Insurance Law Hawaii

Georgia's Cause Theory Means One Occurrence in Multi-Car Accident

    The Eleventh Circuit, following Georgia law, found the cause theory meant there was a single occurrence in a multi-car accident. Grange Mut. Cas. Co. v Slaughter, 2020 U.S. App LEXIS 14057 (11th Cir. May 1, 2020).

    Driving a truck owned by Four Seasons Trucking (FST), Mark Lucas crossed the center lane and collided with two vehicles, one right after the other. Grange insured the truck. Grange sued for declaratory relief, asking the district court to establish its obligations under the policy. 

    The district court concluded there was a single accident. Georgia used the cause theory to define the word "accident" in the policy. Under this theory, the number of accidents was determined by the number of causes of the injuries, with the court asking if there was but one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damage.

    The policy defined "accident" to incur continuous or repeated exposure to the same conditions resulting in "body injury" or "property damage." Further, the limit of insurance clause in the policy applied "regardless of the number of . . . vehicles involved in the 'accident'." The district court concluded that FST's argument that any time separate collisions occurred, there were different "conditions" would read that language out of the policy. The court also rejected FST's suggestion that any time there was a multi-auto collision, there were multiple accidents.

    The Eleventh Circuit agreed. Under the cause theory adopted in Georgia, courts looked to whether, after the cause of the initial collision, the driver regained control of the vehicle before a subsequent collision, so that it could be said there was a second intervening cause and therefore a second accident. 

    Here, there was no evidence that Lucas regained control of the truck as he crossed the centre line and collided with the two vehicles. The policy's limit of insurance clause also contemplated that multiple vehicles could be involved in a single accident. 

 

Auto Policy Provides No Coverage For Death Caused by Reckless Driving

    The Magistrate Judge for the Federal District Court of Hawaii recommended a finding that there was no coverage under the deceased driver's car rental policy or rental agreement for an accident caused by reckless driving. Praetorian Ins. Co. v. Estate of Apo, 2019 U.S. Dist. LEXIS 164489 (D Haw. Sept. 6, 2019). 

    The decedent was asleep in a rented vehicle when awakened by police. The decedent reversed the auto and collided with an police vehicle. A high speed pursuit then ensued. The decedent drove in the wrong direction on the opposing side of traffic at approximately 90 miles an hour and struck an oncoming vehicle, killing both the decedent the underlying plaintiff. 

    The vehicle driven by decedent had been rented to a friend, who loaned decedent the car. The rental agreement stated "None" for the listing of additional drivers. The agreement also stated, "under no circumstances shall vehicle be used, operated or driven by any other person." Praetorian insured the rented vehicle.

    The underlying lawsuit was filed against the decedent's estate. Thereafter, Praetorian filed an action for declaratory judgment that it had no duty to defend or indemnify. The estate did not answer and Praetorian filed Motion for Default Judgment or for Summary Judgment against the estate. No opposition to the motion was filed. 

    The court found that the decedent was not an insured under the policy. The policy defined "insured" as "you" and/or the rentee. The policy was therefore unambiguous that only the car rental company or the rentee qualified as an insured. The policy also stated it was subject to the terms, conditions, restrictions, and limitations contained in the rental agreement. Consequently, there was no coverage for the estate for the claims asserted in the underlying lawsuit. 

    As a result, the court found and recommended that the Motion be granted and that default judgment be entered against the estate and in favor of Praetorian. 

    

Injury Caused by Drunk Driver is "Accident" Covered by Policy

    Noting that only an insurance company could suggest no coverage for an injury caused by a drunk driver, the Fifth Circuit rejected the insurer's argument. Frederking v. Cincinnati Ins. Co., 2019 U.S. App. LEXIS 19796 (5th Cir. July 2, 2019).

    Carlos Sanchez was driving under the influence of alcohol when he failed to yield the right of way, and collided with a car driving by Richard Frederking. Sanchez was driving a truck while working for Advantage Plumbing Services, who was insured by Cincinnati. 

    Frederking sued both Sanchez and Advantage. The jury held Sanchez and Advantage jointly and severally liable for $137,025 in compensatory damages. It further awarded $207,500 in exemplary damages for Sanchez's gross negligence. 

    Cincinnati agreed to pay Frederking the compensatory damage award, thereby discharging Advantage's liability. But Cincinnati refused to pay Sanchez's exemplary damages. Frederking sued Cincinnati, arguing Sanchez's actions were intentional.

