Insurance Law Hawaii

Claimants Misrepresentation Claim by Agents Denied

    The claimant's argument that he was misled by agents on benefits under disability policies was overruled on summary judgment and affirmed by the appellate court. Wooten v. Northwestern Mut. Life Ins. Co., 2023 Tex. App. LEXIS 5653 (Tex. Ct. App. July 31, 2023).

    Wrenn Wooten, a MRI radiologist, purchased seven policies from Northwestern Mutual. Three were disability income policies. Four were various whole-life polices. Wooten purchased and reviewed the last of the policies in December 2005.

    More than a decade later, Wooten filed suit against Jim Zara, Patrick Matthews, both of whom were agents, and Northwestern Mutual. He alleged Zara sold him the policies, misrepresented coverage and benefits, wrongfully advised him and concealed misrepresentations. Further Zara misrepresented that the policy would provide disability income even if Wooten was able to work in another field. When Matthews became his agent, Wooten alleged he failed to disclose the disability policies were not occupation specific and that the life insurance policies were not suitable for retirement income as promised. Wooten alleged Northwestern Mutual was vicariously liable for the conduct of Zara and Matthews. 

    Wooten never filed a disability claim. Defendants moved for summary judgment. The lower court found the suit was barred by the statute of limitations. The suit limitation for claims for negligent misrepresentation and for violation of the Texas Insurance Code was two years. The limitations period for breach of fiduciary duty was four years. Summary judgment was granted to defendants.

    The court found appellees carried their summary judgment burden of conclusively proving Wooten's claims accrued at the time he purchased each policy. An insured had a duty to read the policy, and failing to do so, was charged with knowledge of the policy's terms and conditions. 

    Wooten, however, argued the discovery rule delayed accrual of his claims and that he timely filed his lawsuit. Wooten hired someone to read the policies and was then informed he was not property insured. Within two years of this advice, he sued, although it was long after the applicable statute of limitation periods. 

    The summary judgment evidence conclusively demonstrated Wooten actually reviewed the policies. He knew or should have known at the time he bought the policies that they did not provide the coverage or benefits appellees allegedly represented. Consequently, appellees conclusively demonstrated in the trial court that the alleged injuries were not "inherently undiscoverable" and that the discovery rule did not apply

Insured Makes Sufficient Claim For Actual Cash Value Payment

    The court denied, in part, the insurer's motion for summary judgment that argued the insured made an insufficient showing of entitlement to Actual Cash Value (ACV) payments under the policy. RR Restoration, LLC v. Empire Indem. Ins. Co., 2023 U.S. Dist. LEXIS 129388 (M.D. Fla. July 16, 2023).

    Amblewood Condominium suffered damage from Hurricane Irma. Amblewood held a property policy with Empire that covered nine buildings, which with a separate insurance limit, premium and deductible. 

    A week after Hurricane Irma hit, Amblewood filed a claim for property damage. Two years later, Amblewood assiigned its rights under the policy to RR Restoration. As assignee, RR Restoration submitted nine anticipated repair estimates, one for each damaged building. The estimated cost for all nine repairs totalled $5.7 million. Each invoice was for repairs not yet made. Empire responded that submission of anticipated repairs alone did not trigger the Replacement cost provision under the policy, explaining that the policy did not cover anticipated repair costs. RR Restoration filed a complaint for breach of contract. Empire moved for summary judgment.

    The policy provided Replacement Cost Value for the full cost of repair or replacement without deduction for depreciation if an insured actually replaced or repaired the damage property. ACV recognised that the insurer was entitled to deduct reasonable depreciation from the value of a loss. The purpose of ACV was to place the insured back in the position she enjoyed prior to loss. Empire argued that RR Restoration could not establish a breach of the policy because the claim was based solely on RCV and no repairs were ever made. 

    Because there was no genuine issue of material fact that no actual repairs were made under the plain language of the policy, there was no breach of the policy. Therefore, Empire was entitled to summary judgment with respect to any claim for RCV damages.

