Insurance Law Hawaii

Anti-Concurrent, Anti-Sequential Causation Clause Precludes Coverage

   Where the building was damaged by both a covered cause and a non-covered cause, the policy's anti-concurrent/anti-sequential causation clause barred coverage for a collapsed building. Ashrit Realty LLC v. Tower Nat'l Ins. Co., 2015 N.J. Super. Unpub. LEXIS 107 (N.J. Super. Ct. App. Div. Jan. 20, 2015).

   The property sustained moderate damage during a storm on August 14, 2011. More extensive damage was caused by Hurricane Irene two weeks later. After the hurricane, a large hole formed due to the collapse of a pipe which ran underneath the property. Once the pipe collapsed, leaking water caused substantial soil erosion, which led to the collapse of the rear portion of the building. 

   Plaintiff sought coverage from Tower, but the claim was denied based upon exclusions for soil erosion and water damage. The anti-concurrent causation clause excluded coverage where a covered event and an excluded event  contributed concurrently to a single loss. Plaintiff sued, contending that damage caused from hidden pipe decay was covered. Tower secured summary judgment. 

   The Appellate Division affirmed. Tower's expert found that the cause of damage was the result of progressive soil erosion arising from the partial failure of the buried pipe. Plaintiff's expert did not disagree, but concluded the pipe collapsed after the first storm, undermining a portion of the building's foundation. When the hurricane struck, the collapsed pipe was compromised further and the entire rear foundation of the building was compromised.

   While loss resulting from hidden decay was covered, loss resulting from earth movement and water damage was not. Even if hidden decay was a cause of loss, plaintiff did not dispute that water leaked from the collapsed pipe which also caused soil erosion. There was no dispute that soil erosion was excluded from coverage. Because the events happened sequentially, the anti-sequential language in the policy excluded coverage. 

Sanctions Issued for Frivolous Hurricane Sandy Complaint Filed Against Insurer

   The federal district court for the district of New Jersey cracked down on a Texas law firm that filed 250 Hurricane Sandy related cases against insurers without adequate investigation. Lighthouse Point Marina & Yacht Club, LLC v. Int'l Marine Underwriters, 2015 U.S. Dist. LEXIS 6430 (D. N.J. Jan. 20, 2015). 

   The Texas firm filed more that 250 actions in New Jersey courts against insurers to recover for alleged property damage caused by Hurricane Sandy. The original complaints were nearly identical with the same typos. The complaint in this case alleged that the insurer did not pay benefits under the policy for "extreme external and internal damages, as well as other wind-related loss," but did not specify the value or nature of the damage. The insurer answered that it sent an adjuster to the property soon after the storm and found wind damages to two fences, but no damage to any building on the property. The adjuster valued the claim at $1,612.00 and recommended a payment of $612.00, after applying the $1000 deductible. 

   Plaintiff's counsel then wrote to the insurer demanding $540,000 to pay for the wind damage, and an additional $135,000 in attorney's fees. The insurer made multiple attempts to re-inspect the property, but was constantly rebuffed by Plaintiff's counsel. 

   The insurer moved to dismiss. Attached to the motion were five separate letters from the adjuster to Plaintiff's counsel, over the course of six months, requesting an opportunity to inspect the property. The motion to dismiss was granted. The court also ordered Plaintiff to show cause why sanctions under Rule 11 should not be issued for filing a claim that lacked merit, and for failing to properly investigate before filing. Plaintiff did not respond to the court's order. 

   The court noted it was unaware of any authority that relaxed Rule 11 when a natural disaster generated a large volume of litigation. The court issued sanctions. The Plaintiff's attorney was barred from applying for pro hac vice admission before the court for a period of one year. The court also awarded the insurer its litigation expenses against both the Plaintiff and Plaintiff's counsel. 

Property Damage to Non-Defective Work Is Covered

   The New Hampshire Supreme Court found some of the property damage evolving from the insured's portion of the work was covered under its liability policy. Cogswell Farm Condo. Ass'n v. Tower Group, Inc., 2015 N.H. LEXIS 3 (N.H. Jan. 13, 2015). 

   Lemery Building Company, Inc. constructed and developed 24 residential condominium units. After units were sold, the Cogswell Farm Condominium Association sued Lemery, asserting that the "weather barrier" components of the units were defectively constructed and resulted in damage to the units due to water leaks. Cogswell then sued its insurer, Tower Group, Inc., seeking a declaratory judgment that its claims against Lemery were covered. 

