Insurance Law Hawaii

Duty to Defend Breached Under Employment Practices Policy

    Finding the exclusion relied upon by the insurer was ambiguous, the Fourth Circuit affirmed the district court's ruling that a duty to defend was owed. Mariam, Inc. v. Universal Underwriters Ins. Co., 2020 U.S. App. LEXIS 15658 (4th Cir. May 15, 2020)

    Tamara Darvish Fallahi sued her father, his company, and her two half-brothers (Appellees) in a dispute over a family-owned business. The allegations included claims of tortious interference with economic relationships and tortious interference with contract. To prevail on her underlying tort claims, Fallahi had to show intentional, malicious acts that were calculated to cause harm. 

    Appellees tendered to Universal Underwriters, who's policy provided coverage for allegations of wrongful employment practices. Universal denied the claim, citing an exclusion for coverage of actions taken with the intent to cause harm. The exclusion did not apply, however, if the injury arose solely from the intentional use of reasonable force for the purpose of protecting persons. The district court granted summary judgment to Appellees on their duty to defend claim.

    On appeal, Universal argued that "harm" meant any harm whatsoever, while Appellees maintained that, reading context, "harm" could refer only to physical harm. The Fourth Circuit agreed with Appellees. The exclusion was ambiguous because it could suggest more than one meaning to a reasonably prudent layperson. "Harm" could reasonably be interpretedas referring only to harms of a physical nature. In light of the ambiguity, the exclusion was construed against Universal as the drafter of the policy. The district court's judgment was affirmed. 

No Coverage for Counterclaim Arising from Insured's Faulty Workmanship

    The Eighth Circuit found there was no coverage for the insured's faulty workmanship. Am. Family Mut. Ins. Co., S.I. v. Mid-American Grain Distributors, LLC, 958 F.3d 748 (8th Cir. 2020).

    Mid-American contracted with Lehenbauer to design and construct a grain storage and distribution facility for Lehenbauer. Before the work was competed, Lehenbauer terminated Mid-American's services. Mid-American then sued Lehenbauer for breach of contract. Lehenbauer counterclaimed against Mid-American, alleged breach of "implied duties of workmanlike performance and fitness for a particular purpose" and negligence. Mid-American tendered the counterclaim to American Family. American Family accepted the tender under a reservation of rights, but sued Mid-American for a declaratory judgment.

    The district court granted American Family's motion for summary judgment, concluding that the counterclaims did not allege an occurrence. 

    On appeal, the Eighth Circuit noted that under Missouri law, an "accident" did not include acts that resulted in expected or foreseeable damage. But must the accident be foreseeable to the actual insured, subjectively speaking, or to a reasonable insured, objectively speaking? Here, foreseeability could be inferred as a matter of law given the nature of the act and they type of damages at issue even under the subjective standard.

    The damages in question were the inherent results of shoddy workmanship. Therefore, Mid-American's alleged defective construction work was not an "occurrence." Lehenbauer's damages were the normal, expected consequence of Mid-American's work. They were foreseeable as a matter of law, so Mid-American's work was not an "accident," and thus not an "occurrence." The district court decision was affirmed. 

No Coverage For Wind And Flood Damage Suffered From Superstorm Sandy

    The court found that the policy's anti-sequential clause barred coverage for damage caused by Hurricane Sandy. Estate of Doerfler v. Fed. Ins. Co., 2020 N.J. Sup. Unpub. LEXIS 920 (May 14, 2020).

    The insureds held identical homeowners policies from Chubb and Federal Insurance Company. Damage resulting from flood was not covered. The policies' "surface water exclusion" stated,

[W]e do not cover any loss caused by: flood, surface water, waves, tidal water, overflow of water from a body of water . . . or spray from any of these even if driven by wind.

The insureds also had separate flood insurance policies, insuring the structure of each home for $250,000.

    Superstorm Sandy created wind gusts as high as eighty miles per hour. A severe storm surge caused tides to rise between nine and eleven feet. The storm surge caused surface water to flood onto plaintiffs' properties and their homes ultimately collapsed. 

    Claims were submitted to the insurers. Inspectors determined that the damage to the homes was cased by storm surge and flood waters, not wind. Plaintiffs were paid the maximum amounts under the flood policies. 

    Plaintiffs sued the insurers and cross-motions for summary judgment were filed on whether the surface water exclusion barred coverage after the homes were destroyed in the flood that inundated their properties. 

    The trial judge correctly found that the policies did not cover the losses sustained in the flood. The surface water exclusion clearly applied. 

    The trial judge correctly rejected plaintiffs' contention that wind was the initiating and efficient proximate cause of the storm surge and, because wind damage was covered under their policies, the surface water exclusions did not apply. Under the efficient proximate cause rule, recovery was allowed where the insured risk was the last step in the chain of causation set in motion by an uninsured peril, or where the insured risk itself set into operation a chain of causation in which the last step may have been an excepted risk.

