Insurance Law Hawaii

Contractual Indemnity is Not Form of Other Insurance

   The insurer's argument that a contractual indemnity provision in favor of the insured acted as an "other insurance" provision failed before the Fifth Circuit. Cameron Int'l Corp. v. Liberty Ins. Underwriters, Inc., 2015 U.S. App. LEXIS 20115 (5th Cir. Nov. 19, 2015).

   In an insurance dispute arising out of the Deepwater Horizon oil spill in the Gulf of Mexico, Liberty was an excess carrier for Cameron. Liberty covered $50 million in excess of policies covering the first $100 million in losses. Cameron was the manufacturer of the blowout preventer used on the Deepwater Horizon. After the spill, Cameron settled with BP, the well owner, and then sought indemnity from Liberty to help cover the settlement costs. 

   BP contracted with Transocean, which owned the Deepwater Horizon, to drill the well and to indemnify Transocean for liability associated with drilling. Transocean indemnified Cameron for liability associated with the blowout preventer. Accordingly, Cameron was indemnified by Transocean, which was in turn indemnified by BP.

   After the spill, thousands of lawsuits were filed against BP, Transocean, Cameron, and others. When Transocean refused to indemnify, Cameron sued. Transocean sought indemnity from BP and BP refused. BP also sued Cameron, claiming that Cameron was responsible for the losses that BP incurred. Cameron notified Liberty. Liberty neither rejected nor paid the claim.

   The parties discussed settlement. BP agreed to indemnify Cameron in exchange for $250 million, but only if Cameron's insurers agreed to waive their subrogation rights and Cameron agreed to waive its indemnification rights against Transocean. Liberty was the lone insurer for Cameron that objected and declined to offer its policy limits. Liberty did not agree to a settlement that waived its subrogation rights and Cameron's indemnification rights against Transcoean, leaving Liberty on the hook for $50 million. Liberty also argued the other insurance provision in its policy meant that its obligation to pay had not yet been triggered. The clause provided that "if other insurance applies to a loss that is also covered b this policy, this policy will apply excess of such other insurance." 

   Cameron settled nonetheless, putting up $50 million of its own money in addition to the $200 million from its other insurers. 

   Cameron then sued Liberty. The district court granted Cameron a $50 million judgment on its breach of contract action.

   On appeal, Liberty argued Cameron had not exhausted the indemnification agreement with Transocean or obtained a judicial determination that it was not entitled to indemnification. Cameron responded that its indemnity claim against Transocean did not apply to its loss because Transocean refused Cameron's demands for indemnification. Cameron also argued that its indemnity claim against Transocean was not "other insurance" under the policy.

   The court agreed with Cameron's interpretation. The policy did not specifically reference Cameron's indemnity agreement with Transocean, nor did it require Cameron to maintain any such agreement. The other insurance provision did not require that Cameron exhaustively litigate other potential sources of coverage before Liberty's payment obligation was triggered.

   Liberty further argued Cameron forfeited its right to coverage by breaching the policy's subrogation clause in settling with BP. But because Liberty breached the contract by wrongfully denying coverage, it waived its rights under the subrogation clause before Cameron settled. Liberty's interpretation of the other insurance provision was erroneous. It also violated the policy's requirement to "promptly pay" Cameron's claim.

Sale of Illegal Wheat Not Intentional Act

      Unknowingly making an illegal sale of wheat seed to an undercover investigator was not an intentional act barring coverage. Parker v. Farm Bureau Prop. & Cas. Ins. Co., 2015 U.S. Dist. LEXIS 15273 (D. Kansas Nov. 16, 2015). 

       Parker was the co-owner of D&B Parker Farms, LLC. He held a property and liability policy from Farm Bureau. The policy covered personal injury/advertising injury, which provided coverage for injuries caused by infringement or misappropriation of copyright, trademark, title, or disparagement of an organization's goods or products.

