Insurance Law Hawaii

Flood Insurance Claim Filed in State Court Properly Dismissed

   The insureds' claim for flood coverage filed in state court was properly dismissed by the trial court. Rodriguez-Roble v. Am. Nat'l Prop. & Cas. Co., 2015 La. App LEXIS 1810 (La. Ct. App. Sept. 23, 2015).

   The insureds' home was damaged by wind, rain and flood water during Hurricane Isac. The insureds provided to American National what they contended was satisfactory proof of their claim. American National failed to make any offers to resolve the claim.

   The insureds sued in state court, seeking damages under the policy and penalties for American National's alleged bad faith in failing to settle or pay the claim. American National moved to dismiss, arguing that the state court did not have subject matter jurisdiction. American National further argued that under the National Flood Insurance Program, the federal courts had exclusive jurisdiction over the denial and adjustment of flood insurance claims. The trial court agreed that the flood insurance policy was governed by federal law. 

   The appellate court affirmed. Because a flood insurance policy was codified under federal law, an insured was charged with knowledge of a flood insurance policy's contents even if the insured never received a copy of the policy. Federal courts had exclusive jurisdiction over disputes regarding the denial and adjustment of flood claims. Here, the insureds could not avoid the federal courts' original exclusive jurisdiction over their claims based upon their alleged lack of understanding that their policy was part of a "federal program."

Expert Excluded After Never Viewing Damaged Property

   Plaintiff's expert was excluded for never having seen the property. Wehman v. State Farm Fire and Casualty Co., 2015 U.S. Dist. LEXIS 117445 (D. N.J. Sept. 3, 2015).

   Plaintiff's home was damaged by Superstorm Sandy on October 29, 2012. He reported his loss to State Farm on Octorber 25, 2013, claiming that some roof shingles had come loose during the storm. No other damage was reported. An investigator for State Farm visited the property. The investigator determined that the damage to the roof was not caused by Sandy, but by age, wear and tear, all of which were excluded causes under the policy. Plaintiff informed the investigator there was no damage to the interior of the home and denied the investigator's request to enter the house to inspect.

   Plaintiff then sued State Farm for breach of contract and bad faith. Plaintiff designated Timothy Fife of Gulf Coast Estimating Services as his expert in the litigation. Fife's estimate of damages consisted of twelve pages of allegedly required repairs for both the interior and exterior of Plaintiff's property totaling $86,351.01. Fife never visited the property to inspect and never spoke with Plaintiff regarding the condition of the property prior to Sandy or the damage allegedly caused by Sandy. Instead, Fife relied upon an inspection conducted by someone else.

   State Farm moved to strike Mr. Fife's estimate and opinions. State Farm argued that Fife's estimate was unreliable because it was prepared without any knowledge of the condition of the property prior to Sandy or the weather conditions to which the property was subjected during Sandy. Further, Mr. Fife failed to distinguish between damage caused by Sandy and preexisting damage to the property. 

   Plaintiff contended that Mr. Fife employed someone to photograph the home, reviewed the photographs, and entered his calculations into an industry-accepted computer program to generate an estimate. The court excluded the Fife estimate because Plaintiff failed to prove it should be permitted under FRE 702 and Daubert.

   Mr. Fife did not explain what let him to conclude that the damage to Plaintiff's property resulted from conditions that occurred during Sandy rather than from other sources of damage, such as wear and tear and deterioration. Without inspecting Plaintiff's property, Mr. Fife's conclusion that the listed damage to Plaintiff's property was caused by Sandy was speculative and offered little more than the mere possibiltiiy that Sandy caused damage to Plaintiff's property. 

Insurer Must Indemnify Additional Insured After Settlement

   The court determined that Target was an additional insured under its supplier's policy and the insurer had a duty to indemnify Target after it settled the underlying suit. Selective Ins. Co. v. Target Corp., 2015 U.S. Dist. LEXIS 123230 (E.D. Ill. Sept. 15, 2015).

