Appeals court triples damages against Tokio Marine units

A federal appeals court on Monday tripled contract damages against Tokio Marine Holdings Inc. units related to their handling of a claim involving the partial collapse of a student housing apartment building near a North Carolina university.

The ruling by the 4th U.S. Circuit Court of Appeals in Richmond, Virginia, also affirmed the U.S. District Court in Greensboro, North Carolina, in holding that Tokio units Philadelphia Indemnity Insurance Co. and Tokio Marine North America Inc. were liable to indemnify the apartment building’s owner for the collapse, according to the ruling in DENC LLC v. Philadelphia Indemnity Insurance Co. and Tokio Marine North America, Inc., d/b/a Philadelphia Insurance Cos., Inc.

In January 2018, Elgin University students in Elgin, North Carolina, who were gathered for a party on a second-floor breezeway of The Crest apartment building, began jumping up and down and the structure collapsed by more than a foot, according to the ruling. The Crest is owned by Monterey Park, California-based DENC.

Shortly afterward, Philadelphia Insurance advised DENC it would be investigating the claim under a reservation of rights.  Two days later, it said it had issued, or would be issuing, a payment to DENC. But a few weeks later, it denied the claim in a letter on the basis of water damage.

 A policy endorsement excluded “continuous or repeated seepage or leakage of water” that occurs over a period of 14 days or more.

DENC filed suit against Tokio Marine in district court, alleging contract claims and violations of North Carolina’s Unfair and Deceptive Trade Practices Act.

The district court found the insurer had improperly denied coverage and failed to reasonably explain its basis for the denial.

It held that the insurer had breached the policy and violated the UPDTA. It awarded contract damages but denied treble damages, and instead awarded DENC nominal damages and attorneys fees.

On appeal, a three-judge panel, in a 2-1 ruling, essentially affirmed the lower court, but held that DENC was entitled to triple contract damages because of how the insurer handled the claim.

 The denial letter “relayed Philadelphia’s water-damage finding and then, in rote fashion, recited purported policy terms,” the ruling said.

“But none of the policy provisions Philadelphia listed in the denial later use the phrase ‘water intrusion.’ Nor did the letter explain which of the many enumerated provisions barred coverage. … Instead, it left DENC to decipher a morass of largely inapplicable policy language with no clear connection to Philadelphia’s factual investigation,” the ruling said in holding that DENC was entitled to triple damages and remanding the case for further proceedings.

The dissenting opinion said, “Philadelphia’s denial letter was not a model of clarity. … But it did provide a prompt and reasonable explanation of Philadelphia’s claimed factual and contractual bases for denying coverage.”

Attorneys in the case did not respond to requests for comment.