Insurance Law Hawaii

Loss Ensuing from Alleged Faulty Workmanship is Covered

    The federal district court found that under Montana law, water damage resulting from alleged faulty workmanship in repairing the insured's roof was covered. Leep v. Trinity Universal Ins Co., 2017 U.S. Dist. LEXIS 86759 (D. Mont. June 6, 2017).

    The insured's property was damaged in a hail storm. The insured contracted with Sprauge to repair the hail damage. Sprauge tore off and replaced roof lining and shingles. Sprague replaced a vent cap and tubes, but did not replace any vent piping or vents. The contract between the insured and Sprauge provided it was the owners' responsibility to check the exhaust vents for all furnaces and water heaters after the roofing project was completed. 

    Subsequent to the repairs, water was found dripping from a bathroom fan. Moisture was also found on the second story emanating from the ceiling. Finally, in the attic, the furnace vent piping was disconnected and the furnace exhaust was venting into the attic. 

    The insured reported the water damage to Trinity, noting his belief that Sprauge had not properly connected the new roof vent to the attic. Trinity hired an inspector who found moisture damage, including a large amount of mold in the attic area and wet insulation in need of replacement. Sprauge contended it did not replace any vent piping or vents; it disputed that it detached or disconnected the furnace vent piping, and disputed that the work caused any damage to the insured's home. 

    Nevertheless, Trinity denied the claim based upon the all-risk policy's exclusion for faulty workmanship or construction. The ensuing damage that resulted from the moisture in the attic was not a separate loss, but was the direct result of the contractor's failure to properly repair the roof. 

    The insured sued and the parties filed cross-motions for summary judgment. The insured argued that the faulty workmanship exclusion did not apply because connected the furnace vent was not within Sprauge's scope of work. Further, even if the exclusion applied, the loss was nevertheless covered under the policy's ensuing loss exception.

     The court denied the insured's motion for partial summary judgment. The contract between Sprauge and the insured did not control whether the faulty workmanship exclusion applied. Further, the policy did not limit the exclusion to only faulty workmanship that fell within the scope of work agreed upon between the insured and a contractor. Rather, the exclusion broadly applied to "any" losses caused by faulty workmanship. 

    The court also found, however, that there were disputed issues of material fact regarding whether Sprauge's workmanship was, in fact, faulty. It was unclear whether Sprauge was responsible for disconnecting the vent pipe, and whether a reasonable roofer would have known the vent had been disconnected.

    Even if the faulty workmanship exclusion applied, however, there was coverage under the ensuing loss exception in the policy. A reasonable consumer would understand that the ensuing loss provision provided coverage for any otherwise covered loss that took place as a result of faulty workmanship. Unlike the faulty workmanship exclusion, several exclusions in the policy applied  to loss "caused directly or indirectly" from "any other cause or event contributing concurrently or in any sequence to the loss." Trinity could have included similar language for the faulty workmanship exclusion, but instead expressly limited the application of the exclusion by the inclusion of the ensuing loss provision. 

    Therefore, assuming Sprauge's workmanship was faulty and caused the furnace vent to become disconnected, the cost to repair or replace the furnace venting was not covered by the policy. However, the loss that followed as a result, i.e., the damage caused by the intrusion of water vapor form the furnace, was an ensuing loss that was covered. 

    Accordingly, the court found that summary judgment should be entered in favor of the insured on the issue of coverage. 

Concurrent Causation Doctrine Applies Where Natural and Man-made Perils Combine to Create Loss

    The Florida Supreme Court resolved a conflict between the District Courts in applying the Concurrent Causation Doctrine where there were multiple causes creating the loss. Sebo v. Am. Home Assur. Co., 2016 Fla. LEXIS 2596 (Fla. Dec. 1, 2016).

    After purchasing his home, John Sebo procured an "all risks" homeowners policy provided by American Home Assurance Company (AHAC). Shortly after Sebo purchased the property, water began to intrude the home during rainstorms. Major water leaks occurred. It became clear that the home suffered from major design and construction defects. In October 2005, Hurricane Wilma further damaged the home.

    AHAC denied coverage for most of the claimed losses. It provided $50,000 for mold. The residence could not be repaired and was eventually demolished.

