Source: https://www.insurancelawhawaii.com/insurance_law_hawaii/2009/01/?asset_id=6a00e551d65ac788330105369bb531970b
Timestamp: 2019-04-23 12:35:24+00:00

Document:
In a prior post, we discussed Cornhusker Cas. Ins. Co. v. Kachman, No. 06-35106 (9th Cir. Jan. 30, 2008). In the initial Cornhusker decision, the Ninth Circuit certified to the Washington Supreme Court the issue of whether a cancellation letter sent by certified mail but never received by the insured was effective under Washington law. On December 18, 2008, the Washington Supreme Court answered, "no." See Cornhusker Cas. Ins. Co. v. Kachman, 2008 Wash. LEXIS 1226 (Wash. Sup. Ct. Dec. 18, 2008).
Thereafter, the Ninth Circuit issued an Order amending its prior opinion. Cornhusker Cas. Ins. Co. v. Kachman, No. 06-35106 (9th Cir. Jan. 13, 2009)(Order Amended Opinion and Amended Opinion). The amended opinion notes that the Washington Supreme Court determined that sending a notice of cancellation by certified mail does not satisfy the "mailed" requirement of the statute. In order for certified mail to meet the statutory notice requirement, the notice must be "actually delivered." Cornhusker Cas. Ins. Co., 2008 Wash. LEXIS 1226, at *13. Consequently, the Ninth Circuit's amended opinion held that because the insureds did not receive delivery of the cancellation letter, the insurer did not provide an effective cancellation notice.
It is an open question whether Hawai`i law would adopt a similar position. Haw. Rev. Stat. 431:10-226.5 says nothing about receipt of a cancellation notice. It only states, "Cancellation . . . shall not be deemed valid unless evidence of mailing is provided."
My Damon Key colleague Robert Thomas, author of inversecondemnation.com, gave me notice of the first Cornhusker decision rendered by the Ninth Circuit. My Damon Key colleague Mark Murakami, author of hawaiioceanlaw.com, gave me notice of this recent Cornhusker order. They both do their best to keep me on my toes.
Our blog has been added to Alltop (http://insurance.alltop.com/), a site featuring many insurance-related blogs nationwide. For each blog, Alltop lists several of the most current posts. So you can now log onto Alltop, visit insurancelawhawaii.com, and then check what is offered on other insurance-related sites.
Thanks to Alltop for including our blog.
A case decided by the Illinois Supreme Court demonstrates how crucial the burden of proof is in determining coverage issues. The court determined two closely related deaths constituted two occurrences under the insured landowner's comprehensive liability policy. See Addison Ins. Co. v. Fay, No. 105752 (Ill. Sup. Ct. Jan. 23, 2009). Accordingly, the policy's aggregate limit was applicable.
Two boys left their homes to go fishing late one afternoon. They did not return and their bodies were found several days later in an excavation pit on the insured's property. The bodies were trapped in wet clay and sand at the edge of a pool of water in the excavation pit. The cause of one boy's death was determined to be hypothermia. The immediate cause of the second boy's death was drowning secondary to hypothermia.
The investigators concluded one boy attempted to jump across the water, but became trapped. The second boy apparently attempted to help his friend, but became trapped himself. The investigators could not determine how much time elapsed between the two entrapments.
When the boy's families sued the insured property owner, the insurer agreed to settle the claims for policy limits. The policy provided a "general aggregate" limit of $2 million, and an "each occurrence" limit of $1 million. The insurer filed for declaratory relief to determine whether the boys' deaths constituted one or two occurrences.
The trial court found the deaths were the result of two occurrences because the causes of death and the circumstances immediately prior to the deaths were different. The appellant court reversed, determining the boys' deaths were so closely linked in time and space as to be considered one occurrence.
The Illinois Supreme Court reversed. First addressing the burden of proof, the court determined the boys' families had demonstrated the injuries were covered under the insured's policy and occurred on property insured by the carrier. Next, the Supreme Court agreed with the appellate court's adoption of the "time and space" test. Where negligence resulted from an ongoing omission rather than separate affirmative acts, a time and space test effectively limited what would otherwise potentially be a limitless bundling of injuries into a single occurrence.
But the Supreme Court disagreed that the facts here conclusively demonstrated that the boys' injuries constituted only a single occurrence. From the evidence, the court could infer that the boys were not trapped simultaneously, but one boy was trapped and the other became trapped while trying to free his friend. Otherwise, there was little evidence to support the insurer's claim that the injuries were the result of a single occurrence. The investigators could not determine how closely in time the boys became trapped. Because the insurer could not meet its burden, the boys' injuries constituted two occurrences.
The Hawai`i Supreme Court has never had occasion to consider adoption of the "time and space" test.
A prior post addressed Dickerson v. Lexington Ins. Co., 2008 U.S. App. LEXIS 26504 (5th Cir. Dec. 22, 2008), wherein the Fifth Circuit reversed its trend by issuing a Katrina-related decision in favor of the policy-holder. The Fifth Circuit recently upheld another decision in favor of policy-holders after Hurricane Katrina destroyed their home. See Grilletta v. Lexington Ins. Co., 2009 U.S. App. LEXIS 276 (5th Cir. Jan. 8, 2009).
