Insurance-Related Court Cases 11/06


Table of Contents

INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Did exclusive agent act as “broker”?

In October 1999, Brandon Windom, a minor, broke his femur while he was participating in a football practice with the Capital Trail Football League, a football program for minors. At the time of the accident, the League did not have commercial liability insurance. Prior to the date of the accident, and back to 1986, the League had been covered by an insurance policy issued by Nationwide Insurance Company and procured through Nationwide agent Michael T. Alpaugh. On May 25, 1999, Nationwide informed Alpaugh and the League’s president, Chris Verucci, that it would not renew the League’s policy when it expired on September 1, 1999. Alpaugh told Verucci he could not procure alternative coverage because he dealt exclusively with Nationwide. However, he said he would “check around” to try to find a general agent to help Verucci. Shortly after his conversation with Verucci, Alpaugh ran into William Ungerer at a local bank. He knew Ungerer ran a general insurance agency, so he told Ungerer about the League’s need for new insurance. Ungerer sent Verucci a proposal for comprehensive general liability insurance, and Verucci orally accepted the proposal.

Verucci and the League’s treasurer met with Alpaugh on September 29. They signed the insurance application and gave Alpaugh a $600 initial premium payment to be delivered to Ungerer. Alpaugh again stressed his exclusive relationship with Nationwide, noted that the application was being placed through Ungerer’s agency, and explained that any questions were to be directed to Ungerer. He then delivered the application and payment to Ungerer. Ungerer gave Alpaugh a temporary certificate of insurance from Pawtucket Mutual Insurance Company to give to the League. The certificate was dated September 29, 1999, and it listed the policy number as “Pending/Binder.”

On October 7, 1999, Ungerer received a fax from Pawtucket indicating that it would not issue the policy. He also received a letter, five days later, declining to issue the policy and returning the $600 premium payment. According to Ungerer, he then mailed the uncashed check and a letter to the League’s property address listed on the application for insurance. (The League’s mailing address was also listed in the application.) The League claimed that it never received the letter and that, as a result, it had no reason to believe it did not have insurance on the date of Windom’s accident.

Windom filed a complaint against the League, Ungerer, Alpaugh, and Pawtucket. When the League failed to defend itself against his complaint, a default judgment was entered against it. The League then assigned its rights, if any, under the Pawtucket insurance policy to Windom. Windom then claimed that Alpaugh and Ungerer were negligent. The lower court found in favor of both Alpaugh and Ungerer. Windom appealed.

On appeal, Windom argued that Alpaugh had a duty to notify the League that Pawtucket had denied coverage because he had acted as a “broker” when he contacted Ungerer on behalf of the League. The Supreme Court of Delaware disagreed. The Delaware Insurance Code defines “broker” as “a licensee who, for compensation, negotiates on behalf of others contracts of insurance from companies to whom he or she is not appointed.” The court found that because Alpaugh did not solicit Pawtucket, negotiate with Pawtucket, prepare the League’s application, or receive any compensation, he acted as a “messenger” between Ungerer and the League. Furthermore, the insurance certificate listed Ungerer Insurance Agency as the producer. Alpaugh told the League he was exclusively working for Nationwide and he explained that questions needed to be directed to Ungerer. Thus, Alpaugh was not a “broker,” and he did not owe a duty to the League to notify it of Pawtucket’s decision not to issue the policy.

Windom also claimed that there was an issue of fact regarding whether or not Ungerer sent a letter informing the League that Pawtucket was not issuing the policy. If there was still an issue of fact, a jury needed to make that determination, not the lower court. The Supreme Court agreed with Windom on this issue. The law generally requires that notice be actually received in order to be effective. However, it is presumed that a mailed letter, correctly addressed, stamped, and mailed, is received by the party to whom it was sent. In this case, however, Ungerer sent the letter to the League’s property address, not the mailing address provided in the application. In addition, the League claimed it never received the letter. Under these circumstances, the presumption of receipt did not apply, and there was an issue of fact to be decided by a jury. Therefore the decision of the lower court in favor of Ungerer was reversed.

The lower court’s judgment in favor of Alpaugh was affirmed. The court’s judgment in favor of Ungerer was reversed, and the case was remanded for trial.

Windom vs. Ungerer- No. 590, 2005-Supreme Court of Delaware-June 15, 2006-903 Atlantic Reporter 2d 276.

Harley test driver crashes, claims dealer owes coverage

George Heibel was test driving a motorcycle owned by Harley Davidson of Edison when he lost control of the motorcycle and crashed. The estimated cost of parts and labor to repair the damaged motorcycle was $3,815.25. Harley’s insurance carrier, Universal Underwriters Group, paid Harley $2,567.61 in settlement of Harley’s property damage claim. Universal then sued Heibel for the amount paid to Harley as well as $1,247.64, the amount representing Harley’s deductible under the policy. Heibel countersued, seeking a declaration from the court that, as a permitted user of the motorcycle, he was entitled to coverage under Harley’s Universal policy, and that Harley could not sue Heibel as a subrogee of Harley. The lower court found in favor of Universal. Heibel appealed.

