Insurance Law Hawaii

Insured Succeeds on Remand by Adding Non-Diverse Agent

    The court granted the insured's motion for remand by finding a cognizable claim was asserted against the non-diverse agent. Kamovitch v. Am. Econ. Ins. Co., 2024 U.S. LEXIS 150295 (W.D. Pa. Aug. 22, 2024). 

    American Economy Insurance Company issued a homeowners policy to the insured. The insured alleged that he retained Gilbert Insurance Agency, Inc. to determine the appropriate coverage for the property and that Gilbert advised the insured as to the amount and types of coverage to acquire. Gilbert then sold the insured the American Economy policy. 

    The insured suffered loss to his property when a windstorm with hail caused substantial damage to his home. American Economy failed to reimburse the insured for the loss. The insured filed suit in state court against American Economy for breach of contract, bad faith, and vicarious liability, and for negligence against Gilbert. 

    American Economy filed a notice of removal and the insured moved to remand. The notice of removal asserted that there was diversity of citizenship as Gilbert was not a plausible defendant and that the insured fraudulently joined Gilbert in order to destroy diversity and bar this action from being tried in federal court.

    The undisputed recored showed that Gilbert was a Pennsylvania corporation. Defendants, however, alleged that Gilbert was not a proper party because the insured failed to assert a plausible cause of action against Gilbert. Defendants argued that the only cause of action against Gilbert was one for negligence and that the only factual allegations against Gilbert were that Gilbert obtained a policy from American Economy. 

    The insured alleged that he initially reported his claim to Gilbert and that Gilbert's aclions or inactions during the claim process may have contributed to American Economy's denial of the insured's claim. The insured further alleged that even if his claims were insufficient to support a negligence cause of action against Gilbert, he retained the right to amend his complaint to add further facts.

    The court found no indication that the insured acted in bad faith to fraudulently join Gilbert. A negligence cause of action was asserted against Gilbert based on Gilbert's advise concerning the appropriate amount and type of coverage the insured should acquire. Further, the insured alleged that Gilbert had a duty to act with reasonable care when procuring the coverage and ensure that all aspects of the property, including the roof, were covered under the policy. 

    Because Pennsylvania law permitted insureds to sue their insurance agents under a theory of negligence and because the insured clearly alleged that Gilbert made recommendations and gave assurances regarding coverage, the insured had alleged a colorable neglignce claim that was recognised by Pennsylvania law. Therefore, the insured's motion for remand was granted. 

Recommendation to Deny Agent's Motion for Summary Judgment on Fraudulent Misrepresentation

    The magistrate judge recommended that the agent's motion for summary judgment to defeat the insured's claim for fraudulent misrepresentation be denied. SCHST, Inc. v. Arthur J. Gallagher & Co., 2023 U.S. Dist. LEXIS 229058 (S.D. Texas Nov. 22, 2023).

    SCHST, Inc. d/b/a Space City Service, suffered property loss from Hurricane Harvey on August 29, 2017. Lloyd's refused to cover some of the claims. The policy covered vehicles and equipment that were "specified in the Schedule herein." An endorsement required SCHST to "report all Additions/Deletions" to Lloyd's, complete with the "total values . . . on the last business day of the preceding month," and to provide this information "within 30 days of date of attachment/deletion." The changes would affect the annual premium for the policy. 

    Gallagher advised and assisted in SCHST's procurement of the policy. Gallagher also served as an intermediary between SCHST and Lloyd's by communicating with other entities involved with administering the policy. Gallagher's employee, Kevin Gregory, allegedly told SCHST that "everything was good. We've got what we need. That's all we need." Soon thereafter, Gallagher received a copy of the policy by email. The cover letter asked Gallagher to "review and advise if there are any discrepancies or corrections needed." It cautioned Gallagher to "make note" of the monthly reporting requirement, emphasising that reports must be submitted "by the 5th of the month." 

    There is no dispute that Gallagher failed to timely provide SCHST both the policy documents and the information detailed in the email. Gallagher also failed to submit a proposed updated list of equipment known as the "Latest and Greatest List."    

