Source: https://www.insurancelawhawaii.com/insurance_law_hawaii/2010/06/index.html
Timestamp: 2019-04-22 10:01:13+00:00

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On the heels of a 2008 case involving a similar issue (Worth Constr. Co., Inc. v. Admiral Ins. Co. [prior post here]), the New York Court of Appeals was again confronted with questions regarding the scope of coverage for an additional insured in a construction context. See Regal Constr. Co. v. National Union Fire Ins. Co. of Pittsburgh, PA., 2010 N.Y. LEXIS 1143 (June 3, 2010).
URS Corporation was construction manager for a renovation project. URS hired Regal Construction Company as the prime contractor. Regal was required to procure a CGL policy naming URS as an additional insured. Regal obtained a policy from the Insurance Corporation of New York naming URS as an additional insured "only with respect to liability arising out of Regal's ongoing operations performed for URS."
While inspecting the project, Regal's project manager was injured on the project when he slipped on a freshly painted floor, resulting in a back injury. He claimed that URS employees had painted the floor.
The project manager sued URS, who sought a defense as the additional insured under Regal's policy. The Insurance Corporation defended under a reservation of rights, but filed a declaratory relief action against URS and its insurer, National Union, seeking a declaration that URS was not entitled to coverage as an additional insured. The lower courts found in favor of URS, concluding that the project manager's injury "arose out of" Regal's work.
On appeal, the Insurance Corporation contended the injury arose not out of Regal's work, but from URS employees' work in painting the floor. Therefore, under Worth, there was no coverage for the additional insured.
The Court of Appeals disagreed. The key for coverage was not the precise cause of the accident, but the general nature of the operation in the course of which the injury was sustained. Accordingly, the injury arose from Regal's operations, notwithstanding URS's alleged negligence. Worth was distinguishable because there, the insured/subcontractor was not on the job site at the time of the accident, having completed its portion of the project. Therefore, the accident did not arise out of the operations of the insured. Here, however, there was a connection between the accident and Regal's own work because the injury was sustained by Regal's employee as he supervised a subcontractor regarding work to be performed.
In Tiara Condominium Assoc., Inc. v. Marsh & McLennan Co., Inc., 2010 U.S. App. LEXIS 10835 (5th Cir. May 27, 2010), it was unclear whether, under Florida law, the economic loss rule foreclosed claims for negligence and breach of fiduciary duty against the insurance broker. Accordingly, the Fifth Circuit certified the question to the Florida Supreme Court.
In 2002, the Condominium Association retained Marsh & McLennan to procure insurance for its condominium building. As a result, the Association secured a policy with Citizens Property Insurance with a loss limit of nearly $50 million. Two hurricanes caused extensive damage to the condominium in September 2004. The Association began to rebuild, but as costs approached the policy limit, the Association asked March to assure that the policy contained a per-occurrence limit rather than an aggregate limit on the coverage. If the policy was per-occurrence, the limit would apply for each occurrence, increasing the total relief available to the Association to approximately $100 million.
Marsh advised the coverage was per-occurrence. Based on Marsh's assurances, the Association continued its remediation efforts and spent more than $100 million in repairs. When the Association sought payment from Citizens, however, the insurer maintained the policy contained an aggregate limit, not a per-occurrence limit. The Association sued Citizens and eventually settled for about $89 million. No determination was made, however, on whether the policy established a per-occurrence or aggregate limit.
The Association then sued Marsh for failure to procure adequate coverage. The district court granted summary judgment to Marsh on all claims.
On appeal, the Association argued Marsh had breached the contract and made misrepresentations by procuring a policy with an aggregate limit. The Fifth Circuit disagreed, noting that the policy specifically referred to per-occurrence coverage. Accordingly, Marsh neither breached the contract nor negligently misrepresented the coverage because it secured a per-occurrence policy from Citizens.
Does an insurance broker provide a "professional service" such that the insurance broker is unable to successfully assert the economic loss rule as a bar to tort claims seeking economic damages that arise from the contractual relationship between the insurance broker and the insured?
