Insurance Law Hawaii

Property Damage to Insured's Own Work is Not Covered

    The Michigan Court of Appeals found there was no coverage for a lawsuit filed against the insureds for faulty workmanship. Skanska United States Bldg. v M.A.P. Mech. Contrs., 2019 Mich App. LEXIS 529 (Mich. Ct. App. March 19, 2019).

    Contractor Skanska United States Building was the construction manager on a renovation project for the medical center. The heating and cooling portion of the project was subcontracted to M.A.P. Mechanical Contractors (MAP). MAP had a CGL policy from Amerisure Insurance Company. Skanska and the medical center were named as additional insureds on the policy. 

    After installation of the steam boiler and related piping, it was discovered that the heating system did not function property. Skanska discovered that MAP had installed some of the expansion joints backward, causing damage to concrete, steel, and heating system. The medical center sent a demand to MAP. Skanska performed the repairs and replaced the damaged property. Skanska then submitted a claim to Amerisure, which was denied.

    Skanska filed suit against MAP and Amerisure. The trial court denied Amerisure's motion for summary judgment. The court found that the parties injured by MAP's negligence did not anticipate, foresee or expect backward expansion joints or property damage to the entire length of the underground steam lines. Michigan courts had consistently focused on the particular property damaged to determine whether an "occurrence" had happened. The unforeseen incident meant an "occurrence" may have happened, which triggered Amerisure's duty of coverage. 

    The court of appeals found that the trial court had erred. It was well established that an "occurrence' could not include damages for the insured's own faulty workmanship. Consequently, there was no "occurrence" here. Amerisure presented evidence to demonstrate that all of the repair and replacement work was within the scope of Skanska's original project. Once Amerisure presented this evidence, the burden shifted to Skanska to present evidence that the repair and replacement work included tasks or property beyond the scope of the original project. 

    Amerisure was entitled to judgment as a matter of law because coverage was not triggered due to lack of an "occurrence" and there were no genuine issues of material fact that the only damage was to Skanska's own work product, or that of its subcontractor. 

Exclusion j (6) Not Applicable to Bar Coverage for Alleged Faulty Workmanship

    The appellate court vacated the trial court's grant of summary judgment to the insurer because of the subcontractor's alleged faulty workmanship. All America Ins. Co. v. Lampasona Concrete Corp., 2019 Mass. App. LEXIS 34 (March 19,2019). 

    After construction of the hospital, the Northeast Hospital Corporation (NHC) sued he general contractor, alleging property damage to the finished first floor and other areas of the hospital. The contractor filed a third-party complaint seeking indemnification from various subcontractors, including Lampasona Concrete Corporation. for improper installation of the concrete slab that was underneath the finished first floor.

    Lampasona's insurer, All America, sued all of the defendants in the underlying case, seeking a judgment declaring that it had not duty to defend or indemnify Lampasona under the CGL policy held by Lampasona. On summary judgment, the trial court ruled that Lampasona's work on the concrete slab was inseparable from work that other subcontractors performed on other layers of the flooring system. Therefore, Exclusion j (6) applied and summary judgment was granted to All America. 

    The first floor of the hospital had three layers: a bottom vapor barrier, the concrete slab and a top layer of either tile or carpet. While Lampasona installed the concrete slab, different subcontractors installed the other two layers. In the underlying action, NHC alleged that Lampasona made multiple errors in installing the concrete slab, allowing moisture problems that caused damage to the tiles and carpet. 

    Exclusion j (6) stated that the insurance did not apply to "[t]hat particular part of any property that must be restored, repaired or replaced because 'your work' was incorrectly performed on it." However the exclusion did not apply to damage "occurring away from premises you own or rent and arising out of 'your work'" if the work was completed or abandoned. 

    The trial court judge determined that Lampasona's work played an "integral and inseparable part in the installation of a flooring system that was comprised of multiple layers, but constituted one completed product: interior flooring for the first floor of the hospital." The judge also stated that while installing the concrete slab, "Lampasona's work was incorrectly performed on the vapor barrier." The judge concluded that j (6) excluded coverage for any damage that resulted from the pierced vapor barrier. 

