INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Injured volunteer firefighter alleges bad faith

Bernard Hopper was a volunteer firefighter. On December 21, 1994, Hopper was driving a Johnson Township, Indiana, fire truck when a vehicle operated by Roy Carey approached from the opposite direction. Hopper’s truck went off the side of the road and overturned. Hopper was seriously injured.

Hopper and his wife, Rettie, sued various parties, including Roy Carey, S & S Fire Apparatus (for negligent design of the fire truck), and Continental Western Insurance Company, the insurer of the fire truck. Eventually, the Hoppers entered into a settlement agreement with S & S for $750,000. In addition, they claimed they were entitled to uninsured/underinsured motorist coverage under the Continental policy.

The uninsured/underinsured motorist provision of the Continental policy provided for $500,000 in benefits. It also provided that the limit of insurance “shall be reduced by all sums paid or payable by or for anyone who is legally responsible, including all sums paid under this Coverage Form’s LIABILITY COVERAGE.” Continental claimed that it was entitled to set off the Hoppers’ recovery from S & S because the settlement exceeded $500,000. The trial court agreed with Continental, granting its motion for summary judgment. The Hoppers appealed, alleging that, even if the set-off theory were correct, Continental was still liable because it handled the claim in bad faith. According to the Hoppers, Continental should not have been able to avoid its obligation simply by waiting until the Hoppers’ recovery from other sources exceeded Continental’s liability.

The Court of Appeals of Indiana disagreed with the Hoppers and granted Continental’s motion for summary judgment. In reaching its decision, the court stressed the fact that there were no facts before the trial court regarding a claim for bad faith. In fact, the Hoppers did not amend their complaint to include a claim of bad faith until the day of the hearing for Continental’s motion for summary judgment. In addition, it was not unreasonable for Continental to await a determination on whether or not Carey was at fault before paying a claim, because there may or may not have been an uninsured motorist. Therefore, the trial court correctly determined that Continental was allowed to set off the sum recovered by the Hoppers.

The judgment of the lower court was affirmed.

Hopper v. Carey and Continental Western Insurance Company-No. 72A01-0308-CV-315-Court of Appeals of Indiana-June 25, 2004-810 North Eastern Reporter 2d 761.

Despite food delivery exclusion, auto policy must pay injured claimant

Ronald Abbinante had a job delivering pizza for Casale Pizza, Inc., for which he earned $1.25 per pizza delivered. On August 25, 2000, while using his mother’s car to deliver pizzas, Ronald hit and injured a pedestrian, Mikhail Lavit. The car was insured by Progressive Universal Insurance Company. The policy excluded from coverage “bodily injury or property damage arising out of the … use of a vehicle while being used to carry persons or property for compensation or a fee including, but not limited to, delivery of … food.”

When Lavit and his wife sued Ronald Abbinante and Casale Pizza, Progressive began defending Ronald under a reservation of rights and denied that it was required to indemnify him. In the meantime, the Lavits received the $100,000 limit of their uninsured motorist coverage with Liberty Mutual Fire Insurance Co. Liberty Mutual requested reimbursement of this $100,000 from Progressive. Progressive filed a declaratory judgment action, claiming it had no duty to defend or indemnify Ronald in the Lavits’ lawsuit. Liberty Mutual, as the Lavits’ subrogee, filed a counterclaim against Progressive for reimbursement of the uninsured motorist payment it had made to the Lavits. Progressive moved for summary judgment. Liberty Mutual filed a cross-motion for summary judgment, arguing that Progressive’s food delivery exclusion was ambiguous and contrary to public policy. The trial court granted Progressive’s motion and denied Liberty Mutual’s motion. Liberty Mutual appealed.

Liberty Mutual’s first argument on appeal was that Progressive’s food delivery exclusion was ambiguous and must therefore be construed in favor of the insured. The court of appeals disagreed. Stressing that the exclusion in the Progressive policy was broad and detailed, the court found the facts of the case clearly supported a finding that the exclusion applied.

