Insurance Law Hawaii

Additional Insured Entitled to Full Coverage

    The New York Court of Appeals considered whether a Landlord was an additional insured under a policy obtained by the Tenant.  See Kassis v. The Ohio Casualty Ins. Co., No. 117 (N.Y. Ct. App. June 25, 2009). 

    The Landlord leased property to the insured, who, pursuant to the lease, obtained a commercial general liability insurance policy from The Ohio Casualty Insurance Company.  The policy provided bodily injury coverage where "the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement" which falls within the definition of an "insured contract."  The policy extended coverage not only to the named insured, but also to any person whom the named insured was required to name as an additional insured under a written contract or agreement.

    There was no dispute that the lease was a insured contract.  It obligated the insured to "indemnify, defend, and hold harmless" the Landlord from any liabilities arising out of occupancy of the premises caused by the Tenant.  The lease further provided the Tenant was to obtain a general liability policy "for the mutual benefit of Landlord and Tenant."

    When the insured's employee slipped on snow and ice outside the premises, injuring himself, he sued the Landlord.  Ohio Casualty disclaimed coverage because the Landlord was not a named insured.  In the coverage action, the Supreme Court found Ohio Casualty was obligated to defend.  The Appellate Division reversed.

    The Court of Appeals reversed the Appellate Division.  An additional insured was entitled to the same protection as the named insured.  Here, the insured was not required to complete and return to Ohio Casualty any notification forms listing the persons it intended to name as additional insureds.  The intended meaning of "mutual benefit" in the lease was that Landlord and Tenant were intended to enjoy the same level of coverage.  Because the Landlord was an additional insured, Ohio Casualty was obligated to defend.

Coverage Found Under Unusual Flood Exclusion, Anti-Concurrent Causation Clause

    Two issues were presented in Stewart Enterprises, Inc. v. RSUI Indem. Co., Inc., 2009 U.S. Dist. LEXIS 50156 (E.D. La. June 15 2009).  First, was the excess carrier's following form policy was bound by the primary carrier's exception to the flood exclusion?  Second, was the primary policy's anti-concurrent causation clause applicable?

    The insured owed various cemeteries, funeral homes, and other commercial properties that were damaged during Hurricane Katrina.  The insured held a primary layer of property insurance from Lexington Insurance Company with a limit of $10,000,000.  The first excess layer of coverage was provided by Lloyd's, with $15,000,000 in excess of the primary limit.  Finally, RSUI provided a second excess layer of coverage for $225,000,000 in excess of the $25,000,000 primary and first excess limits.

    Lexington and Lloyd's paid policy limits, but RSUI only made a "good faith" advance of a little over one million dollars.  The insured sued.

    Because RSUI's policy was following form, Lexington's flood exclusion was critical.  Lexington's policy excluded, "Flood, unless specified in Section 3, Sublimits of Liability, Paragraph H., and then only for such specified amount."  Section 3, paragraph J then set forth a $10,000,000 sublimit of liability "in the aggregate for any one policy year for the peril of Flood."  The Lexington policy, therefore, excluded the peril of flood, but in the same sentence created an exception to that exclusion by providing flood coverage up to $10,000,000.

    RSUI argued its policy simply adopted the flood exclusion as a traditional exclusion, i.e., without the $10,000,000 sublimit exception in the Lexington policy.  The court disagreed.  Had RSUI desired to exclude flood coverage, it could have done so by an exclusion in its own policy rather than by complex and indirect reliance on Lexington's exclusion with an exception. 

    Next, the court considered the insured's motion for summary judgment that the anti-concurrent causation clause was ambiguous.  The policy provided,

    This policy does not insure against loss or damage caused directly or indirectly by any of the following excluded perils.  Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss:  

    . . .                                                         

    P. loss or damage cause by or resulting from:

    . . .

    (2) Flood, unless specified in Section 3, Sublimits of Liability, Paragraph J., and then only for such specified amount

    (3) any and all loss from any other cause when occurring concurrently or sequentially with . . . Flood . . . .

