Insurance Law Hawaii

Insurer's Attempt to Strike Experts in Collapse Case Fails

    The insurer's efforts to exclude two of the insured's experts in a collapse case were unsuccessful. Hudon Specialty Ins. Co. v. Talex Enterprises, LLC, 2019 U.S. Dist. LEXIS 150148 (S.D. Miss. Sept. 4, 2019).

    The insureds' building collapsed. The remaining portions of the building required immediate stabilization. The insureds hired Mr. Laird, an engineer, to prevent further property destruction. The insured designated Mr. Laird as a non-retained expert for trial. Mr. Laird's report claimed that the collapse was caused because the building had been re-roofed many times without removal of the degraded underlying roofing materials, thereby adding additional weight to the roof structure. 

    The insureds also designated Steve Cox as a non-retained expert. Mr. Cox was an architect who owned property neighboring the building that collapsed. He opined that the building collapsed because of the condition of very old mortar and not because of water standing on the building roof or because of roof repairs. 

    Hudson sought to strike these two experts because their opinions were inconsistent with the admitted facts. A document produced by the insureds stated that a large amount of rainwater had collected on the roof and the weight of the rainfall was the proximate cause of the collapse. Hudson claimed that this statement qualified as a judicial admission, removing the question of causation from contention. The court disagreed that the statement was a judicial admission because it did not form any part of the pleadings. The statement may have been an evidentiary admission that could be controverted or explained by the parties. 

    Hudson also argued that neither expert testified that the mortar decay which alleged caused the collapse was not plainly visible. Therefore, the testimony could not be relevant because the building decay had to hidden from view to trigger the policy. But the determination of whether the policy was triggered would be based on testimony and cross-examination.

    Hudson also sought to strike Mr. Laird because he had been retained to insist the insureds to preserve the property before suit was ever filed. The mere fact that he was retained to provide expert testimony did not make him a "specially employed expert" who was solely retained to provide testimony at trial and was not involved in other ways in the case. Mr. Laird would testify as to the opinion he formed during his employment by the insureds as he worked to stabilize the building. Therefore, he was correctly designated as a non-retained expert.

    Therefore, the expert opinions put forth by the insureds satisfied the Daubert standard and were both relevant and reliable. 

Insurer Granted Summary Judgment on Denial of Construction Defect Claim

    The court granted the insurer's motion for summary judgment, confirming there was no duty to defend or indemnify a construction defect claim against the insured. Fontaine Bros. v. Acadia Ins. Co., 2019 U.S. Dist. LEXIS 148056 (D. Mass. Aug. 29, 2019). 

    The City of Worcester contracted with Fontaine Brothers, Inc. to install a new ice refrigeration system at the City's indoor ice rink. After construction, the condensers in two chiller units eroded and stopped operating. 

    The City sued Fontaine for the costs of leasing temporary chillers and installing new ones. The City alleged that Fontaine installed condensers with carbon steel tubes instead of contractually required stainless stell tubes.Further, Fontaine and its subcontractors did not adequately maintain the condensers, in breach of the contract.

    Fontaine's insurer, Acadia Insurance Company, denied coverage. Fontaine sued Acadia. The court noted that the City's complaint plainly alleged faulty workmanship by Fontaine. However, the City's complaint did not allege that Fontaine intended the condensers to corrode and left open the possibility that Fontaine was unaware of any potential problem or did not foresee the corrosion likely to result from the use of carbon steel components or the maintenance work being done by its subcontractor. Therefore, the Cit's complaint did not foreclose the possibility that the corrosion resulting from Fontaine's alleged faulty workmanship and maintenance might be shown to be an unforeseen or unintended consequence of reckless or negligent conduct. Accordingly, it was possible that there was an occurrence under the policy language. 

    But the court found that a  business risk exclusion applied to relieve Acadia of any duty to defend or indemnify. The Impaired Property Exclusion, subsection (m), excluded "property damage to impaired property or property that has not been physically injured, arising out of (1) A defect, deficiency, inadequacy or dangerous condition in 'your product' or 'your work'; or (2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms." The damage and resulting loss arose from Fontaine's work in the form of faulty parts or equipment and Fontaine's failure to perform an agreement in accordance with its terms. Further, the property was "restored to use" by the removal and repair of Fontaine's product and work. The faulty condensers were equipment furnished in connection with work or operations performed by Fontaine or on its behalf, and the condensers impaired the operations of the ice rink. 

