Insurance Law Hawaii

Accident Established by Res Ipsa Loquitur Is An Occurrence

    The Massachusetts Appeals Court determined that scallops damaged by a cause never determined by the underlying court was sufficient to establish an occurrence under the insured's CGL policy. The Hanover Ins. Group, Inc. v. Raw Seafoods, Inc., 2017 Mass App. LEXIS 49 (Mass. Ct. App. April 26, 2017).

     The insured, Raw Seafoods, Inc. (RSI) had a seafood processing facility. One of RSI's customers, Atlantic Capes Fisheries, Inc., sold scallops and other types of seafood around the world. Atlantic purchased fresh scallops from fishing vessels, then transported the scallops to RSI for processing, portioning, packaging, and freezing. RSI's staff inspected the scallops for quality upon arrival and received processing instructions from Atlantic. After processing, the scallops were transported to Arctic Cold Storage (Arctic). Atlantic then shipped its customers' directly from Arctic's facility.

    In July 2011, scallops were being shipped through Denmark. Upon inspection, the 37,102 pounds of scallops were found to be decomposed, smelled badly, and were deemed unacceptable for human consumption. The scallops were returned to Arctic's facility, where Atlantic and RSI jointly inspected the shipment and confirmed the damage.

    In 2012, Atlantic sued RSI in a complaint that included a negligence count for damage to the scallops. Hanover, RSI's insurer, agreed to defend under a reservation of rights. In the litigation, it was undisputed that the damage occurred while the scallops were in RSI's possession, but the precise cause of the damage was unknown.

    Atlantic was awarded summary judgment based upon res ipsa loquitur because the damage could have only been caused by RSI's negligent handling of the product. Judgment was issued to Atlantic in the amount of $599,790.08.

    Hanover filed suit seeking declaratory judgment that either the damage to the scallops was not caused by an occurrence or the damage to the scallops fell under one or more of the policy's exclusions. The trial court granted summary judgment to Hanover. The court determined that because there was no demonstrated accident distinct from RSI's performance of its work, RSI could not meet its burden of proving that its claimed loss was caused by an "occurrence," as a matter of law.

    On appeal, the court noted that the parties agreed that the cause of the damage was some, as yet,  unknown failure on the part of RSI's plant. Hanover argued that RSI had produced no evidence as to precisely how the scallops were damaged, leaving the actual cause of the damage to speculation and conjecture. Therefore, RSI had no reasonable expectation of proving that the damage was caused by an occurrence and could not survive a motion for summary judgment.

    The appellate court disagreed with Hanover. While the precise cause or mechanics of the damage was unknown, the summary judgment record supported the conclusion that the damage resulted from an unanticipated mishap during RSI's processing operation. Atlantic prevailed in the underlying litigation on the theory of res ipsa loquitur. Therefore, the judgment on Atlantic's negligence claims precluded a subsequent determination of intentional conduct by RSI.

    Whether the policy's exclusions applied or there was a duty to defend could not be established until further proceedings took place in the trial court. Therefore, the judgment was vacated the remanded for further proceedings.

 

Damaging Corn Syrup in Preparation for Transport is An Occurrence

    The insured's involvement in damaging a customer's corn syrup while preparing it to be transported was an occurrence and covered under the CGL policy. Travelers Prop. Cas. Co. of Am. v. United States Container Co., 2017 U.S. App. LEXIS 6602 (3rd Cir. April 18, 2017).

    USA Container supplied industrial containers, logistical services and warehousing to its customers. In 2006, USA Container contracted with Meelunie B.V./ Amsterdam (Meelunie), a corn syrup distributor, to arrange for the transfer of corn syrup from rail cars to drums so they could be shipped overseas to Meelunie's customers. To move the corn syrup from the rail cars to the drums, it had to be heated in accordance with standard operating procedures (SOPs). USA Container contracted with Passaic River Terminal, LLC to perform all of the work necessary to transfer the corn syrup to the drums for transport. Passaic River failed to follow the SOPs, and damaged Meelunie's corn syrup by overheating it. The damage was only discovered after the corn syrup was shipped to Meelunie's customers, who rejected the shipments. 

    Meelunie subsequently sold the corn syrup at a reduced rate. Meelunie demanded that USA Container compensate it for the loss. USA Container tendered the claim to its insurer,Travelers, who denied the claim. USA Container settled with Meelunie and sued Travelers.

