Insurance Law Hawaii

Rainwater Collecting on Rooftop is not Subject to Policy's Flood Sublimits

    Responding to a certified question from the First Circuit, the Supreme Judicial Court of Massachusetts determined that rainwater collecting on the insureds' rooftop and causing interior damage was not "flood" as defined in the policy and subject to sublimits. Zurich Am. Ins. Co. v. Medical Properties Trust, Inc., 2024 Mass. LEXIS ___ (Mass. July 23, 2024). 

    A severe thunderstorm caused heavy rain and strong winds which damaged a hospital. The hospital was owned by Medical Properties Trust, Inc. (MPT) and leased to Steward Health Care System LLC (Steward). Ground water accumulated and flooded the basement. Rainwater also accumulated on the hospital's parapet roofs and on the second-story courtyard, and eventually seeped through the parapet roofs and courtyard to the hospital's upper floors, causing damage to the building and property within.

    MPT sought coverage from its property insurer, Zurich, and Stewart sought coverage from American Guarantee and Liability Insurance Company. Both insurers issued policies that covered "flood" and defined "flood" as 

A general and temporary condition of partial or complete inundation of normally dry land areas or structure(s) caused by:

The unusual and rapid accumulation or runoff of surface waters . . .

The policies had separate coverage limits for damages caused by floods. The Zurich policy limits for flood were $100 million. The American Guarantee policy limits for flood coverage were $150 million. Both insureds submitted proof of loss claims to their respective insurers, each exceeding $200 million. The insurers determined that substantially all of the damages incurred were subject to the flood sublimits. The insurers reasoned that the water that accumulated on the parapet roofs and rooftop courtyard was "surface water," and thus the resulting water damage to the upper floors of the hospital was damage due to "flood." Both parties agreed that the water damage to the hospital's basements was caused by surface water and was subject to the policies' flood sublimits.

    Zurich sued MPT, seeking a judgment that MPT's recovery was limited to the policy's $100 million flood sublimit. Steward sued American Guarantee seeking a judgment that the policy's $150 million flood sublimate did not apply to all its losses from the storm. Cross motions for partial summary judgment on the interpretation of the term "surface waters" under each policy were filed. The federal district court granted partial summary judgment to the insurers, concluding that "surface waters" could include the accumulation of waters "constrained" before reaching the ground.

    An interlocutory appeal was filed. The First Circuit certified the question of whether rainwater that accumulates on a building's rooftop courtyard or a building's parapet roof and subsequently inundates the interior of the building unambiguously constitutes "surface waters." 

    The Massachusetts court found that the meaning of "surface waters" in the policies was ambiguous. MPT and Steward contended that the plain meaning of "surface waters" was waters on the surface of the earth - i.e., water at ground level or on a ground-level surface. The insurers submitted that the plain meaning of "surface waters" was waters naturally accumulating on surfaces, not just waters accumulating on the surface of the earth. 

    The court surveyed the case law and concluded that there was no consistent interpretation regarding whether the term "surface water" included rainwater accumulating on a roof. Therefore, it was ambiguous whether rainwater accumulation on roofs constitutes "surface waters" within the meaning of the policies.

    The court therefore answered the certified question as follows: Rainwater that lands and accumulates on either a building's second-floor outdoor rooftop courtyard or a building's parapet roof does not unambiguously constitute "surface waters" under Massachusetts law for the purposes of the policies at issue in the case. 

    

Homeowner Survives Motion to Dismiss Depreciation Claims

    The insurer's motion to dismiss claims for improper claims handling when considering implementation of depreciation was denied. Morrison v. Indian Harbor Ins. Co, et al., 2024 U.S. Dist. LEXIS 115664 (S. D. W. Va. July 1, 2024).

    Plaintiff's home suffered flood damage. The house was insured by Indian Harbor a surplus lines carrier that offered specialized and high risk property policies in West Virginia. Surplus lines policies were procured in West Virginia through a "surplus lines licensee." Here, Neptune Flood Inc. was the surplus lines licensee broker for Indian Harbor. Peninsula Insurance Bureau, Inc. was an administrator and loss adjuster involved in the claim.

    After the flood, Plaintiff notified defendants of the damage and immediately cleaned and repaired the house. Plaintiff asserted that Neptune was given notice of the loss and one of its agents made recommendations regarding the coverage available and conveyed the information to Peninsula and Indian Harbour. Plaintiff claimed that defendants misrepresented his policy coverage and made incorrect adjustments for depreciation based on Neptune's statements and recommendations.  

