Insurance Law Hawaii

Insured Cannot Sue to Challenge Binding Appraisal Decision

    The court dismissed the insured condominium association's challenge to an appraisal award. The Courtyards at Prairie Fields Condominium Association v. West Band Mut. Ins. Co., 2023 U.S. Dist. LEXIS 169458 (N. D. Ill. Sept. 22, 2023).

    In July 2020, the insured filed a claim with West Bend for damage to the property's roof and other building components as a result of wind and hail. West Bend inspected and estimated the replacement cost for the damage was $60,989.54. This amount was paid to the insured minus the $10,000 deductible. The insured believed the damage was so severe that the roofs need to be replaced, which the insured estimated would cost $1,389,600. The insured demanded an appraisal. 

    The policy's appraisal provision said a decision by any two of the two appraisers and umpire would be binding. The two appointed appraisers could not agree on the amount of the loss. The umpire proposed an appraisal in the amount of $123,252.09, which both he and West Bend's appraiser signed.

    The insured filed a complaint for breach of contract alleging that West Bend failed to adequately compensate the insured for the damage. West Bend moved for judgment on the pleadings.

    The insured argued that the appraisal award was not binding because the language in the appraisal provision was not sufficiently clear and unambiguous to constitute a waiver of the insured's right to sue. The court disagreed. The appraisal provision clearly and unambiguously bound the parties to the appraisal conducted pursuant to the terms of the policy. The Illinois courts had held that the word "binding" was sufficiently clear and unambiguous to constitute a waiver of a party's right to sue. The appraisal did not answer questions of contract interpretation or address any number of legal or factual disputes that could give rise to a claim based on the insurer's denial of liability. The binding appraisal provision simply meant that the insurer could still object to liability, but could not object to the amount assessed by the appraisal process. 

    Therefore, West Bend's motion for judgment on the pleadings was granted.

Appraisal Goes Forward Even Though Insurer Has Yet to Determine Coverage on Additional Claims

    The trial court's order granting the insured's motion to stay litigation and compel an appraisal was affirmed even though the insurer had not determined coverage on the insured's additional claims.Heritage Prop. & Cas. Ins. Co. v. Wellington Place HOA, 2023 Fla. App. LEXIS 6405 (Fla. Ct. App. Sept. 13, 2023).

    The insured homeowner's association reported roof damage to its insurer, Heritage, after Hurrican Irma struck. Heritage agreed the damage was covered, but issued no payment because the amount of loss was less than the deductible.

    The insured hired its own adjuster. The insured requested an extension of the policy's two year time limit to complete repairs because the claim was still in dispute and the insurer had not yet paid sufficient funds to allow necessary repairs. Heritage sent a revised estimate and asked the insured to send its adjuster's estimate in order to address any disputes. The insured submitted its adjuster's estimate of more than $6 million, including, for the first time, the cost to replace all the windows and sliding glass doors. 

    The insured demanded an appraisal. The record did not reflect whether Heritage ever responded. Nevertheless, the insured filed suit for breach of contract. After filing suit, the insured moved to stay the litigation and compel appraisal. Heritage responded that the estimate of damages to the windows and doors was a "supplemental" damage claim, not ripe for appraisal, because the insurer had yet to determine coverage. The trial court granted the insured's motion and found the claim was ripe for appraisal as to the amount of loss because the insurer admitted a covered loss had occurred and had been given sufficient information to assess the claim. 

    The appellate court agreed with the insured. This policy required a "reopened" or "supplemental" claim for hurricane damage to be reported to the insurer within three years after a hurricane. But the policy was silent as to whether a new coverage decision was required for a "reopened" or "supplemental" claim where the insurer had already admitted coverage for the initial claim. Heritage admitted coverage for the loss as a whole and determined the initially reported roof damage was covered. The claim was never settled and was still open when the insured subsequently reported additional roof damage and damage to its windows and doors. 

    Therefore, the insured's claim was ripe for appraisal. The parties' disagreement as to whether the insurer was required to pay for the additional damage was an "amount-of-loss" issue for appraisal to resolve, not a coverage issue. The order staying the litigation and compelling appraisal was affirmed. 

