Source: https://www.insurancelawhawaii.com/insurance_law_hawaii/2014/02/?asset_id=6a00e551d65ac7883301a5115f3de5970c
Timestamp: 2019-04-22 10:26:06+00:00

Document:
The ABA, Section of Litigation, Insurance Coverage Litigation Committee's annual insurance coverage conference will be held in Tucson again this year, from March 6 to 8, 2014. Each year, this conference offers informative, cutting-edge sessions on a variety of insurance-related topics. Participants from across the country with varying perspectives on insurance coverage will attend. Lawyers, adjustors, judges, risk managers will all be attendance. The agenda for this year's conference is here.
The panel on which I will participate will discuss coverage for gun-related incidents: "Caught in the Cross-fire: Coverage, Defense and Legislation for Gun Claims." We will address the wide-spectrum of results across various jurisdictions regarding coverage for gun accidents. Our paper is here.
If you have an interest in insurance coverage, this conference should not be missed.
The Eleventh Circuit determined that the trial court did not err by refusing to give preclusive effect to findings made in the underlying state-court action because there was no collateral estoppel. Nationwide Mut. Ins. Co. v. Sharif, 2014 U.S. App. LEXIS 2114 (11th Cir. Feb. 4, 2014).
Bashir's owned a grocery and was insured by Nationwide. The decedent was accidentally killed by a pistol stored under the cash register. The decedent's personal representative sued Bashir in state court. Nationwide declined to defend because it maintained that the employment exclusion applied to bar coverage.
The personal representative argued two alternative claims, the first assuming the decedent was not an employee of Bashir's and the second assuming that he was. The state court granted a motion to dismiss the second claim that the decedent was an employee. In a subsequent trial, judgment was awarded against Bashir and another defendant in the amount of $950,000.
The personal representative sought to recover the judgment from Nationwide. A complaint was filed by Nationwide in federal court for a declaration that it owed no duty to defend or indemnify Bashir. The district court ruled on partial summary judgment that Nationwide was not estopped from challenging in the coverage action certain findings rendered by the state court in the liability action because it was not a party to the liability action.
At trial, the jury found Nationwide breached the policy by failing to defend Bashir in the liability action but that the employment exclusion eliminated any duty of indemnification. The jury awarded Bashir $9,000 for the cost of the defense. Bashir filed a motion for judgment as a matter of law, arguing it was inappropriate for Nationwide to attempt to prove the decedent was an employee in light of the state cour'ts contrary finding. The district court denied the motion because there was no privity to establish collateral estoppel.
The Eleventh Circuit affirmed. Nationwide was not a party to the state-court action. Bashir could not show they were in privity with Nationwide. A finding that the decedent was employee by Bashir's would trigger the employment exclusion and eliminate Nationwide's duty to indemnify. Therefore, Bashir's and Nationwide's interests were opposed rather than identical, and collateral estoppel was not appropriate.
In a well-reasoned, wide-ranging opinion by Justice Acoba in response to four certified questions from the Ninth Circuit, the Hawaii Supreme Court addressed various issues raised by competing "other insurance" provisions in two CGL policies. Nautilus Ins. Co. v. Lexington Ins. Co., 132 Haw. 283, 321 P.3d 634 (2014).
Coverage for a development on Maui was at issue. The developer, VP & PK (ML) LLC, was insured by Lexington. The other insurance provision in Lexington's policy provided it was excess over "any other primary insurance available to you covering liability for damages arising out of the premises . . . for which you have been added as an additional insured."
Kila Kila Construction was one of VP & PK's subcontractors. Kika Kila was not an additional insured under Lexington's policy. Kila Kila had its own CGL policy with Nautilus. The Nautilus other insurance clause stated the insurance was excess over "any other primary insurance available to you covering liability arising out of the premises or operations for which you have been added as an additional insured." An endorsement added VP & PK as an additional insured, but only for liability arising out of Kila Kila's negligence.
VP & PK, Kila Kila and other subcontractors were sued for damages resulting from the construction project. The complaint alleged facts falling within the coverage of both policies. Nautilus defended both VP & PK and Kila Kila. Ultimately, VP & PK was found solely liable on some claims. Kila Kila was not found liable on any claims.
Lexington indemnified VP & PK for the entire judgment. It refused, however, to contribute to Nautilus's cost of defending VP & PK.
Nautilus sued in federal court, seeking equitable contribution from Lexington. The district court granted summary judgment to Lexington. The district court found that Lexington was permitted to look beyond the complaint and its policy by considering Nautilus's policy to determine whether it had a duty to defend. Further, Lexington was deemed to be excess to Nautilus, so Lexington's duty to defend was never triggered.
