Insurance Law Hawaii

Claim for Punitive Damages Against Agent Should Go to Jury

    The Hawaii Intermediate Court of Appeals reversed the trial court's granting the insurance agent's Motion for Judgment as a Matter of Law on the insured's claim for punitive damages. Fuche Corporation, Inc. v. Leung, et al., 2018 Haw. App. LEXIS 37 (Haw. App. LEXIS Feb. 8, 2018).

    Fuche Corporation sued its insurance agents, Bill Hin Bi Leung and Noguchi & Associates, for malpractice and breach of contract for their failure to procure coverage for water damage arising from flooding incidents which occurred from December 1, 2004 through November 17, 2005 at the insured's restaurant. After the first flooding incident in December 2004, Fuche Corporation notified Leung, who informed Fuche Corporation that the flooding incident was not covered by his policy and that coverage could not be provided until the policy was renewed in September 2005. After a third flooding incident at the restaurant on September 4, 2005, Fuche Corporation reported the flood to Leung and told Leung to add the flood coverage when Leung renewed the policy. 

    In November 2005, a fourth flood was reported by the restaurant to Leung. After visiting the restaurant, Leung assured the restaurant that it need not worry because the loss was covered under the policy. Leung further advised to shut down the restaurant and wait for a response from the insurance company on the latest flood claim before repairing any damage and reopening. In January 2006, Fuche Corporation went to Leung's office, and was informed that the policy did not cover flood. 

    Fuche Corporation sought punitive damages against Leung and his employer, Noguchi & Associates. The trial court granted summary judgment in favor of Noguchi and judgment as a matter of law in favor of Leung on Fuche Corporation's claim for punitive damages. 

    The court of appeals reversed as to Leung. There was sufficient evidence to support an award of punitive damages by the jury against Leung. The determination of whether Fuche Corporation presented clear and convincing evidence of wilfull misconduct or an entire want of care raising a presumption of a conscious indifference to consequences by Leung should have been submitted to the jury. 

    The court, however concluded that Fuche Corporation did not adduce or provide any evidence suggesting that Noguchi's actions were willful or indicated an entire want of care raising a presumption of conscious indifference by utilizing Leung's services. Further, the evidence did not show Noguchi acted recklessly in its retention of Leung. Therefore, the trial court did not err in granting partial summary judgment in favor of Noguchi on Fuche Corporation's claim for punitive damages. 

    The trial court also granted remittitur of the jury's award to Fuche Corporation of general damages from $110,000 to zero, or in the alternative, ordered a new trial on general damages. Fuche Corporation refused remittitur and demanded a new trial on the issue of general damages.

    Leung and Noguchi then moved for summary judgment arguing that Fuche Corporation had failed to present any evidence that it had suffered any general damages. The trial court granted the motion, concluding that no genuine issue of material fact existed as to Fuche Corporation's claim for general damages. 

    The appellate court ruled that it was not an abuse of discretion to conditionally grant Leung and Noguchi's new trial/remittitur motion and to order a new trial on general damages in lieu of a remittitur. But it was error to grant the summary judgment motion and determine that Fuche Corporation had no valid claim as to reputational harm sustained during the several months the restaurant was closed while waiting to hear from Leung on the insurance claim. Fuche Corporation's claim for general damages should have been submitted to the jury for determination of the facts surrounding the general damages claim. 

ABA Insurance Coverage Litigation Committee Conference

    The ABA's Incurance Coverage Litigation Committee Conference will be conducted this week in Tucson, AZ, from February 28 to March 3, 2018. As always, many cutting edge topics will be addressed by panels consisting of lawyers, judges, and professionals from the insurance industry. The conference schedule is here.

    My panel will discuss cyber policies. Our paper, "Cyber Policies - The Next Wave", written by Karin S. Aldama and me, is here.

    Looking forward to another great conference. 

Duty to Defend Owed From Date of Window Installation Even Absent Allegations As To When Property Damage Occurred

    In a long-standing dispute between a window manufacturer and its insurer, the federal district court found that the insurer was obligated to pay defense costs from the date of installation of the alleged faulty windows even though the underlying complaints did not allege when the damage occurred. Pella Corp. v. Liberty Mut. Ins. Co., No. 4:11-cv-00273 (S.D. Iowa Jan. 16, 2018). The case is here. 

