Insurance Law Hawaii

Injury Caused by Drunk Driver is "Accident" Covered by Policy

    Noting that only an insurance company could suggest no coverage for an injury caused by a drunk driver, the Fifth Circuit rejected the insurer's argument. Frederking v. Cincinnati Ins. Co., 2019 U.S. App. LEXIS 19796 (5th Cir. July 2, 2019).

    Carlos Sanchez was driving under the influence of alcohol when he failed to yield the right of way, and collided with a car driving by Richard Frederking. Sanchez was driving a truck while working for Advantage Plumbing Services, who was insured by Cincinnati. 

    Frederking sued both Sanchez and Advantage. The jury held Sanchez and Advantage jointly and severally liable for $137,025 in compensatory damages. It further awarded $207,500 in exemplary damages for Sanchez's gross negligence. 

    Cincinnati agreed to pay Frederking the compensatory damage award, thereby discharging Advantage's liability. But Cincinnati refused to pay Sanchez's exemplary damages. Frederking sued Cincinnati, arguing Sanchez's actions were intentional.

    The policy issued to Advantage covered damages resulting from "accidents." The policy did not define accident. As a matter of plain meaning and common usage, "accident" included the drunk driving collision that gave rise to the dispute. 

    The Supreme Court of Texas defined the term "accident" as a "fortuitous, unexpected and unintended event." Further, "accident" was defined by what it excluded - intentional acts. Automobile collisions were commonly described as "accidents." There was no reason to describe the automobile collision in this case as anything other than an "accident." No one contended that Sanchez intended his vehicle to collide with Frederking's vehicle. Nor did anyone suggest that Sanchez drank in hopes of causing an automobile collision. Therefore, this case fell well within the common understanding of the term "accident." 

    If Cincinnati's contention was correct, a collision caused by texting while driving would not be an accident. The driver made an intentional decision that contributed to the accident. But this was implausible on its face. 

    The court reversed the grant of summary judgment to Cincinnati and remanded the case for further consideration. 

"Occurrence," "Bodily Injury" Adequately Alleged, Triggering Defense

    The court determined that there was a duty to defend despite the insurer's contention that no "occurrence"  or "bodily injury" had been alleged. Zurich Am. Ins. Co. v. Electricity Main, LLC, 2019 U.S. App LEXIS 18074 (1st Cir. June 17, 2019).

    Electricity Maine, LLC had a D&O policy with Zurich. In November 2015, a class action was brought against Electricity Maine. Two customers sought to represent a class of nearly 200,000 of the company's customers. The complaint alleged that Electricity Maine had engaged in misconduct that resulted in customers receiving higher bills than Electricity Maine had represented they would be. 

    Electricity Maine tendered notice of the suit to Zurich. Zurich filed for a declaratory judgment that it had no duty to defend because the underlying action failed to allege that Electricity Maine engaged in conduct that qualified as an "occurrence" or that caused any "bodily injury." The parties cross-moved for summary judgment and the district court ruled for Electricity Maine.

    The First Circuit noted that the complaint in the underlying case set forth a number of claims for intentional torts, but also included a claim for "negligence" and a claim for "negligent misrepresentation." Zurich argued that the facts alleged in the complaint made it impossible to sustain the fiction that Electricity Maine was "negligent" and expected no harm to its customers. When the complaint incorporated by reference the same factual allegations into its claims for for negligence and negligent misrepresentation, they were not necessarily read as alleging that Electricity Maine acted intentionally rather than inadvertently. Such claims did not require proof of intentional conduct. The court acknowledged that the negligent misrepresentation claim or the negligence claim may not have merit. But even a broad, conclusory allegation, such as negligence that is legally insufficient to withstand a motion to dismiss will trigger an insurer's duty to defend whenever the allegations showed a potential that liability would be established under the policy. 

