Insurance Law Hawaii

No Coverage for Insured Who Plants Hidden Camera in Neighbors' Bathroom

    The homeowners policy did not cover the insured after he was sued for planting a hidden camera in the bathroom of his neighbors. State Farm Fire & Cas. Co. v. Rodriguez, 2021 U.S. Dist. LEXIS 22161 (D. Haw. Feb. 5, 2021). 

    The insured's neighbors brought suit alleging that the insured secretly installed a hidden miniature camera in their bathroom. The discovery of the camera shocked and outraged the neighbors and their girls, aware that someone had snuck into their home and placed a hidden camera in their upstairs bathroom. The underlying action alleged that the insured was arrested and had pleaded no contest to criminal charges. A SIM card from the camera revealed several pictures of the neighbors and their girls in the bathroom and a few pictures of the insured who appeared to be adjusting the camera as it was installed. The neighbors sued the insured. 

    The insured tendered to State Farm under his homeowners and umbrella policies. Coverage was denied and State Farm filed suit for a declaratory judgment that it had no duty to defend or indemnify.

    The court found there was no occurrence under the homeowners policy. The underlying action alleged no "accident." Under Hawaii law, an occurrence could not be the expected or reasonable foreseeable result of the insured's own intentional acts or omissions. The underlying complaint described entirely intentional acts by the insured by placing a hidden camera without permission of the neighbors. Nor did the underling action alleged an bodily injury. The policy stated that bodily injury did not include "emotional distress, mental anguish  . . . or any similar injury . . ." Even if the underlying complaint did allege a bodily injury, the injury would still be excluded as "either expected or intended by the insured" or "the result of wilful and malicious acts of the insured."

    Nor was coverage owed under the umbrella policy. Again, there was no accident because the insured's acts were entirely intentional or knowing.

Limited Coverage For Computer Fraud Claim

    While the Arizona Appellate Court found limited coverage for a computer fraud attack against the insured, it also determined there were multiple occurrences. AIMS Ins. Program Managers, Inc. v. Nat'l Fire Ins. Co., 2921 Ariz. App. Unpub. LEXIS 123 (Ariz. Ct. App. Feb. 4, 2021).

    Thieves secretly accessed from an employee of AIMS Insurance Program Manager, Inc. (AIMS) an email account to fraudulently intercept payments from AIMS to the vendor, AmWINS Brokerage of Arizona. The thieves created email accounts using the names of actual AmWINS employees and opened accounts at AmWINS' bank. The thieves then intercepted emails transmitting insurance binders and invoices from AmWINS to AIMS and replaced them with fraudulent emails, attaching the intercepted insurance binders that directed AIMS to wire payments to the thieves' accounts. 

    AIMS authorized three wire transfers, totaling $357,711.64 to the thieves in partial payment of three invoices. When AmWINS notified AIMS that it had not received payment on the invoices the fraud was discovered. AIMS was able to recover less than a quarter of the wire-transferred funds from its bank. 

    AIMS submitted a claim to its insurer, National Fire, who agreed to pay $10,000, the policy limit for a single occurrence under the "Computer Fraud'" endorsement of the policy. Coverage was denied, however, under the "Forgery and Alteration Endorsement."

    AIMS sued for declaratory judgment and the parties filed cross-motions for summary judgment. The superior court granted summary judgment in favor of National Fire.

    The forgery endorsement only insured against losses from forgeries of written promises, orders, or directions to pay a sum certain that were "similar," meaning of the same nature as checks, drafts, promissory notes, and bills of exchange. Neither the emails nor the attached insurance binders and invoices were endorsable instruments payable upon tender in the same manner as negotiable instruments.

    Regarding the number of occurrences, AIMS argued that each distinct act of fraud, namely each of the three counterfeit demands for payment, constituted a discrete "occurrence" of covered fraud under the endorsement. Therefore, the fraudulent actions resulted in three occurrences under the policy, not just one. The court agreed and AIMS was entitled to recover the per-occurrence limit of $10,000 for three occurrences. 

Illinois Court Determines Duty to Defend Construction Defect Claims

    Given the underlying allegations of damage to personal property, the court determined the insurer had a duty to defend. Certain Underwriters at Lloyd's London v. Metropolitan Builders, Inc., 2019 Ill. App. LEXIS 979 (Ill. Ct. App. Dec. 18, 2019).