    Lampasona did not install the vapor barrier on which the concrete slab was located, or the floor tiles or carpeting installed on top of the concrete slab. Therefore, the alleged damage that Lampasona caused to those parts of the hospital (e.g., the piercing of the vapor barrier and the buckling of the floor tiles) did not fall within the j (6) exclusion.

    Moreover, the j (6) exclusion did not apply to damage that occurred after Lampasona completed its work. NHC alleged that some of the damage occurred after the construction of the hospital. Such damage would not fall within the scope of the j (6) exclusion. 

Watercraft, Events Exclusions Bar Coverage

    The Federal District Court for the District of Hawaii found bodily injury suffered in a boating accident was barred under the policy's Watercraft and Events Exclusions. Great Divide Ins. Co. v. Hawaiian Kamali`i, 2019 U.S. Dist. LEXIS 43106 (D. Haw. March 15, 2019).

    The Hawaiian Canoe Club (HCC) hosted and sponsored the 2016 Pailolo Challenge Outrigger Canoe Race on September 17, 2016, from Kapalua, Maui to Kaunakakai, Moloka`i. Mark Stevens agreed to provide and operate an escort boat, the Ohana, for one of the teams. Before the Ohana began escorting the underlying plaintiff's team's canoe to the staging area, Steven's hat flew into the water. The underlying plaintiff went into the water to retrieve the hat. As she re-entered the boat from the rear, the Ohana reversed and a propeller struck the plaintiff, causing significant injuries. Her left leg was eventually amputated. 

    The plaintiff sued Stevens, alleging he was negligent or grossly negligent in operating the Ohana. HCC was sued for negligence and for failure to obtain sufficient liability insurance prior to the event. 

    HCRA had a CGL policy with Great Divide. The policy's Watercraft Exclusion barred coverage for "'bodily injury' . . . arising out of the ownership, maintenance, use or entrustment to others of any watercraft owned or operated by or rented or loaned to any insured." An endorsement excluding events barred coverage for "bodily injury" arising out of any "event" managed, operated or sponsored by the insured. 

    Based upon the two exclusions, coverage was denied. Suit was filed and the court entertained cross motions for summary judgment. 

    Judge Kobayashi found that Stevens had no coverage based upon the Watercraft Exclusion. Moreover, if Stevens was an insured under the policy and the Watercraft Exclusion applied to him, it would also preclude coverage for HCC. Even if the Watercraft Exclusion did not apply to claims against HCC, coverage was still barred for HCC under the Events Exclusion.

    The 2016 Pailolo Challenge was an activity that HCC managed or operated. Further, the accident occurred during the event. HCC argued that the underlying plaintiff entered the water before the race started. There was no Hawaii law interpreting an Events Exclusion, but the court predicted that the Hawaii Supreme Court would adopt the analysis of other courts that had addressed the exclusion for sporting or athletic events. When the underlying plaintiff entered the water, the race had already started, although her crew was still in the staging area. To participate in the Challenge, the underlying plaintiff had to re-board the boat and rejoin her crew. Therefore, the claims arising from her injuries were not covered based upon the clear, unambiguous language of the Events Exclusion. 

    There were no genuine issues of material fact, and it was impossible for the underlying plaintiff to prevail on a claim against HCC that was covered by the policy because either the Watercraft Exclusion or the Events Exclusion applied. Therefore, as a matter of law, Great Divide did not have a duty to defend or indemnify. Summary judgment was granted to Great Divide. 

Conversion of Premiums Claim After Denial of Coverage Fails as Matter of Law

    The insured sued for conversion of his premiums after the insurer denied its claim for collapse of a retaining wall. Lead GHR Enterprises, Inc. v. Am States Ins. Co., 2019 U.S. Dist. LEXIS 29412 (D. S. D. Feb. 25, 2019).

    Suit was filed after the insured's claim was denied. Cross motions for summary judgment were filed. The insurer sought to dismiss the conversion claim as a matter of law. The court agreed that the insured could not attempt to recover premiums on a conversion theory because it believed the insurer breached the policy. A breach of contract action was the appropriate remedy in such circumstances.

    The policy excluded coverage for collapse except when caused by specifically listed causes, including hidden decay. The court referred to this additional coverage for hidden decay as the "give-back provision." The insured argued that the collapse give-back provision covered the loss of the retaining wall and was not subject to the anti-concurrent causation clause found elsewhere in the policy. The court disagreed and denied summary judgment on this issue. If the insured successfully invoked the policy's give-back coverage for collapse caused by hidden decay, the coverage would be limited by the policy's general exclusions, including the anti-concurrent causation clause.

