Insurance Law Hawaii

No Coverage for Home Damaged by Falling Boulders

    The policy's earth movement exclusion barred coverage for the home damaged by large boulders rolling down from the hillside above. Sullivan v. Nationwide Affinity Ins. Co. of Am., 2021 U.S. App. LEZXIS 628 (10th Cir Jan. 11, 2021). 

    Plaintiffs' home sustained extensive damage when two or three large builders rolled down a steep hillside and struck the home. The insurer, Nationwide, hired an engineering firm that determined the boulders were not influenced by meteorological conditions such as torrential rain or high winds. The report noted that rockfall hazards existed primarily due to an undercut sandstone outcrop, and evidenced by numerous rocks from rockfall events that scattered Plaintiffs' property. 

    Based on the report, Nationwide denied coverage under the earth movement exclusion. The exclusion provided Nationwide did "not insure for loss caused directly or indirectly by . . . Earth Movement" and regardless of "whether or not the loss event results in widespread damage or affects a substantial area." The policy further defined "earth movement" to include "landslide . . . or any other earth movement including earth sinking, risking or shifting."

    Plaintiffs sued and Nationwide moved for summary judgment. Plaintiffs submitted their own report which stated that a rockfall was not a landslide and the term "earth" meant soil and not rock. But the report also quoted sources suggesting that a rockfall was a type of landslide. The district court granted summary judgment to Nationwide. 

    There was no definitive Colorado law on whether damage caused by the rockfall was excluded under the earth movement provision. The court surveyed case law from other jurisdictions and concluded the Colorado Supreme Court would follow the cases which held that a rockfall was excluded. Further, dictionaries defined "landslide" to include the movement of rock alone. Therefore, a reasonably objective insured would read the earth movement exclusion as excluding coverage for the event here, either as a "landslide" or as "another earth movement including earth sinking, risking or shifting." 

Breach of Contract Claim Is Not An Occurrence under Kentucky Law

    The court determined that failure to comply with a contract was not an occurrence and not a covered claim. Selective Ins. Co. v. Miami Valley Paper Tube Co., 2021 U.S. Dist. LEXIS 4741 (E.D. Ky. Jan. 11, 2021).

    Crown Services, Inc. was a staffing agency and entered into a labor contract with Miami Valley Paper Tube Company. The contract required Crown to provide employees to Miami Valley and obtain workers' compensation insurance. Miami Valley was required to provide a safe workplace. An employee provided by Crown to Miami Valley was seriously injured while working at a cutting machine. Crown and its insurer paid nearly two million dollars in workers compensation benefits on behalf of the injured employee.

    Several lawsuits followed. The injured employee sued Miami Valley for gross negligence in creating unsafe working conditions. In another suit, Crown and its insurer, Zurich, sued Miami Valley, alleging breach of contract for failing to provide a safe workplace to Crown's workers. They also sought indemnification from Miami Valley. Selective Insurance Company had issued a liability policy and a Workers' Compensation and Employers Liability Policy to Miami Valley. 

    This current lawsuit related to coverage for the injury. Selective sought a declaratory judgment that the policies it issued to Miami Valley did not provide coverage to defend the two underlying actions. On a motion for summary judgment, the court considered whether there was an occurrence under the liability policy. Selective contended that Crown's lawsuit was contractual in nature and thus Miami Valley's liability to Crown did not stem from bodily injury. On the other hand, Crown and Miami Valley argued that the genesis of Crown's claims arose out of bodily injury to the employee and thus was covered under the CGL policy. Selective's argument focused too much on the thereof recovery rather than how any potential liability was created. The liability and damages stemming from the alleged breach would not exist but for the bodily injury. The liability was sufficiently related to a bodily injury to trigger coverage.

    Selective also argued that under Kentucky law, a breach of contract claim could not be an accident. Kentucky also did not recognize defects caused by faulty workmanship to be an occurrence. Like construction cases, a party had direct control over how they fulfilled obligations they agreed to by contract. Breaching a contract should not be an "accident" covered by a CGL policy, as the contracting party generally had control over how the contract was performed.