    The district court found that under New Jersey law, the policy covered the property damage. Travelers appealed.

    The Third Circuit affirmed. As determined by the district court, the property damage that occurred clearly was an "accident" that "encompassed unintended and unexpected harm caused by negligent conduct." Travelers contended that its policy did not provide coverage to replace or repair defective work. The court disagreed. Under the current case law, the term "occurrence" encompassed unanticipated damage to non-defective property resulting from poor workmanship. 

    Next, Travelers contended that two exclusions, j (6) and n, barred coverage. Exclusion j (6) provided that coverage did not extend to "[t]hat particular part of any property that must be restored, repaired or replaced because 'your work' was incorrectly performed on it." Here, Meelunie's damaged corn syrup was not "restored, repaired, or replaced" as required by the exclusion. 

    Exclusion n addressed precautionary recalls. The corn syrup was never recalled, however, so this exclusion was not relevant. Accordingly, USA Container's loss was covered under the policy. 

 

 

Court Denies Insurers' Motions for Summary Judgment Under All Risk Policies

    The federal district court found that the insurers could not escape coverage by summary judgment under their all risk policies. Eagle Harbour Condo Ass'n v. Allstate Ins. Co., 2017 U.S. Dist. LEXIS 54761 (W.D. Wash. April 10, 2017).

    Eagle Harbour Condominium Association sued several of its insurers who denied coverage for hidden water damage. Various insurers provided coverage from 1988 to 2015.

    The Association asserted that wind-driven rain and inadequate construction allowed water to penetrate the buildings' sheathing and framing, causing decades of deterioration and decay, until the damage was exposed to view in August 2014. The insurers claimed that the loss resulted from poor decisions in constructing and inadequately maintaining a stucco building in the wet and windy Pacific Northwest. The Association argued that the policies did not explicitly exclude damage caused by wind-driven rain, so there was coverage.

    The Association identified four possible efficient proximate causes for its loss: inadequate construction, wind-driven rain, repeated seepage of water, and rot or deterioration. The insurers argued that it was unnecessary to analyze the loss under the efficient proximate cause because no covered peril could have caused the loss. The policies did not cover inadequate construction, wear and tear, rot or deterioration, or repeated seepage of water. The Association countered that wind-driven rain was a distinct and fortuitous peril that none of the policies excluded.

    The court noted that if the predominant cause of the loss was a question of material fact - such as when multiple perils combined to cause insured's damage and at least one but not all were covered - the question of which peril constituted the proximate cause was left to the fact finder.

    The policies excluded "repeated seepage of water." They also excluded specific losses sustained by weather, so long as the weather event worked with an act of law, earth movement, power failure, and other specifically listed events. Rain, not acting with the listed exclusions, was therefore covered, so long as it did not leak into the property for over 14 days in duration.

    Deterioration did not engulf the perils of weather and repeated water seepage either. The policy excluded coverage for deterioration, but not for weather and repeated water seepage.

    The insurers also argued that wind-driven rain was not a fortuitous peril on Bainbridge Island, where rain was common. Therefore, the losses it produced were uncovered. But whether the Association knew hidden damage from wind-driven rain would occur was a question for the jury.

    Consequently, the insurers' motions for summary judgment were denied.

Insurance-Related Bills Survive Hawaii Legislature Session Dominated by Rail

    In a session dominated by the failed attempt to find a solution for further funding of the Honolulu rail project, a few insurance-related measures passed and have been sent to the Governor for signature.

    SB 952 expressly provides that the insurance commissioner has authority to approve long-term care insurance rates, effective January 1, 2018. The bill was sent to the Governor on May 4, 2017. 

    We reported previously on SB 799 here.This bill establishes a three-year parametric disaster insurance pilot program within DAGS to be funded by the interest from the hurricane reserve trust fund. The bill was referred to the Governor on January 23, 2017. 

    SB 387 requires health insurance carriers with a network plan to maintain a network that includes sufficient numbers of appropriate types of providers to ensure that covered persons have access to covered services. The bill specifies contract, disclosure, continuity of care, and directory publication requirements.  The bill awaits the Governor's signature.

    HB 522 establishes the Affordable Health Insurance Working Group to plan for and mitigate adverse effects of the potential repeal of the federal Affordable Care Act by Congress. The bill has been transmitted to the Governor.

