Table of Contents 

INSURANCE-RELATED COURT CASES

COURT DECISIONS

Digested from case reports published in Westlaw,
West Publishing Co., St. Paul, MN

Is foam pit dance floor an “amusement device”?

Robert J. Kramarik, Jr., owned a business called Bobby K Entertainment, a disc jockey entertainment company. Bobby K was hired to provide a dance party at the State University of New York at Fredonia, using a “foam pit dance floor,” a vinyl dance floor with inflatable sides, filled with a foam bubble liquid. Party participant Karen Zahm fell while she was entering the foam pit floor. She hit her head on the vinyl bottom and fractured several vertebrae. She filed a lawsuit against Bobby K and received a judgment of approximately $180,000.

Bobby K was insured by Travelers. During the Zahm action, Bobby K submitted a claim, but the insurer disclaimed coverage. Bobby K then filed a claim seeking damages for Travelers’ failure to defend and indemnify Bobby K in the Zahm lawsuit, including payment of punitive damages and attorney fees.

The New York Supreme Court ordered Travelers to pay Bobby K defense costs of approximately $7,000 for the Zahm lawsuit, as well as the $180,000 judgment. The court did not award Bobby K punitive damages and attorney fees for Bobby K’s claim against Travelers. Both parties appealed the decision of the Supreme Court.

On appeal, Travelers argued that the language of the policy excluded injuries arising out of the use of “amusement devices operated by [Bobby K] including but not limited to [the] aerotrim cross trainer device or similar devices.” “Amusement device” was not defined by the policy. Travelers argued that any “piece of equipment” that provides a “means of amusing or entertaining” fell within the exclusion. It also argued that Bobby K itself considered the foam pit dance floor to be an “amusement device” because it had advertised the floor as an amusement activity.

The New York Supreme Court, Appellate Division, Third Department, found that the foam pit dance floor did not fall within the Travelers policy’s “amusement devices exclusion.” In reaching its decision, the court noted that the dance floor bore no resemblance to the only example of an “amusement device” listed in the exclusion. Furthermore, the dance floor was a “tool of [Bobby K’s] trade”; to exclude it would contradict what Bobby K would reasonably assume would be covered under an insurance policy for an entertainment and amusement business.

The appellate court also denied Bobby K’s request for punitive damages and attorney fees. There was no suggestion of any action on Travelers’ part that was “morally culpable,” and there was no reason to find that Travelers did not have an arguable basis for its denial of coverage. Thus, Bobby K was not entitled to recover punitive damages and attorney fees for its claim against Travelers.

The decision of the lower court was affirmed in part and reversed in part.

Kramarik vs. Travelers-Supreme Court, Appellate Division, Third Department, New York-January 19, 2006-808 New York Supplement 2d 807.

Which policy is “closer to the risk”?

Payless Cashways, Inc., hired KamCo Inc. to install lighting displays and to perform re-merchandising work in its retail stores. Brent Hincher, who worked for KamCo, was killed when a display fell on him while he was re-merchandising a store. Hincher’s widow, Catherine Rootness, filed a wrongful death action against Payless. Payless filed a third-party claim against KamCo. Applying Minnesota law, a jury eventually awarded total damages of $1.2 million, apportioning fault 22% to KamCo, 60% to Payless, and 18% to Hincher. Rootness appealed the jury verdict. However, while awaiting her appeal, she settled the claims with Payless and its insurer for $950,000. Of this amount, $750,000 was paid in cash by Payless’s insurer, United States Fidelity and Guaranty Insurance Company, and $200,000 was paid by Payless in Payless stock.

KamCo had a commercial general liability policy with American Employers’ Insurance Company and an umbrella policy with Commercial Union Midwest Insurance Company. Both of these companies refused to participate in the settlement negotiations on Payless’s behalf or contribute toward the settlement. After the settlement, Rootness, Payless, and USF&G filed a lawsuit against Commercial Union and American Employers’ seeking to recover amounts paid as well as the defense costs. The district court dismissed their claims against Commercial Union. The court also found that Commercial Union was not liable for defense fees. Rootness, Payless, and USF&G appealed.

The Commercial Union policy covered “any … organization with … which [KamCo] ha[s] agreed in writing … to provide insurance such as is afforded by this [CU] policy, but only with respect to [KamCo’s] operations.” In addition, it provided that Commercial Union agreed to “pay those sums that the ‘insured’ becomes legally obligated to pay as damages … because of ‘bodily injury’ … to which this insurance applies.” USF&G’s policy was an excess general liability policy, and provided that it “will pay ‘ultimate net loss’ … because of ‘bodily injury’ … to which this insurance applies caused by an ‘occurrence’ that takes place in the ‘coverage territory.’”