    As determined by the trial judge, the efficient proximate cause rule did not apply here. Wind and flood waters were not separate events. Further, there were no sequential causes of loss. Because the policies excluded any loss contributed to, made worse by, or in any way resulting from or caused by flood, surface water, waves, tidal water, or overflow from a body of water (an anti-sequential clause), the claims were barred regardless of whether wind played any role in the loss. 

    Accordingly, the trial court properly granted summary judgment to the insurers.

Earth Movement Exclusion Precludes Coverage

    The Federal District Court, District of Hawaii, found the earth movement exclusion barred coverage for the contractor when a landslide damaged the property. North River Ins. Co. v. H.K. Constr. Corp., 2020 U.S. Dist. LEXIS 90110 (D. Haw. May 22, 2020). 

    Bruce and Yulin Bingle sued HK for damage caused to the Bingle property. HK was hired as the contractor for the construction of a new residence and improvements on their property in Kaneohe. HK excavated near the boundary of the neighbors' and the Bingle's property in order to cut the existing slope to build a retaining wall. Due to the excavation work, the slope on the Bingle property failed and soil eroded away. At the time, the Bingles were selling their property. Due to the landslide, the buyer decided not to buy the property.

    The Department of Planning and Permitting issued a Notice of Violation for failure to obtain a grading permit. HK notified its carrier, North River. North River agreed to defend under a reservation of rights, but then filed suit against HK for a declaratory judgment. 

    The policy excluded coverage for property damage caused by "subsidence and earth movement." Further, "such loss or damage is excluded regardless of any other cause or event, including any product, work or operation provided or performed by or on behalf of the insured, that contributes concurrently or in any sequence to the loss or damage."

    HK conceded that its work was the sole cause of the loss, but argued the exclusion only applied to earth movements caused entirely by natural phenomena, not those caused by human action. The court disagreed. The exclusion was unambiguous. It did not cover property damage resulting from movement, "settling, slipping, or falling away" of and caused by natural phenomena, HK's operations, or any combination thereof. 

    Although there was no Hawaii law construing the earth movement exclusion, authority from other jurisdictions interpreting a similar or identical exclusion held that the provision unambiguously excluded earth movement-related damages caused by natural phenomena and the insured's activities. Therefore, North River had no duty to defend. 

Title Insurer Breaches Duty to Defend in Bad Faith

    The Washington Supreme Court found that a title insurer breached its duty to defend when it was discovered that a Native American tribe had rights to access the land under a treaty with the State of Washington. Robbins v. Mason County Title Insurance Co., 2020 Wash. LEXIS 288 (Wash. May 7, 2020).

    In 1854, the Washington Territory and the Squaxin Island Tribe entered the Treaty of Medicine Creek. The tribe relinquished its rights to the land but retained "the right of taking fish at all usual and accustomed grounds and stations . . ., in common with all citizens of the Territory."

    In 1978, the Robbins purchased property in Mason County that included tideland with manila clam beds. When purchasing the property, Robbins obtained title insurance from Mason County Title Insurance Company (Mason). Under the policy, Mason agreed to insure Robbins "against loss or damage sustained by reason of: . .  . [a]ny defect in, or lien or encumbrance on, said title existing at the date hereof." Further, Mason agreed to defend the insured against any demands and legal proceedings founded upon a claim of title, encumbrance or defect which existed prior to the date the policy was issued. The policy's exceptions included, "public or private easements not disclosed by the public records." 

    For years Robbins had contracted with commercial shellfish harvesters to enter the property to harvest shellfish from the tidelands. In 2015, the Tribe wrote the Robbins to notify them of the Tribe's plan to enter the property and harvest shellfish in accordance with treaty rights.

    Robbins tendered the claim to Mason. The claim was denied based on Mason's view that the Tribe's asserted right was an "easement" and a treaty was not a record that imparts constructive notice. 

    Robbins sued Mason for breach of its duty to defend. The trial court granted Mason's motion for summary judgment. The Court of Appeals reversed, holding that the Tribe's letter was a "demand" under the policy that triggered the duty to defend, the Tribe's asserted right was a profit, and that a profit was not an easement. The Court of Appeals also found that Mason's denial of a defense was an act of bad faith.

    On appeal, the Washington Supreme Court first found the Tribe's letter as a "demand." The Tribe asserted its legal right to harvest shellfish on Robbins' tidelands by sending Robbins a letter stating that the Tribe was seeking the shellfish it was due. The plain meaning of the policy supported concluding that the letter was a demand. The policy required Mason to defend "demands." Therefore, Mason was required to defend unless an exception applied.