    RR Restoration argued that a jury could return a verdict for it on the issue of whether an ACV claim was asserted because the estimates attached to the complaint and submitted pre-suit necessarily included the ACV amount as the ACV was derived specifically from RCV. An exhibit to the complaint included a line item, marked "ACV" and an associated dollar amount. The complaint stated that "by failing to make complete payment to Plaintiff for the reasonable services rendered or to be rendered in connection with the Claim, Defendant breached the Policy." The court held that this allegation, along with the "ACV" noted in the estimates that were attached to the complaint, along with the summary judgment record before the court, created a genuine issue of material fact as to whether ACV damages were requested by Plaintiff pre-suit. 

    Empire argued that the estimates did not apply depreciation. The policy, however, did not require the claimant to include depreciation as its initial proof of loss and did not explain that depreciation was an element of a claim for ACV. Empire's interpretation would add a new term to the policy, which the court could not do. RR Restoration's failure to include depreciation in its estimates did not support a finding for summary judgment in Empire's favor. 

    

Insured's Intentional Act Can Lead to an Occurrence Causing Property Damage

    The Wisconsin Court of Appeals determined an occurrence could follow the insured's intentional act when the harm caused was not intentional. Riverbank Farms v. Saukville Feed Supplies, 2023 Wisc. App. LEXIS 813 (Wis. Ct. App. July 26, 2023). 

    Riverback was a dairy farm. It purchased feed mix from Saukville. Riverback's nutritionist recommended a change to the rations fed to the cattle by adding Min-Ad, a source of bioavailable magnesium and calcium. Saukville, however, consulted with its own nutritionist and added Fine Lime instead in the rations. The substitution by Saukville was intentional. But it did not intend or foresee that the substitution would have an adverse impact on the cattle.

    Riverbank alleged that its herd suffered physically when the Fine Lime was added to the rations instead of Min-Ad. Riverbank filed suit against Saukville and its carrier, Secura Insurance. The circuit court found there was no "occurrence" and Secura had no duty to defend. 

    On appeal, Secura contended Saukville's intentional substitution of the feed component was not a covered occurrence because it was not an accident. While it was undisputed Saukville intentionally substituted the feed component, the record showed that the resulting magnesium deficiency that allegedly caused physical harm to the cattle could have been without foresight or exception, and thus an accident/occurrence. A jury could find that Saukville did not reasonably foresee or expect harm to result from the substitution, in which case the harm to the cattle would constitute an accident/occurrence.

    Further, physical damage to the cattle constituted property damage. Saukville's expert testified at her deposition that the Riverbank dairy cattle were physically injured. The cattle suffered physical injury from the ulcers they incurred from the Fine Lime. 

    Therefore, the circuit court erred in granting summary judgment in favor of Secura. The order was reversed and the matter remanded for further proceedings. 

Appraisal Request Found Inappropriate When Causation at Issue

    The court denied a motion to compel an appraisal upon determining the cause of the loss was still at issue. QBE Sec. Ins. Co., et al. v. The Enclave at Oak Hill Owners Association, 2023 U.S. Dist. LEXIS 107040 (S.D. Ala. June 21, 2023).

    Buildings at the Enclave were damaged by Hurricane Sally. Enclave submitted a claim for the loss to its insurers. Payment was made for some of the claimed loss, but the insurers disputed whether all of the claimed damages resulted from Hurricane Sally. Enclave then sought to invoke the appraisal provision in the policies. 

    The insurers contended that the dispute involved issues of causation and coverage which were not subject to the appraisal provision. While Enclave contended that Hurricane Sally caused damage to many other parts of its buildings, which had to be repaired and replaced, the insurers argued that those other parts either were not damaged at all or were not damaged by Hurricane Sally. The insurers contended that because the parties had not agreed on causation nor coverage, and the court had not yet decided these issues, the appraisal request was premature. 