    Because the complaint left open no question that the Impaired Property exclusion applied, Acadia had no duty to defend or indemnify. 

Damon Key Colleague Robert Thomas Honored

    My partner and blogging colleague [blog here] at Damon Key, Robert Thomas, received a well-deserved appointment this week. Robert will serve as a new member of the American Law Institute and will bring his expertise to ALI. ALI clarifies the law through Restatement, Principles, and Model Codes. Among his many talents, Robert is an expert in inverse condemnation and appellate work. Congratulations, Robert.

Certified Question Asks Texas Supreme Court About Use of Extrinsic Evidence In Determining Duty to Defend

    The Fifth Circuit certified a question to the Texas Supreme Court about the use of extrinsic evidence in determining the insurer's duty to defend. State Farm Lloyds v. Richards, et al, 2019 U.S. App. LEXIS 27221 (5th Cir. Sept. 9, 2019).

    The insureds' grandson was killed in an all-terrain vehicle accident while under their temporary care. The child's parents sued the insureds, alleging they were negligent in failing to supervise and instruct the child. The insureds sought a defense from State Farm under their homeowners' policy. State Farm defended under a reservation of rights, but sought a declaration there was no duty to defend or indemnify from the federal district court. 

    State Farm filed a motion for summary judgment, contending two exclusions barred coverage. The "motor-vehicle exclusion" exempted coverage for bodily injury arising from the use of an ATV while off the insureds' premises. In support of the summary judgment motion, State Farm attached a vehicle crash report showing that the accident occurred away from the insureds' premises, as well as the insureds' admissions that the accident occurred off an insured location. The "insured exclusion" barred coverage for bodily injury to an insured, which included relatives who were residents of the household or under 21 years of age. State Farm attached the insureds' admission that they were the child's grandparents, as well as an order appointing them as joint-managing conservators.

    The district court found the extrinsic evidence satisfied both exclusions, and granted summary judgment to State Farm. The district court ruled that the eight-corners rule did not apply if a policy did not include language requiring the insurer to defend "all actions against its insured no matter if the allegations of the suit were groundless, false, or fraudulent." 

    The Texas Supreme Court had hinted in prior cases that extrinsic evidence could be relied upon in narrow circumstances as an exception to the eight-corners rule. But the court had never adopted the rule. Therefore, the Fifth Circuit asked whether the policy-language exception to the eight-corners rule was a permissible exception under Texas law.

Court Denies Insurer's Motion to Dismiss Collapse Claim

    Facing yet another collapse claim based upon alleged poorly mixed cement, the Federal District Court in Connecticut denied the insurer's motion to dismiss. Oliveria v. Safeco Ins Co., 2019 U.S. Dist. LEXIS 147256 (D. Conn. Aug. 29, 2019).

    In 1993, the insureds' purchased their home that had been built in 1986. Safeco insured the property. In February 2017, the insureds noticed that the basement walls had a series of cracks. They consulted professionals and learned that the cracking was due to a chemical compound found in certain concrete walls constructed in the late 1980s with concrete most likely from the J. J. Mottes Concrete Company. 

     The insureds submitted a claim to Safeco  for the substantial impairment to the structural integrity of their basement walls. Safeco denied the claim. The insureds filed suit. Safeco moved to dismiss. 

    Safeco first argued that the claims were untimely because Safeco insured the property until 2012, and the insureds did not sue until 2018. A suit limitation provision in the policy required suit to be filed within one year of the loss. Federal District Courts in Connecticut had determined that the date on which the insured learned or should have learned of the covered loss triggered the limitation. Safeco's policy contemplated property damage coverage for "repeated or continuous exposure." More than one reasonable interpretation of this language was possible. Therefore, the policy could trigger coverage. Consequently, the insureds stated a plausible claim for relief that survived a motion to dismiss. 