The insured's policy covered damage from wind but excluded "water damage." On November 13, 2005, Lexington's adjuster determined the damage was wind related and not caused by flood. Consequently, he recommended Lexington pay the policy limits of $400,000 for the dwelling.
Lexington took no action until January 26, 2006, when it hired an engineering company to do a damage causation analysis. The engineering company, in turn, hired a meteorologist who determined the storm surge was the proximate cause of the destruction, not wind. Thereafter, Lexington paid only $191,674 for damage to the dwelling.
Plaintiffs sued. Plaintiffs' expert, an engineer, asserted that either a tornado or high winds destroyed the house, and that there was a small storm surge of ten to twelve feet. On the other hand, Lexington's experts, the meteorologist and an engineer, stated there was no evidence of a tornado or winds strong enough to destroy the house. Instead, a storm surge of at least fifteen feet caused the destruction. The trial court determined Lexington had not met its burden to demonstrate the water damage exclusion applied. Therefore, the court ruled the full $400,000 payment for loss of the house was appropriate.
The Fifth Circuit affirmed. Lexington's experts conceded that a tornado or high winds could have damaged the house. The district court did not find conclusive Lexington's meteorological data suggesting water was the proximate cause of the damage. Given the battle of experts, the trial court was free to choose among the competing explanations in rendering its decision.
The Fifth Circuit also affirmed an award of statutory penalties for arbitrarily failing to pay a claim within thirty days. After receiving the first adjuster's report concluding that the wind caused the damage, Lexington took no action for over sixty days.
Hawaii's Unfair Claim Settlement Practices Act lists as an unfair practice the failure to offer payment within thirty days of affirmation of liability if the amount of the claim has been determined and it is not in dispute, Haw. Rev. Stat. 431:13-103 (a)(11)(F), but there is no statutory penalty for such delay.
In one of the major Hurricane Katrina-related decisions, In Re Katrina Canal Breaches Litigation, 495 F.3d 191 (5th Cir. 2007), the Fifth Circuit overturned the district court’s decision that flood exclusion is ambiguous. Hundreds of claims are still being litigated in the district court where an order was recently entered dismissing duplicate claims. See In Re Katrina Canal Breaches Litigation, 2009 U.S. Dist. LEXIS 1148 (E.D. La. Jan. 7, 2009).
In the current proceedings, Allstate filed a Motion to Dismiss Duplicate Claims, seeking to dismiss without prejudice those claims that are duplicative of other lawsuits filed within In Re Katrina Canal Breaches Litigation. Allstate argued the earlier-filed lawsuit for each plaintiff should proceed and the later-filed lawsuit should be dismissed.
The court noted that under the "first to file" rule, where a party has filed multiple lawsuits concerning the same facts, the district court can dismiss the later-filed action. This eliminates wasteful duplicative litigation, avoids rulings that may offend a sister court's authority, and avoids piecemeal resolution of issues calling for a uniform result. The "first to file" rule is discretionary, however.
Here, seven of the cases addressed in Allstate's motion had a settlement pending in the later-filed suit. Therefore, in these cases, the court found it prudent to dismiss the earlier-filed suits to allow the settlement discussions to continue in the later-filed suits. Otherwise, Allstate's motion was granted.
The California Court of Appeal recently issued an important case involving coverage for continuous property damage over several policy periods. Among its various rulings, the court held policy limits of multiple policies could be stacked. Further, the "all sums" rule, obligating each insurer to pay the entire claim, was applicable. See State of California v. Continental Ins. Co., 2009 Cal App. LEXIS 1 (Cal. Ct. App. Jan. 5, 2009).
The case involved long-standing litigation regarding an industrial waste disposal site built by the state and which began operations in 1956. In 1972, groundwater contamination was discovered and the site was closed. In 1998, a federal court found the state liable. The state then sued its insurers for amounts it was ordered to pay to clean up the site.
The trial court ruled each insurer was potentially liable for the total amount of loss, subject to policy limits, rejecting the insurers' contention they were only liable for the portion of the loss attributable to their own policy periods (all sums ruling). But the trial court further ruled the state could not recover the policy limits in effect for every policy period. Instead, the state had to choose one policy period, and could recover only up to the policy limits of the policies in effect during the period (no-stacking ruling). Because the state had settled with other insurers for $120 million, this amount had to be set off against the insurer's liability. Therefore, the trial court's ruling limited the maximum recovery from all insurers to $48 million. As a result, the state was awarded a nominal judgment in the amount of zero dollars.
The insurers agreed that under Montrose Chemical Corp. v. Admiral Ins. Co., 10 Cal. 4th 645 (1995), they were liable for property damage that occurred during their respective policy periods. They denied, however, liability for any property damage occurring before or after their policy periods. The insurers urged adoption of a rule allocating the total property damage pro rata, based on each insurer's time on the risk.