    If the Tribe's asserted right was either not an easement or was disclosed by public records, then the policy exception did not apply and Mason had a duty to defend. The court determined that the Tribe's right was a profit, which was defined as "the right to sever and to remove some substance from the land." Various authorities disagreed on whether a profit was a type of easement. The uncertainty had to be construed in favor of the insured. Mason therefore breached its duty to defend against the Tribe's demand.

    Mason was also in bad faith. The law regarding whether the Tribe's asserted right was an easement or a profit and whether a profit was an easement was unclear under Washington law. 

    Robbins, however, did not seek summary judgment on Mason's affirmative defenses and the trial court had not ruled on any of Mason's defenses. Therefore, the case was remanded to the trial court for consideration of the defenses, consistent with the other holdings in the opinion. 

    

 

Georgia's Cause Theory Means One Occurrence in Multi-Car Accident

    The Eleventh Circuit, following Georgia law, found the cause theory meant there was a single occurrence in a multi-car accident. Grange Mut. Cas. Co. v Slaughter, 2020 U.S. App LEXIS 14057 (11th Cir. May 1, 2020).

    Driving a truck owned by Four Seasons Trucking (FST), Mark Lucas crossed the center lane and collided with two vehicles, one right after the other. Grange insured the truck. Grange sued for declaratory relief, asking the district court to establish its obligations under the policy. 

    The district court concluded there was a single accident. Georgia used the cause theory to define the word "accident" in the policy. Under this theory, the number of accidents was determined by the number of causes of the injuries, with the court asking if there was but one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damage.

    The policy defined "accident" to incur continuous or repeated exposure to the same conditions resulting in "body injury" or "property damage." Further, the limit of insurance clause in the policy applied "regardless of the number of . . . vehicles involved in the 'accident'." The district court concluded that FST's argument that any time separate collisions occurred, there were different "conditions" would read that language out of the policy. The court also rejected FST's suggestion that any time there was a multi-auto collision, there were multiple accidents.

    The Eleventh Circuit agreed. Under the cause theory adopted in Georgia, courts looked to whether, after the cause of the initial collision, the driver regained control of the vehicle before a subsequent collision, so that it could be said there was a second intervening cause and therefore a second accident. 

    Here, there was no evidence that Lucas regained control of the truck as he crossed the centre line and collided with the two vehicles. The policy's limit of insurance clause also contemplated that multiple vehicles could be involved in a single accident. 

 

Sanctions Award Against Pro Se Plaintiff Upheld

    The plaintiff's failure to timely name an expert witness in his bad faith action led to sanctions being awarded against him in favor of the insurer. Black v. Fireman's Fund Ins. Co., 2020 Cal. App. Unpub. LEXIS 2477 (Cal. Ct. App. April 23, 2020).

    After Black's claim was denied by Fireman's Fund, he communicated with company through letters, emails and phone conversations. Black complained that Fireman's Fund handled his claim improperly, engaged in illegal activities and had ties to the Nazi regime in Germany. Fireman's Fund sued Black alleging that his communications amounted to civil extortion, interference with contractual relations, interference with prospective economic advantage, and unfair business practices. Fireman's Fund eventually dismissed its complaint without prejudice. 

    Black, however, had filed a cross-complaint in which he asserted a number of claims, including bad faith. Black designated attorney Randy Hess as an expert on insurance claims. Over the next year and a half, Fireman's Fund repeatedly attempted to take Hess's deposition. In March 2018, Fireman's Fund moved to compel the deposition or exclude the testimony. The court set a July 20, 2018 deadline for the disposition to take place or else the testimony would be excluded. 

    In mid-July 2018, a new law firm entered its appearance for Black, and asked to postpone Hess's deposition to July 20. Fireman's Fund agreed. Then the firm asked for a 45-day extension for Black to locate and designate a new expert to replace Hess. Fireman's Fund declined. Black moved ex parte to extend the expert discovery period. The court denied the motion. 

    Black filed another motion, seeking "a short continuance to allow a further expert designation and expert deposition." Fireman's Fund opposed the motion and sought $7,862.50 in sanctions. The court denied the motion, finding that Black was given 18 months' notice of Hess's reluctance or refusal to act as an expert. The court also awarded sanctions. 

    The Court of Appeals affirmed. In April 2017, early in the discovery period, Hess told Black that he would not act as an expert or appear at a deposition unless he was paid. A year later, Hess told Black he had withdrawn as an expert because he had not been paid. 

    Between April 2017 and July 2018, Black could have reached an agreement with Hess or found another expert. He failed to do either, forcing Fireman's Fund to spend additional time and money to pursue and protect its discovery interests. Sanctions were warranted because in his motion, Black did not identify an additional expert witness, making the motion little more than another effort to delay the proceeding. 