    After Hurricane Harvey damaged SCHST's equipment, a claim was filed with Lloyd's. SCHST became frustrated with Gallagher's delayed communications and fired Gallagher. SCHST's appraiser assessed the total loss as $1,218,750. Lloyd's asserted that $481,000 involved "vehicles that were not scheduled on the policy as of the date of loss" and therefore not covered. Lloyd's further reduced the award by $71,007.99 to claw back prior payments for vehicles not scheduled on the policy on the date of loss. After a further reduction of $10,000 for the deductible, Lloyd's paid $655,992.01 of the appraisal award. 

    Among the vehicles not covered by Lloyd's was a Western Star tanker truck. The Western Star was included in the Latest and Greatest List not submitted by Gallagher. 

    SCHST sued Gallagher, who filed a motion for summary judgment on the fraudulent misrepresentation claim. The magistrate judge determined that SCHST had presented sufficient evidence supporting the elements of fraudulent misrepresentation - but only based on a fraud by nondisclosure theory which the court granted SCHST leave to add in an amended complaint.

    The statement made by Mr. Gregory went beyond merely describing everything as good. He allegedly represented that "we've got what we need, equipmentwise, valuwise. That's all we need." This became an actionable misrepresentation when Gallagher later learned and failed to disclose new information to SCHST. Gallagher acquired information warning of the need for further information. The policy alerted Gallagher that coverage was limited to equipment listed in the attached schedule and included in monthly reports. The insurer's email to Gallagher emphasised that changes to SCHST's list of equipment must be submitted in reports by the 5th of each month. Despite these warnings, Gallagher did not convey these important details to SCHST. This after-acquired information was enough to trigger Gallagher's duty to correct Mr. Gregory's prior misleading statement that nothing else was needed to obtain coverage.

    Further, the dynamics of the parties' business relationship indicated that SCHST neither knew of nor had an equal opportunity to discover the facts that led Lloyd's to deny coverage. SCHST had to rely on Gallagher's representations that coverge was secured because Gallagher failed to deliver the policy to SCHST. 

    Therefore, it was recommended that Gallagher's motion for summary judgment be denied. 

    

Insured's Claim Against Broker Dismissed for Not Being Ripe

    The insured hospital's claim against its broker for allowing a policy to lapse was dismissed on ripeness grounds. WakeMed v. Willis Towers Watson Southeast, Inc., 2023 U.S. Dist. LEXIS 139115 (W.D. N.C. Aug. 9, 2023).    

    WakeMed was a hospital system providing health services. WakeMed hired Willis Towers Watson Southeast Inc. (Willis), an insurance broker, to assist WakeMed in purchasing insurance policies and reporting claims. 

    Willis helped WakeMed purchase a cyber liability policy from Tokio Marine on October 1, 2020. The initial policy period was October 1, 2020, to October 1, 2021, with an automatic 60-day extended reporting period through November 30, 2021. By mid-2021, WakeMed informed Willis that it would not be renewing the cyber policy. However, on October 19, 2021, WakeMed changed its mind and decided to buy a one-year extended reporting period. Wills confirmed it had procured the additional 12-month extended reporting period and the coverage extended through October 1, 2022. 

    On September 1, 2022, two patients filed a putative class action against WakeMed for alleged online privacy violations, contending that WakeMed unlawfully disclosed the patients' protected information. WakeMed reported the claim to Tokio Marine on October 21, 2022. Tokio Marine denied coverage because the underlying claim was not reported by October 1, 2022, the date the policy's extended reporting period expired. WakeMed disputed this coverage decision through arbitration.

    Although the class action and arbitration remained unresolved, WakeMed sued Willis for failing to provide coverage for the extended period. Willis moved to dismiss.

    The court granted the motion to dismiss because the matter was not ripe. The underlying claim against WakeMed remained to be adjudicated. Further, if the arbitration determined WakeMed was covered, then WakeMed would have no claim against Willis because the alleged injury would be nonexistent. There was not yet a determination that WakeMed was liable in the underlying claim, and even if WakeMed were held liable, there was no determination that WakeMed's liability was not covered by Tokio Marine's cyber policy. 