    The court had no reason to believe that the Kentucky Supreme Court would hold differently. Crown's complaint depended on the breach of the staffing agreement. Thus, Selective did not owe coverage for Crown's lawsuit against Miami Valley because in Kentucky, a breach of contract claim was not an occurrence. 

    

 

 

 

New York Court Finds Insurers Cannot Recover Defense Costs Where No Duty to Indemnify

    In a case of first impression, the Supreme Court of New York, Appellate Division, found the insurer had no right to reimbursement of defense costs paid to defend the insured. Am. W. Home Ins. Co. v. Gjoaj Realty & Mgt. Co., 2020 N.Y. App. Div. LEXIS 8286 (N.Y. App. Div. Dec. 30, 2020).

    Gjonaj Realty was sued by Viktor Gecaj when he fell from a ladder at the premises managed by Gjonaj Realty. The matter was not tendered to American Western Home Insurance Company until four years after the accident and after a judgment of $900,000 had been entered against Gjonaj Realty after its default. American denied coverage after late notice was given. Thereafter, the Supreme Court in the underling action vacated the default judgment. American then agreed to defend under a reservation of rights.

    The Appellate Division reversed the vacatur of the default judgment and reinstated the default against the insured. American then advised Gjonaj Realty that it was denying coverage and reserving its right to recover any fees and costs incurred in defending the underlying action. 

    American sued Gjonaj Realty for a declaratory judgment, establishing that it had no duty to defend, no duty to indemnify, and was entitled to reimbursement of defense costs. The Appellate Division agreed American had no duty to indemnify and no duty to defend.

    Regarding reimbursement, a handful of cases in New York had affirmed orders allowing an insurance company to recoup its defense costs upon a determination that no duty to indemnify existed. Here, the policy and the supplementary payment provision expressly promised the insureds that the insurer would bear all the costs "to defend the insured against any suit" to which the policy applied. The policy, however, was silent as to any reimbursement by the insurer for the costs of defense incurred prior to a declaratory judgment determine that there was no duty to defend or indemnify the insured in the underlying action. Had the insurer wanted to include language that allowed it to recover the costs of defending claims that were later determined not covered, it could have done so. But it did not do so here. Therefore, American could not recover its defense costs in the underlying action absent an express provision to that effect in the policy.

    Nor could the insurer recover under an equitable argument that the insureds would be unjustly enriched if the insurer had to bear the costs of defense. New York law precluded claims of unjust enrichment where the policy governed the subject matter at issue. Where the insurer and insured were contractually bound by the terms of the policy, any resort to equitable remedies as a basis for an award of defense costs was unavailing. Further, there was no unjust enrichment here. Given New York's policy imposing upon insurers a broad duty to defend, there could be no finding that the insured was unjustly enriched as a result of the defense provided by the insurer for claims that were later found to be outside the policy. 

    Other than dicta, there is no Hawaii appellate decision on the right of the insurer to obtain reimbursement of defense costs. See Lexington v. Nautilus, 132 Haw. 283, 293, 321 P.3d 634, 644 (2014) (suggesting if an insurer defending under a reservation of rights determined it has not duty to defend, the insurer may recoup its expenses from the insured). While the Hawaii federal district court has come out on both sides of the issue, one decision noted that "a ruling on reimbursement would be a major decision on Hawaii insurance law that could have a tremendous impact on the duty to defend in hundreds of other cases." Exec. Fisk Indem., Inc. v. Pac. Educ. Servs., 451 F. Supp. 2d 1147, 1163 (D. Haw. 2006). 

Cherokee Nation Prevails on Summary Judgment in COVID-19 Case

    The Oklahoma trial court granted partial summary judgment to the Cherokee Nation for its business interruption claim due to the mandated closure of its casinos. Cherokee Nation, et al v. Lexington Ins. Co., et al., Case No. CV-10-150, Order Granting Summary Judgment (Okla. Dist. Ct. Jan. 28, 2021). The decision is here [Cherokee Nation.]

