INSURANCE-RELATED COURT CASES
Court Decisions
Digested from case reports published in Westlaw,
West Publishing Co., St. Paul, MN
Is seller’s insurer liable for damage to buyer’s roof?
On March 25, 2005, Marc and Wendy Martin agreed to purchase a house from Louis and Susan Matusiak. The closing date for the purchase was May 17, 2005. On April 9, 2005, a professional home inspector detected no hail damage to the roof of the house. On April 22, 2005, a hailstorm caused damage to the roof; however, neither the buyers nor the sellers were aware of this fact.
After moving into the house, the Martins learned that some of their neighbors’ houses had suffered hail damage, and they were having their roofs replaced. The Martins contacted the Matusiaks, who assured them that they would follow up with a claim to their insurer, American Family Mutual Insurance Company. The Martins received two estimates for repair of their roof, but American Family denied the Matusiaks’ claim. Among other things, the insurer claimed the Matusiaks had not suffered a loss from the hailstorm. The Matusiaks filed a lawsuit against American Family, alleging breach of contract and bad faith. The trial court ordered American Family to pay the Matusiaks $8,643, the amount they had cited as damages. American Family appealed.
On appeal, American Family argued that the Matusiaks suffered no loss because they had sold their house to the Martins for the agreed-upon price. The Court of Appeals of Indiana disagreed. In reaching its decision, the court noted that the American Family policy provided for both actual cash value and replacement cost coverage. The Matusiaks did not qualify for replacement cost coverage under the terms of the policy. However, they could qualify for actual cash value coverage if they could show that they had been made “unwhole” such that a cash value settlement would place them in the same position they had occupied prior to the hailstorm.
The evidence revealed that Louis Matusiak had promised to pay the Martins the amount necessary to repair the roof, and that he had promised to give any insurance proceeds to the Martins. While this was not technically a binding contract, the court was convinced that this promise made the Matusiaks “unwhole” so that, absent payment from American Family, they would not occupy the same position they would have occupied had it not been for the hailstorm. Thus the court found that the Matusiaks had established an actual cash value loss, and that American Family breached its insurance contract with them when it denied their claim.
The court then addressed the issue of damages. It found that more evidence was necessary to calculate the appropriate amount to be awarded to the Matusiaks. It therefore remanded the case to the lower court for calculation of damages.
The decision of the lower court in favor of the Matusiaks for breach of contract was affirmed, and the case was remanded to the trial court to determine appropriate damages.
American Family Mutual Insurance Company vs. Matusiak-No. 49A02-0704-CV-361-Court of Appeals of Indiana-December 31, 2007-878 North Eastern Reporter 2d 529.
Is property manager an additional insured?
CVS, Inc., owned one building and rented another, both in the town of Pawtucket, Rhode Island. On December 31, 1998, and January 3, 1999, both buildings suffered property damage when pipes in the buildings froze and split. The real estate manager for both buildings at the time was Metro Properties, Inc. Metro’s insurer was Travelers Property Casualty Company of America. CVS’s insurer was National Union Fire Insurance Company of Pittsburgh, Pennsylvania.
CVS filed a negligence lawsuit against Metro, seeking damages of over $1.5 million. Metro then filed a complaint seeking a declaratory judgment that, as CVS’s real estate manager, it was an insured under CVS’s National Union insurance policy. National Union filed a counterclaim seeking a declaration that Metro was not covered under the policy. National Union also asked the court to find that, if Metro was entitled to coverage, Metro must also have a self-insured retention of $250,000. The lower court found in favor of Metro with regard to the coverage issue and in favor of National Union on the issue of the $250,000 self-insured retention. National Union appealed.
After disregarding a procedural issue raised by Metro, the Supreme Court of Rhode Island first addressed the key issue of the case: whether Metro was entitled to coverage under the National Union policy. National Union argued that the policy contained an “own, rent, or occupy” exclusion that excluded Metro from coverage. Specifically, National Union cited the following policy language:
“SECTION 1-COVERAGES
COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.
