A national insurance law newsletter April 3, 2006 · Vol. 2, No. 18
CaseWatch provides timely summaries of and access to insurance law decisions from the nation’s appellate courts, and is distributed bi-weekly via e-mail. For ease of reference, we have organized the cases by topic. Jurisdictional information and links to full text decisions are found in individual case titles. We appreciate your interest in our newsletter, and welcome your feedback. We also encourage you to share the newsletter with your colleagues. If others in your organization are interested in receiving the publication, or if you do not wish to receive future issues, please contact Kevin T. Merriman.
Additional Insureds
Richard v. Metro Bingo of Lafayette, Inc.
(La. App., 3rd Cir., March 29, 2006)
No Additional Insured Coverage to Lessor in Absence of Lease
Louisiana’s Court of Appeal upheld the trial court’s determination that a lessee’s insurer did not provide coverage to the lessor. The Additional Insured endorsement of lessee’s policy contemplated the existence of a lease for there to be coverage to the additional insured. The lease went into effect, according to its terms, at 1:30 p.m. The parties agreed the accident occurred at approximately 1:15 p.m. One justice dissented, arguing that the “arising out of the … use” language of the additional insured endorsement was broader than the interpretation given by the majority.
Advertising Injury
Park University Enterprises, Inc. v. American Casualty Company of Reading, PA
(10th Cir. March 27, 2006)
Tenth Circuit joins Majority in Holding that Advertising Injury Includes TCPA Claims
The insured was sued for violating the Telephone Consumer Protection Act (TCPA), 47 U.S.C. §227, for sending an unsolicited facsimile. In the declaratory judgment action against the insurer, the issues were whether the insurer owed defense under the property damage and advertising injury provisions of the policy. The Tenth Circuit concluded that the insurer owed a defense under both provisions. As to the advertising injury provision of the policy, the Tenth Circuit agreed with the majority of jurisdictions that interpreted the policy term “privacy” to include claims arising out of violations o the TCPA. The court reasoned that in enacting the TCPA Congress intended to protect a specific privacy right—the right to be left alone—and declined to give the term a restrictive interpretation.
Century 21, Inc. v Diamond State Insurance Company
(2d Cir. (N.Y.) March 21, 2006)
Allegations of Trademark Infringement Arising from Marketing of Claimant’s Product May Amount to “Advertising Injury”
Insured brought action against insurer seeking declaration that insurer was obligated to defend and indemnify it in underlying action for trademark infringement. The claimant alleged that without its consent, the insured commenced the distribution and sale of items bearing unauthorized copies of the claimant’s registered trademark with a resulting likelihood of consumer confusion. The insurer denied coverage on the ground that the allegations did not constitute an “advertising injury” within the meaning of the policy. The court disagreed, finding that the insured was entitled to a defense. In this regard, the court noted that a term as broad and multi-faceted as “marketing” may be construed to include activities apart from selling and distribution that are “within the embrace” of “advertising” as that term is used in the policy to describe the insurer’s coverage.
Attorneys Fees
National Casualty Company, et al. v. Costal Development Services Foundation
(9th Cir. (Cal.) Mar. 20, 2006)
D&O Insurance—Attorneys Fees and Costs Allowed
The court considered whether in an action for equitable relief the insurer was required to pay plaintiff’s attorney’s fees and costs. The court held that the insured reasonably expected that a suit for equitable relief that included exposure to a monetary award of plaintiffs’ attorney’s fees and costs would be covered by the primary policy, as a “claim” for “damages.” The court also held that the excess policy provided coverage after the limits of the primary policy had been exhausted which included payments of plaintiffs’ attorney’s fees and costs.
Auto—Liability
Auto Club Insurance Company v. Buerkel
(Mich. March 21, 2006)
Permissive Use Limited
Owner’s previous permission to driver to use vehicle was not unlimited. Insured’s boyfriend was not permissive user where he drove the vehicle against her protestations and insured repeatedly tried to get him “out from behind the wheel.”
Garnett v. WRP Enterprises, Inc.
(S.C. App. March 20, 2006)
Limits of Coverage
Rental car company’s insurance provided $100,000 per person/$300,000 per accident in coverage for loss sustained. The policy provided $15,000 per person/$30,000 per accident on its face, but contained a rider that stated that when the rental contract provided for limits in excess of the minimum state financial responsibility law, the limits were increased. The renter purchased additional coverage in the contract—i.e. more than the state minimum requirement. The contract did provide that the extra insurance was provided via excess policy. The court held that distinction did not matter as the rental contract explicitly provided more than minimum coverage, making the $100,000/$300,000 limits applicable.
