Insurance Law Hawaii

Alabama Court Determines No Coverage For Insured's Faulty Workmanship

   The Alabama Supreme Court found there was no coverage for the insured cabinet maker for claims arising from alleged faulty workmanship. Shane Traylor Cabinetmaker, L.L.C. v. Am. Resources Ins. Co., Inc., 2013 Ala. LEXIS 42 (May 3, 2013).

   The insured was sued by a homeowner for property damage caused by faulty workmanship. The insurer refused to defend, contending there was no "occurrence." The trial court granted summary judgment to the insurer. It determined that the underlying complaint did not allege an accident, but rather a business dispute between the homeowner and the insured.

   The Alabama Supreme Court noted its prior case held that faulty workmanship itself did not constitute an "occurrence." Under Alabama case law, faulty workmanship could lead to an occurrence if it subjected personal property or other parts of the structure to continuous or repeated exposure to some other harmful condition and, as a result of that exposure, there was property damage.

   Because the property damage alleged here was due to the faulty workmanship of the insured and did not result in property damage to other property, there was no duty to defend or to indemnify. 

 

Greystone on Remand Denies Insurer's Motion for Summary Judgment To Bar Coverage For Construction Defects

   A prior post here discussed the Tenth Circuit's decision in Greystone Constr., Inc. v. National Union Fire & Marine Ins. Co., 661 F. 3d 1272 (10th Cir. 2011). The court found a duty to defend construction defect claims where damage caused by the faulty workmanship was unintentional. The Tenth Circuit remanded for a determination on whether any policy exclusions precluded a defense or indemnity for damage arising from faulty workmanship. On remand, the district court denied National Union's Motion for Summary Judgment, seeking to establish the policy exclusions precluded its duty to defend and to indemnify. See Greystone Constr., Inc. v. v. National Union Fire & Marine ins. Co., 2013 U. S. LEXIS 46707 (D. Colo. March 31, 2013).

   Greystone was sued for construction defects in homes it built. The suit alleged that Greystone failed to recognize defects in the soil where the house was built. National Union refused to defend. The district court initially granted summary judgment to National Union because claims arising from construction defects were not covered. As noted above, the Tenth Circuit vacated because the damage in the underlying suit did not categorically fall outside coverage under the policy.

   On remand, National Union first argued there was no duty to defend based upon an exclusion precluding coverage for damage arising out of work done by subcontractors unless the subcontractors agreed in writing to defend and indemnify the insured and carried insurance with coverage limits equal to or greater than that carried by the insured. The Tenth Circuit rejected this argument because National Union had to rely on facts outside of the underlying complaint. 

   National Union next argued it had no duty to defend under an endorsement barring coverage for "property damage" that occurred before the policy period. Again, however, National Union had to rely on facts outside the complaint. Therefore, National Union's motion for summary judgment was rejected as to the duty to defend.

    Regarding the duty to indemnify, National Union again relied on the subcontractor exclusion because all of the construction was performed by subcontractors. National Union, however, failed to provide any evidence to establish that all of the alleged damage "arose out of" the subcontractors' work. It was possible that the property damage was the result of poor site selection by Greystone, notwithstanding flawless work by the subcontractors. 

    Next, National Union relied upon the subsidence exclusion. Two experts opined that the "majority" of the damage was the result of soil movement. But one expert also thought the damage could have arisen from other causes, such as errors in the original design of the home or surface drainage conditions created by the homeowner's landscaping. 

    Finally, National Union argued summary judgment on the duty to indemnify was appropriate because the alleged damage occurred before the inception of the policy. National Union relied upon the loss notice, which contained expert reports documenting damage that was observed prior to the policy period. National Union, however, failed to provide any evidence establishing that the damage observed later and during the policy period was the same as, or continuing from, the damage observed prior to the policy period. 

   Consequently, National Union's motion for summary judgment was also denied as to the duty to indemnify. 

Hawaii Intermediate Court of Appeal Rejects Pro Se Insured's Appeal

   The Hawaii Intermediate Court of Appeal agreed that the insured had entered an enforceable settlement with his insurer regarding a coverage dispute. Flowers v. United Services Automobile Assoc., No. 30085, Summary Disposition Order (Haw. Ct. App. May 17, 2013). [Order here].

   The insured made a claim under his renter's insurance policy with USAA when certain household items were lost during the insured's move to Australia. The parties could not reach agreement on the adjustment of these claims. The insured sue for breach of contract and bad faith. The trail court granted summary judgment to USAA. 