    The claim for Safeco's breach of the contract was also more properly decided at the summary judgment stage. Safeco also sought dismissal for the Connecticut Unfair Insurance Practices Act and Connecticut Unfair Trade Practices Act claims. The insureds alleged that Safeco denied coverage of similar claims in cases with similar factual circumstances. Thus, they sufficiently alleged a general business practice of unfair settlement handling and sufficiently stated a plausible claim for relief that survived a motion to dismiss. 

HSBA Presentation for Insurance Coverage Section

    I was honored to be a panel member at the recent Hawaii State Bar Association convention for the Insurance Coverage Section. I spoke on coverage for flood, volcanoes, and climate change.

 

Pro Se Plaintiff's Motion to Dismiss Federal Claim against Carrier Without Prejudice Denied

    The Hawaii federal district court denied the pro se plaintiff's motion to dismiss his claim against the carrier without prejudice. Greenspon v. AIG Specialty Ins. Co., et al., 2019 U.S. Dist. LEXIS 144148 (D. Haw. Aug. 23, 2019). 

    Greenspon secured a default judgment against AIG's insured in state court in 2014. In November 2018, AIG removed the case to federal district court. Greenspon filed a motion to remand.  On February 25, 2019, the court denied Greenspon's motion for remand because Greenspon had not asserted a claim against the sole in-state party, a law firm, rendering the law firm's presence as a defendant improper and resulting in its exclusion when determining diversity. 

    Greenspon sought reconsideration of the denial of his motion for remand because AIG sought to intervene in the state case that was revived by the filing of a Special Proceeding in state court by AIG to set aside the default judgment. The 2014 Lawsuit and Special Proceeding were consolidated by the state court. The federal court denied Greenspon's motion for reconsideration. 

    AIG then moved for judgment on the pleadings. Greenspon did not oppose dismissal of AIG and the law firm but asked that dismissal of both defendants be without prejudice. The court grant dismissal of both defendants without prejudice and instructed Greenspon to file an amended complaint against either or both parties. Greenspon did not file an amended complaint. 

    Greenspon then filed the instant Motion to Withdraw and Dismiss Claims Without Prejudice. He argued that the pending state court proceedings were duplicative and related to the insurance coverage proceedings in the federal court and that AIG had voluntarily entwined itself in the state-court proceedings. Pending before the state court were Greenspon's motion for summary judgment and AIG's motion to dismiss Greenspon's counterclaim.

    The court found that Greenspon was entitled to dismiss this case and remove himself from federal jurisdiction in favor of pursuing the matter in state court. However, any dismissal had to be with prejudice. Because Greenspon had not pleaded his motion in the alternative, to seek dismissal with prejudice, the motion was denied. This motion represented Greenspon's third attempt to have the federal case heard in state court in contravention of the courts unambiguous determination that it was properly in federal court. Greenspon sought to game the judicial system by doing an end run around the court's previous decision to exercise jurisdiction over this matter. 

    If Greenspon wished to dismiss his claims with prejudice, he was instructed to notify the court and opposing counsel.

Insurance Agent Successful in Dismissing Insureds' Claims for Fraud

    The Federal District Court for Hawaii granted Moa Insurance Services Hawaii's (Moa) motion to dismiss the insureds' complaint alleging that they had been forced to purchase worthless surplus lines policies for volcano damage. Aquilina v. Certain Underwriters at Lloyd's Syndicate #2003, 2019 U.S. Dist. LEXIS 165866 (D. Haw. Sept. 26, 2019).

    The insureds purchased surplus lines homeowners insurance policies with the assistance of two retail brokers, Pyramid Insurance Centre, Ltd., and Moa. The policies were underwritten by several syndicates of Lloyd's. Pyramid and Moa placed the policies and worked on the insureds' behalf to procure the insurance. 

    The complaint alleged a "steering scheme" through which various defendants, including Moa and Pyramid, sold surplus lines policies to the insured without complying with obligations under Hawaii law. After the Kilauea Volcano eruption, the insured were denied coverage under the policies for significant damage to their homes and properties. The complaint alleged that defendants unlawfully placed surplus lines insurance instead of more comprehensive coverage, such as was available through the Hawaii Property Insurance Association (HIPA). Selling Lloyd's policies was more lucrative to defendants. 

