Insurance Law Hawaii

Contractor's Coverage For Additional Insured Established by Unilateral Contract

   The contractor was covered as an additional insured under the subcontractor's policy even though the parties had never actually signed an agreement to add the contractor to the policy. Evanston Ins. Co. v. Westchester Surplus Lines Ins. Co., 2011 U.S. App. LEXIS 20081 (9th Cir. Oct. 3, 2011).

    The policies held by Bellevue Master, the general contractor, required it to be an additional insured under any subcontractor's liability policy. Northwest Tower Crane Services was a subcontractor. Bellevue Master LLC, faxed a message that Northwest could continue to be a subcontractor on the project if it complied with Bellevue Master's insurance requirements. Northwest contacted its insurance broker and requested an insurance certificate be issued to Bellevue Master so that it would be an additional insured under Northwest's policy. 

   When a loss occurred, Bellevue Master's insurers denied coverage, contending Bellevue Master had failed to contract with Northwest to became an additional insured under Northwest's policy. The district court agreed.

   The Ninth Circuit reversed. A unilateral contract existed when one party offered to do a certain thing in exchange for the other's performance and the other party performed, constituting acceptance. Bellevue Master's fax was an offer: Northwest could continue as a subcontractor if it complied with Bellevue Master's insurance requirements. Northwest accepted the unilateral contract when it added Bellevue Master to its policy. Therefore, the policy covered Bellevue Master as an additional insured, and Bellevue Master's insurers were obligated to provide coverage.

Wind vs. Flood Issues Negate Insurer's Summary Judgment Motion

   Disputed evidence on whether the property damage was caused by wind or flood related to Hurricane Katrina was at issue in C.R. Pittman Constr. Co., Inc. v. Nat'l Fire Ins. Co. of Hartford, 2011 U.S. App. LEXIS 20002 (5th Cir. Sept. 30, 2011).

   Pittman Construction had equipment for pumping units stored both inside and outside of its warehouse in New Orleans. Its "all risks" policy, issued by National Union, was in place when Hurricane Katrina struck. The equipment was damaged. When National Union refused to provided coverage, Pittman Construction sued. The parties disputed whether the damage was caused by rain and wind or by the excluded peril of flooding.

   Both parties moved for summary judgment. Pittman Construction submitted an affidavit by its owner, Jay Pittman, Jr. Mr. Pittman stated he was present at the warehouse when Katrina hit, and that wind tore off parts of the side and roof of the warehouse, allowing rain to destroy the insured property before any flooding occurred. An employee's affidavit stated after wind blew away a tarp covering generators in the construction yard, rain destroyed the generators. In support of its motion for summary judgment, National Union contended the failure of the levee system had caused flooding that destroyed Pittman Construction's equipment. The district court granted National Union's motion for summary judgment and dismissed Pittman Construction's suit.

   The Fifth Circuit reversed, in part. The district court failed to consider the Pittman affidavits because they were self-serving. Although they were arguably self-serving, the Pittman affidavits were not wholly conclusory, but were based on personal knowledge and created a fact issue as to the cause of the damage to the equipment. Therefore, granting summary judgment to National Union was improper.

  

Claims for Hurricane Ike Damage Survive Motion to Dismiss

   Whether the insured's claims based upon the adjustor's inadequate inspection after Hurricane Ike stated a claim was at issue in Stewart v. Nationwide Prop. & Cas. Ins. Co., 2011 U.S. DIst. LEXIS 111465 (S.D. Tex. Sept. 29, 2011).

   Based on the complaint's allegations, the insured's home suffered extensive damage from Hurricane Ike when a tree limb fell on part of the roof, allowing water to enter. Nationwide assigned an adjuster to the claim, who did not perform a thorough investigation. Although damage for the entire roof was claimed, the adjuster failed to inspect the attic area under the damaged roof and did not inspect the potential roof damage over the main part of the house. Nationwide's payment only covered a portion of the roof and interior coverage for only a couple of rooms in the house. Nationwide also failed to give a reasonable explanation for its non-payment of particular damage claims.