    The trial court eventually determined that exclusions J (1) and J (6) both applied to exclude coverage. Exclusion J (1) excluded coverage for "property damage" to property that Lemery "owns, rents, or occupies." Exclusion J (6) excluded coverage for property damage to "[t] hat particular part of any property that must be restored, repaired or replaced because [Lemery's] work was incorrectly performed on it." 

   On appeal, Cogswell conceded that exclusion J (1) excluded coverage for property damage that occurred while Lemery owned the condominium units, i.e., prior to the sale of the units. However, coverage was not excluded under exclusion J (1) for damages sustained by the units after they had been sold by Lemery. The court agreed. On remand the trial court was instructed to determine which units had been sold by Lemery but continued to be covered under the policies.

   Cogswell also argued exclusion J(6) did not apply to damage to the non-defective work that was caused by the defectively constructed weather barriers. The court determined that exclusion J(6) could be interpreted two ways. The exclusion could be construed broadly to exclude coverage for all damage to the insured's work product caused by the insured's defective work. This would preclude coverage for all damage resulting from Lemery's defective work, including damage to the non-defectively constructed parts of the condominium units. 

  On the other hand, the exclusion could be reasonably read to exclude coverage only for those parts of the property on which the allegedly defective work was done. This interpretation would create a distinction between the components of the condominium units that were allegedly defective and those components that were not defective. 

   Therefore, exclusion J (6) was ambiguous and had to be construed in the insured's favor. Exclusion J (6) barred coverage for property damage to defectively constructed portions of the condominium units, which were alleged to be the weather barriers. However, the exclusion did not bar coverage for damage to those portions of the units that were not defectively constructed by Lemery but were damaged as a result of the defective work. Accordingly, the trial court erred in determining that exclusion J (6) operated as a complete bar for coverage of the claims asserted by Cogswell. 

Negligence Claim Not Barred by Gist of the Action Doctrine

   The Pennsylvania Supreme Court held that the insureds' negligence claim survived because it was not based upon breach of a duty created by the policy, but upon the alleged breach of a duty imposed by tort law. Bruno v. Erie Ins. Co,, 2014 Pa. LEXIS 3319 (Dec. 15, 2014).

   After purchasing their home, the insureds obtained a homeowner's policy from Erie. A separate endorsement covered loss to the property caused by "fungi," which was included as any form of mold. The endorsement obligated Erie to pay up to $5,000 for loss caused by mold. The policy required Erie to pay the cost of testing the air to confirm the absence or presence of mold. If mold was present, Erie was to pay for the cost of removal, including the cost of tearing out any part of the property needed to gain access to the mold. 

   While renovating the basement, the insureds discovered two areas of black mold in close proximity to leaking water pipes. Erie was notified and sent an adjuster to view the mold. The adjuster took no action, but returned a couple of days later with an engineer. The adjuster and engineer informed the insureds that the mold was harmless and that health problems associated with mold were a media frenzy and overblown.

   Based on these assurances, the insureds continued to live in the house and renovate. Additional areas of mold were found in the basement. The engineer returned and inspected the newly-discovered areas of mold and performed testing. He did not disclose the results to the insureds. Nor did the adjuster apprise the insureds of the true hazard to human health imposed by the mold, or indicate that it should be removed or remediated. 

   Thereafter, each member of the insureds' family began to suffer respiratory ailments which worsened over the succeeding months. The insureds had the mold tested, at their own expense, which revealed that the mold was toxic in nature and hazardous to human health. 

   The insureds demanded the full $5,000 payment for eradicating the mold. Erie informed the insureds that the matter was still being investigated. Finally, Erie made the $5,000 payment. The insured wife was subsequently diagnosed with cancer of the throat and esophagus, which her doctors attributed to her exposure to the toxic mold. Fearing for their safety, the insureds moved out of the house which was eventually demolished because the mold could not be eradicated.

