Insurance Law Hawaii

Combined Documents Create "Written Agreement" to Invoke AI Coverage

   A signed work proposal and unsigned agreement were sufficient to create a "written agreement" to create coverage to the contractor as an additional insured. West Bend Mut. Ins. Co. v. DJW-Ridgeway Bldg. Consultants, Inc., 2015 Ill. App. LEXIS 391 (Ill. Ct. App. May 19. 2015).

   Ridgeway was the general contractor for construction of a commercial building. Jason the Mason was the masonry subcontractor. A worker on the project was injured and brought a negligence suit against Jason and Ridgeway.

   Ridgeway tendered to West Bend, Jason's insurer. Under an agreement, Jason was to name Ridgeway as an additional insured. West Bend refused the tender, contending Ridgeway was not an additional insured under Jason's policy.

   The policy defined an additional insured as any organization who the insured was required to add as an additional insured under a "written agreement." Ridgeway pointed to a work proposal and an agreement with Jason. The proposal was signed. It said public liability insurance was to be acquired by Jason.

   The agreement was unsigned, however. The agreement provided that the contractor was to be named as an additional insured on the sub-contractor's policy. The agreement also said it was supplemental to and part of the signed proposal.

   After the documents were prepared, Ridgeway requested a certificate of insurance to demonstrate it was an additional insured. Jason had its agent send the certificate to Ridgeway.

   Suit was filed, and Ridgeway and West Bend cross-moved for summary judgment. West Bend argued the agreement was not signed by Ridgeway and did not constitute a "executed" signed agreement. The trial court granted summary judgment to Ridgeway.

   The appellate court affirmed. The two documents comprised a "written agreement." The agreement said it was supplemental to and part of the proposal to which it was attached. Further, Jason's conduct indicated it considered itself bound by the agreement. The agreement required Jason to produce a certificate of insurance designating Ridgeway as an additional insured under the policy. Jason's agent provided the certificate to Ridgeway.

   Therefore, a written agreement existed requiring Ridgeway be named an additional insured under West Bend's policy.

No Coverage for Recovery of Untapped Oil Barrels From Harbor

   The Ninth Circuit found that a pollution endorsement did not cover the cost of retrieving oil barrels that did not discharge pollutants. Guam Industrial Services, Inc. v. Zurich Am. Ins. Co., 2015 U.S. App. LEXIS 9045 (9th Cir. June 1, 2015).

   Guam Industrial's dry dock sank into the harbor. Various containers in which 113,000 gallons of oil were stored fell into the water. None of the containers were breached, however. The Coast Guard forced Guam Industrial to recover the containers, and the cost of the retrieval was $647,000.

   Guam Industrial sought coverage under two policies. A Hull and Machinery Policy was underwritten by Zurich and Star Indemnity and Liability Company. The policy covered damaged to the dry dock resulting from certain specified "perils" that included lightning, earthquake, pirates, and various types of accidents and malfunctions. The policy required a Navy Certification for the dry dock.

   Guam Industrial never acquired the certification, however, instead it obtained "commercial" certification from a private company. In October 2010, the commercial certification expired. The private company would not renew the certification unless significant repairs were made. The dry dock sank while it was undergoing the repairs. Coverage was denied under the Hull and Machinery Policy because of the breach of the requirement to obtain Navy Certification. 

   The second policy was an Ocean Marine Policy with Zurich. Through an endorsement, the policy covered "the discharge, dispersal, release, or escape" of any pollutants into the environment, provided the discharge was accidental. Zurich denied the claim because no actual discharge of pollutants occurred. 

   Guam Industrial filed suit. The district court granted summary judgment to the insurers on both policies. 

   The Ninth Circuit affirmed. Strict compliance with marine policy warranties was required, even when the breach of the warranty did not cause the loss. Even if the insurers waived their right to demand strict compliance with the Navy Certification because they had accepted commercial certification, the dry dock lacked even commercial certification when it sank.

   Regarding coverage under the Ocean Marine Policy, it was undisputed that no oil leaked out of the containers and into the water in the harbor. Although barrels or containers were discharged, dispersed, and released, oil was not. The oil remained sealed inside its containers at all relevant times.