    In January 2007, Sebo sued a number of defendants, including the sellers of the property, the architect who designed the residence, and the construction company that built the home. He alleged the home had been negligently designed and constructed, and that the sellers had fraudulently failed to disclose the defects in the property. Sebo amended his complaint, adding AHAC as a defendant. After Sebo settled with a majority of the other defendants, the trial proceeded only on his declaratory action against AHAC. The jurors found in favor of Sebo, and the court eventually entered judgment against AHAC.

    On appeal, the District Court found that there was more than one cause of loss, including defective construction, rain and wind. The court disagreed with the decision issued by another District , Wallach v. Rosenberg, 527 So. 2d 1386 (Fla. Ct. App. 1988). Wallach held that the concurrent causation doctrine should be applied in a case involving multiple perils and a first-party policy. Therefore, the District Court here reversed and remanded for a new trial in which the causation of Sebo's loss would be examined under the efficient proximate cause theory.

    The Supreme Court noted that the efficient proximate cause provided that where there was a concurrence of different perils, the efficient cause - the one that set the other in motion - was the cause to which the loss was attributable. The concurrent cause doctrine, on the other hand, provided that coverage may exist where an insured risk constitutes a concurrent cause of the loss even when it is not the prime or efficient cause.

    The Florida Court observed that the concurrent causation doctrine originated with the California Supreme Court's decision in State Farm Mut. Auto Ins. Co. v. Partridge, 514 P.2d 123 (Cal. 1973). Where neither of two perils could have created the loss alone but instead combined to create the loss, the Partridge court could not identify the prime, moving, or efficient cause in order to determine coverage, and pronounced the new doctrine.

    The District Court in Wallach found the efficient proximate cause doctrine to be of little assistance in cases where both causes of the harm were independent of each other. Therefore, Wallach held that "where weather perils combine with human negligence to cause a loss, it seems logical and reasonable to find the loss covered by an all-risk policy even if one of the causes is excluded from coverage."

    One exclusion in Sebo's policy barred coverage for faulty design, workmanship, construction of all or part of the property. It was not in dispute that the rainwater and hurricane winds combined with the defective construction to cause the damage to Sebo's property. As in Partridge, there was no reasonable way to distinguish the proximate cause of Sebo's property loss - the rain and construction defects acted in concert to create the destruction of Sebo's home. Therefore, it was not feasible to apply the efficient proximate cause doctrine because no efficient cause could be determined. Where weather perils combined with human negligence to cause a loss, it seemed logical and reasonable to find the loss covered by an all-risk policy even if one of the causes was excluded from coverage.

    Therefore, the District Court's decision was quashed and the case remanded for further proceedings.  

Insureds' Summary Judgment Motion on Mold Limitation Denied

    The insureds' motion for partial summary judgment on the applicability of the homeowner's mold limitation was denied. R.W.& R. v. Liberty Mutual Fire Ins. Co., 2016 U.S.Dist. LEXIS 131586 (W.D. Wash. Sept. 26, 2016).

    The policy imposed a $5,000 limit on losses caused by mold. Plaintiffs discovered that their dishwasher was leaking and reported the loss to Liberty. Liberty's contractor concluded that the bottom of the dishwasher had rusted out, causing water to seep into parts of the kitchen and the laundry/utility room below. The contractor used dehumidifiers to extract moisture from the affected areas and removed damaged cabinetry, drywall and tiling. The contractor discovered mold that it believed predated the dishwasher leak. Although the contractor took steps to remove the mold, its dehumidification efforts exacerbated the problem by dispersing mold spores throughout portions of the house. 

    Liberty covered certain losses caused by the dishwasher leak, but asserted that the portion of the losses attributable to mold was contractually limited to $5,000. Liberty hired Rimkus Consulting Group, Inc. to investigate the mold damage. Rimkus identified ten moisture sources, only one of which was the dishwasher leak. Rimkus also found numerous locations throughout plaintiffs' home where mold was present.The dishwasher leak was not entirely to blame. In the bedroom, a considerable portion of the mold was attributable to moisture from the exterior of the home. The same was true for the laundry/utility room. Rimkus confirmed that the contractor's remediation work had worsened the issue, but it was not solely at fault. The home was plagued by numerous sources of ongoing moisture intrusion. 

