INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Mother seeks UIM payment in child’s school bus death

On October 13, 2003, 6-year-old Joseph Gordon was killed in a school bus accident. Several other children were injured. The bus driver, an employee of the school district, was found to be solely negligent. The families of the children incurred approximately $420,000 in medical and funeral expenses; future medical expenses of $100,000 were anticipated.

At the time of the accident, the school district was insured under a State Farm Mutual Automobile Insurance Company policy with liability limits of $100,000 per person and $300,000 per accident. The Kansas Tort Claims Act limited the liability of the district and the driver to a total of $500,000 for all claims. Joseph’s mother, Cynthia Speer, sued the district and received a judgment in the amount of $84,500, her allotment of the $500,000 limit.

Speer had a Farm Bureau Mutual Insurance Company standard automobile insurance policy under which she sought underinsured motorist coverage for the portion of her damages that exceeded the $84,500 judgment. Farm Bureau argued that its policy provided benefits only for damages Speer was “legally entitled to recover,” and that because the Kansas Tort Claims Act limited the school district’s liability to $500,000, Speer had recovered what she was entitled to: her portion of the $500,000. Speer filed suit against Farm Bureau. The court found in favor of Speer, awarding her $85,229.06. Farm Bureau appealed.

On appeal, The Court of Appeals of Kansas affirmed the decision of the lower court. In reaching its decision, the court interpreted the language “legally entitled to recover” broadly. It noted that it was enough that Speer had shown that she was legally entitled to recover damages exceeding her portion of the $500,000 cap. The court then concluded that the statutory cap of $500,000 for all damages arising out of the accident did not affect Farm Bureau’s liability to pay Speer underinsured motorist benefits for damages caused by the bus driver.

The decision of the lower court was affirmed.

Speer vs. Farm Bureau Mutual Insurance Company, Inc.-No. 102,460-Court of Appeals of Kansas-March 26, 2010-226 Pacific Reporter 3d 558.

Rocky road for auto wholesaler

Rocky Greenfield owned a wholesale motor vehicle dealership called G&G Liquidation and Auction Company. In April 2005, Greenfield entered into an agreement with Ron Medlen of Silverauto Sales to sell a truck on consignment. Upon sale of the truck, Medlen was to pay Greenfield $15,000, and Greenfield was to deliver the title. Medlen sold the truck for $16,550 and deposited the customer’s check into his business bank account. Soon thereafter, and before Greenfield could deliver title, Silverauto’s bank froze the account. Medlen informed Greenfield of the situation. Medlen deposed that he did not intend to deprive Greenfield of the vehicle without paying for it. He later filed bankruptcy. Greenfield remained unpaid.

Greenfield had a Western Heritage Insurance Company commercial garage policy. The policy provided that Western would cover loss to a “covered auto” caused by “theft.” However, in a section of the policy related to customer vehicles left on G&G’s property, the policy stated: “‘Loss’ due to theft or conversion” caused by G&G or its employees is not covered.” The terms “theft” and “conversion” were not defined in the policy.

Greenfield filed a claim under the Western Heritage policy for the loss of consignment sale proceeds. Western denied the claim. Greenfield then filed a lawsuit against Western for declaratory judgment, breach of contract, and violation of the Washington Consumer Protection Act. When the trial court found that no coverage existed under the policy, Greenfield appealed.

On appeal, the Court of Appeals of Washington affirmed the decision of the lower court. The court noted that the vehicle was “unquestionably not stolen”; rather, Greenfield lost the opportunity to collect the consignment sale proceeds. The Western policy was intended to provide coverage for loss caused by such incidents as fire, windstorm, flood, vandalism and theft “to a covered ‘auto.’” Greenfield’s claim was not for physical loss to a vehicle; it was for a business loss.

Greenfield argued that Medlen stole the funds when he deposited the $16,550 into his bank account, and that this was a “theft” within the meaning of the policy. The court rejected this argument, stating that Greenfield’s argument failed to establish that Medlen had an intent to steal. The court also rejected Greenfield’s argument that the exclusion section of the policy was ambiguous.

The court concluded that the trial court properly found that Western’s policy did not cover the loss of proceeds from the failed consignment sale.