    Regarding Paragraph P(2), the Court declined to enforce the anti-concurrent causation clause to preclude recovery for flood damage when the RSUI policy afforded coverage for that same peril.

    A different result was reached under paragraph P(3), however.  This paragraph contained anti-concurrent language independent of paragraph P(2) and the prefatory anti-concurrent causation language of the policy.  Paragraph P(3) excluded damage caused by wind only "when occurring concurrently or sequentially with . . . Flood."  Accordingly, the insured could recover for damage caused by wind which did not occur concurrently or sequentially with flood.

    Because the decision involved controlling questions of law, the Court granted the right to an immediate appeal under 28 USC 1292 (b).

Bad Faith Claims Based on Insurer's Lack of Concern Denied

    Bad faith and coverage for looting were at issue in Spears v. State Farm Ins. Co., No. 08-3183, 2009 U.S. Dist. LEXIS 49554 (E. D. La. June 12, 2009).  The insureds' home was damaged by Hurricane Katrina on August 29, 2005.  A homeowner's policy issued by State Farm provided coverage of up to $179,700 for dwelling and up to $134,775 for contents and loss of use. 

    In September 2005, State Farm opened a claims file and advanced $2500.  In November 2005, State Farm inspected the property.  On November 25, 2005, State Farm paid $55,205,87 for dwelling loss and $21,096 for contents and loss of use.  State Farm also opened a separate claims file for the alleged looting, but the claim was never paid. 

    The insureds filed suit in 2008, arguing State Farm had not paid full benefits.  Insureds included a claim for bad faith.  After suit was filed, State Farm made an unsolicited tender of $18,960 after an expert evaluation found additional uncompensated damages.

    State Farm moved for partial summary judgment on the bad faith and looting claims.  The Louisiana statues did not penalize insurance companies for failing to pay claims, but for failing to pay claims in a manner that was arbitrary, capricious, or without probable cause.  If the insurer had a reasonable basis to defend the claim and acted in good-faith reliance on that defense, the statutory penalties for bad faith were inappropriate.  Here, the insureds offered no evidence to suggest that State Farm acted in bad faith.  The basis of the claim appeared to be that State Farm was not sufficiently concerned about the insureds' family's welfare after the hurricane.  While there was a dispute about coverage, the insurer had not acted in bad faith.

    State Farm also moved for summary judgment to dismiss the looting claim because the insureds had not pled the claim in the complaint.  The insureds had moved to amend their complaint to add a claim for damage from failure to pay the looting claim, but the motion had been denied.  State Farm further argued the statutory extension of the prescription period for Katrina claims did not apply.  Because there was no looting claim in the suit, State Farm's motion for summary judgment was denied as moot.  It would be inappropriate for the court to address the applicability of the statute extending the prescription period for Katrina claims when the looting claim was not properly before the court.  The parties were free to file motions in limine on the relevance of evidence of looting in regard to State Farm's alleged liability for underpayment of the claim.

Eleventh Circuit Certifies Question on Effect of Cancellation Notice

    The insured held a commercial auto policy issued on June 5, 2006 by Infinity General Insurance Company.   See Infinity Gen. Ins. Co. v. Reynolds, No. 08-14785 (11th Cir. June 8, 2009) [here].  The premium was overdue as of July 5, 2006, and a cancellation notice was sent July 10, 2006.  The notice indicated that coverage would cease at 11:59 p.m. on the cancellation date, July 25, 2006, unless the premium payment was received before the cancellation date.   

    Thereafter, the insured's son was involved in an auto accident on August 2, 2006, fatally injuring his two passengers.  The insurer maintained there was no coverage because the policy had been canceled. 

    The insurer filed for declaratory relief. The district court granted summary judgment to the insurer, concluding there were no genuine issues of material fact because the premium had never been received and the policy was canceled. 

