Insurance Law Hawaii

Excess Has No Duty To Indemnify Based Upon Primary Policy's Exclusions

    Based upon the primary policy's exclusion, the following form excess policy had no duty to indemnify after the insured reached a settlement in the underlying case. Houston Cas. Co. v. Strata Corp., 2019 U.S. App. LEXIS 3936 (8th Cir. Feb. 6, 2019).

    An employee of Strata fell to his death at a Montana mine. The estate sued, alleging that Strata's intentional failure to maintain a safe workplace triggered an exception to the Workers' Compensation Act, giving the estate a cause of action against Strata.

    Strata had a Workers Compensation and Employers Liability Policy from Liberty Mutual that included a limit of $500,000 for each accident. The policy excluded bodily injury intentionally caused by Strata. The policy also included an Intentional Injury Exclusion Endorsement barring coverage for "bodily injury caused by Strata's intentional, malicious, or deliberate act, whether or not the act was intended to cause injury to the employee injured . . ." Strata also had an excess policy from Houston Casualty Company which had limits of up to $5 million in excess coverage. Houston's policy followed form with the underlying Liberty Mutual policy. 

    Liberty Mutual defended Strata against the estate's wrongful death lawsuit. The case settled and Liberty Mutual contributed a portion of the settlement in exchange for a full release from Strata. Houston Casualty refused to contribute anything to the settlement. 

    Houston Casualty sued, seeking a declaratory judgment that it had no duty to defend or indemnify Strata. Strata counterclaimed. On cross-motions for summary judgment, the district court granted summary judgment to Houston Casualty and denied summary judgment for Strata. Strata appealed.

    The Eighth Circuit concluded that the district court properly granted summary judgment to Houston Casualty because the excess policy did not cover the estate's claims against Strata. The excess policy expressly stated that it was subject to the exclusions in the underlying coverage. Strata argued that the excess policy did not expressly state that it was subject to endorsements to Liberty Mutual's primary policy. But this argument was unavailing.

    Nor was the exclusion ambiguous. The estate alleged that Strata's deliberate and intentional acts caused his death. These allegations brought the estate's lawsuit within the Intentional Acts Exclusion Endorsement. Accordingly, Houston Casualty had no duty to indemnify Strata under the excess policy.

Trapped Squirrel Causing Electrical Arc Equals No Coverage

    The Supreme Court of Iowa agreed the city had no coverage for damage to its property after a squirrel triggered an electrical arc. City of W. Liberty v. Employers Mut. Cas. Co., 2019 Iowa Sup. LEXIS 6 (Feb. 1, 2019). 

    A squirrel climbed on to an electrical transformer at West Liberty's power plant. While touching a ground steel frame, the squirrel came into contact with a bare cable clamp that carried 7200 volts of electricity. This contact created a conductive path between the clamp and the grounded frame. Arcing resulted. The squirrel was killed and the arcing caused $213,524 worth of damage to West Liberty's transformer and other equipment. 

    West Liberty notified its all-risk insurer, Employer's Mutual Casualty Company (EMC) of the loss. Coverage was denied based upon an "Electrical Currents" exclusion in the policy. The policy excluded coverage for "loss caused by arcing or by electrical currents other than lightning." 

    West Liberty filed suit. Cross motions for summary judgment were filed. The trial court granted EMC's motion and denied West Liberty's motion. The court held that it could not decide that the squirrel's actions were a cause of damages because the squirrel did not actually do anything to cause damages. Instead, it merely touched things it should not have touched. The arc caused all of the damages. The court of appeals affirmed, relying upon the electrical currents exclusion. 

    The Iowa Supreme Court affirmed. The language of the exclusion was straight-forward. If arcing caused the loss, the loss was excluded. West Liberty, however, argued the squirrel was the efficient proximate cause of the loss. The efficient proximate cause doctrine applied when two or more causes, at least one covered by the policy and at least one excluded, contributed to a loss. 

   This case, however, was not one of two independent causes, one of which was covered and one excluded. The squirrel did not independently contribute to the loss, i.e., other than through the arcing. Therefore, the decision of the court of appeals was affirmed. 

