Insurance Law Hawaii

Policy Reformed to Add New Building Owner as Additional Insured

    The lower court correctly reformed the policy to replace the prior owner with the new owner as an additional insured under the policy. Wesco Ins. Co. v. Fulmont Mut. Ins. Co., 2023 N.Y. App. Div. LEXIS 2650 (N. Y. App. Div. May 11, 2023). 

    Beyond was sued as owner of the building in a personal injury lawsuit. The former owners leased the building to the tenant who included the then-owners as additional insureds under the tenant's policy. When the deed to the building was transferred to Beyond, the additional insured endorsement in the tenant's policy was not updated to reflect the change in ownership. 

    Beyond's insurer, Wesco, tendered the lawsuit to the tenant's insurer, Fulmont. Coverage was denied because Beyond was not an additional insured under the tenant's policy. 

    The lower court granted West's motion for summary judgment to reform the policy to merely replace the prior owner with Beyond as the additional insured.  The Appellate Division affirmed It was clear that Fulmont always intended to extend coverage to the building and its owner as additional insureds. The name of the additional insured in the policy was not dispositive if the intent to cover the risk was clear. 

Court Affirms Duty to Defend Additional Insured Contractor

    The appellate court affirmed the lower court's ruling that the insurer must defend. Main St. Am. Assurance Co. v. Merchants Mut. Ins. Co., 2022 N.Y. App. Div. LEXIS 5507 (N.Y. App. Div., Oct. 7, 2022). 

    XL Construction Services, LLC was the contractor on a construction project. Timothy J. O'Connor was insured when performing drywall finishing as a self-employee subcontractor on the project. As part of a written indemnification and insurance agreement between the parties, O'Connor was obligated to obtain insurance for the benefit of XL Construction. O'Connor was insured by Merchants Mutual Insurance Company under a policy containing an additional insureds endorsement that provided coverage to a party where required by a written agreement, but "only with respect to liability for 'bodily injury' . . . caused in whole or in part, by . . . [O'Connor's] acts or omissions."

    The trial court found there was a duty to defend and entered judgment that Merchants Mutual was obligated to provided a defense to XL Construction.

    On appeal, Merchants Mutual relied upon the endorsement language restricting coverage for an additional insured only when "there was injury proximately caused by the named insured." The underlying complaint sought damages for violations of the state labor law. Nonetheless, there could be more than one proximate cause of an injry. The underlying complaint suggested a reasonable possibility that O'Connor's own negligence was a proximate cause of his injuries. The fact that the underlying complaint alleged labor law violations on the part of XL Construction and not negligence by O'Connor himself, was of no consequence because the allegations in the complaint brought the claim potentially within the policy provisions and triggered a duty to defend XL Construction as an additional insured.

    Therefore, the judgemt was affirmed.

No Duty to Defend Faulty Workmanship Under Hawaii Law, but All is not Lost for Insured Contractor

    The federal district court found no duty to defend claims of faulty workmanship under certain policies issued to the insured contractor, but rejected arguments made by the Insurers regarding various provisions of the general liability and excess policies. St. Paul Fire & Marine Ins. Co. v. Bodell Consr. Co., 2022 U.S. Dist. LEXZIS 79379 (D. Haw. May 2, 2022). (Note- our office represents the insured contractor).

    In 2003, Bodell was hired by developer Sunstone Realty Partners L LLC to be the general contractor for construction work on a condominium project, "Ali`i Cove." The project consisted of approximately 37 buildings and one recreation center that were constructed over the course of four years. On August 14, 2015, the AOAO of Ali`i Cove sued Sunstone, alleging that Sunstone developed, built, and sold condominium nits using embedded straps that did not meet building codes, instead of bolting house frames to their foundations. The AOAO filed a second amended complaint alleging numerous additional defects which were referenced in an expert report. These included additional alleged construction defects such as site conditions, structural issues, building envelope, roofing, general architecture, mechanical, plumbing and electrical. In all, the report purported to find approximately 281 instances of faulty workmanship.