Next, Liberty Mutual argued that the exclusion was contrary to public policy because it conflicted with the Illinois Vehicle Code. Specifically, Liberty Mutual was referring to the “omnibus coverage” section of Illinois’s insurance law, which states that a motor vehicle liability policy “[s]hall insure the person named therein and any other person using or responsible for the use of such motor vehicle or vehicles with the express or implied permission of the insured.” 625 ILCS 5/7-317(b)(2) Because Ronald was a permitted driver, Liberty Mutual argued that Progressive’s auto liability policy was required to cover him for the accident. The court of appeals agreed. Because Ronald’s mother gave her express permission to Ronald to use the vehicle, section 7-317(b)(2) mandated coverage. This served the purpose of the statute: to protect the public by assuring that its damages would be paid.

The decision of the lower court was reversed, and summary judgment was granted in favor of Liberty Mutual.

Progressive Universal Insurance Company of Illinois vs. Liberty Mutual Fire Insurance Company-No. 2-03-0419-Appellate Court of Illinois, Second District-March 29, 2004-806 North Eastern Reporter 2d 1224.

False statement about kinship precludes coverage under personal umbrella

In May 1998, Catherine Kiszkan and Mike Matricard visited the office of Kiszkan’s State Farm agent, Andrew Oberc, so that Matricard could apply for an automobile liability insurance policy for his vehicle. Kiszkan had been covered by a State Farm personal umbrella liability policy since 1994 and had, through the years, obtained several policies through Oberc’s office. While the application for the automobile policy was being prepared, it was represented that Matricard was Kiszkan’s grandson, and that he lived with her. On this basis an employee of the agency qualified Matricard for a multicar discount, although she did not tell Matricard that he had to be related to Kiszkan to qualify for the discount.

In September 1998, Matricard and Readell Taylor were involved in an automobile accident in which both men died. Matricard was driving his car and was covered by the automobile policy issued by State Farm.

The attorney for Taylor’s estate sent a letter to State Farm requesting the dollar amount of liability coverage under the automobile policy and all umbrella policies. At first State Farm did not reply to this request, but after a second request it told the attorney for Taylor’s estate that the automobile policy had limits of $100,000 per person and $300,000 per accident, and that there was a personal umbrella policy with limits of $1 million for personal liability. In the meantime, State Farm paid benefits to Kiszkan under Matricard’s automobile policy, including $20,000 for death benefits and $2,000 for medical payment benefits. These benefits were paid based on State Farm’s belief that Kiszkan was Matricard’s grandmother and next of kin.

In May 1999, Taylor’s estate filed a wrongful death and survival action against Matricard’s estate. State Farm immediately assumed Matricard’s defense. Taylor’s estate eventually made a settlement demand asking for the entire $1.1 million in coverage under both policies. State Farm did not settle.

In March 2000, Kiszkan told State Farm that although Matricard had lived with her, he was not her grandson or a blood relative. As a result, State Farm immediately reserved its right to deny coverage under Kiszkan’s personal umbrella liability policy. It then filed a declaratory judgment action seeking a determination of its rights and obligations under the umbrella policy. However, it continued defending Matricard’s estate pursuant to his automobile policy.

In the wrongful death and survival action, a jury eventually awarded Taylor’s estate $6.3 million. State Farm paid Matricard’s automobile policy limit of $100,000, then moved for summary judgment in the declaratory judgment action. State Farm’s argument was simply that Matricard was required to be related to Kiszkan in order to qualify for coverage under her personal umbrella liability policy. The circuit court granted summary judgment to State Farm, and Taylor’s estate appealed.

The estates of Matricard and Taylor did not dispute that Kiszkan and Matricard were not related. However, they did argue that the misrepresentation of the relationship between Kiszkan and Matricard was material to the issue of coverage, and that State Farm had waived its defense under the policy to claim Matricard wasn’t covered. The court of appeals disagreed. In reaching its decision, it stressed that the question of coverage turned not on which side had the more credible explanation for the misrepresentation regarding Matricard, but on the terms of the insurance contract itself. In the court’s opinion, coverage could not be established by arguing that State Farm mishandled the Taylor estate’s claim against Matricard for coverage under the umbrella policy. The clear and unambiguous language of the policy established that Matricard was not covered.

