Source: https://www.insurancelawhawaii.com/insurance_law_hawaii/2014/10/?asset_id=6a00e551d65ac7883301bb0795c878970d
Timestamp: 2019-04-23 12:42:48+00:00

Document:
The federal district court denied the insurer's motion to dismiss claims for loss due to the imminent collapse of the insureds' basement walls. Belz v. Peerless Ins. Co., 2014 WL 4364914 (D. Conn. Sept. 2, 2014).
The insureds noticed cracks throughout their basement walls. It was discovered that the condition was the result of a chemical compound used in the concrete of certain basement walls in the late 1980s and early 1990s. The insureds contended that due to the cracking, the basement walls suffered a substantial impairment to their structural integrity making it only a matter of time until the walls collapsed.
The insureds notified their insurer, Peerless. An engineer hired by Peerless determined the walls' condition was caused by poor workmanship and defective materials. On this basis, Peerless denied coverage.
insure[s] for direct physical loss to covered property involving collapse of a building or any part of a building caused by . . . b. Hidden decay; . . . f. Use of defective material or methods in construction, remodeling or renovation if the collapse occurs during the course of the construction, remodeling or renovation.
An exclusion followed, stating that "loss to . . . [a] foundation [or] retaining wall . . . is not [covered] . . . unless the loss is a direct result of a building collapse."
The court found both the terms "foundation" and "retaining wall" were ambiguous. The insured argued that the term "foundation" could reasonably be understood to mean the footings which support the entire structure. Peerless submitted the dictionary meaning of "foundation" was "a stone or concrete structure that supports a building from underneath." Both interpretations were reasonable, making the term ambiguous.
Both parties also offered reasonable interpretations of "retaining wall." The insureds argued a retaining wall was usually not thought of as part of a building. Peerless contended that a retaining wall was a wall built to resist lateral pressure other than wind pressure. Given that both interpretations were reasonable, "retaining wall" was also an ambiguous term.
Accordingly, these terms were construed against Peerless. If the insureds' alleged facts were true, they constituted a breach of contract.
In Count Two, the insureds alleged Peerless breached the implied covenant of good faith and fair dealing. The insureds contended that Peerless denied coverage despite knowing that the cracks were the result of defective materials or poor workmanship, both of which clearly triggered coverage. [Curiously, the court did not address whether the alleged defective materials caused the collapse during construction or renovating, as stated by the coverage section of the policy.] The insureds further alleged that Peerless intentionally referred to irrelevant and misleading portions of the policy in its letter denying coverage, which ignored the section of the policy that clearly applied. These allegations were sufficient to survive a motion to dismiss.
The federal district court granted the insured's motion to stay the coverage action while the construction defect case was pending in state court. Auto Owners Ins. Co. v. Essex Homes Southeast, Inc., 2014 U.S. Dist. LEXIS 133120 (D. S.C., Sept. 23, 2014).
The homeowners sued Essex Homes in state court for construction defects in a home built and sold to them by Essex Homes. The suit sought damages for property damage based on negligence, breach of implied warranty, and breach of express warranties arising out of the alleged construction defects. The complaint alleged that a water leak in the house caused water damage and resulted in mold growth that was not discovered for several years.
Auto Owners filed suit in federal district court, alleging that the CGL policy did not provide coverage for the underlying suit. Essex Homes filed a motion to dismiss or stay the coverage action until the underlying case was resolved. Essex Homes argued that the outcome of the factual issues in the underlying suit had a direct bearing on the determination of coverage issues in the federal declaratory judgment action.
The court granted the motion to stay the declaratory judgment action. The state of South Carolina had a strong interest in having insurance policy coverage issues decided in its courts. Further, what constituted an "occurrence" or "property damage" under the policy, and the applicability of any exclusions, were overlapping matters undoubtedly at issue in the related and ongoing state court proceeding. This created a potential for unnecessary entanglement between the federal and state cases because in order to make coverage decisions in the declaratory judgment action, the federal court would have to make several findings of fact concerning what damage occurred and when. These findings were at issue in the underlying suit.
