Insurance Law Hawaii

Res Judicata Does Not Bar Insurer From Pursuing Subrogation

    The appellate division reversed the lower court's dismissal of the subrogation action, deciding res judicata was not applicable. Cincinnati Ins. Co. v. Acadia Ins.Co., 2021 N.Y.App. Div. LEXIS 7272 (Dec. 23, 2021). 

    Irene Frey slipped and injured herself on property owned by 60 LBC. 60 LBC had retained Red Cedar Arborits & Landscapers, Inc. to clear snow and ice from the area where Frey fell. Under the contract. Red Cedar was required to defend and indemnify 60 LBC for any injuries caused by Red Cedar's actions or omissions. Red Cedar was also required to name 60 LBC as an additional insured under Red Cedar's policy with Acadia. 

    Frey sued 60 LBC for negligence and 60 LBC requested a defense and indemnification from Red Cedar. Arcadia denied coverage on the grounds that 60 LBC was not an additional insured. 60 LBC was defended in the Frey action by its own insurer, Cincinnati Insurance Company. 60 LBC commenced a third-party action against Red Cedar, asserting breach of contract based on Red Cedar's failure to defend and indemnify. The third-party complaint further alleged that Red Cedar breached the contract by failing to obtain coverage for 60 LBC as an additional insured. 

    Thereafter, the Frey action and the third-party action settled in a global agreement. Frey received $350,000 from Red Cedar and $50,000 from 60 LBC. Arcadia paid Frey on behalf of Red Cedar and Cincinnati paid on behalf of 60 LBC. 

    Cincinnati, as subrogee of 60 LBC, then sued Arcadia asserting a cause of action for breach of contract. The Supreme Court granted Arcadia's motion to dismiss. 

    The appellate division reversed. Cincinnati, as subrogee of 60 LBC, stood in the shoes of 60 LBC and was subject to whatever rules of estoppel would apply the insured. The Supreme Court determined that plaintiff was barred by res judicata from pursuing 60 LBC's coverage claim against Arcadia because it was resolved in the global settlement. Cincinnati, however, was not a party to the underlying personal injury action or the third-party action, and the release resulting from the settlement of those actions made no mention of any claims directly against Arcadia by 60 LBC or anyone else. The breach of contract claim asserted by 60 LBC against Red Cedar in the third-party action was separate and distinct from Cincinnati's breach of contract cause of action against Arcadia.

    60 LBC's coverage claim against Arcadia was not barred by res judicata because it was not encompassed in the global settlement. If 60 LBC still had a valid coverage claim against Arcadia, Cincinnati, having paid $50,000 on 60 LBC's behalf to settle the Frey action, could proceed against Arcadia on the coverage claim as subrogee of 60 LBC. 

Insureds Suit Fails by Suing Wrong Insurance Company

    The Ninth Circuit affirmed the district court's granting summary judgment to the insurer who did not issue the policy to the insureds. Steinhauer v. Liberty Mut. Ins. Co., 2021 U.S. App. 35457 (9th Cir. Dec. 1, 2021).    

    Sherrell and Joanne Steinhauser had a homeowner's policy issued by Liberty Insurance Corporation. The policy defined "we" as the company providing the insurance. The Steinhauers failed to demonstrate that Liberty Mutual Insurance Company was the issuer of their policy. Thus, the district court correctly ruled that the Steinhauers sued the wrong party.    

    Further, the district court did not abuse its discretion in denying permission for a very untimely proposed amendment to the complaint The Steinhauers filed their motion to amend over a year after the court's deadline to join parties and they failed to demonstrate good cause to justify their late amendment. The Steinhauers knew early in the case that they had sued the wrong party, both from opposing counsel and from the court, but they failed to substitute or add the correct defendant in a timely manner. 

Motion to Strike Insurer's New Argument Granted

    The court granted a motion to strike the insurer's new argument that the insured had made misrepresentations in its application for the policy. Great Lakes Ins. v. Gray Group Inves., LLC, 2021 U,S. Dist. LEXIS 243929 (E.D. La Dec. 22, 2021).

    Gray Group sought coverage for its yacht, HELLO DOLLY VI, from Great Lakes The application stated that the "primary mooring location" would be the Orleans Marina. The form also stated that the vessel's purchase price was $1,900,000. The application noted that "any misrepresentation in this application for insurance may render insurance coverage null and void from inception." 

    The policy was issued with coverage up to $1,900,000 and a $228,000 named-insured deductible. The policy stated that the "contract is null and void in the event of non-disclosure or misrepresentation of a fact or circumstances material to our acceptance or continuance of this insurance."