The decision of the lower court granting summary judgment in favor of State Farm was affirmed.

State Farm Fire and Casualty Company vs. Kiszkan-No. 1-01-2075-Appellate Court of Illinois, First District, Second Division-February 17, 2004-805 North Eastern Reporter 2d 292.

Does masseur’s sexual impropriety constitute “bodily injury”?

RJC Realty Holding Corporation obtained liability coverage for its business, “Pure Maximus Spa/Salon,” from Republic Franklin Insurance Company. Under the policy, Republic agreed to indemnify and defend RJC against claims for “bodily injury” caused by an “occurrence” as defined in the policy. “Occurrence” was defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” There were two relevant exclusions from this coverage. Coverage was not applicable to “ ‘[b]odily injury’ … expected or intended from the standpoint of the insured” or to “ ‘[b]odily injury’ … arising out of … [b]ody massage other than facial massage.”

Marie and Thomas Harrison brought an action against RJC and a masseur employed by RJC. Their complaint alleged that there was improper sexual contact during Marie’s massage. When RJC notified Republic of the suit, Republic disclaimed coverage, citing both of the exclusions noted above. RJC sued Republic, seeking a declaratory judgment that Republic was obligated to defend and indemnify RJC in the Harrison action. The New York Supreme Court (the lower court) ruled in RJC’s favor, stating that neither of the exclusions to coverage applied. Republic appealed. The Appellate Division reversed, holding that the “expected or intended” exclusion applied. RJC filed a motion for leave to appeal.

In evaluating the case, the Court of Appeals of New York stated, “In deciding whether a loss is the result of an accident, it must be determined, from the point of view of the insured, whether the loss was unexpected, unusual and unforeseen.” In this case, because the insured was the employer of the alleged perpetrator, it was first necessary to decide whether the masseur’s expectation and intention in committing the assault should be attributed to the employer, RJC. The court found the actions were not attributable to RJC. Assuming the allegations were true, the court reasoned that the masseur departed from his duties for solely personal motives unrelated to the furtherance of RJC’s business. Because the actions were not attributable to RJC as an employer, they were not expected or intended by RJC, and were an “accident” within the meaning of the policy.

The court briefly evaluated the question of whether the “bodily injury” arose out of a “body massage,” and was thus excluded from coverage. The court read the language of the policy to include only a bruise or similar injury inflicted on the customer by the massage itself. Thus, the “body massage” exclusion did not apply.

The order of the Appellate Division in favor of Republic was reversed and the Supreme Court judgment, in favor of RJC, was reinstated.

RJC Realty Holding v. Republic Franklin-Court of Appeals of New York-April 1, 2004-808 North Eastern Reporter 2d 1263.

Pollution definition, policy “revision” challenged

On January 8, 2000, a storage tank at a facility owned by Southside River-Rail Terminal collapsed, dumping approximately 990,000 gallons of liquid Uran 28 (liquid nitrogen fertilizer) onto the ground and into the Ohio River. The Uran 28 was owned by PCS Nitrogen Fertilizer L.P., which had contracted with Southside for the receipt, storage and shipping of its product. Southside’s property and general liability insurer was Crum & Forster Underwriters of Ohio. Reclaim of Norwich, England Insurance Company insured the Uran 28 for PCS.

The tank collapse resulted in significant damage to walls and storage tanks at the facility. In addition, Cincinnati fire and police units, the Coast Guard, the EPA, and Southside’s hazardous-materials cleanup contractor all responded to the event. Containment booms were placed in the river, and surrounding communities had to add additional chemicals to their water-treatment facilities.

