The ABA, Section of Litigation, Insurance Coverage Litigation Committee's annual insurance seminar will be held again this year in Tucson from March 1-3, 2012. 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 will be on a panel discussing, "Do Lower Premiums Pay? Issues in High Deductible/SIR and Retrospectively Rated Policies." In these tight economic times, we discuss the upside and downside of taking on more potential risk while saving on premiums.
Hope to see you in Tucson.
Following the jurisprudence set forth by the Hawaii Supreme Court, the Intermediate Court of Appeals affirmed the trial court's rejection of the insured's claim for bad faith. Stewart v. State Farm Mut. Auto. Co., 2012 Haw. Ct. App. LEXIS 148 (Haw. Ct. App. Feb. 10, 2012).
The ICA agreed with the insured that the trial court had improperly determined that a bad faith claim can arise only if the insurer owed the insured a duty to pay and the insurer delayed or denied payment. The trial court's reasoning departed from the Supreme Court's decision in Best Place, Inc. v. Penn Am. Ins. Co., 82 Haw. 120, 133, 920 P.2d 334, 347 (1996). The Supreme Court previously held that, under some circumstances, an insured may pursue a bad faith claim even where there is no coverage under the policy.
Nevertheless, the end result in dismissing the bad faith claim was correct. The insured alleged that the insurer failed to promptly and thoroughly investigate his claim before consenting to his settlement with the other driver's insurer. The insured, however, never complained about the insurer's pre-settlement investigation. The undisputed facts demonstrated that the insurer requested information from the insured regarding his injuries and his lost wages, performed an asset check of the other driver and had an adjuster speak with the other driver's carrier to ascertain that he had few assets to satisfy a potential judgment. This pre-settlement investigation fit the guidelines for UIM investigations established by the Hawaii Supreme Court.
Therefore, the insured failed to show the existence of a genuine issue of material fact to establish that the insurer committed bad faith in the handling or investigation of the UIM claim. Consequently, the trial court properly granted summary judgment.
Thanks to Keith K. Hiraoka, counsel for the insurer, for forwarding this case to me.
The Texas Court of Appeals held that the insured need not prove the exact dates physical damage occurred in order to trigger defense and indemnity coverage. Vines-Herrin Custom Homes, LLC v. Great Am. Lloyds Ins. Co., 2011 Tex. App. LEXIS 10027 (Tex. Ct. App. Dec. 21, 2011).
In 1999, the insured built a home. He was insured under a CGL policy issued by Great American from November 9, 1998 to November 9, 2000. Thereafter, the insured held a CGL policy issued by Mid-Continent from November 9, 2000 to September 18, 2002.
After construction was completed, the insured sold the house to the buyer in May 2000. After moving in, the buyer found numerous construction defects in the home, including water entering cracks in the home, and sinking and sagging of parts of the house. The buyer sued the insured, who sought coverage under the two policies. When the insurers refused to defend the underlying suit, the insured sued for a declaratory judgment.
The underlying case went to arbitration and an award of $2.4 million was granted to the buyer. The insured assigned to the buyer his claims against the insurers.
In the coverage action, the trial court initially applied the manifestation rule and imposed a duty to defend only if the property damage became apparent during the policy period. The court found for the buyer, but during the post-judgment motions, the Texas Supreme Court adopted the "actual injury" trigger. See Don's Bldg. Supply, Inc. v. One-Beacon Ins. Co., 267 S.W. 3d 20 (Tex. 2008). Under the "actual injury" approach, property damage occurred when actual physical damage took place rather than when it became discoverable. The trial court ruled for the insurers because the insured failed to show, by expert testimony, when the actual physical damage to the property occurred.
The Court of Appeals reversed. Don's Buildingheld only that property damage under the CGL policy "occurred when actual physical damage to the property occurred." Id. at 24. So long as the damage occurred within the policy period, coverage was provided. Applying the eight-corners rule, the pleadings sufficiently alleged the policies were in effect prior to construction and actual damage occurred sometime during or after construction during the policy periods. Therefore, the underlying pleadings adequately plead that actual physical damage to the property potentially occurred during the policy periods and a defense was owed.
