Insurance Law Hawaii

District Court Judge Comes Full Circle on Anti-Concurrent Cause Provision

     Senior Federal Judge L.T. Senter, Jr. of the Southern District of Mississippi has come full circle in his analysis of the anti-concurrent cause provision in home-owner's policies.  Judge Senter has been in the trenches, handling many of the initial Katrina insurance related cases at the trial court level.  In some of Judge Senter's initial Katrina decisions, he struck the anti-concurrent cause clause as ambiguous.  See Leonard v. Nationwide Mut. Ins. Co., 438 F. Supp. 2d 684, 693 (S.D. Miss. 2006); Tuepker v. State Farm, 2006 U.S. Dist. LEXIS 34710 (S.D. Miss. May 23, 2006).  These cases were eventually reversed by the Fifth Circuit.  See See Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419 (5th Cir. 2007); Tuepker v. State Farm, 507 F.3d 346 (5th Cir. 2007).  Reversing course, Judge Senter recently offered a cogent analysis in discussing the applicability of the anti-concurrent cause provision when denying an insurer's motion for reconsideration.  See Dickinson v. Nationwide Mutual Fire Ins. Co., No. 1:06CV198 (S. D. Miss. April 25, 2008). Dickinson.PDF   

     In language nearly identical to that used by First Insurance Company of Hawaii's home-owner's policy, the anti-concurrent cause provision in Nationwide's policy stated:

   Property Exclusions:

   a.  We do not cover loss to any property resulting directly or indirectly from any of the following.  Such a loss is excluded even if another peril or event contributed concurrently or in any sequence to cause the loss.

Nationwide argued because wind damage preceded the damage from storm surge flooding and therefore occurred in a sequence of events, the "in any sequence" language invalidated plaintiff's claim for wind damage. 

     Judge Senter found this interpretation unreasonable.  The anti-concurrent cause provision applied only to damage to a specific item of insured property that was attributable to both the excluded peril of flooding and also another cause, i.e., wind.  Any loss in which the excluded peril of flooding had no part, i.e., wind damage did not fall within the anti-concurrent cause provision because it was not part of "the loss" the provision referred to.  Wind and storm surge flooding were separate causes of separate damage to the insured property, and the separate wind damage did not contribute, sequentially or concurrently, to "the loss" caused by storm surge flooding.  Accordingly, the wind damage was outside the anti-concurrent cause provision and was a covered loss while the subsequent flood damage was not.

     In conclusion, Judge Senter stated, "Wind and flood were separate and not concurrent causes of damage to the insured property, and the wind damage that precedes the storm surge does not contribute, sequentially or concurrently, to 'the [excluded] loss' caused by storm surge flooding and referred to by the ACC."  The Fifth Circuit could not have stated it better.

      

Seventh Circuit Narrows Scope of Coverage Under Umbrella Policies

Umbrella coverage typically provides two types of coverage: excess coverage and gap-filling coverage, which obligates the insurer to defend for any loss covered by the terms and conditions of the umbrella policy and not covered by the primary policy.  In Dairy Road Partners v. Island Ins. Co., Ltd., 92 Hawai`i, 992 P.2d 93 (2000), the Hawaii Supreme Court found there was no duty to defend under a commercial umbrella policy that was excess to an auto policy.  The Hawaii Supreme Court has not analyzed the reach of umbrella policy since Dairy Road.

In a recent decision by the Seventh Circuit, the court determined the insured was not entitled to coverage under its umbrella policies.  See BASF AG v. Great American Assurance Co. , No. 06-3938 (April 14, 2008 7th Cir.).   The insured manufactured, marketed and sold Synthroid, a synthetic thyroid drug.  Before it was marketed, a study was commissioned to prove Synthroid was superior to competing synthetic thyroid hormones on the market.  Instead, the study determined Synthroid and its competitors were bioequivalents and that all other synthetic hormones were as effective as Synthroid in treating thyroid diseases.  The insured blocked publication of the study and continued to publicly maintain that Synthroid had no known bioequivalents.

When the Wall Street Journal revealed the results of the study, over 70 lawsuits were filed against the insured alleging the insured had wrongfully asserted monopoly control over the market for thyroid medication.   The insured tendered the complaints to its primary insurers, who refused to defend.  The insured notified its umbrella insurers, but reached a settlement in the underlying suits before the umbrella carriers could decide on coverage.  The insured then sued its primary insurers and ultimately settled.