Claimants Misrepresentation Claim by Agents Denied

    The claimant's argument that he was misled by agents on benefits under disability policies was overruled on summary judgment and affirmed by the appellate court. Wooten v. Northwestern Mut. Life Ins. Co., 2023 Tex. App. LEXIS 5653 (Tex. Ct. App. July 31, 2023).

    Wrenn Wooten, a MRI radiologist, purchased seven policies from Northwestern Mutual. Three were disability income policies. Four were various whole-life polices. Wooten purchased and reviewed the last of the policies in December 2005.

    More than a decade later, Wooten filed suit against Jim Zara, Patrick Matthews, both of whom were agents, and Northwestern Mutual. He alleged Zara sold him the policies, misrepresented coverage and benefits, wrongfully advised him and concealed misrepresentations. Further Zara misrepresented that the policy would provide disability income even if Wooten was able to work in another field. When Matthews became his agent, Wooten alleged he failed to disclose the disability policies were not occupation specific and that the life insurance policies were not suitable for retirement income as promised. Wooten alleged Northwestern Mutual was vicariously liable for the conduct of Zara and Matthews. 

    Wooten never filed a disability claim. Defendants moved for summary judgment. The lower court found the suit was barred by the statute of limitations. The suit limitation for claims for negligent misrepresentation and for violation of the Texas Insurance Code was two years. The limitations period for breach of fiduciary duty was four years. Summary judgment was granted to defendants.

    The court found appellees carried their summary judgment burden of conclusively proving Wooten's claims accrued at the time he purchased each policy. An insured had a duty to read the policy, and failing to do so, was charged with knowledge of the policy's terms and conditions. 

    Wooten, however, argued the discovery rule delayed accrual of his claims and that he timely filed his lawsuit. Wooten hired someone to read the policies and was then informed he was not property insured. Within two years of this advice, he sued, although it was long after the applicable statute of limitation periods. 

    The summary judgment evidence conclusively demonstrated Wooten actually reviewed the policies. He knew or should have known at the time he bought the policies that they did not provide the coverage or benefits appellees allegedly represented. Consequently, appellees conclusively demonstrated in the trial court that the alleged injuries were not "inherently undiscoverable" and that the discovery rule did not apply

Condominium's Agent Owes No Duty to Injured Apartment Owner

    The court granted the agent's motion to dismiss claims asserted by a condominium owner's claim for injuries due to a fire in his unit. Great Am. Allliance Ins. Co. v. Village Gardens Homeowners Association, 2023 U.S. Dist. LEXIS 102900 (C.D. Calif. June 12, 2023).

    Village Gardens' agent, Roy Palacios Insurance Company, obtained umbrella and excess policies from Great American for apartment buildings located on the property. In obtaining the policies, Village Gardens represented to Great American through Palacios that the property's roof, HVAC, plumbing and electrical systems had been updated. 

    On Febaruary 16, 2019, the apartment in which Vicencio Flores resided caught fire, causing him to suffer severe burns. Flores alleged that the fire was caused by Village Gardens' "improper construction, use of poor construction materials and negligent maintenance of the property."

    Flores filed suit against Village Gardens. The damages sought exceeded Great Americna's primary policy limit, thus implicating the umbrella and excess policies. Great American brought suit against Village Gardens, Palacios and Flores, seeking, among other things, recission of the umbrella and excess policies. Flores filed a cross-claim against Great American, Village Gardens and Palacios. Flores sought relief from Palacios for negligence. Flores alleged that Palacios owed him a duty of reasonable care that was breached by failing to procure effective insurance for Village Gardens. Palacios moved to dismiss Flores' cross-claims against it.