   In September 2013, Parker advertised wheat seed for sale. The advertisement stated that the wheat consisted of a three-variety blend, including the Fuller variety. Parker did not know that the Fuller variety was a federally protected variety under the Plant Variety Protection Act ("PVPA"). Further, Parker did not know of the existence of the PVPA or the protections that it granted to owners of varieties of seed wheat. The Kansas Wheat Alliance ("KWA") held a certificate giving it the exclusive license to make, use and sell the Fuller variety of wheat.

   KWA hired an investigator who purchased 172 bushels of wheat from Parker. KWA subsequently sued Parker and D&B Parker Farms for treble damages pursuant to the PVPA. Parker tendered the defense to Farm Bureau, who denied coverage and refused to defend.

   In the coverage suit that followed, Farm Bureau moved to dismiss the complaint. Farm Bureau's policy contained an "intentional act" exclusion which provided in part: "There is no coverage for any loss [or] damage . . . arising out of any act which is expected or intended by an insured to cause injury to any person or damage to any property belonging to . . . others." Farm Bureau argued the PVPA claims fell within the exclusion because the insureds voluntarily and intentionally advertised and sold Fuller variety wheat seed. The court rejected this interpretation as inconsistent with the plain language of the exclusion.

   There was no doubt that the insureds intentionally advertised and sold Fuller wheat seed. But the focus of the exclusion was on whether the insured expected or intended to cause an injury, not on whether the insured intentionally did something that resulted in injury. Having never heard of the PVPA, the insureds clearly did not expect or intend their sales of Fuller wheat to cause injury to someone else's property. Nor could it be said that injury to another's property was substantially certain to result from the nature of the insureds' actions. Engaging in a sale of wheat without knowledge that another person had a protected property interest in that variety could not reasonably be characterized as causing "an expected or intended injury."

   Therefore, the motion to dismiss was denied.

Indemnity Provision Provides Relief to Contractor; Additional Insured Provision Does Not

   The court found that the contractor was entitled to relief under the contractual indemnity provision, but not the policy's additional insured clause. Chatelain v. Fluor Daniel Constr. Co., 2015 La. App. LEXIS 2257 (Ct. App. La. Nov. 10, 2015). 

   Following Hurricanes Katrina and Rita, FEMA retained Fluor Enterprises, Inc. as a contractor to transport and install FEMA trailers. Fluor entered a Blanket Ordering Agreement (BOA) with Bobby Reavis Contracting, Inc. to transport and install the trailers. The BOA provided Reavis would defend and indemnify Fluor from all liability arising from the subcontractor's work. Reavis also agreed to name Fluor as an additional insured under its CGL policy. 

   Reavis installed a FEMA trailer for Connie Chatelain. Ms. Chatelain was injured when she fell exiting her FEMA trailer. She sued Fluor and Reavis. Fluor tendered the suit to Reavis and Reavis' insurer, Guilford Insurance Company. The tender was rejected and Fluor filed a third-party action demanding indemnification, reimbursement of all legal expenses and damages for insurer misconduct. 

   Guilford settled Ms. Chatelain's claims. The remaining parties filed cross-motions for summary judgment. The trial court granted Reavis' and Guildord's motions and dismissed Fluor's claims. 

   Regarding indemnity under the BOA, the court of appeals noted that Reavis agreed to indemnify for "Injury or death of persons . . . arising directly or indirectly out of the acts or omissions to act of Contractor [Reavis] . . . in the performance of the Work." In granting summary judgment to Reavis, the trial court interpreted the BOA to limit Reavis' defenses and indemnity obligations to liability arising out of Reavis' acts and omissions in the performance of its work as imposing a temporal requirement. Therefore, the language limited those obligations to claims arising during Reavis' performance of its transportation and installation of Ms. Chatelain's trailer. Fluor contended that this interpretation ignored the actual contract language. 