   Ruling on the motion to dismiss, the court dismissed fraud claims because the insured did not take any action in reliance on the adjustor's misrepresentations and inadequate inspection.

   Claims based on the breach of the duty of good faith and fair dealing survived the motion to dismiss, however. The complaint alleged that the investigation and evaluation were unreasonable, as Nationwide knew or should have known that its liability was reasonably clear based on the inspection and the reported damages.

   Claims under the Texas Insurance Code were also adequately pled. Nationwide failed to provide a reasonable explanation of its offer of a compromise settlement of the claim. Nor had an adequate investigation been performed. Finally, allegations that Nationwide delayed payment of the claim following its receipt of all items, statements, and forms adequately stated a claim.

Insurer's Motion for Summary Judgment Based on Earth Movement Exclusion Denied

   After carefully dissecting the earth movement exclusion, the court denied the insurer's motion for summary judgment. High Street Lofts Condominium Assoc., Inc. v. Am. Family Mut. Ins. Co., 2011 U.S. Dist. LEXIS 109043 (D. Colo. Sept. 26, 2011).

   The City of Boulder performed road repair work near High Street's property, some of which involved the use of a vibrating compactor to compact and set the roadbed. High Street noticed damage to its building, such as cracks in walls, sloping of floors and separations of porches from the building itself. High Street contacted the City of Boulder, who forwarded the complaint to its contractor, Concrete Express, Inc.

   High Street also filed a claim with its business insurer, American Family, who denied the claim. American Family relied on an opinion letter by High Street's engineer. The letter indicated that the damage was the result of "soil consolidation/settlement," in response to the construction activities. Based on this letter American Family concluded the claim was excluded under the policy's earth movement exclusion.

   High Street sued American Family, who moved for summary judgment. High Street opposed the motion by contending there was a genuine issued of fact regarding the cause of the damage to the building. The court determined the property was damaged by ground vibrations caused by Concrete Express' work.

   Next, the court turned to whether the policy covered property damage arising from these conditions. The exclusion barred coverage for damage caused by earth movement as follows:

Earth sinking, rising, or shifting including soil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty. Soil conditions include . . . improperly compacted soil . . . .

   Perhaps, under this exclusion, American Family could show that the vibrations caused harm to High Street's building because the soil under the around the building's foundation was "improperly compacted" in such a way that the property was susceptible to damage from vibrations caused by Concrete Express. On the other hand, High Street may be able to show that the soil was properly compacted and the shifting of the earth was not caused in party or whole by defective compaction.

   Because this determination depended on a factual finding , i.e., the degree to which improper soil compaction allowed the vibrations to transmit earth movement to the building, American Family's motion for summary judgment was denied.

   Thanks to my Damon Key colleague, Christi-Anne Kudo Chock, for sending this case my way. Christi noted the insurer, carrying the burden to show the exclusion is applicable, may have a tough time proving conditions of the soil retroactively.

Broad Interpretation of Additional Insured Endorsement Allows Coverage

   The interpretation of the additional insured endorsement was key to determining coverage in Lancaster v. Ferrell Paving, Inc., 2011 Tenn. App. LEXIS 507 (Tenn. Ct. App. Sept. 20, 2011).

   Ferrell Paving, Inc. used a warehouse to store its construction materials. Ferrell employed Imperial Guard Service, Inc. to provide security services for the warehouse. One evening, an Imperial Guard employee was shot by intruders while he was on duty. The guard sued Ferrell, alleging negligence in failing to protect him.

   Ferrell believed it was an additional insured under Imperial Guard's policy, so it tendered its defense to Everest Indemnity Insurance Company. Everest denied coverage, contending Ferrell was not an additional insured under an endorsement reading,

Who is An Insured is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured.