    

Exhaustion of Primary Policy Triggers Excess Coverage

    The Ninth Circuit affirmed the district court's ruling that the excess policy was triggered by settlements exhausting the primary policy. Westport Ins. Corp. v. California Cas. Management Company, 2019 U.S. App. LEXIS 4889 (9th Cir. Feb. 20, 2019). 

    Doe 1, Doe 2 and Doe 3 filed suit against the insured, Moraga School District, and three of its administrators for alleged sexual abuse by a teacher. The District was insured under primary general liability policies from 1991 through 1997. From October 1, 1994 to October 1, 1997, Westport also issued a series of annual excess policies that covered the District and its employees. California Casualty issued success liability policies to the Association of California School Administrators from July 1, 1986 to July 1, 2000, providing excess liability coverage to the District's school administrators.

    Doe 1 alleged abuse during policy periods 1993-94, 1994-95, and 1995-96; Doe 2 alleged she was molested in the 1995-96 and 1996-97 periods. Does 3 alleged that she was molested in the 1996-97 period. Westport eventually settled the three suits for an aggregate sum of $15.8 million. California Casualty refused to reimburse Westport. Westport sued and secured summary judgment.

    The court divided each Doe's settlement equally across the policy period(s) in which she alleged she was molested. Next, the court reduced each policy period amount by 25 percent to reflect the District's liability. Then, the court deducted $1 million from each policy period in accordance with Wesport's Primary policy limit. Finally, the court assessed liability against California Casualty up to $150,000 for each Administrator in each policy period. In total, the district court found California Casualty liable for $2.6 million of the $15.8 million paid to the Does collectively. Dissatisfied with the result, California Casualty appealed. 

    On appeal, the Ninth Circuit noted that California Casualty's policy was an excess policy requiring only that the "underlying primary collectible insurance or self-insurance" be exhausted before its coverage began. The policy required the exhaustion of only "primary" or "self" insurance as opposed to "all other" insurance or "primary and excess" insurance. Westport's policy, on the other hand, stated, "If there is any other collectible insurance available to the insured . . . this insurance will apply in excess of other collectible insurance. Accordingly, California Casualty's policy applied upon the exhaustion of the $1 million of underlying insurance, not after exhaustion of all other insurance. 

    California Casualty had denied excess coverage in the face of settlement demands far exceeding the primary layer. Therefore, it waived its argument that the lack of contemporaneous allocation of liability in the settlements precluded subsequent apportionment. The three settlement agreements released the District and the Administrators from liability and did not differentiate among the defendants. Given the blended pleadings and working of the settlement agreements, the district court did not abuse its discretion in allocating the liability equally among the District and the three administrators. Therefore, the district court's judgment was affirmed.

    Thanks to Damon Key blogging colleague Mark Murakami for the heads up on this case. 

    

Liability Cap Does Not Exclude Defense Costs for Loss Related to Deep Water Horizon

    The Texas Supreme Court found that Lloyd's endorsement imposing a cap on liability for a joint venture did not exclude coverage for defense costs. Anadarko Petroleum Corp. v. Houston Cas. Co. et al., 2019 Texas LEXIS 53 (Texas Jan. 25 2019j.

    Pursuant to a joint venture agreement, Anadarko held a 25% ownership interest in the Macondo Well in the Gulf of Mexico. When the well blew out, numerous third parties filed claims against BP entities and Anadarko. Many of the claims were consolidated into a multi-district litigation (MDL). The MDL court granted a declaratory judgment finding BP and Anadarko jointly and severally liable. BP and Anadarko reached a settlement in which Anadarko agreed to transfer its 25% ownership interest to BP and pay BP $4 billion. In exchange, BP agreed to release any claims it had against Anadarko and to indemnify Anadarko against all other liabilities arising out of the Deepwater Horizon incident. BP did not agree, however, to cover Anadarko's defense costs.

