Insurance Law Hawaii

No Coverage for Hurricane Sandy Damage

    The magistrate recommended that summary judgment be entered in favor of the insurer, thereby eliminating coverage for property damage incurred during Hurricane Sandy. Madelaine Chocolate Novelties, Inc. v. Great Northern Ins. Co., 2017 U.S. Dist. LEXIS 103015 (E.D. N.Y. June 30, 2017). 

    Madelaine Chocolate owned a facility three blocks form the Atlantic Ocean and one block from the Jamaica Bay section of Long Island Sound. Hurricane Sandy arrived October 29, 2012. Madeline Chocolate's facility sustained significant damage to its inventory, production machinery and premises, as storm surge from both bodies of water hit the property. Operations ceased during the 2012 holiday season and beyond, resulting in millions of dollars in lost income. 

    The property was covered by an all-risk policy issued by Great Northern. Madelaine Chocolate submitted a proof of loss that totaled more than $40 million, while its claim for business income loss amounted to $13.5 million. Great American ended up paying just under $4 million. 

    The policy had a flood exclusion providing, in part, "This insurance does not apply to loss or damage caused or resulting from waves, tidal water or tidal waves . . . " A windstorm endorsement increased the deductible for damage from a windstorm from $25,000 to $50,000. The policy defined windstorm as follows:

Windstorm means:

• wind;
• wind-driven rain;

    . . .

    All other terms and conditions remain unchanged. 

     The court noted that, on the one hand, since wind is the primary motive force behind storm surge, attributing the damage to this phenomenon could render coverage more appropriate under the policy's wind coverage. On the other hand, damage caused by "storm tide" could arguably fall within the coverage of the policy's flood exclusion, which expressly excluded tidal waters. 

    In coverage cases surrounding Hurricane Katrina, the Fifth Circuit had repeatedly held that term "flood" included storm surges in the ordinary meaning of the words. Therefore, there was no doubt that the flood exclusion covered the damages at issue in this case.

    The court then rejected Madelaine Chocolate's argument that the policy's wind endorsement provided a separate basis for coverage of the damage caused by the storm surge. There was nothing in the text of the endorsement that supported this notion. The plain meaning of the policy meant that the damage caused by storm surge was excluded by the policy's unambiguous flood exclusion. The windstorm endorsement did not resurrect coverage for the excluded period of flood, particularly where the endorsement explicitly provided that other provisions of the policy, such as the flood exclusion, were unaffected by the endorsement. 

 

     

 

State Farm Unsuccessful In Seeking Dismissal of Qui Tam Case

    In an insurance related case, the United States Supreme Court affirmed the Fifth Circuit's decision that State Farm was not entitled to a dismissal of a qui tam case involving its claims-handling after Hurricane Katrina. State Farm Fire & Cas. Co. v. United States ex rel. Rigsby, ___ U.S. ___, 137 S. Ct. 436 (2016).

    Before Katrina, State Farm issued two types of policies to homeowners: (1) Federal Government-back flood policies and (2) its own general homeowner policies. After Hurricane Katrina, State Farm's policies were responsible for wind damage, and the government policies were responsible for flood damage. Therefore, it was in State Farm's interest to classify hurricane damage as flood-related.

    Cori and Kerri Rigsby were former claims adjusters for one of State Farm's contractors, E.A. Renfroe & Co. The adjusters were responsible for visiting the damaged homes of State Farm's customers to determine the extent to which a homeowner was entitled to an insurance payout. The Rigsbys claimed that State Farm instructed them to misclassify wind damage as flood damage in order to shift State Farm's liability to the government.

    In 2006, the Rigsbys filed their qui tam complaint under seal. Qui tam actions are filed under the Federal Claims Act (FCA). The FCA imposes civil liability on an individual who "knowingly presents . . . a false or fraudulent claim for payment or approval" to the Federal Government. One who initiates a meritorious qui tam suit receives a percentage of the ultimate damages award, plus attorney's fees and costs. The FCA requires that the complaint be filed in camera and remain under seal for at least 60 days, and is not to be served on the defendant until the court so orders.

    In January 2007, the District Court lifted the seal in part. In August 2007, the District Court lifted the seal in full. The government, which has the option to intervene in qui tam cases, declined to do so.

    In January 2011, State Farm moved to dismiss the Rigsby's suit because they had violated the seal requirements. Their former attorney, Dickie Scruggs, had e-mailed a sealed evidentiary filing that disclosed the complaint's existence to various journalists. The fraud allegations were discussed in the media, but not the existence of the FCA complaint. After the seal was lifted in part, Scruggs disclosed the existence of the suit to various other media outlets.

