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. 

Insurer Timely Denies Claim of Additional Insured

    No defense was owed to the additional insured despite the argument that the insurer's denial was untimely. Houston Cas. Co. v. Cavan Corp. of NY, Inc., 2019 N.Y. Misc. LEXIS 3556 (N.Y. Sup. June 27, 2019).

    Cavan Corporation entered a Construction Management Agreement (CMA), as the construction manager, with Puck Residential Association, LLC, as the owner. Cavan was to build six new residential condominium units in the Puck Building. Cavan secured a CGL policy with Houston Casualty Company (HCC) as required by the CMA. The policy included an additional insured endorsement adding as additional insureds "any person or organization for whom you are performing operations during the policy period when you and such person or organization have agreed in writing. . . that such person or organization be added as an additional insured on your policy." 

    J.D. Wilson Construction Corporation was hired as the project's sidewalk restoration contractor. Richard Wilson, the principle of J.D. Wilson, was allegedly injured at the premises during his work on the project. He sued the Puck Association, Cavan and others. Cavan tendered to HCC, who disclaimed coverage based upon the exclusion for bodily injury arising out of construction management. 

    HCC sued Cavan for declaratory judgment. The Puck Association was allowed to intervene. HCC then amended its complaint to add the Puck Association as a defendant. Cavan and HCC's cross-motions for summary judgment were denied. The appellate division decided, however, that HCC was entitled to summary judgment because the policy did not provide coverage to Cavan. 

    The Puck Association then moved for summary judgment. They contended that while the appellate division determined that the policy did not afford Cavan coverage, they were entitled to summary judgment declaring that HCC must defend and indemnify them in the underlying case because they did not receive a timely notice of disclaimer from HCC as mandated by New York statute. 

    The statute required a written notice disclaiming coverage as soon as reasonably possible. The Puck Association maintained that HCC did not respond to their tender until HCC filed its amended complaint, or a delay of seven months. Therefore, HCC could not rely on the construction management exclusion to deny coverage.

    HCC argued that the appellate division's determination that the policy did not cover Cavan because of the construction management exclusion resolved all of the claims against HCC. Further, HCC contended that they disclaimed coverage as to the Puck Association within 30 days of receiving its tender. 

    The court agreed with HCC and granted it summary judgment.

Contractor Entitled to Defense of Faulty Workmanship Claims

    Applying Montana law, the federal district court found that the insurer owed a defense for faulty workmanship claims against the insured contractor. Atlantic Cas. Ins. Co. v. Quinn, 2019 U.S. Dist. LEXIS 103566 (D. Mont. June 20, 2019).

    The Quinns contracted with Brunner Homes and Construction to build a custom home. The contract required Brunner to complete the home 300 days after work commenced. Otherwise, Brunner would be responsible for 0.5% of the contract price for every day beyond that date that the home remained unfinished.

    On September 25, 2017, the Quinns sued Brunner for negligence, breach of contract, and construction default, among other things. The Quinns sought $3,728.45 per day for each day past the completion date, or $2,624,828. 

    Atlantic agreed to defend under a reservation of rights, but sued seeking a declaration that it had no duty to defend or indemnify. 

    Under Montana law, faulty workmanship could be an occurrence if the consequences were not objectively intended or expected by the insured, notwithstanding the work was intentional. The records was sparse regarding Brunner's alleged faulty workmanship. The Quinns' complaint alleged construction issues with the roof, concrete, the decks, drywall, plumbing, framing, trim work, paint, windows, doors, tile, venting, leaking and cracking, resulting in water damage, water stains, destruction of personal property, stained floors, and other damage to tangible property. 

    Atlantic did not present any evidence that Brunner intended or expected these damages. Therefore, factual development was needed to determine whether Brunner's alleged faulty workmanship was a covered occurrence.

    Atlantic argued that even if the alleged faulty workmanship was an occurrence, the resulting property damage was not covered because of Exclusion 2 (j) (6). The exclusion removed from coverage "property damage" to property "that must be restored, repaired or replaced because your work was incorrectly performed on it." However, the products-completed operations hazard restored coverage for property damage that occurred after the work was completed. Atlantic argued that the products-completed operations hazard was inapplicable because the Quinns' home was not completed, but the record suggested otherwise. Specifically, the Quinns' discovery requests indicated that they took occupancy of the home, putting it "to its intended use." The record was unclear as to when the alleged property damage occurred. Accordingly, summary judgment on Atlantic's duty to indemnify was improper. But because coverage was a possibility, Atlantic had a duty to defend against the claims in the underlying complaint.

    The liquidated damages accruing at 0.5% of the home price per day were not covered and Atlantic had no duty to indemnify for those damages. Whether Atlantic had a duty to indemnify for the remaining breach of contract claims could not be determined as a matter of law at this time. 

