Insurance Law Hawaii

Law Firm Fails to Survive Insurer's and Agent's Motions to Dismiss

    Interpreting New Jersey law, the federal district court dismissed without prejudice the law firm's complaint against its insurer and agent. Law Office of Drew J. Bauman v. Hanover Ins. Co., 2023 U.S. Dist. LEXIS 31844 (D. N. J. Feb. 27, 2023).

    The law firm had a professional liability policy issued by Hanover. The law firm was sued in the underlying case involving a real estate transaction. The law firm tendered the defense and indemnity of the underlying complaint, but coverage was denied. The law firm sued, contending Hanover breached the policy by refusing to abide by its obligations under the policy.

    In the alternative, the law firm alleged that its agent, USI Insurance Services, LLC, was liable if the policy did not require Hanover to defend and indemnify in the underlying case. It was further alleged that USI was responsible for procuring coverage for the law firm and knew of its insurance needs. USI was negligent in securing a policy with inadequate coverage.

    Hanover and USI filed motions to dismiss. The court found that the claim for declaratory relief against Hanover was duplicative of the law firm's breach of contract claim. The breach of contract claim would resolve the same issue and necessarily decide the question raised by the declaratory judgment claim. Therefore, the claim for declaratory relief was dismissed.

    The breach of contract claim was also dismissed. The law firm did not identify any specific language or provisions of the policy that allegedly were breached by Hanover. Instead, the law firm made conclusory assertions that Hanover breached the contract by refusing to fully perform under it. Therefore, the breach of contract claim against Hanover was also dismissed.

    Turning to the claims against USI, the complaint only alleged that USI was negligent if there was insufficient coverage under the policy. This was inadequate to state a plausible claim of negligence against USI. Therefore, the negligence claim against USI was dismissed.

    Finally, the law firm alleged that USI breached its contract to provide the requisite insurance coverage, Under New Jersey law, breach of contract was not a recognised claim in actions against an insurance broker for failing to provide adequate coverage. Accordingly, the breach of contract claim against USI was also dismissed.

    

Hawaii Supreme Court Remands Malpractice Claim Against Agent

    The Hawaii Supreme Court vacated and remanded the decision of the Intermediate Court of Appeals (ICA) regarding a malpractice claim against the insured's agent. Pflueger, Inc. v. AIU Holdings, Inc., 2023 Haw. LEXIS 44 (Haw. Feb. 22, 2023).  Our prior post on the ICA's decision is here. 

    In May 2008, Pflueger notified its agent, Noguchi & Associates, Inc., that it had received federal grand jury subpoenas. Noguchi informed Pflueger that the subpoenas did not qualify as a "claim" under two policies issued by National Union. Consequently, Noguchi did not forward a claim or the subpoenas to National Union and did not seek clarification as to whether the grand jury subpoenas were covered under the policies. Pflueger relied upon Noguchi's representations and took no further action until its attorney submitted a demand letter tendering Pflueger's defense to National Union nine months later, in February 2009. 

    National Union found the claim untimely. Further, the materials submitted to National Union did not constitute a claim. The policies required the materials submitted to be an indictment, information or similar document to constitute a claim. 

    Pflueger filed suit against National Union and Noguchi. Pflueger alleged Noguichi was negligent and had made negligent misrepresentations. Pflueger eventually settled with National Union. 

    Prior to trial, the court granted Pflueger's motion for partial summary judgment, finding that the grand jury subpoenas constituted a "claim" as that term was defined in National Union's policy. The jury then returned a special verdict in favor of Pflueger. Noguchi appealed, and the ICA vacated the judgment, holding that the circuit court erred in excluding deposition testimony that was essential to Noguchi's defense. Noguchi relied upon the deposition testimony of two National Union employees who stated there was no coverage for grand jury subpoenas.

    On remand, Noguchi moved for summary judgment on the issue of causation, arguing there was no evidence of proximate cause against Noguchi. The circuit court agreed, finding Pflueger had put forth no evidence to establish that Noguchi's conduct was a contributing or substantial factor in National Union's decision to deny coverage. Pflueger appealed.

    The ICA held that the causation issue as framed by Noguchi (i.e., whether National Union would have denied coverage even if Noguchi had timely tendered the grand jury subpoena matter) involved a genuine issue of material fact. Whether Noguchi's actions and inactions were legal causes of Pflueger's losses in light of National Union's denial of the claim were issues for the fact finder and could not be decided as a matter of law. The circuit court erred in granting Noguchi's motion for summary judgment. 