    Sunstone then filed a third-party complaint against various entities, including Bodell. Sunstone alleged that Bodell oversaw the construction of the project, including he installation of the embedded straps in all units of the project. 

    Sunstone tendered the defense of the underlying litigation to the Insurers, St. Paul, Phoenix and Travelers Indemnity, as an additional insured under policies issued to Bodell. The Insurers agreed to defend under a reservation of rights. Bodell also tendered the underlying litigation to the Insurers. Two of Bodell's insurers, Phoenix and Travelers Indemnity, agreed to defend Bodell under a reservation of rights.

    The underlying litigation was stayed so that two arbitrations could proceed. The first arbitration between the AOAO and Sunstone was resolved in a settlement. Sunstone and its insurer, Steadfast Insurance Company, funded the settlement. In the second arbitration between Sunstone and Bodell, the arbitrator found in favor of Sunstone. In drafting her award, the arbitrator relied upon an expert report authored by Sunstone's expert, Trinity ("Trinity Report"), which addressed the 281 instances of alleged defects. The Trinity Report was used as a framework for identifying alleged defects, but did not differentiate between work done by subcontractors versus work done by Bodell. The arbitration award listed numerous defects for which Bodell was responsible or partly responsible. Some of the alleged defects involved work done by subcontractors, but again, the arbitration award did not identify such work. 

    Bodell's coverage included general liability and excess policies issued from 2003 to 2016. The court broke the various policies into two sets, the "First Policies" being policies issued before  September 2012, and the "Second Policies" issued after September 2012. 

    The Insurers sued for a declaratory judgment that they had no duty to defend or indemnify either Bodell or Sunstone. The Insurers filed two motions for summary judgment, the first seeking a ruling that there was no duty to defend under the First Policies and the second motion seeking a determination on the interpretation of various provisions in the First and Second Policies.

    The court granted the Insurers first motion, finding that under Hawaii law, faulty workmanship does not constitute an occurrence, and there was no duty to defend. The insureds argued that under Hawaii law, a building code violation was considered a negligent and therefore a tort. Consequently there was an occurrence. Further, Bodell and Sunstone argued that the Insurers had made partial payment to Sunstone, thereby conceding coverage under the First Policies. The court found that the Insurers carried their burden of showing an absence of genuine material fact with respect to the lack of coverage under the First Policies and were entitled to summary judgment on the first motion.

    Turning to the Insurers' second motion, the Second Policies contained an amended definition of occurrence. The first portion of the amended definition of occurrence was the same as used in the First Policies. Therefore, the court granted summary judgment as to this portion of the Occurrence Amendment because it provided no coverage under the Second Policies.

    The Occurrence Amendment went on, however, to further define "occurrence" as "[a]n act or omission, including all related acts or omissions, that causes 'subcontracted work property damage.'" The Occurrence Amendment also defined "subcontracted work property damage" as ""property damage" that "[i]s neither expected nor intended from the stand point of the insured" and "[i]s to 'your work' arising out of it or any part of it . .  if the damaged work out of which the damage arises was performed on your behalf by a subcontractor." The Insurers argued this definition only provided coverage for property damage caused by subcontractors, not work self-performed by Bodell. The court disagreed. The phrase "act or omission" was unencumbered by any of the limiting language that the Insurers appeared to believe should exist in order for the definition to not include work self-performed by Bodell. A plain and ordinary reading of the words "[an] act or omission" could include an act or omission committed by or at the direction of Bodell that then caused subcontractor work property damage. Therefore, the Insurers' argument that "occurrence" as defined under the Occurrence Amendment could not include work self-performed by Bodell was rejected.

    The court next turned to the "Non-Cumulation Amendment," which the Insurers argued meant that if the same occurrence caused property damage in multiple policy years, the amount of money paid with respect to such a occurrence was limited by what was paid under prior policies. The court agreed that if property damage over multiple policy periods involved just one occurrence, the amount paid would be reduced by the amount of each payment made under prior policies because of the same occurrence. 