Southside and Reclaim sought recovery from Crum & Forster for property damage and for the loss of the contents of the tank. They disputed coverage under three policies issued to Southside by Crum & Foster: the “Deluxe Property Form,” the “Custom Deluxe Property Form” and a comprehensive general liability policy. At issue were (1) the cause of the collapse and (2) the policies’ definition of “pollution.”

1. Cause of collapse: The language of the Deluxe Form stated that Crum & Forster was not obligated to pay for loss or damage caused by collapse unless the collapse was caused only by one or more of the following: (1) “weight of people or personal property …” (2) “use of defective material or methods in construction, remodeling or renovation … during the course of construction, remodeling or renovation.” The evidence showed that the collapse was caused in part by defective welding, and in part by the weight of the contents of the tank. Because the collapse did not occur during construction, the defective-methods cause was not applicable to the loss. And, while the weight of the tank contents contributed, it was not the only reason for the collapse. Thus, the requirements stated in the policy were not met, and there was no coverage.

The Custom Form differed from the Deluxe Form in that it provided that coverage would be provided for collapse if it was caused by one or more of the following: (1) “hidden decay”, (2) “weight of people or personal property,” (3) “use of defective material or methods in construction, remodeling or renovation if the collapse occurs during the course of construction, remodeling or renovation.” The language also provided that there would be coverage if the collapse occurred after construction, remodeling or renovation is complete and was caused in part by a listed cause other than defective material or methods. Thus, by its plain language, the Custom Form offered coverage for the claim that the collapse was caused in part by the weight of the fertilizer and in part by defective welding.

The Custom Form was marketed by Crum & Forster in late 1999, before the collapse. The inclusion of the Custom Form collapse coverage depended upon a provision of the Deluxe form that stated: “[I]f we adopt any revision that would broaden coverage under this Coverage Part without additional premium within 45 days prior to or during the policy period, the broadened coverage will immediately apply to this Coverage Part.” Southside and Reclaim argued that the requirements of this provision were met, and that they had coverage under the Custom Form. Crum & Forster maintained that the Custom Form was not a revision, but an alternative to the Deluxe Form. It also maintained that any customer that wanted the Custom Form coverage had to pay an “additional premium” of $75.

The court of appeals agreed with Southside and Reclaim. It found that the insurer’s own filings with the Department of Insurance supported a finding that the Custom Form was a revision and not a new policy. In addition, the court found it was not reasonable to conclude that the $75 constituted an additional premium for the substantial coverage associated with the Custom Form, when the annual premium paid by Southside for the Deluxe Form and CGL coverage was in excess of $245,000. The only reasonable inference was that the $75 was not a premium but rather an administrative or filing fee. Thus, the trial court correctly entered judgment for Southside and Reclaim on their claim for coverage under the Custom form.

Pursuant to a party stipulation, the court affirmed Southside’s recovery of $910,824 under the Custom Form and Reclaim was entitled to recover $476,206 plus prejudgment interest from C&F.

2. Definition of “pollution”: The policies excluded or limited recovery for “pollutants,” with “pollutants” defined as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” The trial court found the exclusions did not apply because they did not specifically list Uran 28 as a pollutant. Crum & Forster appealed. The Court of Appeals of Ohio agreed with Crum & Forster. It found there were no issues of fact as to whether Uran 28 was a pollutant as that term was unambiguously defined in the exclusion clauses. It was undisputed that Uran 28 was a liquid, and an expert testified that it was an irritant and a contaminant. Therefore, the trial court erred in holding that the pollution-exclusion clause did not apply because the policy did not specifically name Uran 28 as a pollutant.

The court’s ruling with regard to the pollution-exclusion clause was reversed. As a result, Southside was not entitled to recover $333,351 in addition to the $910,824 it recovered under the Custom Form.

Southside River-Rail Terminal, Inc. v. Crum & Forster Underwriters of Ohio-Nos. C-030400, C-030423, C-030445-Court of Appeals of Ohio, First District, Hamilton County-May 28, 2004-811 North Eastern Reporter 2d 150. *