   Angela Brown sued Target when she was allegedly injured by a door to a fitting room that came unhinged and fell on her head. Harbor Industries, Inc. supplied Target with its fitting rooms. Pursuant to the "Supplier Qualification Agreement" (SQA), Harbor named Target as an additional insured under its policy with Selective Insurance Company. The SQA became effective and was to remain in effect until terminated by either party. A second agreement, the "Program Agreement," set forth the terms under which Harbor sold the fitting rooms to Target. The Program Agreement went into effect on April 23, 2009, and expired on July 1, 2010. Brown's injury occurred on December 17, 2011, while the SQA and the policy were in effect, but after the Program Agreement expired.

   After Brown's injury, Target tendered to Selective, who denied coverage, contending Target was not an additional insured. The policy's endorsement expanded insureds to any additional insured whom Harbor agreed in a written contract to add as an additional insured. Selective filed suit and the parties filed cross-motions for summary judgment. 

   Selective first argued that there was no written contract between the parties under which Target was to be added as an additional insured. Selective submitted that the Program Agreement expired before the policy was in effect and before Brown's injury. The court rejected this agreement because the SQA, not the Purchase Agreement, required Harbor to name Target as an additional insured. There was no conflict between the two agreements. When the Program Agreement expired, Target was no longer obligated to purchase its fitting room requirements from Harbor, and Harbor was no longer obligated to provide them. The SQA remained in effect, however, and would be incorporated into any future agreements. It would continue to require Harbor to name Target as an additional insured. Therefore, the SQA satisfied the policy's requirement that Harbor's policy name Target as an additional insured.

   Next, Selective argued that the endorsement covered liability "for bodily injury caused in whole or in part by [Harbor's] product." Selective argued that because Brown claimed Target was negligent, her lawsuit did not assert liability "caused by" Harbor's "product." The court found, however, that Brown's allegations fell within the scope of the policy and her injury was caused by Harbor's product.

    Selective also argued a fitting room was not a "product." The court disagreed. The Merriam-Webster definition for "product" was "something that is made or grown or to be sold or used." Here, the fitting rooms made by Harbor, sold to Target, and used by Brown, fell within the definition. 

   Finally, upon review of the record, the court was satisfied that there was sufficient evidence to support a reasonable anticipation of liability under Selective's policy.Therefore, Selective had to indemnify Target for the amount of the settlement.

Hawaii Supreme Court Finds Excess Can Sue Primary for Equitable Subrogation

   In responding to a certified question from the U.S. District Court, the Hawaii Supreme Court determined that an excess carrier can sue the primary carrier for failure to settle a claim in bad faith within primary limits. St. Paul Fire & Marine Ins. Co. v. Liberty Mut. Ins. Co., 135 Haw. 449 (2015). 

   St. Paul, the excess carrier, and Liberty Mutual, the primary carrier, issued polices to Pleasant Travel Service, Inc. The primary policy covered up to $1 million. 

   Pleasant Travel was sued for damages resulting from an accidental death. St. Paul alleged that Liberty Mutual rejected multiple pretrial settlement offers within the $1 million primary policy limit. A trial resulted in a verdict of $4.1 million against Pleasant Travel. The action settled for a confidential amount in excess of the Liberty Mutual policy limit. St. Paul paid the amount in excess.

   St. Paul then sued Liberty Mutual, alleging that Liberty Mutual acted in bad faith by rejecting multiple settlement offers within policy limits. Liberty Mutual moved for judgment on the pleadings, arguing St. Paul lacked standing to assert a claim for bad faith and that St. Paul had no claim against Liberty Mutual for equitable subrogation. The result of the motion was a certified question to the Hawaii Supreme Court.

   In an opinion by its newest justice, Justice Wilson, the Supreme Court held that St. Paul could bring a cause of action as an excess insurer against Liberty Mutual, the primary insurer, under the doctrine of equitable subrogation. Hawaii had long recognized the doctrine of equitable subrogation as an appropriate remedy when equity so demanded. 

   Nevertheless, Liberty Mutual argued that St. Paul's claim should be dismissed because St. Paul had not paid a debt or satisfied some liability for which another party was primarily responsible. Liberty Mutual had defended Pleasant Travel against the accidental death claim and paid its policy limits. Accordingly, St. Paul did not pay for Liberty Mutual's liability but discharged its own contractual obligations to Pleasant Travel.