State Farm Mutual Automobile Insurance Company v. US Agencies, LLC
(La. App., 1st Cir., March 24, 2006)
Policy Insuring Driver of Temporary Substitute Vehicle Primary
The court found that the Louisiana statute requiring auto insurers to provide primary coverage for temporary substitute vehicles “as defined in the applicable insurance policy” was mandatory and applied to the insurer despite the absence of any definition of temporary substitute vehicle in the subject policies. The drivers’, and not the vehicles’ owners’, policies, therefore, provided primary coverage.
State Farm Mutual Automobile Insurance Company v Gutierrez
(Ind. App. March 30, 2006)
Passenger “Occupying” Vehicle Where He Temporarily Exited To Retrieve Object That Had Fallen From Vehicle
Injured passenger brought action against vehicle owner’s insurance company for bad faith and breach of contract after insurer denied coverage for medical payments. An accident occurred while the owner and passenger were transporting a playhouse on the owner’s vehicle. When the playhouse fell off of the vehicle, the passenger exited the vehicle to retrieve it. The passenger was injured when, while standing beside the vehicle, the owner put the vehicle in reverse and the open passenger side door struck him. The owner’s insurer denied coverage on the ground that the passenger was not “occupying” the vehicle at the time the accident occurred. The court found that the insurer’s denial of the passenger’s medical payment claim was not made in bad faith. Nevertheless, the court found that the passenger was entitled to coverage because he was “occupying” the vehicle at the time the accident occurred.
Auto—No-fault
Titan Insurance Co. v. North Pointe Insurance Co.
(Mich. March 21, 2006)
One-year statute of limitations for recovery of PIP benefits from tortfeasor’s insurer was measured from the date of accident, regardless of when victim learned of insurance carrier.
Auto—Uninsured/Underinsured Motorist Coverage
Crespi v. NJ CURE
(Super. Ct. N.J. March 28, 2006)
Insured was not obligated to commence a lawsuit against tortfeasors within the statute of limitations to protect insurer’s subrogation rights in order to be entitled to SUM benefits.
Pierson v. Wheeland
(Ohio App. March 22, 2006)
“Other insurance” clauses in UIM coverage were enforceable; court declined to hold that the offending vehicle’s UIM coverage was primary and declined to adopt an “insurance follows the driver” rule.
Matteson v Citizens Insurance Company of America
(Ind. App. March 23, 2006)
Vehicle Not “Uninsured” Where Policy Limits Offered for Offending Party’s Acts
Insured brought action against auto insurer to recover uninsured motorist (UM) benefits after motor carrier’s liability insurer paid policy limits in settlement of suit against carrier, truck owner, and truck driver. The court held that the truck was not an uninsured motor vehicle, even though carrier’s liability policy did not list the truck, its owner, or the driver.
Bad Faith
Contreras v U.S. Security Insurance Company
(Fla. App., 4th Dist., March 22, 2006)
Court Considers Whether Insurer Is Liable For Bad Faith Where Claimant Offers to Settle With Only One Insured
In a matter of first impression, the court considered whether an insurance company could be held liable for bad faith where there was a demand to settle with one insured but not release all insureds. The court held that once it became clear that the claimant’s attorney was unwilling to settle with one insured and give him a complete release, the insurer had no further opportunity to give fair consideration to a reasonable settlement offer for him. Since the insurer could not force the claimant’s attorney to settle and release one of the insureds, it did all it could do to avoid excess exposure to him. Having fulfilled its obligation to the one insured, the insurer thereafter was obligated to take the necessary steps before the settlement offer expired to protect the other insured from what was certain to be a judgment far in excess of her policy limits. Under the terms of its policy, had the insurer paid out its policy limits, its duty to settle or defend would have ceased. In essence, the court held that if an insurer is unable to obtain a release for all defendants, they can still settle with one without being in bad faith.
Cancellation and Non-renewal
Transportation Casualty Insurance Company v All American Air Freight, Inc.
(Fla. App., 4th Dist., March 29, 2006)
Insurer’s Cancellation Ineffective Where It Failed To Notify State
The issue was whether an insurer effectively cancelled an insurance policy where it failed to give the notice to the state as required by a statute applicable to commercial vehicles. Although Florida Statute § 627.7281 does not require notice to the state of cancellation of a policy, Florida Statute § 320.02(5)(e) does where commercial vehicles are involved. The court held that since more specific statutes control over general statutes, the court held that § 320.02(5)(e) applied and that the insurer was required to give notice of cancellation to the state.
Exclusions—Auto
Peagler v. USAA Insurance Company
(S.C. App. March 20, 2006) (Non-precedential)
Insured’s accidental shooting of wife while unloading shotguns from vehicle did not arise out of “use” of vehicle.