Therefore, the federal coverage suit was stayed until the underlying state case was resolved, unless the court, in its discretion, decided to lift the stay at an earlier time.
The court considered whether, in a second trial for bad faith, the insured was required to again prove her damages, instead of relying on the jury's damage determination in the first trial where the tortfeasor's liability was established. Geico Gen. Ins. Co. v. Paton, 2014 Fla. Ct. App. LEXIS 14362 (Fla. Ct. App. Sept. 17, 2014).
The insured was injured in a car accident caused by the negligence of the underinsured driver. Geico paid the insured the $10,000 policy limit under her policy. The insured's mother also had uninsured/underinsured coverage with Geico, with policy limits of $100,000. When the insured demanded the $100,000 policy limits from her mother's policy, Geico offered $1,000. Later, Geico offered $5,000, but returned to the $1,000 offer after the insured refused to settle. When the insured reduced her demand to $22,500, Geico did not respond.
The insured sued and the case went to trial. The jury awarded $10,000 for past pain and suffering, and $350,000 for future pain and suffering. The verdict set the insured's total damages at $469,247. Geico did not file a motion for new trial nor did it appeal. Judgment was entered in favor of the insured, but was limited to the $100,000 UM policy limits.
The insured then amended her complaint to add a claim of bad faith under Florida statutes. Before the second trial on bad faith, the court granted the insured's motion in limine to exclude evidence of damages because the excess verdict returned in the UM trial established the damages she could recover under her bad faith claim.
The jury found for the insured. The court entered a final judgment in the amount of the excess verdict from the UM trial, $369,247, plus prejudgment interest.
Geico appealed. Under Florida law, damages in a first-party bad faith case included the total amount of the insured's damages that were caused by the original third-party tortfeasor, even if the damages were in excess of policy limits, without regard to whether the damages were caused by the insurance company. Forcing retrial of an insured's damages at the first-party bad faith trial, as Geico urged, was bad policy. By failing to move for a new trial after the first trial or to appeal, Geico did not preserve its right to challenge the total amount of the jury's damage award from the first trial.
The Nebraska Supreme Court found the insurer properly denied coverage to the general contractor for damage to a home caused by settlement. Cizek Homes, Inc. v. Columbia Nat. Ins. Co., 2014 Neb. LEXIS 152 (Neb. Sept. 9, 2014).
The general contractor built and then sold the residence. Subsequently, the homeowners complained that the soil beneath their residence was settling and causing damage to their home. The homeowners presented a draft complaint to the general contractor, alleging that negligence and faulty workmanship had caused damage to the home.
The general contractor notified its carrier, Columbia. Coverage was denied.
The general contractor settled with the homeowners. The settlement agreement described the claims to include damages to the residence due to soil conditions and/or improper construction of the home.
The general contractor then sued Columbia. The trial court granted summary judgment to the general contractor, finding that there was no faulty workmanship and that the damage was caused by an "occurrence."
On appeal, Columbia contended it was not necessary to determine whether the general contractor was in fact negligent or engaged in faulty workmanship in order to determine coverage. Rather, coverage was determined based upon the allegations in the complaint and the facts revealed in the investigation of the claim.
The complaint alleged that the home was damaged because the general contractor failed to construct the home in accordance with the contract, the applicable building codes and manufacturers' recommendations, and the accepted construction and industry standards.The homeowners further alleged the general contractor was negligent in designing and constructing the home and for failing to take into consideration the nature of the land upon which it was built.
Therefore, the Supreme Court concluded there was no coverage.The allegations in the complaint supported a conclusion that the damage to the home was caused by faulty workmanship or a similar impropriety in the general contractor's performance. Accordingly, there was no occurrence.