    Peninsula wrote to Plaintiff, measuring the replacement cost basis of the damage at $37,469.18 and depreciation in the amount of $4,548.12, resulting in an actual cash value of $32,921.06. The policy's deductible of $5,000 was applied, making the net payout as $27,921.06. The letter further advised that following repairs, the depreciation amount could be recovered for a maximum recovery of $37,469.18. Attached to the letter was a "Sworn Statement in Proof of Loss" providing that plaintiff had 180 days from the date of loss to make a supplemental claim to recovery the $4,548.12 depreciation amount. Plaintiff sent back to Peninsula an executed copy of the Proof of Loss. Indian Harbor then paid plaintiff $27,921.06.

    Plaintiff filed suit. His amended complaint alleged there should not have been a deduction for depreciation because his policy had replacement cost coverage and Indian Harbor was required to pay hm the full amount. Plaintiff asserted that defendants not only misrepresented his coverage, but they also failed to assist him in completing his claim. The three defendants all moved to dismiss the complaint.  

    The court found that the policy permitted Indian Harbor to pay actual cash value until repairs or replacement was completed. The policy further provided that an insured who is paid actual cash value had 180 days after the date of loss to present a claim to recover the depreciated amount.

    Here, plaintiff was paid actual cash value. He was also informed he could make a claim for the applied depreciation after he completed repairs. Indian Harbor and Peninsula asserted plaintiff never did so. They argued that the amended complaint did not allege that he made a claim to recover depreciation or that his repair costs exceeded the amount he received. Therefore, Indian Harbor an Peninsula submitted plaintiff's breach of contract claim had to be dismissed for failure to state a claim.

    Plaintiff claimed his repairs were completed before he received Peninsula's letter. Because repairs were already completed, plaintiff insisted that Indian Harbor was required to pay him replacement cost value from the outset. The amended complaint alleged that defendants misled him as to the terms of the policy.

    The court found that plaintiff had raised factual issues sufficient to defeat a motion to dismiss. At this point, the court was unable to determine what plaintiff told defendants about his damages, whether he submitted any evidence of the cost of repair, or what misleading information he believes he was given. These factual issues were reserved for discovery. Therefore, the court denied Indian Harbor and Peninsula's motion to dismiss the breach of contract claim. The court also denied the motion to dismiss plaintiff's bad faith and unfair trade practices act claims asserted against Indian Harbor and Peninsula. Also dismissed was Neptune's motion to dismiss plaintiff's unfair trade practices act claims. 

 

    

Pre-Judgment Interest Not Awarded Under Flood Policy

    The court granted the insurer's motion to dismiss state law and extracontractual claims, including pre-judgment interest. Hurley v. Wright Nat'l Flood Ins. Co., 2022 U.S. Distl. LEXIS 203803 (W.D. La. Nov. 8, 2022).

    The insured suffered damage from Hurrican Delta. He filed suit, alleging that Wright National Flood Insurance Company breached the Standard Flood Insurance Policy (SFIP). The insured sought damages for state law claims for bad faith, diminution in value, actual repair costs, attorney's fees , litigation costs, and interest. Wright moved to dismiss the extracontractual state law causes of action for bad faith and various claims for damages, other than the damages sought for the alleged breach of the SFIP.

    The court explained that the Write-Your-Own (WYO) Program carriers issuing flood insurance under the National Flood Insurance Program (NFIP) arranged for the adjustment, settlement, payment, and defense of all claims arising from the policy. Congress underwrote all operations of the NIFP, including claims adjustment, through United States Treasury funds. A judgment against a WYO Program carrier constitued a judgment agaisnt FEMA, and consequently, a direct charge on the United States Treasury. 

    In the opposition to the motion, the insured conceded that the bad faith, general damages and attoreny fees claims were preempted by federal law. Therefore, the insured only opposed the dismissal of pre-judgment interest. A prior case from the Fifth Circuit had recognized that fair compensation to the plaintiff for his loss covered by the insurance policy issued by an insurer could only be achieved by including the award of prejudgment interst as a mandatory element of damages. West v. Harris, 573 F.2d 873, 883-84 (5th Cir. 1978). 

    Subsequently, however, the NIFP had changed so that all claims were ultimately paid by with United States Treasury funds. Cases held that an award of interest against a WYO company was precluded by the no-interest rule because it was a direct charge on the federal treasury. Therefore, the court agreed with Wright that the insured could not recover pre-judgment interest. The motion was granted as far as the extracontractual claims and claims for attorney's fees and interest. 