Broker's Collateral Estoppel Argument Fails

    The broker's motion to dismiss the insured complaint for negligence based upon collateral estoppel was unsuccessful. Gjonaj Realty & Mgt. Corp. v. Capacity Group of NY LLC, 2019 N.Y. App. Div. LEXIS 4880 (N.Y. App. Div. June 18, 2019). 

    The insured was sued in a personal injury action. A default judgment was entered against the insured. On appeal, the court noted that the insured's excuse that they relied upon their agent's representations that the complaint had been forwarded to the insurer, when in fact the broker had failed to do so, was not reasonable. 

    The insured then sued the broker for its negligently misrepresenting that they forwarded the complaint to the insurer. The broker moved to dismiss, contending that the insured should be collaterally estopped from relitigating in this action the issue of reasonableness of their reliance on the broker's representations. The trial court denied the broker's motion to dismiss.

    The appellate division affirmed. The insureds were not collaterally estopped from litigating the reasonableness of their reliance on the broker's representations because the requisite identity of issue which was necessarily been decided in the prior action and is decisive of the present action was lacking. 

    

Hawaii Act 070 Requires Registration of Trade Names

    Act 070, signed in to law by the governor on June 7, 2019, requires insurers to register any trade name with the Business Registration Division (BREG), Department of Commerce and Consumer Affairs (DCCA), prior to the use or change of a trade name to sell, solicit, or negotiate insurance in Hawaii. Upon registration of the trade name with BREG, the licensee may apply with the Insurance Division's Licensing Branch to add or remove a trade name on an active insurance license by using the preapproved form (Form NTA), available on the BREG Division's website. Act 070 takes effect on October 2, 2019.

    Any existing licensees using unregistered trade names need to register their trade name with BREG. The Insurance Division does not monitor whether a trade name is currently registered, so it is the responsibility of the licensee to take appropriate action. If the application for use or change of a tradename is substantially identical to a legal name or trade name of a revoked license, the insurance commissioner will deny the use of the trade name on the insurance license. 

"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. 

Breach of Contrat Claim Barred by Suit Limitation Provision, Bad Faith Claim Barred by Statute of Limitations

    The insured's breach of contract and bad faith claims were dismissed based upon the suit limitation provision and the statute of limitations. Mail Quip, Inc. v. Allstate Ins. Co., 2019 U.S. LEXIS 87923 (E.D. Pa. May 23, 2019). 

    Plaintiff alleged that on March 17, 2015, an ink cartridge refill machine used in its business was "misappropriated." The machine was insured by Allstate through a Commercial Property policy which insured for theft of machinery and equipment. Plaintiff alleged that it discovered the misappropriation of the machine on April 6, 2017, when it saw the machine listed for sale on eBay by an entity unknown to Plaintiff. Plaintiff alleged it never received any compensation for the sale of the machine. The machine had a value of $10,429 at the time of the theft. Plaintiff alleged it filed a claim with Allstate, but did not allege the date it did so.

    Allstate moved to dismiss. The suit limitation provision required an action be brought within two years after the date on which the direct physical loss or damages occurred. The Amended Complaint alleged that the date of loss was March 17, 2015, but suit was not filed until January 16, 2019. Plaintiff argued that Allstate could not enforce the suit limitation provision without a showing of prejudice. The court disagreed. Under Pennsylvania law, an insurer did not have to prove prejudice to enforce the suit limitation provision. 

    Allstate also moved to dismiss the bad faith claim, arguing it was untimely under the two-year statute of limitations. Plaintiff argued that the court could not consider the denial letter attached to Allstate's motion to dismiss. The amended complaint alluded to plaintiff's benefits being denied but did not state when it submitted its claim to Allstate or what the outcome of the claim was. If the court were to ignore this denial of benefits, and specifically the date on which the benefits were denied, a plaintiff with a legally deficient claim could survive a motion to dismiss simply by failing to attach a dispositive document on which it relied.

    The notice of denial showed that Allstate denied plaintiffs claim for benefits relating to the misappropriation of the machine on February 3, 2016. This allowed plaintiff two years, or until February 3, 2018, to file a claim for bad faith under the statute. Yet, plaintiff did not file its claim until January 16, 2018, almost a year too late. Therefore, the bad faith claim was untimely and had to be dismissed.

Court Rejects Remand and Argument that Insurance Agent Fraudulently Joined

    The federal district court refused to remand the case for lack of subject matter jurisdiction despite the insurer's argument that plaintiffs fraudulently joined their insurance agent as a defendant. Goostree v. Liberty Nat'l Life Ins. Co., 2019 LEXIS U.S. Dis. LEXIS 100604 (N.D. Ala. June 17, 2019).