   Ms. Chatelain alleged that her injury resulted from defects and deficiencies in the prefabricated steps installed in her FEMA trailer. Reavis selected,  purchased, and installed those steps as part of its performance for Fluor under the BOA. But for Reavis' performance of its work under the BOA, the injury would not have occurred. The requirement of a minimal causal connection between Reavis' work under the BOA and Ms. Chatelain's injury was satisfied.

   The analysis of the Additional Insured Endorsement led to a different result. The Endorsement provided coverage to Fluor for "liability arising out of your [Fluor's] ongoing operations performed for that insured [Reavis]." The Endorsement excluded any coverage to Fluor if it was negligent. Ms. Chatelain alleged in her petition that Fluor's negligence was the cause of her accident. The uncontroverted testimony was that the work on the trailer was completed, inspected, and approved by Flour six months prior to the accident. Therefore, the trial court determined that the Additional Insured Endorsement was no longer in effect at the time  of the accident. The policy only provided coverage for the additional insured during the "ongoing operations." 

   Fluor argued that when Ms. Chatelain was injured, the contract between it and Reavis remained in effect. Pursuant to the contract, Reavis was still actively transporting and installing trailers.

   The court sided with the insurer. Given that ongoing operations could not encompass liability arising after the insured's work was completed, Fluor's claims arising out of Ms. Chatelain's injury could not be covered under the Endorsement. Reavis' work on the trailer was completed and accepted by Fluor at the time of Ms. Chatelain's injury.

C. Brewer Case In Top 10 Coverage Cases for 2015

   A national publication, "Coverage Opinions," determined that the Hawaii Supreme Court's decision in C. Brewer and Co., Ltd. v. Marine Indemnity Ins. Co., 135 Haw. 190, 347 P.3d 163 (Haw. 2015) was one of the top ten coverage decisions in 2015. The review is here. 

   We summarized the C. Brewer case here. The case addressed the implications of the Designated Premises Endorsement regarding the breach of the Kaloko Dam in 2006, resulting in seven deaths and multiple property damage down stream.

   The case has been remanded to the Circuit Court on Kauai. By way of full disclosure, our office handled the C. Brewer appeals to the Hawaii Intermediate Court of Appeals and the Hawaii Supreme Court.

Insurer's Right to Repair Questioned, Successfully Challenged

   When the insurer opted to repair the insured's damaged property, the insurer did not agree with the scope of the repairs. The Florida Court of Appeal reversed the trial court's dismissal of the insured's lawsuit challenging the extent of the repairs. Robinson v. Florida Peninsula Ins. Co., 2015 LEXIS 16983 (Fla. Ct. App. Nov. 12, 2015). 

   Robinson's homeowner's policy provided Florida Peninsula Insurance Company (FPIC) an option to repair damaged property rather than make a cash payment. Robinson reported damage to his home and FPIC determined the loss was covered. FPIC exercised its option to repair and attempted to coordinate repairs through its contractor. Robinson questioned the scope and sufficiency of the contractor's proposed repairs and requested an appraisal. FPIC did not respond and eventually denied coverage because of Robinson's refusal to allow the contractor to complete the proposed repairs. Robinson eventually completed the repairs at his own expense.

   Robinson filed suit, seeking a declaratory judgment as to whether FPIC properly exercised its option to repair, whether he was required to allow FPIC's contractor to repair his home without agreeing to the proposed repairs, and whether FPIC was entitled to deny coverage when he disputed the scope of the proposed repairs. FPIC filed a motion to abate the action and compel Robinson to comply with its right to repair his property. The trial court granted the motion.

   The appellate court reversed. If Robinson had completed the repairs, the abatement would likely be indefinite, even though FPIC conceded that Robinson was entitled to a monetary judgment at least in the amount of its contractor's estimate. Robinson could also be entitled to dispute the amount of the estimate.

No Coverage for Additional Insured

    Two insurers disputed who was responsible for coverage the additional insured contractor. Endurance Am. Spec. Ins. Co. v. Century Sur. Co., 2015 U.S. App. LEXIS 19194 (2nd Cir. Nov. 4, 2015). The district court granted summary judgment to Endurance, finding there was coverage for the additional insured general contractor after being sued by an employee of a subcontractor.