Subsequently, the insured sued its umbrella carriers for settlement and defense costs not covered by the primary policies in the underlying litigation.  The district court found the umbrella insurers had breached their contractual duty to defend the underlying suits.  Although the underlying complaints did not allege libel, slander, or disparagement, the district court determined the claims grew out of various disparaging, defamatory, and libelous statements, such as the claim that Synthroid was superior to other thyroid drugs.  Such claims would fall under the umbrella policies definition of advertising injury.

            The Seventh Circuit reversed.  The underlying complaints were insufficient to sketch a claim for common-law slander, libel or disparagement.  The complaints only allegedly actionable statements did not “disparage” thyroid patients but attacked other thyroid drugs as unsuitable bioequivalents of Snythroid. 

Hawaii Appellate Court Affirms Denial of PIP Benefits Based on Indendent Medical Exam by Insurer's Doctor

At stake in Gillan v. Government Employees Insurance Co., No. 28075 (Haw. Ct. App. April 17, 2008), was whether the insurer could deny Personal Injury Protection (PIP) benefits based upon a review of medical records by a doctor chosen by the insurer but without the insured’s approval.

Gillian was injured in an accident while a passenger in a car insured by GEICO.  It was undisputed Gillian was entitled to treatment under PIP coverage of GEICO’s policy.  The problem arose when Gillian received additional treatment many months later.  GEICO then hired its own doctor to review the insured’s medical records.  GEICO’s doctor determined Gillian’s subsequent complaints were not a result of the accident and GEICO denied the additional claims. 

The insured sued, alleging GEICO had improperly hired a doctor to do a record review in violation of Haw. Rev. Stat. §431:10C-103.5 (b).  The purpose of Haw. Rev. Stat. §431:10C-103.5 (b) was to require an insurer to obtain mutual agreement from the claimant regarding the identity of the examiner to perform an independent medical exam (“IME”) if the insurer questioned whether past or future treatment was appropriate and reasonable.  Further, the statute required the insurer to pay PIP benefits for appropriate and reasonable treatment.  The circuit court granted the insured’s motion for summary judgment, holding that GEICO was prohibited from relying on its doctor’s report as a basis for denying PIP benefits.

 

On appeal, the ICA crystallized the issue as follows: in the context of Haw. Rev. Stat. §431:10C-103.5 (b), is a “record reviewer” an independent medical examiner?  If the answer was “yes,” then GEICO violated the statute by selecting its doctor to review the insured’s medical records without approval of the insured. GEICO argued a record review was an ancillary procedure incident to conducting an IME and not by itself an IME.  In Engle v. Liberty Mutual Fire Ins. Co., 402 F. Supp. 2d 1157 (D. Haw. 2005), the federal district court held that a record review performed in isolation was not an IME under Hawaii’s statute.  Further, Haw. Rev. Stat. §431:10C-103.5 (b) did not equate a record review with an IME.  The ICA found Engle’s reasoning persuasive and concluded GEICO did not violate Haw. Rev. Stat. §431:10C-103.5 (b) by hiring the record reviewer. 

Fees Hawaii Charges Insurance Companies Deemed Unconstitutional Tax

Although it did not address insurance coverage, the Hawaii Intermediate Court of Appeals (ICA) issued an important decision regarding the state’s regulation of the insurance industry in Hawaii Insurers Council v. Lingle, et al, No. 27840 (Haw. Ct. App. April 14, 2008).

The Insurance Regulation Fund (IRF) was established by the legislature in 1999, allowing the Hawaii Insurance Commissioner to assess amounts against insurers for payment into the IRF.  The assessments were designed to support the operations of the Insurance Division and to enable the Insurance Commissioner to administer the insurance laws in the state.  The statute further provided that excess contributions to the IRF be returned to the insurers.

When an excess existed in the IRF in 2002, the legislature authorized transfer of $2,000,000 from the IRF to the General Fund.  The Hawaii Insurers Council (HIC) sued the State, contending the transfer of assessments to the General Fund violated the Hawaii and United States Constitutions because the assessments were unconstitutional taxes. The circuit court agreed and granted HIC’s motion for summary judgment.

The ICA affirmed.  The Hawaii Constitution prohibited agencies of the executive branch from taxation functions.  The court then analyzed whether the assessment was truly a tax or just an assessment.  The ICA utilized a three part test from State v. Medeiros, 89 Hawaii 361, 367, 973 P.2d 736, 742 (1999) to determine whether the charge: (1) applies to the direct beneficiary of a particular service, (2) is allocated directly to defraying the costs of providing the service, and (3) is reasonably proportionate to the benefit received. 