    The Insurers next argued that the underlying litigation involved a single occurrence because the damages at issued arose from a single project, at a single site, pursuant to Bodell's single construction agreement. The court could not agree, however that the myriad of alleged deficiencies in the project's construction constituted but one occurrence. It was alleged in the underlying litigation that there may be up to 281 alleged defects, including deficiencies as varied as biological growth, improper window installations and shower assemblies, cracked concrete, downspout inversions, and loose guardrails. A layperson with reasonable expectations would not construe "one occurrence" to mean 281 alleged defects in the construction of a condominium project and even more so when these alleged defects did not involve the same deficiency or field. 

    Therefore, the Insurers' second motion was granted in part and denied in part. 

Pollution Exclusion Found Ambiguous

    The Mississippi Supreme Court found the pollution exclusion ambiguous under the facts presented. Omega Protein, Inc. v. Evanston Ins. Co., 2022 Miss. LEXIS 90 (Miss. March 31, 2022).

    Omega Protein, Inc., entered a contract with Ascu-fab to perform welding and other fabrication work at their facility. Accu-fab was required to have CGL coverage naming Omega as an additional insured. Accu-fab purchased a $1 million primer policy from Colony Insurance Company and a $5 million excess policy issued by Evanston Insurance Company.

    Accu-fab performed welding and other fabrication work on a large metal storage tank used for the temporary storage of stickwater, which was a liquid composed of water, fish oil, and fish solids. An explosion occurred at the Omega plant while Accu-fab workers were welding and grinding on a large metal tank that was used for the temporary storage of stickwater. One of Accu-fab's workers , Jerry Lee Tayler, was killed, another was seriously injured, and still others suffered less serous injuries. 

    Omega was sued in various lawsuits. Omega tendered the defense of the lawsuits to Colony and Evanston. Colony filed this declaratory judgment action seeking a declaration that there was no coverage due to the pollution exclusion. Evanston intervened, also arguing the claim was barred by its pollution exclusion. Omega and the Taylor estates settled with Colony contributing its policy limits of $1 million.

    In this declaratory judgment actin, Omega filed motions for partial summary judgment, alleging that the pollution exclusion did not apply. Evanston also filed a motion for summary judgment arguing that Omega was not an additional insured under the Colony policy or the excess policy. Evanston also argued that Omega was not entitled to indemnity because there were no factual allegations of negligence against Accu-fab in the underlying cases and also because its own pollution exclusion barred Omega's claims. 

    A special master was appointed to address the motions for summary judgment. The special master recommended that coverage was barred under the pollution exclusion and that Omega qualified as an additional insured under the policy in addition to Evanston's coverage being triggered by the $1 million payment by Colony. The trial court granted Evanston's summary judgment motion. Omega appealed, and Evanston cross-appealed. 

    The Evanston pollution exclusion did not apply to "ultimate net loss" . . . "arising out of or contributed to in any way by the actual, alleged or threatened discharge, dispersal, release, migration, escape or seepage of pollutants." Stickwater was a byproduct of the fish meal and fish oil production process. The stickwater produced methanethiol, hydrogen sullied, and methane - all three of which were extremely flammable. 

    Omega asserted that the gasses emitted from the stickwater tank were not irritants or contaminants because they were found naturally in the ambient air. Further, the gasses in the stickwater tank were not irritants or contaminants under the pollution exclusion since they were property contained within the tank and were not contacting, contaminating, or irritating anything. Evanston argued that the gasses emitted from the tank fit squarely within the pollution exclusion language. 

    After considering dictionary definitions, the court determined that the pollution exclusion was susceptible to more than one reasonable interpretation and, therefore, ambiguous. Accordingly, it was construed in favor of coverage.

    The court next determined that Evanston's excess policy was not triggered because there was no exhaustion of the underlying policy. Nor was there a showing of negligence by Accu-fab. 