The Hawaii State Bar convention will be on October 24, 2014, at the Hawaiian Hilton. The Insurance Coverage Litigation Section will make a presentation from 8:30 a.m. to 11:45 a.m.
Three presentations will be made. First, Richard C. Mosher (Anderson Kill), Kathy Dang (Marsh), and Beau Monday (Hawaiian Telcom) will discuss cyber-liability claims and insurance options.
Next, David R. Harada-Stone (Tom Petrus & Miller) and I (Damon Key Leong Kupchak Hastert) will address "occurrences," i.e., deciding on and the impact of determining the number of occurrences in particular factual settings.
Finally, Alan Van Etten and Arron Loeser (both of Deely King Pang & Van Etten) will lead a session on ethics for insurance defense counsel and insurance coverage counsel.
Registration and additional information can be located at www.hsba.org or here.
The court found there was no coverage obligations for the insured's defective product. Titanium Indus., Inc. v. Federal. Ins. Co., 2014 WL 4428324 (N.J. Super. Ct. App. Div. Sept. 10, 2014).
The insured, Titanium Industries, supplied titanium bar materials to Biomet Manufacturing Corporation. Biomet manufactured orthopedic implants and devises. The titanium was used to manufacture screws to incorporate into Biomet's products.
Biomet notified the insured of a potential defect in some of the titanium material, described as "alloy segregation," i.e., the failure of alloys in a metal to completely melt, causing the alloy to separate and undermine the strength of the finished product. The insured and Biomet negotiated a settlement, which included lost profits and the cost of returning the titanium.
The insured then requested indemnity from Federal Insurance. The insured contended that the defects in the titanium existed when it was shipped to the insured from its supplier. Federal denied coverage because the titanium was already defective when Biomet received it, and the titanium was not added to any product that then caused property damage. Federal argued there was no "occurrence" because the titanium did not damage other property. The trial court granted summary judgment for Federal.
The Appellate Division affirmed. Under New Jersey law, contract law provided a remedy where the only damage caused by a defective product was to the product itself. Here, the raw titanium was made into screws. The titanium was otherwise unaltered and was not appended to other property that was, itself, damaged. Biomet's claims were for the breach of the insured's warranties regarding the intended use of the titanium. The risk of any replacement or repair of the insured's faulty goods was a risk assumed by the insured as a cost of doing business.
The court denied State Farm's motion for summary judgment on the insured homeowners' bad faith claim for State Farm's failure to agree to an appraisal. Currie v. State Farm Fire and Cas. Co., 2014 WL 4081051 (E.D. Pa. Aug. 19, 2014).
Superstorm Sandy caused a tree to crash in the insureds' home. The loss was reported to State Farm. The State Farm adjuster verbally quoted the roof replacement at more than $100,000. State Farm eventually paid $60,000 for the roof replacement. The insureds' adjuster estimated the loss at $363,804.98.
The insureds demanded an appraisal. State Farm rejected the demand because the claim involved certain items for which State Farm did not admit liability, including damage to the interior hardwood floors. State Farm contended that since the dispute went beyond the amount of loss, an appraisal was not an appropriate method of resolution.
The insureds sued for breach of contract and bad faith. State Farm moved for summary judgment.
On the breach of contract claim, State Farm argued that the insureds failed to establish that the loss sustained was covered by the policy. State Farm contended that the insureds' adjuster did not provide an estimate for damage to the hardwood floors. State Farm's adjuster found the floors were not damaged by the storm. The request for an appraisal was denied, therefore, because the claims involved items for which State Farm had not admitted liability or coverage.
The insureds asserted that their flooring expert concluded that the floors were discolored due to storm damage and water intrusion. Therefore, there was genuine issue of material fact regarding whether the floors were damaged by the storm. The court agreed. State Farm was not entitled to summary judgment on this issue.
