Source: https://www.insurancelawhawaii.com/insurance_law_hawaii/2018/07/?asset_id=6a00e551d65ac78833022ad38566dc200d
Timestamp: 2019-04-22 06:23:56+00:00

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As homeowners on the Big Island contemplate pursuing claims due to loss caused by volcanic eruption or lava flow, SuperLawyers has a post addressing some of my thoughts on the issue. The post is here.
Faced with a series of policies, earlier ones which did not define collapse, newer policies which did, the court determined there was a possibility of coverage under the older policies which did not define collapse. Vera v. Liberty Mut. Fire Ins. Co., 2018 U.S. Dist. LEXIS 100548 (D. Conn. June 15, 2018).
Connecticut courts have faced a rash of collapse cases as a result of cement provided to build house foundations by J.J. Mottes Concrete Co. Many basement foundations built with the concrete have shown cracking and other signs of premature deterioration.
Here, plaintiffs noticed cracking in their basement. Their expert, William Neal, found "spider web cracking" and several vertical external cracks. But the house did not show any signs of falling down. The expert believed the cement was the cause of the cracks. Mr. Neal recommended replacing the basement walls.
Plaintiffs submitted a claim to Liberty. Liberty sent an inspector to the home. After the inspection, the claim was denied because the cracking was due to faulty, inadequate or defective materials along with settling.
8. Collapse. We insure for direct physical loss to covered property involving collapse of a building or any part of a building caused only be one or more of the following . . .
The policy had exclusions for faulty, inadequate or defective design, workmanship, construction, etc.
In a prior case, the Connecticut Supreme Court defined collapse as the "substantial impairment of structural integrity" of a building or any part of a building. Beach v. Middlesex Mut. Assur. Co.,, 532 A. 2d 1297, 1300 (Conn 1987). Since Beach, no Connecticut appellate court had explained what "substantial impairment of structural integrity" meant. It was not clear how "substantial" an impairment needed to be to constitute "collapse."
What constitutes a "substantial impairment of structural integrity" for purposes of applying the "collapse" provisions of this homeowners' insurance policy?
The same question was previously certified to the Connecticut Supreme Court by Judge Underhill, another Federal District Court Judge from the District of Connecticut [post here].
In yet another of the collapse cases being litigated in state and federal courts in Connecticut, the federal district court denied the insurer's motion to dismiss. Rosenberger v. Amica Mut. Ins. Co., 2018 U.S. Dist. LEXIS 95345 (D. Conn. June 6, 2018).
The insureds had policies with Amica since 1989. Policies before December 18, 2006, covered collapse caused by hidden decay or other specified causes. "Collapse" was not defined by the policy. These policies did not include any provisions explicitly excluding coverage for a chemical reaction.
The post-2006 policies held by the insureds covered collapse, but under a significantly modified definition. The newer policy language stated that "collapse applies only to an abrupt collapse." Further, collapse was defined as "an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose."
At some point before March 2015, the insureds allege that they noticed cracking patterns in the basement walls of their home. A professional structural engineer found a chemical reaction occurring in the concrete which would cause the structure to eventually fail. He recommended that the walls be replaced. Amica denied coverage. The insureds sued alleging breach of contract and bad faith.
The insurer filed a motion to dismiss, arguing that the breach of contract claim failed to allege the collapse was abrupt or that the house could not be occupied for its intended purpose. When the collapse term was undefined in the policy, courts in this district applied the Connecticut Supreme Court's decision in Beach v. Middlesex Mut. Assur. Co., 205 Conn. 246 (1987).There, the court held that when collapse was not defined in the policy, the term "includes coverage for any substantial impairment of the structural integrity of a building." Applying this definition, courts had regularly found the "collapse" provision in policies to be ambiguous and denied motions to dismiss as a result. When, however, collapse was modified by terms such as "sudden and accidental" or "abrupt," courts in this district held that the terms of the policy were unambiguous and that the plaintiffs in concrete cases had not alleged such a collapse.
The policies at issue in this case implicated both sides of the distinction. The motion to dismiss here had to be denied if the insureds could show: (1) that the 2006 policy might apply, and (2) that the insureds' complaint sufficiently alleged a "substantial impairment of the structural integrity of a building."