Appraisal Award for Damaged Roof Tiles Challenged

    The district court denied Travelers' motion for summary judgment and granted the insureds' motion in part regarding replacement of roof tiles damaged in a hail storm. Bertisen v. Travelers Home & Marine Ins. Co., 2023 U.S. Dist. LEXIS 159649 (D. Colo. Sept. 8,2023). 

    On May 8, 2017, the insureds' home was struck by a hailstorm that damaged their property. A Travelers inspector found damage to metal roof components, a deck, patio furniture and gutters. A partial payment of $6,381.04 was made. A further payment was made for personal property damaged by the storm. Travelers disputed that the hailstorm caused damage to all of the roof tiles. 

    Travelers' adjustor reinspected the property and observed additional damages caused by hail and another payment of $6,605.22 was issued. 

    The insureds demanded an appraisal regarding damaged roof tiles. Travelers agreed, but reserved for future resolution all coverage and causation defenses. Travelers' appraiser found approximately 191 cracked/fractured tiles. The appraiser noted that the manufacturer of the roof tiles not longer made such tiles. The insureds' appraiser found more damage and the two appraisers could not agree on the amount of loss. Linda McGown was appointed umpire and issued a total award with replacement cost value at $157,141.19 and actual cash value at $136,297.85. She noted that the replacement cost value was based on the fact that replacement tile could not be matched with the damaged tile. Travelers disputed the award because some damage was due to wear and tear. It made a total payment of $63,355.07. 

    The insureds filed suit. Ms. McGowan was deposed and testified that the appraisal award included the cost to replace roof tiles that were damaged apart from the hailstorm, including damage caused by wear and tear and other damage prior to the policy period. 

    The insureds and Travelers filed cross motions for summary judgment. Travelers did not seek to overturn the appraisal award. Travelers' motion seeking to dispose of the insureds' breach of contract claim was denied. Travelers could not challenge an award taking causation into account once the appraisal award was issued without moving to vacate, set aside, or modify the award. It was undisputed that Travelers had not paid to replace any roof tiles, including the 191 that its appraiser found were damaged by the hailstorm. 

    Further, Travelers could not challenge the appraisal panel's coverage determination on the cosmetic matching issue and the appraisal award was not binding. Travelers had not presented any motion to challenge the arbitration award. It was therefore confirmed by the court. 

    Turning to the insureds' motion, the court found Travelers had breached the policy by not payment for the replacement of 191 roof tiles. On the cosmetic matching issue, the court agreed whether the matching tile was covered under the policy was a coverage issue for the court to determine. Therefore, the motion for the remainder of the breach of contract claim was denied. 

    Finally, Travelers' motion to dismiss the insureds' bad faith claim was denied. There was no dispute that the hailstorm damaged at least some of the tiles and Travelers admitted it had not paid for any tiles. 

Ninth Circuit Certifies Pollution Exclusion Issue to Alaska Supreme Court

    The Ninth Circuit certified a question on the interpretation of the pollution exclusion to the Alaska Supreme Court. Estate of Joshua Wheeler v. Garrison Prop. and Cas. Ins. Co., 2023 U.S. App. LEXIS 23648 (9th Circuit Sept. 6, 2023).

    Josiah Wheeler moved into a cabin owned by Deborah Overly and Terry Summers in Tok, Alaska. Josiah was found dead in the cabin's bathtub. An autopsy showed that he died from acute carbon monoxide poisoning. The deputy fire marshal determined that the cabin's water heater had emitted the carbon monoxide. Summers had installed the water heater in the same small bathroom as the bathtub without connecting its flue to a venting system, in contravention of he heater's instruction manual. 

    Overly and Summers had a homeowers' policy issued by Garrison. The policy excluded medical payments for bodily injury arising out of "discharge, dispersal, release, escape, seepage or migration of pollutants." The policy defined "pollutants" as "a solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapour, soot fumes, acids alkalis, chemicals and waste.

