Insurance Law Hawaii

Louisiana Supreme Court Scrutinizes Valued Policy Law in Hurricane Coverage Case

     The latest Hurricane coverage case issued by the Louisiana Supreme Court had the potential to be another block-buster on the anti-concurrent causation clause we have discussed in prior posts here.  See Mark Landry v. Louisiana Citizens Property Ins. Co., No. 2007-C-1907 (La. May 21, 2008).  The Court of Appeal had determined the anti-concurrent causation clause was not applicable, instead relying on the efficient proximate cause doctrine to find coverage for a total loss where a covered peril is shown to be the dominant cause.  The Supreme Court, however, found the Court of Appeal's discussion of efficient proximate cause inapplicable because the case could be decided on the basis of the Valued Policy Law.  Therefore, while not addressing the anti-concurrent causation clause, the decision is important in regards to the Valued Policy Law utilized in some states (although not in Hawaii).  Valued Policy Laws were enacted by many states in the late 1800's and early 1900's because insurers were profiting by selling policies with inflated face values, and then, after the building suffered a total loss, litigating the actual value of the insured structure.

     When Hurricane Rita hit, the Landrys suffered a total loss of their home from an alleged combination of wind and flood damage.  The policy covered loss caused by wind and rain, but specifically excluded damage caused by flood waters.  The twist arose in this case because every policy in Louisiana is required by statute to include a provision obligating the insurer to pay the face value of the policy in case of a total loss.  The statute was amended in 1991, however, allowing the insurer to determine a loss by a different calculation than that contained in the statute, as long as the new calculation was stated in the both the policy and the application.

     The argument in Landry focused on whether the insurer had adequately included a different calculation in the policy and application.  The homeowners argued the Valued Policy Law applied because the insurer had not inserted a valid re-calculation in the policy and application. The homeowners therefore argued the statutory obligation to pay face value applied.  The trial court agreed after finding the insurer had not set forth an alternative method of loss computation in the application.  The Court of Appeal reversed and remanded the case for a determination of whether the insurer could prove that flood water was the efficient or proximate cause of the loss.

     On appeal to the Louisiana Supreme Court, the homeowners argued Valued Policy Law was still applicable because the insurer did not provide a different method of computing a total loss caused concurrently by wind and water. The Supreme Court disagreed.  The insurer set forth a different method for settling covered property losses, which clearly indicated that only covered losses were to be settled.  Whether the statutory valuation provisions would require an insurer to pay the face value of the policy when a total loss was caused concurrently by a covered and non-covered losses was irrelevant because those provisions no longer applied once a different method of loss computation was validly set forth.

     In the end, Landry did not teach us much about the anti-concurrent causation provision, but it did enlighten us on the Valued Policy  Law.

Hawaii Federal Court Dismisses Action on Duty to Indemnify When Underlying Cases Still Being Litigated

     In a recent case, the U.S. District Court for the District of Hawaii determined the insurer's duty to indemnify was unripe for decision because the underlying litigation was still ongoing in state court.  See Western World Ins. Co. v. The County of Hawaii, 2008 U.S. Dist. LEXIS 40118 (D. Haw. May 15, 2008).

     The Court previously ruled in March that Western World had a duty to defend because there was a possibility of coverage in the underlying state cases.  The Court also determined the insurer's duty to indemnify could only be established by the resolution of the issue of liability in the underlying actions. 

     The insured subsequently filed a Motion for Clarification, essentially arguing the Court should have granted summary judgment on the indemnification issue.  The Court disagreed.  It was clear that the indemnification issue was not yet ripe.  Substantial factual issues needed to be resolved in the underlying actions.  A substantive ruling in the coverage case on the indemnification issue would unnecessarily entangle the federal court in an area that was properly being adjudicated in the state court. 

     Therefore, dismissal without prejudice of Western World's declaratory action on the duty to indemnify was appropriate.  Following the resolution of the underlying actions, Western World could re-file its declaratory judgment action on the duty to indemnify should the facts developed in the underlying cases support such a filing.

Hawaii Legislation Extends Health Plans to Self-Employed

     The Hawaii legislature recently passed HB No. 2224, a bill requiring group health issuers to offer small group health plans to self-employed individuals.  The effective date of the bill is September 1, 2008.  The bill authorizes the Insurance Commissioner to exempt certain group health plans if the group health issuer does not have the capacity to deliver services adequately to new enrollees given the issuer's obligation to existing employer groups.  The bill will be repealed on July 1, 2013.

     Although the governor has been busy signing bills, this bill has not yet been signed.

Florida and Allstate Resolve Differences - For Now

     In a prior post, we discussed Florida's ongoing investigation of Allstate's alleged collusion with other insurance companies to keep insurance rates artificially high.  When Allstate failed to comply with a subpoena in January and testify about its property insurance business, it was suspended by Florida's Office of Insurance Regulation.