   We posted on this case here, after the ICA vacated and remanded the case because material issues of fact existed regarding whether USAA breach the policy and acted in bad faith. Upon remand, the parties met with the Circuit Court in a settlement conference. The transcript showed that the insured agreed to settle the case for $5000, but then refused to sign the settlement agreement and the stipulation of dismissal. The Circuit Court issued an order to enforce the settlement agreement. 

   On this second appeal, the ICA agreed a settlement had been entered, resolving everything in the case. Further, the Circuit Court had jurisdiction to enter an order to enforce the settlement agreement. The ICA had previously vacated the judgment and order granting summary judgment, and remanded the case for further proceedings consistent with its opinion. Enforcing a settlement agreement which disposed of the entire case was not inconsistent with that mandate. The insured's challenge to the Circuit Court's jurisdiction was without merit. 

Group Builders' Presentation

   Today, I spoke with the HSBA Litigation section about construction defect coverage in Hawaii and the Group Builders' cases. Thank you to all who attended and participated in the discussion. Here are my power point slides from the presentation.

Group Builders Update - Tred Eyerly, Esq. www.insurancelawhawaii.com from inversecondemnation

Insurer and Agent Liable for Failure to Obtain Flood Insurance

   The Louisiana Court of Appeal affirmed the trial court's finding of liability on the part of the insurer and the agent for their failure to properly procure flood insurance for the insureds. Barnett v. Fid. Nat'l Prop. & Cas. Co., 2013 La. App. LEXIS 856 (La. Ct. App. May 1, 2013).

   The plaintiffs' home was destroyed in 2005 by Hurricane Rita. After the hurricane, Travelers refused to continue providing flood insurance because the property was located within a Coastal Barrier Resource System (CBRS). 

   The plaintiffs contacted an agent at Insurance Unlimited of Louisiana, Inc., to inquire about obtaining a policy under the National Flood Insurance Program (NFIP). The plaintiff did so after hearing that a neighbor had been able to insure his property through the agency. Plaintiffs' application was completed and Fidelity issued the policy, effective July 2, 2008. 

   After the plaintiffs' house was damaged by Hurricane Ike in September 2008, however, Fidelity issued a notice of cancellation indicating that the policy was cancelled, retroactive to the policy inception date of July 2, 2008. The basis for the cancellation was the property's location within a CBRS zone. 

   The plaintiffs sued Fidelity and Insurance Unlimited, seeking damages for breach of contract, negligence, and negligent misrepresentation. The trial court entered judgment in favor of plaintiffs. It found Insurance Unlimited was negligent in failing to follow federal guidelines in processing the application. It also found that both Insurance Unlimited and Fidelity were negligent in failing to determine that the property was in a CBRS zone and that they had negligently misrepresented the validity of the flood insurance policy. Damages were awarded in the amount of $50,000.

   The appellate court first rejected Fidelity's preemption argument that only a federal court had jurisdiction over the dispute. The plaintiffs' case involved a policy procurement problem, not a claims handling matter. The matter did not involve federal question jurisdiction and the policy procurement claims were not preempted by federal law.

   Next, the court agreed that Fidelity had breached a standard of care owed to plaintiffs. An expert for plaintiffs testified that Fidelity had a duty to notify the plaintiffs that their property was potentially located in a CBRS zone. Fidelity should have informed plaintiffs of the potential that their policy was null and void due to the property's location.

   Insurance Unlimited also breached its duty in failing to follow the guidelines of the NFIP manual in processing the application and  in failing to determine that plaintiffs' property was located in a CBRS zone. The application forwarded to Fidelity was insufficient under the NFIP manual. The agent failed to consult the map to determine if the property was located in a designated CBRS area. 

   Consequently, the trial court decision was affirmed.

 

Upcoming Presentation on Group Builders, Coverage for Construction Defects Update

   Robert Thomas, my blogging colleague at Damon Key, has posted about his presentation Monday, May 20, 2013, to the Hawaii State Bar Association's Appellate Section. Robert will be speaking on amicus briefing from 12 to 1 p.m. at the HSBA conference room.

    Which reminds me, I will be making a presentation to the HSBA Litigation section the next day, May 21, 2013, also from 12 to 1 p.m., at the HSBA conference room. I will focus on updating the Group Builders' litigation and the continuing dispute over insurance coverage in Hawaii for construction defects. The discussion is open to all comers. 

