Insurance Law Hawaii

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.

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.

Mississippi Supreme Court Considers Application of Anti-Concurrent Causation Clause

    Here is a report in today's Insurance Journal regarding oral argument conducted last Tuesday before the Mississippi Supreme Court in Corban v. United Services Automobile Assoc., No. 2008-M-645 (Miss.)  At issue is the application of the anti-concurrent causation clause where the insured's home was allegedly damaged by both wind and flood.  We have previously discussed the Corban case here and here.

Bad Faith Claim For Delayed Payment Fails

    The insured's property was damaged during Hurricane Katrina by wind, wind driven rain, flooding, storm surge and water in Jupiter v. Automobile Club Inter-Insurance Exchange, No. 07-1689, 2009 U.S. Dist. LEXIS 44083 May 26, 2009). Plaintiff recovered $225,500 from Allstate, its flood insurance carrier.  The insured also held a homeowner's policy with Automobile Club, who paid a total of $106,079.47.  The insured argued this was insufficient because its property was a total loss.  Auto Club submitted the wind and rain damage was not substantial.  Further, Auto Club contended water damage, a flood exclusion, power failure exclusions, and neglect exclusions precluded further liability under the policy.

    Auto Club moved for summary judgment on the issues of bad faith and whether the insured had been fully compensated.  On the bad faith issue, the insured contended a factual issue existed regarding Auto Club's failure to timely pay the claim despite evidence of damage being provided.

    The Court granted Auto Club's motion on the bad faith issue.  Louisiana law provided statutory penalties against insurers for failure to timely resolve claims or pay settlement awards.  But the insured had to prove that the insurer knowingly committed actions which were completely unjustified, without reasonable or probable cause or excuse. 

    Here, Auto Club did not act arbitrarily, capriciously, or without probable cause in resolving the insured's claims.  Although the insured asserted there was a factual dispute as to the timeliness of payments, there was no evidence that the payments were not timely made.  Further, the contents list provided by the insured did not include receipts, and there remained a dispute as to the extent to which the insured's property was damaged by wind as opposed to flood.  The parties dispute over the total coast of repairs caused by a covered peril did not warrant the imposition of statutory penalties for bad faith.

    The court denied Auto Club's motion regarding whether the insured had been fully compensated, however, because a factual issue was presented.

Insured's and Insurer's Prior Acts Constitute Admissions of Wind and Flood Damage

    Senior Judge Senter from the Southern District of Mississippi continues to be on the front lines of the Katrina insurance coverage battles.  In a case headed for trial, Judge Senter recently denied motions by both the insured and insurer attempting to establish estoppel on coverage issues.  See Politz v. Nationwide Mut. Fire Ins. Co., No. 1:08CV18, 2009 U.S. Dist. LEXIS 39857 (S.D. Miss. May 11, 2009).

    After Hurricane Katrina, the insured applied for and received a grant from the Mississippi Development Authority (MDA).  Nationwide's motion argued this was an admission that at least some of the damage to the insured's home was caused by storm surge flooding.  The court held that applying for and accepting the MDA grant was an admission by the insured that property was damaged by storm surge.  But unlike the receipt of benefits from flood insurance, accepting the MDA grant did not indicate that the amount of flood damage was equivalent of the amount of the grant.  Accepting the grant would only be admissible if the insured argued that storm surge flooding played no part in damaging the property.

    The insured's motion sought to determine the payment of benefits by the insurer constituted an admission that the property sustained covered wind damage in the amount of the payment.  The insurer's payment of $30,339.57 was accompanied by a letter stating, "We are enclosing a check for the amount of damages which we believe we owe at this time for damages caused during Hurricane Katrina."  The insurer argued its payment was voluntary.  Based on the insurer's letter, the court disagreed.  Taking the insurer at its word, the payment was a best estimate of the amount owed the insured under the homeowners policy.  If the insurer attempted at trial to assert it owed nothing under the policy, the letter would be admissible for credibility purposes.

    Therefore, while Judge Senter did not find estoppel by either the insured or insurer, both acts were admissions which would be allowed into evidence should either party argue the damage was not caused by both wind and flood.