   Judge Kozinski dissented with a relish that policy holder lawyers can appreciate. Judge Kozinski started his dissent as follows:

    If you slap a silk suit on a monkey, you still won't want to take it to the prom. And if you pour crude oil into a barrel, you sill won't want it in your hot tub. 

The dissent concluded by stating,

    No rational dry dock owner would buy a policy that covers government-ordered pollution clean-up if containment vessels filled with toxic waste break apart upon sinking but not if they remain intact. It's absurd. Zurich's denial of coverage is the type of slimy conduct that gives insurance companies a bad name. This opinion should serve as fair warning to those who would throw away good money doing business with Zurich. 

    Special thanks to Damon Key blogging colleague Robert Thomas (www.inversecondemnation.com) for flagging this case.

Illinois Appellate Court Affirms Duty to Defend Construction Defect Case

   The Illinois Appellate Court affirmed the trial court's ruling that the insurer had a duty to defend a construction defect case. West Bend Mut. Ins. Co. v. Pulte Home Corp., 2015 Ill App. Unpub. LEXIS 1039 (Ill. Ct. App. May 15, 2015). 

   Pulte Home Corporation was a developer who developed and constructed a residential condominium development know as The Reserve of Elgin (The Reserve). G.H. Siding was subcontracted by Pulte to work on the development, including the installation of exterior siding.

   The Reserve Homeowners Association (HOA) filed suit against Pulte and James Hardie Building Products Inc., the company that manufactured the exterior siding. The complaint alleged that Pulte developed, designed, constructed and sold the units and common areas. Pulte installed siding manufactured by Hardie on the exterior of the units. The siding was allegedly defective. The HOA alleged breach of implied warranty of habitability and breach of contract by Pulte. Hardie was sued for breach of express warranty and breach of implied warrant of habitability.

   Pulte filed a third-party complaint against G. H. Siding and other subcontractors. Pulte alleged it had entered into contracts with G.H. Siding and to the extent that the exterior face components were improperly installed and resulted in defects, G. H. Siding breached its contractual obligations. 

   Both Pulte and G.H. Siding tendered the defense of the underlying complaints to West Bend, the insurer for G.H. Siding, whose policy named Pulte as an additional insured. West Bend filed suit for a declaratory judgment that it had no duty to defend or indemnify Pulte or G. H. Siding. West Bend argued the underlying complaints did not allege "property damage" caused by an "occurrence" because the only alleged damage was to repairing or replacing the alleged defective materials, workmanship and design. 

   After the complaints were answered, West Bend filed a motion for judgment on the pleadings. The motion was denied because the broad-based allegations of the underlying complaints regarding damages at least potentially could come within coverage. The court could not determine that the allegations of resultant damage would not include damage to something other that the project itself. Therefore, West Bend had a duty to defend Pulte and G.H. Siding. 

   The appellate court affirmed. Under Illinois law, property damage to a building caused by a contractor's defective construction was not an accident and did not constitute an "occurrence." But damage to something other than the project itself did constitute an "occurrence." 

   The HOA's complaint asserted that as a proximate result of Pulte's actions, substantial repairs and/or replacement of exterior portions of the building and resultant damage was required. The HOA also sought to recover "such other damage resulting from the defective materials and defective conditions determined at trial." In its third-party complaint, Pulte asserted that if it was "liable to the HOA in any respect, then such liability arose from and as a consequence of G. H. Siding's" actions. 

    Therefore, the HOA's complaint alleged that Pulte caused damage to the buildings themselves and other unspecified damage resulting therefrom. Pulte's third party complaint sought to hold G.H. Siding accountable should it be found liable to the HOA "in any respect." The court rejected West Bend's contention that the underlying complaints did not allege even the potential of "property damage" caused by an "occurrence." Consequently, West Bend had a duty to defend both Pulte and G. H. Siding.