The insured cardiologist obtained a disability policy from Lloyd's in 1999. See Lagstein v. Certain Underwriters at Lloyd's, London, 2010 U..S. App. LEXIS 11836 (9th Cir. June 10, 2010). In the event of disability, Lloyd's agreed to pay the insured $15,000 per month for up to sixty months.
In 2001, the insured developed heart disease, severe migraine headaches and other neurological problems. A claim was submitted to Lloyd's. By early 2002, no decision had been made on the claim, so the insured returned to work against the advice of his doctors. In September 2003, the insured filed suit against Lloyd's for breach of contract, breach of the covenant of good faith and fair dealing, and unfair trade practices. The district court stayed the lawsuit pending binding arbitration required by the policy.
The arbitrators concluded that Lloyd's breached the contract and acted unreasonably. The insured was awarded the full value of the policy, $900,000, plus $1.5 million for emotional distress. At a subsequent hearing on punitive damages, Lloyd's objected that the panel's jurisdiction had ended once it issued the initial award. Nevertheless, the hearing went forward and the insured was awarded punitive damages in the amount of $4 million.
Lloyd's then moved in the district court to vacate the arbitration awards on several grounds, including allowing a punitive damages hearing after the issuance of the initial award. The district court vacated the awards, concluding their size was excessive and in manifest disregard of the law.
The Ninth Circuit reversed. The district court could not vacate an arbitration award simply because it disagreed with its size. Moreover, the panel did not exceed its authority in holding a subsequent punitive damages hearing because the timing of the arbitration award was a procedural matter within the panel's interpretation. The panel's conclusion that it retained jurisdiction was a plausible construction of the parties' agreement. Accordingly, the Ninth Circuit reversed the district court's vacatur of the arbitration awards and remanded for confirmation of all of the awards.
Today's guest post is authored by Juanita Martinez, a financial writer offering solutions on insurance related matters. Based in Idaho, Juanita has been associated with the AmPmInsure Community since 2007. AmPmInsure (http://www.ampminsure.org/) is an online forum community where industry professionals provide insurance based solutions. With the onset of hurricane season, Juanita's post on flood insurance is particularly timely.
Do you know that your homeowners' or business insurance policies do not provide coverage for losses caused by flood? Residents residing in a community participating in the National Flood Insurance Program (NFIP) can purchase a flood insurance policy to cover your residential or business properties. A host of information is found at the NFIP's official website, http://www.floodsmart.gov.
You, being a homeowner, need to purchase flood insurance coverage to insure the property as well as its contents. Depending upon the location of your house, the property can be considered at moderate-to-low risk or high-risk for exposure to flood damage. The premium rate of flood insurance is largely dependent on whether your house is in a high-risk or moderate-to-low risk area. These two types of coverage are discussed below.
* High-risk coverage – You will need to purchase a standard rated policy if your house is situated in a high-risk area. This insurance policy provides you with separate coverage for the building and its contents.
* Moderate-to-low risk coverage –A Preferred Risk Policy is for those who live in a moderate-to-low risk flood area. The premium cost of such an insurance policy is the lowest compared to other policies offered through the NFIP. This policy offers building and content coverage for a single low price.
The National Flood Insurance Program offers three types of Standard Flood Insurance Policy Forms as noted below. By studying these forms, you will learn the coverage that is available through your specific flood insurance policy.
1. Dwelling Policy Form: This form is issued to the homeowners, the residential renters, owners of residential buildings (with two to four units) and owners of condominium units.
2. Residential Condominium Building Association Policy (RCBAP) Form: This policy is issued to the condominium associations in order to insure eligible residential condominium properties.
3. General Property Policy Form: This form is issued to the homeowners and lessees of residential condominium buildings or non-residential units/buildings that cannot be insured under the RCBAP.