    The court had previously addressed allocation among the insurer's various policies. It held that the CGL policies provided for pro rata allocation of indemnity payments where a single occurrence triggered multiple policies. The court also held that the CGL policies were ambiguous with respect to allocation of defense costs and thus interpreted the policies in Pella's favor, applying all-sums allocation. The court further granted summary judgment with respect to sample claims where the parties did not dispute which policies were triggered. The court denied summary judgment with respect to the remaining sample claims, finding genuine disputes of material fact prevented summary judgment in Liberty's favor on the issue of when the alleged damage began. 

    Pella now moved for summary judgment on the issue of when fourteen of the fifteen sample claims first triggered Liberty's obligation to reimburse defense costs. Pella argued that Liberty's duty to defend attached from the point that property damage could potentially have begun, Pella argued this was the time at which the underlying claimant installed the Pella windows at issue in the underlying cases. Liberty contended that the underlying complaints were silent as to when damage began, resulting in a factual dispute between the parties experts about when damage began. 

    The underlying allegations did not include the time period in which the damage occurred. But there were allegations as to when the allegedly defective windows were sold or installed. These allegations, along with additional facts in the record regarding the sale, delivery, and installation of the windows established that the sample claims were potentially brought within the policy periods of various policies highlighted by Pella. 

    Liberty argued the facts relied upon by Pella did not disclose when damages potentially occurred. The court disagreed. Facts such as when the windows were installed or when the structure containing the windows was completed shed light on when damage may potentially have occurred. The potential for coverage was sufficient to invoke Liberty's duty to defend. There was no genuine issue for trial on the question of which Liberty policies were triggered by the sample claims with respect to Liberty's duty to reimburse defense costs under the applicable policies. 

Misread of Other Insurance Clause Becomes Costly for Insurer

    One insurer's refusal to defend based upon its "other insurance" provision ultimately meant the insurer had to pay all of the insured's defense costs. Steadfast Ins. Co. v. Greenwich Ins. Co., 2018 Wis. App. LEXIS 51 (Wis. Ct. App. Jan. 17, 2018). 

    Milwaukee Metropolitan Sewerage District (MMSD) was a government agency that provided water reclamation and flood management services to the city. From March 1, 1998 to February 20, 2008, MMSD contracted with United Water Services Milwaukee LLC to operate the sewerage system. From March 1, 2008 on, MMSD contracted with Veolia Water North America-Central, LLC to operate the system. 

    Through agreements, both companies were obligated to indemnify MMSD for claims arising out of the operations and maintenance of the system and to obtain insurance to cover their indemnity obligations. Both companies complied.

    In June 2008, heavy rain overwhelmed MMSD's sewer system and more than 8,000 homeowners reported basement sewage backups. Four rain event lawsuits were filed against MMSD. The suits alleged that MMSD and Veolia were negligent in the inspection, maintenance, repair and operations of the system. United Water was later named as a defendant in one of the lawsuits. 

    MMSD tendered its defense to Steadfast and Greenwich. Steadfast, the insurer for Veolia, which had named MMSD as an additional insured, accepted the tender and defended MMSD. Greenwich, United Water's insurer, did not accept the tender and did not pay any of the defense costs. The underlying suits eventually settled without MMSD or Steadfast making any contribution to the settlement. However, Steadfast reimbursed MMSD $1.55 million towards defense costs that MMSD incurred.

    Steadfast then sued Greenwich to recoup the monies it paid to MMSD for defense costs. The parties filed cross-motions for summary judgment. The trial court denied Greenwich's motion, finding Greenwich had breached its duty to defend MMSD and thereby waived its rights to raise any coverage defense.  After further motion practice, the court awarded Steadfast judgment against Greenwich in the amounts of $1.55 million as damages and $325,500 as attorney fees for the coverage action. Greenwich appealed. 

    The court first analyzed the other insurance provisions in the Greenwich and Steadfast policies. Other insurance provisions were effective in situations involving concurrent coverage. Here the policies were successive, not concurrent. They did not cover the same time period. The court concluded that the Greenwich policy provided primary coverage for the claims against MMSD for the earlier conduct of United Water in operating and maintaining the MMSD system, not excess coverage for that of the Steadfast policy. 

