Source: https://www.insurancelawhawaii.com/insurance_law_hawaii/2015/03/?asset_id=6a00e551d65ac7883301bb07f217b8970d
Timestamp: 2019-04-22 10:27:51+00:00

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The Montana Supreme Court determined there was no coverage for the insured due to a lack of property damage during the policy period. Truck Ins. Exchange v. O'Mailia, 2015 Mont. LEXIS 54 (Mont. Feb. 17, 2015).
The insured plumbing company, Lolo Plumbing & Heating, installed a water heater at Famous Dave's restaurant. At the time of installation, the insured had a CGL policy with Truck. The policy provided coverage from July 10, 2006 to November 29, 2009.
On March 12, 2010, three years after the water heater was installed, a burning smaell was detected in the restaurant's mechanical room. The fire department turned off the water heater and asked that a plumber look at it. Diamond Plumbing & Heating was called and replaced the combustion air fan assembly, but did not further examine the water heater.
A burning smell was detected the next day. Diamond was again called and concluded the water heater was working fine. The temperature of the exhaust vent was 486 degrees, but Diamond did not examine or clean the heat exchanger. About an hour after Diamond left, a fire broke out in the restaurant.
Experts determined the cause of the fire was related to the installation and maintenance of the water heater. One expert determined that the wood framing near the water heater was likely "pyrolizing" because it was exposed to excessive temperatures. Pyrolysis was explained to be the result of material or wood degrading due to heat exposure. The expert believed that pyrolysis was already occurring by the time Diamond first inspected the water heater on March 12, 2010.
Famous Dave's restaurant sued Diamond, which sought indemnification from several third-party defendants, including the insured, Lolo Plumbing. The insured tendered to Truck, who defended under a reservation of rights. Truck also filed suit for a declaratory judgment that there was no coverage. Truck argued that although the allegedly negligent installation occurred during the policy period, the resulting property damage occurred after the policy was terminated, and was therefore not covered. The insured argued that property damage occurred during the policy period because prior to the fire, wooden materials located near the water heater had been degraded by pyrolysis. The trial court granted summary judgment to Truck.
The Montana Supreme Court affirmed. None of the experts found that the structure surrounding the water heater was damaged merely as a result of exposure to high temperatures. At most, pyrolysis created a condition that increased the probability of a later physical injury. Consequently, there was no evidence that physical injury, i.e., property damage, occurred during the policy period. Even if exposure to excessively high temperatures created a harmful condition during the policy period, the existence of that condition did not result in property damage to the water heater occurring during the policy period, and thus did not constitute an "occurrence" as defined by the policy.
Therefore, the policy did not provide coverage for claims resulting from the fire.
Damage to the YMCA recreation center was not covered due to application of the earth movement exclusion. YMCA of Pueblo v. Secura Ins. Co., 2015 U.S. Dist. Lexis 15249 (D. Colo. Feb. 6, 2015).
On October 11, 2013, the insureds discovered a leaking water line in the men's shower, where one of the shower's on/off valves had detached from the water pipe behind the wall. The leak was repaired the same day.
On October 13, 2013, the pool deck near the therapy pool and surrounding block walls shifted and collapsed. The insurer admitted there was damage to the property. Several leaks were discovered in the pipes under and near the therapy pool, and the pool lost several inches of water.
The insureds filed a claim for damage to the pool, pool deck, and surrounding walls. Coverage was denied based upon the earth movement exclusion. The insureds filed suit.
The parties agreed that soil settlement created the damage to the building. The insureds argued that Paragraph B.2.d (4) provided coverage for losses caused by water leaks when those water leaks were caused by "settling, cracking, shrinking or expansion." But this exclusion for "settling, cracking, shrinking or expansion" could only apply to damage not caused by earth movement. Otherwise, the earth movement exclusion would be superfluous.
Earth sinking . . . risking, or shifting including soil conditions which caused settling, cracking or other disarrangement of foundations or other parts of realty.
Both parties agreed that the damage - settling, cracking, or disarrangement of the building's slab-on-grade concrete foundation - was caused by shifting soil, itself caused by the action of water under the ground surface. Therefore, the damage fell entirely within the earth movement exclusion.
The insureds argued that the October 11, 2013 leak was the actual cause of the loss, making the efficient proximate cause rule applicable. But the October 11th leak itself was an excluded loss if it was caused by soil settlement. Further, the anti-concurrent causation cause was applicable. If earth movement, an excluded event, was a cause, it did not matter if a second cause (water leak) was a covered cause.
Canvassing both case law and scholarly authority, the court determined that the anti-concurrent cause (ACC) provision barred coverage for loss caused by Tropical Storm Irene. Lombardi v. Universal N. Am Ins. Co., 2015 Conn. Super. LEXIS 138 (Conn. Super. Ct. Jan. 21, 2015).
Tropical Storm Irene caused the insured's home to shift and move from its concrete pier foundation. The house later had to be demolished.