The NFIP expired on May 31, 2010. However, the House Financial Services Committee Chairman has introduced legislation to extend the federal flood insurance program until September 30, 2010. The House Financial Services Committee has approved another bill, the Flood Insurance Reform Priorities Act 2010, which would reauthorize the program for about five years. Further, the bill would reform as well as increase the coverage limits of the National Flood Insurance Program. In the Senate, a bill has been filed to extend the program until December 31, 2010.
Relying on well established Hawaii case law that the insurer must defend unless the underlying allegations demonstrate coverage is impossible, the Hawaii Intermediate Court of Appeals vacated the Circuit Court's order granting summary judgment to the insurer. See Island Ins. Co., Ltd. v. Arakaki, 2010 Haw. App. LEXIS 296 (Haw. Ct. App. June 16, 2010).
The underlying plaintiff sued his partner, Arakaki, and the general partnership for improperly transferring property and assets for Arakaki's individual benefit. The plaintiff alleged the general partnership and Arakaki breached their duty of care "by engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law." Arakaki tendered his defense under a CGL policy with Island Insurance. Island filed suit for a declaratory judgment on coverage obligations. The Circuit Court granted summary judgment to Island.
The ICA vacated the order. First, because Arakaki's conduct was alleged to be negligent, it gave rise to an occurrence or accident within the meaning of the policy. Second, the underlying complaint was not limited to solely alleging intentional misconduct. Arakaki had a light burden to merely show that the policy could possibly cover the tendered claim despite the exclusion for intentional conduct. See Tri-S Corp. v. Western World Ins. Co., 110 Haw. 473, 487-88, 135 P.3d 82, 96-97 (2006). Island, on the other hand, had to demonstrate that it would be impossible for it to incur liability under the policy. Island had not met this heavy burden. Therefore, Island had a duty to defend.
The Supreme Court issued its opinion this morning in Stop the Beach Renourishment v. Florida Department of Environmental Protection. The Court decided eight to zero that the Florida Supreme Court did not effect a judicial taking because the Florida law of accretion took into account that the littoral owners right to accretion was always subject to the State's ability to fill land adjacent to the sea. The Court split off into three different opinions.
See Robert Thomas' posts at www.inversecondemnation.com for his initial read of the various opinions. The opinions can be downloaded here.
Four of the justices said that although there was no judicial taking here, it was "absurd" to think that a state judiciary cannot take property. Notably, the four justices then tracked the logic and analysis of the amicus brief filed by the three bloggers in our office on behalf of the Owners' Counsel of America. A prior post on our amicus brief is here.
The Hawai`i Supreme Court seeks comments regarding proposed changes to the Hawai`i Rules of Appellate Procedure. [revised rules here]. The major change would allow electronic filing.
The Court invites public comment on the changes until Thursday, June 24, 2010. Comments may be mailed to the Judiciary Public Affairs Office at 417 South King Street, Honolulu, HI 96813, faxed to (808) 539-4801, or submitted on-line via the Judiciary's website, www.courts.state.hi.us.
A broadly drafted professional services exclusion was at issue in Admiral Ins. Co. v. Ford, 2010 U.S. App. LEXIS 10562 (5th Cir. May 21, 2010).
With respect to any professional services shown in the Schedule, this insurance does not apply to "bodily injury," "property damage," "personal injury," or "advertising injury" due to the rendering or failure to render any professional service.
Ford was hired by Exco Resources, Inc. to create a plan, and then consult and assist in drilling an oil well. During the drilling, the well had a blowout, and Exco sued Ford. Exco's complaint alleged Ford breached the contract by failing to prevent the blowout. The complaint also alleged that "not all operations of Ford were professional in nature."
Admiral refused to defend because the underlying conduct required Ford's specialized or technical knowledge, making the professional services exclusion applicable. Ford sued. The district court granted Ford's motion for summary judgment, finding that the exclusion was illusory because it defined professional services as "all operations of the insured." This broad description of professional services negated the entire policy, and gave the exclusion no effect.