2. Exclusions
This insurance does not apply to:
* * *
j. Damage to Property
‘Property damage’ to:
(1) Property you own, rent, or occupy.”
The court found that Metro was an additional unnamed insured under the policy. It then stressed the importance of reading the policy as a whole. While the court acknowledged that the “own, rent, or occupy” exclusion arguably applied, it noted that the policy also contained a cross-liability provision. That provision read: “In the event of claims being made by reason of Bodily Injury, Personal Injury, and/or Property Damage suffered by one Insured covered by this policy for which another Insured covered herein is or may be liable, this policy shall cover such Insured against whom a claim is made or may be made in the same manner as if separate policies had been issued to each Insured covered herein. Nothing stated above shall operate to increase the Company’s Limit of Liability.”
Analyzing the “own, rent, or occupy” exclusion in conjunction with the cross-liability provision, the court concluded that Metro did not fall within the exclusion. The court found that National Union was obligated to provide coverage under the CVS policy, subject to the $250,000 self-insured retention.
The judgment of the lower court was affirmed.
Metro Properties, Inc., vs. National Union Fire Insurance Company of Pittsburgh, Pa.-No. 2006-296-Appeal-Supreme Court of Rhode Island-November 7, 2007-934 Atlantic Reporter 2d 204.
Trucker asserts omnibus insured status
On May 1, 2001, Upper Plains Contracting, Inc. (UPCI), and Chad Loebs, the owner of Loebs Trucking (Loebs), entered into a trucking agreement whereby Loebs agreed to pull UPCI-owned trailers for the construction season. Pursuant to the trucking agreement, Loebs was required to provide proof of insurance. Loebs signed and dated the trucking agreement.
On October 2, 2001, Chad Loebs was using his tractor to pull a trailer at a construction site. Upper Plains employee Michael Fetzer was leveling cement when Loebs’ tractor struck the tool Fetzer was using, causing Fetzer to fall under the wheel well of the trailer.
At the time of the accident, Loebs was insured under a Northland Insurance Company commercial insurance policy. The trailer, owned by Upper Plains, was insured by Zurich American Insurance Company. Loebs’ Northland policy insured the 1987 Peterbuilt tractor as a covered “auto” under the policy. UPCI’s Zurich policy insured the trailer as a covered “auto” under the policy.
When Fetzer sued Loebs, Loebs tendered defense of the action to Northland. Northland tendered the defense to Zurich, arguing that the Zurich policy provided primary coverage. When Zurich refused to provide a defense, Loebs and Northland filed a declaratory judgment action asking the court to decide which policy should provide primary coverage.
The lower court found in favor of Zurich, holding that the policy’s employers liability exclusion precluded any coverage by Zurich and that the Northland policy provided primary coverage. Northland appealed.
On appeal, the Supreme Court of South Dakota found that Loebs was an omnibus insured under the Zurich policy and that Loebs therefore was entitled to the same amount of coverage as Upper Plains. The court then addressed the question of whether coverage was excluded by the Zurich policy’s employers liability exclusion. The applicable policy language provided: “B. Exclusions. This insurance does not apply to any of the following: 4. Employee Indemnification and Employer’s Liability ‘bodily injury’ to: a. An ‘employee’ of the ‘insured’ arising out of and in the course of: (1) Employment by the ‘insured’; or (2) Performing the duties related to the conduct of the ‘insured’s’ business …” The policy defined “insured” as “any person or organization qualifying as an insured in the Who Is An Insured provision of the applicable coverage.” The policy also contained a severability clause that provided: “Except with respect to the limit of insurance, the coverage afforded applies separately to each insured who is seeking coverage or against whom a claim or ‘suit’ is brought.”
Northland argued that the employers liability exclusion in the Zurich policy applied only to the employer of the employee who was asserting the claim and that, accordingly, because Fetzer was an employee of Upper Plains and not of Loebs, the exclusion did not apply to Loebs. The court disagreed. It found that the exclusion clearly applied to an “insured” as defined by the policy; specifically, the named insured (employer) and a permissive additional insured (omnibus insured). Since Loebs was an omnibus insured, the exclusion applied.
