales shifted during transit,Terminal failed to train its driver to understand the cargo may shift during transit, and Wellman and Terminal had no procedure by which to make sure the load was safe for unloading.  The determination as to whether Wellman's liability was based on Terminal's conduct had to be determined in the underlying litigation.

 

Application of Exclusion and Ensuing Loss Provision Denied on Summary Judgment

   The court denied cross motions for summary judgment, deciding there were genuine issues of material fact regarding the applicability of both the exclusion for vandalism and the ensuing loss provision.  See New London County Ins. Co. v. Zachem, 2011 Conn. Super. LEXIS 381 (Conn. Super. Ct. Feb. 18, 2011).

   Vandals broke into the insureds' home.  Although no one lived at the property, the insureds made daily trips there, stored equipment on the property, and did repair and maintenance work on the property.  The vandals removed a copper gas pipe, from which propane gas leaked, which was ignited.

   The insureds' policy excluded loss caused by "vandalism and malicious mischief, theft or attempted theft if the dwelling has been vacant for more than 30 consecutive days immediately before the loss."  However, "any ensuing loss . . . not excluded or excepted in this policy is covered." 

   The insureds submitted a claim.  New London denied coverage because the house had been "vacant" for more than 30 days prior to the loss.  Further, the ensuing loss provision did not apply because the explosion was intentional and was not only a foreseeable consequence, but the result the vandals desired.

   The insureds sued and cross motions for summary judgment were filed.  New London's motion was denied because the word "vacant" in the exclusion was susceptible to more than one meaning, making it ambiguous.  The insureds' argument that the property was not "vacant" because they visited the house and kept some items there was reasonable.  Nevertheless, the extent of the insureds' presence during the 30 day period prior to the loss was unclear.  Accordingly, the insureds' cross motion on the applicability of the exclusion was also denied.

   A genuine issue of fact also existed regarding the ensuing loss provision.  The parties agreed that vandals removed a gas pipe that allowed propane gas to leak into the house, which ignited, causing the explosion that created the loss.  A genuine issue of fact existed, however, regarding what caused the propane to ignite, depriving the insureds of summary judgment on this issue as well.

Subcontractor's Negligence Causing Construction Defect is Covered

   Following recent precedent issued by the Indiana Supreme Court, the federal district court determined the CGL policy provided coverage for damage caused by the subcontractor.  Gen. Casualty Ins. v. Compton Constr. Co., Inc., 2011 WL 939245 (N.D. Ind. March 16, 2011).

   Zubak contracted with Compton to construct a new home.  Compton contracted with subcontractors to test the soil, excavate the site and set the foundation.  After Zubak moved into her new house, she alleges there was a problem with the foundation, causing the home to buckle and shift.

   Zubak sued Compton, alleging breach of contract, negligence, breach of statutory warranty and breach of implied warranty of habitability.  No property damage was alleged other than damage to the house. 

   General Casualty sued for declaratory relief that its policy did not require it to defend or indemnify Compton.  On General Casualty's motion for summary judgment, the federal district court determined it was bound by Sheehan Constr., Inc. v. Continental Casualty Co., 935 N.E. 2d 160 (Ind. 2010) [see post here], a case General Casualty neglected to site.  In Sheehan, the court held that faulty workmanship can constitute an "accident" under a CGL policy.  Therefore, any damage to the home have been caused by an "occurrence," triggering the policy.  The Indiana Supreme Court also held that defective subcontractor work could provide the basis for a claim under a CGL policy. 

   The complaint in this case alleged that subcontractor negligence led to Zubak's propery damage.  Therefore, General Casualty's motion was denied and deemed inappropriate as a matter of law.

Occurrence of Property Damage Triggers Policy, Not Negligent Act

   Two insurers covering consecutive policy periods pointed the finger at one another regarding a loss caused by a leak.  The court determined the policy in place when the leak occurred, not when the plumbing was installed, was triggered.  See Alliance Mut. Ins. Co. v. Guilford Ins. Co., 2011 WL 883528 (N.C. App. March 15, 2011).

   Beginning in September 2004, Premier Plumbing did the plumbing work in a new home under construction.  Premier was insured by Guilford from February 21, 2004 to February 21, 2005.  Alliance assumed coverage for Premier beginning February 2005.

   The house was purchased in April 2005.   On December 27, 2006, the home was flooded when a water supply line to the laundry room sink separated.  Prior to December 2006, the homeowner had used the sink once a week and had never noticed any leakage. 

   Allstate, the homeowner's insurer, paid the claim for damage due to the defective installation of the water supply line.  Allstate then filed a subrogation action against Premier.  Alliance defended Premier, but also demanded that Guilford undertake its duty to defend and indemnify Premier.  Guilford contended the loss occurred after its policy had expired, and refused to defend or indemnify.

   Alliance filed for a declaratory judgment against Guilford.  The trial court granted Guilford's motion for summary judgment and Alliance appealed.

   The appellate court affirmed. The court disagreed with Alliance that the date the piping was installed determined which policy was triggered.  Instead, the key was the date the property was damaged or the event occurred.  Even if it was assumed that the date of improper installation of the water supply line was the date of the "occurrence," the "property damage" - the water leak and flooding of the house - did not occur "during the policy period." 

    Unlike Hawaii's seminal case on continuing property damage, Sentinel Ins. Co., Ltd v. First Ins. Co. of Hawaii, Ltd., 975 P.2d 894 (Haw. 1994), this case did not involve a continual leak which began in 2004 and was not discovered until December 2006; instead, the leak began in 2006.  

   In Sentinel, the leak was continuous and ongoing through several policy periods.  Further, there was no determination as to when the leak commenced.  Consequently, the court utilized the injury in fact trigger and found all policies during which the ongoing leak occurred were triggered.  Sentinel Ins., 875 P.2d at 918.