Insurance Law Hawaii

Hawaii Supreme Court Confirms Insured's Right to Amend Complaint

    The Hawaii Supreme Court reversed the lower courts' denial of the insured's motion for leave to amend despite its being filed several years after the initial complaint. Carvalho v. AIG Hawaii Ins. Co., 2022 Haw. LEXIS 3 (Haw. Jan. 11, 2022).

    Royden Kalavi died in an auto accident on September 23, 2005. The personal representative, Carvalho, sought uninsured motorist (UM) and underinsured motorist (UIM) benefits under the Carvalhos' AIG policy stating that Royden was covered as a "resident relative." AIG offered non-stacked UM and UIM coverages totaling $70,000, but did not make a determination on whether Royden was a "resident relative" under the policy.

    Carvalho sued AIG on December 31, 2007 seeking a declaratory judgment for increased and stacked UM and UIM coverage totaling $1.2 million under the Carvalho policy. She also argued that stacked UM and UIM coverages totaling $1.2 million were available under the Kalavi policy.  AIG filed a separate action for a declaratory judgment to decide who was covered under the Carvalhos' AIG policy and the Kalavi's AIG policy.

    The dispute went to arbitration and $3 million in damages was awarded. Of this amount $500,000 was awarded to Royden's estate, $1.25 million to Carvalho, and $1.25 million to Royden's father. AIG sent two checks to Carvalho totaling $1.2 million as payment under the Carvalhos' combined UM and UIM policy limits.

    The case then remained dormant for several years until the trial court issued a Notice of Status Hearing. At this hearing, a trial date was set for January 12, 2016. On August 10, 2015, Carvalho filed a Motion to Amend Complaint. The amended complaint did not include further causes of action but included additional factual allegations and assertions that AIG had acted in bad faith in unreasonably delaying their payment of $1.2 million in UM and UIM benefits from April 16, 2007 to April 2, 2009. The trial court denied the motion to amend due to "undue delay." The Intermediate Court of Appeals affirmed.

    The Supreme Court reversed. Leave to amend was to be freely given when justice so required. The ICA erred in concluding that undue delay alone was insufficient basis to deny the motion to amend. On this record, the trial court should have granted the motion to amend.

    Thanks to my blogging colleague, Mark Murakami, for flagging this case.

 

Denial of Bad Faith Claims Reversed and Remanded

    The Kentucky Supreme Court reversed the court of appeals' affirmance of the trial court's denial of bad faith claims. Nichols v. Zurich Am. Ins. Co., 630 S.W. 3d 683 (Ky. 2021).

    Miller Pipeline Corporation had a commercial fleet policy with Zurich. The policy provided UIM coverage of $1,000,000. 

    Miller's employee, James Nichols, was severely injury on June 4, ,2002, in an automobile accident. For over two years and eight months, Nichols and his counsel negotiated with Zurich over UIM coverage. Seven Zurich employees examined the policy terms and acknowledged the policy included UIM coverage with $1,000,000 limits. Nichols relied on this representation when settling with the tortfeasor. 

    In February 2005, Zurich, through adjuster David Gusman, advised Nichols' that the policy did not include UMI coverage. Zurich's documents, however, showed that the underwriter produced a copy of the policy showing UIM coverage. The underwriter refused to comply with Gusman's request for an endorsement showing no UIM coverage. Zurich eventually produced an endorsement "effective 4/1/02" which was created in September 2005. The endorsement noted no additional premium was charged and no return of premium, and the second page provided "No Change in Premium," suggesting no UIM coverage.

    In October 2005, Nichols filed suit against Zurich to collect under the UIM provision. Initially, Zurich defended on the grounds that the endorsement explicitly excluded UIM coverage and filed a motion for summary judgment on that basis. The trial court denied the motion because, among other reasons, Zurich never made any assertion of lack of UIM coverage until almost three years after the accident and while the policy set forth effective premiums for UIM coverage, the change endorsement made no mention of premium refund. 

    Almost three years later, Nichols filed a motion for summary judgment that the UIM coverage was included. Zurich filed a cross motion and changed strategy, asserting for the first time that the policy's UIM coverage was issued due to a mutual mistake and should be reformed. The trial court allowed Zurich to amend its answer to allege mutual mistake and to request reformation. The trial court then granted Zurich's motion for summary judgment. The court of appeals affirmed.