    Plaintiffs filed a putative class action consisting of people in Alabama who purchased or owned life insurance policies through Liberty National for which their premiums paid exceeded their death benefits payable. Liberty National's agent, Robert D. Brice, was also a defendant. Bice had been the insurance agent for Mr. and Mrs. Padgett since 1985. According to the complaint, Bice knew the Padgetts were in their 80's and that Mr. Bic was retired and receiving social security. Nevertheless, Bice recommend that the Padgetts buy multiple insurance policies, for which the premiums collectively exceeded $14,000 per year. Bice continuously represented to the Padgetts that such additional insurance was beneficial to them despite his knowing that each successive policy would cost more in premiums than the death benefit payable under the policy. 

    Liberty National removed the case to federal court, alleging that the court had diversity of citizenship jurisdiction and that the court should disregard the citizenship of Mr. Bice because plaintiffs fraudulently joined him as a defendant. Liberty National also alleged the court had jurisdiction under the Class Action Fairness Act. Liberty National and Bice each filed a motion to dismiss. 

    The case considered subject matter jurisdiction. Bice was not a party to any of the insurance contracts. Bic did not sign the contract on behalf of Liberty National. The only parties were the Padgetts and Liberty National. The Padgetts did not allege that Bice acted in any capacity other than that of Liberty National's agent. 

    Holding an insurance agent liable for breach of contract for failing to procure insurance differed from holding an insurance agent liable for the alleged excessive premiums charged by the insurer. The Padgetts did not argue that Bic failed to procure an insurance policy. Instead, they alleged that Bice procured policies unsuitable for the Padgetts' needs. Because Alabama law prevented any agent from being held liable for his principal's alleged breach of contract, the Padgetts had no possibility of asserting a valid breach of contract cause of action against Bice.

    The Padgetts also alleged that Bice breached the covenant of good faith and fair dealing. Because the court was considering whether the Padgetts fraudulently joined Bice and not whether the Padgetts failed to state a claim against Bice under F.R.C.P. 12 (b) (6), the court only had to determine whether a possibility existed that the Padgetts stated a claim against Bice. The court could not say with certainty that no Alabama state court would find that a special relationship existed between Bice and the Padgetts. Because the possibility of a claim against Bice for breach of the duty of fair dealing existed due to an alleged special relationship with Bice, the court determined that the Padgetts did not fraudulently join Bice. 

    Therefore, the court did not have diversity jurisdiction. The court would provide the parties an opportunity to brief whether it had subject matter jurisdiction under the Class Action Fairness Act.

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. 

 

Care, Custody and Control Exclusion Does Not Bar Coverage For Alleged Construction Defects

    Reversing the lower court, the California Court of Appeal found that the care, custody and control exclusion was not applicable to bar coverage for the general contractor as the additional insured under the subcontractor's policy. McMillin Homes Constr. v. Nat'l Fire & Marine Ins. Co., 2019 Cal. App. LEXIS 514 (Cal. Ct. App. June 5, 2019).

    McMillian was the developer and general contractor on the housing project. It hired Martin Roofing Company, Inc. to do the roofing job for the project. Martin secured a general liability policy from National Fire that named McMillian as an additional insured. By endorsement, the policy excluded coverage for damage to property in McMillin's "care, custody, or control" (CCC exclusion).

    In 2014, homeowners sued McMillin for construction defects. The complaint alleged water intrusion and damage caused by roofing defects. McMillin tendered its defense to National Fire. Coverage was refused. Suit was filed and the trial court entered judgment in favor of National Fire. 

    The Court of Appeal reversed. The policy provided coverage to McMillin as an "additional insured" with respect to liability arising out of:

A. Martin's ongoing operations performed for McMillin and

B. Acts or omissions of McMillin in connection with its general supervision of such operations.

    National Fire argued that the CCC exclusion in the additional insured endorsement barred coverage. The endorsement did not cover:

Property damage to Property in the care, custody, or control of the additional insured(s) or over which the additional insured(s) are for any purpose exercising physical control.

Because McMillin was the general contractor on the project, any damage alleged while the homes were being built would have been to property in McMillin's care, custody, or control. McMillin contended that the CCC exception applied only where the insured had exclusive or complete control over the damaged property. 

    The CCC exclusion had been judicially construed to require exclusive or complete control.  Therefore, the provision was not ambiguous. Here, Martin agreed to furnish all labor, materials, and equipment needed to do the roof job. It was primarily and directly responsible for the activities and conduct of its employees. All materials, equipment and tools remained Martins property until they were integrated into the structure and approved by McMillin. Martin and McMillin shared control over Martins roofing work. Accordingly, National Fire did not prove the CCC exclusion rendered coverage for the claims was an impossibility. 

    Therefore, National Fire owed a defense and the judgment was reversed.