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

Piracy coverage differs from patent infringement

Konami (America), Inc., had secured two comprehensive general liability policies from Hartford Insurance Company of Illinois and one from Hartford Casualty for periods beginning December 17, l986, and ending December 17, 1989. The three policies were similar, but only the first covered piracy. None of them covered damages arising from patent infringement.

On June 1, 1993, North American Philips Corporation and Lockheed Sanders, Inc., (herein referred to as North American) filed a complaint in federal court alleging patent infringement. It alleged that Konami had infringed upon patents relating to digital circuitry for television games. It also alleged that Konami had incorporated a North American patented device into its coin-operated video games that were manufactured, used, and sold to its distributors.

On July 9,1993, Konami tendered the defense of the action to Hartford. The latter denied that its policy provided coverage because the complaint did not allege an advertising injury arising out of the insured's advertising activities. On February 15, 1994, the insured agreed to pay North American $495,000, which represented a 3% royalty on each game sold up until April 1989.

On June 28, 1994, Konami filed its complaint against Hartford for breach of contract, and alleged that Hartford was obligated to defend and indemnify Konami. Konami contended that the policies issued by Hartford covered any actions arising from alleged patent infringement under the "advertising injury" provision.

The trial court granted Hartford's motion for summary judgment on the second and third policy, and Konami did not appeal. As to the first policy, the trial court reconsidered its opinion and granted summary judgment for Konami for settlement of the primary action, interest, costs, and attorneys' fees, in the total amount of $984,943.15. Hartford appealed.

The question before the higher court was whether patent infringement was an "advertising injury" covered by Hartford's policy. The insured contended that if it committed patent infringement in its advertising, Hartford was obligated to defend and indemnify it. The court agreed with the insured that some dictionaries define "piracy" to include patent infringement, but the court said the word had to be construed in the context of the policy. While the policy in this case used the word "piracy," coverage under that provision was limited to occurrences in the course of the insured's business.

The higher court said: "Direct patent infringement refers to the making, using, or selling of a patented invention." Furthermore, North American did not allege it was injured in any way by Konami's advertising. Without such a connection to advertising activities, Konami cannot be afforded coverage under the advertising injury provision ..."

The trial court erred in granting Konami's motion for summary judgment, and that judgment was reversed

Konami (America) Inc., v. Hartford Insurance Company of Illinois, Appellant-No. 2-00-1219-Appellate Court of Illinois, Second District-January 4, 2002-761 North Eastern Reporter 2d 1277.

Insurer not required to inform insureds of court decision

Prior to 1994, insurance companies in Ohio excluded coverage under their automobile liability policies for bodily injury to a person occupying or struck by a car owned by the insured if that person was not listed in the policy. On September 13, 1997, the Ohio General Assembly amended R.C. 3937.18 to permit "other owned vehicle."

In May, 1998, Gerald Martin and his wife, Barbara, filed a class action against Grange Mutual Insurance Company challenging the company's exclusion of injuries to persons occupying a car owned by the insured but not listed on the policy. The Martins based their action on the 1994 decision of the Supreme Court of Ohio in Martin v. Midwestern Group Insurance Company, finding the exclusion of "other owned vehicle" was unenforceable.

The class action contended that after the 1994 decision, only one vehicle in a household needed to have UM/UIM coverage in order to provide that protection to all resident relatives living in the household. The complaint alleged that Grange Mutual had continued to collect premiums for coverage that was of no benefit to the policyholders. The complaint alleged that the company had misled its policyholders by failing to inform them of the 1994 decision and its effect upon their coverage.

The lower court granted Grange Mutual's motion for summary judgment, and the insureds appealed.

On appeal, the higher court agreed with the lower court that Grange Mutual was not obligated to inform its policyholders of the 1994 decision and its effect upon their policies. The insureds did not show the company had obligated itself to notify its insureds by its past practices.

The summary judgment entered in the lower court was affirmed in part, reversed in part, and remanded with instructions that the trial court consider the issues of past practices.