    The insured also argued that the term "decay" in the policy encompassed the disintegration of nonorganic material, such as the retaining wall. The insured contended that the decay and deterioration were synonymous and neither required the corroding item to be organic in nature. The insured asked the court to find the policy's use of the word decay had no organic/inorganic element. The insurer cited dictionary definitions associating decay with "organic material." The court noted that no definition given by Merriam-Webster specified the decaying object must be organic in nature. Even the dictionary cited by the insured listed in a second definition of decay as "to decline in excellence, prosperity, health, etc., deteriorate."

    There was no basis for the court to conclude decay necessarily entailed an organic component on the part of the decaying object. If the parties intended to contract for insurance coverage for collapse involving only organic decay, they could have so stated. Without such explicit language, the court could not import additional meaning into the policy's provisions. Accordingly, the court granted summary judgment to the insured on this issue. The question of whether the wall's collapse was caused by internal decay did not hinge on whether the wall was organic. 

    

Coverage Action Properly Removed to Hawaii Federal District Court

    The court denied plaintiff's motion for remand after his coverage case was removed to federal district court. Greenson, 2019 U.S. Dist. LEXIS 29476 (D. Haw. Feb. 25, 2019).

    Greenspon filed a coverage action in Hawaii state court against AIG, Prommis Solutions Holding Corp. (PSHC), and the law firm, McCorriston Miller Mukai and MacKinnon. The action arose from a March 14, 2018 default judgment obtained by Greenspon in a 2014 state court wrongful foreclosure lawsuit against PSHC. AIG was PSHC's insurer, while McCorriston was AIG's legal counsel.

    AIG removed the action, asserting complete diversity. Greenspon moved to remand, asserting that complete diversity did not exist, PSHC did not consent to removal, and that his pending state court case was deeply intertwined with this case. 

    The court found there was complete diversity among properly joined parties. The complaint did not state a claim or theory of liability against the only non-diverse party, McCorriston. At the hearing, Greenspon said he was not attempting to assert a claim against McCorriston, but wished to put them on notice of the claim against PSHC and that there may be a claim of bad faith against AIG. Therefore, the court found that McCorriston was not properly joined. 

    The court next found that PSHC's consent was not necessary for removal. As with McCorriston, the complaint did not allege any claim or theory of liability against PSHC. Again, Greenspon stated at the hearing that he was merely putting PSHC on notice of the suit. The court found PSHC was also not a properly named defendant. Failure to obtain its consent for removal did not render the removal procedurally defective.

    The court next weighted the facts from Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942), to determine whether the court should exercise its jurisdiction to assert under the Declaratory Judgment Act. The was no concern about avoiding needless determination of state law issues. The legal issues presented involved the interpretation of a Directors and Officers policy issued by AIG. The case did not require the court to address unsettled issues of state insurance law. 

    Next, the issue of forum shopping was neutral. Removal of this action to federal court did not constitute forum shopping because there was statutory authority to support the removal based on diversity jurisdiction. Nor did the issue of duplicative litigation bar removal. While Greenspon had other pending state court actions, there were not parallel state court actions that would required the federal court to engage in duplicative litigation. 

    Therefore, subject-matter jurisdiction existed and removal was procedurally proper. 

Insurer's In-House Expert's Communications Are Privileged

    The Texas Supreme Court ruled that the insurer's in-house expert's draft reports and communications were privileged and need not be produced. In Re City of Dickinson, Relator, 2019 Texas LEXIS 165 (Tex. Feb. 15, 2019).

    The City of Dickinson had a commercial windstorm policy with the Texas Windstorm Insurance Association. The City suffered property damage caused by Hurricane Ike. Coverage was denied and the City sued.

    The City moved for summary judgment on the issue of causation. In response to the motion, Texas Windstorm included the affidavit of its corporate representative and senior claims examiner, Paul Strickland. The affidavit provided both factual and expert opinion testimony on Texas Windstorm's behalf. 

