Insurance Law Hawaii

Holder of Certificate of Insurance Is Not Insured Under Policy

   The shopping mall owner, Bender Square Partners, sought to recover from the insurer for losses resulting from Hurricane Ike to property it had leased to PNS Stores, Inc. Bender Square Partners v. Factory Mut. Ins. Co., 2012 U.S. Dist. LEXIS 8095 (S.D. Texas Jan. 24, 2012). It turned out Bender was not an additional insured under the lessee's policy with Factory Mutual.

      The lease required the lessee to maintain property insurance. The policy that was acquired from Factory Mutual did not identify Bender as an insured or as an additional insured. The policy stated that additional insured interests were added to the policy when named as an additional named insured in a Certificate of Insurance in a schedule on file with the insurer.

   Bender argued it was a named holder of the Certificate of Insurance and was also an intended or implied third-party beneficiary of the policy.

   The Certificate of Insurance specifically stated it was issued for informational purposes only and conferred no rights upon the holder other than those provided in the policy. Under Texas law, the Certificate did not confer any rights to Bender under the policy.

   Further, there was no evidence to support an inference that Bender was an intended third-party beneficiary. Nor was Bender an implied third-party beneficiary. There was no provision in the lease requiring the lessee to procure a policy on the lessor's behalf, or requiring the policy to name the lessor as an insured, additional insured, or loss payee. Therefore, Bender could not be an implied third-party beneficiary.

   Consequently, because it was not an insured, additional insured, or third-party beneficiary under the Policy, Bender could not sue Factory Mutual for breach of contract or for the breach of the duty of good faith and fair dealing. Factory Mutual was entitled to summary judgment as to all of Bender's claims against it.

Ohio Court Finds No Coverage for Construction Defect Claims

   Charles and Valerie Myers hired Perry Miller to build their home. Myers v. United Ohio Ins. Co., 2012 Ohio App. LEXIS 287 (Ohio Ct. App. Jan. 26, 2012). After completion of the home, Miller was again hired to construct an addition which included a full basement, staircases, bathroom, bedroom, hallway and garage.

   After the addition was completed, one of the basement walls began to crack and bow. Miller began to make repairs, but eventually stopped working on the project. Other contractors were hired to make repairs, but further problems developed. A second basement wall began to bow and crack, allowing water into the basement. The wall eventually had to be replaced. Subsequently, the roof over the addition began to leak in five or six places before the drywall could be painted. The leaks caused water stains on the drywall and cause it to separate and tear. It was discovered the roof needed to be replaced.

   The Myers sued Miller and his insurer, United Ohio Insurance Company. The trial court ruled that the policy did not provide coverage for faulty workmanship, but did provide coverage for consequential damages caused by repeated exposure to the elements. United Ohio conceded liability in the amount of $2,000 to repair water damage to the drywall. United Ohio was also found liable for $51,576, which included $31,000 to repair the roof and ceiling and $18,576 to replace the basement wall.

   The appellate court vacated the trial court's judgment. The court had previously held that defective workmanship did not constitue an accident or occurrence under a CGL policy. The evidence showed the roof was not properly constructed by Miller. The damages awarded for repair of the roof were not damages for consequential or collateral damage caused to the interior of the home, but rather were for damage to the work product itself caused by faulty workmanship. Thus, the damage did arise from an occurrence.

   The court also reversed the award of damages for replacement of the basement wall as mold remediation. There was no evidence that replacement of the basement wall was necessary because of mold damage. Damages for mold were also expressly excluded by the policy.

   Finally faulty workmanship on the roof was not an "occurrence" within the meaning of the policy.
Therefore, the cost of repairing the incompetently constructed roof were not covered.

   In deciding there was no coverage for the construction defects, the court's analysis seemed backwards. The court determined there was no damage that arose from an "occurrence," but, instead, damage to the work product arose from faulty workmanship. Unless the workmanship was intentionally faulty, it seems more plausible that the defective construction arose from an "accident" or "occurrence" under the policy. Just because there was an occurrence, however, did not assure coverage. The court seemed to find that the "your work" exclusion barred coverage, not the absence of an "occurrence. Therefore, the proper analysis would be to determine there was an occurrence, and then turn to the business risk exclusions to decide whether they barred coverage.

Insurer's Motion for Summary Judgment on Bad Faith Issue Fails

       In a brief decision, the federal district court denied the insurer's motion for summary judgment on the insured's bad faith claims. Gulf Prod. Co. Inc. v. Hoover Oilfield Supply, Inc., 2012 U.S. Dist. LEXIS 3390 (E.D. La. Jan. 11, 2012).

