Insurance Law Hawaii

Deductibles Limited to Number of Suits Filed Against Insured, Not Number of Actual Plaintiffs

    The court limited the number of deductibles to the counterclaims filed against the insured, not the more than 600 plaintiffs who were parties to the three underlying lawsuits. Probuilders Spec. Ins. Co. v. Yarbrough Plastering, 2016 U.S. Dist. LEXIS 134959 (E.D. Calif. Sept. 29, 2016).

    Yarbrough entered into contracts with Lenox Homes to provide stucco and drywall services in the homes Lenox would build. Each contract required Yarbrough to indemnify Lenox for any claims resulting from property damage arising out of the performance of the contract.     

    To address the need to indemnify Lenox, Yarbrough obtained CGL policies from ProBuilders. Each policy required Yarbrough to pay a deductible - in the first year it was $4,000 and in subsequent years it was $10,000 - per "claim." The policies indicated that a claim "means a request or demand for money . . . because of . . . property damage . . . received by [ProBuilders] or an insured including services of suit . . . against an insured." Further, Yarbrough was required to pay a deductible for "each and every claim under this policy, irrespective of the number of claims which may be joined in any one suit . . ."

    In 2009 and in 2013, in three separate lawsuits, approximatly 636 homeowners sued Lenox for various construction defects. Lenox cross-claimed against its subcontractors, including Yarbrough. Yarbrough tendered the defense of the lawsuits to ProBuilders. ProBuilders contributed $800,000 toward setting the claims brought by the homeowners against Lenox and obtained a dismissal from Lenox of the cross-complaints against Yarbrough.

    ProBuilders required Yarbrough to pay a deductible - up to the amount incurred - for each home at issue in the lawsuits filed against Lenox. Though Yarbrough refused to pay 636 deductibles, it paid a full deductible on each of the three cross-complaints filed by Lenox. Cross-motions for summary judgment were filed.

    ProBuilders argued that because Lenox sued Yarbrough, all of the claims in each of the underlying lawsuits were joined together, requiring Yarbrough to pay a deductible for each home. Yarbrough argued that the only claims made against it were those made by Lenox, i.e., the three cross-complaints.

    The court agreed with Yarbrough. The policies anticipated claims for indemnity rather than direct claims of liability. In fact, the purpose of obtaining the policies was for possible demands for indemnity by Lenox rather than for poor workmanship, which was not covered. The fact that Lenox was subject to three lawsuits in which hundreds of claims were made did not change the fact that these hundreds of claims were never made on the Yarbrough policies.

    

Excess Policy Triggered Once Retention Paid, Even if Loss Not Covered By Excess

   The Fifth Circuit determined that the Umbrella policies took effect once the primary insurance was exhausted by claims not covered by the Umbrella policies. Indem. Ins. Co. of N. Am. v. W&T Offshore, 2014 U.S. App. LEXIS 11775 (5th Cir. June 23, 2014).

      W&T had primary and Umbrella/Excess coverage to protect its offshore oil rigs from hurricane damage. The primary policies covered property damage and third party claims. The Umbrella policies only covered third-party claims. All policies covered Removal of Debris (ROD). 

   In September 2008, Hurricane Ike caused damage to 150 offshore platforms in which W&T had an interest. W&T submitted over $150 million in claims for property damage to the primary carriers. The primary policies had a $10 million self-insured retention (SIR). The primary policies covered $150 million in coverage over the $10 million SIR. Anticipating that W&T would submit all of its ROD claims, which were estimated to exceed $50 million, the Umbrella carriers filed suit for a declaratory judgment.

   The Umbrella policies argued the SIR for the primary policies had not been exhausted. Instead, W&T exhausted its underlying policies, using claims that were not covered by the Umbrella policies (i.e., the $150 million of property damage claims). 

   The district court granted summary judgment to the Umbrella policies, finding that the underlying insurance could only be exhausted by claims that were also covered by the Umbrella policies. Because W&T exhausted the underlying policies with property damage claims, coverage under the Umbrella policies had not been triggered and there was no coverage for the ROD claims.

   The Fifth Circuit reversed. The insuring agreement in the Umbrella policies provided, "We will pay on behalf of the Insured those sums in excess of the Retained Limit . . ." Under this provision the Umbrella policies were obligated to pay "sums in excess of" the "total of the applicable limits of the underlying policies listed," i.e., sums in excess of the $161 million of the underlying coverage. 

   Elsewhere, the Umbrella policies provided that "when the underlying policies were exhausted by payment of claim to which this policy applies, we shall have the right and duty to defend any claim or suit covered by the policy." On the other hand, there was no explanation as to how the Retained Limit must be paid or that it must be met with claims covered under the Umbrella policies. The Umbrella policies simply stated that the Retained Limit must be met. There was no explanation about what would happen if the Retained Limit was exhausted by non-covered claims. 