    In a subsequent deposition, the City learned that Strickland's affidavit had been revised in a series of emails between Strickland and Texas Windstorm. The City moved to compel the production of these email exchanges with counsel along with other documents provided to, reviewed by or prepared by or for Strickland in anticipation of his testimony as an expert. Texas Windstorm responded that the emails were protected by the attorney-client privilege. Texas Windstorm contended that Strickland served as the client's liaison with defense counsel in the lawsuit. In an apparent filing error, Texas Windstorm also e-filed fifty-five pages of emails it asserted were privileged information. Upon discovery of the error, Texas Windstorm asked the City delete or destroy the emails.

    The trial court denied Texas Windstorm's motion to withdraw the email communications that had accidently been filed and granted the City's motion to compel. Texas Windstorm sought mandamus relief in the court of appeals.

    The court of appeals granted the petition. The email exchanges and accompanying drafts of the affidavit were attorney-client communications notwithstanding Strickland's additional role as a testifying expert in the litigation.

    The Texas Supreme Court affirmed the court of appeals. While the discovery rules said that a party "may discover" testifying-expert materials, nothing in the rules permitted such discovery when the materials were attorney-client privileged. The rules regarding discovery of expert communications and materials did not otherwise waive the attorney-client privilege to withhold testifying expert materials from discovery. Therefore, these attorney-client communications remained privileged under the rule. The court of appeals also correctly found that the trial court abused its discretion when it failed to sustain Texas Windstorm's motion to retrieve the erroneously produced documents. 

Cross Motions on Coverage for Collapse Denied

   Cross-motions for summary judgment designed to determine coverage for the Church’s collapse claim were both denied. Bethel Missionary Baptist Church v. S. Must. Church Ins. Co., 2019 U. S. Dist. LEXIS 24705 (W. D. N. C. Feb. 15, 2019). 

   The Church sought summary judgment on its claim for bad faith, arguing that the insurer denied the claim without knowing North Carolina law on court concurrent causation or partial collapse. The Church claimed that the insurer denied the claim without following up on its initial investigation, without addressing all possible areas of coverage, and without knowing the applicable law. The Church’s motion was denied, however, because it had not met its burden of showing there was no genuine issue as to any material fact as a matter of law. 

   The Insurer moved for summary judgment on all of the Church’s claims. Apart from the Church’s punitive and treble damages claims, the court found that the Insurer had not met its burden to prevail in its cross motion for summary judgment. The Church had not shown sufficient evidence of the Insurer’s bad faith in investigating and denying the claims to elevate them to a treble damages case. So summary judgment was granted as to these claims. The motion was denied, however, for claims of breach of contract, unfair and deceptive trade practices, unfair claims settlement practices, and bad faith. 

Strict Definition of Collapse Bars Coverage

    The policy's requirement that collapse constitute an abrupt falling down of the building barred coverage for the homeowner. Marigliani v. Citizens Ins. Co. of Am., 2019 Conn. Super. LEXIS 137 (Conn Super. Ct. Feb. 1, 2019).

    The plaintiffs' hoe was built in 1985 and they purchased it in 2001. A home inspection revealed normal settlement cracks in the basement wall. From 2001 on, plaintiffs did not notice any cracks in the basement walls until 2014. Thereafter, they noticed horizontal cracking. Inspectors found numerous spider-web cracks running vertically and horizontally. A defect in the concrete would continue to deteriorate the concrete and the foundation walls would continue to bulge inward until they structurally failed. There was no way to arrest the process or to repair the existing damage.

    The plaintiffs filed a claim with Travelers, who insured the home since October 31, 2010, and with Citizens, who insured the home from October 31, 2001 through October 31, 2010. Both denied coverage, and the plaintiffs sued both carriers.

    The Citizens policy insured collapse of a building or any part of a building caused by hidden decay or by use of defective material. Under the Travelers policy, collapse was covered only if there was an abrupt falling down or caving in of a building.

    For the loss to have occurred during one of the Citizens policy periods, it would have to have been discovered or reasonably discoverable by October 31, 2010 at the latest. No evidence supported this conclusion. The loss was neither discovered nor reasonably discoverable until at least 2012.

    Under the Travelers policy, neither the house nor a part of the house had fallen down or caved in. The plaintiffs continued to occupy the house from the time they became aware of the problem. There was no evidence that the danger was imminent and no evidence that the home or any part of it was uninhabitable. 

