A national insurance law newsletter March 17, 2006 · Vol. 2, No. 17
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.
Actions and Proceedings
Northwestern National Insurance Company v Carlson
(Minn. App. March 7, 2006)
Insured’s Breach of Contract Claim Against Insurer Accrues When Insurer is
Legally Obligated to Pay Damages Resulting from Judgment or Settlement
An insured’s cause of action against a liability insurer for breach of its contractual duty to indemnify does not accrue, and, therefore, the statute of limitations does not begin to run until the insured is legally obligated to pay damages as a result of a judgment or settlement.
Bechtel Petroleum Operations, Inc. v. The Continental Insurance Co.
(Cal. App., 2 Dist., March 6, 2006)
Res Judicata Requires Application of Pollution Exclusion
At issue on this appeal was whether the insurers had a duty to defend lawsuits filed by workers and their family members for bodily injuries claimed to have been sustained from years of exposure to toxic substance and other dangerous, unsanitary and hazardous conditions at their worksite at an oil and gas reserve operated and/or owned by the insureds. The court affirmed dismissal of the coverage action based on res judicata. Prior to this decision, the court held that the pollution exclusion applied and the insurers did not have a duty to defend.
Arbitration
In re United Services Automobile Association v Melendez
(N.Y. App., 1st Dept., March 16, 2006)
No-Fault Arbitration Not Mandated Where Out-of-State Policy Satisfies Insurance Law
§5701
Court affirmed stay of arbitration since the policy issued by petitioner in Connecticut covering the car in which respondents were passengers provided for arbitration only if both parties agreed. Although petitioner declined to arbitrate, the policy also contained uninsured motorist coverage sufficient to satisfy the requirements of Insurance Law § 5107. “[T]here is no requirement under the New York no-fault [and uninsured] statutes and regulations that mandates arbitration where, as here, a policy issued out of State meets the minimum financial security requirements of Insurance Law § 5701.”
Auto—Liability
Fields v. American Central Insurance Company
(La. App., 2nd Dist., March 8, 2006)
Undated Named Driver Exclusion Endorsement Sufficient to Defeat Coverage
Lensing was involved in a June 18, 2003, auto accident while driving a truck owned and insured by his father with American Central. American’s policy contained a named driver exclusion endorsement naming Lensing as an excluded driver, which was signed by both Lensing and his father. Louisiana state law allows insureds to exclude from coverage by written agreement any named person who is a resident of the same household as the named insured at the time the agreement is executed. State Farm argued the endorsement was invalid because it was not dated and because there was no evidence that Lensing was residing with his parents at the time the endorsement was executed. The court disagreed because the evidence did establish the endorsement was executed no later than February 20, 2003 and remained valid for the life of the policy. Endorsement of a new form is not required when renewal, reinstatement, substitute or amended policies are issued to the named insured. Finally, where State Farm did not present any affirmative evidence that Lensing did not reside at his father’s home when the endorsement was executed, the court found that the father’s inability to specifically recall whether Lensing resided at home on the date the exclusion was executed did not create an issue of material fact to defeat summary judgment.
Nationwide Mutual Ins. Co. v. Mrs. Condies Salad Co. Inc.,
(Colo. App. March 9, 2006)
Insured Entitled to Coverage under Auto Liability Policy Notwithstanding
Misrepresentation of Ownership
Insurer brought declaratory judgment action against insured, seeking declaration that it was not obligated to provide coverage for fatality caused by insured’s employee because the insured materially misrepresented that it owned the offending vehicle when it procured auto liability policy from the insurer. Insurer further contended that had it known the true ownership of the vehicle, it would not have added it to the policy. In affirming summary judgment in favor of the insured, the court held that the insured’s misrepresentation as to ownership of the vehicle was not material. As such, the insurer was obligated to provide coverage. The appeals court explained that a misrepresentation is material if it affects either the risk accepted or the hazard insured. Based on the above, the court determined that the particular risk accepted in an auto liability policy is the possibility that the insured will incur liability for damage caused to third parties, which risk depends on the drivers it agrees to insure. Thus, the class of “insureds” on the policy would be controlling as to the risk accepted. The liability policy defined the class of insureds as “you [insured] for any covered auto.” “Covered auto” was defined to include “any auto,” which was again consistent with the driver-specific risk undertaken by the insurer. Therefore, misrepresentation of the ownership of the offending vehicle had no material effect on the risk the insurer accepted when underwriting the liability coverage policy.
