Insurance Law Hawaii

Ninth Circuit Upholds Hawaii District Court Decision Finding Coverage for Employee Theft

    The Ninth Circuit agreed with the Federal District Court, District of Hawaii, in finding multiple limits for occurrences over the years of coverage were applicable. The Arc In Hawaii v. DB Ins. Co., Ltd., 2022 U.S. App. LEXIS 31231 (9th Cir. Nov. 10, 2022). 

    The Arc served persons with disabilities in Hawaii. The Arc filed a claim with DB Insurance when a bookkeeper writing unauthorized checks resulted in a loss of $6,000,000 during five consecutive policy periods. 

    Each policy excluded "loss or damage caused by or resulting from . . . dishonest or cirminal acts by . . . employees." An enhancement extended coverage for forgery of checks "made or drawn by . . . one acting as the insured's agent or claiming to have been so made or drawn." The parties agreed that the checks represented "dishonest or criminal acts by employees." The district court ruled in favor of the Arc because under Hawaii law, the insured had a reasonable expectation that the forgery extension covered forgery by its employees. The court rejected DB Insurance's contention that, in light of the exclusion for employees' criminal or dishonest acts, the foregery extension did not provide coverage for forgeries by employees.

    The Ninth Circuit agreed with the district court. It was difficult to read the forgery extension's reference to an "agent" as excluding an employee. There was at most a ambiguity that had to be interpreted in favor of the Arc. 

    Next, the court considered what policy limits were applicable. The policy's coverage for "employee dishonesty" limited payment for one occurrence for loss or damage to $250,000. The policy further stated that DB Insurance would only "pay for loss or damage [the Arc] sustaines through acts committed or events occurring during the Policy Period." The Arc had five different one-year policys with DB Insurance. Each policy had the same employee dishonesty extension with a $250,000 liability limit. 

    The district court held that the Arc could recover the $250,000 limit for each of the five policy periods. DB Insurance contended that all loss caused by the employee represented one occurrence that was subject to one payment of $250,000 regardless of the number of policy periods.

    The Ninth Circuit found that the district court had properly relied upon relevant case law from California because there was no Hawaii authority on the issue. In a similar case from California, the court held that the term "occurrence" in the provision was ambiguous and was therefore construed in favor of the policyholder. Here, it was reasonable for the insured to expect each policy to be separte and to reocver the $250,000 limit under each of the five policies. 

Insurers' Motion for Judgment on the Pleadings Granted, In Part, Denied in Part

    The insurers' motion for judgment on the pleadings was successful, in part, for failing to properly name one insurer.   Landings Yacht, Golf and Tennis Club, Inc. v. Swiss Re Corp. Solutions America, 2022 U.S. Dist. LEXIS 210815 (M.D. Fla. Nov. 21, 2022).

    In 2019, two insurers, Peleus Insurance Company and North American Capacity Insurance Company ("NAC"), issued a policy to Landings. The policy covered funds transfer fraud. In 2021, two unauthorised withdrawals occurred. First, four unauthorised users took money from Landings' bank account. Second, unauthorised users, through a payroll company ("Paychex"), requested and received money from the account. Landings alleged that Psyche purported to act on behalf of and impersonated Landings.

    Landings submitted a claim for unauthorised withdrawals. The insurers denied coverage. Landings sued for breach of contract. The insurers sought judgment on the pleadings, arguing that Landings included an improper party (Swiss) and failed to state a claim upon which relief could be granted because it failed to plead funds transfer fraud under the policy. 

    Swiss did not issue the policy. Landings argued that NAC was not an active entity in Florida, and it should not be required to "navigate a very confusing web of corporate parents, subsidiaries, and affiliates to determine who was who." Landings cited no authority to support this proposition. As a party asserting a claim, Landings was required to name the proper parties to the action. Landings did not state a claim against Swiss because Swiss was not a proper party. The motion for judgment on the pleadings was granted to the extent that it dismissed the case against Swiss.

