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Court Decisions

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


Insurer denies liability in rental truck accident

In June 2004, Jeffrey Harrison rented a truck from Enterprise Leasing Company of Indianapolis to drive from Indiana to Virginia. Harrison owned his own truck, but he didn’t want to take it on such a long trip. His truck was insured by Safe Auto Insurance Company.

The Enterprise rental agreement contained the following provision: “Responsibility to Third Parties. Owner complies with applicable motor vehicle financial responsibility laws as to a state certified self-insurer, bondholder, or cash depositor. Except to the extent required by the motor vehicle financial responsibility laws of the applicable state or otherwise by law, Owner does not extend any of its motor vehicle financial responsibility or provide coverage to Renter, Additional Authorized Driver(s), passengers or third parties through this Agreement. If valid automobile liability insurance…is available on any basis to Renter…and such insurance satisfies the applicable state motor vehicle financial responsibility law, the Owner extends none of its motor vehicle financial responsibility.”

When Harrison signed the Enterprise rental agreement, he declined to purchase “Supplemental Liability Protection.” While he was in Virginia he was involved in a motor vehicle accident. The injured party filed a complaint in a Virginia court. Safe Auto defended Harrison, but under a reservation of rights. The case was settled for $25,000, the coverage limit under Harrison’s Safe Auto policy. Safe Auto then filed a declaratory judgment action in an Indiana court, asking the court to determine that there was no coverage under the Safe Auto policy, and that Safe Auto had no duty to defend Harrison. Enterprise filed a motion for summary judgment in the declaratory judgment action, arguing that the Safe Auto policy provided primary coverage. Safe Auto argued that Harrison was not driving a covered vehicle within the meaning of the policy. The trial court found in favor of Enterprise. Safe Auto appealed.

On appeal, Safe Auto cited the following policy language as relevant: “We will provide liability coverage for any auto you rent from a car rental agency or garage, ONLY while your covered auto is being serviced or repaired, or it if has been stolen or destroyed. PLEASE NOTE THAT NO COVERAGE IS AFFORDED TO VEHICLES RENTED FOR REASONS OTHER THAN THOSE STATED ABOVE. Any liability coverage we provide with respect to an auto you do not own or lease shall be excess over and above any other collectible insurance covering the auto you are driving.”

During the trial, Harrison admitted that the reason he rented the truck from Enterprise was that his own truck “wasn’t trustworthy enough to go all the way out [to Virginia],” and he “wanted to take [his] motorcycle.” Based on this testimony, the court found that there was no coverage under the Safe Auto policy because the truck was not being serviced or repaired, nor had it been stolen or destroyed.

Enterprise argued, however, that the Safe Auto provision conflicted with an Indiana statute that provided: “When a claim arises from the operation of a motor vehicle leased under a written lease agreement, if under the agreement the lessee agrees to provide coverage for damage resulting from his operation of the vehicle, then the motor vehicle insurance coverage of the lessee is primary. No claim may be made against any coverage available for the vehicle by the lessor until the limits of the motor vehicle insurance coverage provided by the lessee for the vehicle are exhausted.” According to Enterprise, the Indiana General Assembly “logically intended this [statute] to be the statutory embodiment of an important policy rule; namely, that the lessee will supply liability coverage through the lessee’s personal automobile insurance policy when renting a vehicle.”

The Court of Appeals of Indiana disagreed with Enterprise and found in favor of Safe Auto. In reaching its decision, the court noted that the statute cited by Enterprise simply set forth a rule to determine which policy provided primary coverage. It also noted that the Safe Auto policy language did not conflict with the plain language of the statute. Finally, the court stressed that insureds have a duty to read and know the content of their insurance policies. Harrison knew he could not expect his Safe Auto policy to provide coverage, yet he did not purchase supplemental coverage.

The court concluded that the trial court erred when it found in favor of Enterprise. The decision was reversed and remanded to the trial court.

Safe Auto Insurance Company vs. Enterprise Leasing Company of Indianapolis, Inc.-No. 01A02-0712-CV-1120-Court of Appeals of Indiana-July 2, 2008-889 North Eastern Reporter 2d 392.

Landslide isn’t “construction defect”

Jim Roberts and Elisa Le purchased a plot of land on a steep slope in Anaheim, California. They planned to build a home there. Chase Manhattan Bank, their lender, required that they purchase course of construction insurance (also known as builders risk insurance), so they met with their insurance brokers, Linda A. Lee and Ling Jing Feng of Jubilee Insurance Services, to purchase the insurance. Jubilee procured the coverage from Assurance Company of America.

Beginning in September 2002, Assurance issued two consecutive annual builders risk policies. In October 2004, it issued an unsold dwelling policy. Under the terms of the builders risk policies, Assurance was obligated to pay “for direct physical loss to Covered Property from any Covered Loss described in this Coverage Form.” The unsold dwelling policy provided first-party property coverage for the property until it was sold or occupied and obligated Assurance to pay for “direct physical loss to Covered Property from a Covered Cause of Loss described in this Coverage Form.”