     The insured was sued for a defective flowline that allegedly splayed when pressure tested below its advertised maximum pressure limit was reached. This allegedly caused a delay of production of mineral's from the customer's wells, the basis of a suit filed against the insured. A defense was provided under a reservation of rights, but a declaratory judgment was filed to determine the insurer's coverage obligations.

     The court noted that whether an insured has breached its duty of good faith and is liable required a factual determination. The insured's answer outlined several reasons for its bad faith claims, which centered around the scope of coverage under the policy. For example, the insured alleged the insurer's continued efforts to disclaim coverage was a bad faith breach of its duty of good faith and fair dealing. In response, the insurer argued that it was providing a defense to the insured under a reservation of rights, making it impossible for the insurer to be in bad faith.

    The court disagreed. There was no support for this argument and the motion for summary judgment was denied.

Several Insurance Related Bills Pending Before Hawaii Legislature

   Through the efforts of Mihoko Ito, Esq. and Gary Slovin, Esq., the Hawaii State Bar Association is tracking variouscategories of legislation during the current session. Based upon Mihoko and Gary's efforts, below is a summary of the insurance related bills the legislature is considering.

   HB 1688- The bill increases the minimum insurance coverage requirement for bodily injury liability coverage to $50,000 for bodily injury or death of one person and $100,000 for bodily injury or death of two or more persons.

   HB 1736- Related to the Hawaii health insurance exchange, the bill specifies that the Hawaii health connector will establish a separate program and risk pool to serve the individual market and a separate program and risk pool to serve the small group market. It also establishes staggered terms for board members. The bill clarifies qualifications of and restrictions on navigators. Finally, the bill clarifies the role of the Department of Human Services in determining medicaid eligibility.

   HB 1872- This legislation decreases hurricane property insurance rates to 1992 levels until the insurers draft a map based upon actual hurricane damage.

   HB 1878 - The bill creates a driver exclusion endorsement to enable a named insured to exclude specified persons from being covered under a motor vehicle insurance policy.

   HB 2105- Insurance coverage would be required for fertility preservation procedures for persons who are of reproductive age and are diagnosed with cancer that may, or whose treatment may, adversely affect their fertility.

   HB 2730 - The legislation makes prepaid motor vehicle insurance policies nonrefundable except in cases of total loss, change in policy, sale of vehicle, or transportation of vehicle out-of-state. It also imposes the burden on the insured to prove one of the exceptions.

   SB 2009 - This bill would regulate the use of claims history information by insurers for homeowners insurance.

   SB 2168- The insurance commissioner would be directed to join the surplus lines insurance multi-state compliance compact and the bill would enact the compact into law.

   SB 2265- This legislation increases the minimum bodily injury motor vehicle insurance to $100,000 for bodily injury or death of one person and $200,000 for bodily injury or death of two or more persons.

   SB 2469 - The bill makes numerous amendments to Part II of Chapter 671, Haw. Rev. Stat., including making the medical claims conciliation process less adversarial and emphasizing inquiry, conciliation, and settlement. It also renames the panels as medical inquiry and conciliation panels.

   We will report at the end of the session on those bills which are enacted into law.

 

Hawaii Circuit Court Rules In Favor of Insureds in Construction Defect Case

  See the post here by Anna Oshiro, my Damon Key blogging colleague, on a significant ruling that the insurers must defend in a construction defect case. As Anna reports, Judge Patrick Border has issued a minute order in Coastal Constr. Co., Inc. v. N. Am. Specialty Ins. Co., Civil No. 11-1-0417-03, Circuit Court, First Circuit, Hawaii, requesting the insured contractor to draft an appropriate order granting summary judgment to the insured. We have not seen the minute order, but will follow up when we have more information.

See You In Tucson for ABA Insurance Conference

   The ABA, Section of Litigation, Insurance Coverage Litigation Committee's annual insurance seminar will be held again this year in Tucson from March 1-3, 2012.  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 will be on a panel discussing, "Do Lower Premiums Pay? Issues in High Deductible/SIR and Retrospectively Rated Policies."  In these tight economic times, we discuss the upside and downside of taking on more potential risk while saving on premiums.

   Hope to see you in Tucson. 

Hawaii ICA Affirms Denial of Summary Judgment on Bad Faith Claim

   Following the jurisprudence set forth by the Hawaii Supreme Court, the Intermediate Court of Appeals affirmed the trial court's rejection of the insured's claim for bad faith. Stewart v. State Farm Mut. Auto. Co., 2012 Haw. Ct. App. LEXIS 148 (Haw. Ct. App. Feb. 10, 2012).