Martin et al., Appellants, v. Grange Mutual Insurance Company-No. 99-G-2255-Court of Appeals of Ohio, Eleventh District, Geauga County-March 19, 2001-757 North Eastern Reporter 2d 1251.

Insured's release doesn't preclude recovery of UIM benefits

Catherine Fulmer was injured when her automobile was struck by one driven by Albert Kulics. The latter had an auto liability policy with coverage of $50,000 per person. Fulmer had a policy issued by Insura Property & Casualty Company with UIM coverage of $100,000 per person.

Insura's policy contained a subrogation clause and an "exhaustion" clause requiring Fulmer to exhaust all of Kulics' available policy limits before any claim could be made for UIM benefits under her own policy. Kulics' insurance company offered to settle for $37,500. Fulmer reported the offer to Insura and requested its consent. As an alternative, Fulmer suggested that Insura pay her that amount so that Insura could protect its subrogation rights. Insura refused both requests, stating that the offer did not exhaust Kulics' insurance limit. It also believed her damages were less than Kulics' policy limits. Fulmer settled without Insura's consent (and signed the usual release) and requested arbitration to determine her rights to UIM benefits under her own policy. Insura refused on the ground Fulmer had violated the subrogation and exhaustion requirements, thereby forfeiting any rights she might have had under the UIM coverage of her policy.

Fulmer then filed this action for declaratory judgment to decide her rights to those benefits. The trial court, and the intermediate court, found in favor of the company, and the case, on appeal, was submitted to the Supreme Court of Ohio.

In its ruling on the settlement made by Fulmer and the release she had given Kulics, the higher court decided her action did not preclude her UIM recovery. In this case, Fulmer had notified Insura of the offer to settle and suggested an alternative and Insura had refused to pay Fulmer.

The court also said that an insured satisfies the exhaustion requirement in the UIM provision of her policy when she receives a commitment to pay any amount in settlement as long as she retained the right to proceed under her own UIM coverage only for those amounts in excess of the tortfeasor's available policy limits.

In conclusion the court stated that Fulmer was entitled to UIM benefits under her policy to the extent her damages exceed the $50,000 limit of Kulics' insurance coverage.

The judgments entered in the lower court were reversed and remanded for further proceedings consistent with this opinion.

(Three justices dissented, with dissenting opinion.)

Fulmer, Appellant, v. Insura Property & Casualty Company, d/b/a The Shelby Insurance Group)-No. 00-1788-Supreme Court of Ohio-January 16, 2002-760 North Eastern Reporter 2d 392.

Insurer may restrict all claims to one per-person limit

Darwin H. Oliver, Jr., was killed in an auto accident allegedly caused by Jason Dewey. Dewey had an auto policy issued by Liberty Mutual Fire Insurance Company with $50,000/
100,000 limits. The policy also limited recovery arising from injuries to one person to the $50,000 per-person limit, regardless of the number of claimants. The company relied upon the Ohio statute (R.C.3937.44) restricting all claims arising from one person's
injuries to the single-person limit. The claimants contended the statute was unconstitutional; therefore, the policy provision was void.

The lower court granted Liberty Mutual's motion for summary judgment, and the claimants appealed. The higher court pointed out the claimants had failed to comply with the statutory requirements for a constitutional chal-lenge, and that issue was not before it.

The claimants also questioned the admissibility of an alleged endorsement setting forth the statutory per-person limitation. However, that issue was not raised in the lower court and was not considered on appeal.

The higher court limited its decision to the policy issued by Liberty Mutual. It concluded that there was no ambiguity in the policy limiting the company's liability. The statute specifically allowed for insurance companies to treat all claims arising from one person's injuries as a single claim.

Therefore, the trial court correctly granted Liberty Mutual a summary judgment, and its judgment in favor of the company was affirmed.

