INSURANCE-RELATED COURT CASES

COURT DECISIONS

Digested from case reports published in the North Eastern Reporter 2d,
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Agent appeals order to return commissions
On September 20, 2000, the Massachusetts Commissioner of Insurance was appointed receiver for New England Fidelity Insurance Company. The Supreme Judicial Court directed the commissioner to take immediate control of the property and assets of New England Fidelity and to administer them under general supervision of the court. All existing New England Fidelity policies were to be canceled, effective on 90 days’ notice to policyholders.

Jankowski Insurance Agency had an agency agreement with New England Fidelity. The commissioner sought the repayment of commissions previously paid by New England Fidelity to Jankowski. Jankowski refused. The commissioner filed an action in Superior Court seeking repayment of the commissions that were unearned. The Superior Court judge ordered Jankowski to pay the $38,688.08, plus interest, to the commissioner. Jankowski appealed.

The Appeals Court of Massachusetts, Suffolk, agreed with the Superior Court. The agency contract expressly provided that Jankowski was required to return a portion of the commission in the event the insurer was to refund part of its premium, which would then be unearned. The court found that unearned commissions are assets that the receiver must take into custody. Additionally it found that, under its agency contract with New England Fidelity, Jankowski had no right to retain unearned commissions. Accordingly, the judgment of the Superior Court was affirmed, with double costs on appeal.

Commissioner of Insurance v. Jankowski Insurance Agency, LLC-No. 03-P-614-Appeals Court of Massachusetts, Suffolk-June 9, 2004-809 North Eastern Reporter 2d 1084.

Landlord seeks to escape liability for negligence
In this landlord and tenant case, the Appellate Court of Illinois addressed the question of whether the Illinois Landlord and Tenant Act prohibited certain language in a tenant’s residential lease. The suit was filed by residents of the Chatham Hills apartment complex, managed by Nolan Real Estate Services. The complaint alleged that an employee of Nolan, William Klein, was negligent with regard to maintenance of fireplaces in the apartments. A fire damaged the residents’ personal property covered by the residents’ individual rental insurance agreements when John Whitledge started a fire in his fireplace that spread beyond the firebox and into other units.

Nolan attempted to dismiss the complaint, arguing that the terms of its lease agreements with Chatham Hills residents provided that Nolan was not responsible for damage to the tenants’ personal property. Each lease contained the following provision: “Resident understands and agrees it shall be Resident’s own obligation to insure Resident’s property and persons for whom Resident is or may be responsible. The owner is not responsible for Resident’s property in the case of accident.” In addition, some of the leases contained endorsements requiring tenants to carry renters insurance. These endorsements also contained the following language: “Chatham Hills Apartments is not responsible for your property in case of an accident.”

The residents argued that the language in the lease agreements conflicted with Section 1 of the Illinois Landlord and Tenant Act, which provided that agreements “exempting the lessor from liability for damages for injuries to person or property caused by or resulting from the negligence of the lessor, his or her agents, servants[,] or employees, in the operation or maintenance of the demised premises or the real property containing the demised premises shall be deemed to be void as against public policy and wholly unenforceable.”

The parties eventually agreed to certify several questions to the Appellate Court of Illinois, including the question of whether the language of the Illinois Landlord and Tenant Act protected the tenants and the tenants’ insurers under the circumstances. The court found that the language in the lease agreements had the effect of requiring a tenant to indemnify a landlord for a fire allegedly caused by the landlord’s negligence. This enabled a landlord to escape liability for its own negligence, and was precisely the evil the Act was written to prevent. For this reason, the court found the lease provisions to be void and unenforceable.

Nolan attempted to argue that the act was intended to protect tenants, not their insurers. The court was not convinced. The insurance carriers were afforded the same protections as the tenants.

The certified questions were answered.
Whiteledge v. Klein-No. 4-03-0820-Appellate Court of Illinois, Fourth District-May 19, 2004-810 North Eastern Reporter 2d 303.

