Insurance Law Hawaii

Coverage for Injury to Insured's Employee Not Covered

   The employee exclusions in the employer's CGL and Umbrella policies barred coverage. Piatt v. Indiana Lumbermen's Mut. Ins. Co., 2015 Mo. LEXIS 32 (Mo. April 28, 2015).

   Linda Nunley was killed while working for Missouri Hardwood Charcoal, Inc. The kiln's large steel door had been removed and was leaning upright against another kiln when it blew over and crushed Ms. Nunley. Her family filed a wrongful death suit against Junior Flowers, the company's sole owner, director, and executive officer. The complaint alleged that Flowers was negligent in ordering employees to lean the kiln doors upright, even though he knew it was unsafe. The complaint further alleged that Flowers breached a personal duty of care owed to Ms. Nunley and that his actions were "something more" that a breach of the company's duty to provide a safe workplace.

   Flowers requested a defense under CGL and Umbrella policies issued by Lumbermen's. The policies insured Missouri Hardwood and its executive officers, but excluded liability for a work-related injury to an "employee of the insured." The policies also had a "separation of insureds" provision, stating that the insurance applied "separately to each insured against whom claim is made or suit is brought." Lumbermen's denied coverage.

   Flowers and the underlying plaintiffs agreed, pursuant to a Missouri statute, to run through a trial where Flowers waived his right to testify or make arguments and agreed to assign his claims against Lumbermen's to plaintiffs. A bench trial resulted in the trial court entering a $7 million judgment in favor of the plaintiffs.

   The plaintiffs then sued Lumbermen's for breach of contract for refusal to defend. The trial court granted summary judgment to Lumbermen's. It found that Flowers was Ms. Nunley's employer within the meaning of the insurance policies and based its ruling on the policies' employee exclusions.

   The Missouri Supreme Court affirmed. The employer's exclusion in the CGL policy stated the insurance did not apply to "bodily injury to an employee of the insured arising out of employment by the insured; or performing duties related to the conduct of the insured's business." The separation of insureds provision stated that the insurance applied "as if each named insured were the only named insured; and separately to each insured against whom claim is made or suit is brought." 

   The wrongful death judgment held that Flowers was liable for negligently maintaining his company policy of leaning the heavy doors against the kilns. This was a claim of failure to provide a safe workplace, which was exclusively the employer's duty. Regardless of whether Flowers was also an employee of the company, the plaintiffs' claim could only have been asserted against him in this capacity as agent for Ms. Nunley's employer. The policies did not cover Flowers' liability for Ms. Nunley's death while she was on the job because he was acting as her employer. 

   Further, the separation of insureds language did not prevent Flowers from being considered the employer. Without a separation of insureds provision, an insurer could avoid liability under an employee exclusion just because some insured was the injured person's employer, regardless of who was seeking coverage. Separation of insureds provisions prevented this by confining the protections offered by the employee exclusions to situations where the employer was actually claiming the benefit of the policy. 

Dispute Over Exhaustion of Primary Policy

   In a dispute between the excess and primary carriers, the Fifth Circuit determined the primary policy was exhausted, triggering coverage under the excess policy. Amerisure Mut. Ins. Co. v. Arch Spec. Ins. Co., 2015 U.S. App. LEXIS 6627 (5th Cir. April 21, 2015).

   Amerisure issued a CGL policy to Admiral Glass & Mirror Co. The policy provided excess over any coverage under a controlled insurance program policy. Arch issued an Owner Controlled Insurance Program (OCIP) policy to Endeavor Highrise, LP and to its contrators and subcontractors for bodily injury and property damage arising out of the construction of the Endeavor Highrise. Admiral was a subcontractor insured under the OCIP.

    The OCIP had combined bodily injury and property damage limits of $2,000,000 per occurrence, a general aggregate limit of $2,000,000 and a products-completed operations aggregate limit of $2,000,000.  The OCIP contained a Supplementary Payments provision which provided that Arch would pay "[a]ll expenses we incur" in connection with any covered claim, and that "[t]hese payments will not reduce the limits of insurance." Endorsement 16, however, expressly deleted and replaced this statement with: "[supplementary payments] will reduce the limits of insurance." The OCIP also provided that Arch's duty to defend ended "when we have used up the applicable limit of insurance in the payment of judgments or settlements." 

   In June 2010, Endeavor sued Admiral and others for faulty work. Amerisure tenered the lawsuit to Arch as the primary insurer. In April 2012, Arch withdrew from the defense of the Endeavor lawsuit asserting that attorneys' fees, defense costs, and settlements of prior matters had exhausted policy limits. 