Auto—Uninsured/Underinsured Motorist Coverage
State Farm Mutual Automobile Insurance Company v Reis
(Fla. App., 1st Dist., March 14, 2006)
Court Finds UIM Policy Limits Language Ambiguous
Auto accident victim’s surviving spouse and child sought underinsured motorist (UIM) benefits for pain and suffering from witnessing victim’s death. The insurer argued that the policy language meant that when one insured seeks damages for bodily injuries suffered in an automobile accident and a second insured seeks damages for bodily injuries suffered in the same accident, but with the bodily injuries to the second insured having causally resulted from the bodily injuries to the first insured, the total amount payable under the policy to these two insureds is the amount of coverage specified for “Each Person.” The court found that the ambiguous coverage provisions of the policy might reasonably be read to provide coverage to the extent of the greater “Each Accident” coverage limit. As such, the court awarded damages in the amount of the “Each Accident” coverage limit.
Nationwide Mutual Fire Insurance Co. v Progressive Bayside Insurance Co.
(Ga. App. March 7, 2006)
Primacy Determined by Policy Insured Most Closely Identified With
Injured insured filed UM and UIM claims with motorcycle insurer and auto insurer. The insured was injured when the motorcycle he was operating collided with another vehicle. The issue in this case was the priority of two insurance policies providing UM and UIM coverage. The court held that since both policies were issued to the insured as a named insured, it must look to the circumstances of the injury to determine the policy with which he is most closely identified and thus the priority of coverage. The most obvious and pertinent circumstance of the injury is that it occurred while the insured was operating his motorcycle. Based on that critical circumstance, the court concluded that the insured was more closely identified with the motorcycle policy. As such, the court held that the motorcycle insurer was the primary uninsured or underinsured motorist carrier.
Chesser v. Royal & Sunalliance Insurance Company
(La. App., Fifth Cir., March 14, 2006)
UM Coverage Attaches to Insured, Not Vehicle
Louisiana’s Fifth Circuit Court of Appeal expressly held that UM/UIM coverage attaches to the person of the insured, not the vehicle, and that any provision of UM coverage purporting to limit insured status to instances involving a relationship to the insured vehicle contravenes state law (LSA-R.S. 22:1406(D)). Plaintiff was involved in a motor vehicle accident while driving under dispatch a Freightliner Tractor, the covered vehicle of Royal’s policy. UM coverage was provided by separate endorsement. Liability coverage was excluded while the vehicle was under dispatch. Royal argued that, since liability coverage did not apply, UM coverage did not apply either. The court disagreed based both upon policy language, Louisiana case law, and Louisiana’s UM statute.
Bad Faith
Tilbury Constructors, Inc. v. State Compensation Insurance Fund
(Cal. App., 3 Dist., March 7, 2006)
Bad Faith Claim Not Allowed
The insured, under a workers’ compensation policy, sued its insurer contending that the insurer breached the insurance contract and the implied covenant of good faith and fair dealing. The basis of the insured’s claim was that the insurer performed an incompetent investigation into the responsibility for an accident suffered by one of its employees and unreasonably settled the claim that caused the insured’s premiums to skyrocket. The court dismissed the bad faith claim.
Walter v. United Benefit Life Insurance Company
(9th Cir. (Az), March 8, 2006) (Non-precedential)
Bad Faith Claim Denied
The court held that there were issues of fact as to whether the defendant breached the terms and conditions of a health insurance policy (i.e. whether the insurer erroneously processed, delayed, or denied payment of multiple medical claims). The court, however, dismissed the bad faith claim because the insured did not present evidence that the insurer “acted unreasonably and either knew or was conscious of the fact that its conduct was unreasonable.”
Directors & Officers
Oak Park Calabasas Condominium Association v. State Farm Fire and Casualty Co.