Coverage for new vehicle within 30 days of purchase
On October 12, 1999, Corey Smith bought a 1986 Chevrolet Caprice. He also owned a 1995 Chevrolet Monte Carlo, which he had purchased early in 1999. Smith had insurance coverage for the Monte Carlo with American Freedom Insurance Company.
The day after he purchased the Caprice, Smith was involved in an auto accident. The Caprice was totaled, and Smith and his passenger sustained injuries. Smith testified that as of the day of the accident he had not notified American Freedom of his purchase of the Caprice. He also testified that the Monte Carlo was still working and that he was going to sell it later that week.

Five days after the accident Smith made a claim for the Caprice under the uninsured motorist provision of the policy he had obtained for the Monte Carlo. American Freedom filed a declaratory judgment action seeking a finding that the accident was not covered by the policy.

The American Freedom policy contained two applicable provisions. The first covered an automobile “acquired by the named insured during the policy period, provided it replaces an insured automobile.” The second covered an automobile acquired by the insured if the insured notified the company in writing within 30 days of his election to make the coverage applicable to the newly acquired automobile.

The trial court found that the Caprice was an insured automobile as defined by both provisions of the policy. American Freedom appealed.

The Appellate Court of Illinois disagreed with the trial court’s finding that the Caprice was an insured automobile under the theory it was purchased to replace the Monte Carlo. It found a vehicle cannot be a “replacement” vehicle if the insured retains ownership of the “replaced” vehicle and if it remains operable, regardless of the insured’s intent to replace the vehicle. However, the court agreed with the trial court’s finding that the Caprice was an insured automobile under the second applicable provision. The court acknowledged Smith did not provide notice to American Freedom of his intent to apply insurance coverage to the Caprice, but this didn’t matter. Where an accident occurs before the lapse of a grace period, Illinois law provides coverage whether or not notice has been given.

The judgment of the circuit court was affirmed.

American Freedom Insurance Company v. Smith-No. 1-02-2343-Appellate Court of Illinois, First District, First Division-March 8, 2004-806 North Eastern Reporter 2d 1136.

Can insurer terminate employee who files non-job-related suit?
Deborah Moskowitz was an employee of Progressive Insurance Company. She also held an insurance policy with Progressive. Moskowitz alleged that her employment with Progressive was terminated after she asked her supervisor what would happen if she were to bring a non-job-related lawsuit against Progressive based on a coverage issue on a claim arising under her Progressive insurance policy. Moskowitz alleged that shortly after she made the inquiry, her employer set unattainable and unrealistic goals for her, to establish a bona fide reason for her discharge. On June 4, 2002, she filed a wrongful discharge action against Progressive. Progressive argued there was no cause of action because it was entitled to terminate Moskowitz under the at-will-employment doctrine (an employment relationship is terminable at the will of either party, for any reason). Moskowitz argued that under the circumstances there was a public-policy exception to the at-will-employment doctrine, and that there was a cause of action.

The Court of Common Pleas of Ohio, Lake County, agreed with Moskowitz, and found that under the circumstances there was a cause of action for wrongful discharge in violation of public policy. To find otherwise would compromise the constitutional right of access to courts, the clear, well-established legal implication of good faith and fair dealing in every insurance contract, the prohibition on bad faith in first-party insurance dealings, the fiduciary relationship between the insurer and insured, and the right to be free of extortion or coercion. The court cautioned insurers that occupy a dual capacity as employer/insurer, warning them not to tie in the employment and insurance contracts.

Progressive also argued that Moskowitz could not demonstrate she was discharged because of her inquiry regarding her insurance claim. The court disagreed, stating that this was a question of fact to be determined at the trial.

The court denied Progressive’s motion for summary judgment.

Moskowitz v. Progressive Insurance Company-No. 02CV000997-Court of Common Pleas of Ohio, Lake County-April 26, 2004-811 North Eastern Reporter 2d 174.

Family of accident victim challenges “anti-stacking” clause
Terry Striplin owned two Fords: a truck and a van. He insured both vehicles under one policy with Allstate Insurance Company. The Allstate policy had two declarations pages, one for each vehicle, each providing that the insured had uninsured motorist coverage of $100,000 per person and $300,000 per occurrence.