    The District Court decided against dismissal. State Farm did not request some lesser sanction. The case went to trial, resulting in a victory for the Rigsbys. The Fifth Circuit affirmed the denial of State Farm's motion to dismiss, determining that automatic dismissal due to the seal violation was not required by the FCA.

    The Supreme Court agreed that a violation of the FCA's seal provision did not impose the harsh rule of dismissal. Although the statute said that a complaint "shall" be kept under seal, it said nothing about the remedy for a violation of the rule. The FCA included a number of provisions that did require, in express terms, the dismissal of a realtor's action. Here, it was proper to infer that, had Congress intended to require dismissal for a violation of the seal requirement, it would have said so.

 

No Coverage Under Exclusions For Wind and Water Damage

   The Mississippi Supreme Court affirmed the granting of summary judgment to the insurer that there was no coverage under the all risk policy for loss caused by wind and water. Porter v. Grand Casino of Miss., Inc., 2016 Miss. LEXIS 3 (Miss. Jan. 7, 2016). 

   Cherri Porter's home was destroyed during Hurricane Katrina. The destruction occurred when the barge operated by Grand Casino of Mississippi came loose from its moorings and collided with her home.

    Ms. Porter submitted a claim to her insurer, State Farm. The policy excluded loss caused by wind or water damage. Also excluded was "loss that would not have occurred in the absence of an excluded event." Because any loss caused by the barge would not have occurred in the absence of an excluded event - i.e., the flood of storm surge that broke the barge from its moorings - State Farm denied coverage.

   Porter sued State Farm for bad faith denial of her claim. In discovery, she admitted there was no other explanation for the barge's movement other than the forces of wind and water. Because the policy excluded loss caused by water, the trial court granted summary judgment to State Farm. 

   The Mississippi Supreme Court affirmed. State Farm excluded both loss caused by wind damage and loss caused by water damage. The policy unambiguously stated that any loss that would not have occurred absent water damage was not covered. The barge, by itself, would not have collided with Porter's home. The barge did not act independently to cause loss, but instead operated in conjunction with the storm surge to cause the damage. 

Indemnity Provision Provides Relief to Contractor; Additional Insured Provision Does Not

   The court found that the contractor was entitled to relief under the contractual indemnity provision, but not the policy's additional insured clause. Chatelain v. Fluor Daniel Constr. Co., 2015 La. App. LEXIS 2257 (Ct. App. La. Nov. 10, 2015). 

   Following Hurricanes Katrina and Rita, FEMA retained Fluor Enterprises, Inc. as a contractor to transport and install FEMA trailers. Fluor entered a Blanket Ordering Agreement (BOA) with Bobby Reavis Contracting, Inc. to transport and install the trailers. The BOA provided Reavis would defend and indemnify Fluor from all liability arising from the subcontractor's work. Reavis also agreed to name Fluor as an additional insured under its CGL policy. 

   Reavis installed a FEMA trailer for Connie Chatelain. Ms. Chatelain was injured when she fell exiting her FEMA trailer. She sued Fluor and Reavis. Fluor tendered the suit to Reavis and Reavis' insurer, Guilford Insurance Company. The tender was rejected and Fluor filed a third-party action demanding indemnification, reimbursement of all legal expenses and damages for insurer misconduct. 

   Guilford settled Ms. Chatelain's claims. The remaining parties filed cross-motions for summary judgment. The trial court granted Reavis' and Guildord's motions and dismissed Fluor's claims. 

   Regarding indemnity under the BOA, the court of appeals noted that Reavis agreed to indemnify for "Injury or death of persons . . . arising directly or indirectly out of the acts or omissions to act of Contractor [Reavis] . . . in the performance of the Work." In granting summary judgment to Reavis, the trial court interpreted the BOA to limit Reavis' defenses and indemnity obligations to liability arising out of Reavis' acts and omissions in the performance of its work as imposing a temporal requirement. Therefore, the language limited those obligations to claims arising during Reavis' performance of its transportation and installation of Ms. Chatelain's trailer. Fluor contended that this interpretation ignored the actual contract language. 

   Ms. Chatelain alleged that her injury resulted from defects and deficiencies in the prefabricated steps installed in her FEMA trailer. Reavis selected,  purchased, and installed those steps as part of its performance for Fluor under the BOA. But for Reavis' performance of its work under the BOA, the injury would not have occurred. The requirement of a minimal causal connection between Reavis' work under the BOA and Ms. Chatelain's injury was satisfied.

