Insurance Law Hawaii

Requiring Approval of All Insureds and Mortgagees To Assign Policy Upheld by Florida Court

    The Florida Court of Appeal upheld an assignment of benefits provision that required signatures of all insureds and mortgagees. Restoration 1 of Port St. Lucie v. Ark Royal Ins. Co., 2018 Fla. App. LEXIS 12633 (Fla. Ct. App. Sept. 5, 2018). 

    Ark Royal issued a homeowner's policy to the insureds. The policy stated that "[n]o assignment of claim benefits, regardless of whether made before a loss or after a loss, shall be valid without the written consent of the insureds, and all mortgagee(s) named in this policy." 

    The insureds' home suffered water damage. The insureds contacted Restoration 1 to provide cleanup services and signed an agreement assigning to Restoration 1 "any and all insurance rights, benefits, proceeds and any cause of action under any applicable insurance policies." The cleanup was completed by Restoration 1 and it submitted a claim to Ark Royal for $20,305.74. Ark Royal refused to pay the full amount of the claim, stating it was unable to recognize the assignment because it did not have all of the required signatures. 

    Restoration 1 sued Royal Ark for breach of contract and sought a declaratory judgment determining that a clause requiring the signatures of all insureds and mortgagees for an assignment contravened Florida public policy. Ark Royal moved to dismiss. The trial court granted the motion because the assignment failed to comply with the policy's requirements. 

    On appeal, the appellate court recognized that the consent to assignment provision in policies did not apply to an assignment after loss. But a significant difference existed between requiring the insurer's consent and requiring the consent of the insureds and mortgagees. The contract here did not prohibit assignment. It imposed a condition, requiring the approval of all insureds and the mortgagee. This restriction did not conflict with the public interest. Therefore, the trial court's granting of the motion to dismiss was affirmed. 

Arizona Upholds Assignment of Post-Loss Benefits

    The Arizona Court of Appeals upheld the insured's assignment of benefits despite the policy's anti-assignment provision. Farmers Ins. Exchange v. Honorable David Udall, 2018 Ariz. Ct. App. LEXIS 94 (Ariz. June 12, 2018).

    Farmers issued homeowners' policies to four homeowners who later required water damage mitigation and restoration services. Each of the policies included an anti-assignment provision stating that the insured's "interest in this policy may not be transferred o another person without [Farmers'] written consent." Each insured, however, signed a "Work Order Agreement & Assignment of Benefits" authorizing the remediation company, EcoDry Restoration of Arizona, LLC, to perform emergency water mitigation services and then assign insurance rights under the policies to EcoDry. The assignment authorized and instructed the insurance company to pay directly to EcoDry the amount shown in the final billing for work done by EcoDry.

    Farmers did not consent to any of the assignments. Although Farmers made payment to EcoDry, it was an amount less than the invoice total. EcoDry then filed suit alleging the insured had assigned to EcoDry their "post-loss rights" under the policies and that Farmers breached the policies by refusing to pay the amount charged to the insureds. Farmers moved to dismiss the complaint arguing EcoDry did not have a contractual relationship with Farmers nor a valid assignment of the insureds' rights under the policies. The superior court denied the motion and Farmers petitioned the Court of Appeals for special action review. 

    On appeal, the court noted that Arizona law recognized that contractual provisions prohibiting assignment without consent could be enforceable. The general rule was that an indemnity insurance policy could not be assigned, especially where an assignment was expressly prohibited by the terms of the policy, unless the insurer consented. An assignment made after a loss occurred, however, was not of the policy itself, but a claim under, or a right of action on, the policy. 

    Here, the insureds executed the assignments after water damaged their homes, giving rise to their claims under the policies. The insureds did not assign their policies to EcoDry, but rather they assigned a claim under and a right of action on the policies. Therefore, the assignments were valid post-loss assignments of benefits under the policies. As the recipient of a post-loss assignment of benefits, EcoDry stood in the shoes of the insureds and had standing to enforce the policy against Farmers.