   Another contractor hired by Liberty estimated the cost of remediating the mold problem. It was estimated that it would cost $4,252.79 to remove the mold growing in the kitchen and laundry/utility room and $1,291.35 for the mold in the bedroom. Remediating the mold throughout the remainder of the house would cost nearly $40,000.00. Liberty advised plaintiffs that the mold damage to the kitchen and laundry/utility room was covered, but the damage was subject to a limit of $5,000. Liberty paid this amount. 

    Plaintiffs sued and moved for partial summary judgment, contending there was no genuine issue of material fact concerning Liberty's liability for breach of contract. 

    The motion was denied. Plaintiffs' breach of contract claim could not be resolved on summary judgment because there was a disputed issue of whether the dishwasher leak was the efficient proximate cause of more that $5,000 in mold damage. Plaintiffs were correct that Liberty could not use the $5,000 policy limit on mold damage to circumvent the efficient proximate cause rule, under which Liberty had to cover any losses that were predominantly caused by the dishwasher leak. 

    The dishwasher leak was only partially to blame for the mold problem in the laundry/utility room and bedroom. This mold was also attributable to the exterior moisture that had seeped through the walls. The estimate for repairing the kitchen and laundry/utility room was $4,252.79. At this stage, it was impossible to apportion which of those losses were predominantly caused by the dishwasher leak as opposed to the intrusion of exterior moisture. This was for the factfinder. The same applied to the bedroom, where the estimate was $1,291.35 to remediate the bedroom, but there was evidence that the mold damage caused by the dishwasher leak was limited to the closet. 

    Because there were genuinely disputed issues of material fact whether the dishwasher leak was the efficient proximate cause of more than $5,000 in losses, plaintiff's motion for summary judgment on the breach of contract claim was denied. 

 

Homeowner's Mold Claim Denied Due to Spoilation

   The trial court's issuance of summary judgment to the insurer for mold and water damage was upheld on appeal. Schwartz v. Encompass Indem. Co., 2016 Mich. App. LEXIS 551 (Mich. Ct. App. March 15, 2016).

    The contractor was demolishing a portion of the insured's home when he discovered water damage and what appeared to be mold. The contractor believed this damage was due to improper roof installation and leaks around the windows. Further demolition was done to water-damaged portions of the home. 

   The insured filed a claim with Encompass for mold and "over-demolition." When Encompass's adjuster inspected the home, none of the alleged mold-affected material was present because it had been removed from the site by the contractor. The claims were denied.

   The insured filed suit and Encompass moved for summary judgment. The trial court found that both the claim for mold and over-demolition were covered losses. However, the insured could not recover on the mold because of spoilation of evidence, and was precluded from recovery on the demolition claim due to the exclusion for faulty workmanship.

   The appellate court agreed. The insured sought to recover costs associated with the contractor's extensive demolition. The demolition was done either due to the contractor's error or his faulty workmanship, or due to the contractor's addressing faulty workmanship of the persons responsible for the roof and window installation. The contractor was the insured's agent. The insured presented evidence that the contractor acted in error, but even if the contractor's work was faulty, it was excluded under the homeowner's policy. 

   The insured also argued that the trial court erred in attributing the contractor's disposal of the evidence of mold to the insured. The insured felt the adjuster had a duty to recover the disposed evidence. But the insured had a duty under the policy to allow the insurer "to take samples of damaged and undamaged property for inspection, testing and analysis." This became impossible because the allegedly moldy material was thrown into dumpsters, mixing with other construction debris and was not protected from the weather. 

   While dismissal of the claim seemed harsh where the insured apparently lacked some degree of knowledge or control over the initial methods in which the materials were removed and disposed of, it was of greater prejudice to Encompass who had absolutely no control over the evidence.

Negligence Claim Not Barred by Gist of the Action Doctrine

   The Pennsylvania Supreme Court held that the insureds' negligence claim survived because it was not based upon breach of a duty created by the policy, but upon the alleged breach of a duty imposed by tort law. Bruno v. Erie Ins. Co,, 2014 Pa. LEXIS 3319 (Dec. 15, 2014).

   After purchasing their home, the insureds obtained a homeowner's policy from Erie. A separate endorsement covered loss to the property caused by "fungi," which was included as any form of mold. The endorsement obligated Erie to pay up to $5,000 for loss caused by mold. The policy required Erie to pay the cost of testing the air to confirm the absence or presence of mold. If mold was present, Erie was to pay for the cost of removal, including the cost of tearing out any part of the property needed to gain access to the mold. 