In addition, Northland argued that the severability provision of the Zurich policy rendered the employers liability exclusion inapplicable to Loebs. Again, the court disagreed. It noted that South Dakota law supported a finding that an omnibus insured was not entitled to any greater liability coverage than the named insured even if there was a severability clause in the policy. In other words, the Zurich policy did not entitle the tractor owner to greater coverage than the trailer owner.
The decision of the lower court was affirmed.
Northland Insurance Company vs. Zurich American Insurance Company-No. 24423-Supreme Court of South Dakota-December 12, 2007-743 North Western Reporter 2d 145.
Joint owner alleges misappropriation of work
In 1987, Jeannette Nicholson of Career Assessment Atlanta, Inc., entered into a written agreement with Sales Management Training Institute of Atlanta, Inc. (SMT), to develop career assessment tools. As part of the agreement, Nicholson was to develop an “Interest Inventory” to be included in an SMT publication called “Career Direction.” Under the agreement, SMT was to retain ownership rights in all work created thereunder by Nicholson.
Later, in 1993, SMT and Nicholson orally agreed that Nicholson would develop another “Interest Inventory” to be included in a new publication called “Future Focus.” The parties later disagreed as to how Nicholson was to be compensated for this work. SMT, which was later succeeded by a company called Career Training Concepts, Inc. (CTC), argued that the work was governed by the 1987 agreement. Nicholson argued that the 1987 agreement covered only work created for the “Career Direction” publication. She later sued CTC Chief Executive Officer James C. Shafe, SMT and CTC in federal district court. SMT and later CTC were covered by several commercial general liability policies issued by American States Insurance Company. American States provided them with a defense.
On May 18, 2005, the federal district court found that Future Focus represented a joint work between SMT/CTC and Nicholson, and that the parties were co-owners of that material. The effect was that Nicholson no longer had a federal claim. She then filed suit against SMT/CTC in a state court. SMT/CTC tendered this claim to American States. American States denied coverage and filed an action seeking a declaratory judgment as to its obligations under the insurance contract. The trial court granted summary judgment in favor of American States; SMT/CTC appealed.
SMT and CTC argued that American States was obligated to provide a defense under the policy for claims resulting from “personal and advertising injury.” The policy defined personal and advertising injury as injury resulting from the “[m]isappro-priation of advertising ideas or style of doing business” or “arising out of … [t]he use of another’s advertising idea in your ‘advertisement.’” The policy defined “advertisement,” in relevant part, as “a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.”
On appeal, the Court of Appeals of Georgia found that the nature of the claims asserted by Nicholson was outside the scope of coverage under the policy. There was no allegation of misappropriation of an idea or style of business belonging to Nicholson. Rather, the facts supported a finding that Nicholson and SMT/CTC were co-owners of the publication “Future Focus,” and that all of Nicholson’s claims were from one business partner to another.
Nevertheless, SMT/CTC argued that they had notified American States of additional facts regarding the true nature of the business dealings that would have placed the claim within the scope of policy coverage. Specifically, they claimed that they had notified the insurer that they did not make money directly from the sale of “Future Focus,” but that the benefit was in marketing their services.
The court did not find this argument convincing. It stated: “What the insureds’ argument fails to recognize is that the mere use of another’s material in their advertising does not invoke coverage; rather, there must be an allegation that the insureds’ use of such material was wrongful—i.e., that they were not otherwise entitled to use the same.” The key question was whether Nicholson’s complaint alleged that the insureds misappropriated that work. Because the federal court found that “Future Focus” was a joint work, and that Nicholson could not assert a copyright infringement claim against the insureds for their use of that material, Nicholson could not assert that the insureds misappropriated her work.
The decision of the trial court was affirmed.
Shafe vs. American States Insurance Company-No. A07A0879-Court of Appeals of Georgia-November 8, 2007-653 South Eastern Reporter 2d 870.