    In the spring of 2020 HELLO DOLLY VI was moved from the Orleans Marina to Fort Lauderdale, Floria. Only July 19, 2020, the vessel was moved to Pensacola, Florida, at the home of a member of Gray Group. On September 15, 2020, Hurricane Sally struck Pensacola. The vessel was damaged and sank at its mooring in Pensacola. 

    Gray Group filed a claim with Great Lakes, claiming a total loss of the vessel. Great Lakes denied coverage on the grounds that Gray Group had breached certain warranties under the policy.

    Great Lakes filed suit seeking a declaratory judgment that the policy covering HELLO DOLLY VI was void. Great Lakes alleged Gray Group breached certain warranties contained in a Hurricane Questionnaire/Plan, because the vessel (i) was not moored at the Orleans Marina, (ii) was not fully manned, (iii) was not evacuated to safe harbor, and (iv) did not have its anchor deployed. Gray Group filed cross-claims, seeking coverage under the policy.

    The parties cross-moved for summary judgment. In opposing Gray Group's motion, Great Lakes argued the policy was void because of misrepresentations in the Application Form. Specifically, it asserted that Gray Group (i) misrepresented the vessel's "primary mooring location" because the vessel was never moored at the Orleans Mariana during the 2020 hurricane season, and (ii) misrepresented the vessel's purchase price. Great Lakes also alleged the misrepresentation it is reply in support of its own motion for summary judgment.

    Gray Group moved to strike Great Lakes' claim that Gray Group made material misrepresentations in its Application Form. Gray Group argued that Great Lakes did not allege misrepresentation in its reservation of rights letter, denial of coverage letter, its two complaints, its motion for summary judgment or its statements of disputed or undisputed facts.

    The court granted Gray Group's motion to strike. The newly raised misrepresentation claims were not properly before the court. Great Lakes knew from discovery that the vessel was never at its "primary mooring location," but failed to move to amend its complaint to add the misrepresentation claim. Email correspondence indicated that Great Lakes' underwriters had concerns about the vessel's reported valuation as early as four days after the loss of the vessel, and well before the filing of the lawsuit. Again, Great Lakes did not bother to amend its complaint. 

 

Hawaii Federal District Court Denies Title Insurer's Motion for Summary Judgment

    In a rare title insurance dispute before the federal district court in Hawaii, the court denied the insurer's motion for summary judgment while granting the insured's motion for summary judgment. First  Am. Title Ins. Co. v. GS Industries, LLC, 2021 U.S. Dist. LEXIS 240601 (D. Haw. Dec. 16, 2021).

    GS Industries, LLC took ownership of a parcel of real property located fronting Waipa Lane in Honolulu. The property used four buildings and a parking area for 50 cars. GS obtained a title insurance policy from First American. The policy insured GS' fee simple interest in the property in the amount of $3,500,000. The policy insured GS "against loss or damage, not exceeding $3,500,000, sustained or incurred by GS by reason of . . . not right of access to and from the land,." The policy did not identify any issues with access to the property and did not define "access." 

    A portion of Waipa Lane was owned by the City and County of Honolulu. Parcel 86 and Parcel 91 on Waipa Lane were privately owned. (Private Waipa Lane Parcels). Vehicular access to (ingress) and from (egress) the property was via Waipa Lane. Ingress was made via the publicly owned portion of Waipa Lane. Vehicular egress was made via the Private Waipa Lane Parcels. The City of Honolulu maintained the Private Waipa Lane Parcels and considered them to be pubic. None of the owners of Parcels 86 or 91 notified GS of their intent to block the use of Waipa Lane. 

    GS leased the property to Cedar Assembly of God Church. The Church applied for affordable housing exemptions from the Department of Planning and Permitting (DPP). DPP issued a Notice of Incomplete Application. The Notice stated that a portion of Waipa Lane was privately-owned and the Church had not shown any legal right to use the same. 

    GS tendered a claim to First American, contending that coverage was implicated under the title insurance policy because the Church lacked a right of access from the property. The lack of road access prevented GS from obtaining permits needed to develop the property. The claim requested that First American reimburse GS for the purchase price of an interest of one of the Private Waipa Lane Parcels, which would cost approximately $10,000. 

    First American denied the claim because (1) the policy did not insure vehicular access to and from the property and (2) two exclusions applied. The first exclusion barred coverage for governmental regulations restricting the occupancy, use or enjoyment of land. The second exclusion applied to "any governmental policy power" or "defects, liens, encumbrances, adverse claims, or other matters resulting in no loss or damage to GS."

    First American filed suit seeking a declaratory judgment that: (1) the policy did not cover any loss due to the lack of vehicular access from the property; and (2) any loss was subject to the two exclusions. The parties filed motions for summary judgment. 