Assignment Endorsement Requiring Consent of All Insureds, Additional Insureds and Mortgagees Struck Down in Florida

    Security First Insurance Company's endorsement restricting the ability of policyholders to assign post-loss benefits was struck down by the Florida District  Court of Appeal. Security First Ins. Co. v. Florida Office of Ins. Regulation, 2017 Fla. App. LEXIS 18083 (Fla. Ct. App. Dec. 1, 2017).

    The Department of Insurance, Office of Insurance Regulation (OIR), disapproved Security First's request to amend its policy language to restrict the ability of policyholders to assign post-loss benefits. The endorsement restricted the assignment of post-loss benefits absent the consent of all insureds, all additional insureds, and all mortgagees named in their policies. OIR found that the forms violated Florida statutes because it included language restricting the assignment of post-loss claim benefits. Secruity First appealed the OIR ruling.

    Security First concedes that Florida case law held that an endorsement requiring an insurer's consent for a post-loss assignment of benefits was not enforceable. But it argued that such case law only applied to provisions requiring the insurer's consent. The court disagreed. Prior decisions held that the right to recover under an insurance policy was freely assignable after loss. The OIR properly construed this case law. Therefore, the court affirmed the final administrative order.

Claims for Bad Faith and Punitive Damages Survive Insurer's Motion for Summary Judgment

    The court denied the insurer's motion for partial summary judgment seeking to dismiss claims for bad faith and for punitive damages. Van Der Weide v. Cincinnati Ins. Co., 2017 U.S. Dist. LEXIS 101735 (N.D. Iowa June 30, 2017).

    The homeowner sued the insured general contractor after water was found leaking into the home, causing significant water damage. Cincinnati rejected the general contractor's tender and denied any duty to defend, contending that the alleged defects were discovered after Cincinnati's policy period had ended. Cincinnati was advised that two experts for the insured would testify that the property damage occurred due to construction defects and that the damage began shortly after completion of the home. Cincinnati still refused to defend.

    The homeowner and the general contractor settled, and the policy rights were assigned to the homeowner, who sued Cincinnati. In a prior decision, this court had granted partial summary judgment to the homeowner, determining that Cincinnati must defend claims of faulty workmanship by a subcontractor causing consequential damages beyond the defective work product itself. The prior decision was discussed in a post here. The decision relied upon the Iowa Supreme Court's ruling in National Surety Corp. v. Westlake Investments, LLC, 880 N.W. 2d 724 (Iowa 2016) [see prior post here]. 

    Now, the insurer filed a motion for partial summary judgment seeking dismissal of the bad faith and punitive damage claims. Bad faith under Iowa law required a showing that; (1) the defendant had no reasonable basis for denying the plaintiff's claim; and (2) the defendant knew or had reason to know that its denial or refusal was without reasonable basis.

    Here, Cincinnati was informed that the homeowner's experts would testify that the damage began shortly after completion of the house and during the policy period. Even after receiving this information, Cincinnati failed to investigate and dismissed the experts' input by stating: "I don't understand why you think your 'paid expert's' opinion changes anything." Cincinnati's failure to investigate the new information permitted an inference that it denied the claim in bad faith. The court could not find, as a matter of law, that the claim was fairly debatable as to the facts. 

    Moreover, the court could not find in Cincinnati's favor as a matter of law on the knowledge element. Upon being advised that experts would testify that the damage began shortly after completion, during the policy perod, Cincinnati took no steps to investigate the new information. Based on the record, reasonable jurors could find that Cincinnati knew, or should have known, that the basis for denying the insured's claim was unreasonable. 

    Finally, the court denied Cincinnati's motion in regards to punitive damages. The jury could find that the conduct of Cincinnati constituted willful and wanton disregard for the rights of the insured.