    Finally, the court found that Omega was not an additional insured under Accu-fab's policies. Omega was an a an additional insured only if there was a determination of negligence on Accu-fab's part. The underlying policy, and Evanston's following form policy, required a determination that Omega incurred liability on behalf of negligence attributed to Accu-fab. But there was never any adjudication made regarding negligence of Accu-fab because of the settlement. Therefore, Evanston failed to prove that Omega was not covered under the excess policy.

    However, Evanston intervened in the declaratory judgment suit and assumed the burden of proof. Because there was no adjudication of fault or negligence attributed to Accu-fab, Evanston failed to prove that Omega was not covered under the excess policy, The trial court erred by finding that Omega qualified as an additional insured under the excess policy. 

With Certified Question Answered, Ninth Circuit Finds Insurer Bound by Agent's Certificate of Insurance

    The Ninth Circuit, relying upon the Washington Supreme Court's response to a certified question (prior post here] found that the insurer was bound by the agent's certificate of insurance identifying an additional insured. T-Mobile USA Inc. v. Selective Ins. Co of Am., 787 Fed. Appx. 395 (9th Cir. Dec. 9, 2019). 

    Selective issued a policy to a contractor of T-Mobile Northeast, LLC (T-Mobile NE), a wholly owned subsidiary of T-Mobile USA. The policy included an Additional Insured Endorsement that extended "additional insured" status to any entity which whom the contractor entered a written contract that required the contractor to add that entity as an additional insured under the policy. The endorsement extended coverage to T-Mobile NE but not T-Mobile USA. In 2012, the Vany Dyk Group, Inc. - Selective's authorized agent acting with apparent authority - issued a certificate of insurance (COI) to T-Mobile USA. The COI stated that T-Mobile USA "is included was an additional insured even though it also expressly stated that the COI could not extend or alter the coverage afforded by the policy.

    Under Washington law, an insurer was bound by all acts, contracts, or representations of its agent which were within the scope of the agent's real or apparent authority. But the purpose of a COI was to inform the recipient that insurance had been obtained. Under Washington law, a COI was not the functional equivalent of an insurance policy, and it therefore could not be used to amend, extend, or alter the coverage provisions of a policy. 

    The Ninth Circuit, therefore, certified a question to the Washington Supreme Court, asking whether an insurer bound by representations made by its agent in a COI with respect to a party's status as an additional insured when the certificate included language disclaiming its authority and ability to expand coverage. The Washington Supreme Court responded, "The answer is yes: an insurer is bound by the representation of its agent in those circumstances. Otherwise, an insurance company/s representations would be meaningless and it cold mislead without consequence." 

    Given this response, the Ninth Circuit reversed the district court's orders granting summary judgment and dismissal on the grounds that Selective was bound by the agent's representations that T-Mobiie USA was not an additional insured under the policy. 

Insurer Waives Challenge to Hourly Rates, Ordered to Pay All Defense Costs

    After ignoring a prior order to pay fees, the insurer was ordered again to pay the total fees incurred without challenge to defense counsel's hourly rates. Chelsea Piers, L.P. v. Colony Ins. Co., 2019 N.Y. Misc. LEXIS 6333 (N.Y. Sup. Ct. Nov. 25, 2019).

    Chelsea Piers was an additional insured on policies issued by Colony to EPS Iron Works, Inc. The court previously denied Colony's motion for summary judgment and granted summary judgment to Chelsea Piers, establishing Colony's duty to defend and to reimburse for past defense costs. Colony, however, failed to reimburse Chelsea Piers for its defense costs. 

    Colony did not dispute that the prior order required it to reimburse Chelsea Piers for past defense costs and defense costs going forward. Nor did Colony challenge the reasonableness of the hours and tasks billed by defense counsel. Rather, Colony contested only the reasonableness of Rivkin Radler's (defense counsel) hourly rates. 

