Insurance Law Hawaii

Forest Fire Constitutes One Occurrence

    The Wisconsin Supreme Court determined that a fire damaging several properties arose from one occurrence. Secura Ins. v. Lyme St. Croix Forest Company, LLC., 2018 Wis. LEXIS 579 Oct. 30, 2018). 

    A fire broke out on forest land owned by Lyme St. Croix Forest Company. Known as the "Germann Road Fire," it burned 7, 442 acres over three days. Real and personal property belonging to many individuals and businesses were damaged. The fire allegedly began while equipment owned by Ray Duerr Logging, LLC was being repaired. Flames quickly spread from dry grass to a pile of recently felled trees and spread to the surrounding forest. 

    Secura insured Duerr under a CGL policy. The policy had a $2 million general aggregate policy limit and a $1 million per-occurrence limit. The policy also had a "Logging and Lumbering Operations Endorsement" with a $500,000 per-occurrence limit for property damage due to fire. 

    Secura filed suit for a declaratory judgment to determine its coverage obligations. Secura argued in its motion for partial summary judgment that the Germann Road Fire was a single occurrence. Therefore, the $500,000 policy limit from the endorsement applied rather than the $2 million aggregate limit. The circuit court rejected Secura's argument, finding that "each 'seepage' of fire onto another's property constituted a separate occurrence for purposes of the policy." The court of appeals affirmed, finding there was an occurrence each time the fire spead to a new piece of property and caused damage.

    On appeal, the Supreme Court noted that Wisconsin followed the "cause theory" in determining whether there was a single occurrence or multiple occurrences. Under the cause theory, where a single, uninterrupted cause resulted in all of the injuries and damage, there was one occurrence. Some jurisdictions followed the effect theory where each accident must be construed from the point of the view of the person whose property was damaged. Pursuant to the effect theory, there would be an occurrence when the separate property of each claimant was damaged. 

    The Supreme Court disagreed with the analysis of the court of appeals. If there was an occurrence each time a fire refueled and expanded, then a fire, which is constantly refueling and expanding, would result in an unfathomably large number of occurrences regardless of how many property lines it crossed. Therefore, the court concluded the Germann Road Fire constituted a single occurrence and the $500,000 per-occurrence limit applied to the property damage. 

Ohio Supreme Court Holds No Occurence Arises from Subcontractor's Faulty Workmanship

    The Ohio Supreme Court bucked the modern trend by finding that there was no coverage under CGL policy's the subcontractor's exception for faulty workmanship claimed against the insured. Ohio N. Univ. v. Charles Constr. Servs. 2018 Ohio LEXIS 2375 (Ohio Oct. 9, 2018).

    The University contracted with Charles Construction Services, Inc. to build a new luxury hotel and conference center on campus. After work was completed, the University discovered extensive water damage from hidden leaks that it believed were caused by the defective work of Charles Construction and its subcontractors. Repairs were made at the cost of $6 million. 

    The University sued Charles Construction for breach of contract and other claims related to the damage. Charles Construction answered and filed third-party complaints against its subcontractors. Charles Construction tendered to its insurer, Cincinnati Insurance Company (CIC), seeking a defense. CIC agreed to defend under a reservation of rights. CIC intervened in the lawsuit and sought a declaratory judgment that it did not have a duty to defend or indemnify. CIC then filed a motion for summary judgment.

    CIC relied upon a prior decision from the Ohio Supreme Court, Westfield Ins. Co. v Custom Agri. Sys., Inc., 979 N.E. 2d 269 (Ohio 2012), which held that property damage caused by a contractor's own faulty work was not accidental and therefore not covered. The issue currently before the court was whether the general contractor's policy covered claims for property damage caused by a subcontractor's faulty work. 

    The trial court found in favor of CIC. The court of appeals reversed, noting that Custom Argi. had not addressed issues raised by the policy's products-completed operations hazard coverage or subcontractor specific policy terms. 

    Those provisions can be summarized as follows. The policy excluded property damage to:

(6) That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.

Paragraph (6) of this exclusion does not apply to "property damage" included in the "products-completed operations hazard."