    The policy issued to Advantage covered damages resulting from "accidents." The policy did not define accident. As a matter of plain meaning and common usage, "accident" included the drunk driving collision that gave rise to the dispute. 

    The Supreme Court of Texas defined the term "accident" as a "fortuitous, unexpected and unintended event." Further, "accident" was defined by what it excluded - intentional acts. Automobile collisions were commonly described as "accidents." There was no reason to describe the automobile collision in this case as anything other than an "accident." No one contended that Sanchez intended his vehicle to collide with Frederking's vehicle. Nor did anyone suggest that Sanchez drank in hopes of causing an automobile collision. Therefore, this case fell well within the common understanding of the term "accident." 

    If Cincinnati's contention was correct, a collision caused by texting while driving would not be an accident. The driver made an intentional decision that contributed to the accident. But this was implausible on its face. 

    The court reversed the grant of summary judgment to Cincinnati and remanded the case for further consideration. 

Hawaii Court Tackles Amount Due Under Stacking Provision for UIM Coverage

    The Hawaii Intermediate Court of Appeals (ICA) ruled in favor of the insurer in deciphering the policy's UIM coverage. Kohatsu v. State Farm Mut. Auto. Ins. Co., 2017 Haw. App. LEXIS 388 (Sept. 29, 2017).

    The insureds were in an automobile accident, which resulted in a $300,000 settlement with the other driver's insurance company. The insureds requested UIM coverage from their insurer, State Farm, for the remaining damages from the accident. The parties entered arbitration and an Arbitration Award of $2,304,652.12 was granted in the insureds' favor.

    The parties disputed the amount of coverage available under the policy and the insureds sued State Farm. In cross motions for summary judgment, the insureds argued that each policy for their four vehicles provided stacked UIM coverage of $400,000. Thus, the four policies together provided stacked UIM coverage totaling $1.6 million. State Farm argued that each policy for the four vehicles provided $100,000 in UIM coverage and the four policies together provided stacked UIM coverage totaling $400,000. The circuit court granted partial summary judgment in favor of State Farm. Judgment was entered on the UIM coverage issue and an appeal was filed.

    The Declarations Page for the Mercury Tracer, the car involved in the accident, provided a stacking option for UIM coverage with limits of $100,000 per person and $300,000 per accident. Renewal documents for the other three vehicles owned by the insureds also provided stacked UIM coverage for each vehicle in the amount of $100,000 per person and $300,000 per accident.

    The policy offered Non-Stacking Coverage or Stacking Coverage. Non-Stacking Coverage was defined as the limits carried on one vehicle. The Stacking Coverage, which was a more expensive option, consisted of the total of the limits on all the vehicles insured. The parties agreed that the insureds had four vehicles under four separate policies, and that they elected the UIM stacking option for each offer of UIM coverage. 

    An example of stacking was given in the policy. When two vehicles were insured under two separate policies, a UIM limit of $50,000/$100,000 would result in double limits, i.e., $100,000/$200,000 of stacked UIM benefits. Therefore, the per person UIM coverage limit of $100,000 multiplies by four vehicles resulted in a total of $400,000 of stacked UIM coverage for the claim at issue. The circuit court's judgment was affirmed. 

    Thanks to my Damon Key colleague, Mark Murakami [www.hawaiioceanlaw.com], for flagging this case. 

Ninth Circuit Confirms $14 Million Award for Bad Faith

    The Ninth Circuit affirmed the jury’s award of $14 million in damages after finding Allstate was in bad faith in refusing to settle the matter.  Madrigal v. Allstate Indem Co., 2017 U.S. App. LEXIS 10643 (9^th Cir. June 15, 2017).

    Madrigal was injured in an auto accident with Tang, Allstate’s Insured. Allstate refused Madrigal’s settlement offer although it was within policy limits.  Madrigal and Tang eventually sued Allstate for bad faith.  The jury determined Allstate had refused to settle in bad faith.  Allstate moved for judgment as a matter of law (JMOL) and a new trial.  Both motions were denied by the district court and Allstate appealed.

