Source: https://www.insurancelawhawaii.com/insurance_law_hawaii/2010/03/index.html
Timestamp: 2019-04-22 10:10:34+00:00

Document:
Plaintiff's home was damaged by Hurricane Katrina on August 29, 2005. See Bridges v. EMC Mortgage Corp., 2010 U.S. Dist. LEXIS 18433 (S.D. Miss. March 2, 2010). She filed suit against her insurer, Liberty Mutual. In her amended complaint, the plaintiff added her mortgage company, EMC, as a defendant, alleging EMC failed to procure wind coverage.
The amended complaint alleged that under the mortgage, plaintiff assigned the obligation of payment for insurance and to obtain insurance to the mortgagee. On August 18, 2004, EMC's agent notified it that the home had not been covered by wind insurance since July, when Liberty Mutual did not renew wind coverage. Further, the agent informed EMC that premiums for wind coverage should be forwarded from the escrow account to the Mississippi Windstorm Underwriters Association (MWUA), but EMC failed to do so. The plaintiff alleged she was not informed of this prior to Hurricane Katrina. Therefore, she alleged EMC misrepresented the fact that it would purchase the wind insurance.
The plaintiff settled with Liberty Mutual. EMC filed a motion to dismiss. The court noted that one who undertakes to procure insurance coverage owes a duty of reasonable care and good faith in performing the duty. Here, EMC was notified over a year prior to Katrina that the premiums were to be forwarded to the MWUA, but EMC never did so. Accepting these allegations as true, the Amended Complaint stated a claim for failure to procure insurance under both contract and negligence theories. Accordingly, the motion to dismiss was denied.
On its third trip to the Hawai`i appellate courts, the decision in Mikelson v. United Services Automobile Assoc., No. 28332 (Haw. Ct. App. March 24, 2010)(opinion here) addressed whether the Circuit Court's confirmation of the arbitration award was appropriate when the insurer had already paid the arbitration award. (Disclosure - our office is involved in this case).
The case involved the insured's injury sustained in 1999 in an accident while riding his motorcycle. After settling with the other driver, the insured sued USAA for underinsured motorist benefits under his policy. Pursuant to the terms of the policy, the dispute went to arbitration to determine the insured's damages. On October 4, 2006, the Arbitrator's Final Award was issued. On October 17, 2006, the insured filed a Motion to Confirm pursuant to Hawai`i's Arbitration Statute. USAA opposed the Motion, arguing the Circuit Court lacked jurisdiction because USAA had paid the entire award, making the Motion moot. The Circuit Court granted the Motion to Confirm and USAA appealed.
Because the Hawai`i Arbitration Statute was virtually identical to the language in the federal arbitration statute, the court looked to federal authority to interpret the pertinent provisions. Many federal cases held that whether an award had been satisfied had no bearing on whether the arbitration award should be confirmed. Further, confirmation was concerned with the propriety of the award itself and was unrelated to enforcement of the award. Other courts, however, did not distinguish between confirmation and enforcement of an arbitration award and, thus, would not confirm an award that had been satisfied.
The Court of Appeals found the former cases demonstrating the need to separate confirmation and enforcement proceedings to be more persuasive. Further, USAA's sole argument was that confirmation was moot. Consequently, because USAA failed to challenge confirmation of the award based upon any of the specified statutory grounds in the Arbitration Statute, the Circuit Court was obligated to confirm the award. Therefore, the Circuit Court did not err and its decision was affirmed.
The insured, Versai, managed apartments that were so extensively damaged by Hurricane Katrina that they were uninhabitable. See Versai Mg. Corp. v. Clarendon Am Ins. Co., No. 08-30874, 2010 U.S. App. LEXIS 3479 (5th Cir. Feb. 19, 2010). Versai notified its insurers and submitted claims with the assistance of its private adjusters and contractors. Estimated repairs amounted to over $17 million, but was later increased by $10 million to comply with building codes. Lloyd's paid limits of $2.5 million on its all-risk policy. Standard Fire Insurance Company paid $6 million under a flood insurance policy. Excess coverage was provided by Clarendon and EFIC up to $13.4 million. Each eventually paid $2.9 million.
Versai sued the excess carriers, seeking additional for coverage for property damage, business interruption loss, replacement costs, and code compliance upgrades. The district court granted summary judgment to the carriers on all claims.