Insured's Failure to Challenge Trial Court's Application of Exclusion Makes Appeal Futile

    The Texas Court of Appeals affirmed the trial court's granting of summary judgment to the insurer because the appeal failed to challenge the exclusion under which the insurer found no coverage. Sosa v. Auto Club Indemn. Co., 2022 Tex. App. LEXIS 6520 (Tex. Ct. App. Aug. 30, 2022).

    Sosa's house was damaged during Hurricane Harry on August 26, 2017. Sosa filed a claim with Auto Club. She reported that two feet of floodwater had entered her home, her roof was missing shingles and was leaking, and she had sustained interior damage. An adjuster estimated the cost to prepare the roof damage was $1,191.96, less that her deductible. Auto Club determined that any remaining damage was caused by flood water, which was expressly excluded from coverage. 

    On November 11, 2020, Sosa filed suit against Auto Club for breach of the policy. Among other things, she argued the adjuster spent minimal time at her home inspecting and was inexperienced. In its answer, Auto Club asserted Sosa's claim was time-barred by the statute of limitations. Sosa then filed an amended complaint and changed the date of the loss from August 26, 2017, to June 28, 2019. 

    Auto Club filed a motion for summary judgment, primarily arguing the suit was time-barred by both the statute of limitations and the two-year limitations period in the policy. The trial court granted summary judgment to Auto Club.

    On appeal, Sosa primarily agued hat her loss occurred in June 2019, not during Hurricane Harvey in 2017. Therefore, the lawsuit filed in November 2017 was not time-barred. She did not challenge the summary judgment order on the ground that her claimed damages were covered under the policy. Her appellate brief did not mention flood or surface water.  

    Sosa did not ague that the trial court erred by granting summary judgment on the ground that her policy excluded coverage for her damages because they resulted from flood or surface water. This ground independently supported summary judgment in Auto Club's favor because Auto Club was not liable for damages expressly excluded under Sosa's homeowner's policy. Therefore, any other error about which Sosa complained on appeal was harmless in light of the unchallenged ground. 

Summary Judgment Granted to Insurer for Hurricane Damage

    The insurer's motion for summary judgment, contending there was no coverage for hurricane damage, was granted. Laurence v. Liberty Ins. Corp., 2021 U.S. Dist. LEXIS 227807 (S.D. Texas Nov. 29, 2021). 

    When Hurricane Harvey hit, Mike Laurence held a homeowner's policy from Liberty Insurance Corporation and a contractor policy for his business, Pride Plumbing, Inc., issued by State Farm Lloyds. Laurence's property suffered water damage during the storm. State Farm investigated and concluded that all but a small amount, within the policy's deductible, was from flood damage and excluded. Laurence sued.

    The property covered by the State Farm policy included Laurence's home, Pride Plumbing's office and two sheds. Pride Pluming did not own or lease any of the buildings on the property. Laurence testified in his deposition that the only damage to his property not caused by flood water was to three buildings from fallen tree limbs and equipment from his business. 

    State Farm argued it was entitled to summary judgment because the policy did not cover damage to buildings, but only business personal property. The evidence showed no damage over $1,000 from wind-driven water. A State Farm inspector found no damage consistent with the effects of wind. Instead, he found flood debris lines that were approximately seven feet above the floor. Laurence did not respond to the State Farm argument that the policy did not cover buildings. 

    The record presented undisputed facts showing that there was no covered unpaid damage caused by wind as opposed to flood water. Nor did Laurence point to any evidence to show that his business personal property not damaged by flood water exceeded the deductible of $1000.

    Therefore, State Farm's motion for summary judgment was granted and clams against State Farm were dismissed with prejudice. 

Unclear Sublimits Inapplicable to Superstorm Sandy Damage

    The Supreme Court of New Jersey found the policies' sublimits were not applicable to reduce coverage for property damage caused by Superstorm Sandy. N.J. Transit Corp. v. Certain Underwriters at Lloyd's London, 2021 N.J. LEXIS 4 (Jan. 27, 2021). 

    At the time Superstorm Sandy struck New Jersey, the New Jersey Transit Corporation (NJ Transit) had a $400 million multi-layered property policy program through eleven insurers. When NJ Transit sought coverage for water damage to its property caused by the storm, some of the insurers invoked the $100 million flood sublimit and declined to provide coverage up to the policy limit. NJ Transit filed suit for a declaratory judgment. The trial court found that the $100 million flood sublimit did not apply to NJ Transit's claims. Summary judgment was entered for NJ Transit. 