The complaint alleged that the insureds noticed cracking sometime before March 30, 2015, and that, at that point, the walls already needed to be replaced. It was therefore plausible that the damage to the walls might have occurred under Amica's pre-2006 coverage. A more complete factual record could demonstrate that damage to the basement walls did not rise to the level of "collapse" under Beach until some point after 2006, and the insureds would have to meet the more stringent "abrupt collapse" standard. But this issue had to be addressed at a later stage of the case. Therefore, the complaint sufficiently stated a plausible claim that the basement walls were substantially impaired before 2006. The motion to dismiss was denied with respect to the breach of contract count.
The bad faith count was dismissed, however. The insureds' claim was "fairly debatable" under Connecticut law.
An employee suffered an onsite injury and filed a claim for workmen's compensation. Bridgefield denied the claim because the injured employee worked for Empire and the policy only covered Liverman. Plaintiffs brought the case to the North Carolina Industrial Commission. The Commission found that Bridgefield owed coverage. The Commission further found that Gallagher, acting as Bridgefield's agent, had knowledge of the merger. That knowledge was imputed to Bridgefield and it was therefore required to pay the coverage.
Liverman and Empire then sued Gallagher for the fees incurred before the Commission, contending that Gallagher's actions caused Bridgefield to wrongly disclaim coverage, leading to the proceeding before the Commission. Gallagher moved for summary judgment.
The court first rejected Gallagher's proximate cause argument. Gallagher argued that it did not cause injury because Bridgefield's denial of the workmen's compensation claim was not wrongful. Bridgefield evaluated the claim, determined that the injured employee was not a covered employee, and denied the claim. The inquiry, however, was not whether what Bridgefield did was reasonable, but why it was done.
Gallagher next argued it did not breach its duties as an insurance broker. The dispute here involved what was requested. Plaintiffs contended that they told Gallagher's agent about the transaction between Liverman and Empire. But whether the discussion was an affirmative representation that the requested insurance had been procured was not firmly established in any party's favor at this point. Therefore, the issue was not appropriate for summary judgment.
Lastly, plaintiffs alleged Gallagher had engaged in fraud and deceptive trade practices. Under North Carolina law, claims of fraud or deceptive trade practices required a showing of detrimental reliance. Plaintiffs argued they relied on the understanding that both Empire and Liverman employees in North Carolina were covered by the policy. Gallagher argued that its agent's communications did not constitute fraudulent misrepresentations or omissions such that plaintiffs' behavior was induced by Gallagher. But this had not yet been resolved, and summary judgment was premature.
Ledesma & Meyer Construction Company (L&M) contracted with the school district to manage a construction project at a middle school. L&M hired Darold Hecht as an assistant superintendent on the project. In 2010, Jane Doe, a 13-year-old student at the school, sued alleging that Hecht had sexually abused her. Doe’s claims included a cause of action against L&M for negligent hiring, retaining, and supervising Hecht.
L&M tendered the defense to Liberty, who defended under a reservation of rights. Liberty also filed suit in federal court, seeking a declaratory judgment that it had no duty to defend or indemnify L&M. The district court granted summary judgment to Liberty on the cause of action for negligent hiring, retention, and supervision. The district court reasoned that while negligent hiring set in motion and created the potential for injury, this was too attenuated from the injury-causing conduct.
L&M appealed. The Ninth Circuit sought the Supreme Court’s opinion.
The Supreme Court noted that under California law, the word “accident” in the coverage clause of a liability policy referred to the conduct of the insured for which liability is sought to be imposed. It was undisputed that Hecht’s intentional conduct did not preclude potential conduct for L&M. The allegedly negligent hiring, retention, and supervision were independently tortious, which formed the basis of L&M's claim against Liberty for coverage.
Even though the hiring, retention, and supervision of Hecht may have been “deliberate acts” by L&M, the molestation of Doe could be considered an unexpected, independent, and unforeseen happening that created the damage. Therefore, absent an applicable exclusion, employers could expect coverage for such claims under a CGL policy.
The Eleventh Circuit affirmed the denial of coverage under a Computer Fraud policy. Interactive Communications International, Inc. v. Great American Ins. Co., 2018 U.S. App. LEXIS 12410 (11th Cir. May 10, 2018).