Under Minnesota law, if the “other insurance” clauses of multiple insurance policies conflict, then the court looks beyond the language of the policies and assigns primary coverage to the policy that more closely contemplated the risk. If the policies equally contemplate the risk, Minnesota courts pro rate the loss. The lower (district) court had concluded that Commercial Union and USF&G both provided excess insurance, that their “other insurance” provisions conflicted, but that USF&G’s policy should provide primary coverage as it was “closer to the risk.” According to the district court, USF&G’s policy limits exceeded the $750,000 paid, so Commercial Union’s secondary excess coverage was never triggered.

On appeal, the United States Court of Appeals, Eighth Circuit, disagreed with the district court’s finding that USF&G’s policy was “closer to the risk” than Commercial Union’s policy. The court noted that the risk that a subcontractor would get injured installing displays was contemplated by the USF&G policy even though it was not expressly contemplated. Commercial Union’s policy provided coverage to KamCo for liability arising from KamCo’s operations of providing display services, including providing coverage to additional insureds. Thus, the court concluded that both policies provided equally broad coverage and equally contemplated the loss at issue. Thus, each policy provided pro rata coverage.

The lower court had also found that Payless was self-insured for $200,000, and that the self-insurance was “other insurance” primary to Commercial Union’s excess coverage. The court of appeals found it was not. According to the court, the self-insurance in this case was nothing more than a large deductible. If Commercial Union had intended its “other insurance” clause to apply to self-insurance, it could have included language to that effect in its policy. Thus, because the self-insurance was not “other insurance,” Commercial Union’s policy provided the only insurance coverage of the first $200,000 of Payless’s liability.

The court of appeals concluded that, based on its analysis, the insurers should pro rate the balance of the settlement. The court then reversed the decision of the district court and remanded the case for further proceedings, including addressing the issue of defense costs.

United States Fidelity & Guaranty Insurance Company vs. Commercial Union Midwest Insurance Company-No. 04-1826-United States Court of Appeals, Eighth Circuit-430 F.3d 929-December 7, 2005.

Insurer denies coverage for rental car accident

In January 2004, Virginia Williams made arrangements to lease an automobile from Enterprise Leasing Company. Her sister-in-law, Angela, drove her to Charlotte, North Carolina, to pick up the car. Enterprise’s rental agent, Carolyne Westfall, prepared the paperwork for the rental, including a rental agreement with Virginia’s name and personal information. Virginia attempted to pay for the rental with her credit card, but her card was denied. Because of this denial, Westfall would not lease the vehicle to Virginia. Angela then asked if she could pay for the rental with her credit card. Westfall replied that she could pay only if she (Angela) were designated as the “renter” of the vehicle. Angela could list Virginia as an additional driver for an additional fee, but she (Angela) still had to be the “renter” if she wanted to pay. Angela decided to rent the vehicle in her own name, but she did not list Virginia as an additional driver. Westfall then changed the rental agreement to reflect Angela’s address, telephone numbers, driver’s license number and expiration date, and date of birth; however, Westfall failed to replace Virginia’s name with Angela’s. Angela reviewed and signed the agreement, paid with her credit card and departed in the rented vehicle. Two days later, Virginia was driving the rented car when she collided with another vehicle, causing damage to both vehicles. Angela was not with her at the time.

On April 1, 2004, Enterprise sent a letter to Angela stating that she was legally liable for $11,175.32 in damages and other related expenses related to Virginia’s collision. That June, Enterprise filed a lawsuit, alleging that Angela allowed an unauthorized driver to drive the car, and that she therefore breached her contract with Enterprise. Angela had a personal automobile insurance policy with Discovery Insurance Company, but Discovery claimed the policy did not provide coverage under the circumstances. Angela acknowledged that she had signed the Enterprise rental agreement. However, she argued that Westfall had only asked her for her personal information so that she could complete the rental agreement, and that Enterprise was aware that she only intended to guarantee Virginia’s payment under the rental agreement. She also claimed that Discovery had a duty to defend her in the action, and that she was entitled to indemnification from Discovery and Virginia.

On the issue of insurance coverage, the trial court found in favor of Discovery. While the other issues remained outstanding in the trial court, Angela appealed the insurance coverage decision.