    The court noted that under Alabama law, appraisers did not have the authority to decide questions of coverage and liability in insurance disputes. Enclave acknowledged that there were factual disputes about whether some or all of its claimed damages were in fact caused by a covered loss. Therefore, because the dispute did not merely involve the amount of the loss, but the cause of the loss, appraisal was not appropriate at this time. Consequently, Enclave's motion was denied. 

Insured Given Opportunity to Amend Bad Faith Claim after Judgment on the Pleadings Granted

    The court dismissed the insured's claims, but allowed the insured to file an amended compliant on its  claim for deceptive and unfair trade practices. Cornerstone Assembly of God, Inc. v. Brotherhood Mut. Ins. Co., 2023 U.S. Dist. LEXIS 113864.

    The insured church held a policy issued by Brotherhood Mutual Insurance Company that insured agaisnt certain loss, inclulding loss caused by windstorm. Hurricane Florence caused substantial damage to the insured's property. 

    Brotherhood Mutual paid $23,101.15 for repairs to the church. The insured alleged that estimates for necessary repairs exceeded $900,000. After the insured alleged Brotherhood Mutual was unresponsive and made bad faith representations regarding the necessity of building code compliance and other matters, Brotherhood Mutual allowed $433,667.76 for repairs with $73,601.22 withheld as depreciation. 

    The insured sued for breach of contract and unfair and deceptive trade practices. Brotherhood Mutual moved for judgment on the pleadings. The complaint was filed four years after the loss. The breach of contract claim was therefore dismissed because the North Carolina statute of limitations for breach of contract was three years. 

    The unfair and deceptive trade practices claim also failed. The insured's complaint alleged no injury or damages which were separate and distinct from its breach of contract claim. There were no damages which a factfinder could attribute only to any alleged unfair and deceptive trace practices, rather than the mere breach of the policy. 

    Therefore, the motion for judgment on the pleadings was granted. However, the insured was allowed to file an amended complaint to see if it could sufficiently allege injury and damages separate and distinct from claims on the policy. 

Jury's Verdict for Loss Caused by Collapse Overturned

    The Florida Court of Appeal overturned the jury's verdict findng loss caused by collapse. Universal Prop. & Cas. Ins. Co. v. Caboverde, 2023 Fla. App. LEXIS 4474 (Fla. Ct. App. June 28, 2023).

    The insured homeowners had two claims. One was a 2016 ceiling collapse; the second was loss caused by Hurricane Irma in 2019. The homeowners' policy covered collapse defined as "an abrupt falling down or caving in of a building or any part of a building with the result that the building . . . cannot be occupied for its intended purpose." Collapse had to be caused by, among other things, decay or insect damage that was hidden from view.

    At trial, the insureds' pre-purchase home inspector testified that no wood destroying organisms were found. Further, the roof was five to seven years old and in "really good" condition. Nevertheless, in September 2016, seven months after the homeowners had moved into the house, the living room ceiling collpased by two or three inches. The homeowners were no longer able to ocupy the living room area because of the risk. 

    While the insureds' contractor testified he found termite damage, on cross-examination he admitted he was not a termite expert and he could not opine on how long the termites were in the home, or the rate at which termites could cause damage. The insurer's field admuster revealed that the home's interior walls and ceiling were all standing. The ceiling contained cracks, but no pieces of the wall or ceiling were laying on the ground. 

    At the close of the evidence, the insurer moved for a directed verdict on the ceiling collpase claim. The motion was denied and the the jury found there was a collapse caused by decay or termite damage. The insurer moved for judgment notwithstanding the verdict, which was also denied.The circuit court entered a final judgment in the homeowners' favor. 

    The Court of Appeals reversed. The circuit court judge should have granted the motion for judgment notwithstanding the verdict because the homeowners had not presented evidence that unknown or hidden decay or termite damage had caused the alleged ceiling collapse. The homeowners never presented any evidence that hidden and unknown decay or insect damage had been present in the home in September 2016. The only witness who testifed about termite damage was the homeowners' contractor, who did not inspect the home until June 2021, almost five years after the alleged ceiling collapse. Further, the contractor expert admitted he was not a termite expert and he did not know how long the termites had been present.