   The analysis of the Additional Insured Endorsement led to a different result. The Endorsement provided coverage to Fluor for "liability arising out of your [Fluor's] ongoing operations performed for that insured [Reavis]." The Endorsement excluded any coverage to Fluor if it was negligent. Ms. Chatelain alleged in her petition that Fluor's negligence was the cause of her accident. The uncontroverted testimony was that the work on the trailer was completed, inspected, and approved by Flour six months prior to the accident. Therefore, the trial court determined that the Additional Insured Endorsement was no longer in effect at the time  of the accident. The policy only provided coverage for the additional insured during the "ongoing operations." 

   Fluor argued that when Ms. Chatelain was injured, the contract between it and Reavis remained in effect. Pursuant to the contract, Reavis was still actively transporting and installing trailers.

   The court sided with the insurer. Given that ongoing operations could not encompass liability arising after the insured's work was completed, Fluor's claims arising out of Ms. Chatelain's injury could not be covered under the Endorsement. Reavis' work on the trailer was completed and accepted by Fluor at the time of Ms. Chatelain's injury.

Order for Appraisal Affirmed After Insureds Comply with Post-Loss Obligations

   The Florida Court of Appeal affirmed an order compelling an appraisal because the insureds complied with their post-loss obligations under the policy. State Farm Fla. Ins. Co. v. Cardelles, 2015 Fla. App. LEXIS 2559 (Fla. Ct. App. Feb. 25, 2015). 

    The insureds suffered damage to their home after Hurricane Katrina on August 25, 2005, and again after Hurricane Wilma on October 24, 2005. After each hurricane, State Farm was notified. With the assistance of their public adjuster, the insureds submitted sworn proofs of loss for damages caused by each hurricane. After the deductible, State Farm paid $19,000 for the Hurricane Katrina claim and $13,000 for the Hurricane Wilma claim. The insureds repaired their roof and made minor repairs to their home with the State Farm payment, but claimed the payment was insufficient to fully repair the damage from the two hurricanes. 

   Four years later, the insureds hired a second public adjuster, who submitted a supplemental claim to State Farm for $127,000 in damages. State Farm requested documents and an updated sworn proof of loss. The insureds did not submit any additional documents because they had not made any additional repairs without further payment from State Farm. The insureds did, however, allow State Farm to make a further inspection of the damages.

    After State Farm refused to make any additional payments, the insureds sued. State Farm moved for summary judgment, contending the insureds had failed to comply with their post-loss obligations to provide the requested documentation. The insureds responded with a Motion to Compel Appraisal and Abate the Action. The trial court denied State Farm's motion for summary judgment. Subsequently, the trial court granted the motion for appraisal, and ordered a detailed appraisal to determine the amount of damages and the cause of each item of damage within ninety days. 

   State Farm appealed the granting of the motion for appraisal. The appellate court affirmed. The trial court found that the insureds sufficiently complied with the policy's post-loss obligations. The appellate court could not say that the trial court abused its discretion by compelling an appraisal on these facts. Because the damages were the same as those claimed from the original hurricane damage, State Farm already had all the required documentation of the damages. Further, the insureds agreed to open their home to State Farm for further inspection of the damages.

 

Business Interruption Claim Upheld

   A business interruption claim survived an appeal after it was determined the claim was satisfactorily presented to the trial court. Citadel Broadcasting Corp. v. Axis U.S. Ins. Co., 2015 La. App. LEXIS 274 (La. Ct. App. Feb. 11, 2015).

   When Hurricane Katrina hit on August 29, 2005, the insured owned three radio stations that broadcast in and around New Orleans. All three stations suffered property damage and were off the air for varying periods of time. 

   The insured's policy with Axis covered both physical damage and business interruption (BI) losses. The policy also insured contingent business interruption income (CBI). Both ordinary BI and CBI losses were covered under a 365 day extended period of indemnity (EPI). 

    After the storm, the insured filed its claim. Initially, Axis paid $414,092 (after deductible) for property damage and $1,277,760 for business interruption lost profits during the period of restoration. Axis also paid loss adjustment expenses of $250,787 for work AON Risk Services, Inc. performed to calculate and present the insured's claim to Axis. Axis refused to pay ordinary BI claims during the EPI , however, or any part of the insured's CBI claims. 

    The insured sued for breach of contract and for bad faith. The jury awarded the insured $3,273,237 for all lost profits during the 365 days after each of the three radio stations had returned to operation. The jury awarded $2,383,751 for CBI losses subsequent to the 365 days through June 30, 2007. The jury further awarded damages for bad faith in the amount of $2,953,494 and attorneys' fees of $2,953,494. 