Construction of the home began in 2002. In September 2004, Roberts and Le noticed cracks in the foundation of the house and in a nearby retaining wall. The cracks worsened over the next few months. In February 2005, a landslide occurred, and the home was severely damaged. The home was eventually condemned by the City of Anaheim and demolished.

Roberts and Le filed a claim with Assurance under the 2003-2004 builders risk policy using September 1, 2004, as the date of the loss. They claimed that the house next door to theirs was “built with overloaded slope resulting in slope failure.” Assurance denied the claim, citing several policy exclusions. Roberts and Le then sued the owners of the neighboring property and their contractors; those parties filed cross-complaints against Roberts and Le. Roberts and Le sought defense and indemnification of the cross-claims under the Assurance policy, but Assurance advised them that the policy did not provide third-party liability coverage. Roberts and Le then sued Jubilee and Assurance, claiming that they had requested but had not received general liability insurance.

The lower court found in favor of Jubilee and Assurance; Roberts and Le appealed.

On appeal, Jubilee argued that Roberts and Le had requested only course of construction insurance (which provides only first-party coverage) and that it, therefore, could not be held liable for not obtaining general liability insurance. Roberts and Le argued that they “reasonably believed and understood that they had procured both third-party liability and first-party construction property coverages” because Jubilee had sent them additional explanations, after the original quote was sent, that described third-party liability coverage.

The Court of Appeal, Fourth District, Division 3, California, was not convinced by Roberts’ arguments. The court found that the lower court correctly found that the undisputed facts showed that Roberts and Le never requested liability insurance. The court noted that Lee’s testimony explained why builders risk and general liability limits are separately set forth, and that the policies themselves are separate. The court also noted that Roberts admitted he never asked for general liability insurance and that his “undisclosed intent [did] not carry the day.” The court concluded that the lower court did not err by deciding in favor of Jubilee.

The court then addressed the claims against Assurance. On appeal, Roberts, the sole insured under the Assurance policy, argued that Assurance incorrectly decided that the cause of the loss was earth movement rather than the developer’s concealment of an ancient landslide. According to Roberts, by determining that the cause was earth movement, Assurance could cite a policy exclusion rather than considering “collapse coverage” under the policy. Again, the Court of Appeal was not convinced by Roberts’ arguments. According to the court, after an almost year-long investigation, Assurance’s expert geotechnical engineer concluded that the damage to the property “was the result of the movement of an ancient landslide…below the propert[y], which was activated by the placement of the fill soil placed on the [adjoining] lot and on the Roberts lot during grading of those lots prior to construction, in combination with heavy rains…” The court concluded that Assurance met its burden of proof that the claim was barred under the earth movement exclusion. The court also found that concealment by the developer was “not a separate cause for the loss, but merely a separate explanation for the single cause of the loss, i.e., earth movement.”

The decision of the lower court in favor of Jubilee and Assurance was affirmed.

Roberts vs. Assurance Company of America-No. G038749-Court of Appeal, Fourth District, Division 3, California-May 30, 2008-78 California Reporter 3d 361.

Court considers primary-excess dispute

In January 2004, Debra Boboruzian was driving her minivan on the highway when it lost power and stalled. Michael Laux, who was driving a tractor-trailer, collided with the minivan, killing Debra’s 8-year-old son and severely injuring Debra. Debra filed suit against Laux, who owned the tractor involved in the accident. She also sued Quickway Express, Inc., the organization that had hired Laux to drive the trailer. The trailer was owned by The Kroger Company.

Kroger had business auto insurance with Old Republic Insurance Company with a $5 million per-occurrence limit. The policy had an “Other Insurance” section providing that the liability coverage for the trailer was excess while the trailer was connected to a motor vehicle not owned by the insured, and that the coverage was primary while the trailer was connected to a covered vehicle owned by the insured.

Quickway had four different policies issued by three different insurers: RLI Insurance Company, the Insurance Company of the State of Pennsylvania (ISOP), and First Specialty Insurance Corporation. There were two RLI policies: a commercial auto policy with a $1 million limit and a $100,000 deductible, and an excess liability policy with a per-occurrence limit of $2 million. The ISOP policy was a commercial umbrella policy with a per-occurrence limit of $1 million. The First Specialty policy was an excess liability policy with a $1 million per-occurrence limit, applying only “in excess of the limits of ‘Underlying Insurance.’”

Old Republic filed a declaratory judgment asking an Indiana court to determine which insurance coverage had priority. The court found that the Old Republic policy was the primary policy and that it provided excess coverage only by operation of the policy’s “Other Insurance” provision. The court also found that the RLI excess policy, the ISOP policy, and the First Specialty policy were the true excess or umbrella policies. Old Republic appealed.