    HB 1436 appropriates funds to the Department of Accounting and General Services to update statewide standards for hurricane mitigation and secure a reimbursement grant from the Federal Emergency Management Agency Hazard Mitigation Grant Program. The bill has been transmitted to the Governor.

    SB 953 requires a motor vehicle insurer to pay the applicable general excise tax and certificate of ownership fee when settling with a third-party claimant in a total loss claim. The legislation also ncreases monetary penalties for insurance fraud for a class C felony and misdemeanor. The bill is before the Governor.

    

Texas Supreme Court Clarifies When Insured Entitled to Bad Faith Damages Despite No Coverage

    Returning to its prior decisions addressing bad faith, the Texas Supreme Court sought to clarify when damages are available for bad faith despite there being no coverage under the policy. USAA Tex. Lloyds Co. v. Menchaca, 2017 Tex. Lexis 361 (Tex. Sup. Ct. April 7, 2017).

    After Hurricane Ike struck Galveston Island in September 2008, Gali Menchaca contacted her homeowner's insurance company, USAA Texas Lloyds, and reported damage to her home. USAA sent an adjuster who found only minimal damage. USAA declined to pay Menchaca any benefits because the total estimated repair costs did not exceed the policy's deductible. A second USAA adjuster returned about five months later, but found no additional damage and USAA again failed to pay any policy benefits. Menchaca sued USAA for breach of the policy and for unfair settlement practices in violation of the Texas Insurance Code. For both claims, the damages sought were benefits under the policy and attorneys' fees and costs.

    The jury answered three questions. Question 1 addressed the breach of contract claim and asked whether USAA failed "to comply with the terms of the policy with respect to the claims for damages by Ms. Menchaca." The jury answered "no." Question 2 asked whether USAA engaged in unfair or deceptive practices, including whether USAA refused "to pay a claim without conducting a reasonable investigation." The jury answered, "yes." The third question asked the jury to determine Menchaca's damages that resulted from either USAA's failure to comply with the policy or its statutory violations, calculated as "the difference, if any, between the amount USAA should have paid Menchaca for the damages and the amount she was actually paid." The jury awarded $11,350.

    Both parties moved for judgment in their favor based on the jury's verdict. The trial court disregarded Question 1 and entered final judgment in Menchaca's favor based on the jury's answers to Questions 2 and 3. The court of appeals affirmed.

    On appeal, the Texas Supreme Court noted that the primary question was whether an insured can recover policy benefits as actual damages caused by an insurer's statutory violation absent a finding that the insured had a contractual right to the benefits under the policy. Generally, the answer was "no," but the issue was complicated and involved several related questions. The court looked back to its prior decisions and listed five distinct but interrelated rules that governed the relationship between contractual and extra-contractual claims in the insurance context.

    First, as a general rule, an insured could not recover policy benefits as damages for an insurer's statutory violation if the policy did not provide the insured a right to receive those benefits. Here, Menchaca contended that she could recover policy benefits as damages resulting from USAA's statutory violation because that claim was independent from her claim for policy breach. The court rejected this argument. The Insurance Code only allowed an insured to recover actual damages "caused by" the insurer's statutory violation.

    Under the second rule, an insured who established a right to receive benefits under the policy could recover those benefits as actual damages under the Insurance Code if the insurer's statutory violation caused the loss of benefits.

    Third, even if the insured could not establish a present contractual right to policy benefits, the insured could recover benefits as actual damages under the Insurance Code if the insurer's statutory violation caused the insured to lose that contractual right. The court had previously recognized that an insurer who misrepresents that its policy provides coverage that it does not in fact provide could be liable under the statutes for such benefits if the insured was adversely affected or injured by its reliance on the misrepresentation.

    Under the fourth rule, if an insurer's statutory violation caused an injury independent of the loss of benefits, the insured could recover damages for that injury even if the policy did not grant the insured a right to benefits. Consequently, an insurer's statutory violation did not permit the insured to recover any damages beyond policy benefits unless the violation caused an injury that was independent from the loss of the benefits.

    Finally, the fifth rule provided that an insured could not recover any damages based on an insurer's statutory violation if the insured had no right to receive benefits under the policy and sustained no injury independent of a right to benefits.

