Digested from case reports published in the North Eastern Reporter 2d,
West Publishing Co., St. Paul, MN

Agent found to have no duty to notify insured of non-renewal

In 1993, Nancy Slovak had secured auto and renters insurance through Marv Adams, d/b/a Marv Adams Insurance. She later purchased HO insurance through him as an agent for National Mutual Insurance Company. The policy was not renewed on December 7, 1997, because the company had terminated its agency contract with Adams. Normally, the policy would have been automatically renewed. Slovak said that she was not notified of the policy lapse and thus had not procured replacement coverage. On February 19, 1998, Slovak's home was damaged by fire, and her claim for the loss was denied. On June 19, 1998, she filed suit against Adams Insurance and National Mutual.

National Mutual filed a cross-complaint against Adams for indemnification and contribution in the event it was found liable to Slovak. On April 15, 1999, Slovak settled her claim against National Mutual and dismissed it from her action. She then assigned her claim against Adams to National Mutual.

Adams argued he had no duty to advise Slovak of the non-renewal of her policy, and his only duty to her was to exercise good faith in obtaining the coverage she wanted, and answer any questions. National Mutual dealt with Slovak directly, and premiums were paid to the company. Adams said he received copies of correspondence between the company and the insured, and he received his "Agent's Copy" of the company's non-renewal of Slovak's policy, but he believed Slovak had received her copy. The agent said he did not have an agency relationship with any other company so he could not secure replacement coverage. He contended he had no duty to notify Slovak of the non-renewal of the HO policy. Since he had no such duty, National Mutual had no basis for indemnification from him.

The trial court granted summary judgment in favor of the agent, finding that Adams had no duty to notify Slovak of the non-renewal of her HO policy. The court believed it was the company's duty to notify Slovak that her policy was not being renewed. The court found that the insured had failed to prove negligence on Adams' part and had failed to show that a special fiduciary relationship had existed.

Slovak and National Mutual appealed.

On appeal, Slovak argued that Adams owed a duty to her to exercise good faith and reasonable diligence because the HO policy was not renewed due to Adams' breach of his agency agreement with National Mutual.

The higher court pointed out that the 1980 agency agreement between National Mutual and Adams stated that the company would be responsible for notifying the insured and Adams of its intention not to renew Slovak's policy. Slovak's own policy stated that National Mutual would notify Slovak in the event of non-renewal. Her policy also provided that the company could "elect" not to renew, and proof of mailing would be proof of notice.

Slovak should have known that her HO policy was due to be renewed in December 1997, and that she had paid no premium for renewal.

Inasmuch as Adams had no duty to notify Slovak that her policy had lapsed, he likewise had no duty to secure replacement insurance for her.

The judgment entered in the lower court in favor of the agent was affirmed.

Slovak and National Mutual Insurance Company, Appellants, v. Adams, et al.-No.L-00-1110-Court of Appeals of Ohio, Sixth District, Lucas County-March 16. 2001-753 North Eastern Reporter 2d 910.

Court grants insured increased UM/UIM limits

Bradley Wood applied for automobile insurance through Larry Laux, an independent insurance agent. Laux submitted the application to National Liability and Fire Insurance Company. The application did not contain the election form for UM/UIM coverage. The policy was issued on December 31, 1996, for one year. The policy limit was $350,000. National forwarded the application to Transcom, its general agent. The latter then notified Laux that the application was not complete since it did not include the UM/UIM election form. Transcom's usual practice was to make the UM/UIM limits match the statutory liability limits if the election form was not received within a certain time. Laux submitted the form for Wood on January 22.

Wood was involved in an auto accident several months later and filed a claim under his UM/UIM coverage for the policy limit of $350,000. National contended that his UM/UIM coverage was for the statutory limits of $20,000/$40,000 because he had rejected the higher limits of his policy. Wood filed this action to reform the policy to showthe higher UM/UIM limits of $350,000.

National filed a third-party complaint against Laux on the theory that he had handled the election form inappropriately.

The trial court entered summary judgment reforming the policy, absolved Laux of any responsibility, and dismissed National's third-party complaint. National appealed.

National did not question that the initial application completed by Wood did not contain an election form for UM/UIM, and both parties agreed that the policy had been issued before the election form was completed. The court concluded that Wood had not rejected the higher limits when the policy was issued; therefore, pursuant to statute, the UM/UIM limits equaled the bodily injury liability limits of the policy.

The court pointed out that the statute had been modified in 1990, and after the modification left "no room for doubt as to whom UM coverage must be explained. ... We believe that the revision makes it clear that the applicant, not the insured, be provided with a description of the UM coverage and that the applicant be given an opportunity to reject the coverage ..."

The court further noted that when the form was signed, Wood was no longer an applicant because the policy had been issued. "Therefore, the election form could not serve as a valid rejection of the UM/UIM coverage. Because National failed to comply with the mandatory provisions of the Code, the trial court correctly granted summary judgment and reformed the contract. ..."

The court noted that National went ahead and issued the policy although the application was not complete. It was not obligated to do so. It could not deny liability later on the ground the application was not complete until Wood signed the election form.