Further, Great American's duty to indemnify was triggered. The lower court determined that the property damage manifested in May 2000, during Great American's policy period. As a matter of law, when the damage manifested, it had necessarily occurred under the actual injury rule. The evidence showed Great American's duty to indemnify was triggerd and expert testimony to establish the exact date of injury was not required to trigger the duty.
Shilo Willis was injured when the uninsured car in which she was a passenger was struck by another vehicle. Willis v. Swain, 2012 Haw. Ct. App. LEXIS 131 (Haw. Ct. App. Feb. 3, 2012). Willis was enrolled under a "certificate policy" which was provided under Hawaii's Joint Underwriting Plan (JUP) to drivers receiving public assistance benefits. Although the JUP certificate policy provided personal injury protection benefits and bodily injury coverage, Willis's certificate policy with First Insurance did not include uninsured motorist (UM) coverage.
Willis sustained bodily injuries, received medical treatment, and incurred medical bills. Her claim was assigned to First Insurance pursuant to Haw. Rev. Stat. sec. 431:10C-408. The case had previously been before the Hawaii Supreme Court, which vacated the circuit court's grant of summary judgment in favor of First Insurance. The Supreme Court determined that First Insurance was to pay appropriate beneifts under the assigned claim program. The Supreme Court did not address Willis's other claims, including a claim for bad faith.
On remand, First Insurance paid benefits under the JUP assigned claims program and then moved for summary judgment with respect to the bad faith claim. The circuit court granted the motion, holding that as a matter of law there was no bad faith claim in the absence of a contract.
The Supreme Court affirmed the dismissal of the bad faith claim. In Simmons v. Puu, 105 Hawaii 112 (2004), the court had determined that a contract must underlie the tort of bad faith. Here, Willis did not have an insurance contract on which to rely, but constructed an argument that statutory provisions related to assigned claims under the JUP established First Insurance's duty of good faith and fair dealing. The court was not persuaded. Therefore, the claims for bad faith failed as a matter of law for lack of an underlying contract. The circuit court's final judgment was affirmed.
Thanks to my Damon Key blogging colleague, Mark Murakami (www.hawaiioceanlaw.com) for the heads up on this case.
The Hawaii State Bar Association was honored to be addressed last week by Supreme Court Justice Sonia Sotomayor. The Justice was visiting Hawaii on the final leg of her tour of the Pacific Rim, which included stops on Guam and Saipan. My Damon Key blogging colleague, Rebecca Copeland, gave a thorough post of the Justice's address here. I will add a few more comments to Rebecca's post.
As she began her address, Justice Sotomayor explained she does not like podiums and preferred standing or sitting at the table where she was located.
Earlier in the day, Justice Sotomayor had been to Farrington High School in Honolulu, to meet with students. Her address was broadcast to fourteen other high schools on Oahu. Justice Sotomayor explained that if she accepts an invitation to travel and speak to groups, she insists on the opportunity to meet with young students because she values education and believes she may be able to make a difference in students' lives.
Justice Sotomayor felt lawyers enter the noblest of professions where they serve people to help solve their problems. In her mind, there is no more worthy profession. She mentioned her brother is a doctor, and doctors are often involved in offering free clinics. But Justice Sotomayor felt the contributions of doctors in such free clinics is over-shadowed by the amount of pro bono work that lawyers perform.
As Rebecca's post explains, the Justice must be selective about accepting invitations because she has so many. She attempts to narrow the scope of her visits by focusing on her two interests: (1) health; and (2) education. For example, she explained she recently traveled to New Mexico where she visited an Indian reservation. There, she was able to discuss health and education goals and accomplishments with tribal members.