    Metropolitan was hired as the general contractor for construction, renovation and demolition at contiguous properties - the 1907 Property, 1909 Property, and 1911 Property. During construction activities, the structures on the 1907 Property and 1909 Property collapsed. The existing structures on the properties were later deemed unsafe and were demolished by the city of Chicago. 

    AIG insured the owner of the buildings and paid over $1.8 million for repairs and associated expenses arising from the collapse. AIG then invoked its rights of subrogation against Metropolitan by filing suit. Metropolitan tendered the suit to its insurer, Lloyd's, who denied coverage and filed for a declaratory judgment. The trial court found the underlying complaint alleged property damage, but not an occurrence. Summary judgment was awarded to Lloyd's. 

    The appellate court agreed with Lloyd's that the damage to the real property was not covered by the CGL policy. Metropolitan was the general contractor with overall responsibility for the renovation and conversion of the existing structures into single-family housing. Metropolitan's allegedly faulty workmanship led to their collapse and ultimate demolition. Thus, the collapse of the structures was not an "accident" or "occurrence", but was the natural and ordinary result of faulty workmanship on the contractor's work product. 

    Metropolitan argued that the underlying complaint alleged damage to parts of the property on which Metropolitan was not working. This, however, did not change the court's conclusion. The properties were under the responsibility of Metropolitan, as general contractor, to convert the structures into single-family homes. Even if the damage extended to parts of the project on which Metropolitan was not currently working, it was still part of Metropolitan's scope and responsibility, and thus was part of the project itself. 

    The alleged property damage to personal property deserved a different analysis, however. This was damage to something other than the project itself. The underlying complaint gave no description of what "personal property" of the owner was damaged. But it was not clear from the underlying complaint that AIG did not cover claims of damage to the owner's person property. The admittedly vague references to damage to the owner's "personal property" were enough to allege "property damage" caused by an occurrence. The allegations were enough to trigger the insurer's duty to defend. 

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. 

Breach of Contract Claim Is Not An Occurrence under Kentucky Law

    The court determined that failure to comply with a contract was not an occurrence and not a covered claim. Selective Ins. Co. v. Miami Valley Paper Tube Co., 2021 U.S. Dist. LEXIS 4741 (E.D. Ky. Jan. 11, 2021).

    Crown Services, Inc. was a staffing agency and entered into a labor contract with Miami Valley Paper Tube Company. The contract required Crown to provide employees to Miami Valley and obtain workers' compensation insurance. Miami Valley was required to provide a safe workplace. An employee provided by Crown to Miami Valley was seriously injured while working at a cutting machine. Crown and its insurer paid nearly two million dollars in workers compensation benefits on behalf of the injured employee.

    Several lawsuits followed. The injured employee sued Miami Valley for gross negligence in creating unsafe working conditions. In another suit, Crown and its insurer, Zurich, sued Miami Valley, alleging breach of contract for failing to provide a safe workplace to Crown's workers. They also sought indemnification from Miami Valley. Selective Insurance Company had issued a liability policy and a Workers' Compensation and Employers Liability Policy to Miami Valley. 

    This current lawsuit related to coverage for the injury. Selective sought a declaratory judgment that the policies it issued to Miami Valley did not provide coverage to defend the two underlying actions. On a motion for summary judgment, the court considered whether there was an occurrence under the liability policy. Selective contended that Crown's lawsuit was contractual in nature and thus Miami Valley's liability to Crown did not stem from bodily injury. On the other hand, Crown and Miami Valley argued that the genesis of Crown's claims arose out of bodily injury to the employee and thus was covered under the CGL policy. Selective's argument focused too much on the thereof recovery rather than how any potential liability was created. The liability and damages stemming from the alleged breach would not exist but for the bodily injury. The liability was sufficiently related to a bodily injury to trigger coverage.

    Selective also argued that under Kentucky law, a breach of contract claim could not be an accident. Kentucky also did not recognize defects caused by faulty workmanship to be an occurrence. Like construction cases, a party had direct control over how they fulfilled obligations they agreed to by contract. Breaching a contract should not be an "accident" covered by a CGL policy, as the contracting party generally had control over how the contract was performed.

    The court had no reason to believe that the Kentucky Supreme Court would hold differently. Crown's complaint depended on the breach of the staffing agreement. Thus, Selective did not owe coverage for Crown's lawsuit against Miami Valley because in Kentucky, a breach of contract claim was not an occurrence. 