    The court then determined whether a claim had been made against the other insurers. The allegations about the first set of withdrawals were sufficient. Landings alleged the unauthorised users directed withdrawals from the account and purported to be Landings. The allegations on the second set of withdrawals were also sufficient. Landings alleged that additional unauthorised users, via Paychex, made unauthorised requests for withdrawals. Contrary to the insurers' arguments, Landings alleged that Paychex impersonated one of its vendors. 

    Therefore, the insurers' motion for judgment on the pleadings was granted in party as to Swiss, but was denied as to the other insurers.

Pre-Judgment Interest Not Awarded Under Flood Policy

    The court granted the insurer's motion to dismiss state law and extracontractual claims, including pre-judgment interest. Hurley v. Wright Nat'l Flood Ins. Co., 2022 U.S. Distl. LEXIS 203803 (W.D. La. Nov. 8, 2022).

    The insured suffered damage from Hurrican Delta. He filed suit, alleging that Wright National Flood Insurance Company breached the Standard Flood Insurance Policy (SFIP). The insured sought damages for state law claims for bad faith, diminution in value, actual repair costs, attorney's fees , litigation costs, and interest. Wright moved to dismiss the extracontractual state law causes of action for bad faith and various claims for damages, other than the damages sought for the alleged breach of the SFIP.

    The court explained that the Write-Your-Own (WYO) Program carriers issuing flood insurance under the National Flood Insurance Program (NFIP) arranged for the adjustment, settlement, payment, and defense of all claims arising from the policy. Congress underwrote all operations of the NIFP, including claims adjustment, through United States Treasury funds. A judgment against a WYO Program carrier constitued a judgment agaisnt FEMA, and consequently, a direct charge on the United States Treasury. 

    In the opposition to the motion, the insured conceded that the bad faith, general damages and attoreny fees claims were preempted by federal law. Therefore, the insured only opposed the dismissal of pre-judgment interest. A prior case from the Fifth Circuit had recognized that fair compensation to the plaintiff for his loss covered by the insurance policy issued by an insurer could only be achieved by including the award of prejudgment interst as a mandatory element of damages. West v. Harris, 573 F.2d 873, 883-84 (5th Cir. 1978). 

    Subsequently, however, the NIFP had changed so that all claims were ultimately paid by with United States Treasury funds. Cases held that an award of interest against a WYO company was precluded by the no-interest rule because it was a direct charge on the federal treasury. Therefore, the court agreed with Wright that the insured could not recover pre-judgment interest. The motion was granted as far as the extracontractual claims and claims for attorney's fees and interest. 

Blog Completes Fifteenth Year

    Insurance Law Hawaii completes its fifteenth year of existence this month. We began posting in December 2007, 1656 posts ago.

    We strive to keep readers abreast of new developments in insurance-related cases from Hawaii and across the country. Coverage issues in the past year have again been dominated by COVID-19, business interruption, construction defect, and cyber claims. This trend will likely continue over the next year and we will do our best to track developments. 

    Thank you for following along as we head into our sixteenth year.

Claim for Collapse After Demolition of Building Fails

    After several city citations and the eventual demolition of the insureds' apartment building, their claim for coverage based on collapse was unsuccessful. Barker v. AmGuard Ins. Co., 2022 U.S. Dist. LEXIS 202069 (W.D. Mo. Nov. 7, 2022).

    The plaintiffs purchased a three-story multi-family apartment building on March 9, 2009. Prior to the purchase, steel beams were installed in the basement along the east and south walls. By 2013, the south and east walls were leaning. 

    On March 13, 2017, the city building inspector observed "the foundation failing in several areas and deflection in the south wall." The building inspector issued a citation for a pubic nuisance in violation of the City Code. This was followed by several more citations against plaintiffs. The plaintiffs' inspector reported the basement walls were experiencing "extensive lateral deflections primarily due to the inadequate design of the basement walls." 

    Plaintiffs understood the issues to be "cosmetic.'" They had no work done on the property besides aesthetic upgrades. After additional citations were entered, the building was ordered demolished.