On appeal, Old Republic argued that Indiana’s Lease Statute applied to determine the priority of insurance coverage and that the Old Republic policy was last in priority. The Lease Statute provided: “(a) When a claim arises from the operation of a motor vehicle leased under a written lease agreement, if under the agreement the lessee agrees to provide coverage for damage resulting from his operation of the vehicle, then the motor vehicle insurance coverage of the lessee is primary. No claim may be made against any coverage available for the vehicle by the lessor until the limits of the motor vehicle insurance coverage provided by the lessee for the vehicle are exhausted. (b) When a claim arises from the operation of a motor vehicle that is used in the business of transporting property for hire and leased under a written lease agreement, if under the agreement the lessor and lessee agree as to which coverage of the parties’ motor vehicle insurance is primary coverage, then the policy of insurance providing that coverage is primary and no claim may be made against any other coverage for the vehicle until the limits of that policy are exhausted.”

The Indiana Court of Appeals analyzed this statute and found that it applied only to determine priority between policies providing the same level of coverage, as opposed to policies providing primary and secondary coverage. The court noted that “it [was] clear the legislature in enacting the [statute] wished to simplify coverage disputes where competing primary insurers [had] conflicting “other insurance” clauses that threaten[ed] to leave an injured party without access to insurance coverage for an accident.” The court also noted: “We do not think the statute was intended to force an umbrella insurer to pay ahead of a primary insurer…”

The court then concluded that the Old Republic policy provided primary coverage, while the ISOP umbrella policy and the First Specialty excess policy each provided true excess coverage. The Lease Statute could not be applied to place the excess insurers’ policies ahead of Old Republic’s in priority.

The decision of the lower court was affirmed.

Old Republic Insurance Company vs. RLI Insurance Company-No. 49A04-0709-CV-523-Court of Appeals of Indiana-June 6, 2008-887 North Eastern Reporter 2d 1003.

Insured challenges carrier’s settlement with heirs

James E. Younts, through Cook & Younts Insurance, Inc., procured an Essex Insurance Company commercial liability insurance policy on behalf of Benton House LLC. The policy contained a “Classification Limitation Endorsement” that provided: “The coverage provided by this policy applies only to those operations specified in the application for insurance on file with the company and described under the ‘description’ or ‘classification’ on the declarations of the policy.” Benton House’s business was described as “Office Rentals,” and its rental property was described as “3 Story Masonry Occupied as Office Buildings.” At the time the policy was issued, Benton House was using its building as an office building.

In April 2003 Benton House began using its rental property as a residential care facility. Benton House communicated this change to Younts, and Younts thereafter began attempting to procure a professional liability policy on behalf of Benton House. Before Younts was able to procure new coverage, Augustine Montgomery, a resident of the Benton House building, died. Montgomery’s heirs sent a demand letter to Benton House stating that they were pursuing a wrongful death and survivor’s claim against it. They asked Benton House to encourage its insurer to settle the action for $1 million, the policy limit.

Before Montgomery’s heirs filed a lawsuit, Essex settled with them for $500,000. The insurer also entered into an “Advance Agreement” with Benton House. Under the terms of the agreement, Benton House agreed to repay the $500,000 to Essex if it was determined that (1) Benton House did not inform Younts that Benton House had started renting its building to residential care patients; (2) that Benton House did not “rely on and follow the advice and counsel of” Younts as to whether a new policy should be obtained or whether its existing policy should be revised; or (3) that Benton House could recover damages in a cause of action or claim against Cook & Younts with respect to insurance coverage. The language of the Advance Agreement also noted that the Essex insurance policy did not provide coverage for “the claim asserted that arose out of the death of Augustine Montgomery Sr.”

In 2005, Benton House sued Younts for negligence and breach of contract, claiming that Younts failed to procure the proper insurance for Benton House’s business operations. The lower court found in favor of Younts, concluding that Benton House had not sustained damages as a result of Younts’ failure to procure new insurance for Benton House. Benton House appealed.

On appeal, Benton House argued that it did, in fact, sustain damages because it was still liable to Essex for the $500,000 paid to Montgomery’s heirs. The Missouri Court of Appeals, Western District, disagreed. It concluded that under the terms of the Advance Agreement, Essex could recover against Benton House only if Benton House recovered against Younts. Because Essex had settled the Montgomery claim, Benton House could not recover on its claims against Younts. Therefore, it could not be obligated to repay Essex under the terms of the Advance Agreement.

Benton House also argued that Essex settled with Montgomery under duress. According to Benton House, the settlement was involuntary, so Essex did not waive its right to seek reimbursement from Benton House. Thus, Benton House could still be liable to Essex under the Advance Agreement. Again, the court disagreed. It found that Essex had full knowledge of the policy defenses available to it and of its option to seek a court determination as to whether or not coverage existed under the policy. Instead, Essex chose to settle. The court noted that Essex “reviewed the demand letter, conducted an investigation, reviewed the insurance policy, and settled the claim.” According to the court: “No threats or wrongful conduct prevented Essex from exercising its free will.”

Noting that “no right of subrogation can arise in favor of an insurer against its own insured, since, by definition, subrogation arises only with respect to rights of the insured against third persons to whom the insurer owes no duty,” the court found that Benton House suffered no damages and that it could not prevail on its claim against Younts.

The decision of the lower court in favor of Younts was affirmed.

Benton House LLC vs. Cook & Younts Insurance, Inc.-Missouri Court of Appeals, Western District-April 15, 2008-249 Southwestern Reporter 3d 878. *
















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