   Allstate also argued it was entitled to JMOL on the bad faith claim because it tendered the $100,000 policy limits twice to settle Madrigal’s demand in a timely fashion.  Whether an insurer acted unreasonably and thus in a bad faith, in rejecting a settlement demand, however, was a question of fact for the jury.  Here, the jury had substantial evidence from which it could reasonably find that Allstate’s initial response, a rejection and a counter-offer, was unreasonable because, by that date, Allstate’s claims adjuster had: (1) found a previously-unidentified witness who contradicted Mr. Tang’s version of events and placed responsibility for the accident on Mr. Tang; (2) received medical bills and information about Madrigal’s uninsured status that led the adjuster to believe Tang’s exposure could be well above the policy limits; and (3) declined to discuss or clarify potential compliance issues, even in writing as the demand letter allowed, with Madrigal’s attorney.

  Therefore, it was reasonable for the jury to conclude that when Allstate responded to Madrigal’s offer with a rejection and counter-offer, Allstate breached the implied covenant of good faith and fair dealing by refusing an offered settlement where the most reasonable manner of disposing of the claim was by accepting the settlement.

   Lastly, Allstate challenged the special verdict form which asked whether: (1) Madrigal made a reasonable settlement demand for an amount within policy limits; and (2) Allstate’s failure to accept Madrigal’s settlement demand was unreasonable.  These were the elements of bad faith refusal to settle liability under California law.  Therefore, the special verdict form, coupled with the jury instructions, fully and fairly presented to the jury the issues it was called upon to decide regarding Allstate’s bad faith liability.

Ninth Circuit Affirms $14 Million Award for Bad Faith

    The Ninth Circuit affirmed the jury's award of $14 million in damages after finding Allstate was in bad faith in refusing to settle the matter. Madrigal v. Allstate Indem. Co., 2017 U.S. App. LEXIS 10643 (9th Cir. June 15, 2017).

    Madrigal was injured in an auto accident with Tang, Allstate's insured. Allstate refused Madrigal's settlement offer although it was within policy limits. Madrigal and Tang eventually sued Allstate for bad faith. The jury determined Allstate had refused to settle in bad faith. Allstate moved for judgment as a matter of law (JMOL) and a new trial. Both motions were denied by the district court and Allstate appealed.

    Allstate also argued it was entitled to JMOL on the bad faith claim because it tendered the $100,000 policy limits twice to settle Madrigal's demand in a timely fashion. Whether an insurer has acted unreasonably and thus in bad faith in rejecting a settlement demand, however, was a question of fact for the jury. Here, the jury had substantial evidence from which it could reasonably find that Allstate's initial response, a rejection and counter-offer, was unreasonable because, by that date, Allstate's claims adjuster had: (1) found a previously-unidentified witness who contradicted Mr. Tang's version of events and placed responsibility for the accident on Mr. Tang; (2) received medical bills and information about Madrigal's uninsured status that led the adjuster to believe Tang's exposure could be well above the policy limits; and (3) declined to discuss or clarify potential compliance issues - even in writing as the demand letter allowed with Madrigal's attorney. 

    Therefore, it was reasonable for the jury to conclude that when Allstate responded to Madrigal's offer with a rejection and counter-offer, Allstate breached the implied covenant of good faith and fair dealing by refusing an offered settlement where the most reasonable manner of disposing of the claim was by accepting the settlement.

    Lastly, Allstate challenged the special verdict form which asked: (1) whether Madrigal made a reasonable settlement demand for an amount within policy limits; and (2) whether Allstate's failure to accept Madrigal's settlement demand was unreasonable. These were the elements of bad faith refusal to settle liability under California law. Therefore, the special verdict form, coupled with the jury instructions, fully presented to the jury the issues it was called upon to decide regarding Allstate's bad faith liability.

 

Hawaii Appeals Court Reverses Summary Judgment Determintion Of No Duty To Defend

    The Hawaii Intermediate Court of Appeals (ICA) vacated the circuit court's granting of summary judgment to the insurer after determining there was no duty to defend. National Interstate Ins. Co., Inc. v. Cornelio, 2017 Haw. Ct. App. LEXIS 128 (Haw. Ct. App. March 31, 2017).

     Tiare Franco was killed when a truck driven by Savio Reinhardt went over a cliff. The truck was insured by National Interstate Insurance Company (NIIC) under a policy issued to William Cornelio. The truck was owned by Cornelio's ex-wife, Reinette Kama. Reinhardt was Kama's boyfriend.

    "Insured" was defined in the policy as follows: "1. You are an insured for any covered auto.  2. Anyone else is an insured while using a covered auto you own, hire or borrow with a reasonable belief that such insured is entitled to do so . . ."  Reinhardt typically used the car more than Kama.