The Fifth Circuit affirmed in part, reversed in part. The district court denied further coverage for property loss based on Versai's failure to support its proofs of loss with sufficient documentation. The Fifth Circuit reversed on this point because the policy did not require additional documentation to support a proof of loss. The Fifth Circuit also determined summary judgment had been improperly granted to the excess carriers on the business interruption loss because there were issues of fact regarding the length of apartment vacancies after the hurricane.
The Fifth Circuit affirmed, however, the district court's granting summary judgment on the claim for payment for the costs of bringing the apartments into compliance with current building codes. The policy did not provide for such costs until after the insured had incurred the expense of compliance with the building code. Finally, Versai's claim for replacement costs was properly dismissed because the policy required completion of repairs before the insured could be reimbursed.
Coverage under a CGL policy for the subcontractor's construction defects was at issue in Architex Assoc., Inc. v. Scottsdale Ins. Co., No. 2008-CA-01353-SCT, 2010 Miss. LEXIS 71 (Miss. Feb. 11, 2010). Although the lower court determined there was no occurrence under the policy, and thus no coverage, the Supreme Court reversed.
Architex, the insured, contracted with CIS Pearl, Inc. to construct a hotel. Multiple subcontractors were used. After completion, CIS complained that testing revealed serious rebar deficiencies in the foundation of the hotel. Architex notified Scottsdale of the claim. Scottsdale denied coverage under the liability policy, reasoning there had not been any occurrence which would trigger coverage.
Suit was filed. The trial court granted Scottsdale's motion for summary judgment, agreeing there was no occurrence. Relying on a Fifth Circuit case that purported to interpret Mississippi law on occurrence, ACS Construction Co. v. CGU, 332 F.3d 885 (5th Cir. 2003), the circuit court determined that whatever work was improper or defective was the result of intended action by Architex in intentionally hiring the subcontractor. This hiring was not an accident and thus there was no occurrence.
On appeal, Architex argued that allegations of insufficient rebar, if proven true, were unexpected from its standpoint and therefore constituted an occurrence. The relevant act was not simply subcontracting, but rather, the improper placement of rebar, an accidental, not intentional, act.
The policy extended coverage to Architex for unexpected or unintended "property damage" resulting from negligent acts of a subcontrator, if not excluded by other applicable terms and conditions of the policy. The Fifth Circuit's interpretation in ACS was inconsistent with Mississippi law. The case was reversed and remanded for a determination on whether the complaint of "property damage" was proximately caused by a breach of duty which was accidental or intentional.
As we noted in a prior post, the majority of state courts agree that a liability policy should cover unexpected property damage caused by subcontractors.
The additional insured contractor was not entitled to a defense where the underlying case failed to allege any negligence by insured subcontractor. See Clarendon Nat. Ins. Co. v. Am. States Ins. Co., No. 09-548-JO, 2010 U.S. Dist. LEXIS 16091 (D. Ore. Feb. 22, 2010).
Providence built houses and subcontracted with Woodmaster to frame the houses. The subcontract provided Woodmaster would defend and indemnify Providence against any claim for injury arising from Woodmaster's own negligence. Further, Woodmaster agreed to furnish a certificate of insurance naming Providence as an additional insured. Woodmaster did add Providence as an "additional insured" on its policy with American States. The policy, however, provided no coverage for the additional insured if no liability was imposed on Wooodmaster.
An employee of Woodmaster was seriously injured when framing a Providence house. The employee sued Providence. Clarendon, Providence's insurer, defended, but also asked that American States defend based on the additional insured endorsement in its policy. American States denied tender of the defense. When the employee's litigation settled, Clarendon asked American States to contribute, but American States again refused. As part of the settlement, Providence assigned to Clarendon all claims against American States. Clarendon then sued American States.
American States argued Oregon law voided any agreement Woodmaster entered to provide Providence with insurance coverage. Indeed, under Oregon law, contractors were barred from indemnifying another's negligence. Under another statute, however, a subcontractor could agree to indemnify against its own negligence. This was precisely what the indemnity agreement and the "additional insured" language of the American States policy provided: Woodmaster agreed to indemnify Providence against Woodmaster's own negligence, and American States insured Providence against Woodmaster's own negligence. Therefore, the agreement to procure insurance was valid.