    Shortly before the demolition, the plaintiffs submitted a claim to AmGuard. Collapse was only covered when "an abrupt falling down or caving in of a building or any part of a building" occurred. AmGuard's inspection before the demolition found damage to the building, including a leaning foundation cracks in the walls and ceilings, and unsanitary conditions. Further, the walls were nearly vertical and there was no imminent danger of collapse. 

    When the claim was denied, plaintiffs filed suit. AmGuard moved for summary judgment. The court agreed with AmGuard. Plaintiffs did not create a genuine issue of material fact. The failed to submit evidence that the property's framework itself fell or collapsed. 

Insurers' Motion to Void Coverage for Failure to Attend EUO Denied

    The insurer's motion for summary judgment and disposal of the insureds' claim due to failure to attend an examination under oath (EUO) was denied. Perkins v Syndicate 4242 of Lloyd's of London, 2022 U.S. Dist. LEXIS 196922 (W.D. La. Oct. 28, 2022).

    The insureds' home suffered damage from Hurricane Laura on August 27, 2020, and Hurricane Delta on October 9, 2020. The insureds reported damage after Hurricane Laura under the homeowners policy. They filed suit in August 2021, alleging that Lloyds failed to adequately inspect their claims. The court issued a Case Management Order (CMO) that governed initial disclosures and the parties' participation in a streamlined settlement process for hurricane claims. The dispute did not settle, however, so the matter was set for a bench trial.

    Lloyds moved for summary judgment arguing that the insureds' claim for personal property loss should be dismissed because they refused to submit to an EUO. Under the "Duties After Loss" provision, the policy required the insures to submit records and documents requested by the insurer and to submit to an EUO. Lloyds requested an EUO after issues arose with respect to the insureds' claim for personal property loss. The insureds submitted lists representing various items allegedly damaged and valuing the items for replacement cost at $583,833.25. The insureds failed to provide receipts for most of the items even after requested by Lloyds. Further, the insureds' claimed the loss of two Persian rugs at a combined value of $110,000. The were unable to provide the rugs or any other proof of loss because they purchased the rugs at an auto show. Further, the rugs were thrown out without photographing them after the storm.

    In June, Lloyds requested an EUO for July 1, 2021, in New Orleans. The insureds objected to having to travel to New Orleans. Lloyds then offered to conduct the EUO in Lake Charles, closer to the insureds' home. In September 2021, the insureds responded that the claim had been adequately investigated and refused to attend the EUO. 

    Therefore, Lloyds contended the insureds failed to comply with their Duties After Loss which voided their claim for personal property loss.

    The court disagreed. Lloyds could not show prejudice from the insureds' refusal to sit for an EUO first requested in June 2021. Lloyds did not seek an EUO until several months after the storm and after compilation of the inventory. It also took the refusal by the insureds in September 2021 as the last word and made no move to compel the examination while the case was under the CMO's streamlined settlement process, even though the CMO allowed for the parties to seek leave to conduct discovery. Lloyds made no mention of the EUO until filing their motion for summary judgment in October 2021. 

    Therefore, Lloyds showed no basis for voiding the policy and their motion for summary judgment was denied,

    

Insurance Policy to Protect Hawaii's Coral Reefs

    The New York Times recently reported on an insurance policy issued to the non-profit Nature Conservancy to protect coral reefs in Hawaii. Cihistopher Flavelle, Catrin Einhorn, In a First, Nonprofit Buys Insurance for Hawaii's Threatened Coral Reefs, N.Y. Times, Nov. 21, 2022. 

    If damaged by a storm, coral reefs need immediate attention if they are going to recover. The Nature Conservancy plans a four step process to save damaged reefs:

•     Purchase a policy for all 400,000 acres of coral reefs surrounding the Hawaii island.
•     If reefs are sufficiently damaged by a storm the policy will pay out within two weeks.
•     The Nature Conservancy will ask the State of Hawaii, owner of the reefs, for a permit to repair the storm damage. 
•     Finally, if the state officials issue the permit, the insurance proceeds will pay teams of divers to repair the damage. Crews will have about six weeks     before coral begins to die.