    Judge Hiraoka concurred, but did not agree that what National Union would have done had Noguichi timely tendered the subpoena was material. Instead, Noguhchi had to show that even if Pflueger's subpoena had been timely tendered, the insurer would not have been obligated to advance defense costs. Therefore, Noguchi did not meet its burden and the circuit court erred by granting summary judgment.

    The Supreme Court agreed with Judge Hiraoka's analysis. Noguchi attempted to demonstrate that the causation element of Pflueger's claims were negated by the testimony of the two National Union employees, which purportedly showed that no causal connection existed between Noguchi's negligence and Pfluger's injury because the National Union would have denied coverage regardless of the claim's timeliness.

    Noguchi had to demonstrate that the National Union would not have been obligated to advance Pflueger's defense costs if the grand jury subpoena matter were timely tendered in order to negate causation. Only then would Noguchi have demosntrated that its role in the untimely tender was not a legal cause of Pflueger's harm. Instead, Noguchi offered testimony of the two employees, who both suggest that National Union would not have considered the subpoenas to be a covered claim if timely submitted, in an attempt to negate the causation element of Pflueger's claims. However, the testimony did not negate causation. If the insurer denied coverage after the timely tender of Pflueger's grand jury subpoena matter, Pflueger could then file a declaratory relief action, with or without a cliam for bad faith. National Union's disclaimer of coverage was not determinative of Pflueger's legal rights or legally cognizable harm - only a court's ruling on the matter was. 

    Therefore, the circuit court's grant of summary judgment in favor of Noguchi on the grounds that the employees' testimony negated the causation element was incorrect. 

No Coverage for Employer Under Professional Liability Policy

    Although the employer raised numerous claims against the insured employer, none were covered under the policy. Hemphill v. Landmark Ins. Co., 2023 U.S. App. LEXIS 8079 (April 5, 2023). 

    Carl Hemphill and MJC Labor provided temporary employee placement and visa application processing services to workers from Mexico and Central America. The Professional Liability policy covered claims "arising out of negligent acts, error or omissions in the rendering or failure to render permanent and/or temporary placement services."

    A former MJC client, Jose Castillo, filed an action against Hemphill alleging violations of federal human trafficking, wage-and-hour, and unfair trade practices laws. Castillo alleged that he signed an employment contract with one of Hemphill's companies. When he arrived in the U.S., Hemphill confiscated his passport, housed him in unsatisfactory accommodations, assigned him tasks outside the scope of his employment contract, and considerably underpaid him. Castillo sued and the case was settled. 

    Hemphill sought coverage under the Landmark policy. Landmark refused to defend Hemphill because Castillo's allegations arose from Hemphill's intentional actions rather that from negligent actions in providing placement services. Hemphill then filed suit against Landmark seeking a declaration that Landmark was required to defend him. The District Court dismissed Hemphill's lawsuit.

    On appeal, Hemphill argued that he had a reasonable expectation of coverage in the Castillo lawsuit after Landmark defended him in an earlier, similar class action. No authority supported a finding a duty to defend when the insured's expectation of coverage arose solely from the insurer's conduct in another, unrelated action. The scope of coverage in the Landmark policy was clear. Hemphill's expectations did not change the policy language. 

    Further, the underlying complaint did not allege negligence of Hemphill or MJC in providing Castillo placement services. Nor was there an allegation of negligent misrepresentation. The underlying complaint alleged that Hemphill "deceived Castillo about rental housing in which he would be living." But Castillo did not allege that Hemphill or MJC ever represented to him that his housing conditions would be sanitary or not crowded, or that he would not have accepted Hemphill's employment offer had he known that the housing conditions were subpar. 

    Therefore, the District Court's dismissal was affirmed. 

    

Trial Court Abuses Discretion in Appointing Unqualified Umpire for Appraisal

    The Texas Court of Appeals agreed with the insurer that the trial court abused its discretion in appointing an attorney as umpire in a property damage dispute. In re State Farm Lloyds, 2023 Tex. App. LEXIS 966 (Tex. Ct. App. Feb. 15, 2023).

    The insured filed an application for the appointment of an umpire regarding his insurance claim for property damage to his residence. The home was damaged by a hurricane on July 25, 2020, and the parties disagreed regarding the full extent of the property damage to the residence. The appraisers appointed by the insured and State Farm disagreed on the damages, leading to the insured asking the trial court to appoint a competent and disinterested umpire. 

    The trial court appointed Derek Salinas, an attorney, as umpire. State Farm challenged the appointment because the policy required the umpire to be either an engineer, architect, adjuster, public adjuster, or a contractor with experience and training in the construction, repair and estimating the type of property damage in dispute. State Farm argued that Salinas met none of the criteria. The trial court rejected State Farm's motion for reconsideration. 