Nevertheless, American States had no duty to defend Providence. None of the allegations raised a reasonable implication that Woodmaster was somehow responsible for the employee's injuries. To the contrary, the employee's allegations expressly alleged Providence was solely responsible.
The "your work" exclusion was held inapplicable to damaged portions of a building for which the insured was not responsible. Fortney & Weygandt, Inc. v. Am. Manufacturers Mutual Ins. Co., No 05-4031, 2010 U.S. App. LEXIS 2836 (6th Cir. Feb. 12, 2010).
The insured contracted with Frisch's Restaurants, Inc. to build a Golden Corral restaurant. When the restaurant was nearly complete, soil shifted around the foundation, breaking the building's underground utility lines. Frisch determined the foundation was defective. Consequently, Frisch had to demolish and rebuild the restaurant.
In arbitration, Frisch claimed that the insured's defective foundation had caused the damage. The insured tendered its defense to its insurer. When coverage was denied, the insured sued. The district court held coverage was excluded under the defective-workmanship exclusion, paragraph 2 (j)(6).
Paragraph 2 (j)(6) excluded 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 parties agreed that this exclusion barred coverage for claims seeking recovery for the cost of replacing the defective foundation. But the issue was whether the exclusion prevented coverage for claims for replacing the whole building where the insured's defective work was limited to only the foundation.
On appeal, Sixth Circuit followed the Fifth Circuit's decision interpreting paragraph 2 (j)(6) in Mid-Continent Cas. Co. v. JHP Development, Inc., 557 F.3d 207 (5th Cir. 2009). The first phrase of the exclusion - i.e., "that particular part" - was restrictive and made clear that the exclusion applied only to building parts on which defective work was performed, and not to the building generally. Further, "part" meant the "distinct component parts" of a building. The (j)(6) exclusion therefore applied only to the cost of repairing or replacing distinct component parts on which the insured performed defective work. Accordingly the insurer had a duty to defend the insured against Frisch's claim.
The ABA's Section of Litigation, Insurance Coverage Litigation Committee's annual conference was held in Tucson last week. Rina Carmel and I led a lively discussion on applicable triggers for property policies. Although the manifestation of an injury has been used by some courts to trigger a property policy, the injury-in-fact trigger has more recently been adopted by other courts. The outline for our presentation is here.
If the named insured does not satisfy the self-insured retention (SIR), can the additional insured undertake payment to trigger coverage? Looking at the language of the policies under consideration, the court answered no in Forecast Homes, Inc. v. Steadfast Ins. Co., No. G040876, 2010 Cal. App. LEXIS 172 (Cal. Ct. App. Jan. 12, 2010).
Forecast was a housing developer. It hired subcontractors to build the homes and required them to maintain general liability insurance policies naming Forecast as an additional insured. Forecast's contract with each subcontractor specified in great detail the required policy language and coverage specifications, but did not require any specific language regarding the policies' SIR endorsements.
From 2001 to 2003, Forecast was served with five different lawsuits for construction defects. Forecast tendered the lawsuits to Steadfast, who insured many of the subcontractors. None of the subcontractors were named as defendants in the underlying suits. Steadfast denied Forecast's tender because only the named insured under each policy could satisfy the bargained for per occurrence amounts set forth in the SIR endorsements and none of the subcontractors had satisfied the SIR. The lower court agreed because the policies only allowed the named insured to satisfy the SIR amounts.
The appellate court noted there were two types of SIR endorsements in which Forecast was an additional insured, Form A and Form B. Who could satisfy the SIR depended on each policy's express provisions.
Form B's SIR endorsement started with the boilerplate sentence, "'you' and 'your' refer to the named insured . . . ." The endorsement then limited who could satisfy the SIR by stating, "it is a condition precedent to our liability that you [the named insured] make actual payment until you have paid" the SIR amount. Further, "Payments by others, including but not limited to additional insureds or insurers, do not serve to satisfy the SIR." Because "you" was defined as the named insured, it logically followed the named insured had to pay defense costs to satisfy the SIR.
Form A did not include the sentence, "Payments by others, including but not limited to additional insureds or insurers, do not serve to satisfy the SIR." It did, however, describe who's obligation it was to pay the SIR by stating, "'you', the named insured, must make actual payment" of defense costs and/or damages.