The Schedule did not name a person or organization, but stated, "BLANKET WHERE REQUIRED BY CONTRACT."

   Imperial Guard and Ferrell had entered a written contract, but it did not mention additional insured status. Pursuant to an oral agreement, however, Imperial Guard had added Ferrell as an additional insured under the endorsement. The trial court concluded that Ferrell was an additional insured, but that it was not covered because it was allegedly negligent.

   The appellate court reversed. Everest argued the endorsement only provided coverage to the purported additional insured for vicarious liability that arose out of the ongoing operations of the insured. Therefore, the additional insured was not covered for its own negligence. The court, however, agreed with the majority view.Coverage for an additional insured "with respect to liability arising out of [the named insured's] ongoing operations performed for [the additional] insured" meant the additional insured's coverage was not limited to instances of vicarious liability for the negligence of the named insured.

   Here, Ferrell's alleged liability for the employee's injury arose out of Imperial Guard's ongoing operations performed for Ferrell. Therefore, Ferrell was covered by the additional insured endorsement.

Hawaii Commissioner Outlines State of Insurance Industry

   The Commissioner of the Hawaii Insurance Division, Gordon Ito, met with the HSBA Insurance Coverage Litigation section last week. The Commissioner gave an overview of the Insurance Division and its inner workings.

   Here's a summary of the Commissioner's presentation.

   The Insurance Division consists of various branches. The Division has 81 positions authorized, 70 of which are currently filled.

   In 2010, there were 1009 companies licensed by the Insurance Division. About 50 to 60 of these insurers actively wrote policies. Approximately $4.9 billion was collected in premiums in 2010. The Commissioner mentioned that insurers writing homeowner's policies realized a 45% profit over income last year. This is partly due to collecting hurricane premiums and the absence of any hurricanes for a number of years.

   The Licensing Branch has seven people and oversees the licensing of agents. This includes the licensing of bail bondsmen. There are 43,000 licenses issued in Hawaii, 31,000 of which are held by non-resident agents. The Commissioner explained that companies writing auto insurance, such as Geico and Progressive, account for many of the non-resident licensed agents. There is an increase of 1500 to 2000 agents each year. The branch processed 122,000 appointments and terminations last year.

   The Rate and Policy Branch analyzes the rates and policy filings of insurers. The branch reviews homeowners, motor vehicle, long-term care, workers compensation, liability and other types of policies. In 2010, 3500 rate filings were reviewed. The branch also enforces the readability standards for policy language. Policy language is to be written so it can be understood by seventh graders. 

   The Compliance and Enforcement Branch handled 472 Complaints in 2009.

   The Health Insurance Branch handles external appeals from non-ERISA plans and investigates complaints. There were 157 complaints received in 2009. The external review procedures will undergo significant changes in the near future as a result of SB 1274. Instead being handled by the Insurance Commissioner, appeals will now be decided by a panel of doctors on the mainland based upon a written record and with limited involvement of the claimant's attorney. Under the prior system, attorney fees were paid to the claimant whether the external review was won or lost.

   The Fraud Branch handled 252 referrals in 2010. Forty indictments were issued and $275,000 was recovered. There are two attorneys in the Fraud Branch who are deputized by the Attorney General's office in order to prosecute fraud cases. Commissioner Ito explained a recent common fraud pattern is for an insured to purchase a policy after an accident, and then report the accident a few days after purchasing the policy.

   The Legal Branch has four attorneys and one paralegal. This branch drafts bills, helps with enforcement, and coordinates rehabilitation and liquidations. The last liquidation involved Hawaii Insurance Guarantee in 2006. The largest liquidation in the State involved Investors Equity Life in 1994 after it was involved in life insurance fraud. The owner treated the assets as his own and lost over $100 million. The Insurance Division is still dealing with the runoff from this liquidation. The Hawaii Guarantee Fund was able to take over the claims for insureds, and the policy-holders have been made more than whole.

