Blame It on the Squirrel: Court Rules Furry Fatality Not Efficient Proximate Cause of Policyholder’s Power Station Damage

Verne Pedro | Property Insurance Coverage Law Blog | April 24, 2019

In the 1950’s farce The Great Rupert (aka A Christmas Wish), starring Jimmy Durante, a mischievous dancing sideshow squirrel accidentally discovers and misdirects a miser’s cache of cash to an impoverished family living next door through a hole in the roof. Silly movie plot? Perhaps … but having seen this film several times, I can attest that Rupert’s antics set humorous events in motion.

Not to be outdone by Rupert, a squirrel’s plight is central to the coverage dispute in a recent Iowa Supreme Court decision.1 In 2014, a squirrel climbed onto an outdoor electrical transformer at the insured city’s power plant. While still touching a grounded steel frame that supported an electrical cable, the squirrel came into contact with a bare cable clamp that was “live” with 7200 volts. The contact created a conductive path between the high voltage clamp and the grounded frame, which triggered an electrical arc. The arcing killed the squirrel and caused $213,524.76 worth of damage to the transformer and other electrical equipment.

The City of West Liberty sought coverage under an all risks insurance policy. The insurer denied coverage based on an exclusion in the policy, which excluded coverage for “loss caused by arcing or by electrical currents other than lightning.” The city then sued the insurer in an Iowa state court for a declaratory judgment of coverage and damages. The parties filed cross motions for summary judgment. The city argued the damage claim was covered because the squirrel – not the arcing – was the efficient proximate cause of the loss.2 According to the city, it was irrelevant whether the policy excluded arcing.

The district court disagreed and granted summary judgment to the insurer, finding the sole cause of the damage was the electrical arc, noting the squirrel did no damage to the insured’s property such as gnawing on a power line or digging for nuts in a dangerous area. The court stated:

The Court cannot conclude that the “squirrel’s actions” were a cause of the damages because the squirrel did not actually do anything to cause damages; it merely touched some things it should not have touched. The arc caused all of the damages. Had the squirrel done what it had done, and the arc not occurred, there would be no damages. Because there are not two different damage-causing events, the Court need not engage in an efficient proximate cause analysis. If an efficient proximate cause analysis was appropriate, the Court would find that the arcing was the dominant cause.3

On appeal, the Iowa Supreme Court affirmed the court below, finding the loss was caused by arcing even though the squirrel triggered the arcing. In its analysis, the court observed this is not a case of two independent causes, one of which is covered and one excluded:

The squirrel did not independently contribute to the loss … Rather, the squirrel was inextricably tied to the arcing and was the immediate reason why the arcing happened.4

If you would like more information about property damage claims stemming from overlapping independent events, there are several excellent archived posts by my colleagues discussing efficient proximate cause issues or call us with any questions you might have.
1 City of West Liberty v. Employers Mutual Cas. Co., 922 N.W.2d 876 (Iowa Feb. 1, 2019).
2 In insurance law it is generally understood that where the peril insured against sets other causes in motion which, in an unbroken sequence and connection between the act and final loss, produces the result for which recovery is sought, the insured peril is regarded as the proximate cause of the entire loss. Id. at 880.
3 Id. at 878.
4 Id. at 880-81.

Eleventh Circuit Holds Attorneys’ Fees Are Not Warranted Where Policyholder Filed Suit Instead of Undergoing Appraisal

Chad A. Pasternack | Property Insurance Law Observer | April 23, 2019

The Eleventh Circuit, in J.P.F.D. Investment Corp. v. United Specialty Insurance Co., recently affirmed a district court’s denial of statutory attorneys’ fees to a policyholder that, to resolve a disagreement over the amount of loss, filed suit against its insurer instead of participating in appraisal.[1]

In Florida, policyholder attorneys are often quick to file lawsuits against insurers in order to trigger statutory fee shifting. Florida Statutes § 627.428 provides:

(1) Upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named or omnibus insured or the named beneficiary under a policy or contract executed by the insurer, the trial court . . .  shall adjudge or decree against the insurer and in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured’s or beneficiary’s attorney prosecuting the suit in which the recovery is had.

In J.P.F.D., the policyholder’s building suffered water damage.[2] After receiving notice, the insurer promptly sent an independent adjuster to inspect the property. On the same day, the insurer sent a water extraction company to the premises. The insurer paid the water extraction company in full, less deductible.