California Supreme Court Adopts Vertical Exhaustion for Long-Tail Claims

    In another round of litigation involving coverage issues between Montrose Chemical Corporation and its insurers, the California Supreme Court ruled in favor of Montrose, adopting vertical exhaustion of excess policies. Montrose Chem. Corp. of Calif. v. The Superior Court of Los Angeles County, 9 Ca. 5th 215 (2020).

    In 1990, the United States and the State of California sued Montrose for contamination  from 1947 to 1982 caused by Montrose's facility manufacturing insecticides. Montrose had primary and excess liability policies from defendant insurers between 1961 and 1985. Forty insurers collectively issued more than 115 excess policies, which collectively provided coverage sufficient to indemnify Montrose's anticipate total liability.

    Primary coverage was exhausted. Each excess policy provided that Montrose had to exhaust the limits of its underlying coverage before there would be excess coverage. Which excess carrier could be called on first was the issued before the California Supreme Court.

    Montrose proposed a rule of "vertical exhaustion" or "elective stacking," whereby it could access any excess policy once it exhausted other policies with lower attachment points in the same policy period. The insurers, in contract, argued for "horizontal exhaustion," whereby Montrose could access an excess policy only after it exhausted other policies with lower attachment points from every policy period in which the environmental damage resulting in liability occurred. 

    On motions for cross-summary judgment, the trial court denied Montrose's motion and granted the insurers' motion. Horizontal exhaustion was required in the context of a multiyear injury. The Court of Appeals affirmed.

    The Supreme Court reversed and found vertical exhaustion was appropriate. Under this rule, the insured had access to any excess policy once it exhausted other directly underlying excess policies with lower attachment points. Further, an insurer called upon to indemnify the insured's loss could seek reimbursement from other insurers that issued policies covering relevant policy periods. 

    The court noted that horizontal exhaustion would create significant practical obstacles to securing indemnification because the exclusions, terms, and conditions could vary from one policy to another. The insured would be put to a considerable expense of having to establish a right to coverage under the definitions, terms, conditions, and exclusions from policies in every policy period triggered by the continuous injury. 

    Therefore, California law permitted Montrose to seek indemnification under any excess policy once Montrose exhausted the underlying excess policies in the same policy period. Montrose was not required to exhaust excess insurance at lower levels for all periods triggered by continuous injury before obtaining coverage from higher level excess insurance in any period. Parties in insurance policies could, of course, write policies differently to establish alternative exhaustion requirements or coverage allocation rules if they so desired.

 

Hacker's Action Not Fraudulent: No Coverage

    The multi-peril policy did not provide coverage for ransom paid to a hacker in order to retrieve its servers. G&G Oil Co. of Ind. v. Cont' W. Ins. Co., 2020 Ind. App. LEXIS 126 (March 31, 2020).

    G&G Oil Company held a multi-peril commercial policy from Continental. The Commercial Crime Coverage Part provided,

We will pay for loss of or damages to "money", "securities" and "other property" resulting directly from the use of any computer to fraudulently cause of a transfer of that property from inside the "premises" or "banking premises":

    a. To a person outside those "premises"; or

    b. To a place outside those "premises". 

    G&G employees discovered that the company was the victim of a ransomware attack. G&G could not access the company's servers and most of its workstations. The hacker demanded a ransom in bitcoin. In exchange for payment, the hacker agreed to send G&G the passwords and restore its control over its computer servers. 

    G&G make the payment demanded, but the hacker refused to restore G&G's control over its computer servers and demanded additional bitcoin. Ultimately, G&G paid $34,477.50 for the four bitcoins it sent to the hacker. 

    G&G submitted a claim. Continental denied the claim because the loss did not result directly from the use of a computer to fraudulently cause a transfer of G&G's funds. G&G filed a complaint and the parties filed motions for summary judgment. 

    The trial court denied G&G's motion and granted summary judgment to Continental. The loss was not "fraudulently caused." The hacker inserted himself into G&G's system. The hacker deprived G&G of use of its computer system and extracted bitcoin from G&G as ransom. While devious, tortious and criminal, it was not fraudulent. 

    On appeal, G&G argued that the hacker's ransomware attack was deceptive and unconscionable. Its loses resulted from computer fraud because the hacker engaged in deception when he refused to release the computers after G&G paid the first bitcoin demand and demanded an additional payment before restoring G&G's control over its computers. 

    The appellate court disagreed. The hacker did not use a computer to fraudulently cause G&G to purchase bitcoin to pay as ransom. The hacker did not pervert the truth or engage in deception on order to induce G&G to purchase the bitcoin. Although the hacker's actions were illegal, there was no deception involved in the demands for ransom in exchange for restoring G&G's access to its computer. For these reasons, the court concluded that the ransomware attack was not covered under the policy's computer fraud provision.