    Regarding "bodily injury," the policy's definition included "mental injury, shock or fright resulting from bodily injury." The definition did not state that it excluded coverage for "bodily injury" caused by those markers of emotional distress. Because Maine law required the court to construe ambiguous language in favor the the insured, the court rejected Zurich's restrictive construction of the policy. 

    Therefore, the district court's granting of summary judgment to Electricity Maine was affirmed. 

Insurer's Motion for Judgment on the Pleadings Over Construction Defect Claims Denied

    The insurer was unable to escape coverage obligation over claims for construction defects when its motion for judgment on the pleadings was denied. Jei Solutions v. Burlington Ins. Co., 2019 U.S. Dist. LEXIS 95068 (E.D. La. June 4, 2019). 

    JEI was hired as a contractor to renovate a building. JEI subcontracted the entire scope of work to Ja'Lia Construction, LLC. Before the project was completed, the owner unilaterally terminated the contract and filed an arbitration demand against JEI, seeking damages for faulty workmanship. Burlington denied coverage and a defense on the ground that an alleged breach of contract did not constitute an "occurrence." 

    Ultimately, an adverse judgment was rendered against JEI for $89,239.25. JEI then sought to recover this amount from Burlington. Burlington moved for judgment on the pleadings or summary judgment. 

    The court found that JEI's failure to perform the work called for in the contract did not constitute "property damage" caused by an "occurrence," and Burlington correctly noted that defects in construction, alone, did not trigger coverage under a CGL policy. However, coverage was triggered when the defect caused physical injury to tangible property. Here, the arbitrator awarded damages against JEI for inadequate and incomplete work. The list of damage in the arbitration included damage resulting from poor workmanship, such as:

• inside/outside wall showed signs of water damage from roof leak
• Places where outside could be seen form inside
• stud integrity weakened by excess cutouts. 

    Nevertheless, Burlington argued that coverage was barred by exclusions j (5) and (6), which excluded:

"Property damage" to:

(5) that particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the "property damage" arises out of those operations; or

(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."

. . . 

16. Products-completed operations hazard

a. Includes all "bodily injury" and "property damage" occurring away from premises you own or rent and arising out "your product" or "your work" except:

(1) Products that are still in your physical possession; or

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

    The "work product" exclusions reflected the insurer's intent 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. Importantly, exclusions j (5) and j (6) applied only while the insured's work was in progress. When the work was complete, the products complete operations hazard provision provided coverage for property damage arising out of faulty work. 

    If the damage considered in the arbitration occurred while JEI's work was ongoing, exclusions J (5) and j (6) barred coverage. But if the damage occurred after the owner terminated the contract, they would not. There was a genuine question of fact as to when the covered property damage occurred and, therefore, whether coverage was barred by j (5) and j (6). Accordingly, the motion was denied. 

 

Alabama Supreme Court Reverses Determination of Coverage for Faulty Workmanship

    Although the lower court held that the insured contractor was entitled to coverage and indemnification under a CGL policy despite claims based upon faulty workmanship, the Alabama Supreme Court reversed. Nationwide Mut. Fire Ins. Co. v. David Group, Inc., 2019 Ala. LEXIS 52 (Ala. May 24, 2019).

    The David Group (TDG) specialized in custom-built homes. The Shahs purchased a newly built home from TDG in October 2006. After moving in, the Shahs experienced problems with their new home that TDG was unable to correct. In February 2008, the Shahs sued TDG. The complaint alleged that serious defects existed, resulting in health and safety issues, building code violations, poor workmanship, misuse of construction materials, and disregard of property installation methods. The case went to arbitration and an award of $12,725 was issued to the Shahs.

    Nationwide was TDG's CGL carrier and initially defended TDG. After Nationwide withdrew its defense, TDG sued seeking a judgment declaring that Nationwide was obligated to defend and indemnify. The trial court denied Nationwide's motion for summary judgment and issued a partial summary judgment in favor of TDG on the issue of coverage. Nationwide appealed. 