     Allstate's appeal of the suspension order led in an interesting decision in Allstate Floridian Insurance Company v. Office of Insurance Regulation, Case No. 1D08-0275 (Fla. Ct. App. May 14, 2008) here.  At the January hearing, Allstate produced thousands of documents, but labeled approximately 30,000 as "trade secret."  Some of the "trade secret" documents were public records posted on the Insurance Commission's website.  Many of the documents had pages removed.  Most of the required documents were withheld.  None of the Allstate witnesses were able to answer questions at the hearing regarding subjects required by subpoena. 

     The Court of Appeal agreed with the Insurance Commission that Allstate's actions posed an immediate danger to the public health, safety and welfare.  First, Allstate's practices allegedly included arbitrarily reducing bodily injury claim payments by up to 20%.  Second, Allstate allegedly was involved in ongoing criminal activity by failing to cooperate with the investigation.  The Court of Appeal affirmed the suspension order, but left the door open for Allstate to unilaterally lift the suspension by producing the documents. 

     Two days after the Court of Appeal decision, Reuters reported here that Allstate submitted an affidavit certifying it had complied with Florida law by providing all documents requested in the investigation.  Consequently, the Insurance Commissioner lifted the suspension, allowing Allstate to again issue new policies in the state.

     Similar to Florida, Hawaii's Insurance Commissioner has broad powers to investigate insurers who fail to comply with state law.   See Haw. Rev. Stat. 431.2-301.7.

New York Concurs with Hawaii on Coverage For Additional Insureds

     Coverage for an additional insured is typically limited to instances where the insured's negligence causes injury.  For example, in First Ins. Co. of Hawaii, Inc. v. State of Hawaii, 66 Haw. 413, 665 P.2d 648 (1983), the state was named as an additional insured in a policy issued to a contractor building a highway for the state.  The state was covered "with respect to liability arising out of operations performed for the additional insured by the named insured."  An endorsement, however, excluded coverage arising out of any act of the additional insured, "other than general supervision of work performed for the additional insured by the named insured."

     When a motorist was killed, the heirs sued both the contractor and the state.  The verdict in the underlying suit absolved the contractor, but found the state was 15% negligent.  First Insurance refused to indemnify the state.  The Supreme Court agreed there was no duty to indemnify because the state was only covered for liability arising from the named insured's negligence or from an act of the state arising from its general supervision of the work performed by the named insured.  Since a jury found the named insured was not negligent, the state was not covered.  First Ins. Co., 66 Haw. at 424, 665 P.2d at 656.

     A similar result was reached in a recent case decided by the New York Court of Appeals.  Worth Construction Co., Inc. v. Admiral Insurance Co., No. 52 (N.Y. Ct. App. May 1, 2008) (found here).  Worth Construction Co. was hired to construct an apartment complex.  Worth subcontracted with Pacific Steel for construction of a staircase and hand railings.   Pacific provided a commercial general liability policy naming Worth as an additional insured.  The additional insured endorsement provided Worth was an insured, but only with respect to liability arising out of Pacific's operations.

     Pacific completed the installation of the staircase and left the job site.  Concrete then had to be poured before Pacific could return to install the hand railings.  Before Pacific returned, plaintiff was injured when he slipped on a fireproofing installed by another subcontractor.  Pacific played no role in contracting for or applying the fireproofing.

     The plaintiff sued the owner and Worth.  Worth sought a defense and indemnification from Pacific's insurer, Farm Family, but the tender was denied.  Worth then filed a third-party complaint against Pacific in the underlying case.  Worth also sued Farm Family for declaratory relief. 

     In the underlying case, Worth eventually conceded that Pacific was not negligent and should be dismissed.  Farm Family then moved for summary judgment in the declaratory relief action, asserting that Worth now conceded the underlying plaintiff's injury did not arise out of Pacific's work or operations.  The motion was granted.

     The Court of Appeal affirmed.  Pacific's operations involved only the installation of a staircase and handrails.  A separate company was responsible for applying the fireproofing material.  At the time of the accident, Pacific was not on the job site.  By admitting in the underlying case Pacific was not negligent, Worth could no longer argue in the coverage action that there was any connection between plaintiff's injury and the risk for which coverage was intended.  Therefore, the result was similar to that in First Ins. Co.

Ninth Circuit Ratifies Burlington's Mistake

Burlington Insurance Company wins again.  The Ninth Circuit of Appeals issued an unpublished decision a few months ago entitled Burlington Insurance v. Steve's Ag Services, which appears to perpetuate some of the logic flaws in the original Burlington decision.  Although the court refused to explain the underlying facts (instead simply stating "the parties are familiar with the facts . . . ."), the case stems from an administrative proceeding arising out of AG Service's logging without proper permits.  A second claim for indemnification was also filed against AG Service by the landowner.

The court noted that the damages sought in the administrative proceeding were for the "value of the timber taken."  The CGL policy had  an exclusion for property damage to any "particular part of any property that must be restored because 'your work' was incorrect performed on it."  Thus there was no duty to indemnify or duty to defend.