The policy defined "products-completed operations hazard" as including,

"property damage" occurring away from premises you own or rent and arising out of . . . "your work" except:

. . .

(2) Work that has not yet been completed or abandoned.

    Despite these provisions, a subcontractor's faulty work did not meet the definition of an "occurrence" because it was not based upon fortuity. The insuring agreement agreed to pay for property damage under certain circumstances. But the damage must be due to an "occurrence." There was no question that the water-related damage was "property damage" and was discovered after the work had been completed. But unless there was an "occurrence," the products-operations completed hazard provision and subcontractor exception had no effect, despite the fact that Charles Construction had paid additional money for it. 

    The court was aware that is reasoning was at odds with recent decisions of other courts. But the language requiring that "property damage" be caused by an "occurrence" remained a constant in the policies. Under the court's precedence, faulty workmanship was not an occurrence as defined in CGL policies. 

    The court therefore reverted to reasoning used before changes to the standard CGL policy in 1986, finding that inadvertent faulty workmanship could never be fortuitous or an accident. The CGL policy was altered in 1986 to provide coverage for certain kinds of property damage caused by inadvertent faulty work. The exclusions were modified to narrow the scope of coverage that was provided when property damage was caused by faulty workmanship. The subcontractor exception was intended to provide coverage for a general contractor when property damage was caused by the faulty work of a subcontractor. This was particularly the case when the property damage occurred after the general contractor had completed the project and the damage was to something other where the allegedly defective work was done. This history was neither addressed nor reconciled by the Ohio Supreme Court's decision. 

 

Coverage Denied Where Occurrence Takes Place Outside Coverage Territory

    The court held there was no coverage for construction defect claims that occurred outside the coverage territory. Foremost Signature Ins. Co. v. Silverboys, 2018 U.S. Dist. LEXIS 154524 (S.D. Fla. Sept. 11, 2018).

    Solo Design, LLC, a Miami-based design company, entered into a contract with Silverboys, LLC (Owner) to provide interior design services in conjunction with the renovation of the Owner's vacation home in the Bahamas. Solo retained Whittingham, a Bahamian architect, as a subcontractor to serve as project manager. 

    Owner sued Solo, Whittingham and others in Florida for breach of contract, fraud, conversion and negligence when the project did not go as planned. The underlying complaint alleged intentional misconduct, lying about qualifications and the progress of the project, submitting false invoices, requesting money for services that were not performed, etc. Owner alleged that the damages included: (a) the cost to repair substandard work; (b) loss of use of the home due to delay; and (c) overcharges for furnishings, contract fees, and expenses. The underlying complaint set forth only a few instances of physical injury to the home, including mold on the ceiling in the master shower, faulty millwork on the children's playroom bookshelf, and a defective front door and resysta facade. 

    Solo had three CGL policies with Foremost that covered "property damage" caused by an "occurrence" that took place in the "coverage territory" during the policy period. 

    Foremost brought suit for a declaratory judgment that the policies did not cover the Owner's claims and there was no duty to defend or to indemnify. Both parties moved for summary judgment. 

    The court first found that allegations regarding mold in the shower and the damaged resysta façade - injuries to otherwise nondefective property caused by defendants' failure to properly perform their job - could be read to fall within the definition of covered property damage so long defendants' failures were not intentional. Therefore, in the context of a duty to defend, the underlying complaint sufficiently alleged property damage caused by an occurrence. 

    The policies' coverage territory included " the United States . . . or all parts of the world if the damages arises out of . . . good or products made or sold by [Solo] in the United States; or activities of a person whose home is in the United States, but is away for a short time on your business." Foremost argued there was no duty to defend because all alleged property damage was caused by an occurrence in the Bahamas, outside the coverage territory. Defendants argued that the alleged negligent conduct that caused the damage occurred in the coverage territory since Solo failed to supervise Whittingham, made billing mistakes, and drafted the designs in Miami. The court determined that the location of the injuries, not of some precipitating cause, determined the location of the event for purposes of coverage. Here, the alleged property damage was in the Bahamas, outside of the coverage territory. There was no indication that Solo employees traveled to the Bahamas for a short or long period of time. 