The assessments failed the first prong of the Medeiros test.  The regulation of the insurance industry benefited the public-at large, not the insurers who paid the assessments.  The assessments also failed the second and third prongs.  Assessment funds transferred from the IRF to the General Fund were not allocated directly to defraying the costs of providing services to the insurers.  Nor were they reasonably proportionate to benefits received by the insurers.  Had the assessments borne a reasonable relationship to the cost of the services rendered by the Insurance Division, there would not have been millions of dollars in excess assessments available for transfer to the General Fund.

Further, the assessments violated the separation of powers doctrine because they were invalid taxes assessed by the executive branch.

The ICA’s decision will be a blow to the State because it could affect more that $1 billion in funds collected from insurers.

Ninth Circuit Strikes Down Requirement for In-State Agent to Sign Off on Policy

Hawaii does not require a non-resident agent to secure approval for a newly written policy from a Hawaii resident agent.  Nevada, however, does have such a law.  The Ninth Circuit recently struck down Nevada’s countersignature law as a violation of the Privileges and Immunities Clause of Article IV.  See Council of Insurance Brokers v. Molasky-Arman, No. 04-17271 (9^th Cir. April 10, 2008). 

Nevada’s countersignature law provided that no authorized insurer could write or renew a policy on persons, property or risks in Nevada except through a licensed agent residing in Nevada.   The statute further required that the countersigning agent be paid a commission of at least five percent of any resulting premium.   The District Court found the statute was unconstitutional.

The Ninth Circuit affirmed, determining that the Nevada statute deprived nonresident licensed brokers and agents of the opportunity to conduct business on the same terms as resident agents and brokers.  Therefore, the provision was unconstitutional under the Privileges and Immunities Clause.

Residents and nonresidents alike may sell or negotiate insurance in Hawaii if they are licensed.  Haw. Rev. Stat. §431:9A-103 (a).  Nonresidents may secure a nonresident license so long as they are licensed and in good standing in their home state, and submit a proper application.  Haw. Rev. Stat. §431:9A-108.

Insurers Score More Victories by Overturning Adverse Katrina Decisions

Insurers continued an impressive record of securing reversals on appeal from adverse coverage decisions in Katrina related litigation.  The two latest cases were issued on  consecutive days, one by the Fifth Circuit Court of Appeals in Broussard v. State Farm Fire and Casualty Co., No. 07-60443 (5th Cir. April 7, 2008) and the other by the Louisiana Supreme Court in Sher v. Lafayette Ins. Co., No. 07-C-2441 (La. April 8, 2008).

Broussard was the fourth important Katrina case in which the Fifth Circuit reversed decisions issued by the district court.  See In Re Katrina Canal Breaches Litigation, 495 F.3d 191 (5th Cir. 2007)(overturning district court’s decision that flood exclusion is ambiguous); Leonard v. Nationwide Mutual Ins. Co., 499 F.3d 419 (5th Cir. 2007)(reversing district court’s determination that anti-concurrent cause provision is ambiguous); Tuepker v. State Farm Fire & Casualty Co., 507 F.3d 346 (5th Cir. 2007)(also reversing district court’s ruling that anti-concurrent cause provision is ambiguous).

Broussard addressed allocating the burden of proof in determining whether there is coverage for a total loss to a house caused both by wind (covered peril) and flood (excluded peril).  The district court placed the burden in the insurer to establish by a preponderance of the evidence that a portion of the loss was attributable to the excluded flooding.  Consequently, the district court granted a Judgment as a Matter of Law in the homeowner’s favor, finding there was no evidence upon which the finder of fact could rationally determine that State Farm had met its burden to demonstrate no damage was caused by wind.

The Fifth Circuit reversed. Two of State Farm’s experts testified that Katrina’s winds were not strong enough to cause structural damage to the home.  Therefore, State Farm’s evidence was more than sufficient to withstand a motion for Judgment as a Matter of Law.  The Court followed its burden of proof discussion from Tuepker.  The insured still had the basic burden of proving a right to recover under the policy.  The insurer then bore the burden of proving that a particular peril fell within a policy exclusion.  The case was remanded with instructions that the parties must meet their burdens of proof.  The ultimate allocation of wind and water damage was a question of fact for the jury.