    The supreme court reversed, holding that mutual mistake was not available as ground to reform the policy since no facts indicated that Zurich was aware of Miller's desire to exclude optional coverages, such as UIM. The supreme court held that Nichols was entitled to partial summary judgment on the issue of UIM coverage.

    On remand, the trial court granted Nichols' motion to amend his compliant to assert bad faith. Zurich then settled Nichols' UIM claim for the policy limits of $1,000,000. 

    After discovery, the parties filed cross motions for summary judgment on the bad faith claim. The trial court granted Zurich's motion and the court of appeals affirmed.

    The supreme court found that Nichols presented evidence from which a jury could determine that Zurich did not act reasonably in denying his claim. Further, there was evidence that Zurich acted with reckless disregard. For four years after the accident, Zurich failed to investigate, negotiate, or otherwise meaningfully interact with Nichols. Thereafter, Zurich continued to delay and litigate despite having no legal foundation upon which to base its case, only fulfilling its contractual obligations nine years after Nichols' accident. 

    The bad faith claim was remanded to the trial court for further proceedings. 

    

Rule 30 (b) (6) Deposition of Insurer Representative Ordered to Go Forward

    The Texas Supreme Court ordered that a Rule 30 (b) (6) deposition could go forward with appropriate limitations. In re USAA Gen. Indem. Co., 2021 Tex. LEXIS 540 (Tex. June 18, 2021). 

    Frank Wearden was insured under a automobile policy issued by USAA. Wearden was involved in a car accident with Michelle Bernal, who Wearden said was uninsured and at fault. Wearden settled with Bernal and then sued USAA for benefits under his policy's uninsured/underinsured  (UIM) coverage.

    Wearden served a Rule 30 (b) (6) notice to depose a USAA representative on identified topics. USAA filed a motion to quash the notice and accompanying subpoena duces tecum. USAA conceded that Wearden was an insured, he was driving an insured vehicle under the policy, and the $100,000 per person UIM benefits were available if Wearden established his right to recover such benefits. In light of these concessions, USAA argued that neither how it investigated and evaluated Weaden's claim nor how it evaluated the lawsuit was probative of the only issues the jury would be required to decide. 

    The trial court denied the motion to quash. The court of appeals denied USAA's petition for writ of mandamus.

    On appeal to the Texas Supreme Court, USAA argued the trial court abused it discretion in failing to quash the notice because no USAA employees had relevant personal knowledge regarding the disputed car wreck issues.

    The Supreme Court found that the representative's deposition would be relevant. USAA had conceded some facts regarding coverage, but disputed both Bernal's liability for the underlying accident and the existence and amount of Wearden's damages. Presumably, USAA had information that supported its position on these issues. This information was discoverable unless privileged, regardless of its admissibility at trial. Therefore, the deposition was not categorically prohibited on relevance grounds. The deposition, however, could not exceed the bounds of the claims at issue. 

    Therefore, Wearden's inquiry into the "facts supporting USAA's legal theories and defenses," whether "Bernal was an uninsured/underinsured motorist," and USAA's "claims and defenses regarding Wearden's assertions in this lawsuit" were permitted because these topics were limited to disputed issues. 

    On the other hand, deposing USAA about all aspects of the UIM policy when USAA had already conceded the policy provided coverage for up to the $100,000 limits if Wearden established Bernal's liability and sufficient damages went too far. Also, a general inquiry into the UIM policy, Wearden's compliance with the policy's "contractual provisions," and the occurrence of and compliance with "all conditions precedent to recovery," exceeded the relevant subject matter of the suit and were improper. 

    Finally, inquiry into extracontractual matters such as the claims-handling process was improper before entitlement to benefits under the policy was established. 

    With these limits, the deposition of USAA's representative was permissible under the discovery rules. 

Insurer's In-House Counsel's Involvement in Coverage Decision Opens Door to Discovery

    The Mississippi Supreme Court held that the insurer must produce written communications from and make available for deposition the in-house counsel who orchestrated the denial of coverage. Travelers Pro. Cas. Co. of Am. v. 100 Renaissance, LLC, 2020 Miss. LEXIS 409 (Miss. Oct. 29, 2020). 

    An unidentified driver struck a flagpole owned by the insured Renaissance, causing $2,134 in damages. Renaissance filed a claim with Travelers for uninsured-motorist coverage. The Travelers' claims handler, Charlene Duncan, determined there was no coverage because the flagpole was not a covered auto. Before corresponding with the insured, Duncan sought legal advice from Travelers' in-house counsel, Jim Harris. 