   The last branch addressed by the Commissioner was Captives. There were 162 active captives in 2009. Parents of captives in Hawaii are several notable companies, including Nike, Nissan, Marriot, Bancorp, and Occidental Petroleum. In 2009, the total written premiums for captives was over $1.2 billion.

   Addressing new challenges, the Commissioner spoke of preparing for the new federal Health Care Reform. In 2010, the Division received a $1 million grant for premium rate review. Another $1 million grant was issued to start setting up the health exchange where individuals and small businesses will be able to purchase insurance. In 2011, a $3 million grant was received by the Division for premium rate review. The Insurance Division recently submitted a request for a $14.9 million health exchange implementation grant.

   Commissioner Ito has worked at the Insurance Division since 1993, first as a supervising staff attorney, then as the chief deputy Commissioner, and since 2010, the Division's Commissioner. We greatly appreciate his taking time to meet with our section.

Post 500 - Time-On-Risk Deemed Proper Allocation Method

   In our 500th post, we review a case in which time on the risk was found to be the proper allocation method for ongoing property damage. Bradford Oil Co., Inc. v. Stonington Ins. Co., 2011 Vt. LEXIS 102 (Vt. Sept. 11, 2011).

   Bradford Oil Company owned a Mobil station. Contamination was discovered at the site, which may have begun as early as the 1960's or as late as the end of the 1970's. Bradford paid for the investigation and clean up of the contamination, but the Vermont Petroleum Cleanup Fund (VPCF) reimbursed most of Bradford's expenses.

   Bradford sued for coverage for its cleanup liability under four commercial general liability policies issued by Stonington. The State, also a defendant, cross-claimed seeking reimbursement to the VPCF from Stonington. The coverage periods for the policies began on July 18, 1994, and continued through December 1, 1997, which was only a portion of the total time that contamination allegedly occurred. 

   Stonington stipulated to the existence of coverage, leaving only the allocation of costs and damages to be decided. Stonington filed for partial summary judgment, asserting that the time-on-the-risk allocation method should apply. Under this method, each triggered policy bore responsibility for damages in proportion to the time it was "on the risk," relative to the total time of triggered coverage.

   The trial court granted the motion, following Towns v. Northern Security Ins. Co., 964 A.2d 1150 (Vt. 2008). Townsheld the time-on-the-risk allocation was the most consistent with the continuous-trigger rule. Further, the allocation method allowed the risk to be spread to the maximum number of carriers, easily identifying each insurer's liability through a relatively simple calculation. Under this method, Stonington was only liable for 4/27 or 15% of the cleanup costs.

   On appeal, the State argued Towns should be limited and the joint and several liability allocation method should apply. Under this method, any policy on the risk for any portion of the period in which the insured sustained property damage was jointly and severally obligated to pay up to policy limits for the loss. The State argued Townsshould not apply when the plaintiff was the VPCF and not the insured. By statute, the State could recover cleanup costs when there was insurance coverage. The statute authorized the State to "seek reimbursement in instances where the land is covered by insurance, to the extent of the coverage." But here, the State stood in the shoes of the insured when it sued the insurer. There was no reason not to apply Towns merely because the State was involved.

   Accordingly, the time-on-the-risk allocation method applied and Stonington was properly granted summary judgment.

Hawaii Supreme Courts Holds Insured Is Real Party In Interest When Pursuing PIP Benefits

   In Wilson v. AIG, 89 Haw. 45, 968 P.2d 647 (1998), the Hawaii Supreme Court held that an insured was not the real party in interest when challenging its auto insurer's refusal to pay benefits to the insured's medical provider. Relying on legislation post-dating its prior decision, the Court overruled Wilson in an unanimous decision authored by Justice McKenna. Ahn v. Liberty Mut. Fire Ins. Co., No. 28314 and Kim v. Liberty Mut. Fire Ins. Co. No. 28315 (Haw. Sup. Ct. Oct. 4, 2011) [Decision here]. Prior posts on Kim and Ahn are here, here and here.