No Coverage Where Each Possible Efficient Proximate Cause Excluded

    Coverage under a homeowners' policy was denied by State Farm when corrosion surrounding a nail driven through a pipe caused a leak and extensive water damage many years later.  See Freedman v. State Farm Ins. Co., B202617 (Cal. Ct. App. May 5, 2009)[here].  The policy provided "all-risk" coverage, but excluded loss from: (1) corrosion, electrolysis or rust; and (2) "water damage, meaning continuous or repeated seepage or leakage of water from a plumbing system."  Further, the policy excluded negligent conduct and defective workmanship by third parties whenever they interacted with an excluded peril.

    The insureds argued the contractor's negligence in driving the nail through the pipe was a covered peril and was the efficient proximate cause of the loss.  State Farm contended the identity of the efficient proximate cause of the loss did not matter because each of the possible efficient proximate causes was an excluded peril - corrosion and seepage or leakage of water were excluded, and third-party negligence was excluded whenever it interacted with an excluded peril.  The trial court granted  State Farm's motion for summary judgment.

    The Court of Appeal was influenced by the California Supreme Court's decision in Julian v. Hartford Underwriters Ins. Co., 35 Cal. 4th 747 (2005).  There, the all-risk homeowner's policy excluded: (1) earth movement; and (2) weather conditions whenever they interacted with an excluded peril to cause loss.  When heavy rains caused a landslide, damaging the Julians' home, there was no coverage because the policy excluded each of the efficient possible proximate causes of the loss.  

    A similar analysis applied here.  The third-party negligence provisions of the homeowners' policy excluded third parties' negligent conduct and defective workmanship when they interacted with an excluded peril.  Thus, the policy excluded contractor-negligence-induced corrosion and contractor-negligence-induced continuous or repeated seepage or leakage of water, just as the Julians' policy excluded a rain-induced landslide.

Fifth Circuit Finds Flood Exclusion Ambiguous in Excess Policy

    A mixed result for the insured and excess insurers was reached in Six Flags Inc. v. Westchester Surplus Lines Ins. Co., No. 08-30476, 2009 U.S. App. LEXIS 8273 (5th Cir. April 21, 2009)[here].  Although the Fifth Circuit determined most insurers had no further coverage obligation, the flood exclusion in one excess policy was found ambiguous.

    Six Flags operated a theme park in New Orleans.  Six Flags had multi-layers, all-risk first-party coverage arranged as follows: (1) a primary layer with $25 million in limits; (2) a first excess layer with $125 million in limits; (3) a second excess layer with $125 million in limits; and (4) a third excess layer with $250 million in limits.  Six Flags paid an annual premium of $5.7 million for this coverage.

     The Excess Insurers covered all risks, subject to certain limits.  The policies' Flood sublimit was "applicable to all loss or damage . . . per occurrence and in the term aggregate as respects Flood at any location in a Flood Zone A or V" as designated by FEMA.  The provision limited coverage for the first-layer excess policies to $2,500,000.  Six Flags' theme park was located in a Flood Zone A. 

    Finally, the polices lumped together all loss within a 72-hour window within a Weather Cat Occurrence which was defined as "All loss or damage occurring during a period of 72 hours which is caused by . . . [a storm named by the National Weather Service]."  Further, "storm" included all "weather phenomenon, . . . including, but not limited to Flood, wind, hail, sleet, tornadoes, hurricane or lightning." 

   One excess policy issued by Commonwealth Insurance replaced the definition of Flood with an endorsement defining Flood as "loss or damage caused by waves, tidal water or tidal wave, overflow of . . . bodies of water. . . all whether driven by wind or not." 

    After Hurricane Katrina caused extensive damage to its park, Six Flags submitted losses totaling $150 million to its insurers.  The primary-layer insurers paid $25 million, exhausting this level of coverage.  The Excess Insurers then capped their coverage at $2.5 million pursuant to the Flood sublimit. 

    Six Flags sued, arguing the Flood sublimit did not apply because of a separate peril of a Named Storm.  The district court granted summary judgment to the insurers, concluding the Flood sublimit was unambiguous and excluded excess coverage. 