In discussing her life-work balance, Justice Sotomayor explained she now works seven days a week, and expects this to continue for a couple more years until she feels grounded. She sees, however, a light at the end of the tunnel when she hopes to enjoy other pursuits, including cooking, theater, reading, playing poker once in awhile with friends, and long bike rides, with an emphasis on "long."
Giving back to the community is a priority for Justice Sotomayor. One important aspect is working with students. She said the simplest of gestures can change one's life. For example, when Justice Sotomayor was in law school, she worked in a law office. A secretary there had a garden and grew vegetables. The secretary brought the Justice a particular vegetable, but Justice Sotomayor did not know what it was or how to cook it. The secretary taught Justice Sotomayor how to cook the vegetable, which happened to be an artichoke. As a result, all of their diets improved and a lasting friendship was formed.
Turning to access to justice, she felt lawyers can work with inner-city students to help with a variety of skills that they may not otherwise acquire. Examples are teaching students job interview skills or the balancing of a checkbook. In the long run, these simple tasks build a foundation and provide a gateway to the access to justice.
Finally, Justice Sotomayor is grateful to all of those who have helped her in her life journey. She noted parents typically give so much of themselves to their children. The same can be said of teachers. The Justice felt we do not realize how much friends, colleagues, and even adversaries in litigation help us. Justice Sotomayor said if she does not know how to do something or the answer to some question, she is not afraid to ask. People are willing to help and no one ever refused to provide assistance.
Justice Sotomayor confided she had learned much about Hawaii during her four day visit. She considers herself fairly educated, but she never knew before her visit about the monarchy that once governed Hawaii. She also was unaware of the University of Hawaii's William S. Richardson law school before her visit.
After her inspirational address, Justice Sotomayor worked the room to meet and shake hands with each of the attendees and pose for group photos. As I shook her hand and thanked her for coming, I mentioned I had read the glowing accounts of her visit to Saipan, where I used to live and work, and the great impact she had on the students. Her response was,"I loved Saipan."
We were fortunate that Justice Sotomayor so graciously gave her time to meet with members of the bar and share her insights on so many topics.
Justice Sonia Sotomayor continues her travels through the Pacific Rim. After visiting Guam and Saipan, the Justice is in Hawaii this week, January 29 to February 3, 2012. As in Guam and Saipan, Justice Sotomayor will keep a busy schedule while in Hawaii, meeting with judges and members of the bar, students, and the public. The Justice will participate in the University of Hawaii's jurist-in-residence law program. She will also address members of the bar at the Supreme Court today at 4:30 p.m. Her presentation is entitled, "A Conversation with Jusstice Sotomayor: Work Ethic and What it Takes to Be a Supreme Court Justice."
During Justice Sotomayor's confirmation in June 2009, we posted a review of insurance-related cases she authored while sitting on the Second Circuit. The post is here. We found her insurance decisions well-crafted and evenly balanced. We stated, "The results of Judge Sotomayor's decisions are fairly balanced: five in favor of the insurer; three in favor of the insured; and one finding for both the insurer and insured. Although some have questioned whether Judge Sotomayor has the literary flair to contend with a Justice Scalia, the decisions summarized below are well-reasoned, narrowly crafted rulings."
The Utah Supreme Court determined the "other insurance" provisions of successive policies were inapplicable and instead adopted the time-on-the-risk method of allocation for defense costs in The Ohio Casualty Ins. Co. v. Unigard Ins. Co., 2012 Utah LEXIS 1 (Utah Jan. 06, 2012).
Ohio Casualty insured Cloud Nine from June 10, 2001 to June 10, 2002. Thereafter, through December 12, 2002, Cloud Nine was uninsured. Unigard then covered Cloud Nine from December 12, 2002, until December 12, 2005. Both Ohio Casualty and Unigard's policies contained "other insurance" provisions.
Edizone licensed patents and other intellectual property to Cloud Nine for manufacture and sale of an elastometer gel technology. Edizone eventually sued, alleging Cloud Nine continued to manufacture, use and sell its products after Edizone terminated the license.