  Liberty Mutual denied Personal Injury Protection ("PIP") benefits to Ms. Kim and Ms. Ahn for treatment after their respective motor vehicle accidents. In proceedings before the Insurance Commissioner, Liberty Mutual's motions for summary judgment were granted because the insureds were deemed to not be the real parties in interest for pursuing PIP benefits. The circuit court concluded Act 198 had legislatively overruled Wilson, and thatthe insureds were real parties in interest to challenge Liberty Mutual's denials. Therefore, the Insurance Commissioner's final order was reversed. The Hawaii Intermediate Court of Appeals affirmed the circuit court.

   Act 198, enacted in 2006, amended the no-fault law in Hawaii. The Act's legislative history expressed its intent to overrule Wilson. Further, the Act specifically stated that if there was a dispute between the provider and the insurer regarding payment of a claim, "the provider, insurer, or claimant may submit the dispute to the commissioner, arbitration, or court . . . ."

    The Supreme Court first held that the ICA erred in affirming the circuit court's reversal of the Insurance Commissioner's final order. Act 198 was not effective until June 14, 2006, after the Insurance Commissioner's final orders. To conclude that Act 198 conferred real party in interest on these insureds, the Act would have to have retrospective effect. Here, the Act was not retrospective because the legislature did not choose to make it so.

    Nevertheless, the Court held that Wilson should be overruled. Even though Act 198 was not retrospective, it was still instructive. The Act's legislative history clearly expressed the Legislature's view that insureds should be real parties in interest to pursue all PIP disputes whether through the Insurance Commissioner, arbitration, or a court.

    Rebecca Copeland (www.recordonappeal.com) gives her appellate perspective on the cases here.

     

No Coverage For Damage Caused by Chinese Drywall

   The pollution exclusion barred coverage for alleged property damage and bodily injury in Evanston Ins. Co. v. Harbor Walk Dev., LLC, No. 2:10cv312 (E.D. Va. Sept. 9, 2011) [Evanston Decision here].

   Homeowners sued the insured, Harbor Walk, in three lawsuits, alleging the Chinese drywall installed in their homes emitted sulfides and other noxious gases. This caused corrosion and damage to the air-conditioning and ventilation units, refrigeration coils, copper tubing, faucets, metal surfaces, electrical appliances and other personal items. The homeowners also alleged the compounds emitted by the drywall caused bodily injury, such as allergic reactions, headaches, etc.

   Harbor Walk's insurer, Evanston, filed for a declaratory judgment that the pollution exclusion precluded coverage. The exclusion stated there was no coverage for "bodily injury" or "property damage" that would not have occurred but for the discharge, dispersal, release or escape of pollutants. Pollutants included solid, liquid gaseous or thermal irritant or contaminant, chemicals, etc.

   The homeowners argued the use of environmental terms in the exclusion meant it was limited to excluding damages caused by "traditional pollution events," and not the emission of gas from building material occurring inside a home. Because their reading of the exclusion was reasonable, the exclusion was ambiguous. After surveying case law in Virginia, however, the court disagreed. The pollution exclusion unambiguously applied to injuries caused by both traditional and non-traditional pollution.

   Further, each of the causes of action (including negligence, breach of express and/or implied warranties, breach of contract, private nuisance, unjust enrichment, etc.) implicated the emission of sulfides and noxious gases from the Chinese drywall as either the basis for the claim, or the cause of the resulting damage. Thus, every cause of action fell within the reach of the pollution exclusion, barring all claims made by the homeowners. Consequently, Evanston was entitled to summary judgment.

Welcome to Immigration Blog

  Congratulations to another Damon Key blogger, David McCauley, for rolling out his new immigration blog. Today's post addresses the U.S. State Department's Diversity Visa Lottery. Many more informative, timely posts to come from this blog, we are sure.