    The Wheelers brought wrongful death and survivorship claims against Overly and Summers. A claim was submitted to Garrison. Coverage was denied on the basis that carbon monoxide was a "pollutant" that fell under the policy's pollution exclusion. Overly and Summers signed a confession of judgment in which they admitted liability for Josiah's death. They also assigned to the Wheelers their rights to pursue coverage against Garrison.

    The Wheelers filed a declaratory judgment action against Garrison seeking a declaration of coverage and an award of damages. The parties filed cross-motions for summary judgment. The district court held that the pollution exclusion applied to deny coverage and granted summary judgment for Garrison.

    On appeal, the Ninth Circuit noted that some states decided that carbon monoxide fell outside the total pollution exclusion after having previously held that its language was unambiguous with respect to a different substance.

    How the Alaska Supreme Court interpreted the pollution exclusion could determine the outcome of the case. If the  exclusion applied only to active industrial polluters or traditional environmental pollution, then there would be coverage in this case. In contrast, if the plain language unambiguously encompassed carbon monoxide exhaust from a residential water heater, coverage might be precluded, unless that result contravened the reasonable expectations of the insured. 

    The Ninth Circuit was unable to predict how the Alaska Supreme Court would analyse the Wheelers' case without expanding state law. Alaska had not considered the exclusion in the residential context or in any case involving a nonindustrial pollutant that caused no environmental harm.

    Therefore, the following question was certified to the Alaska Supreme Court:

Does a total pollution exclusion in a homeowners' insurance policy exclude coverage of claims arising from carbon monoxide exposure?

Insured's COVID-19 Claim Survives Motion to Dismiss under Accidental Contamination Coverage

    The insured's COVID-19 claim was dismissed under one policy, but survived a motion to dismiss under a second Restaurant Recovery Policy. Menchies Group, inc. v. Mass Bay Ins Co., 2023 U.S. Dist. LEXIS 153933 (S.D. N.Y. Aug. 31, 2023). 

    Menchies owned and operated frozen yogurt shops throughout the United States. Beginning in March 2020, Menchies alleged that the COVID-19 pandemic impacted its business. First, COVID-19 caused direct physical loss of or damage to its properties by altering their physical conditions so that they were no longer safe to use. Second various governmental orders caused a total or partial prohibition of access to Menchies' properties and a total or partial interruption of its business. Third, Menchies contended that its products were exposed to and contaminated by COVID-19 through employees and guests carrying the virus, making it necessary to destroy significant amounts of products. 

    Two carriers provided coverage to Menchies, but both denied coverage. One policy was issued by Mass Bay Insurance Company and included a Building and Personal Property Coverage Form which provided coverage for "direct physical loss of or damage to the Covered Property." The policy included a general virus exclusion. The second policy was issued by Houston Casualty Company (HCC). This policy included coverage for "Accidental Contamination," which included "any actual accidental or unintentional contamination, impairment or mislabeling of an Insured Product."

    Menchies sued both carriers. Each carrier moved to dismiss.  

    The court found no coverage under the Mass Bay policy. California law applied to the Mass Bay policy. A California appellate court had explained that the mere loss of use of physical property to generate business income, without any other physical impact on the property, did not give rise to coverage for direct physical loss." Inns-by-the-Sea v. Ca. Mut. Ins. Co., 71 Cal. App. 5th 688 (2021). Although Menchies also contended that the COVID-19 virus itself damaged its property, California courts had largely concluded that the physical presence of the COVID-19 virus on covered property did not demonstrate physical loss or damage. Menchies also submitted that it undertook remediation measures such as cleaning, disinfecting or replacing filtration systems in response to the virus and/or government shutdown orders. The court found, however, that the remediation measures did not constitute physical loss or damage under the policy.

    Further, the policy's virus exclusion barred coverage.Because the losses resulted from the COVID-19 virus, the virus exclusion applied and barred Menchies' claim. 

    Turning to the HCC policy, accidental contamination was covered. This included "any actual accidental or unintentional contamination, impairment or mislabeling of an Insured Product, which occurs during or as a result of its production, preparation, manufacture, packaging or distribution . . ." Menchies alleged that its food was accidentally contaminated because COVID-positive emplyess at its stores handled the frozen yogurt toppings. This allegation was sufficient to survive HCC's motion to dismiss.