    Flores asked the court to recognize a broker's duty to a tenant of the building for which the broker procured insurance on behalf of the tenant's landlord. The court refused to recognize such a duty. Although Flores sought to recover from Village Gardens, which could implicate the umbrella and excess policies, there was no allegation that Palacios intended its procurement of insurance to affect tenants of the insured property. Further, Flores had not yet suffered an injury due to Palacios' alleged negligence. The injury Flores alleged was not personal injuries, but rather the speculative inability to collect from Village Gardens should Flores prevail and should the umbrella and excess policies be rescinded.

    Flores could only be characterized as an incidental beneficiary, rather than an intended beneficiary of the umbrella and excess policies. Accordingly, the court declined to find that Palacios owed Flores a duty of care. Flores could not bring a claim of negligence against Palacios. The motion to dismiss was granted.

Agent Not Responsible for Insured's Lack of Coverage

    The court dismissed the insured's complaint against the agent for alleged failure to procure proper coverage. Asphalt Recovery Specialists, Inc. v. Gallagher, 2023 U.S. Dist. LEXIS 73112 (D. Colo. March 23, 2023).

    Asphalt Recover Specialists, Inc. (ARS) engaged Arthur J. Gallagher & Co. to procure an environmental liability poilcy that would provide coverage for on-site cleanup of any pollultion or environment cleanup that may be required in ARS's asphalt recycling facility. ARS specifically requested that Gallagher procure a policy which would provide coverage for on-site removal of pollutants. Gallagher procured a policy from Weschester Surplus LInes Insurance Company. 

    Subsequently, the Colorado Department of Public Health and Environment required ARS's facility to close due to a pollution event. ARS removed solid waste from the facility at its own expense.

    Plaintiffs sued Gallagher, alleging that ARS was relying on Gallagher's expertise in procuring the insurance that would cover such waste removal. Gallagher moved to dismiss the complaint.

    The court granted the motion. ARS failed to establish that Gallagher had a duty to advise ARS of the nature, type and terms of necessary insurance required for providing a policy meeting the needs of the insured. There was no allegation that Gallagher promised to procure such a policy. Therefore, ARS failed to allege that Gallagher owed them a legal duty of care as a result of their request for a specific type of coverage.

    Further, ARS's complaint contained no allegations that insurance covering on-site removal of solid waste was generally available at the time that Gallagher procured the policy. Accordingly, the complaint failed to plausibly allege the damages and causation elements as to each of their negligence claims.

Insured Survives Agent's Motion to Dismiss Complaint Alleging Failure to Provide Coverage for COVID-19

    The agent's motion to dismiss the insured's suit for failure to provide adequate coverage for business interruption due to catastrophic events was denied. Social Life Magazine, Inc. v. Hudson Valley Agency Alliance, LLC, 2023 N.Y. Misc. LEXIS 2351 (N.Y. Sup. Ct. May 10, 2023). 

    Plaintiff had used defendants Hudson Valley and Kathryn E. Murphy Insurance Agency, Inc. as its agents beginning in 2009. In 2019, plaintiff alleged it worked with defendants to secure a policy that would cover "all risks that were beyond its control including business interruption from any and all catastrophic events." Plaintiff claimed that defemdants did not inform it about coverage deficiencies related to the pandemic. 

    Defendants informed plaintiff that it had procured the best possible available policy in August 2019. Plaintiff alleged it was informed by defendants that the policy included complete coverage for business interruption resulting from any and all catastrophic events. Based upon this representation, plaintiff purchased a policy issued by Sentinel Insurance Company. 

    Plaintiff alleged that in 2020 its business activities were disrupted by the COVID-19 pandemic and resulting public health measures, causing it damages. Sentinel denied coverage. Plaintiff sued the agents for negligence and negligent misrepresentation. Murphy moved to dismiss

    The court found that plaintiff sufficiently alleged that Murphy breached its duty of care by failing to procure a policy "with complete coverage for business interruption resulting from any and all catastrophic events." This breach caused damages to plaintiff when its business activities were interrupted by the COVID-19 pandemic. 