Estate of Oliver, Appellant, v. Dewey et al.; Liberty Mutual Fire Insurance Company-(Appeal to the Supreme Court of Ohio was dismissed)-No. 99-L-156-Court of Appeals of Ohio, Eleventh District, Lake County-October 11, 2000-760 North Eastern Reporter 2d 428.

Are lessees liable for fire damage when lease doesn't mention fire insurance?

Jaime and Margarida Barbosa had entered into a lease of a bakery from Joaquim and Candida Barros. Eighteen months later the premises were damaged by fire, and Seaco Insurance paid its insureds, Joaquim and Candida Barros, $62,178.84. It then brought this subrogation action against the lessees. The tenants denied any liability and contended they were implied co-insureds under the fire policy. The trial court agreed since there was no provision in the lease holding the lessees liable for causing the fire. Summary judgment was entered in favor of the lessees.

The lease contained the usual provision that the lessees would "yield up the property in its original condition or be liable for any damage." It also obligated the owners to repair the exterior. The lessees were required to maintain public liability insurance, but the lease did not mention insurance against fire damage.

On appeal, the court found that the language used in the lease was not clear, and genuine issues of fact existed regarding the intention of the parties.Inasmuch as the lessees were not co-insureds under the owners' fire policy, they could be held liable in a subroga-tion action. The summary judgment entered in the lower court was errone-ous, and that court should decide the intention of the parties to the lease regarding the liability of the lessees for damage caused by their negligence.

The summary judgment entered in the lower court in favor of the tenants was vacated and the action was remanded for further proceedings in accordance with this opinion.

Seaco Insurance Company v. Jaime Barbosa et al.-Supreme Judicial Court of Massachusetts, Middlesex-February 5, 2002-761 North Eastern Reporter 2d 946.

Magazine sales crew members deemed not to be "employees"

American Community Services (ACS) sold magazine subscriptions from door to door and placed as many as 40 to 50 crews at various places. ACS had secured two liability policies from Indiana Insurance: (1) a standard "Indi-Pack" which was a general liability policy, and (2) a "drop down" excess umbrella policy. Neither policy covered "employees" of the insured.

The crew managers provided the vans used to transport the sales crews from city to city, and to various sections of those cities. ACS had independent contracts with the crew managers, and those managers had independent contracts with crew members. On October 11, 1992, a van owned by crew managers Jane and Andre Walker, and driven by Isaac (a crew member) was involved in a one-car accident just west of Amarillo, Texas. One crew member (Harrington) was severely injured and another (Smith) was killed.

Harrington filed suit in a Texas federal court, and the jury found in his favor. Judgment for him was entered for $300,000 against Isaac, ACS, and the Walkers. Indiana Insurance filed this complaint in Indiana for declaratory judgment that neither of its policies provided coverage. The trial court entered judgment in favor of the insured, and Indiana appealed.

The question before the court was whether the members of the sales crew were employees. Indiana contended that they were employees and thus Indiana was not liable for the injuries and death. The trial court found the policies covered the accident. It ruled that the crew members were not "employees of ACS" at the time of the accident. Indiana appealed.

The record showed that ACS had requested the insurance agent to acquire "appropriate" insurance coverage to protect ACS against the known risks of its business. Both policies were issued in Indiana.

The higher court decided that ACS had minimal control over the actions of the crew members, and had no day-to-day contact with them. The crew members were paid commissions on the subscriptions they sold; the orders were given to the crew manager at the end of the day and were transmitted by him to ACS. The crew members were furnished with 1099s for tax purposes. The Walkers testified they paid the crew on a weekly basis on the commissions earned.

Since the evidence supported a finding that the crew members were independent contractors and not employees of ACS, Indiana Insurance breached its contracts by denying coverage and indemnification to ACS.

The judgment entered in the lower court in favor of ACS and the finding that the death and injuries were covered by the policies was affirmed.

Indiana Insurance Company, Appellant, v. American Community Services, Inc., et al.-No. 46A05-0107-CV-320-Court of Appeals of Indiana-May 29, 2002-760 North Eastern Reporter 2d 929. *