    State Farm filed a petition for mandamus with the Texas Court of Appeals. The appellate court found that the trial court abused its discretion in appointing an attorney as umpire, contrary to the provisions in the policy. The appellate court also agreed that a petition for mandamus was the proper request for relief instead of waiting to appeal from the umpire's decision. The court found that State Farm lacked an adequate remedy by appeal to address the trial court's error in appointing an individual as umpire who failed to meet the requirements in the policy. Allowing the appointment of an unqualified umpire would create additional litigation and would affect State Farm's ability to defend any claims for breach of contract that might be filed in the future,. 

Issuing Judgment After Confirmation of Appraisal Award Overturned

    The Florida Court of Appeal reversed and remanded the trial court's judgment in favor of the insured because after confirming the appraisal award, judgment was issued before the insurer could offer policy defenses. State Farm Florida Ins. Co. v. Hochreiter, 2023 Fla. App. LEXIS 743 (Fla. Ct. App. Feb. 3, 2023. 

    After a dispute arose over the scope and amount of damage suffered by the insureds' roof, they sued State Farm. State Farm responded to the complaint by demanding an appraisal, a stay of litigation, and an extension of tiem to respond to the complaint.

    The trial court greanted the demand and retained jurisdiction regarding post-appraisal matters once the appraisal was complete. The court further ordered State Farm to respond to the complaint within twenty days of the conclusion of the apraisal "if any issues remain." The order did not specify whether the issues that remained had to relate to the initial appraisal stage of the litigation or the subsequent stage during which the trial court had jurisdiction to adjudicate disputed isseus related to coverage. 

    An apraisal award for roof repairs was prepared, stating that "any payments are subject to all policy provisions and limitations that may apply."

    The insurds moved to confirm the appraisal award, arguing that State Farm failed to answer the complaint and raise defenses within twenty days of the appraisal award. State Farm argued that the insureds had failed to provide substantiation of the relevant Florida Building Codes which required the roof to repaired, as stated in the policy. State Farm argued no payment was due because these policy provisions had not yet been met. The trial court granted the motion to confirm without an evidentiary hearing. The order explained that State Farm "failed to timrely assert any affirmative defenses" pursuant to the order that granted an appraisal.

    State Farm appealed, arguing the trial court failed to provide adequate due process by awarding a judgment without consideration or adjudication of the insurer's defenses. 

    The appellate court agreed. The trial court's order failed to clearly indicate that State Farm was required to present all of its defenses on the sbustantive merits of the complaint, versus just aspects of the appraisal award, which by itself did not determine the merits of the contractual defenses. 

    Therefore, the final judgment was reversed and the case was remanded for further proceedings to consider and adjudicate State Farm's defenses.

After Withdrawing from Case, Insurer's Defense Counsel Cannot Reenter Case Without Insured's Consent

    The Hawaii Intermediate Court of Appeals found that after defense counsel withdrew from the case after the trial court found no coverage. defense counsel could not reenter the case without the insured's consent. Franco v. Reinhardt, 2023 Haw. App. LEXIS 63 (Feb. 28, 2023).

    Fabio Reinhardt was driving a truck owned by his girlfriend, Reinette Kama, with Tiare Franco as a passenger. Reinhardt crashed the truck while driving and Franco died at the scene. The truck was insured by National Interstate Insurance Company, Inc. Franco's estate sued Reinhardt for wrongful death. National retained defense counsel and issued a reservation of rights. 

    National filed a separate action for declaratory judgment to determine whether it owed a duty to defend and indemnify Reinhardt. The circuit court granted National's motion for summary judgment, concluding there was no possibility of coverage for Reinhardt under the policy. Plaintiffs appealed the coverage action. Retained defense counsel for Reinhardt withdrew from further representation in the underlying case because there was no representation under the policy. Reinhardt continued to defend the underlying case pro se. 

    By the time trial in the underlying case took place, Reinhardt had disappeared. Without his participation in the trial, the jury returned a verdict in favor of plaintiffs and against Reinhardt. The circuit court entered a final judgment.

  After final judgment was entered, the Intermediate Court of Appeals reversed the circuit court's judgment in favor of National, finding there were genuine issues of material fact regarding whether Reinhardt reasonably believed he was entitled to operate the truck at the time of the accident. Following the reversal, National again retained the same law firm and attorney to represent Reinhardt under a reservation of rights. Retained counsel then filed a Motion to Set Aside the Final Judgment even though retained counsel had still not found Reinhardt. Plaintiffs responded with a Motion to Disqualify, arguing that retained counsel failed to obtain Reinhardt's informed consent and waiver of any potential conflicts of interest, and that Reinhardt had no idea he was being represented in the underlying action. The circuit court granted the Motion to Set Aside and denied the Motion to Disqualify. 

