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

Cancellation is effective even if notice wasn't sent to agent

Western Reserve Group issued its liability policy on March 11, 1996, to John Hogan covering his 1988 Nissan pickup truck. The policy was renewed through March 11, 2000, when John added a 1994 Ford Aerostar van to the policy. Sometime prior to May 19, 2000, John stopped premium payments. The policy provided that Western Reserve could cancel the policy upon the nonpayment of premiums, but it stated that it would give the insured 10 days' advance notice of any cancellation.

On May 19, 2000, the company notified John it intended to cancel the policy within 10 days if payment was not received. The agent, Southwestern Insurance Agency, was not sent a copy of the notice as required by the Indiana statute. The policy was canceled on May 30, 2000.

On July 17, 2000, John Hogan and Harvey Krueger were involved in an accident and both men were killed.

A few months later, Hilda Krueger, Harvey's widow, filed suit against Hogan and Western Reserve, on the ground that Western Reserve did not comply with the Indiana statute requiring the company to furnish the local agent with a copy of the cancellation notice.

The Indiana statute provides: "In the event such policy was procured by an agent duly licensed by the state of Indiana, notice of intent to cancel shall be mailed or delivered to such agent at least ten (10) days prior to such mailing or delivery to the named insured unless such notice of intent is or has been waived in writing by such agent."

The higher court found that the purpose behind the statutory requirement was to give the insured ample notice of the company's intention to cancel the policy and give him time to pay the premium or secure other insurance. The court said: "... Providing Southwestern with advance notice of cancellation would not have had any effect upon John's action or inaction with regard to paying the premiums under the policy."

The judgment entered in the lower court in favor of Hogan and Western Reserve was affirmed.

Hilda J. Krueger, individually and as Administrator of the estate of Harvey D. Krueger, deceased, Appellant, v. Curtis Hogan, Jr., Individually and as Trustee of John H. Hogan, deceased, and Western Reserve Group-No. 81A01-0206-CV-205-Court of Appeals of Indiana-January 13, 2003-780 North Eastern Reporter 2d 1199.

Policy covers only car owned by policyholder

John August was injured when his car collided with one owned and operated by Susan Schwarz. She had a liability policy issued by Liberty Mutual Insurance Company. Her husband, Robert Schwarz, had a policy issued by New York Central Mutual Fire Insurance Company, and that policy specified coverage of a car owned by him as the "covered auto." The policy excluded liability coverage for the ownership, maintenance or use of any vehicle, other than the designated covered auto, "which is owned by you or furnished or available for your regular use." Elsewhere in the policy "you" and "your" were defined as the named insured and the spouse of the named insured, if the spouse was a resident of the insured's household.

New York Central denied any liability on the ground that Susan was the wife of Robert Schwarz, and they resided in the same household. Furthermore, the car she was driving was owned by her and was not listed in the policy issued to Robert Schwarz.

The judgment entered in the lower court finding the policy issued by New York Central did not provide coverage was affirmed.

John August, Appellant, v. New York Central Mutual Fire Insurance Company-Court of Appeals of New York-April 30, 2002-772 North Eastern Reporter 2d 1109.

5ct9 Company still has duty to defend after depositing policy limits

On April 19, 1997, a collision occurred involving a 1990 Ford Bronco and Peter Sawczuk's car, killing Peter, his wife and their two daughters. American Standard Insurance Company had issued its automobile liability policy covering the Bronco to Randy Bresnahan and the policy also protected Anthony P. Pease. It was not determined which one was driving at the time of the accident. The policy limit was $40,000.

In January 1999, the co-admini-strators of the Sawczuks' estates filed suit for damages. They alleged that, although the driver's identity was not known, either Bresnahan or Pease was driving the Bronco at the time of the accident and was responsible for the accident. American Standard filed an answer and asked the court for permission to deposit the policy limit of $40,000 with the clerk of the court. The company believed this would relieve it of any further duty to defend its insureds. The policy stated, in part:

"However, we will not defend any suit after our limit of liability has been offered or paid."

In 1998, the company made an offer to Pease and the co-administrators to pay each person, including Pease, $8,000, thereby exhausting the liability limit. The offer was refused.