Assignment of Construction Defect Claims Not Covered

    Assignment of insurance proceeds as part of a settlement against the subcontractor for faulty workmanship was not covered under the CGL policy in accordance with Illinois law. Allied Prop. & Cas. Ins Co v. Metro North Condominium Assoc., 2017 U.S. App. LEXIS 4107 (7th Cir. March 8, 2017).

    Metro North Condominium Association hired a developer to build a condominium. The developer used CSC Glass to install the building's windows. CSC installed the windows defectively, causing the building to sustain significant water damage following a rain storm.

    Metro North sued the developer, who turned out to be insolvent. Metro North amended its complaint to add a claim against CSC for breach of the implied warranty of habitability. Metro North eventually dismissed its lawsuit in exchange for an assignment of CSC's policy with Allied and payment of any right to $700,000 worth of insurance coverage. The settlement specified that it was not intended to compensate Metro North for the cost of repairing or replacing CSC's defectively installed windows, but rather for the damage to the remaining parts of Metro North's condominium. 

    Allied's policy had several "your work" exclusions barring coverage for damage to the particular part of the relevant property worked on by CSC, or for the costs of repairing or replacing CSC's own defective work. Further, Exclusion 2.b excluded coverage for damages arising from "contractual liability," that is, damages that CSC became obligated to pay "by reason of the assumption of liability in a contract or agreement." This exclusion applied only if CSC would not have been liable "in the absence of the contract or agreement."

    Allied brought a declaratory judgment lawsuit against Metro North and the parties filed cross-motions for summary judgment. Allied's motion was granted, determining that the settlement damages were not covered under Allied's policy. Metro North appealed.

    The Seventh Circuit affirmed. The breach of the implied warranty of habitability was the only legal theory in play at the time of the settlement, but that theory did not allow for the recovery of damages covered by the policy. The measure of damages for a breach of the implied warranty of habitability was the cost of repairing the defective conditions, here the defectively installed windows. Illinois courts, however, had concluded that CGL policies like Allied's did not cover the cost of repairing the insured's defectively completed work.

    Even if CSC assumed liability for damages to other parts of the building besides the windows themselves, coverage for those damages would be precluded under Exclusion 2.b, since the liability would then have arisen contractually from the settlement agreement.

Consent Judgment Not Binding On Insurer Who is Not a Party to Proceeding

    The West Virginia Supreme Court of Appeals determined that a pre-trial settlement, including a consent judgment against a non-party insurer and an assignment of rights under the policy, was invalid. Penn-America Ins. Co. v. Osborne, 2017 W. Va. LEXIS 119 (W.Va. March 1, 2017). 

    Beecher Osborne injured his leg in a timbering accident while working for H&H Logging Company on land owned by Heartwood Forestland Fund and leased by Allegheny Wood Products, Inc. Osborne sued H&H, Allegheny, and Heartwood, all of whom denied liability. H&H tendered its defense  to Penn America for Mr. Osborne's deliberate intent claim. Penn-America denied the request, determining that the deliberate intent claim was excluded under its policy. H&H then retained defense counsel at its own expense. Liberty Mutual Insurance defended Allegheny and Heartwood. 

    Allegheny and Heartwood filed a motion for leave to file a third-party complaint for declaratory relief against Penn-America for failing to provide them a defense. By contract, H&H had agreed to defend and indemnify Allegheny and Heartwood for suits arising form the contract. The motion was never heard and the third-party complaint was never filed. Further, neither Allegheny, Heartwood, nor Osborne actually tendered to Penn-America on behalf of Allegheny and Heartwood.