   Axis appealed. It argued the insured failed to prove that certain losses were a direct result of Hurricane Katrina. But the insured only needed to prove its business interruption losses with "reasonable certainty." Broad latitude was given in proving lost profits because this element of damages was often difficult to prove and mathematical certainty or precision was not required. The insured did not need to prove its loss on a customer-by-customer basis. The insured's BI losses were to be determined based on the "actual loss sustained," by comparing the insured's expected performance prior to Hurricane Katrina with its actual performance thereafter. Here, there was sufficient evidence to support the jury's finding that the insured sustained covered losses of $5,906,988.

    The court also upheld the award for bad faith. Axis received the calculation of the insured's loss in December 2006. Axis failed to make any payment on the claim within the applicable statutory period when it was aware that some of the losses were covered.

   The attorneys' fee award, however, was vacated and remanded because the award was not supported by any record evidence. 

City Covered From Lawsuits Filed After Hurricane-Damaged Dwellings Demolished

   The Fifth Circuit affirmed the District Court's finding that a duty to defend was owed St. Bernard Parish after it was sued for condemning and demolishing housing destroyed by Hurricane Katrina. Lexington Ins. Co. v. St. Bernard Parish Gov't, 2013 U.S. App. LEXIS 24292 (5th Cir. Dec. 6, 2013). 

   St. Bernard's policies with Lexington provided coverage for "property damage" and "personal and advertising injury." The policies included a $10,000,000 per occurrence and aggregate limit, subject to a $250,000 retained limit. 

   Lexington denied coverage and filed for a declaratory judgment that the policies' $250,000 retained limit applied separately to each alleged demolition or property damage asserted in the underlying actions. Under this theory, no defense would be owed because no property had a value exceeding $250,000. The District Court found that only one retained limit applied

    The policies defined personal and advertising injury as arising out of "the wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies by or on behalf of its owner, landlord or lessor." The District Court found this language ambiguous.

   On appeal, the Fifth Circuit noted that the policies' retained limit applied "separately to each and every occurrence . . . or series of continuous, repeated, or related occurrences." The Fifth Circuit held that the acts of demolition alleged in the underlying actions were related because they all resulted from St. Bernard's ordinance condemning the properties that remained in disrepair after Hurricane Katrina. Therefore, the $250,000 retained limit applied once to the alleged acts.

    The Fifth Circuit also agreed with the District Court that the phrase "by or on behalf of its owner, landlord or lessor" was ambiguous. Lexington argued this phrase modified wrongful acts, such that the eviction or invasion of right of occupancy must occur "by or on behalf of" the "owner, landlord or lesser" of the property. Conversely, St. Bernard's contended that the phrase modified "that a person occupies," such that the injury party must rightfully occupy the property "by or on behalf of its owner, landlord or lessor." The phrase was therefore ambiguous and was construed in St. Bernard's favor.

   

   

Property Policy Proceeds Assignable after Sale of Property

   The Seventh Circuit found "replacement cost" proceeds were still payable after the insured's sale of damaged property in its unrepaired state. Edgewood Manor Apt. Homes LLC v. RSUI Indem. Co., 2013 U.S. App. LEXIS 21939 (7th Cir. Oct. 25, 2013).

   Edgewood Manor Associates, Ltd. owned an apartment complex in Gulfport, Mississippi that was insured by RSUI Indemnity Company. In the event of a covered loss, RSUI agreed to pay "actual cash value" proceeds and, for an additional premium, "replacement costs" proceeds. Southland Management Corporation, a limited partner of Edgewood Associates, was the named insured.

   Hurricane Katrina badly damaged the apartment complex. RSUI paid the actual cash value proceeds, but the parties were unable to negotiate for the additional replacement cost proceeds. The court explained that because the actual cash value proceeds may not be sufficient to permit an insured to repair or rebuild damaged property to its original specifications, insurers offered optional replacement-cost coverage for the full cost of repair or replacement. Southland purchased this extra coverage for the apartment complex.

   The replacement cost coverage portion of the policy said the proceeds would not be paid,

(1) Until the lost or damaged property is actually repaired or replaced; and

(2) Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage.

The policy also prohibited the insured from assigning the policy without RSUI's consent.

   When negotiations for the replacement cost coverage broke down, Southland informed RSUI that it was selling the property and assigning the replacement-cost claim to the buyer. RSUI responded that an assignment was prohibited under the policy. Southland countered that the anti-assignment provision only prohibited an assignment of the policy itself, not the mature claim to the replacement-cost proceeds.

