The ABA, Section of Litigation, Insurance Coverage Litigation Committee's annual insurance seminar will be held again this year in Tucson from March 4-6, 2010. As always, this year's conference will offer a number of informative, cutting edge sessions on a variety of insurance-related topics. Participants from across the country with varying perspectives on insurance coverage will attend. The conference agenda is here.
I am on a panel for a session entitled, "Who Pulled the Trigger? Applying Manifestation or Injury-in Fact Trigger to First Party Property Policy." We will address a growing trend in which the injury-in-fact trigger, instead of the manifestation trigger, is applied to continuous property damage occurring over several policy periods. Deciding which trigger is applicable is important, of course, where there is continuing property damage. Use of the injury-in-fact trigger may invoke several policies for the years during which the damage occurred.
Hope to see you in Tucson.
The insureds' property was rented from the State of Hawai`i . See State Farm Fire and Cas. Ins. Co. v. Ramirez, No. 08-00557, 2010 U.S. Dist. LEXIS 5045 (D. Haw. Jan. 22, 2010). The insureds and the State were sued by neighbors for a dumpsite/landfill maintained on the property. The underlying complaint alleged the State had cited the insureds for dumping construction debris, coral debris, dredge material and black-top pieces without a permit. The underlying complaint requested orders declaring that the insureds violated City and County grading ordinances and the site was a nuisance, but no damages were sought.
The insureds' homeowners' policy with State Farm named the State as an additional insured. State Farm defended the underlying action under a reservation of rights, but then filed suit in federal court for a declaration of its coverage obligations.
The policy covered liability for claims or suits against the insureds and State "for damages because of . . . property damage . . . caused by an occurrence." "Property damage" to the property of others caused by an insured was also covered.
The district court granted State Farm's motion for summary judgment. The underlying complaint did not allege property damage. Plaintiffs were not seeking money damages for "physical damage to or destruction of their tangible property." Instead, plaintiffs sought an order requiring the insureds and the State to remove the dumpsite/landfill.
Nor were the plaintiffs seeking damages to reimburse them for remediating the property themselves. Instead, the insureds and the State were seeking to have State Farm reimburse them for any costs the incurred in remediating their own property because of actions they allegedly took. The policy excluded from coverage, however, "property damage to property currently owned by an insured" and "property damage to property rented to, occupied or used by or in the care of any insured."
Finally, the court rejected the argument that State Farm should be estopped from denying coverage because it provided a defense in the underlying case. State Farm had repeatedly informed the insureds it was providing a defense under a reservation of rights. Hawai`i case law held that an insurer could be estopped from denying coverage when an insured detrimentally relied on representations of the insurance company and such reliance was reasonable. See AIG Hawai`i Ins. Co., Inc. v. Smith, 78 Haw. 174 (1995). Here, neither the State nor the insureds had detrimentally relied on State Farm.
This cases touches on both maritime law and insurance coverage. Therefore, the initial question was which office blog should do the post: our blog or hawaiioceanlaw.com, authored by Damon Key blogging colleague, Mark Murakami? Easily resolved: Mark found the case, but passed it on to us.
In Fireman's Fund Ins. Co. v. Sneed's Shipbuilding, Inc., No. 08-4882, 2010 U.S. Dist. LEXIS 4835 (E.D. La. Jan. 4, 2010), Superior Shipyard and Fabrication, Inc. contracted with the insured, Sneed, to build a dry dock. When defects were discovered in the dry dock, Superior sued Sneed in state court, alleging that the dry dock failed to meet contract specifications and that the parties' warranty had been breached. Sneed tendered the defense to its insurers pursuant to a builder's risk policy issued by Firemen's Fund and a marine general liability policy from Federal Insurance Co. Both insurers denied coverage based on exclusions in their policies. Superior eventually amended its complaint to include the insurers as defendants under the Louisiana Direct Action Statute.
Firemen's Fund and Federal then sued Sneed for declaratory relief in federal court based on federal maritime and diversity jurisdiction. Sneed moved to dismiss, arguing there was no justiciable case or controversy because resolution of any disputed coverage would be necessary only if a state court judgment was entered against Sneed. In the alternative, Sneed argued the case should be dismissed or stayed in the interests of judicial economy in light of the pending state case.
The district court first determined an actual case or controversy existed. The insurers sought a declaration of their actual liability under their respective policies. Sneed made an actual claim against each insurer. Further, the insurers had been directly sued by Superior in state court. Consequently, the insurers' obligations were not hypothetical.
Next, the district court ruled that dismissal of the insurers' suit was inappropriate. The underlying state action would not resolve all of the defense and indemnity issues raised by the insurers in the federal case. Nevertheless, because the underlying state case was set for trial within the year, a stay of the declaratory judgment action was granted to avoid duplicative litigation.
A psychologist was entitled to coverage after the court determined the professional liability policy's Knowing Wrongful Act Exclusion was ambiguous. See Am. Home Assurance Co. v. Pope, No. 08-2848, 2010 U.S. App. LEXIS 516 (8th Cir. Jan. 11, 2010).