The policyholder, through its public adjuster, submitted to the insurer a sworn proof of loss in the amount of $302,772.46, along with its public adjuster’s estimate of damages. The insurer rejected the proof of loss because it disagreed with the scope of damages, based on the independent adjuster’s inspection. Shortly thereafter, the insurer advised the policyholder it would pay the undisputed actual cash value of $91,080.97, but that it had retained a building consultant to further address the differences in estimates.

A few weeks later, the insurer reached out to the public adjuster to discuss the differing estimates. When the adjuster did not respond, the insurer selected an appraiser so that the contractual appraisal process could be started. Several days later, the insurer formally demanded appraisal pursuant to the policy’s appraisal provision. Three days prior to the insurer’s formal appraisal demand, however, the policyholder filed suit alleging the insurer breached the insurance contract by failing to pay the policyholder’s losses; the insurer was served several days after it demanded appraisal. Once in litigation, the insurer filed a motion to compel appraisal, which was granted and the case was stayed. The appraisers agreed to a loss amount of $249,228.96 (replacement cost value).[3] The insurer paid the additional amounts owing. The policyholder then sought to recover its attorney’s fees.

The insurance policy at issue in J.P.F.D. contained the following “Loss Payment” provision:

g. We will pay for covered loss or damage within 30 days after we receive a sworn proof of loss, if you have complied with all the terms of this Coverage Part, and:

(1) We have reached agreement with you on the amount of loss; or

(2) An appraisal award has been made.[4]

The policy also contained an appraisal provision:

  1. Appraisal

If we and you disagree on amount of loss, either may make written demand for an appraisal of the loss. Appraisal is mandatory if invoked by either party. In this event, each party will select a qualified, impartial appraiser. The two appraisers will select a qualified, impartial umpire. If the appraisers cannot agree on the umpire, either you or we may request, after reasonable written notice to the other, that the selection be made by court having jurisdiction. We and you will cooperate with the appraisers and umpire to provide information and access to the property to appraise the loss. If the appraisers agree, they shall issue a detailed appraisal decision which will be binding on you and us. If the appraisers fail to agree, they will submit their differences to the umpire. The umpire shall consider the submissions, independently appraise the loss, and issue a detailed appraisal decision that will be binding on you and us. Each party will:

a. Pay its chosen appraiser; and

b. Bear the other expenses of the appraisal and umpire equally.[5]

With respect to awards of attorney’s fees, the Eleventh Circuit noted that “[t]he Florida Supreme Court ‘has long held that the payment of a previously denied claim following the initiation of an action for recovery, but prior to the issuance of a final judgment, constitutes the functional equivalent of a confession of judgment’ that also entitles an insured to attorney’s fees under [§ 627.428.(1)].”[6] It is the “incorrect” denial of benefits that triggers the statute.[7] Therefore, “where an insurance company has not incorrectly denied benefits under the policy, an award of attorney’s fees under § 627.428 is unwarranted.”[8]

The Eleventh Circuit held the policyholder was not entitled to attorney’s fees under § 627.428(1) because: (1) the insurer never denied coverage and that the dispute was about the amount of covered loss; and (2) under the terms of the policy, the parties must undergo the contractual appraisal provision before the insurer’s obligation to pay the covered loss amount ripens.[9]

First, the court noted that the “loss payment” provision, quoted above, does not require the insurer to pay for a covered loss upon the policyholder’s submission of a sworn proof of loss.[10]Instead, the obligation to pay is conditioned upon the parties either agreeing to the amount of loss or obtaining an appraisal award. Therefore, “rejection of [the policyholder]’s initial proof of loss did not constitute a denial of benefits, much less an incorrect one.”[11] Further, the insurer promptly paid the undisputed portion of the loss amount and made attempts to discuss the difference in scope, and then to begin the appraisal process.

Second, the court rejected the policyholder’s argument that it was not required to participate in appraisal and could instead sue for failure to pay. The Eleventh Circuit reasoned that this argument ignores the plain text of the policy’s “loss payment” provision, and that under Florida law, an insurance policy must “be construed according to the entirety of its terms and conditions as set forth in the policy.”[12] “Construing the loss payment provision and the appraisal provision together, if the parties cannot agree on the covered loss amount, they must undergo the contractual appraisal process before [the insurer]’s obligation to pay the covered loss amount ripens.”[13] Accordingly, “any claim for breach of contract for failure to pay would not accrue until after there was an appraisal award that [the insurer] refused to pay.”[14]

In conclusion, the court explained that filing suit yielded no additional benefit for the policyholder—all that was needed was for the policyholder to participate in the appraisal process as outlined in the policy. Thus, the Eleventh Circuit took a stand against policyholders forcing unnecessary lawsuits in an effort to obtain statutory fee shifting.

