A national insurance law newsletter April 17, 2006 Vol. 2, No. 19
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
Minges Creek, LLC v. Royal Insurance Company of America
(6th Cir. [Mich.] April 6, 2006)
Mall owner was not entitled to additional insured status on mall tenant’s policy for accident occurring in common area. The lease was only for the interior of store, and only required insurance for “leased premises.” The court held that the lease and policy had to be read together, and that the owner would only be additional insured for accidents occurring inside the store. As the accident occurred in the common area, the mall owner was not an additional insured.
Auto—Liability
Enterprise Leasing Company Southeast v. Williams
(Ct. App. N.C. April 4, 2006)
Insurer did not owe coverage for property damage to vehicle that insured rented in her name, but allowed her sister-in-law exclusive use of. The policy excluded “rented” vehicles, and non-owned vehicle was in not in control of a “family member” at the time of the accident.
Auto—No-fault
Marquina v. Cruz
(Super. N.J. April 5, 2006)(Unpublished)
Yukon (a large sports utility vehicle) qualified as an “automobile” pursuant to verbal threshold provision of Automobile Insurance Cost Reduction Action of 1998. Plaintiff had argued that the Yukon did not fall within the categories of automobile. The court disagreed, holding that because the vehicle is a passenger-type vehicle, being used for private use.
Auto—Uninsured/Underinsured Motorist Coverage
Sherry v. Financial Indemnity Company
(Wash. App. Apr. 4, 2006)
Offset Disallowed
An arbitrator had determined that an insured was entitled to damages for medical costs in the sum of $53,127.92 and general damages of $90,000, and reduced the award finding that the insured was 70% at fault. At issue on this appeal was whether the insurer was entitled to reimbursement for the $14,600 already paid under the PIP clause. The court held that this was an issue to be decided by the court and not an arbitrator. The court concluded that an offset for PIP benefits would be required only if the combined UIM and PIP payments exceed the insured’s total damage. Here they were not and the offset was denied.
In the Matter of Travelers Indemnity Company v. Machado
(N.Y. App., 2d Dept., April 11, 2006)
Carrier For Claimant Seeking Coverage Has Burden of Locating Offending Vehicle to Establish Coverage
Second Department declined to follow the First Department’s decision in Highlands Ins. Co. v. Baez, 18 AD3d 238 to the extent it could be read to require the insurer of the allegedly uninsured vehicle was required to attempt to locate the owner of the offending vehicle. The court held that it was “properly” the burden of the carrier for the claimant seeking coverage, not the disclaiming carrier, to produce such evidence of coverage.
Bad Faith
Lincoln Property Company, N.C., Inc. v. The Travelers Indemnity Company
(Cal. App. 1st Dist., Mar. 20, 2006)
Bad Faith—Separate Actions Not Allowed
On this appeal, the court held that an insured may not bring separate actions against its insurer for breaching its obligation to defend and claim against the insured for breach of implied covenant of good faith and fair dealing in the handling of the claims. The court reasoned that the two claims involved a breach of the same primary right.
Windmon v. Marshall and Mississippi Farm Bureau Insurance Company
(Miss. April 13, 2006)
No Bad Faith Found After Allegations of Failure to Investigate and Delay
The Mississippi Supreme Court held that the insured did not meet her heavy burden to establish bad faith against her insurer, Farm Bureau, where the insured was apparently involved in a one-car accident, no name of any other driver appeared on the accident report, the insured told the insurer she did not know the name of the driver of the other vehicle, and the insurer’s investigator attempted to find the name of the other driver by knocking on the door of the mobile home across the street from where the accident occurred. Further, there was no evidence that Farm Bureau delayed any of the insured’s claims in bad faith.
Contribution and Subrogation
Collins v. United States Fidelity and Guaranty Company
(Super. Ct. N.J. April 13, 2006)
Subrogation
Insured’s nuisance settlement with co-defendant, where co-defendant was not, in fact, a tortfeasor, did not impair insurer’s rights to subrogation.
Duty to Defend
Lundell v. Merced Mutual Insurance Company
(Cal. App., 5th Dist., Mar. 28, 2006)(Unpublished)
Duty to Defend Question of Fact Found
The insureds, dairy farmers, had sold their farm and were sued by the purchasers who alleged that the facility was not ready for ‘Grade A’ approval for occupation. The insured tendered the defense of the action to their homeowner’s insurer who denied coverage. The court held there was an issue of fact as to whether the insurer had duty to defend because the court “cannot say with certainty, on undisputed evidence presented by [the insurer] that the [insured’s] action did not seek recovery for property damage caused by an occurrence.”