Sparing you of the tortuous procedural history (running on three tracks: arbitration; up and down the Missouri state courts; three appeals to the Eighth Circuit), we cut right to the chase. The insured psychologist's patient was a minor victim of sexual abuse by a foster parent. The psychologist never notified state officials of the abuse, although he was obligated by law to do so.
When the victim sued the psychologist, American Home denied coverage under the Knowing Wrongful Act Exclusion. The district court found the insured knew of his duty to report sexual abuse to authorities, yet intentionally concealed the abuse. Therefore, there was no duty to indemnify.
The Eighth Circuit reversed. There were two policy provisions at issue. First, American Home agreed " to pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of any wrongful act committed during the policy period by the Insured . . . ." "Wrongful act" was defined as "any actual or alleged negligent act . . . ." The second provision excluded "any wrongful act committed with knowledge that it was a wrongful act."
Comparing what was covered with what was excluded demonstrated the ambiguity. A "wrongful act" defined as "any negligent act" was insured, yet liability for a knowingly wrongful act was excluded. Predictably, the parties presented two interpretations of the competing provisions. American Home argued because the insured knew he had a duty to report and violated the duty, a knowingly wrongful act was committed, thereby negating coverage. The insured, on the other hand, contended that the Knowingly Wrongful Act Exclusion excluded intentional, not negligent, conduct, which required a showing that the insured intended to harm the victim. Given this ambiguity, the court adopted the construction most favorable to the insured, obligating American Home to insure the negligent conduct.
Damon Key construction lawyers Ken Kupchak, Anna Oshiro, Michael Yoshida, Christi-Anne Kudo Chock, and yours trulyteamed together to draft the Hawai'i chapter of the ABA's recently published, "A State-by-State Guide to Construction & Design Law" (2nd ed.). The treatise, first published in 1998, serves as a practical guide for the construction industry, enabling users to easily locate design and construction law and contracting practices in all 50 states, in addition to the District of Columbia and Puerto Rico. The second edition fully updates relevant construction-industry requirements in each state. The standard format used for each chapter allows the reader to quickly compare how each state handles a particular construction issue.
A wealth of construction-related information is gathered for each state, including discussions on insurance needs for construction projects, in addition to sureties and bonding.
Damon Key attorneys are actively involved in construction-related litigation and arbitration, frequently teaming with the firm's insurance coverage lawyers on construction-related matters.
Is an insurer exposed to bad faith if it relies upon its own mistake to withhold payment under the policy? The court answered yes in Lundy Enterprises, LLC v. Wausau Underwriters Ins. Co., No. 06-3509, 2009 U.S. Dist. LEXIS 121295 (E.D. La. Dec. 30, 2009).
Wausau provided commercial property coverage for the insured's Pizza Hut locations and an office building. Although the policy included a "Flood Coverage Endorsement" providing coverage for certain flood occurrences, the endorsement excluded properties in certain flood zones. Prior policies issued to the insured did not include the flood zone exclusions. The insured later discovered that the current policy was not supposed to have the flood zone exclusions and that Wausau made a mistake in writing the policy.
Wausau denied coverage for certain locations damaged in identified flood zones after Hurricane Katrina. Subsequent to the hurricane, however, Wausau amended the flood endorsement to retract the exclusion of properties in these flood zones.
The insured sued, claiming that Wausau relied in bad faith upon its own mistake in writing the policy to deny flood coverage. In its motion for partial summary judgment, Wausau argued its mistake could not be in bad faith because the Louisiana statute required a knowing act. Further, the insured could not prove Wausau's actions were arbitrary and capricious.
The court refused to dismiss the bad faith claim, however. The insured's claim for bad faith was not based on Wausau's making a mistake in writing the policy, but rather on Wausau's reliance upon its own mistake in withholding payment under the policy, and failing to pay under circumstances that were unreasonable, arbitrary, and without probable cause. These issues could not be resolved on a motion for summary judgment.
Coverage for the auto policy holder's daughter was at stake in Morrison v. Secura Ins., No. 286936, 2009 Mich. App. LEXIS 2694 (Mich. Ct. App. Dec. 29, 2009).
In April 2006, the insured's daughter struck plaintiffs' motorcycle with her Chevrolet Cavalier, causing serious injury to the plaintiffs. The auto policy listed the mother as the named insured, but both mother and daughter were listed as drivers of three vehicles, including the Cavalier. Only the daughter drove the Cavalier, however. The mother paid the policy premiums for the entire year. Mother and daughter lived at the same residence. In March 2006, the mother transferred title to the Cavalier to the daughter, who obtained a new title and registered the Cavalier in her own name.
Secura Insurance denied coverage, claiming the mother did not have an insurable interest in the Cavalier at the time of the accident, making the policy void. After the trial court granted summary judgment to the mother, Secura appealed.
The appellate court noted that an insured must have a "insurable interest" to support the existence of a valid automobile liability insurance policy. Here, the mother had an insurable interest in the Cavalier at the time she purchased the policy and paid the entire year's premiums. Although public policy forbid the issuance of a policy where the insured lacked an insurable interest, it did not require an otherwise valid policy to become void automatically. This was particularly true where the actual risk never changed and was fully known by the insurer (i.e., the daughter was always the only driver of the Cavalier). Further, public policy did not favor terminating what amounted to a family insurance policy upon an an intra-family vehicle transfer. Therefore, the trial court was affirmed.