Great American issued a Computer Fraud policy to Interactive Communications International, Inc. (InComm). InComm sells "chits" to consumers, who can redeem them by loading their value onto a debit cart. After purchasing a chit at a retailer like CVS, a consumer can call InComm to redeem the chit and have its value moved to his card. When the customer dials InComm's 800 number to redeem a chit, he is connected to InComm's interactive voice response (IVR) computer system. To redeem a chit through the IVR, a consumer enters his debit card number and PIN. The IVR then credits the value of the chit to the card, and the funds become immediately available to the cardholder.
After making the funds available for use, InComm is contractually obligated to transfer money, equivalent to the value of the redeemed chits, to the bank that issued the debit card. The funds were then maintained in the card-issuing bank until the cardholder conducted a transaction.
Between November 2013 and May 2014, fraudsters made multiple redemptions of a single chit. The fraudsters determined how to redeem a single chit multiple times by making two or more concurrent calls to he IVR system simultaneously requesting the redemption of a particular chit. One call would transfer the funds from the chit to the debit card account, while the other would return the chit to an "unredeemed" state, allowing it to be redeemed again. Over seven months, InComm's system processed 25,553 fraudulent redemptions associated with 1,988 individual chits.
InComm sought to recover $10.7 million that was redeemed on debit cards issued by Bancorp. InComm believed the fraudsters' simultaneous calls to the IVR system were legitimate and wired the funds to Bancorp to cover the purchasing power available on the cards.
The Great American policy provided coverage for "loss of, and loss from damage to, money, securities and other property resulting directly from the use of any computer to fraudulently cause a transfer of that property to a person." The district court granted summary judgment to Great American because the fraud was not accomplished through the use of a computer within the meaning of the policy and the loss did not result directly from the use of the IVR system.
The Eleventh Circuit first determined that the fraud was perpetrated through the use of a computer. But it also held that the loss did not result directly from the use of the IVR. The court reasoned that one thing results "directly" from another if it follows straightaway, immediately, and without any intervention or interruption.
The court next determined when InComm's loss occurred. Further, did InComm's loss "result directly" from the fraudster's misuse of the IVR computer system?
The court concluded that the fraudster's use of the computers did not "directly" cause the loss. Several steps intervened between the fraudulent manipulation of the IVR system to enable duplicate chit redemptions, on the front end, and InComm's ultimate loss, on the back.
Even after a chit was fraudulently redeemed, each of the following had to occur: (1) InComm had to transfer money to the Bancorp account; (2) the cardholder had to make a purchase using fraudulently obtained funds; and (3) Bancorp had to disburse money from InComm's account to cover the purchase and pay the merchant. It was only at that point that InComm's loss materialized. The lack of immediacy meant that the loss did not "result directly" from the initial fraud. Therefore, the district court was affirmed.
Connecticut courts have been swamped with cases seeking coverage for collapse caused by faulty cement. In a recent decision, the federal district court asked the Connecticut Supreme Court to determine what constitutes substantial impairment of structural integrity for applying the collapse provision of a policy. Karas v. Liberty Ins. Corp., 2018 US. Dist. LEXIS 71844 (D. Conn. April 30, 2018).
The homeowners' home had cement supplied by the J.J. Mottes Concrete Company, which included minerals that cracked and destabilized the concrete, leading to its premature deterioration. The homeowners discovered that their basement walls were cracking, crumbling and deteriorating in a manner typical of Mottes concrete. A claim was submitted to Liberty. The policy covered collapse of a building due to "hidden decay." Collapse did not include settling, cracking, shrinking, bulging or expansion. Liberty rejected the claim because it constituted deterioration.
In Beach v. Middlesex Mut. Assur. Co., 532 A. 2d 1297 (Conn. 1987), the Connecticut Supreme Court held that "collapse" in a homeowners' policy was "sufficiently ambiguous to include coverage for any substantial impairment of the structural integrity of a building." Here, the parties disputed whether the damage to the home constituted a "collapse" under Beach.
Both parties agreed that the district court should seek certification from the Connecticut Supreme Court. Appellate guidance with respect to the definition of "collapse" would be determinative of not only this case, but many others pending throughout the state. Further, there was no controlling appellate decision because Beach arguably provided insufficient guidance. No Connecticut appellate decision had squarely applied Beach and arrived at a definition of "substantial impairment of structural integrity." Finally, certification was warranted because the concrete collapse cases were of great importance to the state.
Therefore, the following question was certified to the Connecticut Supreme Court: What constitutes a "substantial impairment of structural integrity" for purposes of applying the "collapse" provision of this homeowners' insurance policy?

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