Digested from case reports published in the North Eastern Reporter 2d,
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School board seeks coverage for asbestos-related damage

The Board of Education of Maine Township High School District No. 207 (the school district) filed a declaratory judgment action against International Insurance Company seeking a determination of coverage for $18 million in asbestos-related property damage under several insurance policies issued by International between 1985 and 1991.

In 1984, the Asbestos Abatement Act took effect, requiring Illinois schools to identify, contain and remove all asbestos materials that constituted a significant health hazard and to repair and maintain those that did not constitute a significant health hazard.

Beginning in 1985, the school district purchased one-year insurance policies from International covering loss or damage to the school district's property during the policy period. The 1985 policy contained no exclusion for asbestos-related loss or damage. It did, however, contain an "asbestos endorsement" which excluded asbestos-related losses.

In 1986, International eliminated the asbestos endorsement but added a latent defect exclusion to the Exclusions subsection of the policy's property insurance section. The new exclusion provided that there would be no coverage for "[l]oss by latent defect including damage or loss caused by, aggravated by or contributed by the presence of asbestos and all asbestos related products ... unless loss by a peril insured against ensues and then only for such ensuing loss.". This exclusion and exception were included in subsequent policies until the 1990 and 1991 policies when it was slightly modified.

The 1985 through 1989 policies also contained a Conditions subsection which included an ordinance deficiency clause providing that International would be liable for loss occasioned by the enforcement of any state or municipal law, ordinance or code "which necessitates, in repairing or rebuilding, replacement of material to meet such requirements. If demolition is required to comply with such enforcement, the Company shall also be liable for such additional costs." In the 1990 and 1991 policies, the ordinance deficiency clause was changed to require a covered loss as a prerequisite to applicability.

In 1992 and/or 1993 the school district discovered that the majority of its floor and ceiling tiles contained asbestos. It subsequently demolished, repaired and replaced the asbestos-containing building materials. It also filed a claim under the International policies for its asbestos-related property damage. When the school district and International disagreed as to coverage, several legal proceedings followed.

In this case, the court found as a matter of law there was no liability under the 1985 policy for asbestos-related damage, nor was there coverage under the 1990 or 1991 policies.

The ultimate issue in the case was whether the ordinance deficiency clause in the 1986, 1987, 1988 and 1989 insurance policies negated the latent defect exclusion for asbestos-related damages.

The school district argued that the ordinance deficiency clause reinstated coverage because the school district's losses were occasioned by its compliance with statutory mandates. Initially, the appellate court agreed with a trial court finding that there was no coverage. This was based on its consideration of the latent defect exclusion only. However, in examining the insurance agreement as a whole, the court found the following: Initially, all risks were covered. The Exclusion subsection then eliminated coverage for asbestos-related losses. Subsequently, the Conditions subsection added and/or reinstated coverage for various losses/costs occasioned by enforcement of statutory requirements. Therefore, the ordinance deficiency clause extended coverage over the previously excluded asbestos-related losses.

The grant of summary judgment to International on the 1986, 1987, 1988 and 1989 policies was reversed, and the case was remanded for further factual determinations on the four policies.

Board of Education of Maine Township High School District No. 207 v. International Insurance Company-No. 1-02-1359-Appellate Court of Illinois, First District, Third Division-September 30, 2003-799 North Eastern Reporter 2d 817.

Did insurer delay too long in denying coverage?

On July 9, 1998, while restoring the facade of a New York University (NYU) building, Gavin Hanna was hit by falling scaffolding. Hanna was an employee of a scaffolding subcontractor hired by the project's general contractor, Jetco Contracting Corporation. Jetco's president and general manager learned of the accident the day it occurred, but did not at that time inform its commercial general liability insurer, First Financial Insurance Company.

On January 6, 1999, Hanna brought suit in Bronx County Supreme Court against Jetco and NYU for negligence under various state statutes. First Financial learned of the accident from NYU on February 23, 1999. It then advised the policyholder, Jetco, by letter dated March 2, 1999, that this was "a late notice situation," reserving its right to deny coverage because Jetco had failed to comply with the policy's provision requiring notice of an occurrence as soon as practicable.

On March 30, 1999, First Financial confirmed Jetco's president had known of the accident since the day it occurred. On May 17, 1999--48 days later--First Financial notified Jetco of its decision to deny coverage. It then sought a declaratory judgment from the United States District Court for the Southern District of New York that the policy did not cover Jetco for Hanna's suit. The issue of whether First Financial's 48-day delay was reasonable became a material issue in the case, because, under New York law, an insurer's failure to provide notice as soon as is reasonably possible precludes effective disclaimer, even though the policyholder's own notice of the incident to its insurer is untimely.

First Financial claimed the delay was excusable because it resulted from an investigation into other sources of insurance for Jetco. The District Court agreed, finding that First Financial's delayed disclaimer was reasonable under New York Insurance Law ß 3420(d) (Section 3420(d)). Acknowledging that the insurer would itself have denied coverage regardless of the existence of any other insurance benefiting Jetco, the court reasoned that investigation into alternative sources of insurance was nevertheless for Jetco's benefit.