The judgment entered in the trial court in favor of the insured and reforming the policy, and dismissing the action against the agent was affirmed.

Bradley D. Wood v. National Liability and Fire Insurance Company, Appellant (Larry Laux, Third-Party Defendant)-No. 2-00-0974-Appellate Court of Illinois, Second District-September 13, 2001-755 North Eastern Reporter 2d 1044.

Bank's D&O policy does not insure bank's liability

The Bank of Carbondale had secured from Kansas Banking Surety Company (KBS) a Director and Officer Legal Defense and Limited Indemnity Policy. The policy provided that KBS would indemnify any director or officer of the insured bank for any loss which the director or officer was legally obligated to pay by reason of any wrongful act in his or her capacity as a director or officer. The policy excluded liability in connection with a claim against the insured bank.

The bank filed suit against Leonard Bening alleging he had failed to pay certain promissory notes. Bening filed a counterclaim alleging that the bank, acting through its officers and/or directors, had altered the notes; but the claim did not name any officer or director. The bank notified KBS of the counterclaim but KBS denied liability.

The trial court found that the policy did not protect the bank and dismissed the action. The bank appealed.

The policy specifically stated: "The Underwriter shall not be liable to make any payment or provide any defense in connection with any claim or legal proceedings made against the Bank."

The higher court concluded that the policy "provided no coverage for the Bank itself, nor does it obligate KBS to defend the Bank in any suit brought against it."

In affirming the judgment of the trial court dismissing the bank's action, the court said:

"The policy in the present case is clear and unambiguous. It describes the type of coverage provided, defines the insureds, and excludes coverage for any claim or legal proceeding against the Bank. ..."

The Bank of Carbondale, Appellant, v. The Kansas Bankers Surety Company-No. 5-00-0075-Appellate Court of Illinois, Fifth District-August 30, 2001-755 North Eastern Reporter 2d 543.

Denial of coverage prior to supreme court ruling does not constitute bad faith

Patricia Addington had an auto liability policy issued by Allstate Insurance Company that included UM/UIM coverage. On August 27, 1994, her granddaughter, Patricia Hill, was killed in an automobile accident involving an uninsured motorist. In September 1999, the insured filed a claim for wrongful death damages under her policy. Allstate denied liability on the ground that the granddaughter was not covered under its policy. On January 5, 2000, the grandmother filed this action for declaratory judgment because of breach of contract and failure to act in good faith. Six weeks later, the Ohio Supreme Court overruled the case law upon which Allstate had relied.

Allstate then reversed its position and agreed to provide coverage to the grandmother. The trial court ruled that the company's denial of coverage initially was justified and entered summary judgment holding that Allstate had been justified in its initial denial of the claim. The insured grandmother dismissed the remaining claim based on breach of contract, and appealed on the ground that Allstate had acted in bad faith in initially denying liability.

The Court of Appeals of Ohio stated that the question before it had not been decided by the Ohio Supreme Court at the time Allstate had first denied liability. On February 16, 2000, the Ohio Supreme Court ruled that, under similar circumstances, the grandmother was entitled to recover UM/UIM benefits.

Since it was apparent that Allstate had based its initial denial of liability upon legal authority at that time, its actions were justified.

The summary judgment for Allstate in the lower court was affirmed.

Addington et al., Appellants, v. Allstate Insurance Company-No. 00CA007737-Court of Appeals of Ohio, Ninth District, Lorain County-July 5, 2001-756 North Eastern Reporter 2d 750.

Insurer must allow adjuster to be deposed

Delores Dennis was injured when a car backing out of her driveway struck her. At that time she was insured under a policy issued by State Farm Insurance Company that included UIM coverage. With the knowledge and consent of State Farm, she exhausted the limits of the policy issued to the other driver. She then filed a claim for UIM benefits under her policy, and the claim was denied. She and her husband then filed this action against State Farm to collect the UIM benefits.

Later, the insureds notified State Farm of their intention to take the deposition of David Nuzzi, one of the company's adjusters. State Farm then filed a motion to prevent the deposition, and the trial court granted the motion. The insureds appealed. The company contended that its employee (Nuzzi) was protected by the attorney-client privilege and work-product doctrine.

The Ohio Rules of Civil Procedure require the person seeking such a protective order to "make a reasonable effort to resolve the matter through discussion with the attorney or unrepresented party ... A motion for a protective order shall be accompanied by a statement reciting the effort made to resolve the matter in accordance with this paragraph." State Farm did not include such a statement with its motion.

The higher court stated that, even if such a statement had been included, the lower court erred in preventing the deposition. The court said that the adjuster's testimony was relevant even if he "had no knowledge of any facts outside of those contained in the claims file."

The court added that the work-product rule applied only to documents and tangible things prepared in anticipation of litigation. The rule did not prevent the insureds from inquiring about matters arising prior to the filing of this action.

The judgment entered in the trial court in favor of State Farm was reversed and remanded for further proceedings.

Dennis et al., Appellants, v. State Farm Insurance Company-No. 99 CA78-Court of Appeals of Ohio, Seventh District, Mahoning County--May 15. 2001-757 North Eastern Reporter 2d 849. *