   The ICA agreed with the insured that the trial court had improperly determined that a bad faith claim can arise only if the insurer owed the insured a duty to pay and the insurer delayed or denied payment. The trial court's reasoning departed from the Supreme Court's decision in Best Place, Inc. v. Penn Am. Ins. Co., 82 Haw. 120, 133, 920 P.2d 334, 347 (1996). The Supreme Court previously held that, under some circumstances, an insured may pursue a bad faith claim even where there is no coverage under the policy.

   Nevertheless, the end result in dismissing the bad faith claim was correct. The insured alleged that the insurer failed to promptly and thoroughly investigate his claim before consenting to his settlement with the other driver's insurer. The insured, however, never complained about the insurer's pre-settlement investigation. The undisputed facts demonstrated that the insurer requested information from the insured regarding his injuries and his lost wages, performed an asset check of the other driver and had an adjuster speak with the other driver's carrier to ascertain that he had few assets to satisfy a potential judgment. This pre-settlement investigation fit the guidelines for UIM investigations established by the Hawaii Supreme Court.

   Therefore, the insured failed to show the existence of a genuine issue of material fact to establish that the insurer committed bad faith in the handling or investigation of the UIM claim. Consequently, the trial court properly granted summary judgment.

   Thanks to Keith K. Hiraoka, counsel for the insurer, for forwarding this case to me.

Insurer Must Cover Construction Defects Claims Under Actual Injury Rule

   The Texas Court of Appeals held that the insured need not prove the exact dates physical damage occurred in order to trigger defense and indemnity coverage. Vines-Herrin Custom Homes, LLC v. Great Am. Lloyds Ins. Co., 2011 Tex. App. LEXIS 10027 (Tex. Ct. App. Dec. 21, 2011).

   In 1999, the insured built a home. He was insured under a CGL policy issued by Great American from November 9, 1998 to November 9, 2000. Thereafter, the insured held a CGL policy issued by Mid-Continent from November 9, 2000 to September 18, 2002.

   After construction was completed, the insured sold the house to the buyer in May 2000. After moving in, the buyer found numerous construction defects in the home, including water entering cracks in the home, and sinking and sagging of parts of the house. The buyer sued the insured, who sought coverage under the two policies. When the insurers refused to defend the underlying suit, the insured sued for a declaratory judgment.

   The underlying case went to arbitration and an award of $2.4 million was granted to the buyer. The insured assigned to the buyer his claims against the insurers.

   In the coverage action, the trial court initially applied the manifestation rule and imposed a duty to defend only if the property damage became apparent during the policy period. The court found for the buyer, but during the post-judgment motions, the Texas Supreme Court adopted the "actual injury" trigger. See Don's Bldg. Supply, Inc. v. One-Beacon Ins. Co., 267 S.W. 3d 20 (Tex. 2008). Under the "actual injury" approach, property damage occurred when actual physical damage took place rather than when it became discoverable. The trial court ruled for the insurers because the insured failed to show, by expert testimony, when the actual physical damage to the property occurred.

   The Court of Appeals reversed. Don's Buildingheld only that property damage under the CGL policy "occurred when actual physical damage to the property occurred." Id. at 24. So long as the damage occurred within the policy period, coverage was provided. Applying the eight-corners rule, the pleadings sufficiently alleged the policies were in effect prior to construction and actual damage occurred sometime during or after construction during the policy periods. Therefore, the underlying pleadings adequately plead that actual physical damage to the property potentially occurred during the policy periods and a defense was owed.

    Further, Great American's duty to indemnify was triggered. The lower court determined that the property damage manifested in May 2000, during Great American's policy period. As a matter of law, when the damage manifested, it had necessarily occurred under the actual injury rule. The evidence showed Great American's duty to indemnify was triggerd and expert testimony to establish the exact date of injury was not required to trigger the duty.

Hawaii ICA Affirms Determination of No Bad Faith

   Shilo Willis was injured when the uninsured car in which she was a passenger was struck by another vehicle. Willis v. Swain, 2012 Haw. Ct. App. LEXIS 131 (Haw. Ct. App. Feb. 3, 2012). Willis was enrolled under a "certificate policy" which was provided under Hawaii's Joint Underwriting Plan (JUP) to drivers receiving public assistance benefits. Although the JUP certificate policy provided personal injury protection benefits and bodily injury coverage, Willis's certificate policy with First Insurance did not include uninsured motorist (UM) coverage.

   Willis sustained bodily injuries, received medical treatment, and incurred medical bills. Her claim was assigned to First Insurance pursuant to Haw. Rev. Stat. sec. 431:10C-408. The case had previously been before the Hawaii Supreme Court, which vacated the circuit court's grant of summary judgment in favor of First Insurance. The Supreme Court determined that First Insurance was to pay appropriate beneifts under the assigned claim program. The Supreme Court did not address Willis's other claims, including a claim for bad faith.