   

Sixth Circuit Rejects Claim for Reverse Bad Faith

   The Sixth Circuit rejected the insurer's claim for reverse bad faith against its insured who made a fraudulent claim after her home was destroyed by fire. State Auto Property and Cas. Ins. Co. v. Hargis, 2015 U.S. App. LEXIS 7475 (6th Cir. April 23, 2015). 

   The insured's home burned to the ground early one morning. She filed what she would later admit was a fraudulent insurance claim with State Auto for approximately $866,000. State Auto paid in excess of $425,000 before filing an action to declare the policy void. State Farm's investigation eventually led to the insured's admission that she had a friend burn down her house to collect insurance proceeds. An indictment was issued and the insured pled guilty. She was sentenced to a 60-month term and was ordered to pay restitution to State Auto totaling $672,497. 

   State Auto amended its complaint to add a common law tort claim for reverse bad faith under Kentucky law. The district court denied State Auto's motion for summary judgment, rejecting the claim for reverse bad faith. The Court awarded damages for the fraudulent insurance acts to the extent State Auto was not fully compensated by the order of restitution.

   State Auto appealed and the Sixth Circuit affirmed. A common law tort claim for reverse bad faith had not been recognized in any jurisdiction, although only a handful of jurisdictions had addressed the issue. Appellate courts in Ohio, Iowa and California had rejected such a claim. These courts held that the insurer held the purse strings and had a built-in protection from such evils. On the other hand, the insured, who often was in dire financial straits after a loss, needed the equal footing provided by the ability to sue the insurer for bad faith.

   Therefore, the Sixth Circuit predicted that the Kentucky Supreme Court would reject State Auto's invitation to adopt a common law tort claim for reverse bad faith by an insurer. 

Reinsurer Must Reimburse Health Care Organization for Settlement Costs

   The Indiana Supreme Court reversed summary judgment issued to reinsurer Continental Casualty Company (CNA) and determined it must reimburse the insured for settlement costs under the E & O policy. Wellpoint, Inc., et al. v. National Union Fire Ins. Co. of Pittsburgh, PA, et al., 2015 Ind. LEXIS 316 (Ind. April 22, 2015). 

   Anthem, Inc. was a large managed health care organization. Anthem was its own primary and excess insurer for E&O liability. It had numerous excess reinsurers. Beginning in 1998, anthem was confronted by various lawsuits alleging it and other managed care organizations failed to pay claims in a full and timely manner, thereby breaching state and federal statutes. The various lawsuits alleged substantially the same wrongful conduct, namely that after promising to pay doctors in a timely manner for their services, Anthem sought to improperly deny, delay and diminish payments due. 

   The cases were consolidated into a federal multi-district litigation proceeding in the Southern District of Florida. Claims for breach of contract, unjust enrichment, and violations of state prompt pay statutes were dismissed or dropped. Anthem then settled the underlying litigation in July 2005 without admitting and instead denying any wrongdoing or liability. The settlement called for both cash payments and implementation of specific business practices consistent with requested injunctive relief. 

   The primary reinsurer for Anthem's self-insurance E&O policy, National Union, paid and exhausted its coverage. CNA and other excess reinsurers denied coverage for Anthem's defense and settlement of the underlying litigation. The ultimate settlement amounted to $198 million.

   Anthem filed suit, claiming it had professional liability coverage under Part II of the CNA Policy, which provided that payment would be made for the "Loss of the Insured resulting from any Claim first made against the Insured . . . for any Wrongful Act of the Insured . . . but only if such Wrongful Act . . . occurs solely in rendering of or failure to render Professional Services." 

   CNA moved for summary judgment, arguing there was no coverage because claims settled in the underlying litigation did not arise out of acts that occurred "solely" in Anthem's rendering of, or failure to render, professional services. The trial court granted summary judgment to CNA.

   The Indiana Supreme Court reversed. "Professional Services" were "services rendered or required to be rendered solely in the conduct of the Insured's claims handling or adjusting . . . ." The clear language of the policy therefore extended coverage to "any Claim or Claims" resulting from "any Wrongful Act" by Anthem that occurred "solely in the rendering of or failure to render" "claims handling and adjusting" services. Therefore, the policy covered not only Anthem's actions in adjusting and paying reimbursement claims from health care providers, but also its failure to do so. 