The lower court entered a partial summary judgment in favor of American Standard allowing it to deposit the policy limit with the clerk of the court, but it ruled that the company still had a duty to defend the actions against the insureds. The company appealed.

The higher court ruled that the policy limit was not "paid" by the insurance company when it deposited the limit of the policy with the clerk of court. The court said that a company has not paid money under a policy until it delivers the policy funds to a person with a rightful claim to it. The company still had to discharge its duty to defend the claims against its insureds.

The judgment entered in the trial court declaring the company still had a duty to defend its insureds was affirmed.

American Standard Insurance Company, a member of American Family Insurance Group, Appellant v. Paul Basbagill et al.-No. 2-00-1476-Appellate Court of Illinois, Second District-August 21, 2002-775 North Eastern Reporter 2d 255.

1ct9 Suit against law firm not covered by policy

The law firm of Gould & Ratner purchased a commercial liability policy from Vigilant Insurance Company for the period from July 15, 1996, to July 15, 1997. During that time, the firm was sued by David Carmell for defamation and breach of fiduciary duty. The firm promptly notified Vigilant of the suit. Vigilant denied liability stating that Carmell's claims were excluded by its policy. Gould & Ratner defended itself and eventually settled the Carmell action. The insured then filed this action for breach of contract, and Vigilant filed for a declaratory judgment. The trial court granted summary judgment in Vigilant's favor in both instances, and the insured appealed.

The policy included coverage for "personal injury ... if caused by an offense committed during the policy period." Personal injury was defined as "injury, other than bodily injury, arising out of one or more of the following offenses committed in the course of your business, other than your advertising activities. ... Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services."

The policy excluded any claim or suit against the insured for (a) rendering or failing to render written or oral professional legal services or advice; or (b) rendering or failing to render any other written or oral services that are not ordinary to the practice of law."

Also excluded was personal injury or advertising injury (1) "arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity."

David Carmell was a client of the law firm. At the same time, the law firm represented Apex Automotive Warehouse L.P. during its bankruptcy proceedings. Carmell alleged that on August 14, 1996, Jonathan Backman (a partner in the law firm) sent a letter (by fax) to several people containing unfavorable statements about Carmell. Later that month, Backman called Carmell as an adverse witness in the Apex bankruptcy and cross-examined him using information that was protected by the attorney-client privilege. In November 1996, Backman faxed another letter to various people containing unfavorable comments about Carmell. Carmell alleged the statements were not true.

The insured contended Vigilant should have defended under a reservation of its rights or filed a suit for declaratory judgment.

The court ruled that Backman was not acting as Carmell's attorney when he responded to a request from another attorney who was representing Carmell. Vigilant clearly had no duty to defend the insured and, therefore, it had no duty to file for a declaratory judgment.

The summary judgment entered in the lower court in favor of Vigilant was affirmed. (There was a dissenting opinion filed by one justice.)

Gould & Ratner, Appellant, v. Vigilant Insurance Company-No. 1-02-1288-Appellate Court of Illinois, First District, Third Division-December 4, 2002-782 North Eastern Reporter 2d 749.

Insured's signature on renter's policy app doesn't warranty that it was read

A Doberman pinscher owned by Amanda Adams bit 7-year-old Christopher Marshall. Amanda had a renter's liability policy issued by Pekin Insurance Company, and a claim was submitted by the boy's father, Nicholas Marshall. Pekin denied liability on the basis of Amanda's application for the policy, in which she stated she had no "animals." Pekin filed a petition for rescission of the policy because of Amanda's misrepresentations, and the trial court ruled in Pekin's favor. Amanda appealed.

The record showed the policy was purchased by Amanda through Pekin's agent, Bybee Insurance Agency. Amanda had called the agency and talked with one of its employees, Linda Sade. It was shown that while Sade asked Amanda several questions, she did not ask her if she owned "any animals or exotic pets." An application was mailed to Amanda with portions highlighted--but not the portion relating to animals or pets. An employee of the agency had placed a check-mark in the box indicating "No" in answer to that question. Amanda was asked to sign and return the application within five days.