    Colony, however, did not move for a reasonableness hearing on the hourly rates. And Colony did not put forth any evidence suggesting that Rivkin Radler's hourly rates were unreasonably high - not merely higher than Colony would prefer to pay. The court determined that Colony was not entitled to disregard a court order from which it never sought to pay. 

    Colony waived any challenge to the reasonableness of Chelsea Piers' defense costs incurred up to the date of this order. Colony was ordered to pay all defense costs that Chelsea Piers had incurred prior to the date of the order, and for which Chelsea Piers had already provided Colony with property documentation. 

Insurer's Attempt to Strike Experts in Collapse Case Fails

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

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

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

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

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

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

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

Insurer Must Defend Additional Insured Though Its Insured is a Non-Party

    The plaintiff insurer's motion for partial summary judgment seeking an order that defendant insurer was obligated to defend a non-party as an additional insured was granted. Am Empire Surplus Lines Ins. Co. v. Burlington Ins. Co., 2019 N. Y. Misc. LEXIS 4145 (N. Y. Sup. Ct. July 25, 2019). 

    Quality Building Construction, LLC was the contractor hired to work on exterior facade of a building owned by Central Park West Corporation. The underlying complaint alleged that Quality caused plastic spacers and pedestals used for the penthouse terrace to fall down the roof drain riser. A clog and rainwater backup resulted in water damage to apartment 8A. The resulting damage was allegedly due to the clogged roof drain riser.

    Quality subcontracted the work to Mega State, Inc. The subcontract required Mega to indemnify and hold Quality harmless against claims in connection with Mega's work, as well as name Quality as an additional insured on a primary, non-contributory bases under Mega's CGL policy. Burlington issued a policy to Mega naming Quality as an additional insured. American Empire issued a CGL policy to Quality.

   Quality was sued in the underlying action, but Mega was not.  American Empire tendered a demand for coverage to Mega and Burlington, relying on the agreement between Quality and Mega. Burlington responded that Mega was not liable for the alleged damages. American Empire sued Burlington. Subsequently, Burlington accepted the tender to defend Quality in the underlying action, and reserved rights as to whether Burlington's policy was primary and on the question of indemnification. American Empire agreed to withdraw its suit if Burlington would modify its reservation of rights. Burlington refused.  

    Mega completed its work prior to the date of loss. American Empire contended that Quality was an additional insured and entitled to coverage under the "Completed Operations Endorsement" in the Burlington policy. American Empire argued that additional insured coverage was triggered because there was at least a reasonable possibility that the named insured, Mega, was a proximate cause of the underlying property damage. Further, coverage to Quality as an additional insured under the Burlington policy was primary and non-contributory. 

    Burlington argued the underlying allegations precluded the possibility of coverage. The underlying complaint stated that the property damage was caused by Quality, and there could be no determination that Mega caused the property damage. There was no proof or allegation that Mega was negligent and Mega was not a party to the underlying action. The only evidence that Mega's work caused the damage was an affidavit from Quality's President swearing that Quality did not perform work because it subcontracted the work to Mega. Burlington challenged this affidavit as self-serving and inadmissible on the cross motions for summary judgment. 

    The court ruled that it was irrelevant that Mega was not mentioned in the underlying complaint. Burlington had the subcontract between Mega and Quality, so it had actual knowledge of facts establishing a reasonable possibility that the complaint was within its indemnification policy terms and that its coverage was primary and non-contributory. Burlington was liable to reimburse American Empire for defense costs, with interest because of the language of the policies and the sub contract between Quality and Mega. 

Care, Custody and Control Exclusion Does Not Bar Coverage For Alleged Construction Defects

    Reversing the lower court, the California Court of Appeal found that the care, custody and control exclusion was not applicable to bar coverage for the general contractor as the additional insured under the subcontractor's policy. McMillin Homes Constr. v. Nat'l Fire & Marine Ins. Co., 2019 Cal. App. LEXIS 514 (Cal. Ct. App. June 5, 2019).