   Century's policy included an Action Over Exclusion clause, which excluded insurance coverage for injury to certain employees as follows:

Exclusions:

. . . 

e. Employer's Liability

"Bodily injury" to:

(1) an "employee" of the named insured arising out of and in the course of:

    (a) Employment by the named insured; or

    (b) Performing duties related to the conduct of the named insured's business.

The named insured was Pinnacle Construction & Renovation Corp.

   Coverage was sought for the defense of the general contractor, Hayden Building Maintenance Corporation, for injury to an employee of the subcontractor/insured, Pinnacle. The policy, however, unambiguously excluded coverage for Hayden due to injuries to Pinnacle's employee.

   Endurance argued that the Separation of Insureds provision required the court to read the Action Over Exclusion provision from the perspective of the particular insured seeking coverage. The Separation of Insureds provision stated that:

[T]his insurance applies:

a. As if each Named Insured were the only Named Insured; and

b. Separately to each insured against whom a claim is made or "suit" is brought.

Therefore, Endurance argued that "the named insured" in the Action Over Exclusion provision should be replaced with "Hayden," because "this insurance applies . . . [s]eparately to each insured." Because the injured victim was not an employee of Hayden, Endurance contended that the policy would not exclude coverage to Hayden for the employee's injuries.

   The court determined that this logic would apply if the Action Over Exclusion clause used the language "the insured" rather than "the named insured." Then, the provision would be read to replace "the insured" with "Hayden," because Hayden was seeking coverage. But here, the Action Over Exclusion clause stated "the named insured." Therefore, the district court erred in reading "Hayden" into the words "the named insured" in the Action Over Exclusion. The judgment of the district court was reversed.

   

Stacking of Service Interruption and Contingent Business Interruption Coverages Permitted

   The court found that stacking of interruption coverages was allowed based up the language of the policy. Lion Oil Co. v. Nat'l Union Fire Ins. Co., 2015 U.S. Dist. LEXIS 148261 (W.D. Ark. Nov. 2, 2015).

    The insured's oil line was ruptured, causing an interruption of crude oil delivery service. The insured held policies issued by National Union.

   The policies included multiple time element extensions. One extension related to Service Interruption which promised to insure against loss for:

Service Interruption: electrical, steam, gas, water, sewer, incoming or outgoing voice, data, or video, or an other utility or service transmission lines and related plants, substations and equipment situated on or outside of the premises.

Both parties agreed that the service interruption provision was unambiguous and that the court should give effect to the plain language of the policy.

    None of the terms found in the service interruption provision, however, were defined by the policies. The insured argued that the ordinary meaning of the term "transmission line" included a crude oil pipeline and that the ordinary meaning of the term "service" included the delivery of oil. Therefore, the rupture triggered the service interruption provision because its losses resulted from the interruption of crude oil delivery service via the transmission line.

   The court agreed with the proposed meaning of "transmission line." A crude oil pipeline transmitted oil from one place to another. Thus, the plain and ordinary meaning of "transmission line" included a crude oil pipeline. The plain and ordinary meaning of "service," however, was more complex. "Service" could mean "useful labor that does not provide a tangible commodity," which would support the insured's interpretation of the service interruption provision. "Service" could also mean "a facility supplying some public demand," which would support National Union's interpretation. Because the term "service" was susceptible to more than one reasonable interpretation, the Court found that the service interruption provision's language was ambiguous.

    Accordingly, the terms "transmission lines" and "service" included a crude oil pipeline and the delivery of oil. Thus, the service interruption provision covered losses resulting from the interruption of crude oil delivery service to the insured's refinery.

   Turning to the stacking issue, in addition to the time element extension that covered service interruption, the policies also provided an extension that covered contingent business interruption. The issue was whether the policies, which provide service interruption coverage of $25 million and contingent business interruption coverage of $25 million, provided an aggregate coverage of $50 million or a coverage limited solely to $25 million.