   The Court responded by noting that Liberty Mutual, as the primary insurer, had an obligation to Pleasant Travel to pursue settlement. A breach of this duty included an insurer's unreasonable refusal to settle a claim on behalf of the insured. 

   Liberty Mutual also argued that St. Paul could not subrogate to the rights of Pleasant Travel. Pleasant Travel never faced direct liability for the amount of the verdict in excess of Liberty Mutual's policy limits because any such amount was within St. Paul's liability limit. Equitable subrogation, however, could be applied even without any showing that the insured had suffered any loss. Further, because an insured could recover from a primary insurer that refused reasonable settlement offers, the excess carrier, who discharged the insured's liability, stood in the shoes of the insured and was permitted to assert all claims against the primary carrier which the insured itself could have asserted. 

   The Hawaii Supreme Court canvassed decisions across the country and noted that the majority of jurisdictions have held that an excess insurer could seek relief from a primary insurer under equitable subrogation. 

   Finally, the public interest in encouraging reasonable settlement was best served by permitting an excess insurer to seek relief under the doctrine of equitable subrogation. 

   The St. Paul case nicely dovetails a prior decision by the federal district court, Northfield Ins. Co. v. Hoje Constr., et al., CV No. 05-00362SPK/LEK (D. Haw. Nov. 7 2005). There, the insurer sought a declaratory judgment on coverage obligations, but did not join all of the excess carriers, presumably because diversity jurisdiction would be destroyed. The insured moved to dismiss because all insurers were necessary and indispensable parties for deciding coverage obligations. Judge King agreed and granted the motion. St. Paul confirms the Hawaii Supreme Court's approval of the logic in Northfield and provides further ammunition for an insured bringing all carriers into one action to decide coverage obligations at one time.

    Thanks to fellow Damon Key blogger Mark Murakami (www.hawaiioceanlaw.com.) for notice of this case.

Additional Insured Not Entitled to Reimbursement of Defense Costs Paid by Other Insurers

   Con Edison ("Con Ed") was unsuccessful in arguing for defense costs that had already been paid by other insurers. Consol. Edison Co. of N.Y. v. Lexington Ins. Co., 2015 U.S. Dist. LEXIS 121573 (S.D. N.Y. Sept. 9, 2015).

   Team, Inc. was under contract with Con Ed to provide repairs to the steam system running below the streets of New York City. The contract required Team to indemnify Con Ed for all claims resulting from personal injury or property damage connected to Team's work. Team also obtained a CGL policy naming Con Ed as an additional insured. The policy was to provide primary coverage. Any insured was responsible for the first $250,000 of costs for investigation and/or defense.

   On July 1, 2007, a steam distribution main, on which Team had finished working, ruptured, creating a huge crater and sending steam and debris, including asbestos insulation, into the surrounding area. The rupture caused substantial damage to nearby buildings, vehicles and underground infrastructure. It also caused personal injury, including two individuals in a tow truck that fell into the crater and a woman who suffered a fatal heart attack while running from the explosion. 

   Forty-five lawsuits were filed against Con Ed. Con Ed notified Team, and Team provided notice to Lexington. Team refused to defend or indemnify because Con Ed's negligence caused the explosion. 

   Lexington conducted an investigation and issued a reservation of rights letter on October 6, 2008, agreeing to provide a defense. Nevertheless, Con Ed did not permit Lexington to defend the lawsuits. Con Ed retained its own outside counsel and had in-house counsel do some of the work. Con Ed did not comply with Lexington's request for copies of complaints and defense cost invoices. Lexington made requests for information in October 2008, July 2009 and March 2010. Con Ed did not provide Lexington with information until July 21, 2011. 

   During those years, Con Ed had over $50 million in legal fees. But other insurers paid these defense costs. The first layer of excess coverage was triggered when Con Ed satisfied a self-insured retention of $5 million. The excess carrier then paid over $35 million in defense costs. The second layer of excess coverage then began paying defense costs, which eventually totaled over $17 million. 