Nautilus appealed to the Ninth Circuit. Certified questions were posed to the Hawaii Supreme Court.
The first question asked whether an insurer could look to another insurer's policy to disclaim the duty to defend even where the underlying complaint alleged facts within coverage. Nautilus argued that the provision in its policy adding VP & PK as an additional insured was extrinsic evidence bearing a relation to the liability issues in the underlying suit. Therefore, under Hawaii law, the extrinsic evidence could not be considered by Lexington in disclaiming its duty to defend.
Lexington submitted that it would be deprived of essential information in determining whether it had a duty to defend if it could not look to other policies covering their insured.
The court sided with Nautilus. Where an insured contracted for primary insurance, it should be entitled to a defense by its insurer. Therefore, a primary insurer may not look to another insurance policy in disclaiming its duty to defend. If a primary insurer is tendered a defense, and believes that it is actually the excess insurer by virtue of its other insurance clause, the primary insurer must still defend.
The second question from the Ninth Circuit asked whether the "other insurance" clause is enforceable where it purports to release an otherwise primary insurer of the duty to defend if the insurer becomes excess as to liability. The court found the clause was not unenforceable. Instead, a primary insurer had an initial duty to defend, regardless of any "other insurance" provision, but an insurer could enforce an "other insurance" clause when obtaining equitable contribution for defense costs where it believed that it has been made excess by the "other insurance" provision it its policy.
The third question posed whether the irreconcilability of "other insurance" provisions in otherwise primary policies should be determined before or after the operation of the "other insurance" provisions are determined. Other insurance provisions could be irreconcilable where identical clauses were presented in two primary policies. The Supreme Court held that it must first be determined whether two or more "other insurance" provisions are relevant, based on the face of the policies and the complaint, and only then must it be decided whether the provisions are irreconcilable.
Finally, the Ninth Circuit's fourth question asked whether, and when, an excess insurer, or otherwise primary insurer who becomes an excess insurer by operation of an "other insurance" clause, has a duty to defend. Here, the court held that an otherwise primary insurer who becomes an excess insurer by operation of an "other insurance" clause owes the duty to defend from the time the defense is tendered.
The court emphasized that all carriers must be encouraged to participate in initial proceedings. The court's holding was intended to mandate otherwise primary insurer to defend and avoid uncertainty on the part of insureds as to who will in fact provide a defense.
In a coverage dispute between the liability carrier and auto carrier, the court determined that the liability policy had a duty to defend and indemnify. Am. States Ins. Co. v. Travelers Prop. Cas. Co. of Am., 2014 Cal. App. LEXIS 74 (Cal. Ct. App. Jan. 27, 2014).
Royal Catering Company leased its fleet of food trucks to operators who drove from site to site selling food. One of the lessees was Mr. and Mrs. Gomez. On the day of the accident, Mr. Gomez was driving while Mrs. Gomez stood at the rear of the truck. Mr. Gomez swerved to avoid an approaching truck, but a collision occurred. Mrs. Gomez was burned when hot oil spilled on her from the deep fryer in the back of the truck.
The Gomezes sued Royal for products liability, among other theories. Royal tendered the defense to its auto carrier, American States, who defended under a reservation of rights. Royal and American States tendered to Travelers under Royal's CGL policy. Travelers declined to provide a defense or to participate in the settlement. American States paid $500,000 to the Gomezes to settle all claims against Royal under the auto policy.
Royal, the Gomezes, and American States then went to arbitration concerning Royal's liability on a products liability theory, i.e., that Royal provided a defective deep fryer basket. Royal stipulated to liability, but challenged the amount of damages and apportionment of fault. The arbitrator assigned liability proportions for Ms. Gomez's injury as follows: the other driver 20%; Royal 40%; Mr. Gomez 25%; Ms. Gomez 15%. Based upon the arbitrator's award, a judgment was entered against Royal for $2.4 million.
American States then sued Travelers for a declaration that Travelers had a duty to defend Royal under the liability policy. The trial court granted summary judgment to Travelers. It held that the Gomezes' food truck was an "auto" and not "mobile equipment," which was an exception to the auto exclusion in the liability policy. "Mobile equipment" was defined in the Traveler's policy to include "vehicles maintained primarily for purposes other than the transportation of persons or cargo." The trial court found that the truck was used to move food, which was "cargo" transported by the truck.