    On appeal, the appellate court noted that Reinhardt had a right to refuse representation under a reservation of rights. Retained counsel did not establish an attorney-client relationship and was not authorised to file motions on Reinhardt's behalf. Therefore, because retained counsel did not have the authority to file the Motion to Set Aside or appear in court on Reinhardt's behalf, the circuit court erred in granting the Motion to Set Aside and denying the Motion to Disqualify Counsel. 

Ninth Circuit Finds Insurer Cannot Impose Joint and Several Liability in Seeking Reimbursement

    Applying California law, the Ninth Circuit determined that the insurer could not seek reimbursement from an insured based upon joint and several liability. United Specialty Ins. Co. v. Banihashemi, 2023 U.S. App. LEXIS 5546 (9th Cir. March 8, 2023).

    The insured appealed the district court's summary judgment order holding him jointly and severally liable for reimbursement of the costs of settlement that United Specialty reached on behalf of several insureds in a wrongful death action.

    In California, an insurer seeking recovery against the insured for amounts contributed to a settlement when the claims were not covered had to allocate the expenditures among the insureds. The burden of proving the allocation was on the insurer asserting claims for reimbursement.

    Although a finding of joint and several liability could ultimately be appropriate for all defendants, the record before the court reflected the existence of a material issue of fact regarding allocation of the settlement amount among the insureds. Neither the insured's deposition testimony that he was an officer and owner of the company nor the fact that he acquiesced in United Speciality's settlement of the underlying actions was sufficient to establish that United Speciality engaged in a detailed analysis of how the indemnity costs were spent, as required by California law. 

    Therefore, the district court's award of summary judgment in favor of United Specialty was vacated and the case remanded for further proceedings, 

Hawaii Appellate Court Finds Appraisers Limited to Determing Amount of Loss

    The Hawaii Intermediate Court of Appeals determined that appraisers cannot decide what amount is owed by the insurer after loss, but are limited to finding the amount of the loss. Krafchon v. Dongbu Ins. Co., Ltd., 2023 Haw. App. LEXIS 43 (Haw. Ct. App. Feb. 17, 2023).

    The insureds owned three structures on the property on Maui: the Villa; the Cottage; and the Garage. The three structures were insured under homeowners and dwelling fire policies issued by Dongbu. When the structures were damaged by wildfire, Dongbu tendered over $300,000 under a reservation of rights, pending preparation of a final settlement. There was disagreement over the total amount of the loss.

    The insureds invoked the appraisal provision of the policies. When Dongbu failed to appoint an appraiser, the insureds sued. The trial court granted the insureds' motion to compel appraisal.

    The appraisal provision stated, in part, "If you and we fail to agree on the amount of loss, either may demand an appraisal of the loss." The appraisers for the insureds and Dongbu each established replacement cost value, depreciation, and actual cost value for variouis categories of loss and reduced the appraised amount by a deductible amount. The two appraisers, howver, did not agree on the amount of loss. The trial court appointed a retired judge to serve as umpire. The umpired agreed with the insureds' appraiser. 

    The circuit court granted the insureds' motion to confirm, expressly recognising that the appraiser's and umpire's values included "consideration of scope of insurance coverage and exclusions." Dongbu appealed the order confirming the appraisal because the appraiser and umpire exceeded their authority by considering insurance coverage issues and deciding whether the policies provided covrage for certain claimed loss.

    The policies stated that the appraisers and umpire, if necessary, were to determine the "amount of loss." None of the policies defined "loss." The word appeared 258 times in the homeowners poicy and 149 times in each of the dwelling fire policies. A common meaning of the word "loss" was "decrease in amount, magnitude, value or degree."

    Not all of the insureds' loss was necessarily insured or covered under the policies. "Loss" was limited by coverage provisions, exclusions, and other terms and conditions of the policies. The appraisal provision did not limit itself to covered loss; it did not preclude appraisal of non-covered or excluded loss, or loss for which Dongbu was otherwise not liable, and it did not empower the appraisers to consider policy or coverage defenses. 

    Therefore, the appraisers and umpire had no power to decide what amounts Dongbu owed to the insureds under the policies because what Dongbu actually owed depended upon coverage issues that had to be decided by the circuit court.

    The award from the appraiser and umpire could not have been made without considering the scope of insurance coverage. They showed that the appraiser and umpire purported to appraise what they believed to be covered loss. Dongbu was not obigated to pay uncovered or excluded loss, or loss for which Dongbu was otherwise not liable. The appraiser and umpire should have appraised the value of what the insureds lost because of the wildfire, irrespective of insurance coverage.

