Source: https://www.insurancelawhawaii.com/insurance_law_hawaii/duty_to_defend/page/3/
Timestamp: 2019-04-23 12:17:23+00:00

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The Supreme Court of Idaho found that the intentional shooting by a care-taker in the insureds' campground was not covered under the CGL policy. Farm Bureau Mut. Ins. Co. of Idaho v. Cook, 2018 Idaho LEXIS 71 (Idaho March 30, 2018).
The insureds allowed people to use a lake and campground on their property without charging a fee. Michael Chisholm lived on the property in a cabin in exchange for caring for the property. Chisholm had a disagreement with Joseph Stanczak and ended up shooting Stanczak with a handgun. Chisholm was charged with aggravated assault and pled guilty without admitting guilt to all the elements of his crimes. He was sentenced to prison.
The insureds had a policy with Farm Bureau. Stanczak sued Chisholm, the insureds and Farm Bureau. Farm Bureau denied coverage and filed a complaint for a declaratory judgment. Farm Bureau then moved for summary judgment which was granted.
On appeal, the insureds argued that the shooting - while intentional from Chisholm's point of view - was an accident from theirs, and thus was a covered "occurrence." Farm Bureau asserted that the injuries flowed directly from the intentional shooting, and thus were not an "occurrence."
Idaho followed the "nature of the event" test, whereby negligence claims against in insured that directly arose out of the intentional act of a third party were not covered because the underlying causative act was not covered. While the insureds argued that the incident fell precisely in line with the definition of an accident from their perspective - the shooting was an unexpected event resulting from their purported negligence - Idaho law used a contrary interpretation. A reasonable person would view Stanczak's injuries as resulting from an assault. An intentional shooting caused the injuries, and thus the shooting was not an "occurrence" under Idaho law.
Therefore, the court affirmed the trial court's grant of summary judgment to Farm Bureau.
The magistrate judge recommended that the insurer's motion for summary judgment seeking to determine there was no coverage for claims of faulty workmanship be denied. Greystone Multi-Family Builders v. Gemini Ins. Co., 2018 U.S. Dist. LEXIS 56770 (S.D. Tex. Feb. 26, 2018).
TPG (Post Oak) purchased an OCIP policy to cover construction of an apartment complex. TPG was sued by the contractor, Greystone, after TPG cancelled the construction contract. TPG filed a counterclaim against the contractor, alleging that Greystone had failed to properly perform in building a luxury apartment complex which resulted in monetary damages to TPG. The complaint further alleged that the project was nine months behind its substantial completion date, far from complete, and over budget when TPG cancelled the contract. The cost to fix the mismanagement caused by Greystone was $18.9 million.
The insurer denied coverage for the counterclaim against Greystone. Greystone then sued for a declaration judgment and the insurer cross-moved for summary judgment.
The insurer argued there was no occurrence because Greystone's actions were not an accident. The court, however, found no allegations in the underlying complaint that Greystone intended its work to cause the damage or that the damage was the natural and expected result of Greystone's actions. Simply because Greystone paid its subcontractors upfront did not mean Greystone intended the result to be shoddy workmanship. The up-front payments may have been a management failure, but not intentional conduct to cause poor construction of the project. Therefore, the allegations included actions meeting the definition of "occurrence."
Next, the insurer agreed that there was property damage, but argued most of the complaints were of increased costs of construction due to duplication of effort, purchasing gaps, use of wrong materials, deviations from plans and specifications, code violations, and delays. The court agreed that the counterclaim alleged that Greystone's shoddy work caused property damage. But there were also allegations that fell within the definition of property damage.
Finally, the court determined that the exclusions did not bar coverage. The insurer relied upon exclusion j (5) which barred coverage to "that particular part of real property on which you . . . are performing operations, if the 'property damage' arises out of those operations." The court noted that it must look not to when the construction defect occurred, but when the property damage itself occurred. Greystone argued that some of the damage could only have occurred after it was no longer working on its particular part of the project. There was no clear allegation in the counterclaim tying the property damage to a particular date. Therefore, exclusion j(5) did not allow the insurer to escape its duty to defend.
Exclusion j (6) was also not applicable. The exclusion barred coverage for "property damage" to "that particular part of any property that must be restored, repaired or replaced because 'your work' was incorrectly performed on it." The exclusion did not apply to property damage included in the products-completed operations hazard, i.e., when all of the work called for in the contract had been completed. The exclusion barred coverage only for property damage to parts of a property that were themselves the subject of defective work by the insured. The exclusion did not apply, however, for damage to parts of a property that were the subject of only nondefective work by the insured and were damaged as a result of defective work by the insured on other parts of the property.