Governmental Action Exclusion Bars Claim for Damage to Insured's Building

    The lower court's decision finding no coverage based upon the governmental action exclusion was affirmed by the Appellate Court of Illinois. McCann Plumbing, Heating & Cooling v. Pekin Ins. Co., 2023 Ill.App. LEXIS 300 (Ill. App. Ct. Aug. 23, 2023).

    McCann purchased a building to use for its heating, ventilation, and air conditioning business. The building was surrounded by two unihhabited properties which often flooded. The city determined that a building on the adjacent property had to be demolished. In the course of destruction, the McCann's building was damaged, leaving a portion of their building open to the elements. 

    McCann sought coverage from Pekin for damage incurred in the demolition. The policy provided coverage for "direct physical loss of or damage to" the covered property. Pekin denied coverage under the policy's governmental action exclusion, which provided,

We will not pay for loss or damage caused directly or indirectly by any of the following:

. . . 

c. Governmental Action

Seizure or destruction of property by order of governmental authority . . . 

    McCann filed suit for a declaratory judgment. The trial court granted Pekin's motion for judgmenon the pleadings, finding that the governmental action exclusion applied. The case was dismised.

    On appeal, McCann argued that because the city neither issued a demolition order for their buileing nor had the authority to cause damage to it pursuant to its demolition order concerning the adjacent property, the governmental action exclusion was inapplicable. 

    The appellate court focused on whether the damage was casued "directly or indirectly" from the destruction and whether that damage fell within the purview of the governmental action exclusion. The court found that the McCann's property damage was a loss that grew out of and was therefore "caused indirectly" from the destruction of property. Further, the McCann's loss fell under the governmental action exclusion because the damage stemmed from the city's demolition order.

    Therefore, the lower court's judgment was affirmed.

Motion for Reconsideration Challenging Appraisal Determining Cause of Loss Denied

    The court rejected the insurer's motion for reconsideration attempting to set aside the appraisal award that determined the cause of loss. Mesco Mfg., LLC v. Motorists Mut. Ins. Co., 2023 WL 5334659 (S.D. Ind. Aug. 18, 2023). 

    Mesco suffered a loss to the roofs of its facilities due to hail damage. Mesco sued Motorists alleging it breached the policy by failing to pay the full amount of the claim. The claim went to appraisal. The policy's appraisal provision reserved Motorists' right to deny the claim despite an appraisal going forward. The appraisal award noted that the loss was caused by hail.

    Cross-motions for summary judgment were filed. The court found that Motorists had breached the policy by failing to pay the arbitration award and granted summary judgment to the insured. The "right to deny" clause did not give Motorists the unfetterd right to disregard the umpire's award if it disgreed about the amount of loss caused by hail. The only dispute was whether the damage was caused by hail, and the umpire found that it was. 

    In seeking reconsideration, Motorists relied on prior cases from the district court holding that causation was an issue preserved for the court to determine after appraisal. However, the cases predated a Seventh Circuit decision upholding the umpire's award, and the scope of loss decision, as binding. 

    The motion for reconsideration was denied, as it was based on arguments that the court previously rejected and arguments that could have been raised in Motorists' summary judgment briefs.

    

Denial of Claim Based Upon Dispute over EUO Overturned

    The First Circuit reversed the district court's granting of summary judgment to the insurer based upon a dispute over compliance with attending Examinations Under Oath. Philadelphia Indem. Ins. Co. v. BAS Holding Corp., 2023 U.S. App. LEXIS 21573 (1st Cir. Aug. 17, 2023).   

    An arsonist destroyed the State Building, a landmark building, owned by BAS Holding Corporation ("BAS"). BAS sought coverage from its insurer, Philadelphia. Philadelphia investigated the loss and became convinced that the State Building may not have been insured under the policy. Philadelphia sought a EUO and asked BAS to designate someone who could answer questions relating to eight enumerated topics. BAS sent Susan Rodrigues to the EUO. She handled all the insurance and oversaw maintenance of the State Building. 