    Without notice to Penn-America, Osborne, Allegheny and Heartwood stipulated to a settlement with the following facts: (1) Penn-America breached its policy by failing to provide a defense to Allegheny or Heartwood related to Osborne's claims; (2) due to the breach, Allegheny and Heartwood suffered damages because they were compelled to pay for their own defense; (3) Allegheny and Heartwood had to mitigate the claims asserted by Osborne by entering a pre-trial settlement agreement to preserve and protect their assets; and (4) Allegheny and Heartwood tried to resolve coverage issues by filing a third-party complaint for declaratory relief against Penn-America. Further, Allegheny and Heartwood consented to a $1,000,000 judgment for Mr. Osborne's injury, and they agreed to assign to Mr. Osborne any claims they had against Penn-America for failing to provide them a defense. In return, Osborne agreed not to execute on the $1,000,000 judgment against Allegheny and Heartwood. Instead, Osborne would collect the judgment from Penn-America by asserting his assigned claims. 

    Osborne then sued Penn-America. Penn-America answered by noting it had not been contacted about the lawsuit or settlement after denying a defense to H&H. Penn-America sought to challenge the reasonableness of the $1,000,,000 consent judgment, but the trial court prevented any review of the medical records or other evidence that would demonstrate the severity of Osborne's injury. The trial court entered summary judgment in Osborne's favor, finding that Penn-America was liable for the $1,000,000 consent judgment.

    The West Virginia Supreme Court of Appeals found the pre-trial settlement agreement unenforceable against Penn-America and the assignment of claims was void. Penn-America was not a party to the Osborne lawsuit against Allegheny and Heartwood, and was never given notice of the parties' negotiations for the pre-trial agreement. Further, the record was bare of any facts supporting $1,000,000 settlement as a fair and reasonable valuation of Osborne's lawsuit against Allegheny and Heartwood. To make matters worse, the trial court prohibited Penn-America from conducting discovery on the extent of Osborne's injury or his medical expenses. Therefore, Penn-America was not bound by the consent judgment.

    The settlement agreement made no mention of the fact that Allegheny and Heartwood were being defended and were provided with coverage by Liberty Mutual in Osborne's suit. Recovery on an assigned insurance bad faith claim could not be made upon an untrue factual basis. Osborne's recovery on the assigned claims would be based on a falsehood, i.e., that due to Penn-America's breach, Allegheny and Heartwood were without coverage and the $1,000,000 consent judgment was necessary to protect their assets.

    Finally, evidence of fraud and collusion were present. A $1,000,000 valuation of a lawsuit for Osborne's injury leg, without any cited evidence regarding permanency of the injury, permanent disability, severity, medical expenses, etc., did not reflect serious negotiation on damages. Therefore, the assignment was void and the trial court erred in failing to grant summary judgment to Penn-America. 

    

Distinguishing Hawaii Law, New Jersey Finds Anti-Assignment Clause Ineffective

    The New Jersey Supreme Court found that an anti-assignment provision could not be applied to bar a post-loss claim assignment. Givaudan Fragrances Corp. v. Aetna Cas. & Sur. Co., 2017 N.J. LEXIS 121 (N.J. Feb. 1, 2017). In reaching its decision, the court distinguished a decision from the Hawaii Supreme Court enforcing consent-to-assignment clauses and failing to recognize any post-loss exception to such clauses. See Del Monte Fresh Produce (Hawaii), Inc. v. Fireman's Fund Ins. Co., 183 P.3d 734 (Haw. 2007).

    Plaintiff Givaudan Fragrances Corporation (Fragrances) was sued for environmental contamination at a manufacturing site. A related corporate entity had operated the facility from the 1960s to 1990. Fragrances sought coverage under policies issued to its predecessor. The predecessor attempted to assign to Fragrances post-loss rights under the policies. The insurers resisted, claiming the predecessor was the named insured, not Fragrances, and that the insurers did not consent to an assignment of the predecessor's policies. 

    The trial court upheld the anti-assignment provisions and granted summary judgment to the insurers. The Appellate Division reversed and remanded. The court reasoned that once a loss occurred, an insured's claim under a policy could be assigned without the insurer's consent. Once a loss had occurred, there was no longer any danger that the risk would increase.