   While renovating the basement, the insureds discovered two areas of black mold in close proximity to leaking water pipes. Erie was notified and sent an adjuster to view the mold. The adjuster took no action, but returned a couple of days later with an engineer. The adjuster and engineer informed the insureds that the mold was harmless and that health problems associated with mold were a media frenzy and overblown.

   Based on these assurances, the insureds continued to live in the house and renovate. Additional areas of mold were found in the basement. The engineer returned and inspected the newly-discovered areas of mold and performed testing. He did not disclose the results to the insureds. Nor did the adjuster apprise the insureds of the true hazard to human health imposed by the mold, or indicate that it should be removed or remediated. 

   Thereafter, each member of the insureds' family began to suffer respiratory ailments which worsened over the succeeding months. The insureds had the mold tested, at their own expense, which revealed that the mold was toxic in nature and hazardous to human health. 

   The insureds demanded the full $5,000 payment for eradicating the mold. Erie informed the insureds that the matter was still being investigated. Finally, Erie made the $5,000 payment. The insured wife was subsequently diagnosed with cancer of the throat and esophagus, which her doctors attributed to her exposure to the toxic mold. Fearing for their safety, the insureds moved out of the house which was eventually demolished because the mold could not be eradicated.

   The insureds sued, claiming, among other things, that Erie had been negligent in failing to recognize the severity of the mold problem and had misled the insureds about the mold problem in general and as it related to their health. Erie filed a demurrer claiming that the negligence claim was barred by the "gist of the action" doctrine. This doctrine provided that an alleged tort claim against a party to a contract, based on the party's actions undertaken in the course of carrying out the contract, is barred when the gist of the cause of action, although sounding in tort, is, in actuality, a claim against the party for breach of its contractual obligations. (The "gist of the action" doctrine appears to be similar to the economic loss doctrine utilized by Hawaii courts. See, e.g. Kawamata Farms v. United Agri. Prods, 86 Haw. 214, 948 P.2d 1055 (1997)).The trial court agreed and dismissed the negligence claim against Erie.

   On an interlocutory appeal, the Superior Court affirmed.

   The Supreme Court reversed. The insureds' negligence claim was not based on Erie's violation of any contractual commitments. The insureds did not allege that Erie failed to pay the $5,000 it was obliged to pay for the costs of testing and remediation of damage, and, in fact, Erie did eventually pay the $5,000. Instead, the claim was predicated on the allegedly negligent actions taken by Erie's agents on its behalf while they were performing Erie's contractual obligations to investigate the claim made by the insureds. While performing these obligations, Erie, through its agents, acted negligently by making false assurances regarding the toxicity of the mold and recommending to the insureds that they continue their renovation efforts, which caused them to suffer physical harm because of the reasonable reliance on those assurances. 

   Consequently, the negligence allegations concerned Erie's alleged breach of a general social duty, not a breach of any duty created by the policy itself. The order of the Superior Court was therefore reversed. 

Case Remanded for Application of Efficient Proximate Cause Doctrine

   The Florida Court of Appeals remanded the case after the insured was awarded an $8 million dollar judgment against its property insurer for hurricane and other damage to a home. Am. Home Assur. Co. v. Sebo, 2013 Fla. App. LEXIS 14799 (Fla. Ct. App. Sept. 18, 2013).

   Sebo purchased his home in April 2005, when it was four years old. It was insured under a manuscript policy issued by AHAC for $8 million. The all-risk policy covered rain, but excluded damage caused by faulty, inadequate or defective planning. 

   After Sebo bought the home, water leaks were noticed. Sebo believed that the house suffered from major design and construction defects. In October 2005, Hurricane Wilma struck and further damaged the home.

   AHAC denied coverage for most of the claimed losses, paying only $50,000 for mold damage. The house could not be repaired and was eventually demolished. Sebo sued a number of defendants, including the sellers, the architect, and the construction company that built the home. Sebo later amended his complaint to add AHAC as a defendant. Sebo settled with most of the other defendants and proceeded to trial on his declaratory relief action against AHAC. 

   The trial court applied the concurrent causation doctrine, under which coverage is permitted whenever two or more causes contribute to the loss, and at least one of the causes is a risk covered under the policy. 