    One exclusion in the Lloyd's policies precluded coverage for "the peril of lava and/or lava flow causing direct or indirect physical damage or loss of use of the insured property." (Lava Exclusion). The complaint alleged that for a home located in a particularly risky Lava Zone, a homeowner's policy excluding lava coverage amounted to no coverage at all.

    Moa moved to dismiss relying primarily upon Rule 9 (b), Fed. R. Civ. P. Under Rule 9, where a party alleged fraud or mistake, a heightened pleading standard was required. A pleading had to identify the who, what, when, where, and how the misconduct harmed the plaintiff. 

    The court dismissed the insureds' complaint, as to Moa, without prejudice. The claims were based on a single deceptive and fraudulent "scheme to steer" the insureds into purchasing illusory surplus lines insurance that they would not have otherwise purchased. The complaint failed to allege specific facts plausibly giving rise to the insureds' suspicions of a "scheme.' The allegations did not address who made what specific representations or statements to the insureds and when, what representations the insureds relied on, how Lloyd's paying commissions to brokers constituted "improper kickbacks," and how the insureds were "steered" into purchasing the policies. 

  

Equal Access to Justice Act Fee Request Rejected in Flood Case

    The insured's claim for fees under the Equal Access to Justice Act (EAJA) for seeking coverage under a flood policy was rejected. Hampson v. Wright Nat'l Flood Ins. Co., No. 4:19-cv-10083-KMM (S.D. Fla. Aug. 11, 2019)(Order on Motion to Dismiss). The order is here. 

    The insurer did not compensate plaintiff for flood-related damages under the terms of a Standard Flood Insurance Policy (SFIP). The insurer was a Write-Your-Own (WYO) Program insurance carrier participating in the National Flood Insurance Program (NFIP). By statute, a WYO carrier acts as a "fiscal agent" and "fiduciary" of the United States. 

    The insured's property suffered damage from a hurricane. The insured sued the carrier for breach of contract and attorney's fees under EAJA. The insurer moved to dismiss the claim for fees under EAJA. A party could recover fees and costs under the EAJA as the prevailing party in a case "brought by or against the United States . . . unless the court finds the position of the United States was substantially justified." 28 U.S.C. 2412 (d) (1) (A), (b). The statute defined the "United States" to include "any agency and any official of the United States acting in his or her official capacity." However, attorney's fees were not recoverable under the EAJA in cases for breach of an SFIP brought against a WYO program insurance carrier participating in the NFIP because WYO carriers were not considered "agencies" under the EAJA. 

    Here, the insured brought a claim for breach of an SFIP against a WYO carrier participating in the NFIP. Thus, the insured's claims for attorney's fess and cases pursuant to the EAJA were dismissed. 

Hawaii Supreme Court Finds Insurer's Actions Prior to Submission of Claim Can Constitute Bad Faith

     In an issue of first impression in Hawaii, the Hawaii Supreme Court ruled that an insurer's actions before an actual claim is submitted can be considered in determining whether the insurer acted in bad faith. Adams v. Hawaii Medical Service Ass'n, 2019 Haw. LEXIS 263 (Haw. Sept 30, 2019). Disclosure - our firm was co-counsel for the petitioner, Patricia Adams.

    Brent Adams was diagnosed with a rare cancer, stage III multiple myeloma, in August 2006. His doctors advised a tandem stem cell transplant, under which he would receive a transplant of his own stem cells (autologous or "allo" transplant) followed by a stem cell transplant from a matched sibling donor (allogenic or "allo" transplant). Brent informed his health insurance provider, Hawaii Medical Service Association ("HMSA") of his intent, on the advice of his doctors, to pursue the auto and allo transplants. 