The insurer's expert concluded that the house was removed from the foundation by storm surge and not by wind. The damage caused by wind was limited to 24 feet of trim missing from the roof and about 70 square feet of shingles that were blown away. The insured's expert concluded the house was removed from its foundation due to a combination of wind and water forces. The insured's expert reported that "the water wave action most probably caused most damage to the dwelling support pilings, with wind conditions contributing to the wave action."
(1) Flood, surface water, waves, tidal water. . . whether or not driven by wind.
The insurer invoked this provision and declined coverage for all but $2,218.82 for the damaged roof shingles and trim on the roof.
The insured filed a complaint requesting a declaratory judgment that the ACC provision was void and unenforceable, against public policy, and unconscionable. The insured moved for summary judgment. Panning various authorities, the court noted that the ACC provision was included in policies to circumvent the efficient cause doctrine developed by the courts in property loss cases. Invalidating the ACC provision would decrease the insurer's ability to spread financial risk of the hazard over a larger number of purchasers.
The court did not find the ACC provision ambiguous. The insured's ambiguity argument was an attempt to resurrect the public policy and seek enforcement of the efficient cause position, but was contrary to the clear purpose of the ACC provision. Therefore, the insured's motion for summary judgment as to the ACC provision was denied.
In 1997, the Hawaii Intermediate Court of Appeals (ICA) decided Pancakes of Hawaii, Inc. v. Pomare Prop. Corp., 85 Haw. 286, 944 P.2d 83 (Haw. Ct. App. 1997). Although not an insurance coverage case, Pancakes addressed the duty to defend in terms of a contractual indemnity obligation. Under challenge in a recent appeal before the ICA, the Court reaffirmed the holding in Pancakes. Arthur v. State of Hawaii, Dept. of Hawaiian Home Lands, 2015 Haw. App. LEXIS 109 (Haw. Ct. App. Feb. 27, 2015).
The decision is long with detailed facts and many indemnities running in favor of various parties. This post focuses on the decision's discussion of Pancakes.
A resident, Mona Arthur, of the Kalawahine Streamside Housing Development, was killed when she apparently slipped and fell from a hillside adjacent to the project. She was on the hillside tending to her garden there. At the bottom of the hill was a two foot fence in front of a drainage ditch, where Mona allegedly hit her head.
Mona's husband, William Arthur, sued a variety of defendants including the Department of Hawaiian Home Lands (DHHL), the fee owner; Kamehameha Investment Corporation (KIC), the developer; Design Partners, the architect; Coastal Construction Company, the general contractor for the project housing; the AOAO, who reviewed and controlled the design and development of each property; and Sato and Associates, the civil engineer who prepared the construction plans. William alleged the defendants were negligent in the design, construction, and supervision of the construction of the hillside area. Subsequently, Kiewit Pacific Company, the general contractor, and Pacific Fence, the subcontractor who built the fence, were brought in as third-party defendants.
One of the numerous indemnities in the case ran from Sato to KIC, under which Sato agreed to indemnify, defend and hold harmless KIC for all claims, demands, losses, etc.
Eventually, the circuit court granted KIC's motion for partial summary judgment against Sato and Kiewit, relying on Pancakes. In its motion for summary judgment, KIC had argued that Sato and Kiewit's duty to defend was determined at the outset of the litigation based upon the complaint allegation rule in Pancakes.The court found that Sato had a joint and several duty to defend KIC.
Sato appealed, arguing, in part, that Pancakes was wrongly decided. Sato argued that it could not be held liable for defense costs or indemnity obligations to KIC until wrongful conduct on Sato's part was shown to have occurred.
Pancakes held that the law governing the duty of an insurer to defend its insured under indemnity provisions of an insurance contract applied to an indemnitor's duty to defend an indemnitee under a general indemnity contract. The ICA rejected Sato's contention that its duty to defend was not triggered until wrongful conduct by Sato was shown to have occurred and was causally related to claims asserted by William. Instead, Sato's duty to defend KIC was triggered upon the filing of the complaint and/or the tender of KIC's defense to Sato. Further, the duty encompassed all claims that could potentially come within the scope of the indemnity.
Sato also argued the indemnification provision in its contract was void as against public policy under Haw. Rev. Stat. 431:10-222 because William's complaint did not allege that Mona's injuries were solely the result of KIC's negligence. The statute established that an indemnity provision seeking to indemnify against liability for bodily injury caused by the sole negligence of the promisee was invalid as against public policy.
Here, Haw. Rev. Stat. 431:10-222 did not bar Sato's duty to defend, and possibly to indemnify, because Sato, as well as other defendants, were alleged to have been negligent. Sato's duty to defend KIC included all claims potentially arising under the Sato Contract and not only for those arising from Sato's negligence. Therefore, the indemnity provision was not void under Haw. Rev. Stat. 431:10-222.
A duty to defend existed for alleged construction defects despite the designated work exclusion and the pre-existing damage exclusion. Gemini Ins. Co. v. N. Am Capacity Ins. Co., 2015 U.S. Dist. LEXIS 14836 (D. Nev. Feb. 6, 2015).