On January 12, 2002, Terry’s minor son, Dillon, was killed in an automobile accident. He had been the passenger in a vehicle driven and insured by Richard Miller. Dillon’s estate and family members collected $50,000, the policy limit under Miller’s insurance. They then sought underinsured motorist benefits under Terry Striplin’s policy with Allstate. Allstate paid them $50,000, which represented the $100,000 coverage limit for a single auto, less the $50,000 received from Miller’s insurance. However, the estate and family members were not satisfied. They claimed they were entitled to “stack” the coverage limits for the two vehicles that Allstate insured. When Allstate refused their request, they filed an action seeking a declaration that they were entitled to $150,000 (the $200,000 policy limit for two cars, less the $50,000 already received).

The trial court found in favor of the Dillon Striplin estate and Striplin family, finding there was a policy ambiguity and resolving it in favor of the insured. Allstate appealed.

As a preliminary matter, the Appellate Court of Illinois rejected a per se rule that any listing of multiple limits of liability creates an ambiguity. However, it did acknowledge that such a listing could create an ambiguity in conjunction with other language in the policy. The Allstate policy’s general provisions contained a paragraph titled “Combining Limits Of Two Or More Autos Prohibited,” which specifically provided that “The limits of liability applicable to any one auto shown on the policy declaration will not be combined with or added to the limits of liability applicable to any other auto shown on the policy declarations.” In addition, the provision stated: “If none of the autos shown on the policy declarations is involved in the accident, the highest limits of liability shown on the policy declarations for any one auto will apply.” The court found that the “Combining Limits Of Two Or More Autos Prohibited” section of the policy clearly answered the question of whether the liability limits for the two vehicles could be added together.

The judgment of the lower court was reversed.

In re Estate of Striplin v. Allstate Insurance Company-No. 2-03-0252-Appellate Court of Illinois, Second District-April 13, 2004-807 North Eastern Reporter 2d 1255.

Are permitted users “insureds”?
Universal Underwriters Insurance Company, an automobile dealer insurer, paid collision claims for three automobile collisions involving customers who were test driving or borrowing auto dealer vehicles with permission. The claims totaled approximately $22,000. After paying the claims, Universal sought recovery from the three customers under their individual automobile insurance policies. Farmers Automobile Insurance Association, which insured the individual drivers, filed a complaint against Universal, arguing that Universal was responsible for the coverage because Farmers provided collision coverage on nonowned vehicles only on an excess basis.

The trial court originally entered judgment in favor of Farmers, but Universal filed a motion for rehearing. It argued that the trial court should not have treated permitted users as “insureds” under its policy, and that the court incorrectly interpreted the Mandatory Insurance Act to include a collision coverage requirement. The trial court agreed with Universal’s arguments, reversed its earlier order, and granted Universal’s motion to dismiss. Farmers appealed.

The appellate court of Illinois first addressed the question of whether the drivers were “insureds” under the Universal policy. It found they were not. The section of the Universal policy covering the type of loss caused by the accidents did not have an expansive definition of “Who is an insured,” as did other sections of the policy. Because there was no expansive definition, the policy did not provide coverage for the permitted users for damages to the dealer vehicles.

The court also found that the public policy goals served by the mandatory insurance statute did not require coverage. The statute’s principal purpose is to protect the public by securing payment of their damages. This purpose did not extend to requiring coverage for damage to the insured vehicle while in the control of a permitted user. This was the responsibility of the user’s insurance carrier.

The court concluded that Universal was not responsible for coverage related to the collisions. The decision of the trial court was affirmed.

Farmers Automobile Insurance Association v. Universal Underwriters Insurance Company-No. 1-02-3551-Appellate Court of Illinois, First District, First Division-May 17, 2004-810 North Eastern Reporter 2d 562.

Is multi-injury crash one accident or many?
During the 1999 Cincinnati, Ohio, Oktoberfest celebration, Michael Cowperthwaite drank an excessive amount of alcohol and drove his automobile through barricades and into a crowd of people, injuring more than 20 of them. Cowperthwaite was insured by Progressive Insurance Company. His policy provided liability coverage up to the limits of $12,500 per person and $25,000 per accident, and defined accident as “a sudden, unexpected and unintended occurrence.”