    

 

 

 

No Duty to Indemnify Where No Duty to Defend

    The Montana Supreme Court held that because there was no duty to defend the insureds' intentional acts, the insurer had no duty to defend. Farmers Ins. Exch. v. Wessel, 2020 Mont. LEXIS 2617 (Mont. Dec. 22, 2020).

    The insureds' property was accessed by Turk Road. Turk Road was also used by the neighbors to access their land. The insureds asked for permission to snowmobile across the neighbors' property. Permission was denied because the property was in a conservation easement which prohibited motorised used. The insureds' thereafter retaliated by not allowing the neighbors to use Turk Road. The neighbors then purchased an easement from another landowners to construct  a new driveway which did not traverse the insureds' property. The insureds built snow berms and gates, felled trees, and created other obstacles to prevent the neighbors from using the new driveway. Physical threats were also made by the insureds.

    The neighbors sued the insureds for declaratory and injunctive relief. The complaint alleged that the insureds' acts were intentional and purposeful.

    Farmers defended, but sued for a declaratory judgment on coverage. Farmers argued there was no "occurrence" because there was nothing accidental about the insureds' conduct. The Montana Supreme Court affirmed the district court's granting summary judgment agains the insureds on the duty to defend. 

    The district court also determined it was premature to decided whether Farmers had a duty to indemnify. The Supreme Court reversed. There was no coverage under the policy to give rise to a duty to defend. A conclusion that there was no duty to defend compelled the conclusion that there was no duty to indemnify. 

 

Food Poisoning From One Restaurant Over Several Days Equals One Occurrence

    The court found the was a single occurrence when 124 separate cases of food poisoning were allegedly caused by one restaurant over a four-day period. Travelers Cas. Ins. Co. of Am. v. Mediterranean Grill & Kabob Inc., 2020 U.S. Dist. LEXIS 210212 (W.D. Texas Nov. 4, 2020).

    Nearly 200 cases of food poisoning from salmonella bacteria were reported to city officials after all patrons ate at Pasha Mediterranean Grill. Pasha was sued in seven different lawsuits. Pasha was insured by Travelers under a policy with a $1 million "per occurrence" limit and a $2 million "aggregate" limit. Some of the underlying claims settled with Travelers paying approximately $450,000 of its $1 million "per occurrence" limit. Travelers offered the remainder of the $1 million limit to settle the remaining 124 claims, but the offer was rejected. 

    Travelers filed for a declaratory judgment against Pasha and the remaining 124 claimants. Travelers moved for summary judgment.

    The court agreed that several events "caused" a pause or interruption in the injuries in the underlying lawsuits, including when Pasha closed each night, as well as each time a new batch of food was prepared. However, only one cause gave rise to Pasha's liability and that was the allegedly contaminated food. Under Texas' "cause" analysis, there was a single, continuous event that both allegedly caused the injuries in the underlying suits and gave rise to Pasha's liability. Therefore, the food poisonings were a single "occurrence" under the policy. 

    Summary judgment was granted to Travelers. 

    

Business Risk Exclusions Bar Faulty Workmanship Claim

    The manufacturer of roofing and waterproofing systems was unsuccessful in securing coverage for alleged faulty workmanship due to the "your work" and "your product" exclusions. Siplast, Inc. v. Emplrs Mut. Cas. Co., 2020 U.S. Dist. LEXIS 176539 (N.D. Texas Sept. 25, 2020). 

    Siplast was sued in New York by the Archdiocese for work done at Cardinal Spellman High School. The Archdiocese purchased a Siplast Roof System for the high school. Vema Enterprises installed the roof system. The roof system was covered by a guarantee. 

    After completion, school officials noticed water damage in the ceiling tiles throughout the school. A consultant hired by the Archdiocese concluded that the leaks were caused by the workmanship and the materials that were compromising the entire roof membrane and system. Siplast determined the guarantee was not applicable. The Archdiocese informed Siplast that it would repair the roof and hold Siplast liable for the costs. Siplast gave notice of the claim to Employers, but coverage was denied.

    The Archdiocese sued. The complaint alleged that the only way to remediate the leak issue was to replace the failed membrane and system with a new one. The consultant estimated the total cost of remediation would be $5,000,000. 

    Siplast sued Employers. Siplast maintained that the Archdiocese had alleged claims based on an "occurrence" because they alleged they sustained damage due to faulty work and products. The Archdiocese did not allege that Siplast expected or intended any damage. The court agreed with Siplast that there was an occurrence. The origin of the property damage was alleged to be defects with the workmanship and materials that comprised the roof membrane and system. There were no allegations that Siplast intended or expected its roofing system to fail. 