    Rodrigues tried to answer all questions put to her at the EUO. For questions she could not answer, she offered to research and provide a response at a later date. The day after the EUO, Phildelphia requested six individuals Rodrigues identified as potentially having additional information to attend EUOs. Philadelphia asked that George Carney, the president and owner of BAS, testify. BAS stated it would respond later to Philadelphia's request to take additional EUOs. Philadelphia claimed this was the first refusal by BAS to produce Carney for an EUO. BAS then wrote to inform Philadelphia it would provide additional witness for EUOs if it was "reasonably required," as stated in the policy. Philadelphia argued this constituted the second refusal of BAS to produce Carney for an EUO. 

    Philadelphia then wrote back that it was permitted to take the EUO of Carney because he owned and managed BAS. Philadelphia also added additional questions and document requests. Less than 72 hours later, and before BAS could respond, Philadelphia denied the claim based upon failure to attend the EUOs.

    Philadelphia then filed suit seeking declarations that the State Building was not covered under the policy and that BAS breached the policy's EUO conditions. The parties filed cross-motions for summary judgment. The district court granted Philadelphia's motion due to lack of cooperation of Carney.

    On appeal, the First Circuit considered whether BAS willfully and without excuse refused Philadelphia's request for an EUO of Carney, thereby breaching the policy. The First Circuit determined that asking why additional EUO's were necessary was not an unexcused and willful refusal to present Carney for an EUO. BAS presented Rodrigues who answered what she could and was not evasive. Carney's non-appearance at an EUO in and of itself did not support the district court's grant of summary judgment as a matter of law to Philadelphia. 

    

Portions of Policyholder's Expert's Opinions Excluded

    The federal district court granted, in part, the insurer's motion to exclude portions of expert testimony. Tundra M. Holdings, LLC v. Markel Ins. Co., 2023 U.S. Dist. LEXIS 139952 (D. Alaska Aug. 10, 2023).    

    Plaintiff alleged a building it owned suffered damages consisting of building roof failure due to snow load. Plaintiff submitted a claim to Markel for its loss. 

    Plaintiff hired an engineering firm to conduct an inspection. The recommendation was to install snow guards and that 28 rafters be replaced with new beams. The evaluation did not state that the recommendation was required by law or ordinance. Nor did the evaluation make mention of replacing the metal roof on the building or anything about the water system or sprinkler system. Plaintiff then obtained an estimate of $687,500 for roof repair/replacement, store front repair, a sprinkler system installer and a water system upgrade. 

    Markel only paid $117,406.78 because the $687,500 estimate included upgrades that were not required by ordinance or law. The policy provided that "losses and costs incurred in complying with recommended actions or standards that exceed actual requirements imposed by ordinance or law are not covered." 

    Markel sent plaintiff a reservation of rights letter noting that coverage was excluded for loss or damage that was the result of "faulty, inadequate or defective design, specifications, workmanship, repair, construction, renovation, remodelling, grading or compaction." 

    Plaintiff filed suit asserting breach of contract, bad faith claims handling, and breach of the covenant of good faith and fair dealing. Plaintiff disclosed expert Elliot Flood to render "opinions on insurance industry customs, practices, and standards." Flood had over 30 years of experience in the insurance industry and had worked as an investigator and defense attorney for major insurers as well as insureds.

    In his expert report, Flood offered 25 numbered opinions as well as numerous other opinions. Markel moved to exclude some of Flood's opinions. 

    Markel first moved to exclude Flood's opinions as to whether the estimate encompassed repairs that were required by law or ordinance as unreliable because Flood lacked the expertise to cover such opinions. For example, Flood opined that Markel had no reasonable basis to exclude paying for the cost of repairs necessary to rebuild to the minimum required by current building codes as reflected in the estimate. The court agreed that Flood was not qualified to offer an opinion as to whether the repair proposal would take the building back up to code because he was not a certified engineer or architect, and had no expertise in construction, renovation, or restoration of a commercial building. Flood also had no expertise in the application of the building codes or ordinances that applied at the relevant time. His opinions on this issue were unreliable and had to be excluded. 