Exclusions—Expected/Intended Harm
Auto-Owners Insurance Company v. Hamin
(S.C. App. March 20, 2006)
Insured, a minor, owned home insured by Auto-Owners. The insured’s sister resided at the house. The insured’s sister, after having a fight with their mother, burnt the house down. The insurer disclaimed coverage based on the intentional loss exclusion. The exclusion eliminated coverage for damage caused intentionally by an “insured.” The sister, as “resident relative,” qualified as insured and the court upheld the insurer’s denial of coverage.
Fremin v. Cabral
(La. App., 5th Cir., March 28, 2006)
Allegations of Self-Defense in Responsive Pleadings Brings Claim Potentially Within Coverage
The court held that the Cabrals’ homeowner insurance carrier was not entitled to summary judgment in a suit arising from a dispute with a neighbor that allegedly became violent. The expected or intended acts exclusion in the Cabrals’ policy included an exception for bodily injury resulting from use of reasonable force by the insureds to protect persons or property. Despite that the allegations in the petition did not allege the Cabrals acted in self-defense, the court found that the answer and reconventional demand filed by the Cabrals must be considered in deciding whether a material issue of fact remains. Because the reconventional demand’s narrative asserted the Cabrals acted in self-defense, summary judgment releasing the insurer from any duty to defend or indemnify was inappropriate.
Exclusions—Rental Property
Falzone v Florida Residential Property and Casualty Joint Underwriting Association
(Fla. App., 4th Dist., March 29, 2006)
Court Finds Rental Exclusion of Homeowners’ Policy Applicable
Insurer filed action against insureds, seeking declaration that it was not obligated to defend or indemnify insureds in underlying action for breach of lease arising from mold growth. The insurer denied coverage on the ground that the homeowners’ policy’s exclusion for damage arising from rental of premises. The exclusion excepted rentals that were used on an occasional basis, and rentals in part for use only as a residence. The court found that neither exception applied, and, as such, that the insurer did not owe coverage.
Fire and First-Party
Auto-Owners Insurance Company v Parks
(Ga. App. March 24, 2006)
Court Holds Term “Landslide” Ambiguous; Finds Coverage for Insured
Insured sued insurer in underlying lawsuit, seeking coverage for excavator damaged when an embankment on which it was located gave way, and the excavator slid into a pond. The insurer denied coverage on the ground that the damage did not arise from a named peril. The insured argued that the policy’s provision covering damage due to a landslide applied. In response, the insurer contended that the landslide provision applied only to natural phenomena, and not to landslides caused by human forces. The court held that the term “landslide” was ambiguous, and, therefore, that the insurer was obligated to provide coverage. The court also held that the insurer did not have the right to bring a subrogation action in its name against the person who had rented the excavator when the damaged occurred.
Fraud and Misrepresentation
TIG Insurance v. Homestore, Inc.
(Cal. App., 2 Dist., Mar. 13, 2006)
Misrepresentation In The Application Found
The insurer instituted a rescission action against the insured based upon an alleged misrepresentation in the application for a renewal D&O policy. The court held, under the plain meaning of the application provisions of the insurer’s excess policy and pursuant to California law, the insurer had the right to rescind the excess policy and that it was null, void and of no effect whatsoever as to all insureds.
Miscellaneous
Motiva Enterprises, LLC v. St. Paul Fire and Marine Insurance Company
(5th Cir. (Tx.) March 28, 2006)
The Fifth Circuit held that, under Texas law, an insurer that tenders a defense with a reservation of rights is entitled to enforce its policy’s consent-to-settle clause. Texas law remains unclear, however, whether an insurer must demonstrate prejudice in order to be relieved of its policy obligations when an insured settles a claim without the insurer’s consent. Assuming, without deciding, that Texas law would require prejudice, the court found the insurer prejudiced as a matter of law because it was denied its right to participate in the settlement process: an essential prerequisite to its obligation to pay a settlement.
City of New York v Zurich-American Insurance
(N.Y. App., 2nd Dept., March 21, 2006)
Insurer Obligated to Indemnify Additional Insured for Settlement Arising From “Willful and Contumacious” Conduct
The City of New York sought status as an additional insured under a policy issued by Zurich in an underlying action resulting from sexual assault. Zurich contested coverage on the ground that the City was forced to settle the underlying matter because its answer was stricken due to failure to comply with discovery requests. Zurich argued that the settlement was the equivalent of punitive damages, which an insurer is not required to pay under New York public policy. The court found that Zurich was required to defend and indemnify the City in the underlying action and that, in light of its refusal to do so coupled with its participation in the litigation on behalf of its primary insured, it was not entitled to contest the reasonableness of the settlement.