    On appeal, the Fifth Circuit first analyzed the non-Commonwealth Excess policies.  Six Flags argued the Flood sublimit did not apply to Flood loss in a Weather Cat Occurrence because a Named Storm was a distinct peril not subject to the Flood sublimit.  In other words, the Weather Cat Occurrence subsumed all of the other perils defined and was subject only to sublimits expressly addressed to it.  The Fifth Circuit disagreed. The Flood sublimit clearly capped the liability of the Excess Insurers at $2.5 million for all loss or damage per occurrence, including a Weather Cat Occurrence, as respected Flood.     

    Turning to the Commonweatlh Policy, Six Flags argued the "Flood" definition endorsement clarified for the Commonwealth Policy and the other Excess Policies that Flood caused by the peril of a Named Storm was not considered in the application of the Flood sublimit.  The Fifth Circuit determined the Flood definition endorsement ambiguous.  A reasonable reading of the Commonwealth endorsement meant it excluded the applicability of the Flood sublimit to Flood that was caused by the peril of a Named Storm.  Therefore, the district court's order granting summary judgment to Commonwealth was reversed.

    Finally, Six Flags argued the definition of Flood in the non-Commonwealth policies should be read in light of the definition contained in the Commonwealth Flood definition endorsement.  The Fifth Circuit declined to modify the non-Commonwealth Policies to find an ambiguity. Under Louisiana law, the policies had to be reviewed as independent units. 

Anti-Assignment Clause Does Not Bar Post-Loss Assignment

    It's now late April.  Posting on a decision rendered in March, early March at that, breaches a blogger's protocol.  And In Re: Katrina Canal Breaches Consolidated Litigation; Pertains to: Road Home, Louisiana State, No. 05-4182, 2009 U.S. Dist. LEXIS 30406 (E.D. La. March 5, 2009), received press when issued.  The case allowed individual claims of homeowners to proceed with a class action suit even if they did not file individual suits by the deadline.  Nevertheless, because it involves hurricanes, flood damage and anti-assignment provisions, issues we follow with interest at this site, the latest installment of Katrina Canal Breaches deserves another look. 

    The Louisiana Road Home program was funded by a HUD grant to provide disaster relief to victims of Hurricanes Katrina and Rita.  Road Home grants were designed to compensate homeowners up to $150,000 for structural damage.  The Road Home program prohibited providing any relief funds that would duplicate payments from other sources.  Accordingly, recipients had to reimburse the State if they subsequently received any insurance payments from losses covered by their Road Home grants.  To facilitate reimbursement, the Road Home program required recipients to execute a Subrogation/Assignment, assigning the right to such duplicate funds to the State. 

    Approximately 90,000 Agreements were executed, making in excess of eight billion dollars of federal funds available to hurricane victims through the Road Home program.  The State filed a class action suit to recover those funds from Insurers to which Road Home recipients were entitled and which had been assigned to the State.

    The Insurers moved to dismiss on various grounds.  First, the Insurers argued the State had no standing because the assignments from the homeowners were invalid based on the policies anti-assignment clauses.  Louisiana law permitted the enforcement of anti-assignment clauses.  But here the Court was faced with a post-loss assignment, i.e., the homeowners assigned their rights under the policies to the State after loss from the hurricanes.  

    The Court decided that assignments were permitted under Louisiana law, despite anti-assignment clauses.  In other jurisdictions, courts generally permitted the assignment of an insurance claim despite an anti-assignment clause if the assignment occurred post-loss.  After the loss occurred, assignment of the claim did not modify the risk.  Therefore, there was no reason to limit the assignment of a claim, regardless of an anti-assignment clause.  Recall that in Del Monte Fresh Produce (Hawaii), Inc. v. Fireman's Fund Ins. Co., 117 Haw. 357, 183 P.3d 734 (2007), the Hawai`i Supreme Court held that transfer of a policy in disregard of an anti-assignment provision was invalid.  Del Monte dealt with a post-loss assignment loss, but an assignment made prior to the successor's entry of a Consent Decree under CERCLA with the EPA.