Jetco appealed to the Second Circuit, which in turn certified two questions to the Court of Appeals of New York. The first question was whether under Section 3420(d) an insurer that has discovered grounds for denying coverage may wait to notify the insured of denial of coverage until after the insurer has conducted an investigation into alternate, third-party sources of insurance benefiting the insured, although the existence or nonexistence of alternate sources is not a factor in the insurer's decision to deny coverage. If an investigation into alternate sources of insurance was found not to be a proper basis for delaying notification, the second question was whether under Section 3420(d) a 48-day unexcused delay in notification was unreasonable as a matter of law.

Section 3420(d) provides, in relevant part, that an insurer disclaiming liability or denying coverage "shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant." The court of appeals noted that the words "as soon as is reasonably possible" and the bill's own legislative history illustrated the legislature's intent to expedite the disclaimer process. The court then determined that March 30, 1999 (the date it was confirmed that Jetco's president had known of the accident since the day it occurred) was the day the clock began to run on First Financial's obligation to give written notice.

At this point, it would have been reasonable for First Financial to delay in order to investigate issues affecting its decision to disclaim coverage. However, to delay simply to explore other sources of insurance was not reasonable. The court noted, when the insurer promptly disclaims coverage, the policyholder is best motivated by its own interest to explore alternative avenues of protection. Thus, the court found that an investigation into alternate sources of insurance was not an acceptable reason for delaying disclaimer under Section 3420(d).

The court then turned to the question of whether the unexcused delay of 48 days was unreasonable as a matter of law. It acknowledged that in previous cases the Appellate Division had found fixed periods of less than 48 days unreasonable. However, it declined to use these cases as a fixed yardstick against which to measure reasonableness or unreasonableness. Instead, the court stated that whether a notice of disclaimer has been sent "as soon as is reasonably possible" is a question of fact, dependent on all the circumstances of a case. It also noted that it is the responsibility of the insurer to explain its delay. Seeing no material difference between an unexplained delay and an unexcused delay, the court found that First Financial's 48-day delay in giving written notice was unreasonable. Thus, under Section 3420(d) a 48-day unexcused delay in notification was unreasonable as a matter of law.

The first certified question was answered in the negative, and the second certified question in the affirmative.

First Financial Insurance Company v. Jetco Contracting Corp.-Court of Appeals of New York-November 20, 2003-801 North Eastern Reporter 2d 835.

Worker injured in forklift accident collects under personal auto UM/UIM

On March 17, 1998, Carol Roberts was injured while working at Emery Air Freight Corporation. She was assisting a forklift operator when a piece of steel fell on and injured her foot. In November 1998, Roberts began physical therapy for her foot injury at the ProWork Center at Miami Valley Hospital. During physical therapy, she injured her back and ribs.

At the time of the accident, Roberts had an automobile liability policy with State Farm Mutual Automobile Insurance Company, including a UM/UIM coverage limit of $100,000. Emery was insured by National Union Fire Insurance Company of Pittsburgh, Pennsylvania, for commercial automobile liability, with a policy period effective October 1, 1997, through October 1, 1998.

Roberts and her family brought an action against State Farm and National Union, seeking UM/UIM coverage for Roberts' injuries. State Farm settled, admitting coverage and agreeing to pay its limits of $100,000 to settle all claims. National Union filed a motion for summary judgment. The case went to trial, and the trial court denied the motion, concluding that National Union was required to provide UM/UIM coverage.

The jury returned a verdict in Roberts' favor in the amount of $92,000 for her foot injury. National Union requested that the trial court reduce Roberts' verdict by the amount of the settlement with State Farm. The trial court granted this motion. The court also awarded prejudgment interest to the Roberts, dating to June 7, 2001, the date the trial court had rendered summary judgment in favor of the Roberts against National Union on the issue of coverage.

The trial court jury had found that the back and rib injuries were not caused by the forklift accident. The Roberts moved for reconsideration of this finding, arguing that Roberts' back and rib injuries were caused by the rehabilitation of Carol Roberts' foot injury, and that there was no evidence that the injuries had any other cause. The trial court denied this request. The Roberts appealed, assigning several causes of error. National Union assigned one cause of error.

Beginning with National Union's sole assignment of error, National Union argued that the trial court erred when it found National Union must provide UM/UIM coverage as a matter of law. National Union argued Emery was self-insured in a practical sense, and was therefore exempt from UM/UIM statutory requirements. The court disagreed. Although National Union's policy fronted motor vehicle liability protection for Emery which, in turn, retained the risk of loss up to $3 million, the fronting agreement did not render Emery self-insured for the purposes of the statutory exemption from providing UM/UIM coverage.