    The Appellate Division affirmed. The New Jersey Supreme Court affirmed the Appellate Division, largely adopting the reasoning of the Appellate Division.

    The Appellate Division noted that the policies contained separate definitions for a "named windstorm." Most of the policies separately defined "named windstorm" to include "wind driven water, storm surge and flood associated with, or which occurs in conjunction" with a "named windstorm." The court reasoned that the policies did not define "flood" to include "storm surge" and "wind driven water" associated with a "named windstorm." If the parties intended that damage from a "storm surge" would be subject to the flood sublimit, the policies would have stated so in plain language. 

    

Sub-Limit Restricts Insured's Flood Damage Recovery

    The insured's recovery for flood damage was controlled by the policy's sub-limit. David S. Brown Enters. v. Affiliated FM Ins. Co., 2020 U.S. Dist. LEXIS 239208 (D. Md. Dec. 18, 2020). 

    Roughly 6.6 inches of rain fell in Ellicott City, Maryland, causing extensive flooding. During the storm, a water main broke on Main Street, in relatively close proximity to the insured's two properties on Main Street. The foundations of the two properties washed away.

    The insured, David S. Brown Enterprises (DSB), had a business owners' policy with Affiliated with covered 204 named locations. The Main Street Properties were not listed, but the policy also provided certain coverage for unnamed locations. The sub-limit applicable to unnamed locations was $1,000,000. The sub-limit for flood, however, was $50,000, annual aggregate "as respects Errors & Omissions, Off-Premises Service Interruption, Unnamed Locations and Supply Chain combined." Affiliated paid $50,000 for the loss based upon the $50,000 Flood annual aggregated Sub-Limit for Unnamed Locations. DSB disagreed that the $50,000 sub-limit applied and filed suit. 

    Cross-motions for summary judgment were filed. DSB first argued that the flood and water main break were two occurrences that allowed DSB to reap the benefit of two different sub-limits. The court disagreed.  The policy defined occurrence as "the sum total of all loss or damage of the type insured, including any insured Business Interruption loss, arising out of or caused by one discrete event of physical loss or damage . . . " Here, there was one discrete event of physical loss or damage - the foundations of the Main Street properties were destroyed by water. Two causes appeared to have contributed to that discrete event: the water main break, which created or exacerbated a channel near the Main Street properties, and the floodwaters which flowed into that channel, mixed with the water from the water main, and caused the damage. They amounted to one occurrence.

    Regarding the applicability of the sub-limit, DSB argued that all four of the coverages - Errors & Omissions, Off-Premises Service Interruption, Unnamed Locations and Supply Chain combined - had to be implicated simultaneously, in conjunction with a flood. This would be impossible, however. Errors & Omissions coverage and Off-Premises Service Interruption coverage required "physical loss or damage" at an insured location, while Supply Chain coverage required physical loss or damage at a different location. Therefore, the $50,000 sub-limit applied. 

No Coverage For Wind And Flood Damage Suffered From Superstorm Sandy

    The court found that the policy's anti-sequential clause barred coverage for damage caused by Hurricane Sandy. Estate of Doerfler v. Fed. Ins. Co., 2020 N.J. Sup. Unpub. LEXIS 920 (May 14, 2020).

    The insureds held identical homeowners policies from Chubb and Federal Insurance Company. Damage resulting from flood was not covered. The policies' "surface water exclusion" stated,

[W]e do not cover any loss caused by: flood, surface water, waves, tidal water, overflow of water from a body of water . . . or spray from any of these even if driven by wind.

The insureds also had separate flood insurance policies, insuring the structure of each home for $250,000.

    Superstorm Sandy created wind gusts as high as eighty miles per hour. A severe storm surge caused tides to rise between nine and eleven feet. The storm surge caused surface water to flood onto plaintiffs' properties and their homes ultimately collapsed. 

    Claims were submitted to the insurers. Inspectors determined that the damage to the homes was cased by storm surge and flood waters, not wind. Plaintiffs were paid the maximum amounts under the flood policies. 

    Plaintiffs sued the insurers and cross-motions for summary judgment were filed on whether the surface water exclusion barred coverage after the homes were destroyed in the flood that inundated their properties. 

    The trial judge correctly found that the policies did not cover the losses sustained in the flood. The surface water exclusion clearly applied. 