  Neither excess layer reimbursed Con Ed for the $5 million self-insured retention nor for the cost of Con Ed's in-house counsel. On May 4, 2011, Lexington paid its policy limit of $2 million to Con Ed. Lexington was released from liability for defense costs incurred from and after the date of release, but Con Ed retained the right to reimbursement for reasonable defense costs incurred in connection with the claims and litigation.

   Con Ed then sent Lexington defense invoices for $4.7 million for defense costs in 2007. Con Ed later sent invoices for 2008 ($9.5 million), 2009 ($4 million), 2010 ($4.1 million), and 2011 ($2.5 million). Lexington refused to pay on these invoices.

   Suit was filed and Lexington moved for summary judgment, seeking to dismiss Con Ed's claims for any defense costs that were reimbursed by the excess carriers. Lexington also sought summary judgment for the rest of Con Ed's unreimbursed out-of-pocket defense costs.

   The court granted summary judgment to Lexington on reimbursement of defense costs already reimbursed. An insured could not obtain reimbursement for defense costs from one insurer that had already been reimbursed by another insurer. Con Ed had not been damaged and had no claim for reimbursement from Lexington.

   The court also granted summary judgment to Lexington on the $5 million in self-insured retention and the costs of Con Ed's in-house counsel. The Lexington policy had a "voluntary payments" provision stating that the insured could not make any payment without the insurer's consent.Although Lexington did not raise this issue as an affirmative defense, Con Ed failed to plead a claim for these costs in its complaint. It was too late for Con Ed to amend. 

Testimony from Insureds' Expert Limited By Motion In Limine

   The court considered the scope of testimony to be offered by the insureds' expert regarding a policy written for sanitation districts. Binghamton-Johnson City Joint Sewage Bd. v. Am. Alternative Ins. Corp., 2015 U.S. Dist. LEXIS 112210 (N.D. N.Y. Aug. 25, 2015).

  The city of Binghamton and the city's Sewage Board sued American Alternative Insurance Corporation (AAIC) for coverage for a collapsed wall. AAIC sought the limit to testimony of the insureds' expert, Paul B. Nielander, through a motion in limine.

    AAIC argued that Nielander was not qualified as an expert in interpreting insurance policies. His knowledge and experience was limited to insurance practices in other states and the words contained in policies other than AAIC policies. He had no experience with (i) negotiating, drafting, or performing under an AAIC policy, (ii) handling claims or interpreting policies written in New York State,  or (iii) drafting policies or otherwise participating in what he conceded was a "niche market" of providing insurance to sanitation districts. Further, Neilander was not qualified to offer expert analysis of when the structural failure of the wall occurred because he had no training or experience as an engineer.

   The court granted in part, denied in part, AAIC's motion in limine. Mr. Nielander's testimony would be limited to assisting the jury in (a) understanding the general standard practices and customs of the insurance business, (b) understanding how this particular policy was structured and how its provisions related to each other, and (c) understanding what any ambiguous terms in the policy were typically understood to mean in other insurance policies. 

   Mr. Neilander's testimony would otherwise be precluded. He would not be permitted to testify as to the usage of the terms "all risk," "ensuing loss" and/or "collapse" in standard insurance policies. Nor could he testify on how standard form ISO policies compared to the AAIC policy here. Further, he could not testify what the customs, practices or standards were in the industry of insuring sanitation districts. Finally, Mr. Neilander could not testify on when the structural failure of the wall occurred, or what the cause of the collapse was. 

Conflicting Exclusions Result in Duty to Defend

   The Seventh Circuit affirmed the district court's finding that the insurer had a duty to defend in light of conflicting endorsements in the policy. Panfil v. Nautilus Ins. Co., 2015 U.S. App. LEXIS 14621 (7th Cir. Aug. 20, 2015). 