National Union also argued that Emery's prior rejections of UM/UIM coverage and subsequent selection of lesser limits met the statutory requirement that insurance companies must offer UM coverage with every automobile liability or motor vehicle liability policy delivered or issued. Again, the court disagreed. It found that National Union did not make a meaningful offer within the intent of the statute because its forms did not include a brief description of UM/UIM coverage or the premium, and/or did not expressly state the coverage limits. Thus, UM/UIM coverage arose by operation of law.

The court explained that although the National Union Commercial Auto Policy does exclude forklifts from covered autos, this exclusionary provision does not apply to the UM/UIM coverage arising by operation of law. To summarize, the trial court correctly found that National Union must provide UM/UIM coverage.

As for the Roberts' causes of error, they asked the court of appeals for reconsideration of their argument that the back and rib injuries could have resulted only from the foot injury. The court of appeals reviewed the evidence, and concluded that Roberts' back and rib injuries might have been caused by her improper performance of the therapeutic exercises. This would have been sufficient to break the chain of causation stemming from the forklift injury to her foot. Therefore, the trial court did not err in denying the Roberts earlier motion that reasonable minds must find the forklift injury to be the only cause of the back and rib injuries.

The Roberts also argued the trial court incorrectly awarded prejudgment interest from June 7, 2001. They argued the court should have granted interest from the date of the work accident, March 17, 1998, or the date the Roberts informed Emery of their claim, September 9, 1999. Recognizing the trial court has a very wide range of latitude in fixing a time for interest to accrue, the court found the accrual date of June 7, 2001, was appropriate.

Next, the Roberts argued it was inappropriate for the court to reduce the verdict by the $100,000 amount received from State Farm. The court of appeals disagreed. It found to fail to reduce Roberts' verdict against National Union by the amount of the settlement with State Farm would result in Roberts' receiving double the amount of her injuries, or a windfall. This would not serve the underlying public policy for provision of uninsured and underinsured motorist coverage. The judgment of the trial court was affirmed.

Roberts v. State Farm Mutual Automobile Insurance Company et al.-No. 19785-Court of Appeals of Ohio, Second District, Montgomery County-October 10, 2003-802 North Eastern Reporter 2d 157.

Invalid offer and rejection form activates UM/UIM coverage

William Hollon was injured in a car accident on October 15, 1999, while driving in the course and scope of his employment. His employer, American Ambulette and Ambulance Services (American), was insured by Twin City Mutual Fire Insurance Company under a policy of insurance that included forms for business auto and commercial general liability coverages with effective dates from December 18, 1998, to December 18, 1999. Hollon brought several actions for damages, including this case seeking UM/UIM coverage under the Twin City policy. Twin City motioned for summary judgment, claiming there was no UM/UIM coverage under the policy. The trial court granted Twin City's motion, finding that no UM/UIM coverage arose because there was a valid written offer and rejection of coverage. Hollon appealed.

The requirements for written offer and rejection of UM/UIM coverage for a policy of insurance effective during the time period involved in this case were set forth in the Ohio Supreme Court case commonly referred to as Linko (Linko v. Indem. Ins. Co. of N. Am. (2000), 90 Ohio St.3d 445,739 N.E. 2d 338.).

In Linko, the court stated that to meet the offer and rejection requirements of the statute, the insurer "must inform the insured of the availability of UM/UIM coverage, set forth the premium for UM/UIM coverage, include a brief description of the coverage, and expressly state the UM/UIM coverage limits in its offer."

It was undisputed that the owner of American, Kenneth Miller, signed Twin City's forms selecting the option to reject UM/UIM coverage, and that the forms informed American of the availability of coverage. Hollon argued that the written offer and rejection of UM/UIM coverage was not valid because it did not set forth the premium for coverage as required by Linko.

In response to this argument, Twin City submitted the affidavit of Kenneth Miller stating that he was aware of the amount of the premium. The key issue on appeal was whether or not this extrinsic evidence could be considered in determining whether the offer and rejection was valid.

The court of appeals found in favor of Hollon. Despite Twin City's arguments to the contrary, the court found there was no case law supporting the use of extrinsic evidence to prove that the requirements of Linko had been met. According to the court, "... Pursuant to Linko, the four corners of the insurance policy control in determining whether an offer of coverage was valid ..." The court also noted that oral or documentary evidence to support an offer of UM/UIM coverage is not permissible. The court stated the Ohio Supreme Court had in no way undercut its rulings that the premium for insurance must be stated in the written offer. In this case, the written offer and rejection of UM/UIM coverage was not valid because it failed to meet the requirement that the premium for the coverage be stated in the offer. Thus, the court found Twin City was required to provide UM/UIM coverage as a matter of law.

The judgment of the trial court was reversed, and the case was remanded for further proceedings.

Hollon, Appellant v. Clary et al., Appellee-No. 19826-Court of Appeals of Ohio, Second District, Montgomery County-October 24, 2003-800 North Eastern Reporter 2d 68. *