Although the excess insurer sought a narrow reading of "additional insured," the policy's failure to define the coverage allowed a broad reading of the term in Kerrigan v. RM Associates, Inc., No. 100316/08, 2009 N.Y. App. Div. LEXIS 9517 (N.Y. App. Civ. Dec. 29, 2009).
The decedent was killed in a construction accident. His Estate sued various contractors, alleging that the decedent had agreed to provide work, labor and services to Erin Erectors. One of the contractors counterclaimed against the Estate for contractual indemnification. In this coverage action, the Estate and Erin sued for indemnification coverage under an excess policy issued to Erin by Westchester Fire Insurance Company.
Westchester's policy listed Erin as the only "named insured," and defined the term "insured" to include, at Erin's option, any person, other than Erin, "included as an additional insured" in the underlying comprehensive general liability policy. The underlying policy listed Erin and the decedent as named insureds, but listed no additional insureds. Utilizing a strict interpretation, the lower court held because the decedent was not listed as an additional insured in the CGL policy, he was not covered under the excess policy.
On appeal, Plaintiffs argued the decedent was an "additional insured" within the meaning of Westchester's policy because he was a named insured in the underlying CGL policy. The appellate court agreed. The term "additional insured" was not defined in either the CGL or the excess policy. An ordinary interpretation of "additional insured" in the excess policy would mean anyone other than the "named insured" in the excess policy (i.e., Erin) who was insured under the underlying CGL policy (i.e., the decedent). Therefore, the estate was also covered by the excess policy.
The insured's home was extensively damaged by wind and rain resulting from Hurricane Katrina. See Belonga v. Auto Club Family Ins. Co., No. 09-476, 2009 U.S. Dist. LEXIS 118643 (E.D. La. Dec. 21, 2009). When purchased in 2003, the home was appraised at $114,000. An adjuster addressing the insured's flood claim reported, however, the home had a cash value of $190,000.
The insured held a homeowner's policy issued by Auto Club. She filed suit seeking payment of her full policy limit for damage to dwelling, plus other structures and contents. She had received only $25,870 for wind damage to her residence and $2,932 for wind damage to other structures. Pursuant to a flood policy, the insured also received $94,000 for flood damage to her dwelling. Therefore, the insured had received a total of $119,870 for damage to her home caused by flood, wind, and wind driven rain.
Due to contested issues of fact, Auto Club's motion for summary judgment was denied. The insured was entitled to recover any previously uncompensated losses that were covered by her homeowner's policy and which, when combined with her flood proceeds, did not exceed the value of her property. The value of the insured's property was a material fact. The insured had submitted a report indicating the cash value of her home was $190,000, an amount exceeding the total amount of insurance proceeds she had received.
Further, although the insured had testified in her deposition that she was not pursuing damages for other structures, her expert's report stated there had been hurricane-related damage to the insured's other structures. The court discounted the deposition testimony, which likely resulted from her lack of understanding of her policy and not from an intent to abandon her claim for damage to other structures.
The applicability of a policy's land subsidence exclusion was considered by the court in City of Carlsbad v. Insurance Co. of the State of Pennsylvania, No. D053843, 2009 Cal. App. LEXIS 2025 (Cal. Ct. App. Dec. 17, 2009).
The insured City of Carlsbad negligently maintained and repaired a fire hydrant and water line located above a condominium complex. Consequently, the slope above the complex became saturated with water and failed, causing a landslide that damaged or destroyed 15 units and damaged the common areas.
The homeowners association sued the City, seeking damages for property damage and emotional distress suffered by the individuals. The insurer defended the City under a reservation of rights. The City settled for $12.6 million. The insurer indemnified for the bodily injury claims, but denied coverage for the property damage claims based on the subsidence exclusion. That exclusion barred coverage for "any property damage arising out of land subsidence for any reason whatsoever." The trial court granted the insurer's motion for summary judgment.
The Court of Appeal affirmed. The City argued the exclusion was not meant to apply to landslides caused by man-made forces such as negligent repairs to a fire hydrant. Examining the plain language of the exclusion, the court decided the broad term, "for any reason whatsoever," covered any cause, man-made or otherwise.
The Court next considered the City's argument that it was entitled to indemnification under the efficient proximate cause doctrine. Under the doctrine, when a loss is caused by a combination of covered and excluded risks, the loss is covered if the covered risk was the efficient proximate or predominant cause of the loss. The Court noted that the efficient proximate cause doctrine applied in first party cases. In third party cases such as this case, the concurrent proximate cause doctrine applied. The concurrent proximate cause doctrine was utilized only where there were two negligent acts or omissions by the insured, one of which, independent of the excluded cause, made the insured liable for the injury. Such a situation did not exist here. Given the language of the exclusion, the peril of land subsidence was not covered, regardless of the cause.
Thanks to my fellow Damon Key blogger, Robert Thomas (inversecondemnation.com), for alerting me of the City of Carlsbad decision.