    On appeal, the Eleventh Circuit considered whether under Georgia law the insurer effectively canceled the policy.  A state statute seemed to favor the insurer, providing an effective cancellation notice must be mailed at least ten days prior to the effective date of cancellation.  Georgia case law provided, however, that a notice of cancellation stating a policy will be canceled on a specific date unless premiums due are paid prior to that date was not a notice of cancellation, but a demand for payment.  Accordingly, the insured argued the notice, which demanded payment, did not cancel the policy on July 25, 2006.  

       The insurer argued the case law was not relevant because the notices of cancellation there had been given before the premium was due, unlike the situation here.  The purpose of the statute was to provide the insured with an opportunity to make the premium payment before cancellation and keep the policy in force.

    The Eleventh Circuit decided the case law was unclear and certified the following question to the Georgia Supreme Court:

Is a notice of cancellation, properly given after the premium is past due, ineffective because it provides an opportunity for the insured to keep the policy in force by paying the past-due premium within the statutory ten-day period?

     

Faulty Data Base Increases Out-of-Pocket Medical Expenses

    If you have ever sought out of network health care, here is a story to make your blood boil. 

    Today's New York Times reports that Congressional investigators have discovered a faulty database overcharged patients for seeing doctors outside their insurance plan network.  The database was operated by Ingenix, a subsidiary of UnitedHealth Group.  The Congressional investigators found insurers submitted data that underestimated the costs of medical services, making patients pay out-of-pocket expenses that should have been covered by insurance. 

    Thanks to my fellow Damon Key blogger, Mark Murakami (hawaiioceanlaw.com), for forwarding this story to me. 

Supreme Court Bars Further Asbestos Claims Against Insurer

    In the term's insurance-related case, the United States Supreme Court held that additional suits were barred against an insurer that participated in a 1986 settlement of asbestos claims and contributed to a trust fund.  See Travelers Indemn. Co. v. Bailey, No. 08-295 (U.S. June 18, 2009) [here].  We previously reviewed the Travelers case here.

    Before the reorganization, Travelers faced suits by third parties, such as Manville factory workers, seeking compensation under Manville's policies.  In 1986, the Bankruptcy Court approved an agreement which enjoined the lawsuits against Johns-Manville Corporation's insurers, including Travelers. The reorganization plan created the Manville Personal Injury Settlement Trust to pay asbestos claims against Manville.  Travelers paid $80 million into the Trust.  

    Over decade later, plaintiffs started filing asbestos actions against Travelers in various state courts under state consumer-protection statutes and for violation of common law duties by failing to warn about the dangers of asbestos.  In 2002, Travelers invoked the terms of the 1986 Bankruptcy Orders, seeking to enjoin 26 direct actions pending in state courts.  The Bankruptcy Court issued a temporary restraining order.  After mediation, a settlement was reached in some of the suits, with Travelers paying $400 million, contingent upon entry of a Clarifying Order by the Bankruptcy Court stating that the direct action suits were prohibited by the 1986 Orders.

    Some individual claimants and Chubb Indemnity Insurance Company appealed.  The District Court affirmed, but the Second Circuit reversed, ruling that the Bankruptcy Court had no authority to block the direct actions because they involved insurers and not Manville.

    The Supreme Court, in a decision by Justice Souter, reversed the Second Circuit.  The direct action suits against Travelers fell within the scope of the 1986 Orders, which became final over two decades ago.  Further, the Bankruptcy Court retained jurisdiction to enforce its prior injunctions and issue the Clarifying Order.  It was error for the Second Circuit to reevaluate the Bankruptcy Court's exercise of jurisdiction in 1986.  The time to assert a challenge was on direct appeal of the 1986 Orders.

Insured Not Entitled to Independent Counsel Based on Speculative Conflict

    The insured's right to independent counsel after the insurer agreed to defend under a reservation of rights was the issue presented in National Casualty Co. v. Forge Indus. Staffing Inc., No. 08-3110 (7th Cir. June 3, 2009) [here].