    Having established the five rules, the court remanded the case for a new trial. The trial court erred by disregarding the jury's answer to Question 1. Although USAA did not dispute that the policy provided "coverage" for some of Menchaca's damages, it provided evidence that the amount of her loss was less than the policy's deductible, and that evidence supported the jury's failure to find that USAA "failed to comply" with its obligations under the policy.

Window Installer's Alleged Faulty Workmanship On Many Projects Constitutes Multiple Occurrences

   Lawsuits filed for recovery due to the faulty design and installation of doors and windows by homeowners across the country were found to allege multiple occurrences. Pella Corp. v. Liberty Mut. Ins. Co., 2017 U.S. Dist. 53631 (C.D. Iowa March 31, 2017).

   The underlying lawsuits alleged that Pella Corporation's windows were defectively designed, manufactured, or installed, and allowed water intrusion to buildings that resulted in third-party property damage or personal injury.

    Pella sued Liberty Mutual for declaratory judgment and filed a motion for partial summary judgment to determine how many occurrences the underlying cases presented. Pella sought a determination that each of the 15 underlying cases presented one "occurrence" as the term was defined in the CGL policies issued by Liberty Mutual. Liberty Mutual argued that only three or four occurrences were presented, relying on common fact patterns.

    Pella argued that there were separate and distinct causes of different injuries and damage and thus, each underlying case constituted a separate occurrence. Liberty Mutual, on the other hand, highlighted language within the definition of "occurrence," which stated that an "occurrence" included "continuous or repeated exposure to the same general harmful conditions." The "substantially the same general harmful conditions" language dictated that the scope of "occurrence" be understood to be broad, such that various instances of damage-causing water intrusion in different times and places constituted "substantially the same general harmful conditions."

    The court found that this language merely communicated the notion that accidents based on the accretion of small exposures to damage-causing conditions (that remained generally the same over time) could constitute an occurrence, even if the individual exposures would not, in isolation, be sufficient to cause the damage covered by the policy. Unintended water intrusion through a window, over a period of time but in a single location, provided a good example of this type of occurrence.

    But this language did not address whether unintended water intrusion in difference places, happening at different times, and caused by defects in different products constituted a single occurrence just because the damage-causing instances were of the same type or could be described in the same manner.

    The court was compelled to find that the CGL policies were ambiguous in this respect because the language was subject to multiple reasonable interpretations when interpreting the policies as a whole. Because both parties offered reasonable interpretations of the proper scope of "occurrence," the court was compelled to adopt Pella's construction. Therefore, each underlying case presented one "occurrence."

Court Finds Multiple Occurrences In Alleged Sexual Abuse Scandal

    The bankruptcy court found there were multiple occurrences when several victims alleged sexual abuse by various priests within the Diocese. Diocese of Duluth v. Liberty Mut. Group, 2017 Bankr. LEXIS 908 (Bankr. D. Minn. March 30, 2017). 

    The Diocese filed a petition under chapter 11 as a result of liabilities arising from negligence claims asserted by victims of sexual abuse by priests. An adversary proceeding was filed by the Diocese against its insurers seeking declaratory relief. The Diocese filed a motion for partial summary judgment to establish the legal standard to determine the number of occurrences under the CGL policies which insured the Diocese.

    The Diocese argued that under Minnesota law, the "actual-injury" rule applied. Here, there was an occurrence when sexual abuse occurred. Each act of abuse constituted a separate occurrence. The insurers argued there was one occurrence because liability arose from one ongoing act of alleged negligence by the Diocese in negligently supervising its priests.

    The Minnesota Supreme Court had held that an occurrence was not when the wrongful act was committed, but when the complaining party was actually injured. When damages were a result of occurrences that were discrete and identifiable events, the triggered policies were those that were in effect when the damages occurred. When both the damages and the occurrence events were continuous over a period of time and were so intermingled and unidentifiable, there was one continuous occurrence. Allocation of liability between policies that were in effect during the time period would apply. 

    Here there were numerous victims who were sexually abused by several priests. There were specific occurrences that were discrete and identifiable events - the priests' sexual abuse of the victims. Each victim suffered an injury and had readily identifiable damage on each separate occasion of sexual abuse. The sexual abuse was what caused the damages to the victims. Therefore, under the actual-injury rule, the occurrence was the time when the victims were sexually abused by the priests. There were separate occurrences for each separate sexual abuse for each victim and each priest. The victims each suffered separate abuse and it was this occurrence that triggered the policy that was at risk at that time. 