    Accordingly, there was no property damage caused by an occurrence in the coverage area, and not duty to defend. 

    

 

Intentional Mining Neighbor's Property is Not an Occurrence

    The Kentucky Supreme Court determined there was no coverage when the insured was sued for mineral trespass. Am. Mining Ins. Co. v. Peters Farms, LLC, 2018 Ky. LEXIS 287 (Ky. Aug. 16, 2018). 

    Beginning in 2007, Ikerd Mining. LLC removed 20,212 toms of coal from land belonging to Peters Farms, LLC. Of that amount, 10,012 tons were wrongfully mined under Ikerd's alleged mistaken belief as to the correct location of Peters' boundaries. The other 1,200 tons were mined by Ikerd knowing that the land thereunder belonged to Peters, but pursuant to a disputed oral lease agreement between the two. Peters claimed that the lease was an ongoing negotiation that was never finalized. 

    In 2010, Peters sued Ikerd and Ikerd's insurer, American Mining Insurance Company, Inc. (AMIC) for Ikerd's "willful and wanton trespass" onto Peters' property and conversion of coal. AMIC argued that the losses claimed by Peters from the mining activities were not an "occurrence," and thus not covered by the policy. The trial court determined that Ikerd's mistake in mining Peters' property was an "accident," which meant it was an "occurrence" under the CGL policy. The court also determined that the removal of coal and foliage from Peters' property constituted "property damage" that triggered insurance coverage under the policy. On appeal the Court of Appeals affirmed the trial court. 

    The Kentucky Supreme Court considered under the fortuity doctrine the extent of Ikerd's intent and control regarding its excavation and conversion of Peters' coal. Although it may not have been Ikerd's intent to mine Peters' coal specifically, Ikerd did intend to mine and sell the coal it extracted. Regardless of whether its trespass was willful or innocent, Ikerd intended to act. 

    Further, Ikerd had complete control over its employees and any subcontractors who extracted the coal from Peters' property. Ikerd directed its employees to excavate coal from Peters' property for several months. Therefore, because the actions taken by Ikerd, which led to property damage, were entirely under its control, and Ikerd fully intended to execute the excavation plan as it did, the resulting damage was not an accident. Accordingly, there was no coverage under the policy. The Court of Appeals' decision was reversed. 

Hawaii Federal District Court Rejects Insurer's Motion for Summary Judgment on Construction Defect Claims

    Taking into consideration a "Revised Occurrence Endorsement," the federal district court determined the insurer had a duty to defend. Gemini Ins Co. v. Constrx Ltd., 2018 U.S. Dist. LEXIS 163453 (D. Haw. Sept. 24, 2018).

    Constrx Ltd. (CRX) contracted with the AOAO to perform remedial construction repairs to condominium buildings and apartment units. CRX asserted that it completed all work, including charge orders and punch list items and it left the site. CRX was paid less that the contract amount and demanded arbitration against the AOAO. In the arbitration the AOAO relied upon a report by Posard Brock & Associates (PBA) Report which set forth the AOAO's claims against CRX, including corrective work, remaining punch list work, construction delay costs, cost overruns, and other items justifying its payment than less that the contract amount. 

    At the arbitration, a Final Award was issued in favor of CRX. When it sought to confirm the Final Award, the AOAO sought to vacate the award. The circuit court granted the AOAO's motion to vacate, and CRX appealed.

    Gemini had issued a CGL policy to CRX. Gemini defended CRX in  the arbitration under a reservation of rights. Gemini later sued for a declaratory judgment, requesting a declaration that it had no duty to defend or indemnify CRX for claims asserted in the underlying arbitration. Gemini moved for summary judgment. The motion was denied because the possibility for coverage existed, particularly in light of the Revised Occurrence Endorsement. The Endorsement contained a modified definition of "occurrence" which expressly included within coverage "property damage" caused by CRX as long as the damage was not to CRX's own work. Because the standard term "occurrence" was modified in the Gemini policy, cases from the Hawaii federal district court holding that contract and contract-based tort claims were not within the scope of typical CGL policies did not bar coverage under the circumstances alleged here.