    Forge was a staffing agency that placed temporary employees at companies throughout the United States.  NCC issued a policy insuring Forge against any legal damages stemming from intentional acts, including intentionally discriminating against any of its employees.  The policy did not cover, however, punitive damages nor "willful failure to comply with any law relating to employment practices."  Willful was defined as "acting with intentional or reckless disregard for such employment-related laws . . . ."

    Four employees filed anti-discrimination charges with the EEOC against Forge based on race, gender and retaliation.  NCC defended Forge and appointed counsel.  NCC, however, reserved the right to later deny coverage for willful acts and punitive damages.  Forge then insisted that NCC provide independent counsel because a purported conflict of interest existed based on the reservation of rights.   Forge asserted that indemnity under the policy depended on how the EEOC charges were defended with respect to Forge's knowledge of the applicable anti-discrimination laws.  When NCC refused to provide independent counsel, Forge hired its own counsel.

    NCC then filed for declaratory relief to resolve the conflict of interest issue.  The district court found no actual conflict existed and determined that Forge had to bear the cost of retaining its own counsel. 

    The Seventh Circuit affirmed.  The Court acknowledged that Illinois courts hold that conflict counsel must be appointed when the underlying complaint contains two mutually exclusive theories of liability, one which is covered and one which is not.  This situation typically arises when the policy covers negligent but not intentional conduct.

    Here, the specter of punitive damages was merely speculative and did not create an actual conflict.  Not until punitive damages were actually requested and upon a determination that the nature of the damages created a conflict was it necessary for a court to order appointment of independent counsel.

    Further, the EEOC charges did not contain any claims that Forge willfully violated the law nor were there any fact allegations regarding Forge's knowledge of anti-discrimination laws.  Only one theory was presented by the EEOC - that Forge committed an intentional tort by intentionally discriminating against its employees based on race and gender.  Only if the EEOC charges were amended to include allegations of willfulness, or evolved into a suit with allegations regarding Forge's willfulness, would an actual conflict arise, authorizing the appointment of independent counsel.

Insureds Entitled to Additional Flood Coverage in California

    The insureds' home was damaged by a flood in Ross, California, on December 31, 2005.  See Cook v. USAA General Indemn. Co., No. C-07-4042, 2009 U.S. Dist. LEXIS 45490 (N.D. Cal. June 1, 2009).  The home was insured under a National Flood Insurance Program policy issued by USAA.

    The home was located in a flood zone forty feet from Ross Creek, and valued at $350,000.  After the flood, the kitchen floor began to bulge over the central beam and floor tiles in the kitchen cracked.  Cracks also began to appear in the plaster of certain areas of the house.  Windows and doors became difficult to open and close.  

    USAA's claims adjustor initially concluded the total damage was $13,075.47.   After subtracting the $5,000 deductible, USAA issued a check for $8,057.47.  After a second USAA inspector visited the property, USAA issued another check for $4,180.32 for cleanup costs.  A third check in the amount of $12,126.11 was issued for supplemental repair costs for electrical, furnace and water mitigation expenses.  In total, USA issued $24,381.00 for damages to the house and cleanup, and the $5,000 deductible was exhausted.

    The insureds sought not only to repair the home, but to significantly redesign it, including raising it in order to protect against future flooding.  The insured wrote to USAA on July 24, 2006, notifying the insurer that they planned to begin repairs and renovations around August 4, 2006.  USAA conducted another inspection on August 4, 2006, while renovations were underway.  USAA's structural engineer reported it was highly unlikely that the flood caused any structural damage to the house.

    On December 22, 2006, the insureds completed a proof of loss form, requesting a total of $220,039.73 for flood damage.  USAA denied the proof of loss.  Although additional information was requested, the insureds were unable to respond to many of the requests and they were often slow in their responses.

    The insureds sued for breach of the policy.  The court agreed with insureds' expert that the flood caused the cracking and bulging, and damage to the doors and windows.  