The counterclaim alleged that some of Greystone's work that was non-defective was damaged by defective work. For example, the counterclaim alleged that due to defective structural work, "the floor of the structure began to sag and critical plumbing elements were damaged." The counterclaim further alleged that the roof was installed defectively, which caused water leaks on the property. The allegations also established that not all of Greystone's work was completed because the contract was never completed. Therefore, the products-completed operations hazard was inapplicable. Exclusion j (6) did not apply to the extent that the counterclaim alleged that non-defective work was damaged by defective work.
Consequently, the insurer had a duty to defend.
The Fourth Circuit affirmed the district court's determination that the duty to defend was limited by the policy's $100,000 limit. Gemini Ins. Co. v. Earth Treks, Inc., 2018 U.S. App LEXIS 7622 (4th Cir. March 27, 2018).
Kelsey Fabian sued Earth Treks, Inc., alleging she suffered sexual abuse by two of Earth Treks coaches when she was a 14-year-old member of Earth Treks' competitive youth climbing team. Earth Treks tendered to Gemini, who disputed liability. Gemini filed suit for a declaratory judgment, seeking a declaration that it owed no defense or indemnity for the Fabian lawsuit or, alternatively, that its liability was limited to $100,000 under several endorsements to the policy. Earth Treks counterclaimed for breach of the duty to defend.
Cross-motions for summary judgment were filed. The district court held that Gemini had a duty to defend, but that its liability was limited to $100,000 based alternatively on the "Sexual Abuse and Molestation" endorsement (SAM endorsement) or the "Assault, Battery, or Assault and Battery endorsement (A&B endorsement). The Fabian suit settled. Gemini and Earth Treks stipulated to the entry of final judgment and Earth Treks appealed challenging the ruling that limited Gemini's duty to defend to $100,000 based upon the endorsements.
Under Maryland law, an insured could establish a potentiality of coverage under a policy through the use of extrinsic evidence. Earth Treks submitted highlighted portions of deposition transcripts to support its arguments. The district court relied on portions of the transcripts that were not highlighted. Earth Treks argued that this was tantamount to considering extrinsic evidence provided by the insurer. The Fourth Circuit disagreed. The district court was not required to turn a blind eye to testimony that Earth Treks itself placed before the court.
Earth Treks next argued that the A&B endorsement was not applicable. Earth Treks submitted that the coaches' sexual contact with Fabian was not a battery because a reasonable factfinder could conclude that Fabian consented to, and was not harmed by, the contact. Under Maryland law, however, consent to sexual contact with an adult could not be given by a child as a matter of law.
Earth Treks also argued that the district court erroneously resolved factual disputes in favor of Gemini in determining that Fabian was harmed by the sexual contact. Assuming the district court erred, any such error was harmless. The sexual contact with a minor was harmful and injurious as a matter of law, regardless of whether she suffered any actual physical injury.
Therefore, the district court properly determined, as a matter of law, that the A&B endorsement limited Gemini's duty to defend to $100,000. The district court's judgment was affirmed.
Determining there were no allegations of bodily injury or property damage in the underlying lawsuit, the court found there was no duty to defend or indemnify the condominium's managing agent. State Farm Fire & Cas. Co. v. Certified Mgmt., 2018 U.S.Dist. LEXIS 71124 (D. Haw. April 27, 2018).
Frederick Caven sued Certified Management, dba Associa Hawaii ("Associa") on behalf of himself and a class. Caven alleged that he owned a condominium and was a member of the Regency homeowners' association. The suit alleged that Associa was the managing agent for the association. Caven sold his unit in April 2016. Caven asked Associa for condominium documents to provide to the purchaser. Associa charged Caven $182.29 to download 197 pages of condominium documents for Regency. Associa also charged Caven $286.46 for a one-page "fee status confirmation," a document prepared by Associa which contained financial and other information needed to complete the sale. Caven alleged that the fees charged by Associa and other unit owners were excessive and in violation of Hawaii law.
Regency was a named insured under a residential community association policy issued by State Farm. Associa tendered the Caven lawsuit to Regency under a defense and indemnity provision in a Management Agreement. Regency submitted the tender to State Farm. State Farm denied coverage.
Associa sued State Farm. State Farm moved for summary judgment. State Farm first contended it had no duty to defend or indemnify because Associa was not an "insured" under the policy. The policy clarified that one was an insured "If you are designated in the Declarations as . . . (4) An organization other than a partnership, joint venture or limited liability company. . ." Associa was not designated in the Declarations or otherwise as a named insured.