    In the underlying arbitration, the PBA Report alleged that work performed by CRX or on its behalf caused damage to property to other than "your work,' including damage for "corrective work that was performed by CRX to correct construction defects as a result of their self-performed work or that of their subcontractors." This included window leaks and flashing, plumbing leaks, damage to unit interiors and belongings, and carpet cutting. Moreover, remaining punch list items to be completed included miscellaneous corrective work at each building. 

    Neither CRX nor its subcontractors performed work involving the owners' belongings, refrigerators, furniture, glass and hardware items. Nor did CRX or its subcontractors perform any work on window or door screens. Therefore, there was a possibility that this property damage was not accidental and coverage existed based upon the claims in the PBA Report. 

    Gemini argued that all of the claims made in the PBA Report described corrective work and punch list items that reflected repairs or outstanding matters relating to CRX and its subcontractors' actual work. While Gemini might ultimately be correct about the cause of the damage, the AOAO's claims asserted in the underlying arbitration were not so clear and created the potential for coverage. 

   None of the exclusions raised by Gemini were applicable to bar coverage. Therefore, Gemini had a duty to defend and its motion for summary judgment was denied. As far as the duty to indemnify, Gemini's motion was premature and was dismissed without prejudice to refile its motion after the appeal in state court determined whether CRX had liability for the AOAO's claims. 

Insurer's Judgment on the Pleadings Based Upon Expected Injury Exclusion Reversed

    The appellate court reversed the trial court's granting of a judgment on the pleadings based upon the expected injury exclusion in a homeowner's policy. Allstate Indemn. Co. v. Contreras, 2018 Ill. App. LEXIS 170964 (Ill. Ct. App. July 20, 2018).

    Alejandra Contreras owned Jasmine's Day Care. Her husband, Adan Contreras, was not an employee of the Day Care. Alejandra and Adan had a homeowner's policy which provided day care liability coverage through an endorsement. 

    Jane Doe's children, Janie Doe and Janet Doe, were enrolled in the Day Care. Jane sued the Day Care and Alejandra, alleging Adan had abused Janie and Janet. Jane's complaint alleged that as the owner and operator of the Day Care, Alejandra was obligated to supervise Janie and Janet while they were under her care. The complaint alleged Alejandra was negligent in failing to provide adequate supervision and allowing her husband to be alone with Janie and Janet. 

    Allstate filed a complaint for declaratory judgment against Alejandra, Adan, the Day Care, and Jane. The policy excluded "bodily injury intended by, or which may reasonably be expected to result from intentional or criminal acts or omissions of any insured person." Allstate argued that the injuries that Janie and Janet suffered did not arise out of an accident but were instead the reasonably expected result of the repeated sexual abuse by Adan.

    Allstate filed a motion for judgment on the pleadings. The court agreed there was no duty to defend based upon the "expected injury" exclusion and granted the motion.

    On appeal, Jane argued that she did not name Adan as a defendant in the underlying action. It was necessary to distinguish between Adan's intentional acts and the independent negligent acts of the Day Care and Alejandra. The court considered whether Adan's intent to injury Janie and Janet precluded coverage for his co-insureds, the Day Care and Alejandra, where they were allegedly negligent for failing to prevent the sexual abuse. 

    The court decided that under Illinois law, it could not simply impute Adan's intentional conduct to the Day Care and Alejandra for purposes of the "expected injury" exclusion. Allstate argued that Jane would be required to plead and prove in the underlying case more specific facts, including Adan's intent to harm her daughters, and this would preclude coverage for the Day Care and Alejandra. 

    But the absence of any specific factual allegations in the underlying complaint that would trigger the "expected injury" exclusion with respect to the Day Care or Alejandra meant that Allstate did not meet its burden of demonstrating that it owed no duty to defend. Accordingly, Allstate was not entitled to judgment on the pleadings.