    The court rejected USAA's argument that the insureds failed to cooperate.  The testimony demonstrated the insureds kept frequent contact with USAA and gave sufficient notice of their intent to work on the house.  Moreover, the December 22, 2006 proof of loss sufficiently described which portions of the house were damaged by flood. Because USAA had not issued any money to cover the floor, windows, doors and walls of the house, USAA was in breach of the flood policy.

    Meticulously combing through the record and considering competing estimates submitted by the parties, the court determined USAA was obligated to issue an additional payment of $52,690.24 for damage to the house caused directly by flood.

Uninsured Motorist Coverage Properly Denied Where Insured Not At Fault

    Uninsured-motorist coverage after the insured died in an auto accident was the issue in Estate of Anderson v. Safeco Ins. Co. of Illinois, No. 08-3452 (8th Cir. May 29, 2009) [here].

    Anderson was riding in a car driven by his ex-wife when flood water swept the car off a driveway.  Anderson died after being thrown from the vehicle.  The vehicle was insured by Sagamore Insurance Company.  Sagamore denied the Estate's claim because the cause of the accident was not the fault of Ms. Anderson, but the contractor's poor repairs to the driveway.  

    Anderson had an auto policy with Safeco.  The Estate filed a claim with Safeco, arguing the policy's uninsured-motorist provisions applied.  Safeco's policy provided,

A. Safeco will pay damage which an insured is legally entitled to recover from the owner or operator of an uninsured motor vehicle because of bodily injury:

        1.  Sustained by the insured; and

        2. Caused by an accident.

. . .

C. "Uninsured motor vehicle" means a land motor vehicle or trailer of any type:

        1.  To which no bodily injury liability applies at the time of the accident . . . [or]

        4.  To which a bodily injury liability bond or policy applies at the time of the accident, but the bonding or insuring company:

                a.  denies coverage. . . .

      Relying on Part C.1 of its policy, Safeco denied coverage.  Although the Sagamore letter indicated the vehicle was insured under its policy, the Estate failed to present sufficient documentation that the death was the result of an auto accident caused by an uninsured motor vehicle.  The Estate argued Safeco should provide coverage under Party C.4(a) because Sagamore denied coverage.  The district court granted summary judgment to Safeco. 

    The Eighth Circuit affirmed.  Sagamore did not dispute that Ms. Anderson was covered by its policy; it denied payment because it contested her liability for the accident.  It would be unreasonable in the context of uninsured motorist insurance to define "coverage" to include a denial by the liability insurer of the insured's fault in the accident.  "Coverage" related to whether the policy was intended to apply to a particular claim, whereas "liability" addressed the viability of the claim on the facts.  Because Sagamore denied payment on the basis that the insured, Ms. Anderson, was not at fault but did not dispute that the accident was generally covered by the policy, there was no denial of "coverage" within the meaning of Safeco's definition of "uninsured motor vehicle." 

    The court also rejected the Estate's argument that Safeco was estopped from arguing that Ms. Anderson did not meet the definition of an "uninsured motor vehicle" under Part C.4(a) of the policy because Safeco failed to reference this provision in its declination letter.  Safeco was not required to anticipate the Estate's erroneous argument that it was asserting liability under Part C.4 because the definition of "coverage" encompassed a tortfeasor with liability insurance but whose underwriter denied liability in that particular instance.

"Hot Topics" Covered at ABA, Insurance Coverage Litigation Committee's Website

    The ABA's Section of Litigation, Insurance Coverage Litigation Committee's website has been building a collection of insurance related articles, labeled "Hot Topics."  Many informative and timely articles appear at the site.  See my article, "Breadth of the Flood Exclusion: A Flood is a Flood, Including Storm Surge," posted on the site [Article] which discusses the Fifth Circuit's recent decision in Arctic Slope Regional Corp. v. Affiliated FM Ins. Co., No. 08-30050, 2009 U.S. App. LEXIS 6900 (5th Cir. April 2, 2009), involving the flood exclusion and the anti-concurrent causation clause.