    Nationwide argued that the "defects" alleged by the Shahs and identified by the arbitrator were the result of faulty work performed by TDG. The defects were not "occurrences" under the policy. The court had repeatedly held that faulty workmanship itself was not an occurrence under a CGL policy. Faulty work could lead to an occurrence and trigger coverage under a CGL policy if the work subjected personal property or other parts of the damaged structure to continuous or repeated exposure to some other general harmful condition, and, as a result, personal property or other parts of the structure were damaged. The complaint alleged faulty workmanship, but did not allege additional or resulting damage to their house or to their personal property as a result of the faulty workmanship. 

    Under these circumstances, there was nothing demonstrating that there was property damage or personal injury resulting from an occurrence that triggered coverage under a CGL policy. The trial court's judgment was reversed.

Business Risk Exclusions Bar Coverage Whether or Not Operations Completed

    The federal district court found that exclusions j (5), (6) and l barred coverage for damage caused to the city's water main collector system. Sunwestern Contractors, Inc. v. Cincinnati Indem. Co., 2019 U.S. Dist. LEXIS 82642 (D. Ariz. May 15, 2019).

    Sunwestern contracted with the city of Tucson for the construction of a water main collector system. During the project, Sunwestern conducted a pressure-test of the pipeline when several flanges, which connected the pipe sections, came apart. The flange failure caused water to tear out gaskets, seriously damage the pipeline, components of the pipeline, and surrounding areas. Four million dollars in damage was caused. 

    Sunwestern had a CGL policy with Cincinnati. Coverage was denied by Cincinnati when it determined there was no "occurrence."

    There was no dispute that the work was faulty. The relevant inquiry was whether Sunwestern's faulty workmanship resulted in property damage. It was uncontroverted that it did. Improper installation of pipe components led to damage to the pipeline and surrounding areas. The flanges were improperly installed. Sunwestern showed that serious property damage resulted from its defective work and consequential property damage resulting from the faulty work was an occurrence under the policy. 

    The court then turned to the business risk exclusions. Exclusion j (6) precluded coverage for incorrectly performed work. But the exclusion included an exception for completed operations. Further the exclusion did not exclude coverage for property damage for non-defective property that resulted from faulty workmanship. Thus, while exclusion j (6) unambiguously excluded coverage for damage to the flanges and other incorrectly constructed portions of the pipeline, if they were not "completed," it did not exclude coverage for consequential damage to non-defective property caused by that incorrectly performed work. 

    Exclusion j (5) barred coverage for property damage to "that particular part of real property on which you or any contractors or subcontractors working . . . on your behalf are performing operations, if the 'property damage' arises out of those operations." Like exclusion j (6), exclusion j (5) only precluded coverage for work that was still in progress. The court found that exclusions j (5) and j (6) unambiguously precluded coverage for the incident and all residual property damage stemming from the incident. However, exclusions j (5) and j (6) only precluded damage to work that was not yet completed, or still in progress. 

    Exclusion (l), however, applied, excluding property damage to "work or operations performed by" Sunwestern that was included in the products-completed operations hazard. Consequently, exclusion (l) precluded coverage for Sunwestern's completed work.

    In all, if the work was completed, it was excluded by exclusion (l). If it was not completed, it was excluded by exclusions j (5) and j (6). The products-completed operations hazard provision was still subject to any relevant exclusions and any faulty work that was encompassed in the products-completed operations hazard provision was unambiguously excluded from coverage by exclusion (l). 

    There was no ambiguity in the exclusions. Exclusions j (5) and j (6) unambiguously precluded coverage for incorrectly performed work. While exclusions j (5) and j (6) did not preclude coverage for incorrectly performed work that was completed, exclusion (l) unambiguously did. Therefore, Sunwestern was not entitled to coverage and Cincinnati's motion for partial summary judgment was granted. 

    

One Occurrence Means One Deductible

    The court held that claims regarding the negligent supervision of an independent contractor who engaged in the sexual abuse of three victimes amounted to one occurrence, requiring a single deductible. Scott Fetzer Co. v. Zurich Am. Ins. Co., 2019 U.S. App. LEXIS 13023 (6th Cir. April 30,2019). 

