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

CGL policy excludes accident resulting from vehicle maintenance

Meridian Mutual Insurance Company had issued a commercial general liability policy to Jon B. Purkey, d/b/a Purkey's Heating & Cooling, which excluded damages for bodily injuries or property damage "arising out of the ownership, maintenance, use or entrustment to others of any aircraft, 'auto' or watercraft owned or operated by or rented or leased to any insured." Purkey owned a 1988 Ford Bronco and it was used in the business as well as for his personal use.

On April 2, 1997, he smelled gasoline. Upon investigation, he discovered that the gas tank on the car was leaking. Believing that he could fix the tank, he parked the car in a garage he was renting. He began siphoning gas from the tank into an open container. Something ignited the gas fumes, causing an explosion and fire. Purkey's clothing caught on fire and he was badly burned. The fire spread and destroyed adjacent buildings.

Meridian filed this action for declaratory judgment that it was not liable for the damage caused by the explosion and fire. The trial court entered summary judgment that Meridian was liable, and the company appealed, contending the fire and resulting damage resulted from "maintenance" of the Ford Bronco.

The higher court found that the property damage resulted from the ignition of gas fumes and was part of the insured's maintenance of the Bronco. The court noted that the insured's siphoning of the gas was merely a preliminary step in the repair of the vehicle.

The summary judgment entered in the trial court against Meridian Mutual was reversed.

Meridian Mutual Insurance Company, Appellant, v. Jon B. Purkey, d/b/a Purkey's Heating and Cooling, et al.-No. 29A02-0106-CV-348 -Court of Appeals of Indiana-June 14, 2002-769 North Eastern Reporter 2d 1179.

Insurer may seek contribution from subcontractor for loss

Domanus Masonry, Inc., had procured liability insurance from State Farm Fire & Casualty Company. Domanus entered into a contract with Stan Heller to do some work on Heller's home, and then subcontracted with Ronald Jones, d/b/a R.J. Masonry, Inc., for some of that work. The record showed that Jones was negligent in performing the work and damaged the home. State Farm paid Heller $57,104.65 and secured his release of all claims against Domanus and "R.G.Masonry Wash." The parties agreed this referred to Jones. State Farm then sought reimbursement from Jones.

The trial court dismissed the action and based its judgment upon the release by Heller as the home owner. State Farm appealed.

The higher court decided that State Farm had done everything it needed to do to preserve its right to contribution from the subcontractor. It had settled the home owner's claim and had secured a release from Heller that covered Jones. That release did not prevent State Farm from seeking contribution of its loss from Jones.

The judgment entered in the lower court dismissing the action was reversed and remanded for further proceedings.

State Farm Fire and Casualty Company, as Subrogee of Domanus Masonry, Inc., Appellant, v. Ronald Jones, Indiv. and d/b/a R.J.Masonry, Inc.-No. 2-00-1479-Appellate Court of Illinois, Second District-April 18, 2002-768 North Eastern Reporter 2d 805.

Insured must be offered opportunity to accept or reject UIM coverage

On December 31, 1998, Sarah Shindollar was seriously injured while riding as a passenger in a car insured by State Farm Insurance Company. Sarah was a minor who resided with her parents, David and Margaret Shindollar. State Farm paid its policy limit of $100,000. David and his wife had an auto policy issued by Erie Insurance Company with $250,000/$500,000 limits. It provided for UM/UIM coverage of $100,000/$300,000. Erie had also issued a personal catastrophe policy with limits of $1,000,000. It had a signed UM/UIM rejection form.

The Shindollars submitted UM/UIM claims under the two policies issued by Erie, but Erie denied liability on two grounds: (1) Recovery under the auto policy was precluded by the payment of $100,000 by State Farm; and (2) The insureds had rejected the higher UM/UIM coverage under the personal catastrophe policy.

The lower court ruled that the insureds were entitled to recover under the UM/UIM coverage of their policies, and Erie appealed.