    The trial judge correctly rejected plaintiffs' contention that wind was the initiating and efficient proximate cause of the storm surge and, because wind damage was covered under their policies, the surface water exclusions did not apply. Under the efficient proximate cause rule, recovery was allowed where the insured risk was the last step in the chain of causation set in motion by an uninsured peril, or where the insured risk itself set into operation a chain of causation in which the last step may have been an excepted risk.

    As determined by the trial judge, the efficient proximate cause rule did not apply here. Wind and flood waters were not separate events. Further, there were no sequential causes of loss. Because the policies excluded any loss contributed to, made worse by, or in any way resulting from or caused by flood, surface water, waves, tidal water, or overflow from a body of water (an anti-sequential clause), the claims were barred regardless of whether wind played any role in the loss. 

    Accordingly, the trial court properly granted summary judgment to the insurers.

Equal Access to Justice Act Fee Request Rejected in Flood Case

    The insured's claim for fees under the Equal Access to Justice Act (EAJA) for seeking coverage under a flood policy was rejected. Hampson v. Wright Nat'l Flood Ins. Co., No. 4:19-cv-10083-KMM (S.D. Fla. Aug. 11, 2019)(Order on Motion to Dismiss). The order is here. 

    The insurer did not compensate plaintiff for flood-related damages under the terms of a Standard Flood Insurance Policy (SFIP). The insurer was a Write-Your-Own (WYO) Program insurance carrier participating in the National Flood Insurance Program (NFIP). By statute, a WYO carrier acts as a "fiscal agent" and "fiduciary" of the United States. 

    The insured's property suffered damage from a hurricane. The insured sued the carrier for breach of contract and attorney's fees under EAJA. The insurer moved to dismiss the claim for fees under EAJA. A party could recover fees and costs under the EAJA as the prevailing party in a case "brought by or against the United States . . . unless the court finds the position of the United States was substantially justified." 28 U.S.C. 2412 (d) (1) (A), (b). The statute defined the "United States" to include "any agency and any official of the United States acting in his or her official capacity." However, attorney's fees were not recoverable under the EAJA in cases for breach of an SFIP brought against a WYO program insurance carrier participating in the NFIP because WYO carriers were not considered "agencies" under the EAJA. 

    Here, the insured brought a claim for breach of an SFIP against a WYO carrier participating in the NFIP. Thus, the insured's claims for attorney's fess and cases pursuant to the EAJA were dismissed. 

Court Grants Motion to Dismiss Negligence Claim Against Flood Insurer

    The insurer successfully moved to dismiss the insured's negligence claim and demand for jury trial, leaving only the insured's breach of insurance contract claim under the National Flood Insurance Program (NFIP). La Mirage Homeowners Association Inc. v. Wright National Flood Ins. Co., 2019 U.S. Dist. LEXIS 147667 (S.D. Tex. Aug 29, 2019). 

    Hurricane Harvey damaged three of insured homeowner's association condominium's buildings. Wright National Flood Insurance Company was the insurer pursuant to the NFIP when the hurricane damaged the insured's property. The insured alleged that Wright breached the policy by underpaying on the flood loss claims and by not initiating the appraisal the insured demanded. The insured sought recovery for negligence, consequential damage, statutory penalties, attorney's fees and pre-and-post judgment interest. 

    Wright moved to dismiss the extra-contractual claims and to strike the jury demand. 

    The NFIP's regulations allowed homeowners to purchase policies either directly from FEMA or from private insurers that functioned as Write Your Own (WYO) providers and fiscal agents of the United States. The Fifth Circuit had previously held that state law tort claims arising from claims handling by a WYO were preempted under federal law. The court, therefore, was faced with the issue of whether the insured's claims of negligence, attorney's fees, statutory penalties, and interest were policy-handling claims which were preempted by federal law.

    To determine whether a plaintiff's claims arose from claims  handling, courts looked to the status of the insured at the time of the interaction between the parties. If the individual was already covered and in the midst of a non-lapsed policy, the interactions between the insurer and insured were claims-handling subject to preemption. Here, the insured was covered by Wright at the time the dispute arose. Therefore, the insured's extra-contractual allegations were claims-handling claims and preempted. 

    The Insured's jury demand was based on the negligence claim. Because the negligence claim is preempted, and FEMA is presumed to be paying both the litigation expenses and any resulting damage award of the contractual claim, the insured had no right to a jury trial. 

    Likewise, the insured's claim for statutory penalties, attorney's fees pre-judgment and post-judgment interest were not recoverable against a WYO carrier. The partial motion to dismiss with prejudice was granted, leaving the insured'clam for breach of contract under the NFIP as the sole claim regaining before the court.