    The State of Oklahoma temporarily closed the Cherokee Nation's business operations on March 16, 2020 to implement mitigation protocols and modification so its businesses could operate safely in the pandemic. While closed, the Nation repaired its property by implementing various mitigation protocols, such as installing acrylic barriers and sanitation stations, staggering seating and gaming machines, replacing air filters, etc. In June 2020, the Nation reopened its properties.

    The Nation submitted its claim for business losses under policies issued by the various Defendant Insurers. Coverage was denied because the Nation did not suffer direct physical loss or damage as contemplated by the Tribal Property Insurance Program. The Nation filed suit and moved for summary judgment. The day after suit was filed, the insurers added a new Communicable Disease exclusion that preempted coverage due to the fear or threat of viruses.

    The Nation argued that "direct physical loss" occurred when covered property was rendered unusable for its intended purpose. The insurers said that "direct physical loss or damage" was a phrase-of-art, which meant there had to be distinct, demonstrable, physical alteration to the property.  

    The court found the Nation's interpretation of the policy was reasonable. Even if the insurers' interpretation was also reasonable, the court would have two competing interpretations. Under Oklahoma law, the ambiguity would be interpreted in the Nation's favor. Nevertheless, the court found that the insurers' interpretation of "direct physical loss" was unreasonable, and the Nation's interpretation was correct.

    Other provisions of the policy also demonstrated that requiring a physical alteration of the property was inconsistent with the policy. For example, several exclusions excluded losses that did not require physical alteration to the property, such as infidelity, loss of market, and inventory shortage.

    The same was true for the new Communicable Disease exclusion, which concerned the "fear or threat (whether actual or perceived) of a Communicable Disease." If pandemics as a cause of loss were clearly not covered by the policy, then the new exclusion would be superfluous. The addition of the exclusion only made sense where the Nation's interpretation applied and pandemics could constitute a covered cause of loss. 

    The "all risk" nature of the policy also cut against the insurers' interpretation. The triggering language of coverage was "all risk of direct physical loss or damage." The policy provided coverage specifically for imminent physical loss and required the insured to take reasonable and necessary actions to protect the property. Common sense dictated that the policy could not require the insured to demonstrate physical alteration to the property while also promising coverage for anticipated loss as well. 

    Further, because the policy provided for direct physical loss or damage, the court placed value in the disjunction "or." The work "loss" was divested of any meaning under the insurers' interpretation. The policy contemplated two categories of covered loss: direct physical damage, which may exist under the insurers' interpretation; and direct physical loss, which included the Nation's interpretation. 

    Regarding the Communicable Disease exclusion, the only loss shown to the court was the pandemic. Regardless of whether there was definitive proof that the COVID-19 virus was or was not on the Nation's property, the property was still rendered useless due to the reasonable precautionary measures implemented in response to the pandemic. Because the actual presence of the virus was not relevant to the closure of the Nation's property it was not relevant to the court's determination that direct physical loss occurred. The exclusion did not contemplate pandemics, or suspected, imminent, threatened, or fear of viruses, common language utilised by carriers to exclude such losses. Therefore, the exclusion did not clearly apply to the Nation's loss.

 

 

Insured's Expectations of Coverage Allows Escape from Dismissal in COVID-19 Claim

    While the court found no allegations of direct physical loss in a claim arising from COVID-19, the insured survived a motion to dismiss based upon its expectation of coverage. Humans & Res. v. Firstline Nat'l Ins. Co., 2021 U.S. Dist. LEXIS 3998 (E.D. Pa. Jan. 8, 2021). 

    The insured owned a restaurant in Philadelphia. In March 2020, local and statue authorities issued orders closing all non-essential businesses. The insured's restaurant remained closed for several months. It was later permitted to re-open on a part-time, limited basis with restricted hours. The insured claimed that COVID-19 made the restaurant unusable in the way that it had been used before the pandemic. Because it derived most of its revenue from in-restaurant seating and business, the insured argued it suffered losses within the coverage of its policy with the insurer.