The court of appeals reversed. The primary purpose of the food truck was to serve as a mobile kitchen and not to transport persons or cargo. Under a plain reading of the Travelers policy, the Gomezes' food truck was "mobile equipment" and not an "auto."
The court also agreed that Travelers, not American States, provided coverage for product claims. The "completed operations" exclusion in American States' policy precluded coverage. The claimed bodily injury arising out of Royal's work - leasing the food truck to the Gomezes - which work included equipment (the deep fryer basket) furnished in connection with Royal's work, and was "deemed completed" when the work was put to its intended use - i.e., when the Gomezes leased and operated the food truck equipped with the deep fryer and basket.
The Illinois Appellate Court determined the insurer must cover a settlement reached by its insured and it independent counsel who was retained due to a potential conflict. Standard Mut. Ins. Co. v. Lay, 2014 Ill. App. LEXIS 20 (Ill. Ct. App. Jan. 23, 2014).
The insured, a small real estate agency, hired a fax broadcaster to assist advertising efforts. A blast fax was sent to approximately 5,000 fax numbers. Unknown to the insured, the fax blast violated the Telephone Consumer Protection Act because the recipients did not consent to receipt of the faxes. The insured was sued in a class action which sought damages for willful violations of the Telephone Act and sought treble damages ($1,500 per occurrence).
The insured tendered its defense to Standard. Standard accepted under a reservation of rights.The letter noted a conflict of interest for any attorney appointed by Standard to represent the insured because the class action sought treble damages for statutory violations that were allegedly willful. Coverage for intentional or non-accidental acts were excluded. The insured was advised it could hire its own attorney at Standard's expense.
The insured initially agreed to accept counsel hired by Standard. However, the insured later selected is own counsel. The new counsel requested Standard's counsel withdraw from the case. Standard's attorney never withdrew.
The insured and its new counsel settled with the class for $1.7 million. The class agreed not to execute on an property or assets of the insured other than the insurance policies. The trail court found the settlement was reasonable in light of the numerous unsolicited faxes the insured sent.
In the coverage action, Standard was granted summary judgment, finding it had no duty to defend and no further obligation to the insured with regard to the stipulated settlement in the underlying case. The appellate court affirmed, but the Illinois Supreme Court reversed and remanded. The Supreme Court disagreed with the appellate court's holding that the damages provided under the Telephone Act were punitive in nature and uninsurable under Illinois law.
The appellate court now held that the insured's actions were not barred as intentional acts. While the insured's action in sending the faxes were intentional, it thought it had authorization to send faxes to the particular recipients. The insured did not intend to injure anyone by sending the fax. The insured's negligent actions, i.e., it knew or should have know sending fax ads were wrongful and without authorization, were covered.
Further, once new counsel was retained, the insured was entitled to control its defense. Where a conflict existed, the insurer's obligation to defend was satisfied by reimbursing the insured for the costs of the independent counsel selected by the insured. Standard, however, had no right to require the insured to obtain permission to settle the underling suit or to object to the settlement itself. Here, the insured's liability was clear. Absent the settlement, the result would have been the same.
The court found there was no duty to defend or indemnify under a pollution policy for claims arising from a building fire. URS Corp. v. Zurich Am Ins. Co., 2014 N.Y. Misc. LEXIS 222 (N.Y. Sup. Ct. Jan. 16, 2014).
Two firemen were killed while fighting a fire at the Deutsch Bank building in New York City. The owner of the building, URS, was sued by the estates of the two deceased firemen and other firemen who were injured by the fire.
URS was an additional insured under a contractors pollution liability policy issued by Hudson Specialty Insurance Company. The policy promised to pay for damages to the insured "if the damages result from a pollution condition." "Pollution condition" was defined as "the discharge, dispersal, release or escape of smoke, vapors, fumes, acids, alkalis, toxic chemicals, [etc.]" The policy explicitly noted that it did not provide commercial general liability coverage. Hudson denied coverage and URS sued.
Hudson moved to dismiss the complaint. Hudson argued it had no duty to defend because its policy was intended to indemnify the insured against claims for environmental harm. None of the alleged injuries in the underlying suits could plausibly be held to have arisen out of a "pollution condition" under the Hudson policy. URS argued two of the underlying actions alleged "toxic smoke." Further, the fire constituted a "release" of smoke or other contaminant, thereby qualifying as a pollution condition. Hudson responded that these claims fell within the scope of the CGL policies, not the pollution liability policy.