   The property was sold to Edgewood Manor. Southland and Edgewood Manor then sued RSUI. RSUI successfully moved for summary judgment before the district court.

   On appeal, the Seventh Circuit agreed that Edgewood Manor's suit was properly dismissed because there had never been an actual assignment of the policy's proceeds. Edgewood Manor therefore lacked standing. 

   RSUI argued that Southland could not recover replacement-cost proceeds because it lost its insurable interest when it sold the property. The Seventh Circuit disagreed. Under Mississippi law, that fact that the insured would suffer an economic loss if the property was damaged was sufficient to satisfy the insurable interest requirement even if the insured did not have an ownership interest. The insured only needed to have an insurable interest at the time of contract formation. An insured was not required to maintain an insurable interest in the property while the claim was being negotiated and through litigation. 

   RSUI tacitly admitted that Southland had an insurable interest by making actual cost value payments under the policy. The fact that Southland later sold the property - after the loss occurred and prior to suit - was irrelevant. Therefore, Southland's suit to acquire the replacement-cost proceeds was improperly dismissed by the district court. 

Mediation and Late Appraisal Request Does Not Toll Statute of Limitations

   The court agreed with State Farm that the insureds' request for an appraisal made after the statute of limitations had run was too late. Stolz v. State Farm Fire and Cas. Co., 2013 U.S. Dist. LEXIS 86834 (S.D. Miss. June 20, 2013). 

   The insureds' property sustained damage from Hurricane Katrina. State Farm performed an inspection and concluded that both wind and rain contributed to the loss. On November 8, 2005, State Farm denied the claim insofar as it related to flood damage, which was excluded from coverage. State Farm paid $993.69 for wind damage caused by the hurricane. 

   A year and a half after State Farm paid $993.69, the insureds requested mediation of their claim for the remaining loss. On August 22, 2007, an impasse was declared on the mediation. On July 6, 2010, the insureds requested an appraisal. State Farm declined to enter an appraisal because the three year statute of limitations had already expired on the insureds' claim. 

   On January 27, 2012, a year and a half after the appraisal request was denied, the insureds filed suit claiming breach of contract and breach of the duty of good faith and fair dealing. State Farm moved for summary judgment seeking dismissal on the grounds that the insureds' claims were barred by the statute of limitations.

      State Farm argued the statute of limitations began to run on November 8, 2005 and expired on November 9, 2008. The insureds did not file their complaint until January 27, 2012. Therefore, State Farm argued that the request for appraisal on July 6, 2010, was made outside the limitations. Even if the demand was within the statute of limitations, such demand would not toll the statute of limitations.

   The insureds argued that based upon the mediation and their July 6, 2010 request for appraisal, State Farm should be estopped from refusing to participate in the appraisal process and should be required to comply with the terms of the policy.

   The court agreed with State Farm. The denial of flood coverage was clearly communicated on November 8, 2005, meaning the statute of limitations expired three years later. Participating in mediation did not toll the statute. Even if State Farm's participation tolled the limitations period for the 78 days of mediation, the statute of limitations would have still expired on January 26, 2009, well before the insured made their appraisal demand on July 6, 2010, or filed their complaint on January 27, 2012. While some other jurisdictions did permit tolling based on appraisal, they only did so after both parties agreed to engaged in the appraisal. Even then, the statute of limitations would not restart but would merely suspend during the appraisal proceedings. 

Bad Faith Claim Denied after Untimely Request for Loss of Personal Property

   Although the insured recovered from her insurer for property damage caused by Hurricane Katrina, her claim for loss of personal property was denied because it was not timely submitted. See Williams v. Louisiana Citizens Fair Plan, 2012 La. App. LEXIS 599 (May 2, 2012).

   After the hurricane struck, Louisiana Citizens paid the insured approximately $117,000 for her flood claim and $85,000 for immovable property damage and additional living expenses. Two adjusters visited her property and she attended a mediation with Louisiana Citizens. No mention was ever made of lost personal property. When the insured sued for breach of contract and additional damages for her immovable property, she did not allege damages to her personal property.

   Finally, during settlement discussions, more than three years after Hurricane Katrina, the insured claimed to have lost personal property. At trial, the claims for the alleged personal property losses and for bad faith refusal to pay for the allegedly lost personal property were dismissed.

   The appellate court affirmed. The insured waited more than three years after the storm to allege a loss of personal property. Further, she had stated in a complaint to the Louisiana Department of Insurance that FEMA had paid for her personal property.