[1] J.P.F.D. Inv. Corp. v. United Specialty Ins. Co., Case No. 18-13586, 2019 WL 1749173 (11th Cir. Apr. 16, 2019).

[2] Id. at *2.

[3] Id. at *3.

[4] Id. at *1.

[5] Id.

[6] Id. at *6 (quoting citing Johnson v. Omega Ins. Co., 200 So. 3d 1207, 1216 (Fla. 2016)).

[7] Id.

[8] Id.

[9] Id. at *6-7.

[10] Id. at *6.

[11] Id.

[12] Id. at *7 (quoting Fla. Stat. § 627.419(1)).

[13] Id. (The court further explained that “[w]hile JPFD is correct that an appraisal award is not a precondition to suit under the policy, it is a precondition to payment of a covered loss where the parties disagree as to the loss amount.”).

[14] Id.

Stopping A Zoning Enforcement Action In Court

John Armentano | Farrell Fritz | April 23, 2019

Builders, developers and property owners are often cited for zoning violations that become the subject of criminal enforcement proceedings in court (i.e. appearance tickets).  Certainly, a party can have the court decide the matter, however, an appeal to a Board of Zoning Appeals can be used to stay any and all court enforcement proceedings.  This can be a particularly useful tool, when a property owner or developer is cited for zoning code violations that may shut down activities and force a timely and protracted court battle.

In fact, New York Town Law Section 267-a(6) provides a clear path for a stay to have zoning issues resolved before local zoning boards rather than in a judicial proceeding.  N.Y. Town Law Section 267-a(6) and its correlating village and city law sections provide as follows:

6. Stay upon appeal.  An appeal shall stay all proceedings in furtherance of the action appealed from, unless the administrative official charged with the enforcement of such ordinance or local law, from whom the appeal is taken, certifies to the board of appeals, after the notice of appeal shall have been filed with the administrative official, that by reason of facts stated in the certificate a stay, would, in his or her opinion, cause imminent peril to life or property, in which case proceedings shall not be stayed otherwise than by a restraining order which may be granted by the board of appeals or by a court of record on application, on notice to the administrative official from whom the appeal is taken and on due cause shown (emphasis added).

In People v. Bell, 183 Misc.2d 61 (Justice Ct., Village of Tuckahoe 2000), the Village building inspector issued appearance tickets returnable in the Village’s Justice Court for (1) no certificate of occupancy, (2) change of use of land without obtaining a certificate of occupancy, (3) no site plan approval, and (4) no screening of activities.  A jury trial was scheduled for September 28, 1999.  On September 27, 1999, Bell Atlantic appealed the subject matter of the appearance tickets to the Zoning Board and claimed a stay under section 7-712-a(6) of Village Law (the correlating provision of Village Law regarding stays).  The appeal by Bell Atlantic sought, among other things, to “overturn decision of the Village of Tuckahoe Building Inspector that the present use of the premises is a change of use that requires site plan approval and a certificate of occupancy for the premises.”

In Bell, the Village did not question Bell Atlantic’s ability to appeal the building department’s determination to the Board of Zoning Appeals, but challenged the stay of criminal proceedings in the Village Justice Court.  In upholding the stay, the court rejected the Village’s position as exalting form over substance.  The Court reasoned that the statute mandates a stay when the issue before the court and the Board of Zoning Appeals are the same, because the purpose of the statute is to obtain a definitive ruling from the Zoning Board of Appeals before making a judicial determination.  This avoids conflicting rulings from a judicial determination and the Board of Zoning Appeals.  The fact that the appeal did not originate with a denial of an application or notice of violation is immaterial.  Id.

Based on Bell, it appears that any action or decision of the building department, even a criminal enforcement proceeding, is automatically stayed by appealing such action to the Zoning Board of Appeals, as a matter of law.  This can be a powerful tools, when a property owner is faced with a potential court proceeding for zoning violations.  This ability to “stop the clock” may in turn provide an ability to negotiate a practical solution.

It must be noted that appeals of decision by a zoning enforcement officer cannot be neglected.  Such an appeal must be taken within sixty days after the filing of any order, decision, interpretation or determination of the administrative official, by filing with such administrative official and with the board of appeals a notice of appeal.  See, Town Law Section 267-a(5)(b).