Olsen Construction Company held three separate policies issued by Gemini from September 2002 to February 2005. North American issued a CGL policy to Olsen for the period February 2005 to February 2006. Olsen conducted repair work on decks at the location between 2002 and 2003.
Olsen was sued for construction defects by the Homeowners' Association (HOA). Gemini defended and also tendered to North American. When North American refused the tender, Gemini sued for declaratory and equitable relief related to North American's duty to defend Olsen in the underlying case. North American moved for summary judgment.
The court first found there was an occurrence and property damage during the policy period. Under Nevada law, Olsen's alleged faulty workmanship could constitute an occurrence and thereby create a possibility of coverage if the faulty workmanship occurred when Olsen conducted its repairs. Nevada law held that even though faulty workmanship did not constitute an occurrence, an unexpected happening caused by faulty workmanship could be an occurrence.
The underlying case also alleged property damage occurred following Olsen's improper deck repair and window repair, causing leaking, water damage and mold to the structures. The policy clearly created the potential for coverage for the damage described in the underlying complaint.
The court next considered the two exclusions relied upon by North American. Under the designated work exclusion, North American had no duty to defend Olsen for its own work. The underlying case alleged that Olsen performed operations for the HOA, indicating that Olsen's conduct fell squarely within the designated work exclusion. The court found the exclusion was ambiguous, however, because the dates for which the exclusion applied were unclear. For example, if the exclusion only applied to Olsen's work performed during North American's policy period, then it would not exclude coverage for Olsen's work between 2002 and 2003, which could have resulted in property damage during the policy period.
The pre-existing damage exclusion stated that the policy did not apply to property damage that (1) first occurred prior to the date the policy began, or (2) was in the process of occurring. The underlying case did not identify any date on which the property damage occurred, nor did it state a date before which the property damage was alleged to have occurred. Even if the water intrusion began prior to the policy, this would not establish that there was no potential for coverage because North American still failed to produce evidence that the consequential property damage did not occur during the policy period.
Therefore, the court refused to grant North American's motion for summary judgment.
The Seventh Circuit found there was a duty to defend the additional insured under the policy, but not a duty to indemnify. Kmart Corp. v. Footstar, Inc., 2015 U.S. App. LEXIS 1775 (7th Cir. Feb. 4, 2015).
By agreement, Footstar operated the footwear department in hundreds of Kmart stores around the country. Footstar's footwear departments were in designated areas of the Kmart stores. Section 18.1 of the Master Agreement required Footstar to defend and indemnify Kmart from "all damage . . . arising out of Footstar's performance or failure to perform under this Agreement." The same section also required Footstar to obtain additional insurance coverage for Kmart.
2. Applies only to coverage and limits of insurance required by the written agreement . . .
A customer named Judy Patrick was injured in a Kmart store when a Footstar employee, Alex Sehat, attempted to assist in getting a stroller down from a shelf. As Sehat was bringing the stroller down from the shelf, it fell and struck Patrick in the face. The accident took place outside of Footstar's area of the store.
Patrick sued Kmart alleging negligence, with no mention of Footstar in the initial complaint. Patrick's attorney later learned that Sehat was an employee of Footstar. Kmart wrote to Footstar formally requesting defense and indemnification. Footstar forwarded the request to Liberty Mutual. Patrick then amended her complaint to include Footstar as a defendant. Liberty Mutual wrote to Kmart refusing to defend or indemnify. Kmart eventually settled with Patrick.
Kmart sued Footstar and Liberty Mutual, alleging both owed Kmart a duty of defense and indemnification. The magistrate granted partial summary judgment for Kmart, finding both defendants owed a duty to defend. Further, there was a duty to indemnify, but only for Footstar's relative fault, which the jury apportioned at 15%.
The Seventh Circuit reversed on the duty to indemnify. Under the policy, Liberty Mutual was liable to Kmart for injuries "arising out of" Footstar's "work." Under subpart 2, the Policy applied only to "coverage and limits of insurance required by" the Master Agreement. The court looked at the Master Agreement to determine what acts could give rise to coverage. Here, Sehat was acting outside of the footwear department when Patrick was injured. He was therefore violating the Master Agreement. Since Sehat was acting in an extra-contractual manner and not "pursuant to this Agreement," there was no indemnification requirement under the policy.
Turning to Footstar, it had a duty to indemnify for those injuries "arising out of Footstar's performance or failure to perform under this Agreement." A breach of contract, however, was not a "performance" under the Master Agreement. Instead, it was an act taken in direct violation of the contract. Therefore, Footstar did not have a duty to indemnify under the Master Agreement.
Regarding the duty to defend, the complaint alleged that Footstar caused Patrick's injuries by "negligently and carelessly . . . failing to properly remove" the infant stroller from the shelf. Based on these allegations and the phrase "arising out of" your work in the policy, the claim could have been potentially covered under subpart 1. As to Footstar, it was possible that Sehat's actions were potentially covered and arose out of his performance under the Master Agreement since, but for the Master Agreement, he would not have been working in the store. Therefore, both Liberty Mutual, under the policy, and Footstar, under the Master Agreement, had a duty to defend Kmart.

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