   JRJ Ada, LLC was a contractor. JRJ's two members, Joe Panfil and Renee Michelon, had a CGL policy with Nautilus. The employee of JRJ's subcontractor, Astro Insulation, fell through a hole while performing insulation work, injuring himself. The employee sued JRJ, who sought a defense from Nautilus. Nautilus refused to defend because JRJ was not an insured under the policy. Further, Nautilus relied upon the policy's Contractor-Subcontrated Work Endorsement and Employee Exclusion to deny coverage.

   Panfil and Michelon sued Nautilus. Cross-motions for summary judgment were filed and the court granted plaitniffs' motion while denying Nautilus' motion. The district court first found that the policy should be reformed to inlcude JRJ as an insured. Nautilus did not appeal this determination. The court also found that Nautilus breached its duty to defend and was therefore estopped from asserting policy defenses to coverage.

   On appeal, the Seventh Circuit considered the two exclusions. The Contractor-Subcontracted Work Endorsement exclusion stated: "This insurance does not apply to 'bodily injury' . . . arising out of work performed by any contractors or subcontractors unless such work is being performed specifically and solely for you."

   The Employee Exclusion barred coverage for"'bodily injury' to any 'employee' of any insured arising out of and in the courts of employemnt by any insured." "Employee" was defined as "any person who provides services directly or indirectly to any insured . . . including but not limited to . . . a contractor, a subcontractor . . . and any person . . . hired by . . . employed by . . . any insured . . . ."

   Nautilus argued that coverage was excluded by the Employee Exclusion. The employee of a subcontractor was injured during the course of his employment. The plaintiffs argued the Employee Exclusion  could not be considered alone, but must be read with all the terms of the policy, including the Contractor-Subcontracted Work Endorsement. The plaintiffs submitted that the Contractor-Subcontracted Work Endorsement excluded coverage unless "work is performed specifically and solely" for the insured. Since the injury arose out of work performed by a subcontractor who was working specifically and solely for JRJ, plaintiffs argued that the Employee Exclusions seemingly precluded coverage completely while the Contractor-Subcontracted Work Endorsement preserved coverage for specific occurrences like the one in the underlying lawsuit.

   The court agreed. As the drafter, Nautilus could have written the policy to make clear that the Contractor-Subcontracted Work Endorsement preserved coverage for bodily injury to non-employees only. It did not do so. Therefore, the two provisions conflicted and the ambiguity was resolved in favor of JRJ.  

Sixth Circuit Finds No Coverage for Property Damage Caused by Faulty Workmanship

   The Sixth Circuit affirmed the lower court's order granting summary judgment to the insurer who denied a defense for a construction defect claim. Steel Supply & Eng'g Co. v. Illinois Nat'. Ins. Co., 2015 U.S. App. LEXIS 14363 (6th Cir. Aug. 13, 2015). 

   Steel Supply contracted with the Carmel Redevelopment Corporation to fabricate and erect steel for a construction project in Carmel, Indiana. After the steel was erected, an iron worker at the site discovered defects in the steel. Subsequent investigations revealed additional defects. 

   Carmel filed suit against Steel Supply for breach of contract. The complaint alleged that a critical connection that Steel Supply designed was inadequate to handle the forces coming onto it. Carmel claimed that the immediate need to remediate the steel damaged Carmel directly, and that other contractors sought damages from Carmel for harm caused by the delays.

   Illinois National initially assumed the defense of Steel Supply, but later withdrew the defense. Supply Steel then sued Illinois National. The district court granted summary judgment to Illinois National.

   In applying Michigan law, the Sixth Circuit affirmed. As a general matter, mere faulty workmanship did not constitute an occurrence. Michigan courts, however, recognized an exception: even mere faulty workmanship constituted an "occurrence" if it harmed a third party's property. 

   Steel Supply argued the exception applied here. First, it argued that photographs showed that the Steel Supply's faulty workmanship did damage property that belonged to neither Steel Supply or Carmel. Second, Carmel was suing for reimbursement for that damage by seeking fees for various professionals. 

   Both arguments failed. Here, there was no record that a third party sought contribution from Carmel. The underlying complaint did not explicitly claim reimbursement for any specific damage to third-party property. The photographs on which Steel Supply relied upon to prove damage did not show a causal nexus between damage and Steel Supply's work.