    Accordingly, the appellate court vacated the order confirming the appraisal award and remanded for further proceedings. 

 

Public Adjuster Cannot Serve As Disinterested Appraiser

    The Florida Supreme Court found that the president of a public adjusting firm, which was to be compensated on a contingency basis for its adjusting services, could not subsequently serve as a "disinterested" appraiser pursuant to the policy language. Parrish v. State Farm Fla. Ins. Co., 2023 Fl. LEXIS 261 (Feb. 9, 2023). 

    Jon Parrish was insured under a policy issued by State Farm Florida Insurance Company. When his home was damaged by Hurricane Irma in September 2017, he filed a claim and hired Keys Claims Consultants, Inc. (KCC) to provide public adjusting services. Mr. Parrish agreed to pay KCC a contingency fee equal to ten percent of whatever amount he eventually recovered from State Farm. 

    There was disagreement between State Farm's estimate of the loss and that of KCC. Mr. Parrish demanded that the appraisal process set forth in the policy be implemented. Mr. Parrish informed State Farm that George Keys, the president of KCC, would serve as Mr. Parrish's appraiser. 

    The policy required each party to "select a qualified, disinterested appraiser" when invoking the appraisal provisions of the policy. State Farm requested that Mr. Parish appoint an appraiser other than Mr. Keys, whom State Farm contended could not be considered a "disinterested" appraiser since his firm was already serving as Mr. Parrish's public adjuster.

    State Farm petitioned a trial court to compel Mr. Parrish to enter appraisal with a disinterested appraiser. The trial court denied State Farm's petition, but the Second District Court of Appeals reversed. It found that "disinterested" was not ambiguous, and the requirement that the appraisers be "disinterested" plainly excluded any appraiser who held an interest in the outcome of the appraisal process. 

   On appeal, the Florida Supreme Court affirmed the Second District. Dictionary definitions confirmed that a "disinterested" person could not, consistently with the generally understood meaning of that word, have a pecuniary interest in the matter at hand. The contingency fee arrangement agreed to between Mr. Parrish and KCC gave Mr. Keys, as president of KCC, a pecuniary interest in Mr. Parrish's claim. The more Mr. Parrish recovered, the more KCC would collect; and the more KCC collected, the likelier it was that Mr. Keys would himself be in a position to be paid, or that his interest in KCC would be valuable. 

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Fifth Circuit Affirms Coverage for Fraudulent Transfer of Funds

    The Fifth Circuit affirmed the district court's determination of coverage in a case involving cyber fraud. Valero Title Inc. v. RLI Ins. Co., 2023 U.S. App. LEXIS 2571 (5th Cir. Feb. 1, 2023).

    Valero Title, Inc. purchased a crime-protection policy from RLI that included a funds transfer fraud endorsement. The endorsement provided, "we will pay for loss of funds resulting directly from a fraudulent instruction directing [sic] financial institution to transfer, pay or deliver funds from your transfer account." "Fraudulent instruction" was "[a] written instruction . . . issued by you, which was forged or altered by someone other than you without your knowledge or consent, or which purports to have been issued to you but was in fact fraudulently issued without your knowledge or consent."

    A Valero employee was discussing a loan payoff transaction by email with a lender's employee when a fraudster posed as the lender's employee and sent the Valero employee fraudulent wiring instructions with a fraudulent routing number. The Valero employee instructed her bank to wire $250,945.31 to the fraudster. When Valero learned of the loss, it submitted a proof of loss claim to RLI. RLI denied the claim, determining that the loss was not covered by the funds transfer fraud endorsement.

    Valero filed suit. Cross motions for summary judgment were filed. The district granted Valero's partial motion for summary judgment and denied RLI's motion, holding that the loss was covered under the policy. RLI appealed,

    The parties disputed the meaning of the definition of "fraudulent instruction" which read "a written instruction . . . issued by you, which was forged or altered by someone other than you without your knowledge or consent." RLI argued that because the instruction here was issued as it was authorized and approved by Valero, it could not be "a written instruction . . . issued by you, which was forged or altered by someone other than you without your knowledge or consent." This construction, however, could not be harmonised with the rest of the policy and would make the remaining portion of the definition of "fraudulent instruction" redundant. When Valero issued the instruction to its bank, it was a fraudulent instruction that was "forged or altered by someone other than [Valero] without [Valero's] knowledge or consent."

    Therefore, the district court properly interpreted the definition of "fraudulent instruction" and found that covered was triggered under the funds transfer fund endorsement for Valero's loss.