    HMSA directed Brent to seek treatment at City of Hope in Duarte, California. HMSA's case manager maintained a log of communications to oversee Brent's care. The log demonstrated that Brent's wife, Patricia Adams, told HMSA that she and Brent and were leaving for City of Hope on December 11, 2005 for testing and consultation. Patricia's declaration stated that she told HMSA that Brent would seek the auto and allo transplants at City of Hope and asked HMSA if anything else was needed to inform HMSA of the treatment plan. HMSA did not provide any further instructions. 

    On December 15, 2005, Brent's doctor at City of Hope, Dr. Stein, submitted a precertification request for an auto transplant. The request noted that Brents' siblings would be tested to determine if they could serve as donors, in which case Brent would pursue an allo transplant following the auto transplant. HMSA approved the auto transplant. HMSA, however, informed Dr. Stein that it would only pay for the testing of potential donors for the sibling that provided a match. 

    Brent underwent the auto transplant in January 2006. Dr. Stein then contacted HMSA regarding Brent's participation in a clinical trial for stem cell transplants in preparation for the allo transplant. HMSA informed Dr. Stein he should contact the precertification division and recommend that he submit data supporting the efficacy of the clinical trial. In January and February 2006, Brent and Patricia communicated numerous times with HMSA about Brent's desire to do the allo transplant. On January 17, 2006, HMSA informed Patricia that Dr. Stein had not submitted a precertification request for the allo transplant. On February 22, 2006, Brent informed HMSA that one of his siblings appeared to be a match and he hoped to pursue the allo transplant. HMSA again noted that a precertification request had to be submitted and advised Brant that "in terms of the care plan, the goals remain appropriate and on target." Patricia informed HMSA a couple of weeks later that they were "desperately trying to avoid any delays." 

    On March 2, 2006, Dr. Stein submitted a precertification request for the allo transplant. Four days later, HMSA denied the procedure because it was "investigational." The Adams were taken by surprise, viewing the denial as an abrupt change by HMSA, especially when Brent had a matched sibling donor. After an appeal to the circuit court, HMSA finally covered the allo transplant in 2007, but Brent died approximately one year later. 

    Before Brent died, he and Patricia filed suit for breach of contract, bad faith and additional claims. The circuit court granted HMSA's motion for summary judgment on all claims. The Intermediate Court of Appeals ("ICA") affirmed on the breach of contract claim, but vacated the circuit court's grant of summary judgment on the bad faith claim. The ICA held it could not conclude, as a matter of law, that HMSA reasonably handled Brent's claim for the allo transplant.  

    On remand, HMSA argued it denied coverage two days after the precertification request was submitted, so its handling of the claim was objectively reasonable. The circuit court agreed and again granted summary judgment on the bad faith claim to HMSA. The ICA affirmed, determining that no genuine issues of material fact existed as to whether HMSA mishandled the claim. HMSA denied the precertification request within the time period required under HMSA's Plan. Until a request was submitted, there was no claim for HMSA to process. The ICA noted that "the duties of good faith and fair dealing implied in every insurance contract arise after the insured complies with the claims procedure described in the insurance policy."

    On appeal, the Supreme Court considered whether, viewing the evidence in the light most favorable to Patricia, the record contained evidence establishing that HMSA committed the tort of bad faith by unreasonably handling Brent's claim for an allo transplant. The Court considered the conduct of the parties before and after the formal submission of the claim to determine whether the insurer acted reasonably. The covenant of good faith and fair dealing required HMSA to act in good faith before and after the formal submission of the claim. The record contained facts that suggested HMSA had unreasonably handled Brent's claim. This included the fact that HMSA was aware that Brent was considering the allo transplant on December 15, 2005, but did not inform him that the allo transplant would not be covered until after a formal request was submitted on March 2, 2006. Further, HMSA was aware that Brent was testing his five siblings to seek a match for the allo transplant, but did not tell Brent the procedure was not covered. 

    Accordingly, HMSA's duty of good faith and fair dealing arose based upon the insurance contract entered with Brent. Evidence of HMSA's conduct during its relationship with Brent raised genuine issues of material fact as to whether HMSA unreasonably handled Brant's claim for an allo transplant. The ICA's judgment on appeal was vacated, as was the circuit court's order granting summary judgment to HMSA on the bad faith claim. The case was remanded to the circuit court.