Exclusions—Auto
Hugenberg v. West American Insurance Company/Ohio Casualty Group
(Ky. App. April 7, 2006)
Auto Exclusion Applied Notwithstanding Allegations of Negligent Supervision
Claim against insured homeowners for negligent supervision was barred by motor vehicle exclusion where the failure to supervise led son’s non-permissive and unlicensed use of a vehicle. Proximate cause of accident was car, regardless of whether negligent supervision was also a cause.
Life, Health and Disability
Massachusetts Mutual Life Ins. Co. v. Fraidowitz
(1st Cir. April 4, 2006)
Additional disability coverage ineffective where events after submission of coverage application render insured’s statement incorrect
Insured filed claim for disability benefits, seeking monthly income replacement. Insured’s healthcare providers reported that insured was likely a “faker” and that he is not disabled. Based on this information, insurer denied the claim. At the same time, insured applied for additional disability coverage and indicated on the application that he was not disabled. The additional coverage was approved. Subsequently, the healthcare providers reversed themselves and reported that the insured was disabled. Insurer allowed the claim for the prior income replacement amount but not the additional coverage amount, claiming that the insured misrepresented his status as being disabled. The First Circuit treated the insured’s disability status as a condition precedent that must be met before coverage is accepted. The healthcare providers’ reversal of opinion on disability rendered the information previously submitted in the coverage application incorrect, which voided the insured’s option to purchase additional coverage. The fact that the insured completed the application truthfully based on information available at that time was irrelevant to the conclusion reached by the court because the information provided was, nevertheless, wrong, which was sufficient to void the additional coverage.
Miscellaneous
Russock v. AAA Mid-Atlantic Insurance Company and Citizens Bank
(Super. Ct. Pa. April 3, 2006)
Coverage Did Not Lapse Despite Late Premium
Insurance coverage did not lapse, even though insurer did not receive check before loss date. Insured had made arrangements to pay premium 10 days before it was due, payment was in transit by the due date, and the insurer indicated the method of payment. Further, the insurer cashed the premium check, even though it had been received after the policy’s purported lapse.
Farmer v. Allstate Insurance Company
(9th Cir. CA, Mar. 14, 2006)(Unpublished)
Homeowner’s Policy Day Care Endorsement Provides No Coverage
The Allstate insureds were sued for an alleged molestation that occurred at their licensed day care center. The court held that the Allstate Deluxe Homeowners Policy, including its Home Day Care Endorsement, did not cover the injuries sustained by the claimant. The court noted that the policy excludes coverage for injuries resulting from or arising out of the alleged molestation, even if the actor’s negligence contributed to the injuries.
Shelter Mutual Insurance Company v. Davis v. Eifler
(Iowa App. April 12, 2006)
Homeowners Policy Not Implicated Where ATV Accident Occurred Off Covered Premises
Eifler sustained injuries while riding the Davis’s ATV near, but not on, the premises of the Davis’s vacation home. The Davis’s homeowner’s policy excluded coverage from personal injury arising out of the use of recreational vehicles owned by the insured which are away from premises “owned by, rented to, or controlled by, the insured.” The “insured premises” included “grounds used by [the insured] in connection with [the insured’s] residence premises.” Notwithstanding that the area where the ATV came to rest after the accident was owned by the Homeowners’ Association of which the insured were members, there was no evidence that the insureds had any ownership interest in that property. The court found that regular use of the property by the insureds was insufficient to demonstrate the area was used in connection with the residence premises. Further, the court reasoned that the apparent purpose of the exclusion was to confine the insurer’s risk to a specific geographic area and that accepting the insured’s prompting to construe broadly the phrase “in connection with” would increase the insurance company’s risk beyond the policy’s intended scope and defeat the obvious purpose of the exclusion.
St. Paul Surplus Lines Insurance Company v. Halliburton Energy Services, Inc.
(5th Cir. April 10, 2006)
Halliburton Contractually Required to Indemnify Well Owner and its Insurer Pursuant to Contract Indemnity Provision
Oil and gas property owner contracted with Falcon to drill a well off the coast of Louisiana. The Drilling Contract included and indemnity provision requiring Owner to hold Falcon harmless for personal injury claims asserted against Falcon by Owner’s employees or invitees. Falcon contracted with Halliburton for performance of some of the drilling services. Their Service Contract required Halliburton to indemnify Owner and its invitees, including Falcon, against claims by Halliburton employees. A Halliburton employee was injured when the barge capsized. Falcon settled the claim and sought reimbursement from Owner. Owner and its insurer (St. Paul) demanded that Halliburton pay the settlement sum on behalf of Owner to Falcon. Halliburton refused and St. Paul filed suit. The court upheld the contract’s indemnity provision and found that Halliburton was required to reimburse Owner and St. Paul for the indemnity they had already paid to Falcon.