   The policies did not contain an anti-stacking provision. There was no language that restricted the number of coverage grants or sub-limits that applied to a given occurrence. National Union argued that stacking the two coverages would allow a double recovery for the same damages. But the insured suffered a net margin loss that was more than $50 million. Thus, stacking the two coverages would not allow a double recovery because the insured was not seeking to recover an amount that was greater than its actual loss.

   The court was unaware of any case from Arkansas or any other jurisdiction that addressed the propriety of stacking coverages in an all-risk policy. National Union could have prevented the stacking of coverages by including an anti-stacking provision in the policies, but did not do so. 

   Therefore, the service interruption coverage and contingent business interruption coverage in the policies could be "stacked" to provide an aggregate coverage of $50 million.

Eight Years of Blogging in the Books

    This month we hit eight years at this blog. We started in December 2007, 936 posts ago. 101 posts for the past year.

    Two Damon Key blogs pre-date and continue to set the standard for this blog. Robert Thomas has long maintained www.inversecomdemnation.com [here]. And Mark Murakami  started at www.oceanlawhawaiil.com [here] a couple of months before us. Anna Oshiro blogs on construction related issues at www.hawaiiconstructionlaw.com [here].

  Thanks to you the readers for your support again this year. The blog serves as an educational exercise for me, keeping abreast of insurance-related developments in Hawaii and beyond. And hopefully our readers are kept informed, as well. We will keep plugging away in 2016.

No Coverage for Restoring Aesthetic Uniformity

       The court found there was no coverage regarding aesthetic uniformity between new materials installed after water damage occurred and the rest of the building. Great Am. Ins. Co. of New York v. The Towers of Quayside No. 4 Condominium Assoc., Case No. 15-CV-20056-King (U.S. Dist. Ct., S.D. Fla., Nov. 5, 2015).

       The insured's high rise condominium suffered water damage when a valve on the air conditioning unit damaged the drywall, carpeting, baseboards, insulation and wallpaper in the east hallways of the eleventh floor and the floors below. Floors three through twenty-five had a uniform appearance by design with respect to the carpet, wallpaper, and woodwork in the common area hallways.

       The insured submitted a claim under its property policy with Great American. A payment of $170,291.84 was made for damage to the east hallways of the eleventh floor and the floors below. The insured sought coverage to repair or replace undamaged carpeting, wallpaper, baseboards, and woodwork in (1) the west hallways and elevator landings of the eleventh floor and the floors below and in (2) floors twelve through twenty-five.The insured contended that the loss of aesthetic uniformity devalued the building and constituted a loss to the building.

      Great American's policy promised to pay for "direct physical loss from a Covered Cause of loss . . ." Coverage for consequential loss, defined as "delay, loss of use, loss of market, or any other consequential loss," was excluded.

      Great American moved for summary judgment. The court determined that the policy only provided coverage for "direct physical loss," specifically excluded coverage for consequential loss, and made no mention of "matching" or "aesthetic uniformity." While coverage for matching, for the purpose of achieving aesthetic uniformity, was appropriate where repairs concerned the continuous run of an item or adjoining area for materials such as wallpaper, baseboards, woodwork, and carpeting, matching was not otherwise required under the policy.

   Therefore, the court found that Great American was entitled to a declaration that it had no obligation to provide coverage to replace: (1) undamaged components on floors twelve through twenty-five or (2) undamaged carpeting in the west hallways of floors three through eleven. It was unclear, however, whether the wallpaper, baseboards, and woodwork on floors three through eleven formed a continuous run from one end of the building to the other, or whether these components were separated from each other in the same manner the carpeting in the east and west hallways was separated by the central elevator lobby on  each floor. Therefore, Great American had failed to establish it was entitled to summary judgment with respect to whether it had to provide matching coverage for these components.