    In her deposition, Kama testified that she allowed Reinhardt to use the truck on the night of the accident to run some errands. He phoned about midnight, stating he was going to stop at his family land to check on another car and then would be right back. She responded, "Whatever," and went back to sleep. The accident occurred later the evening.

    The family of Franco (Franco Parties) filed suit against Reinhardt for negligence, gross negligence, and/or recklessness. NIIC assigned a lawyer to defend Reinhardt. Ten months later, NIIC filed an action for declaratory judgment that it had no duty to defend Reinhardt in the wrongful death case. The Franco parties were allowed to intervene.

    NIIC moved for summary judgment, arguing that its policy restricted coverage to "permitted drivers who had a 'reasonable belief' they were entitled to use the insured vehicle." NIIC asserted that at the time of the accident, Reinhardt could not have had a reasonable belief that he was entitled to use the truck because Kama had authorized only limited use that evening. The circuit court granted NIIC's motion.

    The ICA reversed. In seeking summary judgment on its duty to defend, NIIC had the burden of proving that there was no genuine issue of material fact with respect to whether a possibility of coverage existed. In other words, NIIC had the burden of proving that there was no genuine issue of material fact as to whether it was entitled to operate the truck when the accident occurred.

    Reinhardt was the primary user of the truck. Viewed in the light most favorable to the Franco Parties, this evidence supported the inference that prior to the accident, Reinhardt generally had Kama's implied permission to use the truck for his own personal purposes. The Franco Parties presented evidence that Kama and Reinhardt were in a romantic relationship. Prior to the accident, Kama had given Reinhardt implied permission to routinely use the truck for his own personal needs. On the night of the accident, Kama gave Reinhardt permission to use the truck for particular purposes, and then subsequently responded "Whatever" when Reinhardt said he would make further use of the car before returning the truck. Therefore, the Franco parties presented sufficient evidence to raise genuine issues of material fact regarding whether Reinhardt reasonably believed he was entitled to operate the truck at the time of the fatal accident.

    The circuit court's decision was vacated and the matter remanded for further proceedings.

    Thanks to Damon Key blogging colleague Mark Murakami, www.hawaiioceanlaw.com, for flagging this case.

Bad Faith Jury Verdict Upheld After Insurer's Failure to Settle Within Policy Limits

   The Eighth Circuit affirmed the jury verdict which determined that the insurer acted in bad faith for failing to settle within policy limits. Bamford, Inc. v. Regent Ins. Co., 2016 U.S. App. LEXIS 8787 (8th Cir. May 13, 2016).

   In May 2009, an employee of Bamford caused a vehicular accident resulting in the death of the employee and a serious injury to the other driver, Bobby Davis. A steel pipe stored on the roof of the Bamford truck became dislodged and penetrated Davis' left thigh, went through his abdomen and pelvis, and out his right buttock, pinning him inside his vehicle for thirty to sixty minutes before help arrived. 

     Bamford held a commercial auto liability policy with Regent with a policy limit of $6 million. Regent began investigating. Bamford hired coverage counsel, Daniel Placzek. The Davis family retained attorney Tom Fee. On August 5, 2010, Fee sent Regent a settlement packet offering to settle the claim for policy limit of $6 million. Placzek followed up, informing Regent that the Davises' claims presented an exposure risk above Bamford's $6 million policy limits and demanded a settlement within policy limits.

    Regent retained attorney Brian Nolan as coverage counsel. Nolan thought the claims were worth less than $1 million. He informed Regent that he was investigating a possible loss-of-consciousness defense, based on the possibility that the Bamford driver had lost consciousness before the accident. Nolan believed that such a defense would be a complete bar to liability.

   Mediation was attempted in December 2010. Regent came up to $774,000, and Fee came down to $4,995,000. Thereafter, the Davises filed suit against Bamford.

   In September 2011, Regent retained attorney Steve Ahl to provide a second valuation opinion. Ahl valued the claims between $1.75 and $2.25 million, and felt the value of the claims would not approach policy limits.

   Communications in Regent's files noted that Regent felt no case was worth more than $2 million in Nebraska. Nolan and Ahl both felt that Nebraska was a conservative jurisdiction in terms of jury verdicts.

   By May 2012, Regent placed reserves on the case at $2.25 million. The Davises prevailed on partial summary judgment in June 2012. The court not only granted the Davises' request to strike the loss-of-consciousness defense, it also found Bamford liable as a matter of law. Therefore, the only issue at trial would be the amount of damages.