The appellate court disagreed because Montrose determined that an insurer on the risk when continuous or progressively deteriorating damage first manifests itself is obligated to indemnify the insured for the entirety of the ensuing damage. Therefore, each insurer covered the total amount of the state's liability for property damage (subject to their respective policy limits), including property damage that occurred before or after their policy periods.
Because the loss was greater than the limits of any one applicable policy, the state sought to stack the policy limits across the policy periods. Although FMC Corp. v. Plaisted & Companies, 61 Cal. App. 4th 1132 (1998) held insureds could not stack limits across policy periods, this court found FMC's reasoning flawed. The policy language provided for stacking. Even though there was only one occurrence, the insured could recover against each insurer up to the limits of the insurer's policy. Therefore, the state was entitled to stack the policy limits of all applicable policies across all applicable policy periods.
The state argued there were several occurrences based on various periods of leakage from the waste site. But once the leakage began, it was continuous. The policies defined "occurrence" as "a continuous or repeated exposure to conditions which result in . . . damage to property. . . ." Therefore, there could be multiple contributing conditions, but only a single occurrence.
In the underlying case, the court found the state negligently delayed remediation of the site. This ultimately increased the cost of the clean up. The insurers, therefore, argued the state violated its duty to mitigate. The court disagreed. A duty to mitigate applied to damages resulting from the defendant's wrongful conduct. Here, the amounts caused by the alleged failure to mitigate were not the consequences of the insurers' (defendants') breach. Moreover, the insurers' breach did not cause the remediation costs for which the state was held liable. Consequently, the doctrine of mitigation did not apply.
No appellate court in Hawai'i has yet adopted the "all sums" rule. Stacking has been addressed by the Hawai`i Supreme Court in terms of underinsured motorist coverage. See, e.g. Macabio v. TIG Ins. Co., 87 Hawai`i 307, 955 P. 2d 100 (1998). In Sentinel Ins. Co. v. First Ins. Co., 76 Hawai`i 277, 875 P.2d 594 (1994), the Hawai'i Supreme Court addressed equitable allocation among two insurers, but did not address stacking of multiple policies covering various periods of continuous, progressive property damage.
Although the insurer's conduct did not amount to bad faith in Young v. Allstate Ins. Co., No. 26887 (Haw. Sup. Ct. Dec. 26, 2008), the court held plaintiff's allegations of intentional infliction of emotional distress (IIED) were sufficient to survive a motion to dismiss.
Plaintiff alleged she was stopped in traffic when a car operated by an Allstate-insured driver rear-ended her, destroying her auto. The insured informed Allstate he had fallen asleep and caused the crash. Plaintiff, who was 84 years old, suffered injuries to her neck, ribs, right knee and thoracic and lumbar spine.
An Allstate representative contacted Plaintiff the day of the accident, promised she was in good hands, would be provided with quality service, and would not need an attorney. In two subsequent letters, Allstate promised to provide quality service to plaintiff.
Plaintiff attempted to resolve her claim against Allstate without the assistance of an attorney. Although she had already incurred over $6,000 in medical expenses, Allstate offered to settle for only $5,300. Plaintiff rejected the offer, but was deeply distressed because she felt Allstate was breaking its promises. She thereafter retained an attorney and sued. The answer alleged plaintiff was negligent and had failed to mitigate her injuries. This caused plaintiff, who was now 87, extreme distress and shame. Ater taking her deposition, Allstate's attorney indicated he would recommed a policy limits settlement of $25,000. Allstate, however, refused to increase its offer. In non-binding arbitration, Plaintiff damages were determined to be $45,000. Allstate never took the arbitration seriously and appealed the decision, requesting a trial de novo.
The jury awarded plaintiff $198,971.71. Fees and costs for the arbitration and pre-judgment interest were also awarded to plaintiff. Allstate offered to settle for $260,000 if plaintiff would release any claim for bad faith. Plaintiff refused and sued Allstate for bad faith and other claims.
Allstate filed a motion to dismiss, arguing it did not owe a duty of good faith and fair dealing because the parties did not have a contractual relationship by virtue of its promises and letters. The trial court agreed. Further, the trial court ruled Allstate's acts were not beyond all bounds of decency nor outrageous. Therefore, the IIED claim was also dismissed.
The Supreme Court affirmed dismissal of the bad faith claim. Plaintiff alleged neither detrimental reliance nor consideration. Accordingly, there was no contract between plaintiff and Allstate, and the bad faith claim failed.
Plaintiff did, however, adequately allege a claim for IIED. In Hawai`i, the tort consists of the following elements: (1) the act allegedly causing the harm was intentional or reckless, (2) the act was outrageous, (3) the act caused, (4) extreme emotional distress to another. Allstate's insured admitted he caused the accident when falling asleep at the wheel. Allstate immediately contacted plaintiff and assured her she would be treated fairly. Nevertheless, Allstate only offered plaintiff a mere $5,300 to settle. Given these facts, reasonable people could differ as to whether Allstate acted without just cause or excuse and beyond all bounds of decency in the underlying case. The court determined that upon reading plaintiff's complaint, average members of the community might exclaim, "Outrageous!" Therefore, the trial court erred in dismissing plaintiff's IIED claim.

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