    The insured filed for a declaratory judgment that its restaurant was covered for all of the business income losses that it had incurred as a result of its forced closure. The policy provided that business income coverage was triggered only when the suspension of business operations was caused by "direct physical loss" of or damage to property at the described premises, and that the loss or damage was caused by or resulted from a Covered Cause of Loss. The loss had to bear a causal relationship to some physical condition making the premises uninhabitable and unusable, or nearly as such.

    The policy did not afford coverage for the losses claimed here. The policy also included a virus exclusion.

    Nevertheless, the insured argued that Pennsylvania's Doctrine of Reasonable Expectations applied to override the insurer's denial of coverage. The court found this argument to be persuasive. Even the most clearly written exclusion did not bind the insured where the insurer created in the insured a reasonable expectation of coverage. The insured's complaint alleged,

32. Plaintiff had a reasonable expectation that the policy's business interruption coverage applied where a civil authority forced closure, thereby barring access to the business, due to an issue of public safety in the immediate area surrounding the Insured Property.

These allegations plausibly alleged facts which could give rise to a basis to afford coverage to the insured if proven. Therefore, the insurer's motion to dismiss was denied to provide the insured the opportunity to take discovery on this point. 

California Superior Court Overrules Insurer's Demurrer on COVID-19 Claim

    A Superior Court in California overruled the insurer's demurrer to the policy holder's complaint seeking business interruption coverage after government shutdown orders were issued because of the coronavirus pandemic. Goodwill Industries of Orange County, California v. Philadelphia Indemnity Ins. Co., Cal. Superior Ct., Civil No. 30-2020-01169032-CU-IC-CXC (Minute Order Jan. 28,, 2021). The minute order is here [Goodwill Decision].

    The insurer demurred on the ground that the insured had not alleged sufficient facts to show "direct physical loss" under the business income, extra expenses and civil authority provisions in the policy because coronavirus and COVID-19 did not physically alter the structure.     

    The complaint expressly alleged that the coronavirus and COVID-19 caused direct physical loss and damage to the insured's property. Further, coronavirus and COVID-19 were present at its properties at the time of the state and county closure orders. When the insured reopened its properties, its employees tested positive, requiring the insured to conduct additional cleaning and sanitization to respond to and remove the coronavirus and COVID-19 from physical surfaces in its insured premises. The insured argued (a) that "directly physical loss" did not require physical tangible alteration of the property and that allegations of loss of use were sufficient, and (b) that if physical tangible alteration is required, the insured had satisfied this requirement.

    The court noted that whether the insured had alleged sufficient facts to overcome the insurer's demurrer depended on the interpretation of "direct physical loss." Taking the complaint's allegations as true, the court could not determine as a matter of law that the allegations did not show a "direct physical loss." Therefore, the demurrer was overruled. 

No Duty to Indemnify Where No Duty to Defend

    The Montana Supreme Court held that because there was no duty to defend the insureds' intentional acts, the insurer had no duty to defend. Farmers Ins. Exch. v. Wessel, 2020 Mont. LEXIS 2617 (Mont. Dec. 22, 2020).

    The insureds' property was accessed by Turk Road. Turk Road was also used by the neighbors to access their land. The insureds asked for permission to snowmobile across the neighbors' property. Permission was denied because the property was in a conservation easement which prohibited motorised used. The insureds' thereafter retaliated by not allowing the neighbors to use Turk Road. The neighbors then purchased an easement from another landowners to construct  a new driveway which did not traverse the insureds' property. The insureds built snow berms and gates, felled trees, and created other obstacles to prevent the neighbors from using the new driveway. Physical threats were also made by the insureds.

    The neighbors sued the insureds for declaratory and injunctive relief. The complaint alleged that the insureds' acts were intentional and purposeful.