The policy further provided an insured was "any organization while acting as your real estate manager but only with respect to liability for 'bodily injury'." This provision also did not apply because there was no allegation of bodily injury in the underlying lawsuit. Instead, Caven alleged that Associa overcharged him and other unit owners for copies of condominium documents. Even assuming Associa was acting as Regency's "real estate manager," Associa was not an insured under the policy because there was no allegation of "bodily injury" in the underlying lawsuit.
Further, the underlying lawsuit did not allege "property damage" or "personal injury." Therefore, the court granted State Farm's motion for summary judgment.
Interpreting Hawaii law, the federal district court held that the standard for triggering the duty to defend is the same as the standard for the duty to advance costs under a D&O policy. Maui Land & Pineapple Co. v. Liberty Ins. Underwriters, 2018 U.S. Dist. LEXIS 56949 (D. Haw. April 3, 2018).
The underlying plaintiffs sued 22 defendants, including Maui Land Pineapple (MLP) and Ryan L. Churchill, concerning a residential development project known as The Ritz-Carlton Club & Residences. The underlying complaint alleged that MLP "directly or indirectly through wholly owned subsidiaries exerts control" over Kapalua Bay, LLC, the defendant in the underlying lawsuit. Kapalua Bay, LLC was created as a joint venture of which MLP held 51%. Churchill was a senior executive officer of MLP, President of Kapalua Bay, and an executive officer of Kapalua Realty, which participated in all aspects of the Project, such as financing, development, and construction.
In their second amended complaint, the underlying plaintiffs alleged nine Counts against the defendants, including breach of fiduciary duty. It was alleged that defendants were not transparent and kept owners in the dark regarding the status of the project. Several allegations named Churchill individually and described his alleged material misrepresentations to the underlying plaintiffs regarding the project's financing.
MLP had an indemnification agreement with its officer and director Churchill. The agreement obligated MLP to indemnify Churchill for costs incurring in a proceeding if Churchill acted in good faith and was not opposed to the interests of MLP. The agreement was of no effect, however, if MLP secured a D&O policy.
Liberty issued an Executive Advantage policy to Churchill and MLP. The policy obligated Liberty to provide coverage to "Insured Persons." The policy provided that the duty to defend was the duty of the insureds. Liberty, however, would advance on a current basis covered defense costs incurred by the insureds. The policy also provided MLP with coverage for its own wrongful conduct occurring "as a result of a Securities Action."
Liberty denied coverage for the underlying suit. MLP filed suit. Cross-motions for summary judgment were filed. Liberty argued that because Churchill was sued by the underlying plaintiffs in his capacity as director of the AOAO, rather than in his capacity as an officer of MLP, the Outside Service Exclusion was triggered. This exclusion barred coverage for an Loss arising from an Insured Person serving as a director or officer of any entity other than the Insured Organization. Liberty also argued that the underlying suit was not a Securities Action for which the policy provided coverage for MLP.
The court first ruled that the policy provided a defense for Churchill. Liberty argued that its duty to advance defense costs required that the insured establish that the underlying claims were within the basic scope of coverage. MLP, on the other hand, asserted that the general standard for triggering the duty to defend was the same as the standard to trigger the duty to advance costs under the policy. The court noted that the duty to advance defense costs would be illusory if the insured had to wait for a determination of actual coverage to obtain the necessary funding for its defense. Therefore, the standard for triggering the duty to defend was the same as the standard for triggering the duty to advance costs.
In the underlying suit, Churchill was sued both in his capacity as an officer of MLP and in his capacity as a director of the AOAO. Therefore, the allegations raised the possibility of coverage, triggering MLP's duty to advance defense costs. Liberty agreed that it provided excess coverage to Churchill in his capacity as an AOAO director. Liberty declined, however, to advance defense costs to indemnify Churchill for claims arising from his conduct as an MLP officer.
Liberty argued that no claims were directed at Churchill in the underlying lawsuit in his capacity as an MLP officer. But the second amended complaint alleged breach of fiduciary duty against all defendants, which included Churchill. The court in the underlying action had not made any finding that none of the allegations against Churchill were made in his capacity as an MLP officer and nothing in the record supported this.
Further, the Outside Service Exclusion was not applicable. The AOAO was MLP's subsidiary under the terms of the policy and was therefore an "Insured Organization." So even if Churchill was acting in his capacity as a director of the AOAO, the AOAO was not "another, uninsured entity." Therefore, the exclusion did not bar defense costs for Churchill.
