Insurance Law Hawaii

Alaska Supreme Court Finds One Occurrence Despite Several Injuries

   A gunshot killed one and injured others. Rejecting arguments for a multiple occurrence, the Alaska determined there was one occurrence despite several injuries. United Serv. Auto. Ass'n v. Neary, 2013 Alas. LEXIS 102 (Alaksa Aug. 16, 2013).

   The insured's teenage son fatally one friend and seriously injured another with one of his father's guns. The victims' parents separately sued the insureds, their son and their insurer, United Services Automobile Association, for negligence and negligent infliction of emotional distress. USAA moved for summary judgment, arguing it could be liable for no more than $300,000, the single per-occurrence policy limit. The insureds argued there was a genuine issue of material fact as to the number of occurrences. The trial court held that (1) each of the three insureds was entitled to a separate coverage limit of $300,000 per occurrence, and (2) there was one occurrence, meaning that the available limits under the policy was $900,000.

    USAA appealed the first ruling, arguing that the policy's per-occurrence limit of $300,000 did not vary depending on the number of insureds. The insureds appealedthe second ruling, arguing that the facts gave rise to multiple occurrences, the injury of the two shooting victims and the emotional distress suffered by the victims' four parents.

   The Alaska Supreme Court reversed both rulings. Regarding the first ruling, nothing in the declaration page suggested that the policy limits of $300,000 would be increased depending on the number of insureds. The single per-occurrence limit applied regardless of the number of insureds.

   Secondly, the Supreme Court determined there was a single occurrence. The insureds argued that each act of negligence that enabled their son to shoot his friends should be counted as a separate occurrence: (1) his own negligent handling of the gun, and (2) each negligent act of his parents in failing to secure their forearms and supervise their son's activities. The court noted, however, that it was the unforeseen event, not every act of negligence preceding it, that constituted the accident or occurrence for purposes of insurance coverage. 

   Accordingly, the trial court's summary judgment order was reversed.

   The author of this opinion is my old colleague from Alaska and running partner, Justice Peter Maassen. It is heartening to see Justice Maassen calming the insurance coverage waters in Alaska during his first year on the bench.

Exclusions Preclude Coverage for Construction Defects

   The South Carolina Supreme Court determined there was no coverage for construction defect claims based upon the policy's exlcusions. Bennett & Bennett Constr., Inc. v. Auto Owners Ins. Co., 2013 S.C. LEXIS 170 (S.C. July 17, 2013).

   The general contractor was hired by a homeowner to remove synthetic stucco cladding and replace it with a decorative brick face. M&M Construction was hired to install the brick. M&M was warned not to use pressure washing or acid to clean the brick.

   After M&M completed the work and left the job site, dried mortar and slurry was discovered on the face of the brick. M&M hired a subcontractor to clean the brick. The subcontractor used a pressure washer and acid solution that discolored some of the bricks and removed the decorative finish. M&M refused to correct the problem. The general contractor eventually replaced the brick face at its own expense.

   The general contractor then sued M&M. M&M's insurer was given notice of the suit, but M&M did not answer or appear at the damages hearing. Default judgment was entered against M&M. 

   The general contractor then file suit against the insurer and M&M seeking a declaratory judgment that the policy provided coverage for the property damage. The trial court found there was no occurrence. Further, exclusions j (5) and n barred coverage.

   Exclusion j (5) removed coverage for "property damage" to, "that particular party of real property on which you . . . . . . working directly or indirectly on your behalf are performing operations, if the 'property damage' arises out of those operations." The exclusion therefore barred coverage whenever the insured or a person acting on its behalf caused damages in the course of working on the property, regardless of whether the insured's work had been completed. Consequently, Exclusion j (5) precluded coverage here for the damages caused by M&M's subcontractor while improperly cleaning the brick face.

   Exclusion n also barred coverage. The exclusion stated,

Damages claimed for any loss, cost or expense . . . incured . . . for the . . . repair, replacememnt, adjustment, removal or disposal of . . . "Your work" . . . if such . . . work . . . is withdrawn . . . from use . . . because of a known or suspected defect, deficiency, inadequacy, or dangerous condition in it.

   Here, the brick face was replaced because of a deficiency in its aesthetic characteristics. Accordingly, Exclusion n applied. 