    Farmers defended, but sued for a declaratory judgment on coverage. Farmers argued there was no "occurrence" because there was nothing accidental about the insureds' conduct. The Montana Supreme Court affirmed the district court's granting summary judgment agains the insureds on the duty to defend. 

    The district court also determined it was premature to decided whether Farmers had a duty to indemnify. The Supreme Court reversed. There was no coverage under the policy to give rise to a duty to defend. A conclusion that there was no duty to defend compelled the conclusion that there was no duty to indemnify. 

 

Policyholder Prevails on Summary Judgment in COVID-19 Business Interruption Claim

    Summary judgment was awarded to the insureds on their business interruption claim due to governmental closures during the COVID-19 pandemic. Henderson Rd. Rest. Sys. v. Zurich Am. Ins. Co., 2021 U.S. Dist. LEXIS 9521 (N.D. Ohio, Jan. 19, 2021). 

    Plaintiffs owned restaurants in several states. In the spring of 2020, state governments issued orders restricting the operations of restaurants in an effort to abate the spread of the coronavirus. Plaintiffs closed all but four of their Ohio restaurants on March 15, 2020. These four restaurants continued to provide carry-out dining until March 17, 2020, and then they closed. Plaintiffs speculated that some of their restaurants would never re-open due to new seating capacity restrictions, and those that re-opened had reduced staffing and suffered financial loss. 

    Zurich denied coverage and plaintiffs sued. Count I was for breach of contract, Count II asserted a bad faith denial of coverage, and Count III requested a declaratory judgment. The parties stipulated to facts, including stipulating that the restaurants were not closed as the result of the known or confirmed presence of COVID-19. Further, there were no physical alterations or structural damage to any of the restaurants. 

    The parties filed cross motions for summary judgment. Zurich argued there was no coverage because plaintiffs' economic losses were not caused by "physical loss or damage to property." Zurich further argued that the underlying cause of loss was COVID-19; that COVID-19 was a microorganism; and that the Microorganism exclusion applied. Plaintiffs argued that "direct physical loss of" included an inability to possess something in the real or material world, and that the government orders caused plaintiffs to lose their property in this manner.

    The court first found that the policy was susceptible to more than one interpretation. The policy promised to pay for "direct physical loss of or damage to real property." Plaintiffs argued that physical loss of the real property meant something different than damage to the real property. The court agreed. Otherwise, why would both phrases appear side-by-side separated by the disjunctive injunction "or"? Because the policy was susceptible of more than one interpretation, it had to be liberally construed in favor of the insureds. 

    The policy provided business income coverage for suspension of operations. The policy defined "suspension" as "the slowdown or cessation of your business activities." Plaintiffs demonstrated that that there was a suspension of their operations. Plaintiffs also showed that there was a loss of business income due to the suspension of their operations. Zurich did not contest that plaintiff suffered a loss of business income. Plaintiffs also demonstrated that the state orders leading to the restaurants' closing were caused by a fortuitous event. Therefore, plaintiffs were entitled to summary judgment on the issue of coverage under the policy.

    The court next considered the Microorganism exclusion, which barred coverage for any loss caused by any activity of microorganisms. Plaintiff argued that the exclusion did not apply because the loss of their properties was not caused by any activity of "microorganisms." The parties had stipulated that the restaurants were not closed due to the presence of COVID-19, but because of the government closures. The court agreed with plaintiffs' argument.

    Zurich argued that despite the broad language of the exclusion, it was seeking to avoid coverage for "viral and bacterial contamination" of properties when approval for the exclusion form was sought from the Ohio Department of Insurance. Zurich further argued that Ohio had not recognised the doctrine of regulatory estoppel. The court found this was not relevant. The representations to the Ohio Department of Insurers showed the insurer's intent was to exclude coverage for property damage caused by the contamination of viruses and bacteria on the insured's premises, not the loss of business income caused by a government closure. Here, the plaintiffs' property was not damage by the contamination of a virus or bacteria.

    The court granted summary judgment to plaintiffs on Counts I and III, but denied the motion on Count II for bad faith.