The court next addressed coverage for MLP and whether the underlying action was a "Securities Action." To qualify as a Securities Action under the policy, the underling claim had to involve the purchase or sale of securities, or had to be brought by securities holders. The theory of the underlying lawsuit was that MLP, as developer of the project, hid the truth and misrepresented the status of the project, and its financial state, thereby injuring the underlying plaintiffs. The court agreed with Liberty that such a theory prevented characterization of the underlying lawsuit as an action "arising from or sale of, or offer to purchase or sell, any securities issued by the Insured Organization."
Accordingly, Liberty's Motion for Summary Judgment and MLP's Motion for Partial Summary Judgment were granted in part, denied in part.
The Illinois Court of Appeals reversed summary judgment entered for the insurer and found the general contractor, an additional insured under the policy, was entitled to a defense. Hastings Mut. Ins. Co. v. Blinderman Constr. Co., Inc., 2017 Ill. App. LEXIS 661 (Ill. Ct. App. Oct. 24, 2017).
Blinderman was the general contractor on a construction project for an elementary school. Blinderman hired JM Polcurr, Inc. to do the electrical work on the project. By contract, Polcurr was obligated to purchase a policy naming Blinderman as an additional insured for Polcurr's work on the project. Polcurr purchased the policy.
Polcurr's employee, Robert Woods, suffered a serious injury at work on the project. A court appointed Wood's daughter to serve as guardian for Woods and his estate.
Liability arising out of the sole negligence of the additional insured or by those acting on behalf of the additional insured.
Blinderman filed a third-party complaint against Polcurr, arguing that Polcurr should pay a share of any liability assessed against Blinderman because Polcurr failed to inspect the premises, improperly maintained Woods' work area, failed to warn Woods of dangerous conditions, and permitted Woods to use an unstable ladder without appropriate safety equipment.
Hastings then filed suit seeking a declaration that it had no duty to defend or indemnify Blinderman for its potential liability in the underlying case. Blinderman and Hastings both filed motions for summary judgment.
Blinderman supported its motion with its third-party complaint against Polcurr and depositions of two Polcurr employees. The employees testified that Blinderman gave no directions to Polcurr employee about their work. Polcurr employees, including Woods, used only Polcurr equipment.
Nevertheless, the trial court held it could not consider the allegations of the third-party complaint when determining whether Hastings had a duty to defend Blinderman. The court further held that the exclusion for liability arising from Blinderman's sole negligence applied, and Hastings had no duty to defend Blinderman because the underlying complaint did not allege that Polcurr acted negligently. Blinderman appealed.
The appellate court noted that Hastings had the burden of showing that Blinderman's liability arose out of the sole negligence of Blinderman or those acting on Blinderman's behalf and not from the negligent acts or omissions of Polcurr.
In the underlying case, the Estate of Woods did not specifically allege that Polcurr's acts or omissions cuased the injury. But the estate did not expect to recover damages from Polcurr and had no reason to include allegations about the acts or omissions of Polcurr. The complaint's silence concerning Polcurr's acts or omissions did not suffice to meet Hastings' burden of showing the Polcurr's acts or omissions did not contribute to causing the injury.
Further, Blinderman's third-party complaint aginst Polcurr included allegations consistent with the Estate's complaint, showing how Polcurr's acts or omissions might have contributed to causing Woods' injury. However, Blinderman would need to rely on those pleadings only if it bore the burden of proving that Polcurr's acts or omissions might have contributed to causing Woods' injury. Because the Estate's complaint included no allegations about Polcurr's acts or omissions, Hastings did not meet its burden of proving that Blinderman's liability in the underlying case arose out of Blinderman's sole negligence.
The summary judgment entered on behalf of Hastings was reversed.
In a long-standing dispute between a window manufacturer and its insurer, the federal district court found that the insurer was obligated to pay defense costs from the date of installation of the alleged faulty windows even though the underlying complaints did not allege when the damage occurred. Pella Corp. v. Liberty Mut. Ins. Co., No. 4:11-cv-00273 (S.D. Iowa Jan. 16, 2018). The case is here.
The court had previously addressed allocation among the insurer's various policies. It held that the CGL policies provided for pro rata allocation of indemnity payments where a single occurrence triggered multiple policies. The court also held that the CGL policies were ambiguous with respect to allocation of defense costs and thus interpreted the policies in Pella's favor, applying all-sums allocation. The court further granted summary judgment with respect to sample claims where the parties did not dispute which policies were triggered. The court denied summary judgment with respect to the remaining sample claims, finding genuine disputes of material fact prevented summary judgment in Liberty's favor on the issue of when the alleged damage began.