The court noted the interpretation of the language in the Hudson policy to define the scope of coverage was a question of first impression in New York. Interpretations of the pollution exclusion in CGL policies did exist, however, and were instructive. These cases supported the conclusion that the exclusion was meant to deal with broadly dispersed environmental pollution and not the confined environment found here.
Therefore, Hudson's motion to dismiss the complaint was granted.
The insureds attempt to secure coverage for ensuing losses after foundation damage was properly denied by the insurer. Walker v. Nationwide Prop. & Cas. Ins. Co., 2014 U.S. Dist. LEXIS 6683 (W.D. Tex. Jan. 6, 2014).
Two provisions excluding coverage under Nationwide's homeowner's policy were key to the court's decision. Exclusion 3 (e) barred coverage for "continuous or repeated seepage or leakage of water or stem over a period of time . . . ." Exclusion 3 (f) (6) precluded coverage for settling, cracking, shrinking, bulging or expansion of pavements, patios, foundations, walls, floors, roof or ceiling.
The policy also included a Dwelling Foundation Endorsement which covered settling, cracking, bulging of floor slabs or footings that supported the dwelling caused by seepage or leakage of water or steam. This endorsement stated the limit of liability would not exceed an amount equal to 15% of the limit of coverage for the dwelling.
The parties agreed that the Dwelling Foundation Endorsement limited the amount payment under the policy to 15% of the $250,800 Dwelling Limit, or $37,620. The insureds argued, however, that they were also entitled to coverage for any loss or damage that occurred as the result of any necessary foundation repairs. They argued the Dwelling Foundation Endorsement created an exception to Exclusion 3 (f)(6) for "settling, cracking, shrinking, bulging or expansion of pavements, patios, walls floors, roofs or ceilings."
The court disagreed. The Dwelling Foundation Endorsement limited Nationwide's liability for foundation damage to 15% of the limit of coverage for the dwelling.
Further, the Dwelling Foundation Endorsement only applied to settling, cracking, shrinking, bulging, or expansion of the foundations, floor slabs or footings. Exclusion 3 (f) (6) applied whenever the Dwelling Foundation Endorsement applied, meaning that Nationwide was not obligated to cover "settling, cracking, shrinking, bulging, or expansion of pavement, patios, walls, floors, roofs or ceilings."
The insureds contended they were covered for any cracking of walls, floors, and ceilings where the damage ensues from foundation movement caused by a plumbing leak. But Exclusion 3 (e) stated that Nationwide did not have to coverage damaged resulting directly from "continuous or repeated seepage or leakage of water or steam over a period of time from a plumbing system." The insureds' claim fell squarely within this exclusion. In addition, Exclusion 3 (f) (6) stated that Nationwide did not have to cover settling, cracking, shrinking, bulging or expansion of foundations, walls, floors, roofs or ceiling.
Therefore, the insureds were contractually barred from recovering the ensuing loss damage they sought. The maximum amount they could recover for alleged foundation damage was $37,620.00.
The broad asbestos exclusion found in a Business Owners policy barred coverage for the insured after it sold a building in which asbestos was discovered. Phillips v. Parmelee, 2013 Wisc. LEXIS 747 (Dec. 27, 2013).
Prior to purchasing an apartment building, the insured had the building inspected. The report indicated that the building's heating supply ducts likely contained asbestos. The insured then sought to sell the building. The Real Estate Condition Report stated the insured was not aware of "asbestos or asbestos-containing materials on the premises."
The buyers purchased the property. A contractor cut through asbestos-wrapped ducts, dispersing asbestos throughout the building. The buyers sued the insured for breach of contract/warranty and negligence in failing to adequately disclose defective conditions including asbestos.
American Family Mutual Insurance Company denied coverage under the asbestos exclusion. The exclusion prevented coverage for "any loss arsing out of, resulting from, caused by, or contributed to in whole or in part by asbestos, exposure to asbestos, or the use of asbestos." The insured sued American Family. The circuit court found the asbestos exclusion precluded coverage and the court of appeals affirmed.
The Supreme Court affirmed. The words "arising out of" were very broad. The exclusion required a causal connection between asbestos and the loss. The insured argued the exclusion did not explicitly apply to losses arising out of the "dispersal" or "presence" of asbestos. Instead, the exclusion should be limited to the exclusion to loss caused by "exposure to" or "use of" asbestos. But the court determined the exclusion was written in broad, comprehensive language that included a wider range of asbestos-related losses than that advocated by the insured. A reasonable insured would interpret the asbestos exclusion to preclude the loss alleged by the buyers.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.