    Greenwich also argued that MMSD did not exhaust the $250,000 self-insured retention (SIR) in its policy. MMSD had submitted a declaration in the summary judgment proceedings stating that it had paid over $800,000 in defending the underlying cases. The appellate court agreed that the SIR had been met. As a consequence, Greenwich's policy provided primary coverage based on United Water's conduct in operating and maintaining MMSD's system. Further, MMSD was entitled to recover the defense costs, including attorney fees, from Greenwich based upon Greenwich's breach.

    Steadfast, as the non-breaching insurer, had a claim for equitable subrogation against Greenwich, who breached its duty to defend. Upon payment to MMSD of defense costs, Steadfast stepped into MMSD's shoes and was entitled to recover from Greenwich the same damages that MMSD would have been entitled to recover from Greenwich. 

    Finally MMSD was entitled to recover the attorney fees incurred in the coverage action under the Greenwich policy. Under the doctrine of equitable subrogation, Steadfast stepped into MMSD's shoes and was equitably entitled to recover those fees in defending coverage. 

 

No Coverage Defenses After Two-Year Delay to Appear In Declaratory Judgment Action

    The federal district court found that the insurer was estopped from asserting coverage defenses after taking no action for two years before appearing in a declaratory judgment action filed by the insured. Sentinel Ins. Co. v. Walsh Constr. Co., 2018 U.S. Dist. LEXIS 6487 (N.D. Ill. Jan. 16, 2018). 

    Walsh Construction Company was the general contractor on a construction project to alter the streets and train tracks in Chicago. James Quigley, an iron worker for subcontractor S&J Construction Company, was crushed by a steel post. His estate filed suit against Central Contractors Service, Inc., the subcontractor that was operating the crane from which the steel post was suspended at the time of the accident, and Walsh. The complaint alleged that Walsh coordinated the work being done and designated various work methods and schedules for the project. 

    Walsh tendered its defense to Old Republic Insurance Company, claiming coverage as an additional insured under a policy issued to S&J. Walsh later tendered to Sentinel, the insurer for Genesis Structures, Inc., an engineering firm that had been involved in the preparation of the steel truss system. The subcontract with Walsh required Genesis to obtain primary insurance covering Walsh for the project.  

    The Sentinel policy promised to pay sums that the insured became legally obligated to pay as damages and to defend the insured. The term "insured" referred not only to Genesis, but also potentially to other persons or organizations "when [Genesis has] agreed, in a written contract . . . that such person or organization be added as an additional insured on [its] policy." This additional insured was covered "only with respect to liability for bodily injury . . . caused, in whole or in part, by [Genesis's] acts or omissions . . . in the performance of its ongoing operations." 

    Sentinel denied coverage, asserting the policy did not cover "professional errors and omissions" of Genesis. Further since Genesis had not been asked to design a truss post rigging system, the failure of the rigging system was not caused by Genesis.

    In the underlying case, the Quigley estate named Genesis as a defendant in the first amended complaint and asserted a claim for negligence. Walsh filed a declaratory judgment action in state court that was dismissed due to improper service. Sentinel then filed this declaratory judgment action. Walsh and Genesis filed counterclaims, asserting the professional services exclusion did not apply and that Sentinel breached its duty to defend.

    Sentinel moved for summary judgment, arguing that the "any insured" language in the professional errors and omissions exclusion barred coverage for all insureds when one insured committed an act falling within the policy exclusion. The court disagreed. Sentinel did not clearly and specifically exclude all of the conduct Walsh was alleged to have negligently committed. Therefore, the policy at least potentially provided coverage for Walsh, and Sentinel had a duty to defend Walsh.

    Walsh also argued that because Sentinel breached its duty to defend, Sentinel was estopped from asserting its remaining policy defenses, including whether Walsh qualified as an additional insured and whether Sentinel's policy provided only excess insurance over the Old Republic's policy based on its "other insurance" clause. Under Illinois law, an insurer that refused to defend an insured had to seek a declaratory judgment of no coverage promptly or in a timely manner in order to avoid the application of the estoppel doctrine. Walsh tendered its defense to Sentinel in October 2012. This triggered Sentinel's duty to defend because Walsh was at least potentially covered under Sentinel's policy based upon the allegations against it in the Quigley suit.