Because David Shindollar was an insurance agent, Erie contended that he knew and understood insurance coverage and, as such, he was exempted from the mandates of the Ohio statute requiring insurance companies to offer UM/UIM coverage with the same limits as the policy. The court, on appeal, decided Erie could not introduce, and could not deny liability on the basis of, evidence relating to his knowledge and experience as an insurance agent.

The insureds contended they were entitled to the maximum UM/UIM coverage permitted under the two policies since the company had failed to inform them in an adequate manner of the coverage and the cost thereof.

The Ohio statute requires all insurance companies to offer UM/UIM coverage with each auto liability policy delivered or issued for delivery in Ohio. Each policy had to have two-year guarantee periods during which the policy could not be altered except by agreement of the parties. Furthermore the commencement of each new policy period created a new contract, regardless of whether it was a new policy or a renewal policy.

The court noted that the rejection form used by Erie did not describe the coverage or the cost, and did not state the limit of coverage. Therefore, the form did not set forth the statutory requirements needed for a valid offer and could not be termed a "written offer" that would allow the insured to make a decision.

As a result, UM/UIM coverages in amounts equal to the policy limits arose by operation of law.

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

Shindollar et al. v. Erie Insurance Company, Appellant-No. 2-01-35-Court of Appeals of Ohio, Third District, Auglaize County-June 14, 2002-774 North Eastern Reporter 2d 316.

Implied "permission to use" doesn't apply to under-aged driver

Cincinnati Insurance Company had issued an auto liability policy to Natalie Deem. She was 18 years old at the time of the accident and had a valid driver's license. She was accompanied by Courtney Smith, who was 15 years old and had a beginner's permit. Deem had driven her car with Smith as a passenger to a friend's home on December 22, 1997. Deem became "extremely intoxicated" and vomited and then passed out. A short time later, she said she wanted to go home but didn't want to leave her car. Smith believed she had Deem's permission to drive Deem's car, but Deem didn't recall giving permission. The roads were snow-covered and icy in spots. Smith lost control, and the car went off the road. Both girls sustained injuries.

Cincinnati denied liability on the ground that Smith was not covered under its policy and filed this action for declaratory judgment. The lower court entered judgment in favor of Cincinnati, and Smith appealed.

The policy excluded coverage for any person "using a vehicle without a reasonable belief that that person is entitled to do so." Courtney Smith contended she had a "reasonable belief" that she was entitled to drive the car because she had Deem's permission. However, Smith had only a learner's permit and was legally allowed to drive only when accompanied by a parent, guardian or relative.

The higher court decided that the policy term was not ambiguous; that Courtney Smith was legally permitted to drive only when she was accompanied by a parent, guardian or relative. Cincinnati was not liable for the accident that occurred while she was driving.

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

Courtney Smith, Appellant, v. Cincinnati Insurance Company-No. 41A01-0109-CV-353-Court of Appeals of Indiana-May 31, 2002-769 North Eastern Reporter 2d 599.

Insurer's cancellation for nonpayment is valid

Arbella Mutual Insurance Company had issued to Louis A. Rotundi an auto policy that covered medical payments, property damage, and personal injury protection. He failed to make the premium payment as required and Arbella canceled the policy as of January 20, 1996, for nonpayment of premium. Three weeks later, Rotundi was injured in a one-car accident. He filed a claim for his injuries and property damage, and the company denied the claim because the policy had been canceled.

Arbella followed the statutory requirements for canceling the policy, and Rotundi did not deny he received the notice. The evidence showed that the company notified both the Registry of Motor Vehicles and Rotundi's agent of the cancellation. Rotundi sent a check to Arbella but it was less than the amount due, and Arbella sent him a refund check which was marked "policy cancellation." The evidence also showed that Rotundi had sent another check for the amount due but not until two weeks after the effective date of the cancellation. Arbella also refunded that check--after waiting for his check to clear. Rotundi never indicated that he wanted to reinstate the policy.