    Therefore, the insurer was entilted to final judgment in accordance with its motion for judgment notwithstanding the verdict. The circuit court's final judgment was reversed. The circuit court's final judgment in the homeowners' favor on their 2019 Hurricna Irm cliam was affirmed, however.

COVID-19 Claim with Communicable Disease Extension Survives Demurrer

    The California Court of Appeal reversed the trial court's issuance of a demurrer to allow the COVID-19 claim to go forward. Saddle Ranch Sunset v. Fireman's Fund Ins. Co., 2023 Cal. App. Unpub. LEXIS 3599 (Cal. Ct. App. June 22, 2023). 

    Saddle Ranch owned restaurants in California and Arizona. Saddle Ranch held a policy with Fireman's Fund that included a communicable disease coverage extension. The policy promised,

We will pay for direct physical loss or damage to Property Insured caused by or resulting from a covered communicable disease event at a location including the following necessary costs incurred to:

. . . 

     (c) Mitigate, contain, remediate, treat, clean, detoxify, disinfect, neutralise, cleanup, remove, dispose of, test for, Monitor, and assess the effect of the communicable disease.

The policy defined "communicable disease" as "any disease, bacteria, or virus that may be transmitted directly or indirectly from human or animal to a human."

    Saddle Ranch tendered its claim to Fireman's Fund. Government shut downs caused Saddle Ranch hundred of thousand of dollars in lost business income. Fireman's Fund denied the claim because Saddle Ranch had not suffered direct physical loss or damage. 

    Saddle Ranch filed suit. The trial court found the policy required a "direct physical loss" and held the communicable disease extension did not apply to a pandemic situation.

    On appeal, Saddle Ranch pointed out that the communicable disease coverage extension indicated that direct physical loss or damage included COVID-19 contamination that required cleaning, disinfection, or other remediation at the insured property. The court found that in reading the phrase "direct physical loss or damage" as it appeared in the extension could lead a reasonable person to assume that the phrase included costs incurred to mitigate, containe, remediate, etc. The only plausible interpretation of subparagraph (c) of the extension was that the need to clean or disinfect infected or potentially infected covered property constituted a "direct physical loss or damage" of that property within the meaning of the policy. 

    Here, Saddle Ranch alleged the existence of a global COVID-19 outbreak. Fairly read, Saddle Ranch alleged that a public health authority had ordered that its locations be evacuated, or at minimum, decontaminated and disinfected due to the outbreak of a communicable disease at their restaurants. Therefore, Saddle Ranch pled sufficient facts to show the existence of a communicable disease event. 

    The judgment was reversed and the case remanded.

Federal Court Predicts Georgia Will Deny Insurers' Right to Reimbursement of Defense Costs

    Predicting Georgia law, the Eleventh Circuit affirmed the district court's decision that Georgia would not allow insurers to seek reimbursement of defense costs. Continental Cas. Co., et. al v. Winder Laboratories, LLC, et. al, 2023 U.S. App. LEXIS 17852 (11th Cir. July 13, 2023).

    Winder Laboratories held two policies, a primary policy issued by Valley Forge Insurance Company and an umbrella policy from Continental Casualty Company. Neither policy included a reimbursement provision allowing the insurers to recoup defense costs. 

    Concordia Pharmaceuticals Inc. sued Winder, asserting various claims under the Lanham Act and Georgia law. The complaint alleged that Winder "falsely or misleadingly advertised their B-Donna product, and subsequently their Phenohytro product, as generic equivalents to Concordia's product Donnatal directly to the pharmaceutical industry." The insurers agreed to defend under a reservation of rights, which included a right to seek reimbursement of defense costs incurred on the insured's behalf for all claims which were not potentially covered by the Valley Forge policy. 