Finally, enforcement of the SIR endorsements' plain language did not violate public policy. Forecast acknowledged the primary purpose of an SIR was to allow the named insured to contain its insurance costs. It was the subcontractors, not Forecast, that formed the insurance contract with Steadfast. Further, Forecast could have required its subcontractors to obtain policies listing Forecast as a named insured, but this would have resulted in higher insurance premiums, increasing the cost of the subcontractors and overall bid price, thereby jeopardizing Forecast's chances to gain the development contract.
Although this decision was rendered as unpublished opinion, the appellate court granted Steadfast's requested to publish the opinion on February 11, 2010.
Is damage caused by snow melt excluded under a homeowner's policy because it constitutes standing water? The court answered yes in Northwest Bedding Co. v. Nat. Fire Ins. Co. of Hartford, No. 28044-6, 2010 Wash. App. LEXIS 299 (Wa. Ct. App. Feb. 11, 2010).
The Spokane area, where the insured's buildings were located, experienced heavy snowfall during the winter of 2007-08. The State Department of Transportation diverted snow melt through trenches near the insured's buildings. The water overflowed the trenches and inundated the insured's building, causing damage.
National Fire denied coverage under the all-risk property policy, concluding the loss was caused by surface water. The insured argued the loss resulted from third parties channeling water onto its property. The court reasoned that abnormally heavy snowfall followed by rapid snow melt overwhelmed the drainage ditches and forced water onto land that could not readily absorb the water. Therefore, the water that caused the damage was surface water once it overflowed the ditch. The court further determined damage caused by the water was also excluded as "Flood."
The insured also argued the efficient proximate caused doctrine should apply. If the efficient proximate cause of the loss, or the predominant cause, is covered by the policy, the loss is covered even though other events within the chain of causation are excluded from coverage. The court, however, rejected this argument because the overflow of the drainage system was not independent from the snow melt and surface water that damaged the insured's premises.
In Builders' Mutual Ins. Co. v. Glascarr Prop., Inc., No. COA09-486, 2010 N.C. App. LEXIS 186, (N.C. Ct. App. Feb. 2, 2010), the court found no coverage for loss caused by mold because of the anti-concurrent causation clause. Whether reliance on the anti-concurrent causation clause was correct is difficult to determine from the facts set forth in the decision.
The insured purchased a builders' risk policy. After completing construction of a house, vandals broke in and left water taps running, causing extensive damage. After a claim for $102,161.44 was submitted for losses arising from the vandalism, the insurer paid $101,661.44.
The insured later discovered mold in the house, caused by the water damage. An additional claim for $39,000 for mold remediation was submitted. This claim was denied based on the exclusion for losses caused by mold.
The parties agreed the policy covered losses from water damage caused by vandalism. The parties disagreed, however, on whether the policy covered reimbursement for the cost of mold remediation. The insured sued, but the trial court found no coverage.
We will not pay for a "loss" caused directly or indirectly by any of the following. Such "loss" is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the "loss".
f. The presence, growth, proliferation, spread, or any activity of "Fungi", wet or dry rot or "microbes."
The court determined this clause unequivocally excluded payment for losses "caused directly in indirectly by" mold, and the exclusion applied "regardless of any other cause or event that contributed concurrently or in any sequence to the 'loss.'" Therefore, payment of a claim for the cost of mold remediation was excluded.
Should the anti-concurrent causation clause have been applied? The opinion notes that, "the water damage led to the formation of the mold." Further, "vandalism caused water damage, which in turn, caused the formation of the mold." Finally, the mold was discovered "later."
Typically, the anti-concurrent causation clause involves two different forces contributing to the exact same damage. If two or more forces cause different, distinct, and divisible damage, only single causation exits and the anti-concurrent causation clause does not come into play. If water damage "led to" formation of the mold and the mold damage was discovered "later," it does not seem likely the damage was exactly the same.
Some cases have held that mold loss following water damage is covered despite the exclusion for mold. See The Home Ins. Co. v. McClain, 2000 Tex. App. LEXIS 969 (Tex. Ct. App. Feb. 10, 2000)(mold loss that follows water damage is caused by water damage, not mold damage, so policy's exclusion for mold does not apply); Flores v. Allstate Texas Lloyd's Co., 278 F. Supp. 2d 810, 815 (S.D. Tex. 2003)(when mold damage ensues form water damage which is covered under the policy, the mold damage is covered despite the exclusion). Neither of these cases, however, discuss whether the policies included an anti-concurrent causation clause.

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