California Supreme Court Finds Negligent Supervision Claim Alleges An Occurrence

   Answering a question posed by the Ninth Circuit, the California Supreme Court found that a suit against a employer for negligent hiring, retention and supervision of a employee who intentionally injures a third party alleges an occurrence under a CGL policy. Liberty Surplus Co.  Corp. v. Ledesma & Meyer Construction Co., 2018 Cal. LEXIS 4063 (Cal. June 4, 2018)  

   Ledesma & Meyer Construction Company (L&M) contracted with the school district to manage a construction project at a middle school. L&M hired Darold Hecht as an assistant superintendent on the project. In 2010, Jane Doe, a 13-year-old student at the school, sued alleging that Hecht had sexually abused her. Doe’s claims included a cause of action against L&M for negligent hiring, retaining, and supervising Hecht. 

   L&M tendered the defense to Liberty, who defended under a reservation of rights. Liberty also filed suit in federal court, seeking a declaratory judgment that it had no duty to defend or indemnify L&M. The district court granted summary judgment to Liberty on the cause of action for negligent hiring, retention, and supervision. The district court reasoned that while negligent hiring set in motion and created the potential for injury, this was too attenuated from the injury-causing conduct.  

   L&M appealed. The Ninth Circuit sought the Supreme Court’s opinion. 

   The Supreme Court noted that under California law, the word “accident” in the coverage clause of a liability policy referred to the conduct of the insured for which liability is sought to be imposed. It was undisputed that Hecht’s intentional conduct did not preclude potential conduct for L&M. The allegedly negligent hiring, retention, and supervision were independently tortious, which formed the basis of L&M's claim against Liberty for coverage. 

   Even though the hiring, retention, and supervision of Hecht may have been “deliberate acts” by L&M, the molestation of Doe could be considered an unexpected, independent, and unforeseen happening that created the damage. Therefore, absent an applicable exclusion, employers could expect coverage for such claims under a CGL policy. 

Insurer Must Defend Claims of Negligence and Private Nuisance

    The court determined there was a duty to defend negligence and private nuisance claims for dumping materials on the plaintiffs' property. Peters Heavy Construction, Inc. v. X-Pert One Tracking Corp., 2018 Wisc. App. LEXIS 358 (Wis. Ct. App. March 29, 2018). 

    Peters Heavy Construction sued X-Pert One for negligently depositing shingle materials, tires, and other solid materials on Peters' property, causing damage to Peters, including loss of use of portions of the property. Peters also alleged that X-Pert One's actions negligently created a private nuisance causing harm to Peters' property. X-Pert One's insurer, Northfield Insurance Company, was also sued. 

    Northfield appointed defense counsel for X-Pert One, but moved for summary judgment to establish there was not coverage. The trial court granted the motion, finding there was no duty to defend or to indemnify. Northfield was dismissed from the case. 

    The court of appeals reversed. Northfield argued that the complaint alleged that X-Pert One acted intentionally when it deposited material on Peters'' property and failed to remove the material. But even if the material was intentionally left on the property, the complaint alleged that the resulting nuisance was not intended or expected. 

    Under Wisconsin law, an intentional act could have an unexpected and, thus, accidental result, which could be an occurrence within the meaning of the policy. Therefore, the complaint alleged an occurrence.

    "Property damage" was also alleged. The complaint alleged that X-Pert One's negligence "caused damages to the Plaintiff which included . . . damage to Plaintiff's Property which may include diminution in the value of the Plaintiff's Property and loss of use of certain portions of the Property." The complaint also alleged that the negligently created nuisance "has substantially interfered with the Plaintiff's use and enjoyment of Plaintiff's Property." Consequently, the complaint alleged covered property damage in the form of loss of use. 

    On the duty to indemnify, Northfield failed to show there was an absence of genuine issues of material fact. Northfield relied upon an affidavit stating that shingles and other materials were intentionally deposited on Peters' property. Northfield viewed this evidence as establishing beyond dispute that there was nothing accidental about X-Pert One's conduct and, therefore, no "occurrence." The court disagreed. These factual assertions, even if undisputed, did not address the specifics of why it was true that X-Pert One acted in a manner showing an intent to cause damage to the property or an intent to create a nuisance. Rather, these assertions left open the possibility that X-Pert One negligently handled shingle materials on the property or inadvertently created a nuisance in the course of shingle-related operations. 