 

Insurer Must Pay Postjudgment Interest Until Policy Limits Exhausted

   The First Circuit held that the insurer was obligated to pay postjudgment interest pursuant to its policy until such time as policy limits were exhausted. Vazquez-Filippetti v. Cooperativa De Seguros Multiples De Puerto Rico, 2013 U.S. App. LEXIS 14251(1st Cir. July 15, 2013).

   Cooperativa's insured was found liable for striking a pedestrian with his vehicle. Judgment was entered for the plaintiff in the amount of $6 million on March 22, 2005. Cooperativa did not appeal the judgment. On September 29, 2005, Cooperativa paid into the court $75,000, the remainder of its policy limit. The District Court denied the request for postjudgment interest on the full six million dollar judgment because it was untimely. 

   Cooperativa's policy provided it would pay interest accrued after a ruling on a claim defended. The duty to pay or defend ended when the liability limit was exhausted. 

   On appeal, the First Circuit held that Cooperativa was obligated to pay postjudgment interest. Further, the timeliness issues was inapplicable. The prevailing view was that insurers must pay postjudgment interest on the entire amount of the judgment against an insured, even though the policy limit covered only a portion of the judgment. The policy itself left no doubt that Cooperativa obligated itself to pay postjudgment interest on the entire judgment against its insureds, notwithstanding the policy's limit. Therefore, Cooperative was responsible for postjudgment interest on six million dollars.

   Regarding the duration of the obligation to pay postjudgment interest, the policy language restricted it to the five-month period before Cooperativa deposited the policy limit. At this point, Cooperative had paid the corresponding part of a ruling and its duty to pay interest ended. So Cooperative was responsible for postjudgment interest for the period between March 22, 2005, the date of the entry of the judgment, and September 29, 2005, the date of the deposit of the policy limit. 

 

No Duty To Defend EPA Claim When Injury in Fact Occurred Before Policy Period

   The federal district court determined the insurer had no coverage obligations for environmental damage when the injury in fact occurred long before the policy period. Alabama Gas Corp. v. Travelers Cas & Sur. Co., 2013 U.S. Dist. LEXIS July 16, 2013).

   The predecessor of Alabama Gas Corp. manufactured gas on the property from 1856 until 1946. Spills, leaks and emissions released hazardous substances into the environment. The plant was sold to the City of Huntsville in 1949 and then used for a propane air system until 1967, when the plant was demolished and a public housing projected was built on the property. 

   In 2009, the EPA named Alabama Gas as a primary responsible party because it was a successor to the party responsible for the environmental contamination. Alabama Gas tendered to its insurer, Travelers, who denied coverage. 

   Alabama Gas filed suit against Travelers. Because policies prior to 1967 were no longer in existence, the court considered policies issued by Travelers from 1967 to 1983, primarily focusing on the 1967 policy. The court questioned whether, under the language of these policies, there was a "continuous or repeated exposure during the policy period to conditions which unexpectedly and unintentionally caused personal injury or injury to or destruction of tangible property, including the loss or use thereof."

   The court determined that injury to the property occurred prior to 1949. Alabama Gas argued that the removal of structures from the land and construction of housing caused a new injury to the land through redistribution of the hazardous substances. But even if Alabama Gas could prove this theory, there was no allegation that it was liable for damages resulting from the redistribution of substances between 1967 and 1983. Alabama Gas did not perform the demolition and construction, and did not own the property during the period in which this work was done. 

   The fact that people moved onto the land and the EPA compelled clean-up activities did not change the fact that any injury to the land occurred prior to 1949. Consequently, there was no indemnity coverage based on the 1967 policy.

No Duty to Defend Allegations of Kickbacks and Bribes Paid to State Court Judges

   The Third Circuit affirmed the District Court's finding that the insurers had no duty to defend day care and youth centers for bribes and kickbacks allegedly paid to two state court judges. Markel Int'l Ins. Co. v. W. Childcare, LLC, 2013 U.S. App. LEXIS 14017 (3d Cir. July 8, 2013).

   In 2009 and 2010, numerous civil actions were filed against the day care and youth centers along with two Pennsylvania state court judges. The actions alleged that the defendants conspired to knowingly violate the constitutional rights of youths through the payment of bribes and kickbacks in exchange for influence in the construction of the insureds' juvenile detention facilities and sentencing of juvenile offenders to those facilities. 