Cloud Nine turned to Ohio Casualty and Unigard for a defense. Unigard agreed to defend. Ohio Casualty refused and filed a declaratory judgment action in federal district court alleging ithad neither a duty to defend nor indemnify Cloud Nine. Unigard intervened and moved for partial summary judgment, arguing that Ohio Casualty had a duty to defend the Edizone suit and that Ohio Casualty was obligated to share defense costs equally with Unigard.
The federal district court ruled in favor of Unigard on both issues. The case was appealed and the Tenth Circuit certified a question to the Utah Supreme Court, asking whether the underlying defense costs should be allocated under the "equal shares" method set forth in the "other insurance" clause in the policies, or, because the policies were issued for successive periods, should the defense costs be allocated using the time-on-risk method?
The Tenth Circuit first determined that the "other insurance" clauses did not apply to successive insurers.
The court then turned to equitable principles to determine how to apportion defense costs between the two insurers. The time-on-the-risk method fairly allocated costs between insurers based on the amount of risk each contracted to undertake and the premiums each received without compromising the rights of the insured. Under the time-on-the-risk method, the insurer facing larger indemnity costs had a greater stake in controlling choice of counsel and settlement negotiations.
The court further determined that defense costs should not be apportioned to the insured for the period in which it was without coverage. Both policies gave the insurer control over its defense of the insured. It would therefore be inequitable to apportion any defense costs to an insured who had no power to select counsel or negotiate rates, and no voice in deciding whether to settle the suit. Accordingly, the court held it would be inequitable to hold the insured responsible for the share of defense costs attributable to the time period during which it was uninsured.
The insurer unsuccessfully moved for summary judgment, contending it had no obligation to defend two related underlying construction defect cases. Amerisure Ins. Co. v. R.L.Lantana Boatyard, Ltd., 2012 U.S. Dist. LEXIS 2466 (S.D. Fla. Jan. 9, 2012).
An engineering report noted design construction defects and deficiencies in visible, physical improvements at The Moorings at Lantana Condominium. In two lawsuits, The Moorings sued the developer,R.L. Lantana Boatyard ("RLLB"), and the contractor, Current Builders of Florida.
Current Builders was insured by Amerisure. RLLB was named as an additional insured under the Amerisure policy. Amerisure defended both suits, but sued for declaratory judgment to establish it had no duty to indemnify RLLB for claims in the underlying actions.
Amerisure moved for summary judgment. Through discovery, Current Builders admitted that no construction that could have given rise to the damages alleged in the underlying complaints began before November 16, 2003, the date on which Amerisure's policy expired. In its opposition, RLLB attached an affidavit stating that Current Builders commenced work, including structural work, several months prior to November 15, 2003.
Amerisure contended that because neither of the underlying complaints alleged damages sustained to the building's structural foundation, but only to visible, physical improvements, there was no genuine issue of material fact which would preclude summary judgment. The court disagreed. It was possible that a defect in the structural foundation from work performed during the policy period caused some of the defects outlined in the complaints. For example, a defectively constructed foundation could result in foundational movement which could have caused some of the cracks in stucco outlined in the engineer's report.
Therefore, a genuine question of fact existed with regard to whether the defects alleged in the underlying complaints were caused by potential structural defects arising from work completed during the policy period.
If a condominium owner suffers damage caused by a leak from another unit, may it sue the insurer for the Association of Apartment Owner (AOAO) for coverage? The federal district court for Hawaii said "no" in a decision by Judge Mollway. See Peters v. Lexington Ins. Co., 2011 U.S. Dist. LEXIS 148734 (D. Haw. December 27, 2011).
Two cases were consolidated. In each case, Plaintiffs owned condominium units at the Watercrest Resort on Molokai. Water leaking from another unit damaged Plaintiffs' units.
Watercrest Resort was insured by Lexington pursuant to a policy maintained by the AOAO. Plaintiffs filed claims with Lexington. Lexington hired an adjustor.