The Fifth Circuit pondered whether Ford could have believed the exclusion excluded all of its operations from coverage. If so, why would Ford purchase such a policy? The Fifth Circuit agreed the provision was confusing and a literal interpretation would imply that "all operations" were excluded as professional services. Nevertheless, Admiral advanced the only reasonable interpretation of the exclusion: that the parties intended the legal definition of professional services to control exclusion of coverage for professional services in any of Ford's operations.
Next, the Fifth Circuit considered whether the exclusion negated coverage. Admiral argued the underlying suit was based only on Ford's failure to use its specialized or technical knowledge in consulting on the drilling of the oil well. Ford contended that some of Exco's allegations were not based on specialized knowledge, and thus fell outside of the professional services exclusion.
The Fifth Circuit found Exco's self-serving allegations that certain acts by Ford to be non-professional were unavailing. The suit did not assert that Ford incorrectly performed some non-professional activity, but that Ford failed to properly implement a plan to drill a well. The underlying suit alleged the existence of and failure to fulfill a contract, the very subject of which was Ford's expertise in drilling operations. Consequently, the Fifth Circuit found there was no duty to defend and reversed.
Can an insurer remove the insured's state court suit based on supplemental jurisdiction arising under a homeowner's policy when the insured has also sued a separate insurer in federal court under a flood policy? The Fifth Circuit held where the federal court lacked original jurisdiction, removal was improper. See Halmekangas v. State Farm Fire and Cas. Co., 603 F.3d 290 (5th Cir. 2010).
The first floor of insured's home was flooded by Hurricane Katrina. Five days later, a fire burned the house to the ground. When he tried to recover under his homeowner's policy, he learned he was underinsured. The insurer, ANPAC Louisiana Insurance Company, had only covered two of the three floors of the home. ANPAC paid policy limits for the top two floors.
The insured sued ANPAC in state court, alleging the insurer was negligent for failing to insure the entire structure. There was no federal question or diversity jurisdiction in the suit against ANPAC.
After filing the state action against ANPAC, the insured sued State Farm, his flood insurer, in federal district court, asserting federal question jurisdiction under the National Flood Insurance Program. The suit alleged State Farm had underpaid for the flood damage. When ANPAC learned of the federal suit, it removed the insured's state court action to federal court, asserting federal jurisdiction supplemental to the State Farm case under 28 U.S.C. 1367. Over the insured's objection, the federal district court ruled it had jurisdiction because the object of the two suits was the same: damage to the insured's home. The federal court then granted ANPAC's summary judgment motion. The insured settled with State Farm. The insured then appealed the adverse summary judgment decision and moved for dismissal of ANPAC's federal suit, arguing the district court never had subject-matter jurisdiction.
The Fifth Circuit agreed. Section 1367 allowed federal courts to hear state claims that combined with federal claims in the same lawsuit. Section 1441 permitted parties to pull federal cases out of state court where the district court had original jurisdiction. Under the right circumstances, 1367 and 1441 could combine to allow federal court jurisdiction of a state claim originally filed in state court. But where, as here, the insured filed an action in state court with no federal question or complete diversity, the original jurisdiction necessary for removal under section 1441 was missing. Supplemental jurisdiction on its own did not give federal courts the power to remove a state case in which it did not have original jurisdiction. Accordingly, the district court's decision was vacated and remanded.
Thanks to my colleague, Mark Murakami (hawaiioceanlaw.com) for alerting me to this case.
The next meeting of the Hawaii State Bar Association's Insurance Coverage Litigation Section will be at 12:00 p.m., Thursday, June 17, 2010, at the HSBA conference room, 1100 Alakea Street, Suite 1000, Honolulu. We will discuss the Intermediate Court of Appeals recent decision, Group Builders, Inc. v. Admiral Ins. Co., 2010 Haw. App. LEXIS 234 (Haw. Ct. App. May 19, 2010). Group Builders, you will recall, held that construction defects are not occurrences under CGL policies.

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