(Cal. App., 2 Dist., Feb. 21, 2006)
No Coverage Under D&O Policy Provisions
In an action arising out of the Northridge earthquake, the insured had entered into various agreements with a construction company to repair its damaged structure. The insured refused to pay the construction company and was sued. The insured tendered its defense to the insurer under its D&O coverage. The insurer denied coverage and the court upheld the insurer’s motion for summary judgment.
Exclusions— Professional Services
Giannetti v. The Burlington Insurance Company
(9th Cir. (Cal.), Mar. 7, 2006) (Non-precedential)
General Liability Policy – Professional Services Exclusion
A homeowners association instituted action against various entities for property damage resulting from faculty construction. The insurer denied coverage and any duty to defend based upon the “professional services exclusion” in the general liability policy. The court affirmed the district court ruling that there was no potential coverage and no duty to defend under the policy. The insured had sought reimbursement of attorney fees for defending the underlying action and punitive damages. This relief was not allowed.
Fire and First-Party
Solimine v. Massachusetts Property Insurance Underwriting Assoc.,
(Mass. App. March 16, 2006)
Issue of Fact Re Efficient Cause of Loss Under “Train of Events Test”
Insured sought coverage for property damage under his all risk homeowner’s insurance policy. The insured discovered an outward bulge in the brick façade of his home and reported the claim to the insurer and submitted a “vehicle damage claim” on the ground that the bulging was caused by vibrations emanating from passing vehicles and construction activities. The insurer denied coverage, claiming that it was not a covered loss because the loss was due to water infiltration, which was precipitated by the insured’s neglect in maintaining the premises, normal wear and tear, and deterioration. In reversing the trial court, the appeals court followed the “train of events test” to determine whether disclaimer was warranted. The above test seeks to determine the active efficient proximate cause of the loss, which, in this case, was the water infiltration in the brick façade of the premises. Water damage, however, was a covered loss under the policy. Since there was insufficient factual determination as to whether the cause of the loss was water infiltration (covered loss) or lack of maintenance (excluded loss), there was an issue of fact for the jury.
Miscellaneous
Spirtos v. Allstate Insurance Company
(9th Cir. (Cal.), March 2, 2006) (Non-precedential)
Claim Against Coverage Counsel Denied
The insureds, subsequent to a fire at their home, instituted an action against its homeowner’s insurer and coverage counsel claiming torturous conduct and breach of contract. The court dismissed the claim against coverage counsel because they were not parties to the insurance contract and did not owe any fiduciary duty to the insureds.
Belsito v State Farm Mutual Insurance Company
(N.Y. App., 2nd Dept., March 16, 2006)
Underlying Allegations Did Not Give Rise to Covered Claim
Insured filed suit against insurer, seeking declaration that insurer was obligated to defend and indemnify insured in underlying action. The court found that the record did not demonstrate that the allegations made in the underlying federal complaint potentially gave rise to a claim covered by the insurance policy at issue.
American Family Mutual Insurance Company v Ginther
(Ind. App. March 13, 2006)
Insurer Ordered to Pay Post-Judgment Interest on Underlying Judgment
Insurer appealed the trial court’s order that it was liable for post-judgment interest to underlying plaintiffs on a $100,000.00 judgment obtained against its insured. Because the insurance policy at issue required the insurer to pay compensatory damages for which its insured is legally liable and because post-judgment interest is part and parcel of a money judgment, the court affirmed the trial court’s order that the insurer was liable for post-judgment interest.
Nationwide Mutual Insurance Company v. Starlight Ballroom Dance Club, Inc.
(3rd Cir. (Pa) March 14, 2006) (Non-precedential)
Ballroom dancing school that rented out school for private parties and nightclubs, which served alcohol, made materially misrepresentation to insurer by failing to disclose nightclub aspect of the business on the insurance application.
Henderson v. Lawyers Title Insurance Company
(Ohio March 15, 2006)
Title Insurance—“Customary and Usual” Clauses
A title insurance policy that is issued in response to an unqualified request for coverage, but is not delivered to the insured until after the closing, is binding on the homeowner, but only to the extent it contains the “usual and customary terms” of similar policies. In this particular case, of the given policy form utilized by an insurer, only approximately half contained an arbitration clause. The court held that such inclusion did not establish that arbitrations clauses were “usual and customary.” As the arbitration clause was not usual and customary, it was not binding.