      The payout of proceeds will not depend upon an inspection of the reefs for damage, which would take too long. Instead, the payment of benefits will depend on the force of the winds measured in real time. Under a scheme known as parametric insurance, a storm with winds of 50 knots, or 57 miles per hour, or more will generate a pay out. Such winds are strong enough to cause damage to the reefs, causing large waves that break off pieces of coral or knock tree limbs or other debris into the water, further damaging the reefs.

    The Times reports that reefs act much like sea wall, slowing down the destructive force of waves crashing toward the shore. 

    The two million dollar policy is the first of its kind in the United States for a natural structure. Insuring reefs has been used in Latin America with mixed success.

    

Fifth Circuit Reverses Summary Judgment Award to Insurer on Hurricane Damage Claim

    The Fifth Circuit reversed the district court's grant of summary judgment to the insurer on a property damage claim arising from Hurricane Harvey. Advanced Indicator and Manufacturing, Inc. v. Acadia Ins. Co., 50 F.4th 469 (2022).

    After Hurricane Harvey struck southern Texas in 2017, Advanced submitted a claim to Acadia for damage to its building that it claimed was caused by the hurricane's winds. Acadia sent an adjuster, Nick Warren, as well as an engineer, Jason Watson. Watson determined that pre-existing conditions - including ongoing leaks from deterioration and poor workmanship - caused the damage, rather than winds from Hurricane Harvey. Warren adopted these conclusions in his recommendations to Acadia. Acadia denied Advanced's claim based on these reports.

    Advanced sued Acadia, alleging breach of contract and bad faith. Advanced filed a motion to remand to state court which was denied. Acadia moved for summary judgment arguing that it did not breach the policy and that Advanced could not segregate any damages caused by hurricane from pre-existing damage. The district court granted Acadia's motion, finding that Acadia's denial of Advanced's claim was based on "extensive consideration of the evidence." Further, Advanced failed to carry its burden of showing that covered and non-covered damages could be segregated as required by Texas's concurrent causation doctrine. Finally, the bad faith claim was dismissed because there was no breach of contract.

    On appeal, the Fifth Circuit affirmed the denial of the motion for remand. Turning to the motion for summary judgment, the district court had granted the motion because: (1) it credited Acadia's investigation over Advanced's investigation, essentially finding that Hurricane Harvey did not cause Advanced' damages; and (2) the district court found that because Advanced could not differentiate its pre-existing losses from its Hurricane Harvey losses, its claim failed under Texas's concurrent causation doctrine. 

    The Fifth Circuit found that Advanced presented testimony of a public adjuster who stated that the roofing system "completely failed," and that the damage was caused only by the hurricane. Further, Advance's expert testified at his deposition that the damage was caused by Hurricane Harvey. Finally, prior reports demonstrated that the building was in good shape. Viewing this evidence in a light most favourable to Advanced, a reasonable jury could find that Hurricane Harvey's winds were the cause of the damage to the building 

    Next, the Fifth Circuit turned to the district court's alternative holding that Advanced could not segregate covered losses from non-covered losses, thereby invoking the concurrent causation doctrine. The insured had the burden, but could carry its burden by putting forth evidence demonstrating that the loss came solely from a covered cause or by putting forth evidence by which a jury could reasonably segregate covered and non-covered losses. 

    Here, the same evidence that supported Advanced's argument that Hurricane Harvey caused some of its damage supported its argument that Hurricane Harvey caused all of the damage. Both Advanced's public adjuster and expert testified that the hurricane was the sole cause of Advanced's loss. Accordingly, because a jury could reasonably find that all of Advanced's loss came from a covered cause, the concurrent causation doctrine does not bar recovery.

    Because it was possible the breach of contract claim would survive, the bad faith claims was also reversed in error.  Therefore, the district court's decision to grant summary judgment was reversed. 