    The Supreme Court noted that a minority view that enforced consent-to-assignment clauses, citing, among other cases, Del Monte. To the extent the minority cases found that insurers could enforce anti-assignment clauses and valued such enforcement above the rights of the insured to freely assign its claim, the cases were inconsistent with the established policy in New Jersey. The court, therefore, voided application of the anti-assignment clauses for post-loss claim assignments.

    Here, the right to coverage for the "occurrence" of environmental contamination was assigned to Fragrances after the policies had expired. The loss event occurred during the policy periods. The assignment of claims did not increase the risk undertaken by the insurers for the policy periods for which they wrote coverage, in specified amounts, for the occurrence-based claims pertaining to the site of the contamination.

Policy Does Not Commit Insurer to Provide Supersedeas Bond

    The insured's claim that the insurer improperly refused to provide a supersedeas bond was rejected by the federal district court. James River Ins. Co. v. Interlachen Property Owners Ass'n v. Kuepers Constr., 2016 U.S. Dist. LEXIS 71825 (D. Minn. June 1, 2016).

      Kuepers Construction, Inc. constructed a townhome project on property owned by the Association. After completion of the project, the Association sued Kuepers for construction defects on the project. Kuepers tendered its defense to State Auto Insurance Company, its CGL carrier. Later, the Association amended its complaint to assert claims for professional engineering negligence and professional design negligence. Kuepers tendered these claims to James River, who had issued  an Architects and Engineers professional Liability policy. James River agreed to defend subject to a reservation of rights.

      On summary judgment in the underlying case, the design claims were dismissed as well as certain construction defect claims. The remaining claims continued to trial. James River agreed to continue to provide a defense to the action pending and through any appeal of the summary judgment order.

      The remaining construction defect claims were tried and the jury returned a verdict against Kuepers. Judgment was entered against Kuepers for $2,147,000. Kuepers requested State Auto to post a supersedeas bond to stay execution while the case was appealed. State Auto refused. Kuepers then demanded that James River post the bond. James River also refused, relying on policy language that provided James River would pay,

reasonable and necessary fees, costs and expenses resulting from the investigation, adjustment, defense and appeal of a "claim", including the cost of appeal bonds, however, we shall not be obligated to apply for or furnish appeal bonds on your behalf.

     The Association filed a notice of appeal, seeking to reinstate the design defect claims against Kuepers that had been dismissed by summary judgment. An agreement was reached whereby Kuepers stipulated to a $2,000,000 judgment on the design defect claims and assigned its rights under the James River policy to the Association. The agreement was then sent to James River.

    This action was filed by James River, seeking a determination that the agreement was collusive and unenforceable. Kuepers filed counterclaims, seeking a declaratory judgment that James River breached the policy by failing to provide the supersedeas bond and that the agreement with the Association was reasonable and enforceable.

    James River moved for summary judgment. It argued it did not neglect its duty to defend and was under no obligation to post the supersedeas bond. Kuepers breached the policy's cooperation clause by stipulating to a judgment and assigning rights under the policy to the Association. Kuepers argued that failure to provide the supersedeas bond was a material breach by James River, voiding Kuepers' cooperation obligation.

    The court disagreed with Kuepers. The policy did not obligate James River to post the supersedeas bond. The bond would have stayed execution of judgment for damages arising from the jury verdict on the construction defect claims, liabilities that James River did not agree to cover. Requiring James River to post the supersedeas bond would extend its duty to indemnify beyond the policy's coverage, since the posting of a supersedeas bond bound the appellant and its surety to pay the judgment if the appeal was unsuccessful.

    Further, since James River did not breach the policy, Kuepers was required to provide notice to James River of the stipulated judgment and assignment of policy rights. Therefore, James River's motion for summary judgment was granted.

    

       

Assignment of Policies Barred by Anti-Assignment Provision

   The Minnesota Court of Appeals enforced the policy's anti-assignment provisions for the assignment of no-fault insurance claims to a medical provider. Stand Up Multipositional Advantage MRI, P.A. v. Family Ins. Co., 2016 Minn. App. LEXIS 24 (Minn. Ct. App. April 25, 2016).