A Follow-Up on Proofs of Loss

Corey Harris | Property Insurance Coverage Law Blog | April 23, 2019

When I wrote my first blog on this site in 2009, I discussed proofs of loss at length. Since Hurricane Michael, these blogs have received a lot of traffic and discussion from people trying to navigate their way through the claims process. An issue that keeps coming up is whether a policyholder must comply with a proof of loss request after the insurer has admitted coverage and made payment.

As I said almost ten years ago, each situation is different. Sometimes it may be advisable to file a proof of loss even if the requirement has been waived. Other times it may not be. But, generally speaking, Florida case law has held that the proof of loss requirement has been waived once the insurer admits coverage and pays the undisputed amounts owed.

In 1939 the Florida Supreme Court reviewed a lawsuit over a pair of fires at a commercial building in Pensacola.1 The first fire was resolved quickly with the insurer paying an agreed upon amount for the damages. The second fire caused a small amount of additional damage, the amount of which was ultimately disputed by the carrier.

An issue arose as to whether the policyholder had complied with the proof of loss requirement on the second fire. Finding that the insurer had waived the proof of loss requirement, the court stated:

It is our view that the insurer admitted liability in some unagreed amount immediately after the second fire sufficiently to waive the formal proof of loss. . .

Nearly 40 years later, Florida’s Third District Court of Appeal cited Bear as binding precedent in American Bankers Ins. Co. v. Terry, 277 So.2d 563 (Fla. 3rd DCA 1973). The court stated:

In Bear it was held that upon the insurer admitting liability in some agreed amount, such was sufficient to waive the formal proof of loss. . .

The court went on to state,

The subsequent filing of a proof of loss by an insured does not operate to set aside the previous waiver of proof of loss by the insurer. . . . Once the insurer waives the giving of proof of loss, such waiver is irrevocable.

Under this line of cases, an insurer would waive its right to a proof of loss if it has already admitted coverage and made partial payments towards the amounts owed. But again, this analysis can change depending on the circumstances. So before refusing a proof of loss request you should always contact an experienced professional to determine what is best for your specific situation.
1 Bear v. New Jersey Ins. Co., 189 So. 252 (Fla. 1938).

Federal Court Rules Contractor Is Not Intended Third-Party Beneficiary under Owner-Engineer Agreement

Amandeep Kahlon | Buildsmart | April 23, 2019

In March, a Massachusetts federal court addressed whether a design-builder contractor could recover for breach of contract under an intended third-party beneficiary theory against a design firm hired by the project owner to complete 30% designs. In Arco Ingenieros, S.A. DE C.V. v. CDM International Inc., a Salvadoran contractor entered into a design-build agreement with the U.S. government to build eight schools and a health clinic in El Salvador as part of a hurricane relief effort.

The design-build agreement included 30% designs, which were to form the design criteria for the project. The agency had contracted separately with a U.S. engineering firm via a task order to complete the 30% designs. After construction started, the contractor alleged the designs provided by the agency were defective and did not actually constitute 30% designs. Ultimately, the contractor filed suit against the agency and the engineer. As one theory of liability, the contractor claimed to be a third-party beneficiary under the task order between the agency and the engineer. The engineer moved to dismiss the contractor’s complaint arguing that the contractor was not an intended third-party beneficiary under the task order.

The federal court agreed and entered an order dismissing the contractor’s breach-of-contract claim against the engineer. The court reasoned that nothing in the task order evidenced an intent that the engineer’s design work was to benefit the contractor. While the contractor may have been an incidental beneficiary of the task order, the task order language provided that the engineer’s express purpose under the agreement was to provide design services to the government agency only. The statements in the separate design-build agreement that the contractor could rely on the 30% designs produced under the task order did not alter the task order’s intent. The court found this approach consistent with other federal decisions holding that general contractors are generally not intended beneficiaries of owner-architect agreements.

While not surprising, the federal court’s decision in this matter demonstrates the complexity of commercial contract disputes in the construction industry. With owners, engineers, contractors, and subcontractors all entering into different interrelated agreements, there is always potential that a particular contract or subcontract will be detrimentally impacted by another party’s failure to perform under a different agreement on the project. For owners, they can manage these risks by making all downstream parties insert language into their contracts that shows the owner is an intended third-party beneficiary.

For contractors, engineers, and other parties that are more parallel in the contracting hierarchy, it may be more difficult to contract around these risks. A contractor can mitigate this risk by seeking indemnification or other protection from the owner or other direct contractual party for interference, negligence, or delays by non-parties. Additionally, the design-builder contractor here could have considered the 30% designs more closely, rather than relying on the owner’s representations, and the contractor could have requested an opportunity to review the design task order to evaluate the risks of relying on potentially defective design criteria.