Defense Owed to Insured Subcontractor, but not to Additional Insured

    Affirming the district court, the Eleventh Circuit agreed that the insured subcontractor was entitled to a defense against claims of faulty workmanship, but no defense was owed to the additional insured subcontractor. Cincinnati Spec. Underwriters Ins. Co. v. KNS Group, LLC, 2022 U.S. App. LEXIS 27949 (11th Cir. Oct. 6. 2022). 

    The general contractor on a project to build a casino and hotel hired GM&P Consulting and Glazing Contractors, Inc. (GM&P) to provide exterior glazing for the building. GM&P enlisted subcontractor KNS to assist it by glazing glass and installing window walls. KNS agreed to provide commercial general liability and other types of insurance, and to indemnify GM&P for liability for damages caused by any of its acts or omissions. KNS acquired a policy from Cincinnati. 

    The casino filed suit against the general contractor and subcontractors, alleging that GM&P installed defective "Glass Facade" and improperly installed windows. GM&P filed a Hird-party complaint against KNS due to KNS's alleged defective construction of the casino.

    Cincinnati filed this coverage lawsuit seeking a declaratory judgment that it had no duty to defend and no duty to indemnify KNS or GM&P in the underlying suit. Cross-motions for summary judgment were filed and the district court ruled that Cincinnati had a duty to defend KNS, but no duty to defend or indemnify GM&P. GM&P appealed and Cincinnati filed a cross-appeal on the district court's determination that it had a duty to defend KNS.

    The Eleventh Circuit first determined there was no duty to defend the additional insured, GM&P. The policy limited GM&P's coverage to "property damage" caused, in whole or in part, by KNS or KNS's agents. The underlying complaint alleged that GM&P was negligent in its furnishing of materials and installation of the Glass Facade. It alleged no negligence by KNS nor any of its agents. Without more, Cincinnati had no duty to defend or indemnify GM&P. 

    The district court's declaration that Cincinnati must defend KNS was all affirmed. The underlying complaint alleged that the Glass Faced supplied and installed by GM&P was "fraught with systemic defects, including loose gaskets between window panels, damaged sealants and panel frame, and misaligned window wall panels creating the risk of property damage." Further, it was alleged that another defendant supplied the glass panels installed by GM&P, which suggested that GM&P's faulty installation could have damaged a separate component of the property - the panels. Thus, when the pleadings were read favourably to the insured, they reasonably could lead to coverage.

    The Eleventh Circuit was not persuaded by Cincinnati's arguments that certain exclusions applied. The court also agreed with the district court that determining a duty to indemnify was premature. 

Insured Granted Right to Amend COVID-19 Complaint

    The California Court of Appeal determined the insured's complaint was properly dismissed, but the lower court erred in not granting leave to amend. Tarrar Enterprises, Inc. v. Associated Indemn. Corp., 2022 Cal. App. LEXIS 811 (Cal. Ct. App. Sept. 22, 2022).

    Tarrar Enterprieses, Inc. operated a utility consultnat business. The premises were closed in March 2020 due to local government orders. This caused Tarrar to suffer loss of business income. Its insurer, Associated, denied Tarrar's claim for "business income loss." Tarrar sued, but the trial court granted Associated's general demurrer without leave to amend. Tarrar appealed.

    The appellate court noted another Court of Appeal in Marina Pacific Hotel& Suites, LLC v. Fireman's Fund Ins. Co., 81 Cal. App. 5th 96 (2022), ruled for the insured because it pled "direct physical loss or damage" and state a claim for breach of the insurance policy. The trial court's disbelief of the allegations, whether ultimately reasonable or not, were reversed. 

    Here, Tarrar's complaint did not allege the necessary "direct physical loss of or damage to property," so the demurrer was properly granted. However, Tarrar argued in the trial court that if the demurrer was sustained, it should be granted leave to amend. The trial court ruled to the contrary.

    The Court of Appeal held that denial of leave to amend was approriate only when it conclusively appeared that there was no possiblity of alleging facts under which recovery could be obtained. Thus, denail of leave to amend was error.