   The insurers issued policies to the day care and  youth centers to cover bodily injury and property damage that arose in connection with the operation of the centers, but were limited to accidental injury and damage, and excluded expected or intended conduct. The policies also excluded injuries that arose out of willful violation of penal statutes or were caused by the insured with the knowledge that the actions would violate the rights of another.

   The insurers filed suit seeking declarations that they had no duty to defend or indemnify. The District Court granted summary judgment to the insurers.

   The Third Circuit affirmed. The insurers had no duty to defend because the underlying actions did not allege "occurrences." The alleged reckless and intentional conduct was not "accidental" under Pennsylvania law. The allegations also fell under the exclusion for a knowing violation of the rights of others.

Insurers' Motion to Knock Out Bad Faith, Negligent Misrepresentation Claims in Construction Defect Case Denied

   Having previously decided that construction defect claims did not arise from an occurrence and were consequently not covered under Hawaii law, the Hawaii Federal District Court refused to dismiss the insured's second amended counterclaim alleging various claims for relief. Ill. Nat'l Ins. Co. v. Nordic PCL Construc., Inc., 2013 U.S. Dist. LEXIS 108932 (D. Haw. July 31, 2013). [prior post here].

   In earlier proceedings, the court determined that the Nordic's allegedly deficient performance on construction contracts was not an "occurrence."  The court also rejected Nordic's argument that the Hawaii legislature's Act 83 required the court to deviate from the Ninth Circuit's opinion in Burlington Ins. Co. v. Oceanic Design & Constr., Inc., 383 F.3d 940 (9th Cir. 2004) or the Hawaii Intermediate Court of Appeals' decision in Group Builders, Inc. v. Admiral Ins. Co., 123 Haw. 142, 231 P.3d 67 (Haw. Ct. App. 2010). 

   Admiral now moved for summary judgment on its complaint and for dismissal of Nordic's second amended counterclaim, alleging bad faith and negligent misrepresentation, among other counts. Summary judgment as to the Safeway claim was denied. The underlying allegations alleged pre-contract negligence and misrepresentations, independent of any actual contract between Nordic and Safeway. If the pre-contract statements were not part and parcel of the actual contract, then they could relate to a covered "occurrence." 

   Admiral's motion for summary judgment was granted, however, in regards to the Moanalua claim. No pre-contract misrepresentation claims were alleged. 

   Turning to Admiral's motion to dismiss, the court considered Nordic's allegations that the insurer had acted in bad faith by refusing to provide coverage that the parties mutually intended would be provided. The court refused to dismiss this bad faith claim.

   Further, Nordic pled a cognizable negligent misrepresentation claim. The counterclaim alleged that when the policy was purchased by Nordic, Admiral negligently misled Nordic into believing that no discrepancy existed between what the policy actually covered and the scope of coverage expected by Nordic.

   The claim for reformation to reform the policy to what the parties mutually intended as to coverage for property damage claims arising out of construction defects also survived the motion to dismiss.

   Only the claim for equitable estoppel was dismissed by the court. This count lacked clarity in that it was repetitive of the negligent misrepresentation claim.

Hawaii Appellate Court Finds Duty to Defend Injury and Property Damage From Dam Breach

   In an significant decision touching on a host of issues, the Hawaii Intermediate Court of Appeals (ICA) overturned the circuit court and found numerous insurers had a duty to defend its insured for bodily injury and property damage caused by the 2006 breach of the Kaloko Dam on Kauai. C. Brewer and Co., Ltd. v.Industrial Indemnity Co. et al., No. 28958 (Haw. Ct. App. Aug. 7, 2103) [Kaloko Dam Decision] [Disclosure - our office represents the insured, C. Brewer, in this case].

   C. Brewer once owned an earthen dam on Kauai, the Kaloko Dam. The dam was sold in 1987 to James Pflueger, but the responsibility for operating and maintaining the dam remained with a subsidiary of C. Brewer's. After several days of rain, the dam collapsed on March 14, 2006, killing seven people downstream and causing extensive property damage.

   Pflueger sued C. Brewer for damages, including indemnification against claims brought against Pflueger because of the dam breach. Pflueger's complaint alleged failure to maintain the dam, breach of duty to properly operate, inspect, and repair the dam, and allowing trees to grow at the foot of the dam, causing seepage that affect the structural stability of the dam.The Fehring lawsuit was filed against Pflueger and C. Brewer for the loss of seven lives. Bette Milder and other downstream property owners filed a third suit for property damage. Pflueger filed cross-claims against C. Brewer in Fehring and Midler seeking indemnification for any damages he was required to pay. The Fehring and Midler suits also incorporated all of the allegations from the Pflueger complaint against C. Brewer.