    McMillian was the developer and general contractor on the housing project. It hired Martin Roofing Company, Inc. to do the roofing job for the project. Martin secured a general liability policy from National Fire that named McMillian as an additional insured. By endorsement, the policy excluded coverage for damage to property in McMillin's "care, custody, or control" (CCC exclusion).

    In 2014, homeowners sued McMillin for construction defects. The complaint alleged water intrusion and damage caused by roofing defects. McMillin tendered its defense to National Fire. Coverage was refused. Suit was filed and the trial court entered judgment in favor of National Fire. 

    The Court of Appeal reversed. The policy provided coverage to McMillin as an "additional insured" with respect to liability arising out of:

A. Martin's ongoing operations performed for McMillin and

B. Acts or omissions of McMillin in connection with its general supervision of such operations.

    National Fire argued that the CCC exclusion in the additional insured endorsement barred coverage. The endorsement did not cover:

Property damage to Property in the care, custody, or control of the additional insured(s) or over which the additional insured(s) are for any purpose exercising physical control.

Because McMillin was the general contractor on the project, any damage alleged while the homes were being built would have been to property in McMillin's care, custody, or control. McMillin contended that the CCC exception applied only where the insured had exclusive or complete control over the damaged property. 

    The CCC exclusion had been judicially construed to require exclusive or complete control.  Therefore, the provision was not ambiguous. Here, Martin agreed to furnish all labor, materials, and equipment needed to do the roof job. It was primarily and directly responsible for the activities and conduct of its employees. All materials, equipment and tools remained Martins property until they were integrated into the structure and approved by McMillin. Martin and McMillin shared control over Martins roofing work. Accordingly, National Fire did not prove the CCC exclusion rendered coverage for the claims was an impossibility. 

    Therefore, National Fire owed a defense and the judgment was reversed. 

Non-compliance With Endorsement Means No Indemnity Coverage

    The insured's failure to verify that subcontractors had CGL policies and to provide a contract stating that the subcontractors would indemnify the insured as required by the policy's endorsement meant there was no coverage for the insured. Cincinnati Spec. Underwriters Ins. Co. v. Milionis Constr., Inc., 2018 U.S. Dist. LEXIS 199658 (E.D. Wash. Nov. 26, 2018). 

    The homeowners filed suit against Milionis, the general contractor for construction of a home. The underlying suit alleged that Milionis breached the parties' agreement by leaving the home unfinished. Cincinnati defended Milionis under a reservation of rights.

    Cincinnati filed for a declaratory judgment while the underlying action was still pending, seeking a declaration that it had no duty to defend or indemnify Milionis. Cincinnati's initial motion for summary judgment arguing that it had no duty to defend was rejected by the court. In a renewed motion after the underlying action was concluded, ?Cincinnati sought a determination that there was no duty to indemnify. 

    The policy issued by Cincinnati had an endorsement requiring Milionis to: (1) obtain a formal written contract with subcontractors verifying that they had valid CGL insurance; (2) obtain a formal written contract stating that the subcontractors agreed "to defend, indemnify and hold Milionis harmless from any and all liability;" and (3) verify in the contract that the subcontractors had named Milionis as an additional insured on their CGL policy. 

    On the construction project, Milionis had subcontractors perform all the work. Milionis never sent Cincinnati any subcontractor contracts or proof of Milionis's additional insured status as required by the endorsement. 

    The underlying facts established that there was an occurrence and property damage. But Milionis did not dispute that it did not meet the conditions precedent to coverage - obtaining subcontractor contracts and being named as an additional insured on the subcontractors' liability policies. This was prejudicial to Cincinnati. Milionis's noncompliance with the endorsement left it with no contractual indemnification claims that it would have asserted to compel the subcontractors to contribute to the Milionis's defense or settlement. Moreover, it deprived Milionis of the ability to have direct contractual rights to a defense and coverage from the subcontractors' insurers. Consequently, Cincinnati was left with no other insurers and parties to share in the costs of defending and indemnifying Milionis. 

    Cincinnati was therefore relieved of its duty to indemnify under the policy.