   

Indemnity Payment to Insured Satisfies SIR

   In response to certified questions from the Eleventh Circuit, the Florida Supreme Court found that a contractual indemnity payment to the insured satisfied the policy's SIR requirement. Intervest Constr. of Jax v. Gen. Fid. Ins. Co., 2014 Fl. LEXIS 568 (Fla. Feb. 6, 2014). 

   ICI Homes, Inc. a general contractor, hired Custom Cutting, Inc. to provide trim work, including installation of attic stairs in a residence ICI was building. Under the contract, Custom Cutting agreed to indemnify ICI for any damages resulting from Custom Cutting's negligence. The owner of the residence fell while using the attic stairs installed by Custom Cutting, injurying herself. The owner sued ICI, who sought indemnification from Custom Cutting.

    ICI's policy with General Fidelity had a $1 million SIR. The policy also had a transfer of rights clause granting the insurer some subrogation rights. 

   The case was mediated. The parties agreed to a settlement of $1.6 million. Custom Cutting's insurer proposed paying $1 million to ICI to settle the indemnification claim. ICI, in turn, would pay that $1 million to the residence owner. A dispute arose over wither ICI or General Fidelity was responsible for paying the remaining $600,000.

   ICI filed suit in federal court for a declaratory judgment and cross motions for summary judgment were filed. The district court ruled ICI could not use the $1 million indemnification payment to satisfy the SIR. The policy provided that the "Retained Limit' must be paid by the insured and that the "Retained Limit" would only be reduced by payments made by the insured.

   ICI appealed. The Eleventh Circuit found no controlling Florida law. A certified question was therefore presented to the Florida Supreme Court asking whether General Fidility's policy allowed ICI to apply the indemnification payment to satisfy the $1 million SIR?

   The Florida Supreme Court determined the language of the policy allowed the insured to apply indemnification payments received from a third party toward satisfaction of its $1 million SIR. ICI had bargained for the right to indemnification from Custom Cutting and, without an express policy provision to the contrary, should be able to use the payment to satisfy the SIR.

      The second certified question asked whether the common law rule of the "made whole doctrine" applied or whether the transfer of rights clause in the policy abrogated the doctrine. The policy provided that if the insured had rights to recover all or part of any payment made under the policy, the rights were transferred to the insurer. Therefore, the provision gave General Fidelity subrogation rights. However, the provision gave no guidance as to the priority to recover when the indemnity amount was insufficient to "make whole" both parties. 

   The Florida Supreme Court decided that the transfer of rights provision did not abrogate the made whole doctrine. ICI's right of priority was preserved by the language. 

City Covered From Lawsuits Filed After Hurricane-Damaged Dwellings Demolished

   The Fifth Circuit affirmed the District Court's finding that a duty to defend was owed St. Bernard Parish after it was sued for condemning and demolishing housing destroyed by Hurricane Katrina. Lexington Ins. Co. v. St. Bernard Parish Gov't, 2013 U.S. App. LEXIS 24292 (5th Cir. Dec. 6, 2013). 

   St. Bernard's policies with Lexington provided coverage for "property damage" and "personal and advertising injury." The policies included a $10,000,000 per occurrence and aggregate limit, subject to a $250,000 retained limit. 

   Lexington denied coverage and filed for a declaratory judgment that the policies' $250,000 retained limit applied separately to each alleged demolition or property damage asserted in the underlying actions. Under this theory, no defense would be owed because no property had a value exceeding $250,000. The District Court found that only one retained limit applied

    The policies defined personal and advertising injury as arising out of "the wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies by or on behalf of its owner, landlord or lessor." The District Court found this language ambiguous.

   On appeal, the Fifth Circuit noted that the policies' retained limit applied "separately to each and every occurrence . . . or series of continuous, repeated, or related occurrences." The Fifth Circuit held that the acts of demolition alleged in the underlying actions were related because they all resulted from St. Bernard's ordinance condemning the properties that remained in disrepair after Hurricane Katrina. Therefore, the $250,000 retained limit applied once to the alleged acts.

    The Fifth Circuit also agreed with the District Court that the phrase "by or on behalf of its owner, landlord or lessor" was ambiguous. Lexington argued this phrase modified wrongful acts, such that the eviction or invasion of right of occupancy must occur "by or on behalf of" the "owner, landlord or lesser" of the property. Conversely, St. Bernard's contended that the phrase modified "that a person occupies," such that the injury party must rightfully occupy the property "by or on behalf of its owner, landlord or lessor." The phrase was therefore ambiguous and was construed in St. Bernard's favor.

   

   

Court Rejects Pro Rata Allocation Formula

   The Court considered how to allocate defense and indemnity responsibilities among various insurers in The Travelers Indem. Co. v. W.M. Barr & Co., No. 2:08-CV-02649 (D. Tenn. Nov. 28, 2011).

   W. M. Barr manufactured a variety of solvents, removers, and other related products. Barr was sued in various lawsuits alleging injury resulting from benzene contained in its products. Barr held CGL policies issued by various carriers from 1965 to the present. One insurer, Travelers, sued, seeking a declaratory judgment and the recovery of a proportionate share from Barr and the various insurers for the costs of defending Barr in the underlying lawsuits. Barr filed a counterclaim against Travelers and cross-claims against the defendant insurers, alleging they had breached their policies for failure to defend Barr in the underlying suits.