The Greater Cincinnati Chamber of Commerce helped organize the Oktoberfest event, and was named in several lawsuits filed by injured parties. In 2002, the Chamber filed a declaratory judgment action to determine the extent of Progressive’s coverage for the injuries inflicted by Cowperthwaite. The trial court found that a single accident had caused the injuries and that Progressive’s per-accident liability was limited to a total of $25,000 to be split among the injured parties. George Ghanbar was one of the persons who named the Chamber in an action claiming that, as a sponsor of the event, the Chamber was liable for the injuries. He claimed the decision of the trial court was in error, and that the injuries were a series of accidents rather than one single accident.

The Court of Appeals of Ohio found that the language in the insurance contract was not ambiguous with respect to what constituted an “accident.” The evidence indicated the injuries occurred as a result of a single act and almost simultaneously. There was no explicit language in the policy requiring further analysis. Accordingly, Ghanbar’s assignment of error was overruled.

The judgment of the trial court was affirmed.

Greater Cincinnati Chamber of Commerce v. Ghanbar-No. C-030464-Court of Appeals of Ohio, First District, Hamilton County-May 28, 2004-810 North Eastern Reporter 2d 455.

Who is primary insurer in pizza delivery accident?
On January 22, 1999, while delivering pizza for his employer, Pizza Nova, Francisco Araujo hit and injured a pedestrian, Luz Mendez. Araujo was driving his father’s car, which was insured by Universal Casualty Company. Pizza Nova was insured by Progressive Insurance Company. The Progressive policy insured any automobiles used in the course of Pizza Nova’s business that were not owned by Pizza Nova.

On January 17, 2001, Mendez filed a complaint naming Araujo and Pizza Nova as defendants; however, Mendez was unable to serve the Araujos with process regarding the lawsuit. On May 1, 2001, Progressive settled the case with Mendez for $57,500. Progressive then filed a complaint for declaratory judgment, requesting a finding that Universal was the primary insurer of the car, and that Progressive was an excess insurance carrier. Under this theory, Progressive sought reimbursement of the $57,500. Universal denied any obligation to reimburse Progressive, claiming its duty to defend the lawsuit never arose because it never received notice of the lawsuit.

The trial court granted summary judgment in favor of Progressive; Universal appealed.

On appeal, the primary issue was whether Universal had actual notice of the underlying action. However, as a preliminary matter, the Appellate Court of Illinois evaluated several technical aspects of the case. It first determined that Pizza Nova was the insured party under the Universal policy because the policy language included “any other person or organization legally responsible for the use of … any owned automobile.” Next, the court evaluated the language of the Progressive policy to determine whether Progressive was a true excess insurer. To reach this conclusion, it was necessary for the court to find the existence of primary coverage. Progressive’s policy provided “For any covered ‘auto’ you don’t own, the insurance provided by this Coverage Form is excess over any other collectible insurance.” Thus, to find a primary insurer it was necessary to determine whether Universal’s insurance coverage was “collectible.” Universal argued its coverage was not collectible because the insured did not comply with certain conditions necessary to trigger coverage. Progressive argued Universal could not assert such an argument (i.e., it was “estopped” from doing so) because it improperly refused to defend the insured in the underlying lawsuit.

Universal claimed it never received notice of the lawsuit in the first place. Thus, whether Universal had actual notice of the underlying action was the key question in the case.

The parties provided conflicting evidence regarding the issue of notice. Progressive provided a copy of a letter from Mendez’s attorney to Universal stating he had been retained by Mendez to represent her, a copy of a letter from a Universal claims representative acknowledging receipt of the attorney’s letter, and copies of two letters from Progressive to Universal referencing the Mendez matter. Progressive also provided an affidavit of an officer of the company stating that the existence of the lawsuit was communicated to Universal. Universal submitted an affidavit in which an officer of the company stated Universal knew of the Mendez matter but not of the lawsuit itself. Because this evidence was in conflict, the court reversed the trial court’s grant of summary judgment in favor of Progressive and remanded the cause to the trial court for further consideration.

Progressive Insurance Company v. Universal Casualty Company-No. 1-03-1445-Appellate Court of Illinois, First District, First Division-March 15, 2004-807 North Eastern Reporter 2d 577. *