    Therefore, both insurers were entitled to summary judmgent. 

     

    

Excess Has No Duty To Indemnify Based Upon Primary Policy's Exclusions

    Based upon the primary policy's exclusion, the following form excess policy had no duty to indemnify after the insured reached a settlement in the underlying case. Houston Cas. Co. v. Strata Corp., 2019 U.S. App. LEXIS 3936 (8th Cir. Feb. 6, 2019).

    An employee of Strata fell to his death at a Montana mine. The estate sued, alleging that Strata's intentional failure to maintain a safe workplace triggered an exception to the Workers' Compensation Act, giving the estate a cause of action against Strata.

    Strata had a Workers Compensation and Employers Liability Policy from Liberty Mutual that included a limit of $500,000 for each accident. The policy excluded bodily injury intentionally caused by Strata. The policy also included an Intentional Injury Exclusion Endorsement barring coverage for "bodily injury caused by Strata's intentional, malicious, or deliberate act, whether or not the act was intended to cause injury to the employee injured . . ." Strata also had an excess policy from Houston Casualty Company which had limits of up to $5 million in excess coverage. Houston's policy followed form with the underlying Liberty Mutual policy. 

    Liberty Mutual defended Strata against the estate's wrongful death lawsuit. The case settled and Liberty Mutual contributed a portion of the settlement in exchange for a full release from Strata. Houston Casualty refused to contribute anything to the settlement. 

    Houston Casualty sued, seeking a declaratory judgment that it had no duty to defend or indemnify Strata. Strata counterclaimed. On cross-motions for summary judgment, the district court granted summary judgment to Houston Casualty and denied summary judgment for Strata. Strata appealed.

    The Eighth Circuit concluded that the district court properly granted summary judgment to Houston Casualty because the excess policy did not cover the estate's claims against Strata. The excess policy expressly stated that it was subject to the exclusions in the underlying coverage. Strata argued that the excess policy did not expressly state that it was subject to endorsements to Liberty Mutual's primary policy. But this argument was unavailing.

    Nor was the exclusion ambiguous. The estate alleged that Strata's deliberate and intentional acts caused his death. These allegations brought the estate's lawsuit within the Intentional Acts Exclusion Endorsement. Accordingly, Houston Casualty had no duty to indemnify Strata under the excess policy.

Trapped Squirrel Causing Electrical Arc Equals No Coverage

    The Supreme Court of Iowa agreed the city had no coverage for damage to its property after a squirrel triggered an electrical arc. City of W. Liberty v. Employers Mut. Cas. Co., 2019 Iowa Sup. LEXIS 6 (Feb. 1, 2019). 

    A squirrel climbed on to an electrical transformer at West Liberty's power plant. While touching a ground steel frame, the squirrel came into contact with a bare cable clamp that carried 7200 volts of electricity. This contact created a conductive path between the clamp and the grounded frame. Arcing resulted. The squirrel was killed and the arcing caused $213,524 worth of damage to West Liberty's transformer and other equipment. 

    West Liberty notified its all-risk insurer, Employer's Mutual Casualty Company (EMC) of the loss. Coverage was denied based upon an "Electrical Currents" exclusion in the policy. The policy excluded coverage for "loss caused by arcing or by electrical currents other than lightning." 

    West Liberty filed suit. Cross motions for summary judgment were filed. The trial court granted EMC's motion and denied West Liberty's motion. The court held that it could not decide that the squirrel's actions were a cause of damages because the squirrel did not actually do anything to cause damages. Instead, it merely touched things it should not have touched. The arc caused all of the damages. The court of appeals affirmed, relying upon the electrical currents exclusion. 

    The Iowa Supreme Court affirmed. The language of the exclusion was straight-forward. If arcing caused the loss, the loss was excluded. West Liberty, however, argued the squirrel was the efficient proximate cause of the loss. The efficient proximate cause doctrine applied when two or more causes, at least one covered by the policy and at least one excluded, contributed to a loss. 

   This case, however, was not one of two independent causes, one of which was covered and one excluded. The squirrel did not independently contribute to the loss, i.e., other than through the arcing. Therefore, the decision of the court of appeals was affirmed.