On appeal, Heibel argued he was covered under the express terms of the Harley policy because he was an “insured” as defined by the policy. Section 500 of the policy covered “OCCURRENCE[S] arising out of GARAGE OPERATIONS or AUTO HAZARD.” It obligated Universal to pay “all sums [that Harley] must pay as DAMAGES . . . because of INJURY to which this insurance applies.” The relevant portions of Section 500 of the policy defined an insured as “(2) Any of YOUR partners, paid employees, directors, stockholders, executive officers, a member of their household or a member of YOUR household, while using an AUTO covered by the Coverage Part, or when legally responsible for its use. The actual use of the AUTO must be by YOU or within the scope of YOUR permission; (4) Any other person or organization required by law to be an INSURED while using an AUTO covered by this Coverage Part within the scope of your permission.”

Heibel argued that under subsection (2) he was an insured because he was given permission to drive the motorcycle. He also argued that subsection (4) required Harley to have the vehicle insured for his benefit while he was test driving it on the roadways. The Superior Court of New Jersey disagreed. It found that the clear language of the policy obligated it to pay Harley for claims made by third parties, and that the policy did not apply to Heibel’s claim.

Section 300 of the policy was not limited to third-party claims, and it included loss of or to an insured vehicle. An “insured” in Section 300 was defined as “(1) YOU; (2) YOUR partners, paid employees, directors, executive officers, and stockholders while acting within the scope of their duties as such with respect to a CUSTOMER’S AUTO.” The court found that Heibel clearly did not fall within the definition of “who is an insured” under Section 300. The court concluded that the policy language did not support a finding that Heibel was entitled to coverage.

Having found no express policy language supporting Heibel’s argument, the court evaluated whether any public policy supported a finding that Universal was obligated to cover Heibel. It stated that the purpose of New Jersey’s compulsory motor vehicle insurance statute was to ensure at least some financial protection for innocent accident victims. However, there was no statutory provision requiring a dealer’s insurer to indemnify a permitted user for damages to the dealer’s own motor vehicle.

The court then evaluated Heibel’s argument that Universal could not sue him as Harley’s subrogee. It found that Universal’s policy expressly indicated that once it made payment under the policy, its insured’s rights became its rights.

Finally, Heibel argued that the lower court erred when it found him liable for negligence. He argued that liability was a factual issue to be decided during a trial. The court agreed. The State Police report had indicated that there was loose gravel at the location of the accident. Because of that, a jury might find that Heibel was not negligent if he was otherwise driving carefully.

In conclusion, the court found that Heibel was not an “insured” under the Universal policy, and that public policy did not require that he be covered under the policy. In addition, because Heibel was not covered under the policy, Universal could sue him as subrogee. Finally, the court found that the lower court erred in finding Heibel liable for the motorcycle accident before the case went to trial.

The decision was affirmed in part and reversed and remanded in part.

Universal Underwriters Group vs. Heibel-Superior Court of New Jersey, Appellate Division-June 20, 2006-901 Atlantic Reporter 2d 398.

Dog bite triggers coverage dispute

New Jersey Manufacturers Insurance Company issued a homeowners policy to Linda and Joseph Brady. The policy contained a business pursuits exclusion that excluded liability coverage for bodily injury or property damage “arising out of or in connection with a business engaged in by an insured.” This exclusion applied to all insureds, notwithstanding the policy’s “severability of insurance” clause, which provided: “[T]his insurance applies separately to each insured.”

Linda Brady was hired by Linda Argent to care for Argent’s infant son, Vincent, in the Brady home. While in Linda Brady’s care, Vincent was bitten in the face by a dog. The dog ostensibly belonged to the Bradys’ son, Michael, who lived with them. When Argent sued the family, the Bradys sought a defense and indemnification under the homeowners policy. New Jersey Manufacturers denied coverage, citing the business pursuits exclusion. The Bradys then filed a declaratory judgment action, seeking a finding that New Jersey Manufacturers owed them coverage. Michael Brady also filed a claim. The court found that there was an issue of fact as to whether Linda Brady was operating a business on the premises. The Bradys also denied ownership of the dog. Nevertheless, the lower court evaluated the coverage issue as if Linda Brady were operating a business and the dog was owned by Michael Brady. It found that Michael Brady was “an insured” and that the severability clause of the policy operated to remove him from the business pursuits exclusion. New Jersey Manufacturers appealed this decision.