Unhappy with the adjustment of their claims, Plaintiffs sued Lexington and the adjustor. The AOAO was not named as a party. The first count of Plaintiffs' complaint was entitled, "Breach of the Insurance Agreement by Lexington." Count two sought punitive damages against Lexington and the third count sought punitive damages against the adjustor. Lexington moved for a judgment on the pleadings with respect to counts one and two.
The court construed count one as a claim for breach of the policy between Lexington and the AOAO. Plaintiffs had no privity with Lexington, however, as they were not insureds under the policy. Therefore, Plaintiffs lacked standing to assert a breach of the policy.
Plaintiffs also argued provisions in the Hawaii condominium statutes gave them standing. Section 514B-143 (b) of the Haw. Rev. Stat. required a homeowner's association to insure individual units. The statute was silent, however, on whether the owner of an individual unit could bring an action directly against the insurer to enforce an association's policy.
Nor was there an implied private remedy granted by the statute to Plaintiffs. First, it was not clear that the statute was enacted to provide a special benefit to, or a right in favor of, the unit owners. Second, there was no indication that the Hawaii legislature intended to create a right of action for unit owners to enforce their AOAO's policy.
In closing, the court noted that Plaintiffs had a remedy against the AOAO if they believed it was not vigorous enough in its dealings with Lexington for coverage on the damage.
Special thanks to public adjustor, Robert Joslin of Hawaii Public Adjustors, for sharing this case during his recent address to the Hawaii State Bar Association's Insurance Coverage Litigation section.
Although the Nevada Supreme Court adopted the efficient proximate cause doctrine, it determined it did not apply to salvage coverage under an all-risk policy for a rain-damaged building. Fourth Street Place, LLC v. The Travelers Indemn. Co., 2011 Nev LEXIS 114 (Nev. Dec. 29, 2011).
Fourth Street owned an office building which was insured by an all-risk policy issued by Travelers. Fourth Street hired Above It All Roofing to repair the roof of the office building. Above It All removed the waterproof membrane on the roof and prepared to replace the membrane the following week. Over the weekend, however, substantial rain hit. On Sunday, Above It All returned to cover the exposed portions of the roof with tarps, but wind later blew the tarps away. The building suffered significant interior damage as it continued to be exposed to the rain.
Fourth Street notified Travelers, who denied the claim. Fourth Street sued. The trial court granted Traveler's motion for summary judgment. The court found the rain damage did not result from a "Covered Cause of Loss" because the building did not first sustain actual damage to its roof or walls by wind or hail, as required by the Policy before coverage of damage caused by rain was invoked. Further, the doctrine of efficient proximate cause did not apply because neither cause of loss - Above It All's faulty workmanship or the rain - was a covered cause of loss under the policy.
The Nevada Supreme Court affirmed. The Limitations section of the policy stated there was no coverage for damage to the interior of a building unless the building first sustained actual damage to the roof or walls by wind or hail. The tarps used to cover the building did not constitute a "roof" for purposes of the Policy's rain limitation.
Second, the policy excluded damage caused by or resulting from faulty workmanship, unless the faulty workmanship resulted in a covered cause of loss. Here, by leaving for the night without covering the exposed portions, Above It All allowed rainwater to damage the building. Because the building did not "first sustain actual damage to the roof . . . by wind or hail," the rain that caused the damage was not a covered cause of loss.
Finally, the court determined the efficient proximate cause doctrine was not applicable under these facts. Under the doctrine, where covered and noncovered perils contribute to a loss, the peril that set in motion the chain of events leading to the loss or the "predominating cause" was deemed the efficient proximate cause or legal cause of the loss. Here, neither cause of loss (the rain and faulty workmanship) was a covered cause of loss. Accordingly, the doctrine did not provide relief here. Nevertheless, the court joined the majority of jurisdictions by adopting the doctrine of efficient proximate cause in Nevada.