Insurance Law Hawaii

Contractor Entitled to Continued Defense Against Allegations of Faulty Construction

    The U.S. District Court found that the contractor was entitled to a defense in the underlying state court action. Pa. Nat'l Mut. Cas. Ins. Co. v. Zonko Builders, 2021 U.S. Dist. LEXIS 168855 (D. Del. Sept. 7, 2021).

    Zonko was the general contractor for building the Salt Meadows Townhomes Condominium. This included supervising subcontractors in the installation of siding, house wrap, and flashing in five buildings between 2005 and 2007. In 2016, Salt Meadows and its individual members ("Association") found property damage in the condominiums.

    The Association sued Zonko in state court, alleged that resulting damages included drywall damage in ceilings or walls, flooring and carpet, water damage around window trim, rot on window frames, incorrect flashing around roofs and windows, possible ridge vent leaks, and possible foundation issues. 

    Zonko tendered to Penn National, who agreed to defend. Penn National then filed this suit and a motion for judgment on the pleadings, hoping to no longer have to pay defense costs. 

    The court first determined an occurrence was alleged in the underlying case. The policy's Subcontractor Exception confirmed that Penn National would provide coverage for the faulty workmanship of subcontractors.  The endorsement provided coverage for "property damage" to "your work" if such "'property damage' is the result of work performed on your behalf by a subcontractor that is not a Named Insured." The underlying lawsuit alleged that subcontractors performed defective work causing property damage, which constituted an occurrence.

    Further, none of the exclusions raised by Penn National applied. The "your product" exclusion was not applicable because it "your product" was defined as "goods or products, other than real property." The underlying complaint concerned property damage to real property, not damage to Zonko's products or equipment.

    The "contractual liability" exclusion did not bar coverage because the underlying action also plead negligent construction and respondeat superior theories. The court similarly found that the exclusions for "damage to impaired property," "recall of products," and "fungi or bacteria" were not applicable. 

    Therefore, Penn National's motion for judgment on the pleadings was denied.

"Your Product" Exclusion Bars Coverage

    The insurer's motion for summary judgment was granted based upon the "your product" exclusion. Lacaze Land Dev. v. Deere & Co., 2021 U,S. Dist LEXIS 162175 (W.D. La. Aug 26, 2021).

    Lacaze filed suit against John Deere, the supplier of a compact loader, skid steer and mulching head, W.L. Doggett L.L.C., and Doggett's insurer, Amerisure. Lacaze alleged the loader-mulched combination was defective because the loader overheated when used in combination with the mulching head. Lacaze sought damages for loss of purchase price, finance charges, insurance premiums, maintenance and repair costs, and economic loss limited to the loss of use of the loader. Lacaze did not claim consequential damages to or loss of use of any other property. 

    Amerisure moved to dismiss the claims filed against it arguing that there was no occurrence and, if there was, the "your product" exclusion applied. 

    The court first determined there was an occurrence. Lacaze's claim was for an unforeseen and unexpected loss to the loader caused by a defect in the loader-mulching head combination. 

    However, the policy excluded "'property damage' to 'your product' arising out of it or any part of it." Here, "your product' referred to the loader and mulching head as goods "sold, handled distributed or disposed of by" Doggett. Louisiana courts consistently held that this exclusion eliminated coverage for the cost of repairing or replacing the insured's own defective work or defective product. Lacaze's loss of use claim pertained to property that was clearly sold or distributed by the insured. Because Lacaze failed to claim a loss of use of property other than that provided to him by Doggett, the claim against Amerisure was preclude by the "'property damage' to 'your product' arising out fit or any part of it." exclusion. Summary judgment was granted to Amerisure. 

Third Circuit Affirms Insurer's Duty to Defend Despite Allegations of Intentional Trespass

    The Third Circuit affirmed the district court's finding that the insured contractor was entitled to a defense despite the underlying allegations of intentional trespass. Westminster Am. Ins. Co. v. Spruce 1530, LLC, 2021 U.S. App. LEXIS 24822 (3d. Cir. Aug. 19, 2021). 

    In the underlying case, the state court found that Spruce 1530 constructed part of an apartment building (the Newport) on another developer's property (the Touraine). The court determined the property line between the Touraine Building and the Newport Building and found that construction on the Newport Building encroached in the property line. The court found that Spruce 1530 was negligent in determining the location of the property line before beginning construction.

    In a second lawsuit filed in state court, it was alleged the Spruce 1530 violated the property line eight additional times. Touraine alleged each encroachment was an intentional trespass that violated Touraine's demand that Spruce 1530 "cease any and all unlawful forms of trespass onto the Touraine Property."

    Spruce 1530 tendered defense of the lawsuit to its carrier, Westminister. The tender was denied based upon the alleged intentional acts. The district court held that Westminister had a duty to defend.

    On appeal, Westminister agrued there was no "occurrence" because Spruce 1530 refused to remove the additional encroachments after the property line was resolved in the first underlying suit. Nevertheless, there was a possibility that the encroachments resulted from Spruce 1530's negligence with respect to the property line as opposed to an intentional trespass. A reasonable facfinder could determine the encroachments were a result of Spruce 1530's negligent failure to determine the site of the property line.

    Therefore, Westminister had a duty to defend the entire underlying action. The decision of the district court was affirmed. 

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.