    Renaissance sued Travelers for coverage and bad faith. Renaissance then took Duncan's deposition and asked that she explain both the denial letter and the reasons Travelers denied the claim. Duncan repeatedly said she did not know the basis of the denial and that she had consulted with Harris. 

    Travelers  later paid  for the damage to the flagpole, but Renaissance continue to litigate its bad faith claim. Travelers moved for summary judgment. Renaissance asked for a continuance to conduct additional discovery, including the production of emails between Duncan and Harris and the deposition of Harris. The court ordered that the emails be produced for in camera review. The court then found that Travelers had waived the attorney-client privilege as it related to Harris. The court ordered that the emails be produced and Harris be deposed. Travelers filed an interlocutory appeal. 

    The Mississippi Supreme Court affirmed. The attorney-client privilege did not apply. Although Duncan signed the denial letter, it was prepared by someone else, most likely Harris. If so, Harris did not act as legal counsel by giving advice to Duncan to include in the denial letter. Instead, the denial letter contained Harris's reasons to deny the claim. 

    Travelers was ordered to produce the written communications between Duncan and Harris and to produce Harris for a deposition to discover his knowledge about Travelers' basis for denial of the claim. 

    

Hawaii Supreme Court Tackles Chain-of-Events Test in UM Claim

    In responding to a certified question from the Ninth Circuit, the Hawaii Supreme Court determined that a permissive user was entitled to uninsured motorist benefits under the chain of events test when injured by an uninsured motorist. State Farm Mut. Auto. Ins. Co. v. Mizuno, 2020 Haw. LEXIS 359 (Haw. Nov. 20, 2020). 

    Mizuno received permission from his girlfriend, Wong, to use her vehicle to deliver the couple's bills to the post office and to drive to work. After dropping of the bills, Mizuno was struck and injured by an unidentified driver. He collected compensation for injuries under his own auto policy and then sought benefits under Wong's policy for UM coverage.

    The State Farm UM coverage provided that State Farm "will pay damages for bodily injury an insured is legally entitled to recover from the owner or driver of an uninsured motor vehicle." The policy defined "insured" to include any person occupying the vehicle with a reasonable belief that he was entitled do so. State Farm argued that the policy occupancy restriction for uninsured users, limiting the meaning of "occupying" to situations where the "other person" was "in, on, entering, or exiting" the vehicle, excluded coverage for Mizuno. 

    State Farm sued in federal district court for a declaratory judgment and obtained summary judgment on the issue of whether Mizuno was "occupying" Wong's vehicle at the time of the accident. On appeal, Mizuno argued he was entitled to UM coverage because he was using the insured vehicle to deliver mail and due to an uninterrupted "chain of events" involving the insured vehicle, was injured. 

    The Ninth Circuit certified the following question to the Hawaii Supreme Court:

Under Hawaii law, is a permissive user of an insured vehicle, whose connection to the insured vehicle is permission to use the vehicle to run errands and drive to work, entitled to uninsured motorist (UM) benefits under the chain-of-events test because he was injured by an uninsured motorist?

    The Hawaii Supreme Court answered in the affirmative. The court broadly interpreted Hawaii's UM statute so that UM benefits applied even when a individual was not "in, on, entering, or exiting" the insured vehicle. Under the chain of events test, the factual determination for whether UM coverage was available for a permissive user injured outside of the insured vehicle was whether the claimant could demonstrate some connection with the insured vehicle.

    Mizuno's case fell squarely within the chain of events test. His use was permissive. Further, Mizuno had some connection to the insured vehicle. 

Hawaii Court of Appeals Confirms Bad Faith Exists Even if No Contractual Duty to Pay Benefits

    The Hawaii Intermediate Court of Appeals reversed the trial court's granting of summary judgment to the insurer on the insured's bad faith claim. Carvalho v. AIG Hawaii Insurance Company, Inc., 2020 Haw. App. LEXIS 382 (Haw. Ct. App. Nov. 16, 2020).

    Plaintiff Carvalho's son was killed in a two-car accident. The other car and driver were uninsured. The deceased son was covered by a policy issued by AIG to his maternal grandparents. Plaintiff made a clam for uninsured motorist (UM) and underinsured motorist (UIM) benefits under the AIG policy. AIG claimed that only non-stacked UM and UIM coverages totaling $70,000 were available. 