Pella now moved for summary judgment on the issue of when fourteen of the fifteen sample claims first triggered Liberty's obligation to reimburse defense costs. Pella argued that Liberty's duty to defend attached from the point that property damage could potentially have begun, Pella argued this was the time at which the underlying claimant installed the Pella windows at issue in the underlying cases. Liberty contended that the underlying complaints were silent as to when damage began, resulting in a factual dispute between the parties experts about when damage began.
The underlying allegations did not include the time period in which the damage occurred. But there were allegations as to when the allegedly defective windows were sold or installed. These allegations, along with additional facts in the record regarding the sale, delivery, and installation of the windows established that the sample claims were potentially brought within the policy periods of various policies highlighted by Pella.
Liberty argued the facts relied upon by Pella did not disclose when damages potentially occurred. The court disagreed. Facts such as when the windows were installed or when the structure containing the windows was completed shed light on when damage may potentially have occurred. The potential for coverage was sufficient to invoke Liberty's duty to defend. There was no genuine issue for trial on the question of which Liberty policies were triggered by the sample claims with respect to Liberty's duty to reimburse defense costs under the applicable policies.
One insurer's refusal to defend based upon its "other insurance" provision ultimately meant the insurer had to pay all of the insured's defense costs. Steadfast Ins. Co. v. Greenwich Ins. Co., 2018 Wis. App. LEXIS 51 (Wis. Ct. App. Jan. 17, 2018).
Milwaukee Metropolitan Sewerage District (MMSD) was a government agency that provided water reclamation and flood management services to the city. From March 1, 1998 to February 20, 2008, MMSD contracted with United Water Services Milwaukee LLC to operate the sewerage system. From March 1, 2008 on, MMSD contracted with Veolia Water North America-Central, LLC to operate the system.
Through agreements, both companies were obligated to indemnify MMSD for claims arising out of the operations and maintenance of the system and to obtain insurance to cover their indemnity obligations. Both companies complied.
In June 2008, heavy rain overwhelmed MMSD's sewer system and more than 8,000 homeowners reported basement sewage backups. Four rain event lawsuits were filed against MMSD. The suits alleged that MMSD and Veolia were negligent in the inspection, maintenance, repair and operations of the system. United Water was later named as a defendant in one of the lawsuits.
MMSD tendered its defense to Steadfast and Greenwich. Steadfast, the insurer for Veolia, which had named MMSD as an additional insured, accepted the tender and defended MMSD. Greenwich, United Water's insurer, did not accept the tender and did not pay any of the defense costs. The underlying suits eventually settled without MMSD or Steadfast making any contribution to the settlement. However, Steadfast reimbursed MMSD $1.55 million towards defense costs that MMSD incurred.
Steadfast then sued Greenwich to recoup the monies it paid to MMSD for defense costs. The parties filed cross-motions for summary judgment. The trial court denied Greenwich's motion, finding Greenwich had breached its duty to defend MMSD and thereby waived its rights to raise any coverage defense. After further motion practice, the court awarded Steadfast judgment against Greenwich in the amounts of $1.55 million as damages and $325,500 as attorney fees for the coverage action. Greenwich appealed.
The court first analyzed the other insurance provisions in the Greenwich and Steadfast policies. Other insurance provisions were effective in situations involving concurrent coverage. Here the policies were successive, not concurrent. They did not cover the same time period. The court concluded that the Greenwich policy provided primary coverage for the claims against MMSD for the earlier conduct of United Water in operating and maintaining the MMSD system, not excess coverage for that of the Steadfast policy.
Greenwich also argued that MMSD did not exhaust the $250,000 self-insured retention (SIR) in its policy. MMSD had submitted a declaration in the summary judgment proceedings stating that it had paid over $800,000 in defending the underlying cases. The appellate court agreed that the SIR had been met. As a consequence, Greenwich's policy provided primary coverage based on United Water's conduct in operating and maintaining MMSD's system. Further, MMSD was entitled to recover the defense costs, including attorney fees, from Greenwich based upon Greenwich's breach.
Steadfast, as the non-breaching insurer, had a claim for equitable subrogation against Greenwich, who breached its duty to defend. Upon payment to MMSD of defense costs, Steadfast stepped into MMSD's shoes and was entitled to recover from Greenwich the same damages that MMSD would have been entitled to recover from Greenwich.
Finally MMSD was entitled to recover the attorney fees incurred in the coverage action under the Greenwich policy. Under the doctrine of equitable subrogation, Steadfast stepped into MMSD's shoes and was equitably entitled to recover those fees in defending coverage.

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