    The primary dispute was over the term "access." The policy insured against "No right of access to and from the Land." There was no disputed that GS' vehicular access from the property was compromised because it was dependent on the owners of the Private Waipa Lane Parcels. 

    The court found that the plain and ordinary meaning of access included vehicular access. The policy could not be limited to insuring pedestrian access, as First American argued, because insuring pedestrian access in Honolulu's urban sprawl would be virtually meaningless. It was difficult to conceive of how property would not have pedestrian access and where insurance would therefore be of any value. If insuring "access" was to have any meaning, it must have been meant to insure access beyond that of the pedestrian variety. Therefore, "access" was ambiguous and construed in favor of GS. 

    First American contended that even if lack of vehicular access was insured under the policy, GS did not sustain any loss or damage. GS' access to the Private Waipa Lane Parcels had never been restricted and any suggestion that access might be restricted in the future was speculative. GS, however, contended that it had suffered loss because the property's value was significantly diminished by its lack of legal access. The court agreed.

    Finally, the court determined the exclusions did not apply. First American argued that GS suffered no loss under the Notice. The Notice, however, was not the basis for GS' alleged loss. Instead, it was the alleged diminution in value of the property. Therefore, the governmental regulation and policy power exclusions were not implicated.

    Accordingly, First American's motion for summary judgment was denied, GS' motion was granted to the extent set forth in the opinion.

Summary Judgment Granted to Insurer for Hurricane Damage

    The insurer's motion for summary judgment, contending there was no coverage for hurricane damage, was granted. Laurence v. Liberty Ins. Corp., 2021 U.S. Dist. LEXIS 227807 (S.D. Texas Nov. 29, 2021). 

    When Hurricane Harvey hit, Mike Laurence held a homeowner's policy from Liberty Insurance Corporation and a contractor policy for his business, Pride Plumbing, Inc., issued by State Farm Lloyds. Laurence's property suffered water damage during the storm. State Farm investigated and concluded that all but a small amount, within the policy's deductible, was from flood damage and excluded. Laurence sued.

    The property covered by the State Farm policy included Laurence's home, Pride Plumbing's office and two sheds. Pride Pluming did not own or lease any of the buildings on the property. Laurence testified in his deposition that the only damage to his property not caused by flood water was to three buildings from fallen tree limbs and equipment from his business. 

    State Farm argued it was entitled to summary judgment because the policy did not cover damage to buildings, but only business personal property. The evidence showed no damage over $1,000 from wind-driven water. A State Farm inspector found no damage consistent with the effects of wind. Instead, he found flood debris lines that were approximately seven feet above the floor. Laurence did not respond to the State Farm argument that the policy did not cover buildings. 

    The record presented undisputed facts showing that there was no covered unpaid damage caused by wind as opposed to flood water. Nor did Laurence point to any evidence to show that his business personal property not damaged by flood water exceeded the deductible of $1000.

    Therefore, State Farm's motion for summary judgment was granted and clams against State Farm were dismissed with prejudice. 

New York Court Denies Injunction to Prevent Out-of-State Suit

    The Appellate Division of the Supreme Court refused to grant an injunction to the insurer to prevent a pending suit in Washington state. North Am. Elite Ins. Co. v. Space Needle, LLC, 2021 N.Y. LEXIS 6792(N.Y. App. Div. Dec. 2, 2021).

    In 2019 Seattle based Space Needle, LLC procured a policy from Elite, a New Hampshire company authorised to sell insurance in the state of Washington. The policy covered business interruption with limits of $160 million and provided that the laws of the State of New York "shall govern the construction and interpretation" of the policy and that the parties submitted to the "exclusive jurisdiction" of New York State courts. 

    In March 2020, Space Needle notified Elite of a business interruption loss claim due to the city and state governments' COVID-related closure of the Space Needle to the public. Space Needle requested a coverage determination under Washington law concerning the policy coverage provisions and exclusions.    

    Elite sued in New York seeking a declaration that it owed no coverage to Space Needle for its COVID-related losses under the policy. Elite also moved for a preliminary injunction to prevent a similar suit from going forward in Washington. The Supreme Court denied Elite's motion because it did not show a likelihood of success on the merits or the balance of equities in seeking to enforce the New York exclusive forum selection clause.

    The Appellate Division agreed. As an insurer authorised to sell insurance in Washington, Elite was required to comply with the Washington Insurance Code's prohibition against choice-of-law and forum selection clauses in policies sold in Washington. The code provided that no insurance issued in Washington "shall contain any condition, stipulation or agreement (a) requiring it to be construed according to the laws of any other state or country . . . or (b) depriving the courts of this state of the jurisdiction of action against the insurer. . ." Elite did not demonstrate that the equities tip in its favor where it was attempting a blatant end run around of Washington's prohibition against choice-of-law and forum selection clauses. The clauses were void under the Washington law with which Elite agreed to comply. Elite should have known that by participating in the Washington insurance market, it had an obligation not to include such clauses. 