    Amerisure sued Arch for breach of contract, contending Arch wrongfully refused to defend and indemnify Admiral. Amerisure filed a motion for partial summary judgment seeking a declaration that: (1) Arch had not exhausted the policy because defense costs did not erode the policy limits; or (2) Arch had a continuing duty to defend after the policy was exhausted. Arch filed a cross-motion for summary judgment on the same issues.

   The district court accepted the recommendations of the magistrate, determining that: (1) defense costs and attorneys' fees were "expenses" under the Supplementary Payments provision and therefore eroded the policy limits; and (2) though subject to the same policy limits, the duty to defend ended only when the policy limits were exhausted by judgments and settlements alone (i.e., not by defense costs). Finally, the district court held that Arch did not breach its duty to indemnify, but did breach its duty to defend Admiral. 

   Arch appealed the finding that it had breached its duty to defend Admiral. Amerisure cross-appealed the part of the judgment holding that Arch had no duty to indemnify Admiral with respect to the underlying lawsuit filed by Endeavor. 

   The Fifth Circuit agreed with Arch that "expenses" in the Supplementary Payments provisions included defense costs and that the Endorsement controlled over any contrary language. Therefore, the Endorsement converted the policy into an eroding policy. Given its ordinary meaning, when an insurer paid costs of defense, including attorneys' fees, that was an "expense" to the insurer.

   Accordingly, the Fifth Circuit affirmed the district court's judgment regarding the duty to indemnify, reversed the district court's judgment regarding the duty to defend, and rendered judgment for Arch. 

Bad Faith Claim for Inadequate Investigation Does Not Survive Summary Judgment

   The insured's claim for bad faith investigation regarding their hail damage claim did not survive the insurer's motion for summary judgment. Amarillo Hospitality Tenant, LLC v. Mass. Bay Ins. Co., 2015 U.S. Dist. LEXIS 56228 (N. D. Tex. April 29, 2015).

   A hailstorm caused damage to the Courtyard Marriot. The day after the storm, the insured inspected the roof of the hotel and observed damage to a sign and some aluminum vent tubes. No damage to the roof itself was observed. Subsequently, leaks were found on the tenth floor of the hotel. A public adjuster concluded that the roof had sustained damage during the hailstorm. 

   The insured filed a claim with Massachusetts Bay Insurance Company. The insurer paid for the cost of repairing the damaged sign. To determine whether the damage to the roof was caused by the hailstorm, the insurer hired Donna Engineering, who conducted two inspections of the roof. Both inspections concluded that the hailstorm did not cause damage to the roof. Consequently, the claim was denied.

   The insured then hired Shield Engineering to perform another inspection. Shield Engineering issued a report that disputed the conclusions reached by Donan Engineering. The report was mailed to the insurer.

   The insured then filed suit alleging breach of contract, bad faith, and other claims.The insurer moved for summary judgment on all claims except breach of contract. The court determined that the insured failed to establish there was a genuine dispute of material fact as to whether the insurer knew or should have known that its liability under the policy had become reasonably clear at the time the claim was denied. A simple disagreement among experts about whether the cause of the loss was covered by the policy would not support a judgment for bad faith. Nor was there evidence that the insurer ignored information provided by the insured or its employees. 

   The insured also argued the insurer failed to consider that many nearby properties sustained hail damage. But there was no evidence in the record to create a fact issue on whether it was reasonably clear that the insured's roof sustained hail damage from the storm. 

   Finally, the insured's argument that the insurer's expert was biased was not supported by the record. Evidence that an expert worked primarily for insurance companies and an insurer's awareness of an adjuster's particular view did not amount to bad faith. 

   Summary judgment was not granted to the insurer on the issue of whether prompt payment had been made pursuant to a Texas statute. This was a statutory claim, and not a claim based on common law bad faith. The possibility of liability under the statute arose only if the insured was covered by the policy. Liability under the statute depended on the outcome of the remaining breach of contract claim, which was not addressed by the insurer's motion. 

Hawaii Bill Preserves Insurance Coverage in Lava Zones

   The Hawaii legislature passed a bill in its recently concluded session to protect homeowners and businesses affected by lava flows from losing coverage.

   The Puna district on the Big Island was severely impacted by the Pu`u O`o lava flow as it crept closer to homes, businesses, schools and populated areas. Problems were created by the imposition of a moratorium on the sale of new policies in certain areas of the Puna district. 

   SB 589 [here] grants relief to homeowners who have had continuous insurance in lava zone areas that are declared to be in a state of emergency. The bill (1) allows the homeowners to have their policies renewed, (2) permits continued coverage for homeowners who wish to sell their homes, (3) grants coverage for new buyers of an insured property, and (4) allows homeowners who have not previously had insurance to purchase coverage from the Hawaii Property Insurance Association.