    In 2013, three women filed suit against Scott Fetzer Company (dosing business as Kirby Company), Crantz Development LLC, and John Fields. The women alleged that John Fields had sexually assaulted them on numerous occasions between May 2012 and January 2013. Fields was an independent dealer of vacuum cleaners who worked for Crantz, a factory distributor of Kirby vacuums, which were manufactured by Fetzer. The women alleged multiple instances of verbal abuse and harassment, inappropriate touching, force sexual acts, and rape. The women asserted that Fetzer and Crantz Development were negligent in hiring Fields as an independent dealer, allowing Fields to go on sales trips with the women, and failing to have policies and procedures in place to prevent sexual harassment.

    Fetzer settled with the three women and then sought reimbursement from Zurich under two general liability policies. Under the policies, Zurich agreed to pay $2 million per "occurrence" of bodily injury, but Fetzer was responsible for paying the first $1 million for each "occurrence." Of the three settlements, only one exceeded the per-occurrence deductible amount. Zurich paid the amount that exceeded the deductible, but it refused to pay anything for the other two settlements. Fetzer contended that the "occurrence" was its negligent hiring and supervision of Fields, which limited the number of occurrences to one, and therefore, Fetzer would have to pay only one deductible. Zurich argued that Fields's actions against each individual woman were all separate occurrences, meaning that there were three occurrences and Fetzer was responsible for paying three separate deductibles.

    The district court found that there were three separate occurrences. The Sixth Circuit reversed.

    Under Fetzer's interpretation of "occurrence," the "accident" was not that the women were exposed to Fields, but that they were exposed to Fetzer's negligent supervision of Fields. Ohio courts had determined that the relevant "occurrence" could fairly be interpreted as negligent supervision, not the acts perpetrated by the bad actor. The court agreed that the relevant occurrence was Fetzer's negligent supervision of Fields.

    If the relevant "occurrence' was negligent supervision, there was only one occurrence. Ohio followed the cause test. The number of occurrences was determined by reference to the cause or causes of the damage or injury, rather than the number of individual claims. Because the occurrence was the negligent supervision of Fields, it was reasonable to read the policy to mean there was only one occurrence.

Subcontractor Entitled to Defense for Defective Work Causing Property Damage Beyond Its Scope of Work

    The Illinois Court of Appeals found the subcontractor was owed a defense for alleged property damage caused by its faulty workmanship, but outside its scope of work. Acuity Ins. Co. v. 950 W. Huron Condo. Ass'n, 2019 Ill. App. LEXIS 208 (Ill. Ct. App. March 29, 2019).

    The condominium association sued its general contractor, Belgravia, for alleged defects allowing water to infiltrate and cause damage. Belgravia filed a third-party complaint against its subcontractors, including the carpentry subcontractor Denk & Roche. Denk & Roche held a CGL policy with two insurers during the relevant period, one with Cincinnati Insurance Company for the period January 1, 2000 through June 1, 2007, and another with Acuity Insurance Company, effective June 1, 2007, through December 31, 2013.

    Denk & Roche tendered its defense to both insurers. Cincinnati agreed to defend and contributed to a settlement of the AOAO's claims. Acuity denied a defense, contending that the underlying claims did not trigger a duty to defend. Acuity's declaratory judgment suit sought a determination that it had no duty to defend. Cincinnati intervened and argued it was entitled to equitable contribution from Acuity.

    On cross-motions for summary judgment, the trial court found that Acuity had no duty to defend.

    On appeal, the court noted that while a CGL policy would not insure a contractor for the cost of correcting construction defects, damage to something other than the project itself did constitute an occurrence under a CGL policy. Here, the duty to defend Denk & Roche turned n what qualified as damaged beyond "the project itself" where the insured was a subcontractor performing discrete work on a project and the subcontractor had no control over other aspects of the project. 