   Barr moved for summary judgment to establish the insurers had a duty to defend or to settle, a finding that these insurers breached their contractual duties, and an award of damages.

   One group of insurers had issued polices without self-insured retentions. The central issue was whether these insurers were responsible only for a pro rata allocation of the costs of defendant Barr, with Barr covering defense costs that certain insolvent insurers would have been obligated to pay. The court found no express pro rata provision in the policies, nor any language to suggest the parties intended such a partial exclusion of coverage. So long as a lawsuit brought against Barr alleged benzene exposure during a period in which such a policy was in force, the insurer had to indemnify and defend such claims in their entirety, even if the injury at issue was, in part, suffered outside of the insurer's policy period. While the insurer could seek contribution from other insurers it had no such right against the policyholder as so-called "self-insurer."

   The court next considered the insurers who issued polices with self-insured rententions. The central issue under these policies was whether the "per occurrence" language of the SIR provisions was properly construed as meaning per claims, as the insurers argued, or as including all claims arising out of the same defect in the manufacture and sale of its products, as Barr asserted. The court agreed with Barr. The "per occurrence" language was properly construed as including all claims arising out of the same defect in the manufacture and sale of its products.

SIR Relieving Insurer of Obligations After Insured's Bankruptcy Violates Public Policy

   A self-insured retention provision that excused the insurer from providing excess coverage if the insured was bankrupt and unable to meet the SIR violated public policy in Rhode Island. Rosciti v. The Ins. Co. of the State of Pennsylvania, 2011 U.S. App. LEXIS 20400 (1st Cir. Oct. 7, 2011).

   The Roscitis purchased a mobile home manufactured by Monaco. The mobile home was defective and suffered from water leakage. This led to toxic mold, which rendered the home uninhabitable.

   The Roscitis sued Monaco for negligence, breach of warranty, and strict products liability. Monaco filed for bankruptcy. The Roscitis then amended their complaint to add Monaco's insurers, including The Insurance Company of the State of Pennsylvania (ICSOP), as defendants under Rhode Island's direct action statute. This statute allowed a direct action against the alleged tortfeasor's insurer when the tortfeasor filed for bankruptcy.

   Monaco's policy with ICSOP provided coverage for claims above $500,000. Monaco was self-insured for liability up to a retained limit of $500,000. The policy's Retained Limit Provision stated ICSOP's duty to indemnify arose only after "a complete expenditure of the insured's retained limit by means of payments for judgments, settlements, or defense costs." The Bankruptcy Provision of the policy provided the insured's bankruptcy would not relieve ICSOP from payment of any claim covered by the policy. The provision further stated,

But under no circumstanaces shall such bankruptcy, insolvency, or inability to pay require [ICSOP] to drop down or in any way replace [Monaco's] retained limit or assume any obligation associated with [Monaco's] retained limit.

  The District Court granted summary judgment to ICSOP because Monaco had not exhausted the retained limit, thereby triggering excess coverage.

   The First Circuit initially held there was no inherent conflict or ambiguity between the Retained Limit Provision and the Bankruptcy Provision. Rather, the Bankruptcy Provision was subject to the limitations in the Retained Limit Provision. ICSOP was liable above the retained limit if Monaco was bankrupt, but only after Monaco exhausted the retained limit.

   However, the court determined the Retained Limit Provision violated public policy because it nullified rights under the direct action statute. Rhode Island's public policy was to prevent insurance companies from avoiding their obligations when an insolvent insured was unable to make payment to discharge its liability. If the Retained Limit Provision was enforced, it would allow ICSOP to avoid its obligations thanks to Monaco's bankruptcy, a result contrary to public policy.

No Duty to Defend Before SIR Satisfied

   The insured, Georgia-Pacific, sued USF&G for failing to defend in three underlying lawsuits. Georgia-Pacific LLC v. United Stated Fidelity & Guar. Co., 2011 U.S. App. LEXIS 18014 (11th Cir. Aug. 29, 2011). The district court granted USF&G's motion for summary judgment because the policy's Self-Funded Retention Endorsement had not been satisfied.

   The Eleventh Circuit affirmed. The Retention Endorsement was equivalent to a deductible of $2.5 million per "incident," which modified the CGL Coverage Form. Admittedly, the Retention Endorsement in the policy was atypical. The Endorsement acknowledged USF&G's right and duty to defend covered claims, but effectively delegated that duty to Georgia-Pacific. USF&G had no obligation to indemnify Georgia-Pacific for any litigation expenses until Georgia-Pacific paid damages exceeding the $2.5 million self-funded retention.

   Georgia-Pacific had undoubtedly negotiated for this policy. The $2.5 million self-funded retention surely resulted in a premium substantially less than the premium that would have been payable without the self-funded retention.