    However, the next inquiry was whether the business risk exclusions applied. The policy did not apply to "'property damage' to 'your product' arising out of it or any part of it." Nor did the policy apply to "'property damage'' to 'your work' arising out of it or any part of it." The "your work" exclusion reflected the intent of the insurer to avoid the possibility that coverage under a CGL policy would be used to repair and replace the insured's defective products and faulty workmanship.

    Employers argued that the Archdiocese was seeking to recover from Siplast only the cost of a replacement roofing system, not any damage that resulted to the school from the defective roof. Siplast contended that because the interior damage to the school was separate from any damage to the Siplast materials on the school roof, Employers would not meet its burden to show the "Your Product/Your Work" exclusions applied. 

    The court concluded that although the underlying complaint mentioned damage to school property other than the Siplast roofing products, the Archdiocese did not make any allegations to recover from Siplast for any damage to the building caused by the leaky roof that was separate from the damage to Siplast's product. Siplast was sued based on its failure to replace the roof as required by the guarantee. The Archdiocese did not allege that Siplast's breach caused other damage. 

    Therefore, Employer did not have a duty to defend Siplast because the damages sought in the underlying suit fell within the "Your Work'Your Product" exclusions.

 

Hawaii Federal District Rejects Another Construction Defect Claim

    The Federal District Court, District of Hawaii, continued it long line of cases finding no coverage for claims of faulty workmanship. Nautilus Ins. Co. v. Summary Judgment RMB Enters., 2020 U.S. Dist. LEXIS 200468 (D. Haw. Oct. 28, 2020).

    Property owners entered a construction contract with RMB Enterprises to develop and construct residential structures and a pond. The pond walls enclosed residential spaces, providing structural foundations for the walls of the building. After completion of the project, the pond leaked into its pump room. RMB performed remedial work by injecting epoxy into cracks. Later, water from the pondleaked into the interior of a residence near a staircase. Water also leaked into the master bedroom area causing musty odor, mood growth, and increased humidity. 

    The owners sued RMB asserting breach of contract, breach of warranty, misrepresentation, and negligence claims. Nautilus denied coverage. The policy provided that faulty workmanship did not constitute an "occurrence." But when faulty workmanship caused property damage to property other than "your work," then such property damage would be considered caused by an occurrence. 

    Nautilus sued RMB for a declaratory judgment on coverage. RMB defaulted and the owners intervened. Nautilus moved for summary judgment.

    The court first determined that it could retain jurisdiction of the case. The court then found that there was no occurrence. It was well established under Hawaii law that contract and contract-based tort claims were not occurrences. Under governing law, breach of contract and breach of warranty claims were not covered. The same was true of misrepresentation and negligence claims. The negligence claims asserted that RMB owed a duty of care in the performance of its work and it breached that duty. These claims were predicated on the contractual relationship between the owners and RMB; they were not independent tort claims. Therefore, RMB's alleged acts were not "accidents" and were not covered. 

    Nor did RMB's work fall within the policy's exception to the definition of occurrence. The owners suggested that damage to the residence was an "occurrence," as it was property other than the pond. The court determined this description misrepresented the nature of the property, a residential compound integrating and connected to the pond. And even if the pond and residence were independent of one another, the dispositive inquiry was whether RMB caused property damage to property other than its work. The underlying complaint alleged that RMB caused property damage to its own work. 

    Therefore, summary judgment was granted to Nautilus. 

Sellers' Alleged Misrepresentation Does Not Amount To An Occurrence

    The insurer successfully established on summary judgment that the insureds' alleged misrepresentation in the sale of a condominium was not an occurrence. Novak v. St. Maxent-Wimberly House Condo., 2020 U.S. Dist. LEXIS 167397 (E.D. La. Sept. 14, 2020). 

    State Farm issued the sellers a condominium unit owner's policy. The buyers sued the sellers, contending the sellers had made misrepresentations in the sale process. The sellers allegedly failed to disclose defects in the condominium before and at the time of the sale. State Farm intervened, seeking a declaration that it was not required to defend or indemnify the sellers because there was no occurrence.

    The sellers asserted that the buyers could be seeking damages for physical damage to and loss of use of the condominium. While this could constitute "property damage" under the policy, the sellers failed to explain how the damage could be considered to be caused by an occurrence. Therefore, State Farm's motion for summary judgment was granted.