    From the eyes of the subcontractor, the "project" was limited to the scope of its own work. The precise nature of any damage that might occur for something outside of that scope was as unknown or unforeseeable as damage to something entirely outside of the construction project. Therefore, when the underlying complaint alleged that a subcontractor's negligence caused something to occur to a party of the project outside of the subcontractor's scope of work, there was an occurrence under a CGL policy, even though it would not be an occurrence from a general contractor or developer's perspective. Consequently, the court drew a major distinction between coverage for faulty workmanship performed by a subcontractor versus a general contractor or developer. Summary judgment for Acuity was reversed.

    The court also found that Cincinnati was entitled to equitable contribution from Acuity for undertaking the subcontractor's defense. The case was remanded for a determination on the exact amount of contribution to be made. 

 

 

 

No Coverage for Defects in Subcontrator's Own Work

    Damage to the concrete floor installed by the insured subcontractor was not property damage and thus not covered under the insured's CGL policy. Kalman Floor Co. v. Old Republic Gen. Ins. Corp., 2019 U.S. Dist. LEXIS 3319 (D. Colo Jan. 8, 2019). 

    In 2007, Kalman Floor Co. was subcontracted to construct over 158,000 square feet of concrete flooring for a cold storage facility. The concrete floor was completed in late 2008. In late 2009, the contractor notified Kalman that pockmarks, or "pop-outs," were visible on the concrete flooring. The only damage to tangible property in the facility caused by the pop-outs was the concrete flooring itself.

    On January 31, 2009, Old Republic issued a general liability policy to Kalman for one year. The policy excluded for damage to "your work," defined as "work or operations performed by you or on your behalf." Old Republic denied coverage for damage to the concrete floor. Kalman sued, seeking a declaration that the exclusions did not bar coverage. 

    Under Tenth Circuit law, as established in Greystone Const, Inc. v. Nat'l Fire & Marine Ins. Co., 661 F.3d 1272 (10th Cir. 2011), the term "occurrence" in a CGL policy encompassed unforeseeable damage to non-defective property arising from faulty workmanship. The policy was intended to protect the insured business from claims by third parties concerning personal injury or property damage resulting from accidents. In discovery, Kalman admitted the pop-outs in the concrete floor "did not physically injure or damage any tangible property other than the floor system it installed." Thus, under the terms of the policy, property damage did not occur. 

    Consequently, Old Republic's motion for summary judgment was granted and the case dismissed with prejudice.

Insurer Must Defend Subcontractor For Claims Alleging Faulty Workmanship

    Interpreting Florida law, the federal district court found that the insurer must defend the subcontractor for claims based upon faulty workmanship. S. Owners Ins. Co. v. Gallo Bldg. Servs., 2018 U.S. Dist. LEXIS 212961 (M.D. Fla. Dec. 18, 2018).

    Gallo Building Services entered a subcontract with KB Homes, developer, related to the construction of a condominium project. All of the work was subcontracted by KB Homes to subcontractors, suppliers and material men. After completion of the project, the Condominium Association found a number of alleged construction defects at the project. KB Homes notified the subcontractors and tendered its defense. The subcontractors rejected the tender. 

    KB Homes filed suit against Gallo and other subcontractors. Claims against Gallo included breach of contract, breach of express and implied warranty, negligence and indemnity. Specific allegations against Gallo included failing to install all necessary control joints, installing incorrect mid-wall flashing, installing stucco in direct contact with dissimilar materials, etc. 

    Southern Owners Insurance Company filed suit for declaratory judgment that it had no duty to defend or indemnify its insured, Gallo. Gallo was subsequently dissolved. A default judgment was entered against Gallo, but KB Homes moved to set the default judgment aside, which was granted. KB Homes then moved for summary judgment in favor of Gallo. 

    The court noted that under Florida law, there was no property damage if there was no damage beyond the faulty workmanship, unless the faulty workmanship damaged some otherwise nondefective component of the project. Here, the court found that the underlying complaint alleged physical injury to tangible property by claiming that, in addition to faulty workmanship, defects in Gallo's work caused damage to other building components, damage to other property, and property damage to the work of KB Homes and other subcontractors. 