Part A of the Discovery policy provided liability coverage for “property damage for which an insured becomes legally responsible because of an automobile accident.” In addition, the policy specifically excluded coverage for damage to property rented to the insured. Angela argued that if she was not found to be the “renter” of the vehicle, the rental property exclusion would not apply because it applied only to the “insured.” According to Angela, under this scenario, Discovery would have a duty to defend her in the underlying action. The Court of Appeals of North Carolina disagreed. First, it emphasized that, regardless of the exclusion, liability coverage was provided only for the “insured.” Even if Virginia were found by the court to be the “renter,” she did not fit the definition of “insured” set forth in the Discovery policy because she was not Angela’s blood relative nor did she live in Angela’s household. Thus, even as the “renter” she would not be covered.

Angela also argued that even though part A of the Discovery policy excluded coverage for rented property, Part D provided coverage. Part D provided, in relevant part, “We will pay for direct and accidental loss to your covered auto or any non-owned auto …” Angela argued that the rented vehicle was a “non-owned auto” and that Discovery had a duty to defend her under Part D. Again, the court disagreed. It reasoned that coverage for “non-owned automobiles” is intended to provide coverage to a driver for occasional or infrequent driving of an automobile other than his or her own. To be a “non-owned” automobile, it must be in the “immediate charge” or “control” of the insured. In this case, Virginia, not Angela, had “immediate charge” or “control” of the car. Thus, Part D did not apply.

The court held that the trial court correctly held that Discovery was not required to provide coverage to Angela or defend her in the Enterprise lawsuit.

The decision of the lower court was affirmed.

Enterprise Leasing Company Southeast vs. Williams-No. COA05-865-Court of Appeals of North Carolina-April 4, 2006-627 South Eastern Reporter 2d 495.

Insurer appeals post-judgment interest

This case involved the payment of post-judgment interest by an insurance provider that did not defend its insured in an automobile accident lawsuit. The 1997 accident involved Robert Beckner, who at the time held an automobile insurance policy issued by American Family Mutual Insurance Company. The policy had bodily injury liability limits of $100,000 per person and $300,000 per occurrence. At the time of the accident, American Family denied coverage.

In 1999, Eugene Ginther, Mary Ginther, James Clay and Imogene Clay all sued Beckner for personal injuries and damages sustained in the 1997 accident. American Family did not defend Beckner in the lawsuit. The Ginthers and the Clays obtained a judgment against Beckner of $100,000. Seeking to enforce this judgment, they named American Family as garnishee-defendant in a supplemental motion. American Family filed a motion to dismiss; the trial court denied the motion.

In 2001, American Family filed a motion in the supplemental proceedings arguing that the pickup truck driven by Beckner at the time of the accident was not an insured vehicle, presumably because Beckner had purchased the truck on the same day as the accident. American Family also argued that because Beckner had in earlier proceedings claimed that he was an uninsured motorist, he should not be able to later claim he was an insured motorist. The trial court disagreed with American Family and held that the pickup truck was an insured vehicle. The Court of Appeals of Indiana affirmed the trial court’s decision.

American Family tendered $100,000 to the trial court, then asked the trial court for an order discharging it from its contractual obligations to Beckner. The Ginthers and the Clays then asked the trial court to order American Family to pay $38,000 in post-judgment interest. The American Family policy contained a section on “Additional Payments.” It provided that American Family would pay, “in addition to our limit of liability” .… [i]nterest on damages awarded in any suit we defend.” The section further provided that the interest must accrue after judgment is entered and before American Family had paid, offered to pay, or deposited in court that portion of the judgment which was not more than its limit of liability. The trial court ordered American Family to pay the post-judgment interest; American Family appealed.

On appeal, American Family argued that it was not liable for post-judgment interest because it did not defend Beckner in the suit in which the Ginthers and the Clays obtained the judgment. The Court of Appeals of Indiana found that the policy clearly required American Family to pay compensatory damages that Beckner was legally liable to pay. The court also stated that the obligation to pay post-judgment interest was part and parcel of the obligation to pay a money judgment. Pursuant to Indiana statutory law, Beckner was responsible for post-judgment interest at an annual rate of 8%, going back to January 31, 2000. American Family was required to pay the interest because it was a component of the $100,000 compensatory damages award.

Furthermore, the court found that the “Additional Payments” section of the policy did not come into play under the facts of the case. The phrase “in addition to our limit of liability” did not apply because the liability limits were not reached. Therefore, it was not necessary to read further.

In addition, the court found that the fact that American Family did not defend Beckner had no bearing on its liability for post-judgment interest.

The judgment of the trial court was affirmed.

American Family Mutual Insurance Company vs. Ginther-No. 71A03-0508-CV-367-Court of Appeals of Indiana-March 13, 2006-843 North Eastern Reporter 2d 575. *

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