    The complaint sufficiently alleged the elements of negligent misrepresentation. The complaint adequately pled a special relationship existed between plaintiff and Murphy based on their ten years of prior dealings during which plaintiff purportedly consulted with Murphy "on multiple occasions regarding the adequacy of its insurance coverage." Murphy's knowledge that plaintiff was relying on it to protect against business risks was based on "express conversations and past course of dealings." Plaintiff adequately pled a special relationship with Murphy by specifically alleging that it regularly consulted with Murphy about its insurance needs during their decade-long relationship.

    Taking the allegations in the complaint as true, the court found that plaintiff adequately stated a cause of action for negligence and negligent misrepresentation. The motion to dismiss was denied. 

Law Firm Fails to Survive Insurer's and Agent's Motions to Dismiss

    Interpreting New Jersey law, the federal district court dismissed without prejudice the law firm's complaint against its insurer and agent. Law Office of Drew J. Bauman v. Hanover Ins. Co., 2023 U.S. Dist. LEXIS 31844 (D. N. J. Feb. 27, 2023).

    The law firm had a professional liability policy issued by Hanover. The law firm was sued in the underlying case involving a real estate transaction. The law firm tendered the defense and indemnity of the underlying complaint, but coverage was denied. The law firm sued, contending Hanover breached the policy by refusing to abide by its obligations under the policy.

    In the alternative, the law firm alleged that its agent, USI Insurance Services, LLC, was liable if the policy did not require Hanover to defend and indemnify in the underlying case. It was further alleged that USI was responsible for procuring coverage for the law firm and knew of its insurance needs. USI was negligent in securing a policy with inadequate coverage.

    Hanover and USI filed motions to dismiss. The court found that the claim for declaratory relief against Hanover was duplicative of the law firm's breach of contract claim. The breach of contract claim would resolve the same issue and necessarily decide the question raised by the declaratory judgment claim. Therefore, the claim for declaratory relief was dismissed.

    The breach of contract claim was also dismissed. The law firm did not identify any specific language or provisions of the policy that allegedly were breached by Hanover. Instead, the law firm made conclusory assertions that Hanover breached the contract by refusing to fully perform under it. Therefore, the breach of contract claim against Hanover was also dismissed.

    Turning to the claims against USI, the complaint only alleged that USI was negligent if there was insufficient coverage under the policy. This was inadequate to state a plausible claim of negligence against USI. Therefore, the negligence claim against USI was dismissed.

    Finally, the law firm alleged that USI breached its contract to provide the requisite insurance coverage, Under New Jersey law, breach of contract was not a recognised claim in actions against an insurance broker for failing to provide adequate coverage. Accordingly, the breach of contract claim against USI was also dismissed.

    

Hawaii Supreme Court Remands Malpractice Claim Against Agent

    The Hawaii Supreme Court vacated and remanded the decision of the Intermediate Court of Appeals (ICA) regarding a malpractice claim against the insured's agent. Pflueger, Inc. v. AIU Holdings, Inc., 2023 Haw. LEXIS 44 (Haw. Feb. 22, 2023).  Our prior post on the ICA's decision is here. 

    In May 2008, Pflueger notified its agent, Noguchi & Associates, Inc., that it had received federal grand jury subpoenas. Noguchi informed Pflueger that the subpoenas did not qualify as a "claim" under two policies issued by National Union. Consequently, Noguchi did not forward a claim or the subpoenas to National Union and did not seek clarification as to whether the grand jury subpoenas were covered under the policies. Pflueger relied upon Noguchi's representations and took no further action until its attorney submitted a demand letter tendering Pflueger's defense to National Union nine months later, in February 2009. 

    National Union found the claim untimely. Further, the materials submitted to National Union did not constitute a claim. The policies required the materials submitted to be an indictment, information or similar document to constitute a claim. 

    Pflueger filed suit against National Union and Noguchi. Pflueger alleged Noguichi was negligent and had made negligent misrepresentations. Pflueger eventually settled with National Union. 