Further, the court concluded there was no obligation to indemnify the landowner because an occurrence is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."  Repeating the earlier Burlington logic and citing a Hawaii Supreme Court case, the court stated a "breach of contract claim precludes accidental conduct." 

This analysis is plainly wrong.  One could easily breach a contract through accidental conduct.  For example, one could show up to a construction site on the wrong date, order the wrong supplies, etc.  These "accidental" acts meet the policy definition of an "occurrence" regardless of whether they breach a contract or not.  What the court's holding really stands for is the proposition that a CGL policy will never have to cover a breach of contract claim -- language not contained in the policy and clearly contrary to the parties' intent.

The Ninth Circuit's citation to Hawaiian Holiday Macadamia Nut Co. v. Indus Indem. Co., 76 Hawaii 166, 872 P.2d 230, 233 (1994) also materially misstates the holding in that case.  The Macadamina Nut Co. decision held that "[t]he question of what is an 'accident' must be determined by addressing the question from the viewpoint of the insured."  The facts, in that case, stated that there was a breach of contract "based on intentional acts performed by Hawaiian Holiday to defraud" the plaintiffs."  Thus the Hawai`i Supreme Court actually analyzed the underlying acts and determined if there was an accident.  The allegations of a "breach of contract" was immaterial.  It was the "intentional" allegation that was relevant.

Bill Extending National Flood Insurance Program Passes in Senate

     The Associated Press reports here that the Senate passed today its version of a bill extending the National Flood Insurance Program for five more years. In order to make the program more financially solvent, the bill would increase premiums and reduce subsidies.  The Senate rejected extending the program to cover wind damage.  The previously passed House bill did include an expansion to cover wind damage.

Hawaii Court of Appeals Finds Statutory Notice Required In Billing Disputes

     The Intermediate Court of Appeals recently decided two cases regarding a doctor's billing disputes with Island Insurance Company, Ltd.  See Jou v. Schmidt, No. 27369, 2008 Haw. App. LEXIS 213 (Haw. Ct. App. April 29, 2008); Jou v. Schmidt, No. 27370, 2008 Haw. App. LEXIS 215 (Haw. Ct. App. April 30, 2008).

     In No. 27369, Island reduced reimbursement claims submitted by the doctor for services rendered to Island's insured, but never provided formal notice pursuant to Haw. Rev. Stat. 431:10C-304 (3)(B).  Both the Insurance Commissioner and Circuit Court determined statutory notice was not required for billing disputes on no-fault benefits, only for denial of claims.  The ICA reversed, in light of the Supreme Court's decision in Orthopedic Assocs. of Hawaii, Inc. v. Haw'n Ins. & Guar. Co., Ltd, 109 Haw. 185, 124 P.2d 930 (2005).  There, the Supreme Court held the notice requirements were applicable to billing disputes. The same result applied here.  The statute's notice requirement was triggered by a partial denial of claims in the form of reduced or partial payments by the insurer.  Further, the doctor was entitled to interest under Haw. Rev. Stat. 431:10C-304(4) on the balance withheld by Island.  The legislative intent behind the interest provision was to encourage insurers to investigate and act on claims promptly.   Failure to do so would result in the payment of interest.

     The doctor did not do as well in the second case, No. 27370.  There, his invoice for reimbursement was also reduced and no notice was provided.  The doctor failed, however, to request an administrative hearing for over two years.  The ICA determined even though notice should have been sent by Island under Haw. Rev. Stat. 431:10C-304 (3)(B), the applicable two year statute of limitations, Haw. Rev. Stat. 431:10C-315, was not tolled by the failure to provide notice.

More Hurricane Insurance Coverage Made Available for Hawaii

  The Pacific Business News reports here that hurricane insurance should be more easily available thanks to a partnership formed between Argo Group US and First Insurance Co. of Hawaii.  First Insurance will transfer approximately 13,000 hurricane endorsements to Argo, who will then issue new hurricane policies.  The good news is that this partnership will increase the availability of hurricane insurance in Hawaii.

State Court Trend: Moving Away from Burlington

An article recently came out in the "Construct" journal, put out the Construction Litigation Committee of the ABA, entitled "State Courts Trend: Coverage for Faulty Workmanship."  This article is similar to an earlier blog post analyzing the Ninth Circuit decision entitled Burlington Ins. Co. v. Oceanic Design & Constr., Inc. (9th Cir. 2004) and concludes:

In short, courts generally conclude that claims requiring only the replacement of the subcontractor's defective work -- and no more -- are not covered under a CGL policy because there is no property damage.  Only when the claim involves extraneous damage caused by the subcontractor's work will the property damage term be satisfied and thus provide potential coverage.

. . .

The majority of state supreme courts that have confronted these coverage issues have concluded that the insurance industry intended to expand coverage for unintentional property damages caused by subcontractors to the contractor-insured's completed project.

This article does not appear to analyze Burlington, but references several relatively new 2007 cases.