    Markel also argued that some of Flood's opinions were legal conclusions that should be excluded. He opined that "under the terms of the policy, even if there is a defective design, that does not defeat coverage if the loss is caused by a listed peril, such as collapse from excessive weight of snow." He also opined that the Markel adjuster "knew, or should have known, the the defective design exclusion would not apply" and that Markel had "no reasonable basis" to send the reservation of rights letter because it was based on the defective design exclusion. 

    The court agreed that these interpretations were opinions of the defective design provision which had to be excluded. Flood could not offer such an opinion nor could he offer an opinion as to whether it was reasonable for Markel to send the reservation of rights letter based on the defective design provision because the foundation of the opinion was Flood's interpretation of the policy.

    Markel also sought to exclude Flood's opinion on Markel's net worth. Flood opined that the audited financial statement showed Markel's net worth to be $1,637,775,000. Here, Flood was not attempting to authenticate Markel's public financial filing, but was stating that he used the filing to calculate Markel's net worth. Such evidence was relevant should the jury determine that punitive damages were warranted. The net worth opinion was also reliable because Flood had sufficient expertise to offer such an opinion,. He was a former had auditor and CPA with special expertise in insurance accounting. Therefore, Flood's opinions on Markel's net worth would not be excluded. 

    

    

Duty to Indemnify May Exist Even if Duty to Defend Does Not

    The Fifth Circuit affirmed the district court's granting the insurer's motion for summary judgment on the duty to defend, but reversed the district court's ruling that there was no duty to indemnify. Liberty Mut. Fire Ins. Co. v. Copart of Connecticut, Inc., 2023 U.S. App. LEXIS 18674 (4th Cir. July 31, 2023). 

    Copart was an online car-auction company that sold used, wholesale and repairable vehicles. Copart owned several parcels of land in South Carolina on which it operated machine salvage junkyard and vehicle was facilities. 

    Eight property-owner plaintiffs sued Copurt alleging that they owned properties located near Copart's land and that Copart's operations damaged their properties. They alleged that wrecked and salvaged vehicles and machines stored on unpaved lots leaked gasoline, oil, hydraulic fluids, antifreeze, and other hazardous fluids and materials into the soil. When there was significant rain, water, soil, sediment and hazardous materials and chemicals washed from the Copast property into a creek that ran through the owners' property. The creek was tested and had alarming levels of heavy-metals and other dangerous elements present.

    Copart tendered to Liberty under its CGL policy. Liberty denied coverage based upon the pollution exclusion. Property damage caused by discharge, dispersal, seepage, migration, release or escape of pollutants was excluded. "Pollutants" was defined as any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste."

    Liberty filed a declaratory action against Copart. The district court granted Liberty's motion for summary judgment and denied Copart's cross-motion. The court found that the pollution exclusion was unambiguous and that it was clear that the underlying plaintiffs alleged damages caused by pollutants, so Liberty had no duty to defend under the CGL policy. The court further noted, "because Liberty Mutual has no duty to defend the underlying suit, it follows that it has no duty to indemnify,"

    On appeal, Copart argued many of the underlying allegations alleged facts that did not fall within the pollution exclusion. Copart pointed out that the underlying complaint named "30+ independent substances," including some non-pollutants such as water, soil, and sediment. Therefore, Copart argued, the underlying suit included some allegations not excluded from coverage by the pollution exclusion, thereby triggering Liberty's duty to defend.

    The court rejected this argument. It exceeded the bounds of plausibility to interpret the complaint as alleging "independent" harm by the non-pollutant substances. The water was indeed alleged to include some non-pollutants like soil, alleged to include some non-pollutants like soil, sediment, dirt, rock and sand, but the water was also consistently and repeatedly alleged to include "hazardous materials and chemicals" and chemical waste." Therefore, the district court did not err in declining to read into the complaint allegations of "independent' harm by non-pollutants alone. 

    The district court's assumption, however, that the duty to indemnify could not exist where there was no duty to defend was faulty. Granting summary judgment on the duty to indemnify was premature. The facts adduced a trial could differ from the allegations, and a duty to indemnify could be shown notwithstanding the absence of a duty to defend. This was not a case where no conceivable set of facts could give rise to coverage.