     Stand Up Multipositional Advantage MRI (SUMA) operated a clinic that performed MRIs. Before the MRI was done, SUMA had its patients sign a one-page assignment and lien agreement. The agreement stated, in part, 

I hereby assign to SUMA . . . all of my claims to, rights to, and interests in, proceeds, whether resolved or unresolved, including without limit ownership rights, which I may have now or in the future relating directly or indirectly to my charges, condition, or causes of my condition . . . including remedies that I might have against or with respect to any payer now or in the future . . . . consistent with these terms, I hereby direct any and all Payers, to pay the proceeds directly to, immediately to, and exclusively in the name of SUMA to the full extent of my charges.

    American Family Insurance Company issued auto policies, which included an anti-assignment provision: "Interest in this policy may be assigned only with our written consent." 

    In July 2013, SUMA filed suit against various insurers, including American Family, for alleged failure to make payment directly to SUMA pursuant to the assignments its patients signed. The patients were injured in an auto accident and sought an MRI from SUMA. Each signed an assignment. 

    SUMA filed suit, alleging that American Family refused to make payment pursuant to the assignments. Cross-motions for summary judgment were filed. The trial court granted SUMA's motion and denied the motion filed by American Family. 

    On appeal, American Family argued that the assignments to SUMA were invalid because the patients executed their assignments before they incurred a loss for purposes of the Minnesota No-Fault Act. The court noted that an anti-assignment provision in a policy was unenforceable under Minnesota law with respect to a post-loss assignment, thereby making a post-loss assignment valid and enforceable.

    Under the No-Fault Act, the patient's loss accrued when the medical expense was incurred. Therefore, a patient's assignment of a no-fault insurance claim to a medical provider was invalid and unenforceable if the applicable policy forbade such an assignment and if the patient made the assignment before the medical provider billed the patient for the medical services. Here, the patients were billed by SUMA after they assigned their respective no-fault claims to SUMA. Therefore, the assignments were pre-loss assignments and invalid under the policy language. 

Assignment of Insured's Policy Ineffective

   An assignment of policy rights made before the policy was issued was ineffective. W. Alliance Bank v. Nat'l Union Fire Ins. Co., 2016 U.S. Dist. LEXIS 19936 (N.D. Cal. Feb. 18, 2016).

   The bank issued a loan to Sorrento Networks, Inc. in 2011. As collateral, Sorrento gave the bank a continuing security interest in all of Sorrento's personal property, including its inventory, commercial tort claims and insurance proceeds. The loan agreement authorized the back to act on Sorrento's behalf in collecting any money owed to Sorrento and prosecuting any claims that Sorrento might have.

   In 2012, National Union issued a commercial crime policy that named Sorrento as an insured. The policy provided $1 million of coverage for different forms of crime, including employee theft and theft of money and securities inside the premises. The policy included a non-assignment clause, which said that the insured's rights and duties under the policy could not be transferred without National Union's written consent. 

   In January 2014, Sorrento announced it was going out of business. Employees at a subsidiary were instructed to leave property in the premises. When the CEO arrived at the subsidiary's office a month later, all of the property was missing. 

   The bank then brought suit against National Union in its own name. National Union moved to dismiss. The court found that the bank could not sue as an assignee of Sorrento's benefits under the policy because Sorrento never assigned to the bank its contractual rights. Sorrento borrowed money from the bank in April 2011, over a year before the National Union policy took effect. Sorrento could not have assigned away its rights under a policy that it had not yet purchased.

   Further, the non-assignment clause barred any assignment that took place before the loss occurred. This precluded Sorrento from assigning away its rights. A non-assignment clause was void only as to transfers that occurred after a loss happened. The purported assignment took place in 2011, years before Sorrento suffered the loss. 

   Therefore, the complaint was dismissed with leave to amend.