Rotundi contended that Arbella had waived its right to cancel the policy for nonpayment of the premium inasmuch as it had received his check and then sent its refund check some time later.

Summary judgment in favor of Arbella was granted by the trial court, and Rotundi appealed.

The higher court noted that it is customary for an insurance company to deposit checks immediately upon receipt. The payment is then entered in the company's mainframe computer on the same date. The computer reviews the relevant file. When it has been determined that the policy has been canceled, the company waits for the check to clear (in this case, two weeks) and then sends a refund check.

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

Louis A. Rotundi v. Arbella Mutual Insurance Company-No. 99-P-486-Appeals Court of Massachusetts-March 5, 2002-763 North Eastern Reporter 2d 563.

Broker becomes agent of insurer at time the policy is bound

Anna Basey bought a 1993 Chevrolet Camaro, and secured an auto liability policy from Indiana Farmers Insurance. That policy lapsed for nonpayment of premium on September 14, 1997. She and her father then met with Steve Malone, d/b/a Cousins Insurance Agency, and he was told she wanted full coverage on the Camaro. At that time she paid the first premium, and Malone told them he would forward her application to Gallant Insurance Company through Insurance Brokers of Indiana (IBI).

Gallant (a member of the Warrior Group) issued a policy but on November 19, the company notified Basey that the policy was being canceled due to a mistake on the declarations page. The company also pointed out that the application was incomplete. The agent had "faxed" her application to the company, but he testified "the third page of the application did not go through on 11/1/97." He said he re-sent that page on November 3. IBI processed it at that time as a new application and bound it effective November 4, 1997, for one year.

On November 1, 1997, Malone followed Gallant's binding procedure, and Anna and her father believed the car was insured when they left Malone's office.

On November 2, 1997, Anna lost control of her car and caused a one-car accident.

Gallant denied liability, and Anna Basey filed suit for her damages, saying that the agent had bound the coverage the day before the accident.

The trial court found in favor of Anna Basey, stating that Malone was the agent of Gallant and was acting within the scope of his authority. In this case, Malone operated an independent insurance agency and represented several insurance companies. Gallant insisted that Malone was the agent for Anna Basey. The trial court found that Malone became the insurance company's agent when the policy was issued, and, as such, had the authority to bind it. On appeal, the court said that Malone acted within the usual scope of his duties and responsibilities as an insurance agent for Gallant when he took the premium and forwarded her application to IBI. The evidence showed that Malone had previously followed the same procedure, and Gallant had never objected or indicated he did not have authority to bind the company. The second page of the application was signed by Anna and showed the binder date as November 1, 1997, at 11:00 a.m. There was a notation in the bottom right hand corner: "Bound by: Fax, Initials: SM, Dated: 11-1-97, Time 11:00 am."

The court, on appeal, stated "... Malone submitted an application for insurance on behalf of Anna and an insurance policy was issued. Therefore, Malone is the agent of Gallant and can bind it within the scope of his authority."

The higher court affirmed the finding of the trial court in favor of Anna Basey and against Gallant Insurance.

Steve Malone, d/b/a IBI/Cousins Insurance Agency and Gallant Insurance Company, a Member of Warrior Insurance Group, Inc., Appellants, v. Anna M. Basey et al.-No. 73A01-01120/CV-451-Court of Appeals of Indiana-June 19, 2002-770 North Eastern Reporter 2d 846.

No auto coverage for live-in boyfriend of insured's sister

Horace Mann Insurance Company had issued an auto liability policy to Shirlene Williams. It was in effect at the time of an accident on May 29, 1989. Eugene Williams and Erica Williams were passengers in the car owned by Shirlene and driven by Charles Wright. Erica died as a result of her injuries and Eugene was injured.

The policy issued to Shirlene Williams by Horace Mann provided coverage to the named insured, and "your relatives." "Relative" was defined in the policy as a "person related to you by blood, marriage or adoption who lives with you."