    A nice weekend to all.

Owned Property Exclusion Bars Coverage

   Recovery for the cost of stabilizing and then demolishing a building were excluded from coverage by the owned property exclusion. Clarinet, LLC v. Essex Ins. Co., 2013 U.S. App. LEXIS 7922 (8th Cir. April 22, 2013).

   In 2005, Clarinet purchased a building in St. Louis which was listed on the National Register of Historic Places. A windstorm on July 19, 2006, caused damage to the building, destroying parts of two exterior walls and part of the roof. Debris and bricks fell and damaged nearby city property. 

   After the storm, Clarinet sought to stabilize the building with aluminum bracing towers and netting. This continued for months until Clarinet demolished the building in June 2007, at costs exceeding $660,000. 

   Clarinet's CGL policy with Essex had an owned property exclusion, excluding from coverage, "'property damage' to property the insured owned, rented, or occupied, including any costs or expenses incurred for repair, replacement, enhancement, restoration, or maintenance of the property for any reason, including prevention of injury to a person or damage to another's property."

   Clarinet first gave notice of the stabilization and demolition to the insurer after the building was destroyed. Essex denied coverage for the expenses for stabilizing and demolishing the building. 

   The trial court granted summary judgment to Essex. The Eighth Circuit affirmed. Clarinet argued that the costs of stabilizing and demolishing the building were covered because these expenses were necessary to prevent further injury to persons and property. But the policy excluded these expenses under the owned property exclusion. 

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

 

Light Session At Hawaii Legislature for Insurance Related Bills

   In the recently completed, 2013 session of the Hawaii Legislature, only a handful of insurance related bills were enacted. Most of the surviving bills sent to the Governor relate to health care reform. We previously posted on pending legislation in the insurance arena here.

    Here is a list of bills that survived:

    HB 841 -  This bill updates the insurance code by streamlining and improving the operations of the Insurance Division and ensures that the Division retains its accreditation with t the National Association of Insurance Commissioners. 

     HB 848 - The law creates a uniform network adequacy standard for small employers to be applied to all health insurers doing business in Hawaii. "Small employer" is defined as employers with 50 employees or less.

    HB 877 - The bill facilitates creation of the Hawaii Health Insurance Exchange by allowing the directors of DCCA, DHHS, and DLIR to appoint designees to attend and vote at specified meetings. 

    HB 999 - Related to captive insurers, the bill clarifies when a risk retention group is allowed to qualify for credit for reinsurance. 

    SB 1079 - The bill prepares for implementation of the Patient Protection and Affordable Care Act of 2010 by applying the producer licensing requirements of Haw. Rev. Stat. 431:9A to insurance producers selling health insurance products offered by mutual benefit societies and health maintenance organization.

    The text of each bill and the legislative history for each can be found at  http://www.capitol. hawaii.gov.

Policy Language Requires All Sums Approach, Multiple Occurrences from Environmental Harm

   The Missouri Court of Appeal determined that the all sums approach would be utilized for property damage occurring through several policy periods. Doe Run Res. Corp. v. Certain Underwriters at Lloyd's London, 2013 Mo. App. LEXIS 468 (Mo. Ct. App. April 16, 2013).

    The insured, Doe Run, was a mining, milling and smelting company in operation since the late 1800's. Its operations caused lead-containing wastes called "chat piles" and "tailings ponds" that were deposited on each of six sites. The EPA determined that wind and water erosion caused lead and other minerals in the chat piles and tailings ponds to continually migrate from the mill sites and damage neighboring properties. The EPA required Doe Run to remove or cap impacted soil and stabilize chat piles and tailings ponds to prevent offsite migration.

   Lloyds issued Doe Run seven excess policies covering 1952 - 1961. Policies issued in 1952 and 1955 defined "occurrence" as an "unexpected event or happening which results in . . . damage to property during the policy period . . . ." Policies issued for the period 1958 to 1961 defined "occurrence" as "one happening or series of happenings, arising out of, or due to one event taking place during the term of the policy."

    When Lloyds did not respond to a tender, Doe Run sued. Before trial, the trial court determined Doe Run's losses would be allocated on a pro rata basis over the entire period during which pollution and migration of contaminants occurred. The jury awarded a verdict of $62 million to Doe Run, but the trial court reduced the award to $5 million based on its pretrial rulings. 