    Prior to trial, the court granted Pflueger's motion for partial summary judgment, finding that the grand jury subpoenas constituted a "claim" as that term was defined in National Union's policy. The jury then returned a special verdict in favor of Pflueger. Noguchi appealed, and the ICA vacated the judgment, holding that the circuit court erred in excluding deposition testimony that was essential to Noguchi's defense. Noguchi relied upon the deposition testimony of two National Union employees who stated there was no coverage for grand jury subpoenas.

    On remand, Noguchi moved for summary judgment on the issue of causation, arguing there was no evidence of proximate cause against Noguchi. The circuit court agreed, finding Pflueger had put forth no evidence to establish that Noguchi's conduct was a contributing or substantial factor in National Union's decision to deny coverage. Pflueger appealed.

    The ICA held that the causation issue as framed by Noguchi (i.e., whether National Union would have denied coverage even if Noguchi had timely tendered the grand jury subpoena matter) involved a genuine issue of material fact. Whether Noguchi's actions and inactions were legal causes of Pflueger's losses in light of National Union's denial of the claim were issues for the fact finder and could not be decided as a matter of law. The circuit court erred in granting Noguchi's motion for summary judgment. 

    Judge Hiraoka concurred, but did not agree that what National Union would have done had Noguichi timely tendered the subpoena was material. Instead, Noguhchi had to show that even if Pflueger's subpoena had been timely tendered, the insurer would not have been obligated to advance defense costs. Therefore, Noguchi did not meet its burden and the circuit court erred by granting summary judgment.

    The Supreme Court agreed with Judge Hiraoka's analysis. Noguchi attempted to demonstrate that the causation element of Pflueger's claims were negated by the testimony of the two National Union employees, which purportedly showed that no causal connection existed between Noguchi's negligence and Pfluger's injury because the National Union would have denied coverage regardless of the claim's timeliness.

    Noguchi had to demonstrate that the National Union would not have been obligated to advance Pflueger's defense costs if the grand jury subpoena matter were timely tendered in order to negate causation. Only then would Noguchi have demosntrated that its role in the untimely tender was not a legal cause of Pflueger's harm. Instead, Noguchi offered testimony of the two employees, who both suggest that National Union would not have considered the subpoenas to be a covered claim if timely submitted, in an attempt to negate the causation element of Pflueger's claims. However, the testimony did not negate causation. If the insurer denied coverage after the timely tender of Pflueger's grand jury subpoena matter, Pflueger could then file a declaratory relief action, with or without a cliam for bad faith. National Union's disclaimer of coverage was not determinative of Pflueger's legal rights or legally cognizable harm - only a court's ruling on the matter was. 

    Therefore, the circuit court's grant of summary judgment in favor of Noguchi on the grounds that the employees' testimony negated the causation element was incorrect. 

Broker's Motion to Dismiss Denied

    The broker's argument that its liability could not be established until after the insurer was found to have breached the policy failed. Pedernal Props., LLC v. Marsh United States Inc., 2022 U.S. Dist. LEXIS 207618 (N. D. Okla. Nov. 16, 2022). 

    Marsh procured a property policy from Markel American Insurance Company naming Pedernal as the insured. Pedernal suffered a loss and submitted a claim to Market. Markel denied the tender and refused payment to Pedernal. Pedernal then filed suit against Markel for breach of contract and bad faith in its claim handling. Pedernal also alleged Marsh omitted certain information from Markel in connection with the insured property. Pedernal sought damages from Marsh for negligence.

    Marsh moved to dismiss, contending that an insured could not pursue both a coverage determination agains its insurer while also seeking recovery against the broker who procured the policy. The action against the broker could only accrue after the resolution of coverage litigation against the insurer.

    Oklahoma law did not preclude Pedernal's action against Marsh while simultaneously seeking coverage from Markel. Contingent claims were permissible. Further, the statute of limitation period for Pedernal's negligence claim was two years. A negligence claim accrued when any injury to a plaintiff for which an action could proceed was certain. Therefore, Pedernal's negligence cause of action against Marsh, as its broker, could be subject to a statute of limitations argument later in the proceedings if Marsh was not included in the Complaint at this time.

    Accordingly, Marsh's motion to dismiss was denied.