   The wrongful acts alleged in the underlying litigation - engaging in an improper, unfair, and deceptive scheme designed to systematically deny, delay and diminish claim payments - were clearly alleged wrongful acts by Anthem in the course of its claims handling and adjusting services. Therefore, they were Wrongful Acts occurring in the rendering or failure to render Professional Services. As a matter of law, the relief sought by Anthem fell within coverage for professional liability in Coverage II of the policy.

   CNA also argued an exclusion for dishonest or fraudulent acts barred coverage. The exclusion provided, "the coverage section does not apply . . . (b) to any dishonest or fraudulent act or omission." An exception to the exclusion read, "this exclusion shall not apply to any Claim seeking both compensatory and punitive damages based upon or arising out of allegations of both fraud and bad faith in the rendering of or failure to render Professional Services." The court held that Anthem's claim of settlement losses satisified the exemption and avoided the application of the exclusion as a matter of law. 

Insurance Measures Passed by 2015 Hawaii Legislature

   The 2015 Hawaii legislative session passed three insurance-related bills which have all been signed by the governor.  Bills that have been enacted are the following:

    SB0589 - We previously devoted this post to the legislation. The bill provides relief for residents in lava zones on the Big Island. The bill limits the number of property policies that an insurer can refuse to renew in a lava zone. Further, a moratorium on the issuance of policies can be lifted in a state of emergency due to the threat of imminent disaster from a lava flow.

   SB0736 - Provisions relating to reimbursement for accident and health or sickness insurance benefits are amended. Further, the bill provides that prior to initiating any recoupment or offset demand efforts, an entity must send a written notice to the health care provider at least 30 days prior to engaging in recoupment or offset efforts. An entity may not initiate recoupment or offset efforts more than 18 months after the initial claim payment was received by the health care provider or health care entity. 

   SB1094 - This is a wide-ranging piece of legislation amending various provisions in the Insurance Code. For example, it requires a risk retention group chartered in other states and seeking to do business in Hawaii to pay an initial registration fee of $300 and to pay annually a service fee of $150. The mutual benefit societies law is amended to allow the insurance commissioner to collect advance fees for certificate of authority. The legislation requires any risk retention group dong business in Hawaii to submit to the insurance commissioner a copy of the group's financial statement submitted in its state of domicile, which must be certified by an independent public accountant and contain a statement of opinion on loss and loss adjustment expense reserves.The bill also establishes administrative fines. Finally, the bill defines emergency services to include severe pain. 

Breach of Fiduciary Duty Claim Against Insurer Survives Motion to Dismiss

    While some of their claims were dismissed, plaintiffs' breach of fiduciary duty survived the insurer's motion to dismiss. Senft v. Fireman's Fund Ins. Co., 2015 U.S. Dist. LEXIS 61870 (D. N.J. May 12, 2015).  

  Plaintiffs' waterfront home was insured by Fireman's Fund. Plaintiffs alleged that the broker represented that the policy would provide (1) coverage in the event of a hurricane,(2) the "highest level of protection" offered by Fireman's Fund, and (3) "exceptional" services in the event of a catastrophe. The policy included a 2% hurricane deductible because of the home's proximity to the ocean. 

   Hurricane Sandy badly damaged plaintiffs' home. Plaintiffs alleged that the winds from Sandy battered their home long before the storm surge reached the structure. 

   After the storm, Fireman's Fund rejected the claim without visiting the property. When plaintiffs protested, an inspector made a cursory visit to the property. Fireman's Fund asserted that the storm surge caused all of the damage and the loss was therefore excluded.

   Plaintiffs sued and Fireman's Fund moved to dismiss several counts. The court first dismissed the claim for breach of the implied covenant of good faith and fair dealing because it was duplicative of the bad faith count. The court saw no distinction between the two claims. 