    The Katrina Canal Breaches court next agreed with the Insurers that any claims outside the contract, such as allegations of bad faith and breach of fiduciary duty, were barred because these claims had not been assigned to the State.

    Finally, the Court  dismissed the State's Valued Policy Law claims.  The State argued under Louisiana law, if any insurer placed a valuation on the property and used such valuation to determined the premium, the insurer had to indemnify the covered loss at such valuation without deduction or offset.  The Court agreed with the Insurers that Louisiana law only applied the Valued Policy Law to claims brought under fire insurance policies. 

Insurer Must Pay UIM Benefits Based on Policy Holder's Joint and Several Liability

    The Hawai`i Intermediate Court of Appeals' (ICA) decision in Liberty Mut. Ins. Co. v. Sentinel Ins. Co., Ltd., No. 27429, 2009 Haw. App. LEXIS 134 (Haw. Ct. App. March 31, 2009) is unpublished and the facts are detailed, but it's a Hawaii insurance-related decision.  So we submit the following.

    Ms. Labrador, the insured, sustained injury when the car driven by Ms. Tolfree, and in which Labrador was a passenger, veered off the road to avoid an unidentified truck.  Tolfree's car was insured under a policy issued by Sentinel Insurance Company and Hartford Insurance Group and a second policy issued by PEMCO Mutual Insurance Company.  Both policies provided liability and uninsured motorist (UM) coverage.  Labrador was insured by her father's policy with Liberty, which provided stacked UM coverage totaling $140,000 and stacked underinsured motorist (UIM) coverage totaling $140,000.

    In arbitration, it was determined Labrador's damages amounted to $250,000, and that Tolfree was 60% at fault and the truck's driver was 40% at fault.  Labrador settled with Tolfree's insurers for liability and UM benefits, and then sought UM and UIM benefits from Liberty.  The circuit court ordered Liberty to pay Labrador $50,000 in UIM benefits.

    The first argument on appeal was that the circuit court erred in holding Liberty was liable to Labrador for UIM benefits based on Tolfree's joint-and-several liability for all of Labrador's damages.  The Intermediate Court of Appeals (ICA) disagreed.  By statute, UM and UIM policies had to provide coverage for all damages which an insured was legally entitled to recover from the owner or operator of an uninsured or underinsured vehicle, which encompassed damage for which the owner or operator of an uninsured or underinsured motor vehicle was jointly and severally liable pursuant to Haw. Rev. Stat. sec. 663-10.9 and 663-11.  The ICA rejected Liberty's citations to cases from other jurisdictions which held joint-and-several liability applied only to actions in tort and not to contractual actions for UM and UIM benefits.

    Next, the ICA rejected Liberty's argument that it was entitled to a credit in determining its UIM obligation for amounts that Labrador received in UM benefits from Tolfree's insurers in determining that Labrador was underinsured.  The circuit court correctly determined that the $250,000 in joint and several damages imposed against Tolfree exceeded the $200,000 in cumulative limits for bodily injury under Tolfree's two policies.   Therefore, Tolfree met the statutory definition of an underinsured motorist, and Liberty was obligated to pay Labrador UIM benefits to compensate her for the $50,000 difference.

    Finally, the ICA affirmed the award of attorneys' fees to Labrador under Haw. Rev. Stat. sec. 431:10-242 for having to sue the carrier for insurance benefits.  Liberty's argument that Labrador had unsuccessfully sought UM benefits because Liberty's UM coverage was excess to the other insurers was unavailing.  There was no authority for awarding fees to Liberty.

    The ICA also addressed two issues raised by Labrador on appeal.   First, the ICA found the circuit court did not abuse its discretion in denying prejudgment interest.  Under Hawai`i law, prejudgment interest was allowed only in the discretion of the court. 

    Second, Labrador challenged Liberty's "other insurance" provision.  This clause provided that "any insurance we provide with respect to a vehicle you do not own shall be excess over any other collectible insurance."   This clause did not limit or reduce Liberty's liability for UM payments to Labrador.  The clause legitimately designated the policy's coverage as excess if other coverage was available to the insured.   Therefore, Liberty's "other insurance" clause was consistent with Hawai`i case law and statutes.