    Nevertheless, Southern argued two exclusions barred coverage. The Your Work Exclusion excluded coverage for "property damage" to "[Gallo's] work arising out of it or any part of it and included in the 'products-completed operations hazard.'" The policy defined "your work" to included "work or operations performed by [Gallo] or on [Gallo's] behalf. The "products-completed operations hazard" meant Gallo's completed work. Southern argued that the alleged construction defects arouse out of Gallo's own work and the policy contained no subcontractor exception. Typically, a CGL policy included an exception to the Your Work Exclusion for work performed by the insured's subcontractor.

    Here, Gallo was a subcontractor responsible for a limited scope of work within the much larger general condominium project. The underlying complaint did not allege that Gallo's scope of work encompassed construction of the overall project. Rather, the underlying complaint alleged Gallo's limited scope of work. Further, the underlying complaint alleged that alleged defects "caused damage to other building components, damage to other property, loss of use, and required relocation of residents." Thus, damage beyond the scope of Gallo's work was alleged in the underlying complaint and the exclusion did not bar coverage.

    Southern also argued there was not duty to defend because the allegations in the underlying complaint fell within the Stucco Exclusion. This exclusion barred coverage for any suit for property damage which "is in any way related to or arising out of an exterior finishing system or exterior stucco application." KB Homes argued that Gallo performed multiple scopes of work unrelated to stucco or an exterior finishing system and the underlying complaint contained allegations entirely unrelated to the application of either exterior. Consequently, this exclusion did not apply, either.

    Finally, although Southern had a duty to defend, it was premature to determine whether there was a duty to indemnify because there had been no factual determination as to liability in the underlying case.

"Occurrence" Viewed From Eyes of Insured

    The court determined that a young girl's suicide prompted by the insured's text messages constituted an occurrence under the homeowner's policy. State Farm Fire and Cas. Co. v. Motta, 2018 U.S. Dist. LEXIS 208472 (E.D. Pa. Dec. 11, 2018).

    High school student Zach Trimbur harassed and cyberbullied classmate Julia Morath. When the boy's parents, Walter Trimbur and Stephanie Moota, were informed, they assured school administrators they would supervise, discipline and control their son. Yet, the boy continued his conduct. The boy was suspended by the school, but still continued his cyberbullying after his suspension. Julia subsequently committed suicide.

    The Moraths sued Zach and his parents, alleging negligence, wrongful death, and survival. Stephanie Motta sought coverage under her homeowners policy with State Farm. State Farm defended under a reservation of rights.

    State Farm filed suit for a declaratory judgment that it had no duty to defend or indemnify the Trimbur boy in the underlying case. State Farm argued the suicide did not arise from an "occurrence" because the cyberbullying was non-accidental. The court determined there was an "occurrence" and State Farm had to provide a defense for Zach. 

    The underlying complaint alleged that Zach's actions were wanton and willful. State Farm argued that Zach intentionally cyberbullied and harassed Julia Morath, meaning there was no "accident" to trigger the policy. Zach countered by arguing that intentional acts can have unintended consequences, and Pennsylvania courts considered whether an insured could have reasonably foreseen the resulting injury. Julia Morath's death by suicide was an extraordinary intervening event unforeseeable to him. 

    The court noted that when properly focused on the entire occurrence, the fact that Julia Morath, not Zach Trimbur, inflicted the only alleged bodily injury was material. Further, the Moraths alleged a negligence theory against Zach. Though the underlying complaint used the words "harassment," "bulling," and "intentional," the Moraths alleged not a single intentional tort against Zach.

    Viewing these events from Zach's perspective, the court could not conclusively find death by suicide was foreseeable from his cyberbullying. From the boy's perspective, his classmate's death by suicide was an accident. Therefore, State Farm had a duty to defend.