   Regarding the breach of fiduciary duty claim, the court noted that a fiduciary relationship could arise from an insurance agent's interactions with an insured. Plaintiffs adequately pled that Fireman's Fund owed them a fiduciary duty and breached it. The complaint alleged that Fireman's Fund, independently and through its brokers, represented to plaintiffs that the policy provided the type of coverage that they desired and needed. These allegations made it plausible that Fireman's Fund owed a fiduciary duty and breached it by failing to provide coverage for hurricane-related damage that Plaintiffs trusted Fireman's Fund to provide. Therefore, the motion to dismiss the breach of fiduciary duty claim was denied.

Louisiana Court Applies Manifestation Trigger to Affirm Denial of Coverage

   Applying the manifestation trigger, the Louisiana Court of Appeal affirmed denial of coverage where the property damage manifested after the policy period expired. Landry v. Williamson, 2015 La. App. Unpub. LEXIS 213 (La. Ct. App. May 1, 2015).

   On August 28, 2002, the Burkarts purchased a home from the Williamsons. One month later, water started leaking into the home during periods of rainfall. Suit was filed against the contractor, who was insured by Scottsdale. Scottsdale, who was added as a defendant, filed a motion for summary judgment, asserting that it did not insure the developer at the time the alleged property damage occurred. Scottsdale's policy expired on August 1, 2002. The trial court granted Scottsdale's motion, finding coverage under its policy was not triggered because no property damage occurred during the policy period.

   The appellate court affirmed. Louisiana applied the manifestation trigger, meaning coverage was triggered when the damage manifested itself and was discovered during the policy period, not when the causative negligence took place. 

   Here, the Burkarts first noticed water leaking on September 26, 2002. The Burkarts did not become aware that the leaks, and subsequent damage, were the result of the absence of a secondary water barrier until 2004. All of these events transpired after the Scottsdale policy expired on August 1, 2002. Because the property damage did not manifest until after the expiration of Scottsdale's policy, the Burkarts' alleged property damage did not occur during the policy period. 

Discovery Requests in Bad Faith Litigation Considered by Court

   The federal district court considered a variety of discovery requests by the insured in a bad faith case against State Farm. Stephens v. State Farm Fire and Cas. Co., 2015 WL 1638516 (M.D. Pa. April 13, 2015). 

   The insured plaintiff was a quadriplegic. His complaint alleged that he notified State Farm, through its agent, that he would have to leave his residence for medical treatment and intended to rent the home while he received care for his disabling condition. The complaint further alleged that the insured was told by State Farm's agent that his insurance would remain unaffected by his departure while he sought medical care. Nevertheless, when the insured reported loss due to vandalism and water damage at his home, State Farm relied upon his departure from the residence to cancel his insurance.

   In discovery, the insured requested three categories of documents from State Farm. First, he requested State Farm's claims manuals, guidelines and instructions materials relating to insurance claims like those made by this insured. Second, the plaintiff requested performance reviews and performance incentive programs for all of State Farm's employees who played a role in decisions in this case from 2009 to the present. Finally, the plaintiff demanded that State Farm compile information relating to other insurance lawsuits brought against State Farm involving theft, vandalism and water damage claims, as well as all lawsuits or complaints regarding the conduct of this particular claims adjuster. When the materials were not produced, plaintiff filed a motion to compel.

   The court first ruled that portions of the claims manuals, guidelines and instructions materials relating to insurance claims like those made by plaintiff for 2012 and 2013, the years at issue in this lawsuit, should be produced.

   Regarding the request for personnel files, there was a strong public policy against disclosure of such materials. The court found the requests were too broad. However, the conduct of the adjuster in this case was squarely at issue. Therefore, to the extent that the personnel files of the adjuster contained disciplinary findings or other material relevant to other claims of bad faith conduct, these materials would be provided to the court for an in camera inspection to determine whether they were relevant to the issues in the litigation.

   Finally, the request for other lawsuits involving theft, vandalism and water damage claims was denied. However, the request for information pertaining to the claims adjuster in this case was potentially relevant. Therefore, prior lawsuits or complaints alleging bad faith by this particular claims adjuster in the two years preceding the loss were to be provided to the court for an in camera inspection to determine whether the information was relevant.