   The Court of Appeal reversed and remanded after determining that the efficient proximate cause doctrine should apply to disputes regarding coverage under property policies. Under this doctrine, the finder of fact determines which peril was the most substantial or responsible factor in the loss. If the policy insures against that peril, coverage is provided. If the policy excludes the peril, there is no coverage. A new trial was required to examine the causation of Sebo's loss under the efficient proximate cause theory. 

   We are informed by Sebo's counsel that an appeal will be made to the Florida Supreme Court before remand to resolve a dispute among the Florida Courts of Appeal on whether the concurrent causation doctrine or the efficient proximate cause doctrine should apply. 

Exclusions Preclude Loss Caused by Heavy Rains

   Exclusions in the plaintiffs' policy barred coverage for loss caused by heavy rain storms. Emsbo v. Fireman's Fund Ins. Co., 2013 U.S. Dist. LEXIS 86072 (D. R.I. June 19, 2013).

   Torrential rain and historic flooding was experienced in Rhode Island in March 2010. The heavy rains over-flowed plaintiffs' rain gutters and flooded the ground around the house. The water then came through a crack in the foundation, moving water and sand into the basement. Repairs were made, but another heavy rain arrived a week later, again bringing water and sand into the basement. After the rains subsided, the plaintiffs noticed mildew in the basement.

   Plaintiffs submitted a claim to Fireman's Fund. The claim was denied under the policy's exclusions for water damage and fungi. Litigation ensued.

   The court agreed that the loss was excluded by the policy. Plaintiffs argued that the policy covered damage from a sudden rainstrom. The Fireman's Fund policy, however, excluded coverage for water damage caused by water below the surface of the ground, which seeped or leaked through the foundation. "Dampness" was also excluded unless the damage was the direct cause of the loss was rain. This exception to the exclusion was not applicable because the water damage was caused not by rain, but by the by water seeping through the foundation into the basement.

   Fungi was only covered if it was the result of a cause of loss otherwise covered by the policy. The mold here, however, was caused by the seeping water and therefore not a loss otherwise covered by the policy. 

No Coverage Under Efficient Proximate Cause Doctrine for Damage Caused by Leaking Pipe

   In an unpublished opinion, the California Court of Appeal determined there was no coverage for damage caused by a leaking pipe, including mold. Brown v. Mid-Century Ins. Co., 2013 Cal App. Unpub. LEXIS 2389 (Cal. Ct. App. April 2, 2013).

   In February 2009, the insureds noticed condensation on the windows of their home. A week later, they began noticing mold forming around the inside of their windows and on the walls of the living room and kitchen. A relative crawled under the house where he observed moisture. 

   In March 2009, the insureds hired a plumber to find and fix the leak. The plumber eventually found a pipe in the hot water manifold that was leaking at a slow pace. 

   Water damage was not covered under the homeowners policy unless it resulted from a sudden and accidental discharge. A constant or repeating gradual, intermittent or slow release of water was specifically not covered. Mold was also excluded from the policy.

    The insurer investigated and determined there was no coverage. The loss was caused by wear and tear which caused a hole in the pipe, allowing water to leak over a period of time. 

   The insureds sued, alleging that their home was damaged when a pipe burst, causing substantial loss. The insurer moved for summary judgment. A declaration from the insurer's expert stated that the leak from the pipe was a slow, gradual and incremental process. The expert also noticed that the monthly water bills before the leak was located and fixed were higher than after the problem was resolved. The insureds' expert countered that the pipe suddenly breached. Ultimately, a spray or stream of hot water shot through the holes in the pipe.

   The lower court granted summary judgment to the insurer. The insureds' expert's opinion that the pipe's breach only took a fraction of a second did not mean that release of water was sudden. Further, the insureds did not dispute that the pipe leaked over a period of one to two months. 

   The appellate court affirmed. The insureds' expert's testimony did not create a triable issue of fact. Even if the pipe burst quickly and resulted in a mist or spray that was constant or intermittent, it occurred over a period of a month or two. The policy did not cover such a constant or repeating intermittent or slow release of water. Merely because the pipe's breach tool only a fraction of a second did not mean the release of water was "sudden."

   The insureds also argued the mold damage was covered because it resulted from direct contact with the abrupt and sudden discharge of water. Under the efficient proximate cause doctrine, the sudden discharge of water produced the condensation and, eventually, the mold.