Shirlene Williams and her sister, Marion Williams, lived in a two-apartment building in Chicago. There was a first-floor apartment and a second floor apartment. Each apartment had a separate kitchen with a refrigerator, dining room, and three bedrooms. Charles Wright, Marion's "live-in" boyfriend, was the father of Erica and Eugene. The record showed that Shirlene Williams, her mother, Rachel Williams, and Shirlene's daughter, Allison, lived in the first-floor apartment, and Marion Williams and her two children, Erica and Eugene, as well as Charles Wright, lived in the second apartment.

Horace Mann denied liability asserting that Marion Williams had no rights under the policy issued to Shirlene. The company then filed this action for a declaratory judgment absolving it from any liability for the injuries and death resulting from the accident. The lower court granted summary judgment in favor of the company, finding that only the named insured was covered under the policy.

The record showed the building had been purchased by Shirlene and Marion as joint tenants. The insured lived in the lower apartment, and all of the residents had access to both apartments. They usually ate most of their meals together. The court found that the term "lives with" in the policy was not ambiguous and did not cover insured's sister and her children and a "live-in" boyfriend (and the father of the sister's two children).

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

Horace Mann Insurance Company v. Shirlene Williams et al., Appellants-No. 1-01-0963-Appellate Court of Illinois, First District, First Division-May 6, 2002-Rehearing denied June 4, 2002-769 North Eastern Reporter 2d 1031.

Subrogation clause doesn't apply to additional insured

Diane Halverson was a passenger in the front seat of her car driven by her daughter, Amie Stamm. Stamm's son was asleep in the back seat. They had been driving from Oklahoma for about 10 hours when Stamm "ran" a stop sign and hit a truck. Halverson was injured and was taken to a nearby hospital where doctors found a bone in her foot had been shattered. She was later released on crutches.

Ten days after the accident Halverson was visiting friends when one of her crutches slipped out from under her. She sustained shoulder injuries.

Halverson had an auto liability policy issued by Allstate Insurance Company which included the usual bodily and property damage protection, as well as UM/UIM coverage and medical payments. The latter provided for payments incurred for necessary medical treatment or services when "bodily injury is caused by an accident involving an auto." Those amounts "will be reduced by ... amounts received from others.... legally responsible for the injuries. This reduction applies only to amounts that are a duplication of payment for the same loss."

The UM/UIM coverage also contained a subrogation clause that read as follows: "When we pay, an insured person's rights of recovery from anyone else becomes ours up to the amount we have paid. The insured person must protect these rights and help us enforce them."

Halverson filed two separate actions: (1) against her daughter, Amie Stamm, for damages for the foot and shoulder injuries, and (2) against Allstate for reimbursement of her medical expenses in the amount of $24,948.01 less $5,429.61 already paid.

In the first action against her daughter, the jury returned a verdict in favor of Halverson in the amount of $51,500. Stamm's attorney (provided by Allstate) then filed a motion for a setoff for $5,429.61, and the court granted it. Halverson appealed.

In the second action, Allstate filed a motion to dismiss the complaint since the issues had already been decided in the action filed against Stamm. The motion was granted and the case was dismissed. An appeal was taken and the two actions were consolidated upon appeal.

The higher court ruled that Allstate was not entitled to subrogation inasmuch as the daughter was covered as an insured under the policy issued to her mother. It said that the word "others" applied only to those not insured under the policy, and the "reduction" provision was not applicable. The lower court erred in granting the motion for a setoff, and that decision was reversed. The court stated it was not necessary to remand the action for further proceedings

The higher court also found that the lower court erred in dismissing the second action because the issues had already been decided. It pointed out that the cause of action was different, and the parties were also different. The court erred in granting Allstate's motion to dismiss, and that action was reversed and remanded for further proceedings.

Diane Halverson, Appellant, v. Amie Stamm; Diane Halverson, Appellant, v. Allstate Insurance Company-Nos. 5-01-0077, 5-01-0196-Appellate Court of Illinois, Fifth District-May 15, 2002-769 North Eastern Reporter 2d 1076. *