    The insurers filed suit seeking a declaratory judgment that they had no duty to defend and were entitled to reimbursement of legal costs and fees spent in providing the insured's defense in the underlying suit. The district court granted the insurers' motion for summary judgment, agreeing Concordia did not allege a "personal or advertising injury." The district court denied a subsequent motion on the insurers' right to reimbursement. 

    On appeal, the Eleventh Circuit affirmed. First, the insurers did not have a duty to defend. Concordia's contributory false advertising claim rested on Winder's false and misleading representations. The allegations in the complaint did not arise out of a "personal and advertising injury" stemming from "the use of another's advertising idea"- i.e., Concordia's labels- that would have required the insurers to defend the insureds.  

    Next, the Eleventh Circuit considered whether the Supreme Court of Georgia would recognize a right to reimbursement absent a contractual right to such reimbursement. In their reservation of rights letters, the insurers included terms that were not part of the original policies. Critically, the letters specified that Valley Forge "specifically reserves its right to seek reimbursement of defense costs incurred on the insureds' behalf for all claims which are not potentially covered by the policy." The court held that because the parties' contracts already required the insurers to defend the insureds against certain third-party lawsuits, there was no new consideration for the reimbursement provision in the reservation of rights letters and thus no new contract under Georgia law. The letters were the promise to perform a preexisting contractual obligation that did not constitute consideration for a new agreement. 

    The insurers argued that the insureds were unjustly enriched because they retained the benefit of an expensive defense to which they knew they were not entitled. There was nothing unjust, however, about requiring the insurers to fulfil their contractual obligations and imposing such a requirement would not confer a "windfall" on the insureds. 

    The court also disagreed with the insurers' argument that there was a clear "majority" rule favouring recoupment across the nation. The insurers' position may have been the "majority rule" in the past, but it was not an accurate depiction of the current case law, which appeared to be more-or-less in line with the trend favoring the "no recoupment" rule. The most recent decisions and the Restatement of the Law of Liability reflected the no recoupment position. The Eleventh Circuit was persuaded by the recent trend of state high courts holding that there was no right to reimbursement in similar cases.

    While the insurers could contract for a right to reimbursement, they could not do so in a subsequent reservation of rights after a reimbursement-less bargain had been struck. 

    The issue of the insurer's right to reimbursement of defense costs is currently pending before the Hawaii Supreme Court. St. Paul Fire and Marine Ins. Co., et a. v. Bodell Construction Co., et al., No. SCCQ22-0000658 (Haw.). 

    

Wisconsin Supreme Court Abandons "Integrated Systems Analysis" for Determining Property Damage

    The Wisconsin Supreme Court departed from its previous mechanism for determining property damage under the "integrated systems analysis" and found the insurers were not entitled to summary judgment as determined by the trial court. 5 Walworth, LLC v. Engerman Contracting, Inc., 2023 Wis. LEXIS 152 (Wis. June 20, 2023).

    5 Walworth LLC hired Engerman as general contractor to construct a swimming pool complex. Engerman subcontracted with Downes Swimming Pool Co., Inc. to construct the pool complex. Otto Jacobs supplied Downes with a ready-mixed concrete called shotcrete, commonly used in swimming poll construction. 

    After the project was completed, 5 Walworth noticed a leak which persisted over the years. Downes attempted to repair the leaks over the years. 5 Walworth hired Wiss Janney Elsiner Associates (WJE) to do an inspection. WJE's final report concluded tha the pool walls cracked because of less than optimal installation, moist conditions due to significant water leakage, and the placement of steel reinforcing bars. It determined that the cracking would continue, with either new cracks forming or existing cracks worsening. The report also mentioned the findings of soil reports from neighbouring properties which indicated that water existed at levels above the normal water table. Ultimately, 5 Walworth hired a new contractor to demolish the old pool and construct a new one.