   On remand, First Insurance paid benefits under the JUP assigned claims program and then moved for summary judgment with respect to the bad faith claim. The circuit court granted the motion, holding that as a matter of law there was no bad faith claim in the absence of a contract.

   The Supreme Court affirmed the dismissal of the bad faith claim. In Simmons v. Puu, 105 Hawaii 112 (2004), the court had determined that a contract must underlie the tort of bad faith. Here, Willis did not have an insurance contract on which to rely, but constructed an argument that statutory provisions related to assigned claims under the JUP established First Insurance's duty of good faith and fair dealing. The court was not persuaded. Therefore, the claims for bad faith failed as a matter of law for lack of an underlying contract. The circuit court's final judgment was affirmed.

   Thanks to my Damon Key blogging colleague, Mark Murakami (www.hawaiioceanlaw.com) for the heads up on this case.

Justice Sotomayor Teaches and Charms Hawaii Bar Members

   The Hawaii State Bar Association was honored to be addressed last week by Supreme Court Justice Sonia Sotomayor. The Justice was visiting Hawaii on the final leg of her tour of the Pacific Rim, which included stops on Guam and Saipan. My Damon Key blogging colleague, Rebecca Copeland, gave a thorough post of the Justice's address here. I will add a few more comments to Rebecca's post.

    As she began her address, Justice Sotomayor explained she does not like podiums and preferred standing or sitting at the table where she was located. 

   Earlier in the day, Justice Sotomayor had been to Farrington High School in Honolulu, to meet with students. Her address was broadcast to fourteen other high schools on Oahu. Justice Sotomayor explained that if she accepts an invitation to travel and speak to groups, she insists on the opportunity to meet with young students because she values education and believes she may be able to make a difference in students' lives.

    Justice Sotomayor felt lawyers enter the noblest of professions where they serve people to help solve their problems. In her mind, there is no more worthy profession. She mentioned her brother is a doctor, and doctors are often involved in offering free clinics. But Justice Sotomayor felt the contributions of doctors in such free clinics is over-shadowed by the amount of pro bono work that lawyers perform.

    As Rebecca's post explains, the Justice must be selective about accepting invitations because she has so many. She attempts to narrow the scope of her visits by focusing on her two interests: (1) health; and (2) education. For example, she explained she recently traveled to New Mexico where she visited an Indian reservation. There, she was able to discuss health and education goals and accomplishments with tribal members.

   In discussing her life-work balance, Justice Sotomayor explained she now works seven days a week, and expects this to continue for a couple more years until she feels grounded. She sees, however, a light at the end of the tunnel when she hopes to enjoy other pursuits, including cooking, theater, reading, playing poker once in awhile with friends, and long bike rides, with an emphasis on "long."

   Giving back to the community is a priority for Justice Sotomayor. One important aspect is working with students. She said the simplest of gestures can change one's life. For example, when Justice Sotomayor was in law school, she worked in a law office. A secretary there had a garden and grew vegetables. The secretary brought the Justice a particular vegetable, but Justice Sotomayor did not know what it was or how to cook it. The secretary taught Justice Sotomayor how to cook the vegetable, which happened to be an artichoke. As a result, all of their diets improved and a lasting friendship was formed.

   Turning to access to justice, she felt lawyers can work with inner-city students to help with a variety of skills that they may not otherwise acquire. Examples are teaching students job interview skills or the balancing of a checkbook. In the long run, these simple tasks build a foundation and provide a gateway to the access to justice.

   Finally, Justice Sotomayor is grateful to all of those who have helped her in her life journey. She noted parents typically give so much of themselves to their children. The same can be said of teachers. The Justice felt we do not realize how much friends, colleagues, and even adversaries in litigation help us. Justice Sotomayor said if she does not know how to do something or the answer to some question, she is not afraid to ask. People are willing to help and no one ever refused to provide assistance.

   Justice Sotomayor confided she had learned much about Hawaii during her four day visit. She considers herself fairly educated, but she never knew before her visit about the monarchy that once governed Hawaii. She also was unaware of the University of Hawaii's William S. Richardson law school before her visit.

   After her inspirational address, Justice Sotomayor worked the room to meet and shake hands with each of the attendees and pose for group photos. As I shook her hand and thanked her for coming, I mentioned I had read the glowing accounts of her visit to Saipan, where I used to live and work, and the great impact she had on the students. Her response was,"I loved Saipan."

    We were fortunate that Justice Sotomayor so graciously gave her time to meet with members of the bar and share her insights on so many topics.