   Settlement was attempted again shortly before trial. On the day before trial, the Davises offered to settle for $3.9 million. Regent countered for $2.05 million.

   The trial lasted seven days and the jury returned a verdict of $10.6 million for the Davises. Bamford appealed, and the case then settled for $8 million. Bamford was responsible for the excess judgment.

    Bamford then sued Regent for its bad faith in refusing to settle. Following a five-day trial, the jury returned a verdict for Bamford, awarding it damages of over $2 million for the amount it paid for the excess judgment. The trial court denied Regent's renewed motion for judgment as a matter of law and for a new trial.

    On appeal, the Eighth Circuit noted the issue was whether, drawing all reasonable inferences in Bamford's favor, a reasonable jury would find that Regent acted in bad faith. The court held there was not sufficient evidence to support such a conclusion.

   Regent's failure to adjust its valuation following the district court's grant of partial summary judgment strongly supported the conclusion that Regent acted in bad faith. Knowing that the jury would be instructed that Bamford was negligent as a matter of law and liable for Davises' injuries, Regent's valuations of the case were unreasonable.

   Therefore, Bamford presented sufficient evidence from which a reasonable jury could conclude that Regent acted in bad faith in failing to settle the Davises' claims within the policy limits.

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. 

Improperly Installed Flanges Are Impaired Property

    Answering certified questions from the Fifth Circuit, the Texas Supreme Court found there was no coverage for flanges that leaked after installation. U. S. Metals, Inc. v. Liberty Mutual Group, Inc., 2015 Texas LEXIS 1081 (Dec. 4, 2015).

    U. S. Metals sold Exxon 350 custom-made, stainless steel, weld-neck flanges for use in refineries. Testing after installation showed the flanges leaked and did not meet industry standards. Exxon decided to replace the flanges to avoid risk of fire and explosion. For each flange, this involved stripping the temperature coating and insulation, cutting the flange out of the pipe, removing the gaskets, grinding the pipe surfaces smooth for re-welding, replacing the flange and gaskets, welding the new flange to the pipes, and replacing the temperature coating and insulation. The replacement process delayed operation of the diesel units for several weeks.

   Exxon sued U.S. Metal for over $6 million as the cost of replacing the flanges and $16 million as damages for lost use of the diesel units during the process. U.S. Metals settled with Exxon for $2.2 million and then sought indemnification from its liability insurer, Liberty Mutual.

   Liberty Mutual contended there was no coverage under Exclusion M, the impaired property exclusion. Exclusion M barred coverage for damages to property, or for the loss of its use, if the property was not physically injured or if it was restored to use by replacement of the flanges. After suit was filed in federal court, the district court granted summary judgment to Liberty Mutual.

   On appeal, the Fifth Circuit certified questions to the Texas Supreme Court. The questions boiled down to: (1) is property physically injured simply by the incorporation of a faulty component with no tangible manifestation of injury?; and (2) is property restored to use by replacing a faulty component when the property must be altered, damaged, and repaired in the process?

   Looking at cases that had interpreted the impaired property exclusion, the court noted that physical injury, for purposes of the impaired property exclusion, resulted not from the installation, but from the leak. Leaks from the flanges never caused injury because Exxon replaced them to avoid any risk of injury.

   The court decided that physical injury required tangible, manifest harm which did not not result merely upon the installation of a defective component in a product or system. 

    The units were physically injured, however, in the process of replacing the faulty flanges. Because the flanges were welded to pipes rather than being screwed on, the faulty flanges had to be cut out, the pipe edges resurfaced, and new flanges had to be welded in. The original welds, coating, insulation, and gaskets were destroyed in the process and had to be replaced. The fix necessitated injury to tangible property, and the injury was unquestionably physical.

   Therefore, the repair costs and damages for the downtime were "property damages" covered by the policy unless Exclusion M applied. Exclusion M denied coverage of damages to impaired property - defined as property that could be "restored to use by the . . . replacement" of the faulty flanges.

   Here, the diesel units were restored to use by replacing the flanges and were therefore impaired property to which Exclusion M applied. Thus, their loss of use was not covered by the policy. But the insulation and gaskets destroyed in the process were not restored to use; they were replaced. They were therefore not impaired property to which Exclusion M applied, and the cost of replacing them was therefore covered by the policy.