    Carvalho filed suit against AIG seeking a declaratory judgment for increased and stacked UM and UIM coverage totaling $1.2 million under the AIG policy. AIG later agreed that the stacked maximum UM and UIMj coverage limits were $1.2 million. AIG maintained, however, that the value of the wrongful death claim had not yet been resolved. 

   The court proceeding was stayed so that an arbitration could take place pursuant to the policy. An arbitration award of $1.75 million was made to the son's estate and Carvalho. AIG paid $1.2 million to Carvalho, reflecting policy limits. Once the stay was lifted, AIG moved for summary judgment on all remaining claims. The trial court granted AIG's motion. 

    On appeal, AIG argued Carvalho could not establish that she had incurred any damages as of February 18, 2008, the date that AIG by letter recognized the increased UM/UIM policy limits, where it was not until April 2, 2009 that the arbitrator determined the amount of damages to be awarded.

    The appellate court noted, however, that under Hawaii law an insured could maintain a claim against an insurer for bad faith mishandling of the insured's claim even where the insurer had not contractual duty to pay any benefits. Further, Carvalho was not required to prove that she suffered economic loss caused by AIG's alleged bad faith in order to recover emotional distress damages caused by AIG's alleged bad faith, which she sought in her complaint. Accordingly, contrary to AIG's argument, summary judgment was not appropriate on the basis that the February 18, 2008 letter acknowledged the increased UM/UIM policy limits, before the arbitration award was made in excess of AIG's payment. AIG's obligation to act in good faith was independent from its contractual obligation to tender benefits to the insured.

    Therefore, summary judgment on the bad faith claim was not appropriate. Thanks to my blogging colleague, Mark Murakami (www.hawaiioceanlaw.com) for flagging this case.

Alaska Supreme Court Finds Insurer Owes No Independent Duty to Injured Party

    After the victim incurred injury inflicted by an insured party, the Alaska Supreme Court determined that the insurer owed no duty to the injured party. Martinez v. Government Employees Ins. Co., 2020 Alaska LEXIS 111 (Alaska Sept. 4, 2020).

    Joshua Martinez lost control of his truck and crashed into Charles Burnett's cabin. The cabin's heating fuel tank was damaged, and fuel drained onto the property and under the cabin. Burnett further alleged he suffered bodily injuries.

    Martinez was insured by GEICO under an auto policy. Two days after the accident, the state Department of Environmental Conservation (DEC) advised GEICO to hire a qualified environmental consultant and crew to clean up the fuel spill. Burnett told GEICO he wanted to do the cleanup himself and offered to do so for $25,000, the approximate amount of the consultant retained by GEICO. DEC did not consider Burnett qualified to handle the cleanup. 

    The parties were at an impasse for over a year. The fuel spread further across Burnett's property, but was finally cleaned up by GEICO's consultant. 

    Burnett sued Martinez and GEICO while his property was still awaiting cleanup. After the cleanup was completed, GEICO paid Burnett the limits of Martinez's policy to settle and release all claims against Martinez, though he reserved his claims against GEICO. The trial court then granted summary judgment to GEICO on Burnett's remaining claims, finding that GEICO owed him no duty. On appeal, the Supreme Court reversed, holding that GEICO may owe Burnett an independent duty as defined by Restatement (Second) of Torts sec. 323 (Negligent Performance of Undertaking to Render Services). 

    The trial court held an evidentiary hearing on the single issue of whether GEICO owned Burnett an independent duty in its conduct of the fuel oil cleanup. The court found there was no such duty and entered final judgment for GEICO.

    Burnett appealed again. The Supreme Court noted that the basis of Burnett's claim was not failure or wrongful conduct during GEICO's normal adjusting activities on behalf of its insured, but rather whether there was an independent and separate agreement between GEICO and Burnett. The trial court found there was no such duty. There was no proof that GEICO undertook a duty to Burnett to clean up the fuel spill on his property through an agreement with him, separate and independent of its duties to Martinez. The trial court also found that GEICO never represented to Burnett that it was proposing to clean up the spill as an independent service or benefit to him. Further, Burnett never believed that GEICO was proposing to clean up the spill as an independent service or benefit to him. 

    Therefore, the trial court did not err when it found that Burnett and GEICO never reached an independent agreement regarding spill cleanup.

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.