   Section 2 of SB 589 restricts the number of policies that may be non-renewed in a lava zone declared to be in a state of emergency to no more than five percent of the total number of covered policies issued by an insurer in that lava zone. 

    Section 3 of SB 589 provides that where a state of emergency is declared in a lava zone and residential property insurance is unavailable due to a moratorium on the issuance of policies, the Association shall remove its moratorium. After removal of the moratorium, the Association shall offer new policies with a waiting period of no longer than six months for the policy coverage to take effect.

   SB 589 was signed by the governor on May 6, 2015.

   Special thanks to my Damon Key co-blogger Mark Murakami (www.hawaiioceanlaw.com) for bringing this legislation to my attention.

Consolidated Case With Covered and Uncovered Allegations Triggers Duty to Defend

   The Illinois Court of Appeals held that the insurer had a duty to defend a consolidated case that included one complaint alleging intentional acts and another complaint alleging negligence. Farmers Auto. Ins. Ass'n v. Neumann, 2015 Il. App. 140026 (Ill. Ct. App. March 24, 2015, reh'g denied March 24, 2015).

   Neumann allegedly hit Bitner with his automobile as Bitner, a police offier, was directing traffic. Bitner sued Neumann, alleging intentional assault and intentional battery. Farmers rejected Neumann's tender because the policy did not cover intentional acts. 

   Farmers filed for a declaratory judgment. In his answer, Neumann included an affidavit stating that he did not intend to strike or cause bodily harm to Bitner. The trial court granted the motion to strike the affidavit. 

   Thereafter, a second lawsuit involving the same incident was filed against Neumann. CCMSI Insurance Company, a subrogee of the City, alleged Neumann was negligent and sought to recover the amounts of worker's compensation that CCMSI would have to pay Bitner as a result of the accident. Neumann filed a motion to consolidate the two actions, which was granted. Farmers acknowledged, under a reservation of rights, its duty to defend Neumann against the CCMSI complaint. 

   In the Farmers' lawsuit, Neumann filed a motion for summary judgment, asserting that because the two underlying actions were consolidated, Farmers should defend both. The trial court denied the motion.

   The appellate court reversed. The court agreed with Neumann that the consolidation of the two lawsuits was the equivalent to a single lawsuit with several causes of action, and since Farmers already acknowledged its duty to defend on one claim, it had to defend both claims.

   The appellate court also considered Neumann's argument that the trial court erred in striking his affidavit. The appellate court found no error. The affidavit was a conclusory statement regarding Neumann's intent, seeking to broaden the scope of the Bitner pleadings and trigger Farmers' duty to defend.

Motion for Judgment on the Pleadings Denied Due To "Completed Operations"

   In a dispute between two insurers, the court denied a motion for judgment on the pleadings because there were disputed facts on whether operations were completed at the time of the injury. Citizens Ins. Co. of Am. v. Selective Way Ins. Co., 2015 U.S. Dist. LEXIS 48658 (E.D. Pa. April 15, 2015).

   Lynmar Builders was the general contractor on a construction project at Save-A-Lot. Lynmar subcontracted with Integrity Plumbing & Heating to perform a portion of the work. A Save-A-Lot employee was injured when he fell through an unmarked hole in the floor. The employee sued Lynmar and Integrity for negligence.

   Integrity was insured under a CGL policy with Selective. The policy insured as additional insureds any party who Integrity agreed to indemnify. Integrity's subcontract with Lynmar required Integrity to indemnify Lynmar with respect to liability arising from Integrity's work and required that Lynmar be added to the policy as an additional insured. 

   Therefore, Lynmar was insured under the Selective policy for liability that was "caused in whole or in part by . . . Integrity's ongoing operations performed for Lynmar." Although Integrity also had completed operations coverage, this coverage was not extended to additional insureds like Lynmar.

   The insurers disputed whether there was a duty to defend Lynmar under Selective's policy. Citizens contended that the injury was caused by Integrity's ongoing operations and that Lynmar was therefore covered under Selective's policy. Selective argued that the injury occurred when Integrity had completed all of the work under its subcontract. 

   The pleadings did not state when Integrity completed its work on the project. However, Selective alleged in its Answer that Integrity's ongoing operations did not cause the bodily injury.