    Therefore, the circuit court's order granting summary judgment in favor of Northfield was reversed and the case remanded for further proceedings. 

     

Under "Nature of The Event" Test, Intentional Shooting Not Covered

    The Supreme Court of Idaho found that the intentional shooting by a care-taker in the insureds' campground was not covered under the CGL policy. Farm Bureau Mut. Ins. Co. of Idaho v. Cook, 2018 Idaho LEXIS 71 (Idaho March 30, 2018).

    The insureds allowed people to use a lake and campground on their property without charging a fee. Michael Chisholm lived on the property in a cabin in exchange for caring for the property. Chisholm had a disagreement with Joseph Stanczak and ended up shooting Stanczak with a handgun. Chisholm was charged with aggravated assault and pled guilty without admitting guilt to all the elements of his crimes. He was sentenced to prison. 

    The insureds had a policy with Farm Bureau. Stanczak sued Chisholm, the insureds and Farm Bureau. Farm Bureau denied coverage and filed a complaint for a declaratory judgment. Farm Bureau then moved for summary judgment which was granted.

    On appeal, the insureds argued that the shooting - while intentional from Chisholm's point of view - was an accident from theirs, and thus was a covered "occurrence." Farm Bureau asserted that the injuries flowed directly from the intentional shooting, and thus were not an "occurrence." 

    Idaho followed the "nature of the event" test, whereby negligence claims against in insured that directly arose out of the intentional act of a third party were not covered because the underlying causative act was not covered. While the insureds argued that the incident fell precisely in line with the definition of an accident from their perspective - the shooting was an unexpected event resulting from their purported negligence - Idaho law used a contrary interpretation. A reasonable person would view Stanczak's injuries as resulting from an assault. An intentional shooting caused the injuries, and thus the shooting was not an "occurrence" under Idaho law. 

    Therefore, the court affirmed the trial court's grant of summary judgment to Farm Bureau. 

Absence of Property Damage Leads to Rejection of Insured's Claim

    Affirming the district court, the Eighth Circuit found that deteriorated bags which unintentionally mixed with landscaping materials did not amount to property damage under the CGL policy. Decker Plastics Corp. v. West Bend Mut. Ins. Co., 2018 U.S. App. LEXIS 2085 (8th Cir. Jan. 29, 2018). The district court's decision was the subject of a prior post [here]. 

    Decker Plastics Corp. sold plastic bags to Al's, Inc. which Al's filled with landscaping materials such as sand and rock. Al's stored the bags outside and sold them to customers. Decker failed to manufacture the bags with an ultraviolet inhibitor, the bags deteriorated in the sunlight, spilling rock and sand off pallets and caused shreds of plastic to commingle with landscaping materials. 

    Al's sued Decker, alleging, among other things, defective product. Decker's insurer, West Bend, refused to defend or indemnify Decker under its CGL and umbrella/excess liability policies. Decker paid $125,000 to settle Al's claims and then sued West Bend.

    The district court granted West Bend summary judgment, concluding there was no "occurrence" triggering property damage coverage. Decker appealed, and the Eighth Circuit reversed, concluding that deterioration of the bags was the covered occurrence and provided coverage for property damage if any damage was done to Al's property other than the bags.

    On remand, the district court again granted summary judgment for West Bend, concluding there was no property damage. The Eighth Circuit now affirmed.

    The critical question was whether there was some "physical injury" to Al's "tangible property." The Eighth Circuit agreed with the district court that Al's tangible property, its landscaping materials, did not suffer physical injury. Simply filling Decker's defective bags with Al's landscaping materials did not cause covered property damage. The rock and sand were not physically altered or destroyed, but contamination made the landscaping product unsaleable, and the contaminating plastic could not  be economically removed. Absent physical alteration, Al's property suffered only diminution in value. Accordingly Decker's claims were properly dismissed because there was no property damage triggering coverage under West Bend's policies.