   The insureds sued, claiming, among other things, that Erie had been negligent in failing to recognize the severity of the mold problem and had misled the insureds about the mold problem in general and as it related to their health. Erie filed a demurrer claiming that the negligence claim was barred by the "gist of the action" doctrine. This doctrine provided that an alleged tort claim against a party to a contract, based on the party's actions undertaken in the course of carrying out the contract, is barred when the gist of the cause of action, although sounding in tort, is, in actuality, a claim against the party for breach of its contractual obligations. (The "gist of the action" doctrine appears to be similar to the economic loss doctrine utilized by Hawaii courts. See, e.g. Kawamata Farms v. United Agri. Prods, 86 Haw. 214, 948 P.2d 1055 (1997)).The trial court agreed and dismissed the negligence claim against Erie.

   On an interlocutory appeal, the Superior Court affirmed.

   The Supreme Court reversed. The insureds' negligence claim was not based on Erie's violation of any contractual commitments. The insureds did not allege that Erie failed to pay the $5,000 it was obliged to pay for the costs of testing and remediation of damage, and, in fact, Erie did eventually pay the $5,000. Instead, the claim was predicated on the allegedly negligent actions taken by Erie's agents on its behalf while they were performing Erie's contractual obligations to investigate the claim made by the insureds. While performing these obligations, Erie, through its agents, acted negligently by making false assurances regarding the toxicity of the mold and recommending to the insureds that they continue their renovation efforts, which caused them to suffer physical harm because of the reasonable reliance on those assurances. 

   Consequently, the negligence allegations concerned Erie's alleged breach of a general social duty, not a breach of any duty created by the policy itself. The order of the Superior Court was therefore reversed. 

Commercial Property Policy Construed as Blanket, not Scheduled, Policy

   Disagreeing with the excess carrier's interpretation of the primary policy, the court determined the commercial property policy was a blanket policy, thereby invoking additional excess coverage. Landmark Am. Ins. Co. v. Pin-Pon Corp., 2015 Fla. App. LEXIS 189 (Fla. Ct. App. Jan. 7, 2015).

   The insured purchased a hotel. Renovations were planned to improve the hotel while it remained open. In September 2004, however, Hurricane Frances and Hurricane Jeanne caused damage to the hotel before any renovations had commenced.

   The insured had a primary commercial property policy with Lexington. The policy had a $2,500,000 per-occurrence "Limit of Insurance." No aggregate limit was listed on the declaration page. Endorsement  No. 2 of the policy, however, stated amounts of insurance as:

Building:$8,000,000

Contents:$2,000,000

Business Income:    $1,382,368

    The insured also had a following form excess policy with Landmark. The Landmark policy established limits of liability for each scheduled item of property as follows:$8,800,000 for the building; $2,200,000 for personal property; $1,520,604.80 for business income; and $2,500,000 for code upgrade coverage. 

   The insured submitted claims to both carriers for damages arising from Frances and Jeanne. (The decision does not state the amount of the claims.) Lexington paid the full $2.5 million policy limits for the Frances claim and $553,924.12 for the Jeanne claim. Landmark paid $2 million on the Frances claim, but paid nothing on the Jeanne claim because Lexington had not paid its policy limits for this claim.

   The insured sued both carriers regarding the Jeanne claim. After trial,the jury returned a verdict finding that the insured was entitled to $902,933.40 in additional building damages and $1,499,949.30 in additional code upgrade damages from Hurricane Frances. The total business interruption claim from Frances totaled over $3.6 million. The trial court's interpretation of the primary policy allowed the insured to allocate the entire $2.5 million per occurrence limits of the Lexington policy to the business interruption award for Frances. An amended final judgment was awarded to the insured in the amount of $5.8 million. 

   On appeal, Landmark argued the Lexington policy set a business income coverage limit of $1,382,368, and did not allow policy limits of $2.5 million to be entirely allocated to business income coverage. The insured, on the other hand, argued  the policy was a blanket policy and the values in Endorsement No. 2 did not limit the coverages provided.

   The appellate court noted that a blanket policy covered to up to policy limits every item of property described in the policy. By contrast, in a scheduled policy, each separately treated item of property was in effect covered by a separate contract of insurance. The amount recoverable with respect to a loss affecting such property was determined independently of the other limits of property. 

   When the Lexington policy was considered as a whole, it was a blanket policy with a total limit of $2.5 million per occurrence and no sublimit for business income damages. The "Amount of Insurance" figures in Endorsement No. 2 referred to the values declared to Lexington at the inception of the policy and were not specific caps on the amount of coverage for the three categories.