    Anadarko had a policy through Lloyd's. The policy provided excess-liability coverage limited to $150 million per occurrence. Lloyd's paid Anadarko $37.5 million (25% of the $150 million limit) based upon Anadarko 25% ownership in the joint venture. Anadarko argued that Lloyd's still owed all of Anadarko's defense expenses, up to the $150 million limit. 

    The policy did not obligate Lloyd's to defend Anadarko, but only to reimburse for defense costs. Lloyd's contended that an endorsement, The "Joint Venture Provision" reduced the $150 limit when Anadarko's liability arose out of the operations of a joint venture in which Anadarko had an ownership interest. The endorsement provided that Lloyd's liability was "limited to the product of (a) the percentage interest of Anadarko in the Joint Venture and (b) the total limit afforded Anadarko under the policy." Based on the product of Anadarko's percent interest in the Deepwater Horizon joint venture (25%) and the total coverage limit under the policy ($150 million), Lloyd's argued that the cap on excess liability coverage was $37.5 million, which had already been paid to Anadarko. 

    The trial court granted summary judgment to Anadarko, but the court of appeals reversed.  

    Before, the Texas Supreme Court, Anadarko argued that the phrase "as regards any liability of Anadarko which is insured under the policy" limited Lloyd's liability for Anadarko "liability . . . insured," which did not include its defense expenses. Lloyd's, on the other hand, submitted that the reference to Anadarko's "liability . . . insured" included defense expenses. The Texas Supreme Court concluded that "liability" referred in the policy to an obligation imposed on Anadarko by law to pay for damages sustained by a third party who submitted a written claim. The Joint Venture Provision's reference to "any liability of Anadarko which is insured" under the policy did not refer to Anadarko's defense expenses. Although both Anadarko's liabilities and defense expenses were insured, the policy distinguished between the two and the Joint Venture Provision applied only to liabilities, not to defense expenses. 

    Accordingly, the court of appeal's judgment was reversed, Anadarko's motion for partial summary judgment was granted, and the case was remanded to the trial court for further proceedings. 

    

    

Consequential Damage Claims for Insurer's Bad Faith Dismissed

    Partial dismissal of the insured's complaint seeking consequential damages for the insurer's bad faith was granted by the court. Bryant v. General Cas. Co., 2019 U.S. Dist. LEXIS 15369 (N.D. N.Y. Jan. 30, 2019).

    Bryant purchased from General Casualty Company of Wisconsin (GCCW) a commercial property and casualty policy to cover the insured premises. While the building was rented to a tenant who operated a restaurant, it sustained a collapse. GCCW refused to cover the loss. Bryant sued. In addition to the cost of repairing and replacing the damage to the property, Bryant alleged he was out the value of rental revenue from his tenant, which was forced to close the restaurant and relocated as a result of the unrepaired damage. 

    In the original complaint, Bryant sued for breach of contract and breach of the implied covenant of good faith and fair dealing. GWWC moved to dismiss the consequential damages claim. In the amended complaint, the second count was eliminated, suggesting that he was not pursuing a separate bad faith claim. Further, the amended complaint was for a single count and did not plausibly allege facts sufficient to sustain a claim of bad faith arising from GCCW's breach of the implied covenant of good faith and fair dealing. The allegations accused GWWC of not satisfying the claim in the amount, or on the precise timeline, that Bryant thought was appropriate under the circumstances. The allegations, if accepted as true, plausibly amounted to GCCW's alleged non-performance of its obligations under the policy. They did not, however, amount to additional, bad faith behavior that would warrant compensation beyond the policy limits. 

    Therefore, the amended complaint did not plausibly alleged bad faith and Bryant's claim for consequential damages was dismissed 

Sorting Insurers' Obligations in Light of Competing Other Insurance Provisions

    The court determined that the non-participating insurer must reimburse the insurer who defended. Steadfast Ins. Co. v. Greenwich Ins. Co., 2019 Wisc. LEXIS 9 (Wis. Jan. 25, 2019). 