    

Insurer's Motion for Summary Judgment on COVID-19 Claim Denied, Case Set for Trial

    The Ohio Court of Common Pleas granted the insured's motion for summary judgment, denied the insurer's motion for summary judgment and and set the COVID-19, business interruption case for trial on damages. McKinley Dev. Leasing Co. v. Westfield Ins. Co., 2021 Ohio Misc. LEXIS 885 (Ohio Ct. Pleas Nov. 14, 2021). 

    McKinley owned several commercial properties and had multiple leases with small and larger businesses. When the governor and Department of Health ordered shutdowns at the beginning of the pandemic, tenants could not pay rent, causing substantial business income losses to McKinley. McKinely filed a claim under its property policy with Westfield and coverage was denied. McKinley sued for breach of contract and bad faith.

    The court previously denied Westfield's motion to dismiss. Subsequently, McKinley filed a motion for summary judgment based upon the court's earlier ruling that the policy language was ambiguous. Westfield filed a cross-motion requesting the court to review the caselaw across the country and reverse its prior ruling finding the policy to be ambiguous. 

    The court found it "astounding" that the Westfield policy did not define the critical policy terms, "direct," "physical," "loss" or "damage." It was hard to believe that Westfield would not find it important for the insured to understand when purchasing the lengthy policy and making premium payments. Policyholders had the right to have a clear understanding of what they received in return. Given the spectrum of accepted interpretations for these terms in other decisions, the court interpreted the disputed language in Westfield's policy in favor of McKinley. 

    Westfield next relied upon the policy's virus exclusion which barred coverage for "loss or damage caused by or resulting from any virus, bacterium, or other microorganism that induces or is capable of inducing physical distress, illness or disease." Again, the court agreed with McKinley that the exclusion was reasonably susceptible of more than one interpretation. 

    Westfield also raised Civil Authority Coverage. Under this provision, Westfield agreed to pay for loss of income caused when covered causes of loss caused damage to other properties within one mile of McKinley's properties and resulted in an order by civil authority that prohibited access to McKinley's properties. Here, it was clear that the pandemic had caused damage to properties surrounding McKinley's properties, resulting in dangerous physical conditions for which Ohio Civil Authority orders were issued, preventing access to McKinley's properties. As a result, the language in the policy was susceptible to more than one reasonable interpretation and did not preclude coverage. 

    Finally, the court granted Westfield's motion on the bad faith and punitive damages claims. There was sufficient case law to support Westfield's reasonable justification for denying coverage. 

    The court set a trial date for damages.

 

    

Issues of Fact Prevent Insurer's Summary Judgment Motion in Collapse Case

    The insurer's effort to dismiss the insured's collapse case by motion for summary judgment failed. Bitters v. Nationwide Gen. Ins. Co., 2021 U.S. Dist. LEXIS 228523 (E.D. Pa. Nov. 30, 2021). 

    The insured alleged that there was a "sudden and accidental direct physical loss" to his home caused by collapse due to hidden insect damage to the foundation. The insured came home to find the floor of a bedroom dropped down to the cement slab below. He filed a claim with Nationwide, but coverage was denied. Suit was filed and Nationwide moved for summary judgment. 

    The policy provided coverage for a sudden and accidental collapse caused by hidden insect damage. A building or part of a building was not considered in the state of collapse if it was standing, even if it was in danger of falling low or caving in. 

    The court first found that that Nationwide had the burden of proof. The collapse provisions were in a grant of coverage under the Additional Property Coverage Section of the policy but limited by exclusions, rather than exceptions to exclusions. Because Nationwide sought to disclaim coverage based on a policy exclusion, it bore the burden of proving the applicability of the exclusion as an affirmative defense.

   The court then found disputes of material facts from which a juror could find for the insured. First, the parties disputed the amount that the floor dropped during the incident. Whether the floor fell a few inches or all the way to the floor remained a genuine dispute of material fact. The dispute as to the height of the drop was material because the insured alleged the "falling down" of a part of a building structure while Nationwide maintained that it merely settled. The policy was unambiguous in that it specifically provided that collapse need not have involved the entire property and could instead be just a "part of a building."

    Further, the parties disputed the cause of the collapse. The insureds' experts attributed the cause of the collapse to insect damage. Nationwide's experts attributed the loss to insect and water intrusion damage. This created another issue of genuine fact, which meant Nationwide's motion was denied.