    Sentinel's first action that might be considered a judicial resolution of the coverage dispute was its appearance in the state court action that Walsh filed in January 2015, even though at the time Sentinel's first action was to move to dismiss the case for improper service. The court found this two-year delay unreasonable and Sentinel was estopped from asserting coverage defenses.

    Sentinel's motion for summary judgment was denied and Walsh's motion for summary judgment was granted in part, establishing Sentinel's duty to defend. 

    

Construction Defect Claim Must Be Defended Under Florida Law

    The Eleventh Circuit found that the insured caused property damage to areas beyond its own work, obligating the insurer to defend. Addison Ins. Co. v. 4000 Island Blvd. Condo. Ass'n, 2017 U.S. App. LEXIS 26870 (11th Cir. Dec. 28, 2017).

    The condominium association contracted with Poma Construction Corp. to replace the building's aging concrete balcony railings with new aluminum and glass railings. Poma subcontracted with Windsor Metal Specialties, Inc. to paint the new railings. Work was completed on February 24, 2012. Poma issued a 10-year warranty covering its installation of the railings. Windsor issued a 20-year limited warranty covering the paint job. 

    In October 2014, the association sued Poma and Windsor, alleging that the new railings were defective and would need to be removed and replaced. Claims for breach of contract, breach of implied warranty, and breach of express warranty were asserted. The amended complaint alleged that the defective railing system, including Windsor's defective paint finishes on the railings, caused damage to other property such as the railing post pockets, the balcony concrete slabs, and finishes on the balcony concrete slabs. 

    Addison, Windsor's insurer, sued for a declaratory judgment that it had no duty to defend. The policy provided that Windsor's coverage did not apply to property damage to Windsor's own work product or to that particular property that must be repaired because Windsor's work "was incorrectly performed on it." 

    Addison moved for summary judgment, arguing that the association had sued Windsor for breach of warranty, rather than for property damage. Windsor argued that a genuine issue of material fact existed as to whether the damage alleged in the association's complaint constituted "property damage" to which no policy exclusion applied. An affidavit submitted with Windsor's opposition stated there was railing failure and damage to the areas where the railings were installed.

    The district court denied Addison's motion for summary judgment. Addison appealed.

    The Eleventh Circuit affirmed. Windsor's work product was the paint finishes on the railings, and the railings were the particular part of the property on which Windsor's work was allegedly performed incorrectly. The underlying complaint alleged that "the defective railing system, including the defective paint finish has caused and will continue to cause damage to other property . . . including but not limited to the railing post pockets, the balcony concrete slabs and finishes on the balcony concrete slabs."

    These allegations alleged facts that brought the action within the policy. Therefore, Addison had a duty to defend. 

Compliance with Building Code Included in Property Damage

    A Circuit Court in Florida issued a final judgment determining that the insured's obligation to comply with building code provisions was included in the property damage experienced. Pin-Pon Corp. v. Landmark, Am. Ins. Co., No. 312009CA012244 (Fla. Cir. Ct. Dec. 28, 2017). The decision is here. 

    At trial, the plaintiff's architect testified that the total pricing for the code upgrades was $6.2 million. On appeal, the appellate court ruled that plaintiff's Exhibit 98, an Upgrade Insurance Claim, was improperly admitted as a business record. The appellate court stated that the jury may have considered Exhibit 98 in determining the amount of code upgrade damages. Therefore, the verdict was reversed and remanded for a trial on the code upgrade damages only. 

    On remand, the plaintiff presented testimony from its architect that the code upgrades were required by the 2004 Florida Building Code because the storm damaged more than 50% of the aggregate area of the building. Another witness testified that the amount of code upgrade damages sustained by the plaintiff and submitted to Landmark was $6.2 million. The testimony and documentary evidence submitted by the plaintiff showed that the cost analysis and methodology used in preparing it was accurate.

    Landmark did not present any testimony regarding the scope of code upgrade repairs required by the building code. Nor did Landmark present any testimony establishing that plaintiff's claimed damages were unreasonable or unnecessary. Therefore, Pin-Pon was allowed to recover from Landmark the amount of $5,644,668.79, together with statutory interest.