    Historic rains hit Milwaukee in June 2008, overwhelming the Milwaukee Metropolitan Sewage District's (MMSD) sewage system. Raw sewage backed up into 8,000 homes. Lawsuits were filed against MMSD and two companies who MMSD contracted with the operate and maintain the sewage system, Veolia Water Milwaukee and United Water Services Milwaukee. 

    MMSD's Operating Agreement with United Water required United Water to maintain comprehensive liability insurance, naming MMSD as an additional insured. United Water secured a policy with Greenwich Insurance Company, with the last policy period beginning July 24, 2007 and ending July 24, 2008. The policy named MMSD as an additional insured United Water maintained that it last provided services to MMSD on February 29, 2008.

    Beginning on March 2, 2008, and continuing through the June 2008 heavy rains, MMSD contracted with Veolia to operate the sewage system. Veolia had liability insurance with Steadfast Insurance Company naming MMSD as an additional insured.

    MMSD tendered the lawsuits to both Steadfast and Greenwich The lawsuits were settled without MMSD paying any damages. Steadfast reimbursed MMSD for $1.55 million in defense costs. Greenwich refused to contribute to the defense because its policy ended before the June 2008 rains. Greenwich relied on its "other insurance" clause to argue that its policy was excess to Steadfast's policy. 

    Steadfast sued Greenwich to recover the $1.55 million in defense costs it paid to MMSD. The circuit court granted summary judgment to Steadfast, awarding the entire amount Steadfast paid MMSD, as well as $25,000 in attorney fees that Steadfast incurred in bringing the lawsuit. The court of appeals affirmed.

    The Wisconsin Supreme Court noted that the plain language of both the Greenwich and Steadfast policies obligated the insurers to indemnify and defend their named insureds and MMSD against claims of damage caused by the negligence of their named insureds. The "other insurance" clauses did not apply unless the two policies were concurrent. Two policies could not be concurrent unless the insured the same risk, and the same interest, for the benefit of the same person, during the same time period. Here, Greenwich would owe MMSD only if the negligence of United Water caused damages for which MMSD was held responsible. Likewise, Steadfast would ow MMSD only if the negligence of Veolia caused damages for which MMSD was held responsible. The "other insurance" provisions were not relevant because Greenwich's "other insurance" clause provided successive insurance to MMSD 

    Further, Greenwich's policy provided potential coverage for a claim made in the lawsuits based on sewage backups. Therefore, Greenwich breached its duty to defend, and was responsible for all damages that naturally flowed from the breach. 

    The court also held that Steadfast was not entitled to full reimbursement of defense costs, but the defense costs should be allocated between Steadfast and Greenwich. The court adopted the pro rata allocation method to apportion the defense costs based on the insurers' policy limits. 

    Finally, Steadfast was entitled to recover attorney fees from Greenwich under contractual subrogation. Because Greenwich breached its duty to defend, MMSD had the right to request fees for successfully establishing Greenwich's obligation to defend. Because MMSD's rights of recovery against Greenwich would include attorney fees incurred in successfully establishing coverage, Steadfast was entitled to recover $325,000 in fees from Greenwich as MMSD's subrogee. 

Business Risk Exclusions (j) 5 and (j) 6 Found Ambiguous

    Reversing the district court's grant of summary judgment in favor of the insurer, the Tenth Circuit found that exclusions (j) 5 and (j) 6 were ambiguous as applied to the facts of the case. MTI, Inc. v. Emplrs. Ins. Co., 2019 U.S. App. LEXIS 2543 (10th Cir. Jan. 25, 2019).

    Western Farmers Electrical Cooperative (WFEC) owned cooling towers which were serviced by MTI, Inc. Wausau provided a CGL policy to MTI. 

    in 2011, MTI found that anchor bolts in Cooling Tower 1 were corroded. WFEC hired MTI to make repairs by installing new anchor castings with anchor bolts and anchor adhesive. 

    On May 23, 2011, MTI employees removed all of the corroded anchor bolts in Tower 1. Because the adhesive applicator had not yet arrived, MTI did not immediately install new anchor bolts. On the night of May 24, strong winds struck the tower, causing it to lean and several structural components broke. Due to the extent of the structural damage, removal and replacement of the tower was determined to be the only viable option. 