    Paragraph 36 of the policy stated that the values and schedule of property were for premium purposes only and did not limit the coverage under the policy. Otherwise, the absurd result of increasing the building insurance to $8 million per occurrence would result.

   Therefore, the Lexington policy provided a blanket limit of $2.5 million per occurrence with no sublimit for business income damages. Consequently, the Landmark excess policy could be tapped for amounts above Lexington's policy limit.

Hail Damage Requires Replacement of Even Undamaged Siding

   In a dispute over the property policy's requirement that lost or damaged property be repaired or replaced, the Minnesota Supreme Court held that the policy language called for replacement of undamaged siding panels to obtain a color match. Cedar Bluff Townhome Condominium Ass'n, Inc. v. Am. Family Mut. Ins. Co., 2014 Minn. LEXIS 661 (Minn. Dec. 17, 2014).

   During a hail storm, all 20 of Cedar Bluff's buildings sustained some damage. The roofs on all of the buildings needed to be replaced, and at least one siding panel on each building sustained damage. Eleven of the 20 buildings had three or fewer damaged panels. At the time of the hail storm, the siding was approximately 11 years old, and the color of the panels had faded. Replacement panels were available, but not in the same color.

   Cedar Bluff submitted a claim under its businessowners' policy to American Family. The policy obligated the insurer to pay for "direct physical loss of or damage to Covered Property at the premises . . . caused by or resulting from any Covered Cause of Loss." "Covered Property" was broadly defined in the policy to include buildings at the premises.

   The policy also included a "Loss Payment" clause specifying how a covered loss or damage would be paid for. Here, American Family chose to "[p]ay the cost of repairing or replacing the lost or damaged property." The replacement cost was the cost to replace "the lost or damage property with other property . . . of comparable material and quality."  

   Cedar Bluff argued that all of the siding on each building had to be replaced because there would be a color mismatch with the existing panels if only the damaged siding panels were replaced. American Family claimed that the policy only required replacement of the individual panels actually damaged by the hail storm. 

    Cedar Bluff demanded an appraisal under the policy's terms. The appraisal panel found that the original siding could not be matched in terms of color. Therefore, there was not a reasonable match available for the existing siding materials. The appraisal panel issued an award for "a total replacement of the siding" in the amount of $361,108 for the replacement cost of property of comparable material and quality.

   American Family refused to pay. It believed the award was based on the appraisal panel's unauthorized coverage determinations. Cedar Bluff then sued to confirm the appraisal award.

   The trial court granted summary judgment to American Family, determining that the insurer was not obligated to pay for the undamaged siding. The court of appeals reversed. It held that the appraisal panel had authority to consider the meaning of "comparable material and quality" when determining the amount of the loss. A reasonable person could understand that "comparable material" meant that it was the same color as the damaged property.

   The Minnesota Supreme Court affirmed the court of appeals. The phrase ""comparable material and quality" meant a reasonable color match between the new and existing siding when replacing damage siding. The court ruled that the color mismatch constituted "direct physical loss of or damage to Covered Property." Because of the color mismatch resulting from the inability to replace the hail-damaged siding panels with siding of "comparable material and quality," the covered property - Cedar Bluff's buildings - sustained a "distinct, demonstrable, and physical alteration." Thus, the covered property sustained a covered loss. The trial court erred when it refused to confirm the appraisal panel's award.

   

Number of Occurrences Is On the Agenda at This Year's ICLC Seminar

   This year's Insurance Coverage Litigation Committee's CLE Seminar will be conducted in Tucson, Arizona, from March 4-7, 2015. Each year, the conference offers informative, cutting-edge sessions on a variety of insurance-related topics. Participants from across the country with varying perspectives on insurance coverage, including lawyers, judges, risk managers, and insurance professionals, will be attendance. The seminar's brochure is attached here.

    "Number of Occurrences" will be the topic my panel presents on March 7. We will be honored to have on our panel Alaska Supreme Court Justice Peter Maassen, my old skiing and running buddy from my Alaska days. Justice Maassen's opinion in United Servs. Auto. Ass'n. v. Neary, 307 P.3d 907 (Alaska 2013) was the genesis for our topic. 

    After the seminar, I will post our paper, which discusses the various tests used by the courts in recent cases to determine the number of occurrences.