    5 Walworth then sought damages for the demolition of the old pool and construction of a new one. It sued the subcontractor Downes and its insurer, General Casualty, and the general contractor Engerman and its insurers, West Bend and General Casualty. Downes filed a third-party complaint against shotcrete provider Otto Jacobs and its insurer, Acuity. The insureds tendered defences to their respective insurers. Each moved for summary judgment and requested declarations that they did not have a duty to indemnify or further defend. The trial court granted motions filed by West Bend and General Casualty, concluding that there was no property damage caused by an occurrence - only faulty workmanship - and therefore the insurers owed no coverage. When analysing Acuity's motion against Otto Jacobs, the court applied the integrated systems analysis the Supreme Court had utilized in Wisconsin Pharmacal Co., LLC v. Nebraska Cultures of California, Inc., 876 N.W. 2d 72 (2016). Under this analysis, there was no property damage caused by an occurrence and therefore no coverage. 

    Engerman and Otto Jacobs appealed and the court of appeals reversed. The Wisconsin Supreme Court granted review.

    The integrated systems analysis assessed whether the defective product was part of an integrated whole such that any damage could be ascribed only to the product itself, rather than to other property. Pharmacal therefore incorporated an "other property" analysis that could be relevant to the policy's business exclusions (stage two of a coverage analysis) into the determination of whether an "occurrence" caused "property damage" (stage one of a coverage analysis). Rather than focus its analysis on the policy language, Pharmacal took the integrated systems analysis from tort law and held that such an analysis was necessary when evaluating coverage under a CGL policy. 

    The court overruled Pharmacal's holding incorporating the integrated systems analysis into insurance policy disputes. Also overruled was the incorporation of an "other property" analysis into the initial determination of whether an occurrence had caused "property damage." The proper approach was to interpret and apply the language of the policy. First, the policy was examined to see if it made an initial grant of coverage. Then the policy was analysed to see if any exclusions precluded coverage. Lastly, the policy was reviewed to see if any exceptions to a particular exclusion reinstated coverage.

    Turning to General Casualty's policy, faulty workmanship was not an occurrence, but faulty workmanship could lead to an occurrence that caused property damage.The WJE report concluded that cracks occurred, and therefore water leaked into the surrounding soil. This was the result, according to the report, of less-than-optimal installation of the shotcrete and poor placement of reinforcing bars, among other reasons. These constituted faulty workmanship. But the record could support a conclusion that this faulty work caused the pool to crack and leak and the cracks became worse as the pool leaked and destabilized the surrounding soil. The cracks, leakages and soil damage old constitute accidents - unexpected and unforeseen events - caused by improper installation. And the cracks and the damage to the surrounding soil could also constitute physical injuries to the homeowner's tangible property. Therefore, a trier of fact could conclude that General Casualty's policy provided an initial grant of coverage because there was property damage caused by an occurrence as those terms are defined in the policy. As such, General Casualty was not entitled to summary judgment.

    West Bend's policy applied to the facts in the same way. A fact-finder could conclude based on the facts in the summary judgment record that "property damage" was caused by an "occurrence." West Bend was also not entitled to summary judgment.

    Regarding the policy issued to Otto Jacobs, Acuity argued that the policy did not provide an initial grant of coverage because there was no "property damage" caused by an "occurrence." Acuity's arguments asked the court to see the allegedly defective shotcrete as part of an integrated system, the pool complex. The court declined to do so. Rather, the proper analysis based on the policy language was whether the defective shotcrete (assuming this was proven) led to an accident, which then caused property damage. The water leakage, among other things, was sufficient to constitute an accident. If the shotcrete was defective, a jury could find that it led to an accident (water leakage at the very least) that caused property damage.

    The court concluded that when analyzing if there was "property damage" under a CGL policy in the initial grant of coverage stage, it would not employ the integrated systems analysis nor would the court limit its review of property damage to damage to "other property." Instead, the court would apply the terms of the policy.