    Therefore, the Diocese's motion for partial summary judgment was granted.

No Coverage for Medical Malpractice Claims

    The court determined there was no coverage for 150 underlying lawsuits which alleged that injections for back pain caused bodily injury and death. Westfield Ins. Co. v. Orthopedic & Sports Med. Ctr. of N. Ind., 2017 U.S. Dist. LEXIS 46119 (N. Ind. March 28, 2017).

    NECC made preservative-free methylprednisolone acetate (MPA). MPA was an epidural steroid medication that was administered by injection for pain management. Defendants Orthopedic and Sports Medicine Center of Northern Indiana, Inc. (OSMC) and its affiliate, ASC Surgical Ventures, LLC (ASC), purchased MPA from NECC to treat patients with back pain. In September 2012, a multistate outbreak of fungal meningitis, lumbar fungal infections and related injuries arose as a result of patients receiving injections of contaminated MPA.

    Over 150 patients and personal representatives sued OSMC ASC, and their physicians (OSMC Physicians) in state court. Most of the patients also filed complaints with the Indiana Department of Insurance. (Malpractice Complaints).

    Westfield issued CGL and umbrella policies to the OSMC defendants.The defendants requested that Westfield defend and indemnify against the lawsuits and Malpractice Complaints. Westfield refused, and filed an action for declaratory judgment in federal court against the OSMC defendants and the patients.

    Indiana law controlled the coverage dispute. The court first determined that there was no duty to defend the Malpractice Complaints which were addressed by a medical review panel. The panel had the sole duty to express its expert opinion as to whether or not the evidence supported the conclusion that the defendants acted or failed to act within the appropriated standards of care as charged in the complaint. The panel did not have jurisdiction to award damages against the OSMC Defendants, eliminating the possibility of coverage under the Westfield policies.

    Nor was there a duty to defend and/or indemnify insureds in the lawsuits. There was a difference under Indiana law between an accident/occurrence and a professional error or omission. An accident/occurrence was covered by CGL insurance, while a professional error or omission was covered by E&O insurance.

    The lawsuits alleged a professional relationship between the OSMC Defendants, who were "engaged in the business of providing health care," and the patients to whom they administered the epidural MPA injections. The failure to meet a standard of care under a contractually assumed duty was not an "accident." Although the OSMC Defendants did not intentionally commit wrongdoing, this failure did not convert their actions into an "accident." The lawsuits' claims that the OSMC Defendants were negligent in selecting NECC as a supplier of MPA and in managing the supplier relationship did not allege an "accident" under the policies.

    Even if there was an accident, the exclusions barred coverage. For example, the umbrella policies had a Professional Services Exclusion. It provided that the insurance did not apply to bodily injury "due to rendering . . . any professional service," which included "medical . . . or nursing service or treatment, any health or therapeutic service or treatment and service in the practice of pharmacy." Westfield contended this exclusion eliminated coverage because the negligence claims were based on acts taken by the OSMC Defendants in the course of providing professional services. The insureds contended that the term "treatment" in the exclusion was ambiguous, and should be construed against Westfield. The court disagreed, Because the injections constituted the rendering of a medical service or "treatment," the lawsuits' negligence claims were excluded under the Professional Services Exclusion.

    Therefore, no coverage existed and no duty to defend or to indemnify arose.

One Occurrence Despite 19 Alleged Breaches of Duty

    Following Pennsylvania law, the Fourth Circuit found one occurrence in a fireworks accident despite allegations of 19 breaches of duty. Hollis v. Lexington Ins. Co., 2017 U.S. App LEXIS 5088 (4th Cir. March 22, 2017).

    Kathryn Hollis and her two sons received injuries from a fireworks explosion. The underlying action alleged that the fireworks company committed 19 breaches of duty resulting in the injuries.

    In the declaratory relief action, the issue was whether the underlying complaint alleged a single occurrence or 19 occurrences under the policy with Lexington. The district court granted summary judgment to the insurer, determining that the underlying complaint alleged one occurrence.

    The Fourth Circuit affirmed. Pennsylvania applied a cause approach to defining occurrences. Under the cause approach, Pennsylvania courts found a single occurrence if there was but one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damage. Here, regardless of the number of alleged negligent acts or victims, the injuries had a single proximate cause - the misfired firework that exploded near Kathryn and her sons. Because the injuries only had one cause, there was a single occurrence.