The following statement appeared just above the line for Amanda's signature:

"I have read the application and I declare to the best of my knowledge and belief all of the foregoing statements are true...."

During its investigation of the claim, Pekin discovered that Amanda's dog had bitten another child three or four years earlier.

The lower court granted Pekin's motion for summary judgment, and ordered (1) the policy rescinded; (2) Christopher's claim was not covered, and (3) Pekin was ordered to refund to Amanda all premiums paid. Pekin appealed.

The higher court noted that it has been decided that a clause in an application that the insured has verified the answers and statements as true does not prevent the knowledge of the agent from being imputed to the company. And when an agent fills out an application without inquiry, merely presenting the application to the insured for his signature, the answers to the questions in the application will not be warranties--even if the parties stipulate in the insurance policy that they are warranties.

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

Pekin Insurance Company v. Amanda Adams et al., Appellant-No. 4-01-1056-Appellate Court of Illinois, Fourth District-October 28, 2002-Rehearing denied December 2, 2002-778 North Eastern Reporter 2d 1240.

The higher court noted that the BI provision of the policy did not exclude business operations although other policy provisions did. In this case, the insured truck was driven to the dock to pick up the cartons of fish. Slavin had left the truck and turned off the ignition. She was standing near the tailgate at the time she was injured.

The court decided Slavin was entitled to benefits under the compulsory bodily injury to others provision. The court also found that Metropolitan had a duty to defend and indemnify Santos under that provision.

The judgment entered in the trial court was reversed in part, and affirmed in part.

Metropolitan Property & Casualty Insurance Company v. William Santos, Jr., and Patricia A. Slavin-No. 00-P-1903-Appeals Court of Massachusetts, Plymouth-September 11, 2002-774 North Eastern Reporter 2d 1128.

7ct10 Auto policy doesn't cover intentional fire started with car's gasoline

On July 12, 1991, Ann Ketah Tae took her children to their grandmother's home following an argument with Xuachung Tae. At 3:00 a.m. Xuachung drove an automobile borrowed from Vongta Khiasoth to the grandmother's house. He removed the plug from the automobile's gas tank and drained the gasoline into a bucket. He then proceeded inside the house and set himself on fire, igniting a gas stove and causing an explosion and a massive fire. He died and the children were severely burned. He was insured under a Massachusetts (Personal) Automobile Insurance Policy issued by United States Fidelity and Guaranty Company (USF&G). The owner of the car was also insured by the same company.

The children's mother and a next friend brought action to recover under Xuachung Tae's auto policy. The court entered summary judgment in favor of the insured, and the children appealed.

An "Accident" is defined in the policy as an unexpected, unintended event that causes bodily injury or property damage arising out of the ownership, maintenance, or use of an auto.

In this case, the insured left the vehicle, entered the house and there committed suicide by setting himself on fire. The higher court decided the claimants' injuries were not dependent on the use of the automobile and were not covered by the insurance policy.

Ann Ketah Tae & another v. Xuachung Tae - 01-P-748-Appeals Court of Massachusetts, Middlesex-February 5, 2003-783 North Eastern Reporter 2nd 827.

1ct10 Named insured partially covered for injury outside of vehicle

William Santos, a commercial fisherman, had secured a standard Massachusetts policy from Metropolitan Property & Casualty Company covering his pickup truck. The policy showed Patricia Slavin (who lived with him) as a Named Insured. On May 17, 1999, he asked Patricia Slavin to "guide" him while he backed the truck to load his fish with a hydraulic lift. While she was standing behind the truck, she was hit in the mouth with three 100-pound containers. Slavin filed a claim for damages with Metropolitan and the company filed this action for declaratory judgment as to its liability. It argued that Slavin was not an occupant of the truck and was not standing on the truck when she was hurt. Three provisions of the policy were involved: (1) compulsory bodily injury to others (BI); (2) compulsory personal injury protection (PIP), and (3) optional bodily injury to others (optional BI).

The trial court entered summary judgment in favor of Slavin, and Metropolitan appealed.

On appeal, the court decided that the policy required occupancy; and because Slavin was not "occupying" the vehicle, she was not entitled to PIP benefits. *