The appeal was heard by the Superior Court of New Jersey, Appellate Division. The court noted that the business pursuits provision excluded coverage for injury arising out of or in connection with a business engaged in by “an” insured, not “the” insured. In addition, the business pursuits exclusion did not make specific reference to the severability clause. The issue, then, was whether New Jersey Manufacturers’ failure to use “any” rather than “an” in the business pursuits exclusion, or its failure to specifically reference the severability clause in connection with the business pursuits exclusion, resulted in an ambiguity that necessitated a finding of coverage for the Bradys.

The court found that New Jersey Manufacturers’ use of the phrase “an insured” as opposed to “any insured” or “the insured” did not create an ambiguity, and that it could be reasonably understood to include Linda, Joseph, or Michael Brady. The court also found that the policy’s severability clause (or the absence of a disclaimer of the applicability of that clause) did not render the homeowners coverage ambiguous. While it might have been preferable if the severability clause had followed the business pursuits exclusion, its absence did not create an ambiguity. The court found “no principled reason to afford coverage” to the Bradys. It noted that business risk insurance was available to Linda Brady, and that Brady did not choose to purchase it when she decided to accept the job of caring for Vincent Argent. Instead she had a policy that excluded business risks. The court also noted that Michael Brady was not “an innocent co-insured.” If found to be the owner of the dog, he would be responsible for the dog’s aggressive conduct. Weighing all of these factors, the court found that New Jersey Manufacturers did not owe coverage to Michael Brady.

The decision of the lower court was reversed.

Argent vs. Brady vs. New Jersey Manufacturers Insurance Company-Superior Court of New Jersey, Appellate Division-June 27, 2006-901 Atlantic Reporter 2d 419.

Is auto rental firm liable for a third party’s injuries?

Goc Ono leased a vehicle from Enterprise Leasing Company. While driving the rental vehicle, he negligently injured Jeffery Hall. Ono had his own insurance policy with individual third-party liability limits of $100,000 per person. Enterprise provided insurance as required by Nevada’s minimum automobile liability insurance laws.

Hall sued both Ono and Enterprise, but he later dropped the lawsuit against Enterprise. He accepted an offer of judgment from Ono for $100,000, the limit of Ono’s personal coverage. Claiming his injuries exceeded that amount, he then filed a claim against Enterprise for the additional $15,000 of minimum coverage mandated by the law. The district court dismissed the case, claiming that the statute of limitations for the claim had expired. Hall appealed. The Supreme Court of Nevada disagreed with the district court that the statute of limitations had expired. It accepted the case, however, and asked the parties to address the issue of whether Hall’s acceptance of Ono’s offer extinguished Ono’s legal liability to Hall, thus ending Enterprise’s obligation to pay Hall benefits on Ono’s behalf.

Nevada’s short-term vehicle rental statutes require that short-term lessors provide minimum third-party liability coverage for the operation of rental vehicles. Nevada case law mandates dual or “stacked” coverage when the short-term lessee is insured under a personal automobile liability policy, when the short-term lessor has provided statutory coverage, and when the damages exceed the lessee’s personal insurance limits. Case law also requires the lessor to “step in and compensate the victim up to the minimum limits” when the lessee has no personal policy.

On appeal, Enterprise argued that the existence of minimum insurance provided by Ono should absolve Enterprise of any obligation to pay Hall. The Supreme Court of Nevada disagreed. The Nevada statutes require short-term lessors to provide evidence of minimum coverage on rental vehicles as a condition of Department of Motor Vehicle registration. This coverage must also cover short-term lessees in order for the lessor to avoid liability to an injured third party caused by the lessee. Nothing in the statutes, however, requires the lessor to ensure that the lessee has his or her own insurance. Nothing excuses the lessor’s coverage when the lessee has sufficient coverage, and nothing releases the lessor’s responsibility to provide insurance when the lessor is separately insured. The statutory coverage remains in place regardless of the existence of separate coverage.

Having reaffirmed Nevada case law, the court then addressed the substantive question of whether Enterprise was liable for Hall’s injuries. The court found it was not. Because Enterprise met the statutory requirement for obtaining its own minimum third-party liability coverage, it successfully avoided liability stemming from any accident involving the short-term lessee. Assuming Ono did not waive the coverage, Enterprise’s obligation to pay was conditioned upon Ono’s legal liability to pay Hall. Enterprise itself was not directly liable. Because Ono’s liability had been entirely resolved when Hall accepted the $100,000 offer of judgment, Enterprise was immunized from having to pay Hall additional compensation as a secondary insurer.

The decision of the district court was affirmed.

Hall vs. Enterprise Leasing Company-No. 42493-Supreme Court of Nevada-July 13, 2006-137 Pacific Reporter 3d 1104. *