In the Sher case, both the trial court and Court of Appeals found the flood exclusion was ambiguous because it did not exclude man-made floods, only naturally caused floods.  The flood exclusion in Sher was similar to the flood exclusion used in homeowner’s policies issued in Hawaii:

    1.    We will not pay for loss or damage caused directly or indirectly by any of the following.  Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss:
    .  .  .

g.    Water [including flood].

The Louisiana Supreme Court unanimously reversed.  The Court determined, “The plain, ordinary and generally prevailing meaning of the word ‘flood’ is the overflow of a body of water causing a large amount of water to cover an area that is usually dry.”   The Court added, “This definition does not change or depend on whether the event is a natural disaster or a man-made one – in either case, a large amount of water covers an area that is usually dry.  The plain, ordinary and generally prevailing meaning is all-inclusive.”

Although policyholders scored some early victories in the Katrina litigation, insurers have successfully overturned adverse trial court decisions on appeal.

Ninth Circuit's Latest Coverage Case Finds No Coverage Under Auto Policy

Continuing with its recent torrent of insurance coverage cases, the Ninth Circuit recently addressed whether an officer and director were covered under the corporation’s auto policy.  See Progressive Casualty Ins. C. v. Owen, No. 06-35677 (9^th Cir. March 26, 2008). The case relied on Montana law, which follow principles similar to those adopted in Hawaii for interpreting insurance policies.

Arelene Owen was a vice-president, secretary and director of Owen Trucking, the insured.  Progressive issued a commercial auto policy to Owen Trucking, listing the named insured as Bennett Owen Trucking.  Ten drivers were named in the declarations, but not Arlene.  Arlene was injured when helping a friend move hay bales, a project unrelated to Owen Trucking.  After driving her friend’s truck, she was standing 15 feet from the bed of the truck when a hay bale fell on her, causing serious injury.  After recovering from her friend’s insurer, she filed a claim for under insured motorist and medical benefits payments with Progressive.

Progressive filed an action in the U.S. District Court seeking a declaratory judgment that Arlene was not covered.  The District Court ruled in Arlene’s favor, finding that the policy was ambiguous because a corporation cannot suffer bodily injury and incur medical bills.  Therefore, the District Court rewrote the policy to include Arlene as a named insured.

The 9^th Circuit reversed.  The language of Progressive’s policy afforded coverage to “any person” driving a vehicle as a temporary substitute for a vehicle named in the policy.  There was no evidence that her friend’s truck was used in place of an Owen Trucking vehicle that was withdrawn from use because, under the language of the policy, of breakdown, repair, servicing, loss, or destruction.  Consequently, Progressive was entitled to summary judgment.

Because the Ninth Circuit used legal principles similar to those adopted by Hawaii courts in determining there was no coverage, it is likely the Hawaii courts would reach a similar decision if confronted with this issue.

Ninth Circuit Lights Fire Under St. Paul, Ruling It Must Defend in Squabble Between Survivors of the Doors

What makes for a more interesting insurance case than a fight between surviving members of the Doors leading to a coverage dispute over the duty to defend?  Applying California case law, which is very similar to Hawaii case law, the Ninth Circuit recently determined St. Paul had a duty to defend a surviving of the Doors.

A founding member of the Doors, Raymond Manzarek, was sued in state court by former drummer, John Densmore, and the parents of Jim Morrison for infringing on the “The Doors” name in conjunction with a planned international tour.  Manzarek was found liable on some claims, but no damages were awarded.  Defense fees exceeded $3 million, however.

St. Paul refused to defend under a comprehensive liability policy issued to Manzarek.  Although the policy covered liability for advertising injury, St. Paul determined coverage was eliminated under a Field of Entertainment Limitation Endorsement (“FELE”).  The endorsement excluded coverage for the creation, production, publication, distribution, or advertising of media material. 

Manzarek sued St. Paul.  The District Court found the FELE clearly excluded coverage, and granted St. Paul’s Motion to Dismiss without allowing leave to amend.

The Ninth Circuit reversed.  The underlying suit was silent about what type of products and merchandise that Manzarek produced and marketed. The FELE excluded coverage for media related material, but coverage for advertising injury could still exist if Manzarek marketed a line of t-shirts or electric guitars with “The Doors” logo or Morrison’s likeness on them.  The District Court also abused its discretion in dismissing with prejudice and not allowing Manzarek to amend his complaint.

Given its similar case law, it is safe to assume the Hawaii Supreme Court would have also found a duty to defend.