Insurance Law Hawaii

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. 

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.