   Citizens moved for judgment on the pleadings. Citizens carried the burden to show the allegations reflected that there were no issues of material fact and that it was entitled to judgment as a matter of law. The court ruled Citizens did not meet its burden based upon Selective's Answer. If the injury was not caused by Integrity's ongoing operations, Lynmar was not entitled to coverage from Selective. In light of Selective's allegation that the injury occurred after Integrity's operations were completed, Citizens could not show that there was not at least a question of fact regarding whether Lynmar was entitled to coverage.

Duty To Defend Construction Defect Case Affirmed, Duty to Indemnify Reversed In Part

   The Eleventh Circuit affirmed the district court's finding of a duty to defend, but reversed, in part, the insurer's duty to indemnify. Carithers v. Mid-Continent Cas. Co., 2015 U.S. App. LEXIS 5540 (11th Cir. April 7, 2015). 

   After discovering a number of defects in their home, the Carithers sued their homebuilder, Cronk Duch Miller & Associates. Cronk Duch's insurer, Mid-Continent Casualty Company, refused to defend.The parties entered into a consent judgment for $90,000 in favor of the Carithers. Cronk Duch then assigned to the Carithers the right to collect the judgment from Mid-Continent. 

  The Carithers then sued Mid-Continent. Florida law applied. Mid-Continent has issued four policies to Cronk Duch from March 2005 to October 2008. The parties filed cross-motions for summary judgment on the duty to defend issue. The underlying complaint alleged that the defects could not have been discovered until 2010, after the last policy period. The district court rejected Mid-Continent's argument that property damage occurred when it was discovered or when it reasonably could have been discovered. Therefore, summary judgment on the duty to defend was granted to the Carithers.

   The coverage issue went to trial. The court found that the damage occurred during 2005, triggering the earliest Mid-Continent policy. The court held that property damage did not include the defective work of a sub-contractor, but did include damage to other property caused by the defective work of a sub-contractor. Mid-Continent was liable for all of the damages awarded in the underlying case. Among other findings, the court determined: (1) that the incorrect application of exterior brick coating caused property damage to the brick; (2) that the use of inadequate adhesive and an inadequate base in the installation of the tile caused property damage to the tile; and (3) that the incorrect construction of a balcony, which allowed water to seep into the ceilings and walls of the garage leading to wood rot, caused property damage to the garage. 

   The Eleventh Circuit affirmed the decision on the duty to defend. Florida courts had not decided whether the manifestation or injury in fact trigger applied to determine when property damage occurred. Given the uncertainty in the law, Mid-Continent did not know whether there would be coverage for the damages sought in the underlying case. Mid-Continent was required to resolve this uncertainty in favor of the insured and defend Cronk Duch. 

   Determining whether there was coverage for the damages awarded required the court to decide which trigger applied. Examining the policy language, the court determined that property damage occurred when the damage happened, not when the damage was discovered or discoverable. Therefore, the district court did not err in applying the injury in fact trigger.

   Mid-Continent argued that the condition of the brick, the tile, the mud base, and the balcony did not constitute property damage under the policy. Decisions from the Florida Supreme Court held that faulty workmanship that damaged the otherwise nondefective completed project caused "physical injury to tangible property" within the plain meaning of the policy. However, there was a difference between a claim for the costs of repairing or removing defective work, which was not a claim for "property damage," and a claim for the costs of repairing damage caused by the defective work, which was a claim for "property damage." 

    Regarding the brick, if it was done by a single sub-contractor, then the damage to the bricks was part of the sub-contractor's work, and the defective work caused no damage apart from the defective work itself. However, if the bricks were installed by one subcontractor, and a different sub-contractor applied the brick coating, then the damage to the bricks caused by the negligent application of the brick coating was not part of the sub-contractor's defective work and constituted property damage. The Carithers presented no evidence to establish that the brick installation and the application of the brick coating were performed by different sub-contractors. Therefore, they failed to meet their burden of proof, and the district court's award of damage for property damage to the bricks was reversed.

   The district court also determined that the use of inadequate adhesive and inadequate base in the installation of the tile caused property damage to the tile. The damage award included the cost of replacing both the tile and the mud base itself. There was no evidence that the tile and mud base were installed by different sub-contractors. Again, the Carithers failed to meet their burden of proof. If the mud base and the tile were done by a single sub-contractor, then the damage to the tile was part of the sub-contractor's work and this defective work caused no damage apart from the defective work itself. Therefore, the district court's award of damages for the tile and mud base was reversed.

   Finally, the district court found that the balcony was defectively constructed, which caused damage to the garage. This finding was upheld. The district court determined that repairing the balcony was part of the cost of repairing the garage, which was defective work. Therefore, the Carithers were entitled to these damages.

   Consequently, the district court's award of damages for the brick, the tiles, and the mud base was reversed. The judgment was affirmed in all other respects.