   C. Brewer tendered to its CGL, property and excess carriers, all of whom denied coverage. C. Brewer then sued seventeen of its insurers who had provided coverage from 1987 on. 

   In a variety of rulings, the circuit court found there was no duty to defend because the injuries and property damage occurred on the date of the breach, March 14, 2006. James River, whose policy was in place on the date of the breach, also had no duty to defend based upon a designated premises endorsement. Claims against the excess policies were dismissed because there was no primary coverage. Finally, the property policies were released based upon the circuit court's ruling that a manifestation trigger applied and C. Brewer had failed to alleged damage had manifested during the policy periods.

   The ICA largely reversed the decisions of the circuit court. First, there was a duty to defend the Pfleuger suit. In additional to the underlying allegations, Pfleuger answered an interrogatory confirming the complaint's allegations that there had been "continuous, incremental and indivisible" damage to the dam from 1982 to March 14, 2006. An investigator's report also indicated the dam's failure could have been caused by continuing internal erosion of the embankment of the dam. Finally, extrinsic evidence confirmed that Pflueger was seeking damages for ongoing property damage to his dam over the policy periods of each insurer. Therefore, there was a possibility that C. Brewer could be liable for property damage prior to the dam's breach.

   The ICA agreed with the circuit court, however, that there was no duty to defend Fehring or Midler. The underlying allegations in these suits addressed bodily injury and property damage that occurred after the dam breach and subsequent to the policy periods. Pfleuger's cross-claims against C. Brewer did not create a duty to defend because they sought indemnity and contribution for any damages Pflueger had to pay in Fehring and Midler.

   Turning to James River, whose policy was in effect in March 2006, the designated premises endorsement was ambiguous. The policy applied to "'bodily injury' or 'property damage' arsing out of the ownership, maintenance, and use of the premises show in the above Schedule." The "above Schedule" merely referred to "Premises: Locations 1-3." Elsewhere in the policy, a "Schedule of Locations" listed 311 Pacific Street, C. Brewer's corporate offices, but did not list Kaloko Dam. The key question was whether the language "arising out of the ownership, maintenance, and use of the [designated premises]" applied to the use of C. Brewer's business headquarters (one of the designated premises) to make negligent business decisions that caused bodily injury and property damage outside of the designated premises.

   The underlying lawsuits alleged that C. Brewer made numerous negligent corporate decisions that emanated from 311 Pacific Street, including the failure to warn of the unsafe condition of the dam, failure to adequately maintain the dam, etc. Competing cases were cited on whether bodily injury and property damage occurring away from a designated company headquarters was covered despite this endorsement. The court concluded that the endorsement was ambiguous. 

   Turning to the property policies, the ICA disagreed with the circuit court that Hawaii had adopted a manifestation trigger for property policies in Sentinel Ins. Co. v. First Ins. Co., 76 Haw. 277, 875 P.2d 894 (1994). It was unnecessary here for the ICA to determine whether the manifestation trigger or the injury in fact trigger applied to property policies because the language of the policies demonstrated that C. Brewer had stated a claim against the property carriers upon which relief could be granted. The policies did not contain language which limited coverage to property damage that was discovered or became manifest during the policy period. Therefore, the property policies were ambiguous as to whether the manifestation trigger or an injury-in-fact trigger should be applied. It was not beyond doubt that C. Brewer would not be able to prove any set of facts entitling it to relief. 

   Finally, dismissal of the excess carriers was erroneous. Because the circuit court erred in dismissing claims against the primary insurers, the circuit court improperly relied on its ruling regarding the primary insurers in dismissing the claims against the excess insurers.

   The final judgment of the circuit court was vacated and the case remanded for further proceedings.

U.S. District Court for Hawaii Again Determines Construction Defect Claims Do Not Arise From An Occurrence

   In a decision authored by Judge Leslie E. Koybayashi, the U.S. District Court for the District of Hawaii followed its prior decisions that construction defect claims were not covered because such claims do not arise from an occurrence. Nautilus Ins. Co. v. 3 Builders, Inc., 2013 U.S. Dist. LEXIS 88480 (D. Haw. June 24, 2013).