    WFEC demanded MTI pay the cost of removing and replacing the entire tower, which totaled over $1.4 million. MTI filed a claim for coverage with Wausau. Coverage was denied based on business risk exclusions (j) 5 and (j) 6. 

    MTI sued and Wausau moved for summary judgment. The district court agreed that the events fell within the scope of both exclusions j(5) ad j (6) and entered judgment in favor of Wausau. 

    On appeal, the Tenth Circuit considered whether the exclusions were ambiguous. Exclusion j (5) barred coverage for property damage to "that particular part . . . on which you . . . are performing operations, if the 'property damage' arises out of those operations." Similarly, exclusion j (6) excluded property damage to "that particular part of any property that must be restored, repaired or replaced because 'your work' was incorrectly performed on it." The key phrase for this appeal was "that particular part." 

    As favored by MTI, the phrase "that particular part" could be read to refer solely to the direct object on which the insured was operating. Alternatively, Wausau argued it applied to those parts of the project directly impacted by the insured party's work. The court found the former interpretation was reasonable. Therefore, the phrase was ambiguous and had to strictly and narrowly construed in a matter favorable to the insured party. 

    Here the "particular part" on which MTI was "performing operations" and upon which work "was incorrectly performed" was reasonably understood to be the anchor bolts. Those bolts were "distinct component parts" of the tower. MTI performed work incorrectly by removing them without promptly replacing them or bracing the structure. It was objectively reasonable that MTI would expect coverage for the cost of replacing the entire tower, including all of its operational elements, given the ambiguous language of exclusions j (5) and j (6). 

    Therefore, the district court's grant of summary judgment in favor of Wausau was reversed and the case remanded for further proceedings. 

    

Insured's Complaint for Breach of Contract and Bad Faith Adequately Pleads Consequential Damages

    The appellate court overturned the trial court's dismissal of the insured's complaint seeking consequential damages. D.K. Prop. Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh v, Pa., 2019 N.Y. App. Div. LEXIS 329 (N.Y. App. Div. Jan. 17, 2019). 

    The insured's building began to shift and exhibit structural damage, including cracks, after construction began in an adjoining building. The insured submitted a claim under its commercial insurance policy. The insurer did not pay the claim, nor did it disclaim coverage. 

    The insured sued, alleging breach of contract for failure to pay covered losses under the policy. The second cause of action was for breach of the implied covenant of good faith and fair dealing. The complaint also requested consequential damages in connection with each cause of action. The trial court granted the insurer's motion to dismiss the claim for consequential damages.

    The issue was whether, at the pleading stage, a claim for consequential damages arising from the insurer's processing of the claim, required a detailed factual description or explanation for why such damages, which did not directly flow from the breach, were also recoverable. The complaint alleged that rather than pay the claim, the insurer made unreasonable and increasingly burdensome demands for three years. The insured alleged that this was a tactic to make the claim so expensive to pursue that the insured would abandon it. The investigatory process had taken so long that the structural damage to the building worsened. Among the consequential damages alleged were engineering costs, painting, repairs, monitoring equipment and moisture abatement to address water intrusion, loss of rents, and other expenses attributable to mitigating further damage to the property. 

    An insured could sue for consequential damages resulting from an insurer's failure to provide coverage if such damages were foreseen or should have been foreseen when the contract was made. At the pleading stage, the question was whether the plaintiff had stated a claim, not whether the plaintiff was able to establish its claim. Here, the insured met the pleading requirements with respect to consequential damages. Despite the insurer's call for a heightened pleading standard, an insured's obligation to "take all reasonable steps to protect the covered property from further damage by a covered cause of loss" supported plaintiff's allegation that some or all of the alleged damages were foreseeable. 

Coverage for Climate Change

Presentation at ABA’s Insurance Coverage Litigation Seminar on coverage for climate change in Tucson this morning. My co-panelists were Rina Carmel and Karin Aldama  it was our fifth year of presenting together.