   On appeal, the appellate court found that the policy language required the adoption of the all sums allocation approach. Lloyds agreed to indemnify "the insured for all sums which the Assured shall be obliged to pay by reason of the liability for damages on account of property damaged, caused by each occurrence happening during the policy period." The definitions of occurrence did not limit the policies' promise to pay all sums of the policy holder's liability solely to damage during the policy period. 

   Lloyds argued that the property damage at each site resulted from exposure to the same general conditions - the continual migration of waste from Doe Run's active mining and milling operations, chat piles or tailings ponds. Therefore, the policies treated all such damages from a given site as arising out of one occurrence.

  The court disagreed. The active contamination, tailings ponds, and chat piles constituted separate causes of contamination that resulted in separate occurrences at each of the existing sites. When determining the number of occurrences, Missouri applied a "cause" approach which examined the causes of the accident or occurrence to determine whether there was a single or multiple occurrence. Consequently, there were three occurrences at each site during the policy period - active operations, chat piles and tailings ponds. 

   The case was reversed and remanded with instructions to reinstate the jury verdict.

 

California Court of Appeal Adopts Horizontal Exhaustion Rule

   In a long running suit regarding thousands of asbestos bodily injury claims brought against Kaiser Cement and Gypsum Corporation, the California appellate court held that the excess carrier's indemnity obligation did not attach until all collectible primary policies were exhausted. Kaiser Cement and Gypsum Corp. v. Ins. Co. of the State of Pennsylvania, 215 Cal. App.4th 210 (Cal. Ct. App. April 8, 2013).

   Kaiser manufactured a variety of asbestos-containing products from 1944 through the 1970's. Truck Insurance Company provided primary insurance to Kaiser from 1964 to 1983, through four CGL policies covering 19 annual policy periods. The policy in effect from 1974 to 1981 contained a $500,000 "per occurrence" liability limit. Kaiser was insured by three other primary carriers between 1947 and 1987. ICSOP issued a first layer excess policy to Kaiser from 1974 through 1976.  

   Kaiser tendered numerous claims for bodily injury to Truck. By October 2004, Truck's indemnity payments exceeded $50 million and included at least 39 claims that resulted in payments in excess of $500,000. For claims alleging bodily injury in 1974, Kaiser selected Truck's 1974 policy to respond to each of the claims. 

   Truck filed for a declaratory judgment, arguing its primary policies had been exhausted and it had no further obligation to defend or indemnify Kaiser. Kaiser cross-claimed against its excess insurers, including ICSOP. Kaiser argued once the 1974 primary policy exhausted, the first level excess policy issued by ICSOP became liable for the claim once Truck had exhausted its $500,000 per-occurrence limit for that year. The trial court granted summary judgment to Kaiser on its cross-claim against ISCOP. 

   On appeal, the court held that ICSOP's policy language required horizontal exhaustion. Therefore, ICSOP was not responsible to indemnify Kaiser until all primary policies were exhausted. ICSOP's policy provided that Kaiser's retained limit was equal to the limits of liability indicated in the schedule of underlying policies, "plus the applicable limit(s) of any other underlying insurance collectible by the Insured."

   ICSOP then argued that its 1974 excess policy required the exhaustion of all primary insurance before the excess policy was triggered. ICSOP argued that all primary insurers had to pay policy limits for each year in which coverage existed. The court disagreed. Under Truck's primary policy, it was responsible to pay policy limits only once per occurrence, not once per occurrence per year or once per occurrence per policy. 

   Finally, the court determined that Truck's policy language did not permit "stacking" of various Truck policies over several years. The Truck policy contained a "per occurrence" limit. This language meant Kaiser was not permitted to recover from Truck more than the occurrence limit for a single occurrence. (In a prior appeal, the court held that the relevant occurrence was not Kaiser's design, manufacture, and distribution of asbestos produces, but the injurious exposure of claimants to asbestos products.)  Truck was liable up to the per occurrence limit, and no more. The trial court correctly determined that Kaiser could not "stack" the liability limits of Truck's primary policies, but rather could recover only up to the "per occurrence" limit of one policy. Having chose the 1974 primary policy, Kaiser could recover from ICSOP to the extent that a claim exceeded the $500,000 per occurrence limit specified in the 1974 primary policy. 

   The case was remanded for a determination on whether the other primary insurers' policies would also have to be exhausted before the excess policy attached.