Travelers Indemnity Company v. Commerce & Industry Insurance Company of Canada
(N.Y. App., 3d Dept., April 13, 2006)
Removal of Drum Within Insured’s “Operations”
Injury sustained while subcontractor’s employee was removing a drum at a paper factory was within the scope of the general contractor’s “operations” for the owner. The contractor had contracted to “replace” the drum. The insurer argued that “replace” related to installation of a new drum, and not removal of the old. The court held that replacement necessarily involved removal, and thus arose out of the contractor’s operations.
Palmeiri v. Allstate Insurance Company
(2nd Cir. [NY] April 13, 2006)
Court Hold that Language of SFIP Not Mandatory
Policy issued under National Flood Insurance Act was not deemed to contain terms of the “Standard Flood Insurance Policy,” which were more favorable to the insured. The SFIP language was not mandatory, and the insurer was free to adopt its own language. Further, the court noted that even if the insurer had been in violation, there was nothing in the regulation to suggest that the response to a violation was amendment of the policy to the SFIP terms, particularly where neither party had agreed to the terms. The court then held that the insured was only entitled to actual cash value of his personal property, holding the relevant clause was unambiguous: “We insure you ... to the extent of the actual cash value of the property at the time of loss, but not exceeding: 1. the cost of replacing the insured building at the time of loss with material of like kind and quality and 2. the actual cash value of any insured personal property at the time of loss.”
Nautilus Insurance Company v. Worldwide Aeros Corporation (unpublished)
(9th Cir. [Cal.] Mar. 16, 2006)
Manufacturing Exposure Limitation Is Enforceable
The insured had been sued in an underlying tort action. The policy issued by the insurer provided coverage to claims arising out of “manufacturing exposure only.” The court held that the language of the endorsement limiting coverage to manufacturing exposure is clear and does not encompass the loss in this case. The court refused to apply the doctrines of implied waiver and estoppel.
Workers Compensation
Magee v. Thompson Creek Mining Company
(Idaho Mar. 20, 2006)
Rejection of Continued Coverage for Medical Treatments Affirmed
The plaintiff was injured while working in an oil field. One of the issues on this appeal was whether the injured plaintiff/worker was entitled to receive certain continuing medical care. The court affirmed the Commissions finding that the injections and therapy received by the plaintiff were not reasonable and no longer necessary.
Rice v. HC Beck, Ltd.
(Texas App., Fort Worth, April 6, 2006) (Unpublished)
Exclusive Remedy Provision of Workers’ Compensation Law Not Applicable
The Court of Appeals of Texas, Fort Worth, found that the exclusive remedy provisions of Texas Workers’ Compensation Law did not apply to a general contractor because the evidence submitted in support of the contractor’s motion for summary judgment did not establish that the contractor provided workers’ compensation insurance to its subcontractor’s injured employee. There, the owner of the job had purchased an Owner Controlled Insurance Program that provided individual workers’ compensation policies to each enrolled contractor. Both the contractor and the subcontractor were issued their own workers’ compensation policies under the OCIP. The subcontractor’s injured employee applied for, and received, workers’ compensation benefits pursuant to the workers’ compensation policy issued to his employer and then filed a negligence suit against the general contractor. The general contractor contended it was immune from suit, alleging it had “provided” workers’ compensation insurance to the injured worker via the owner’s OCIP. The court denied the general contractor’s motion for summary judgment because it had not provided the workers’ compensation insurance, notwithstanding that the contractor required the subcontractor to provided such insurance.
Insurance Legislation Update
Medical Malpractice Study
California Assembly Bill 2342
(Introduced on Feb. 23, 2006 by Representative Nakanishi)
This Bill relates to the Medical Board of California. Requires the board to study the issue of its providing medical malpractice insurance for physicians and surgeons who provide unpaid volunteer services and report its findings to the Legislature on or before January 1, 2008. (Current Status: From Assembly Committee on Business and Professions: Do pass to Committee on Appropriations on Apr. 4, 2006).
Limited Limits in Tort Actions
Florida House Bill 595
(Introduced on Jan. 4, 2006 by Representative Cannon)
This Bill relates to community behavioral health agencies; provides that certain facilities or programs have liability limits in tort actions under certain circumstances; limits net economic damages allowed per claim; requires that costs to defend actions be assumed by provider or its insurer; specifies occasions upon which immunities enjoyed by provider extend to employee; provides for annual increase in conditional limitations on damages; provides definitions. (Current Status: In House Pending review of Committee Substitute under Rule 6 on Apr. 12, 2006).
Lyme Disease Insurance
Florida House Bill 1013
(Introduced on Feb. 7, 2006 by Representative Homan)
This Bill relates to lyme disease insurance; cites act as Lyme Disease Insurance Coverage Act; provides definitions; requires certain health insurance policies and HMO contracts to provide coverage for Lyme disease diagnosis and treatment; provides applicability for referrals made in accordance with procedures authorized by health insurance policies and HMO contracts. (Current Status: From House Committee on Health Care General: Reported Favorably on Apr. 10, 2006).