   3 Builders, the insured, was sued by the Apartment Owners of Mililani Pinnacle for the faulty installation of a new roof. Pinnacle claimed the completed roofs were not properly installed.complaint alleged breach of contract, breach of the duty of good faith and fair dealing, negligence, and other causes of action. 

   3 Builders tendered the defense to Nautilus, who accepted the tender and defended for three years. Nautilus, however, filed a complaint for a declaratory judgment on its coverage obligations. Nautilus sought summary judgment, contending there was no coverage because all of the claims arose from the contractual relationship to perform the roof work, and a breach of contract was not the type of fortuitous event covered by a CGL policy under Hawaii law. These arguments relied upon prior decisions from the District Court interpreting Hawaii law and a decision from the Hawaii Intermediate Court of Appeals, Group Builders, Inc. v. Admiral Ins. Co., 123 Haw. 142, 231 P.3d 67 (Haw. Ct. App. 2010).

   The Court considered whether the damages Pinnacle sought in the underlying proceedings were caused by an occurrence. Under Hawaii law, the meaning of the term "occurrence" was construed in accordance with the law as it existed at the time that the policy was issued. Haw. Rev. Stat. 431:1-217 (a). The first Nautilus policy was issued on January 24, 2008.  At this point in time, the controlling case was from the Ninth Circuit, Burlington Ins. Co. v. Oceanic Design & Constr. Inc., 383 F.3d 940 (9th Cir. 2004). There, the court held that the contractor's facing a lawsuit for breach of contract after construction of a sub-standard home was a reasonably foreseeable result and not covered by the CGL policy. 

   Therefore, all of the underlying claims were either contract claims or claims that arose from the contract. The claims were not occurrences within the meaning of Nautilus' policy. 

   Surprisingly, the decision does not discuss, and apparently 3 Builders did not raise, three Hawaii Supreme Court decisions that suggest that under Hawaii law, construction defect claims do arise from an occurrence: Sturla, Inc. v. Fireman's Fund Ins. Co., 67 Haw. 203, 684 P.2d 960 (1984); Hurtig v. Terminex Wood Treating & Contracting Co., 67 Haw. 203, 684 P.2d 960 (1984);  and Sentinel Ins. Co. v. First Ins. Co. of Hawai`i, Ltd., 76 Haw. 277, 875 P.2d 894 (1994). 

    Thank you to Anna Oshiro, Damon Key blogging colleague, hawaiiconstructionlaw.com, for the heads up on this case.

Florida Court Determines Ambiguity Cannot be Resolved By Extrinsic Evidence

   In addressing a certified question from the Eleventh Circuit, the Florida Supreme Court found that an insurer may not rely upon extrinsic evidence to salvage ambiguities in a policy. Wash. Nat'l Ins. Corp. v. Ruderman, 2013 Fla. LEXIS 1388 (Fla. July 3, 2013).

   The case arose as a class suit against Washington National Insurance Corporation concerning policies that provided for reimbursement of certain home health care expenses. The policies provided coverage through a maximum daily benefit. Coverage was limited by a "per Occurrence Maximum Benefit" for each illness and a "Lifetime Maximum Benefit" for all injuries and sicknesses during the life of the policy. 

   An annual increase in benefits was provided by the policy. The issue boiled down to how broadly the increase reached. The policy read:

     CERTIFICATE SCHEDULE

     HOME HEALTH CARE DAILY BENEFIT $180 / Day

     LIFETIME MAXIMUM BENEFIT AMOUNT $250,000

     PER OCCURRENCE MAXIMUM BENEFIT $150,000 / Illness

     AUTOMATIC BENEFIT

     INCREASE PERCENTAGE Benefits increase by 8% each year

  The parties disagreed on whether the automatic increase applied only to the daily benefit or whether it also applied to the lifetime maximum benefit amount and the per occurrence maximum benefit amount. The Eleventh Circuit found the policy ambiguous. Washington National, however, offered extrinsic evidence in the District Court to show that the insureds knew when the policy was purchased that only the daily benefit increased annually. The extrinsic evidence would resolve any ambiguity and would support Washington National's position that only the daily benefit increased annually.

   The Florida Supreme Court held, however, that extrinsic evidence could not be considered in determining whether an ambiguity existed. Because the policy was ambiguous, it had to be construed against the insurer and in favor of coverage without resort to consideration of extrinsic evidence.