On the bad faith issue, the court noted that there must be an admission of liability and a dispute as to the dollar value of the loss before an appraisal can be invoked. A dispute regarding coverage was improper for appraisal and occurred when an insurance company claimed an exclusion of a loss under the policy. However, when the parties merely disagreed over the extent of damage or whether a covered peril was the cause of certain damage, that was a dispute regarding the amount of loss which was proper for appraisal.
Further, an appraisal of the amount of loss included assessments of causation and the scope of repairs and, thus, a disagreement about these issues did not transform the parties' dispute into a coverage dispute. Adjusters could disagree as to whether the covered occurrence actually caused a certain portion of the damage, as well as disagree about the scope and method of necessary repairs.
Here, the dispute was as to the amount of loss, not coverage. It was disingenuous of State Farm to characterize the disagreement as a coverage issue in order to avoid appraisal. State Farm's summary judgment motion on the bad faith refusal to go to appraisal was also denied.
The court found coverage was properly denied based on the subcontractor's failure to follow contract specifications in blasting at the job site. Westfield Ins. Co. v. Carpenter Reclamation, Inc., 2014 U.S. Dist. LEXIS 130752 (S.D. W. Va. Sept. 18, 2014).
Carpenter was hired by the Board of Education (BOE) to perform preliminary site clearing, demolition, rock excavation, and establishment of sub-grade for a building. Carpenter was to excavate to 3.5 feet below the floor subgrade so that plumbing and other utilities could be installed.
Carpenter, however, blasted to depths deeper than required, including some areas that were up to nine feet. The BOE sued, alleging over-blasting and having to pay the cost of remediating the problem, along with breach of contract issues.
Carpenter tendered to its insurer, Westfield. Coverage was denied because Westfield contended the BOE did not allege property damage or an occurrence.
Westfield filed for suit for a declaratory judgment. Westfield moved for summary judgment, arguing that Carpenter excavated to depths beyond what was called for in the contract and then used improper fill to try and remedy the problem. By installing improper fill, Carpenter did not conform to the contract. Consequently, there was no property damage or occurrence alleged by the BOE in the underlying suit.
Carpenter argued that the alleged overblasting and over-excavation caused physical harm to the subsurface rock. Further, the overblasting was unexpected and unintended, resulting in physical harm and damage to tangible property.
The court agreed with Westfield that the BOE's allegations did not allege an occurrence resulting in property damage. Carpenter's argument that the overblasting somehow damaged the BOE's property was illogical because it caused damage to the very rock which was to be excavated after the blasting.
The Sixth Circuit reversed the district court's order granting summary judgment to State Farm based upon the insured's alleged concealment of the truth when questioned about a fire that destroyed his home. Rose v. State Farm Fire & Cas. Co., 2014 U.S. App. LEXIS 17312 (6th Cir. Sept. 8, 2014).
A fire destroyed the insured's home. He reported the loss to State Farm, who assigned Rob Raker to investigate the claim. Coverage was denied because State Farm contended that the "Intentional Acts" and "Concealment or Fraud" conditions of the homeowner's policy were violated.
The insured sued State Farm. The district granted summary judgment to State Farm after finding that some of the answers the insured gave to Raker were misleading and material. The court determined that the insured failed to identify multiple tax liens and judgments when questioned about his financial status.
The Sixth Circuit reversed. In order for State Farm to rely on the concealment provision, the insured must have intentionally concealed or misrepresented a material fact. False statements alone were not enough. In response to an open-ended question, the insured volunteered that a suit was on-going between himself and a bank. The insured offered to let Raker talk to the attorney handling the case.
It was true that in the years leading up to the fire, dozens of tax liens had been filed against the insured. But Raker never asked the insured directly about tax liens. Further, an accountant handled all of the insured's finances and taxes. Finally, although there were several lawsuits that had been filed against the insured over the years, State Farm had the burden of establishing that the insured intentionally gave inaccurate answers. The insured was forthcoming in disclosing a multi-million dollar judgment. Therefore, a jury might reasonably conclude that he had little motive to conceal the existence of other, relatively minor legal debts.

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