   The court disagreed that this was an instance for application of the efficient proximate cause doctrine. Under the doctrine, a loss was not covered if the covered risk was only a remote cause of the loss, or the excluded risk was the efficient proximate, or predominate cause. The doctrine applied only when two or more conceptually distinct perils combined to cause the loss. 

   Here, there were not both a covered risk and an excluded risk. There were only two excluded risks: discharge of water that was not sudden, and mold. Further, two conceptually distinct risks or events did not cause the insureds' loss. The case involved only one cause, a leaking pipe. 

 

 

Exclusion Bars Coverage for Mold, Fungus

   The court considered whether rain damage to a house was barred by the policy's mold exclusion. Stewart v. State Farm Fire & Cas. Co., 2012 U.S. Dist LEXIS 127804 (D. S.D. Sept. 7, 2012).

   The insureds hired DJ Construction to build a new home. Before construction was completed, it was discovered that DJ Construction and some of its subcontractors had failed to protect the partially constructed house from the elements, which allowed melting snow and rain to intrude into the house. Soon after this discovery, DJ Construction abandoned the project. The house remained incomplete and uninhabitable.

   The insureds sued DJ Construction. They also filed a claim under their homeowner's policy with State Farm. The insureds claimed the cause of their loss was rainwater. When the claim was denied, the insureds sued State Farm.

   The fungus exclusion contained an "anti-concurrent causation clause," which stated the policy did not cover any loss which would not have occurred in the absence of fungus regardless of "whether other causes acted concurrently or in any sequence with the excluded event to produce the loss." The court held this provision precluded application of the efficient proximate cause doctrine to the fungus exclusion itself. The insureds could not recover for any loss that would not have occurred in the absence of fungus, regardless of whether a covered peril was the efficient proximate cause of the loss.

 

Ensuing Loss Provision Does Not Salvage Coverage

   The Minnesota Court of Appeals affirmed the trial court's decision finding no coverage due to exclusions from the all-risk policy for losses related to mold, rot and condensation. Koskovich v. Am Family Mut. Ins. Co., 2012 Minn. App. Unpub. LEXIS 581 (Minn. Ct. App. June 25, 2012).

   In 1978, the insureds purchased a home that was built in 1904. From 1991 to 1995, they remodeled, which included rotating the house 45 degress, removing a wing and adding a new section. Polypropylene vapor barriers were installed, with pinholes for ventilation.

   In 2008, water was observed on an interior floor. An investigation revealed that the sheathing under the siding and the house's framing were wet and rottten, requiring removal and replacement of the siding and studs. Repairs were made and a claim was submitted to American Family Mutual Insurance Company.

   American's structural engineer inspected and determined that moisture was likely caused by condensation of water vapor where the vapor barrier was held tight to the sheathing and by inward water migration from wet siding during rainy periods through the vapor-barrier perforations. The structural engineer opined that, although the home's framing was deteriorated and structurally compromised, it did not appear as though the home was in imminent danger of collapse.

   American denied coverage. The insureds sued. The trial court found in favor of American based upon exclusions for damage caused directly or indirectly by condensation, mold, wet or dry rot. The damage which was excluded under the policy was not separate from damage resulting from moisture. Accordingly, the ensuing loss provision did not provide coverage.

   On appeal, the insureds argued that because their water-related damage did not result from one of the exclusions relied upon by American, but rather from the installation of the vapor barriers. Because damages flowed from a covered event, there was coverage.

   The Court of Appeals first determined that the policy excluded losses resulting from the named exclusions, regardless of whether other causes contributed concurrently to those losses. Therefore, damage from mold, rot, insects, and deterioration was excluded, even if water damage caused or contributed to those damages.

   The Court then turned to the ensuing loss provision, which stated, "we do cover any resulitng loss to property . . . not excluded or excepted in this policy." The insureds argued that the water damage was distinct from the excluded mold-and-rot related loss, and was therefore covered under the ensuing loss provision. The Court, however, disagreed. The water damage and resulting mold, rot, and deterioration did not operate as separable and distinct losses within the ensuing loss clause.

   Finally, the policy covered threats of imminent collapse. American's engineering expert found that the home was not in danger of collapse, however, when the damage was discovered. Even the insureds' expert agreed that when a collapse might occur was "speculative."