The decision of the lower court was affirmed.

Greenfield vs. Western Heritage Insurance Company-No. 27936-7-III-Court of Appeals of Washington-March 2, 2010-226 Pacific Reporter 3d 199.

Insured challenges nonconformity exclusion

Total Call International, Inc. (TCI), was in the business of selling prepaid domestic and international phone cards. From July 13, 2006, to July 13, 2007, TCI was insured under a commercial general liability policy issued by Peerless Insurance Company. The policy included coverage for personal and advertising injury. The relevant portion of the policy provided: “We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘personal and advertising injury’ to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit’ seeking those damages.”

The policy defined “[p]ersonal and advertising injury” to mean “injury…arising out of” several enumerated “offenses,” including the “[o]ral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.” The policy contained a nonconformity exclusion that precluded coverage for “ ‘[p]ersonal and advertising injury’ arising out of the failure of goods, products or services to conform with any statement of quality or performance made in [the insured’s] ‘advertisement.’”

TCI was sued by two of its competitors, collectively referred to as “IDT.” In its complaint, IDT alleged that TCI and others systematically lied to consumers about the minutes that were provided on TCI brand phone cards. Specifically, IDT claimed that the advertising TCI used to sell its phone cards promised a certain number of minutes, but the actual number of minutes on the cards sold was often approximately 60% less than what was promised. According to IDT, TCI’s alleged deceptive practices led consumers to conclude that all prepaid card providers, including IDT, systematically lied to their customers. As a result, IDT claimed, it suffered significant damage to its own reputation, resulting in a loss of its own market share.

Peerless claimed it did not owe TCI a defense because IDT’s claims fell outside of the policy’s coverage for advertising injury, and they were barred from coverage by the nonconformity exclusion. TCI filed a lawsuit against Peerless alleging breach of contract, bad faith, and unfair business practices.

The lower court found that IDT’s claims could potentially constitute advertising injury within the meaning of the policy, but that they were barred from coverage pursuant to the nonconformity exclusion. TCI appealed.

On appeal, TCI argued that IDT’s complaint alleged an advertising injury arising out of an “[o]ral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.”

The Court of Appeal, Second District, Division 4, California, disagreed. It noted that to constitute advertising injury, the false statement must “specifically refer to, or be ‘of and concerning,’” the plaintiff in some way. Because IDT did not allege that TCI had made a false statement concerning it, IDT, in particular, the “specific reference requirement” was not met. Thus, there was no advertising injury.

The court also addressed the issue of whether the nonconformity exclusion barred coverage under the policy. TCI argued that the exclusion was ambiguous, and that it could be construed to operate to bar coverage for claims by consumers, but not claims by competitors. The court disagreed. It found that the clause was not ambiguous and stated that it “disclose[d] no suggestion that it relate[d] exclusively to consumer claims.” Therefore the exclusion properly barred coverage.

The judgment of the lower court was affirmed.

Total Call International, Inc., vs. Peerless Insurance Company-No. B212923-Court of Appeal, Second District, Division 4, California-January 21, 2010-181 California Appellate 4th 161.

Claimants dispute carrier’s definition of “accident”

Rachel Griffin was driving her vehicle when she struck and killed a bicyclist, Matthew Matty. Almost immediately thereafter she struck and seriously injured a second bicyclist, Jeffrey Davis.

An accident reconstruction expert testified that, assuming the insured had traveled at a constant speed of 55 miles per hour (the speed limit) from the point where she struck the first bicyclist to the point where she struck the second one, it would have taken her “just over a second” to travel the 95 to 115 feet between the two bicyclists.

Griffin had an automobile insur­ance policy with State Auto Property & Casualty Company that contained a bodily injury liability limit of $100,000 for each accident. The policy also provided in part that the limit of liability was the “maximum limit of liability for all damages resulting from any one auto accident. This is the most [State Auto] will pay regardless of the number of: 1. ‘Insureds’; 2 Claims made; 3. Vehicles or premiums shown in the Declarations; or 4. Vehicles involved in the auto accident, or any one accident.”

State Auto considered the incident to constitute one accident and therefore claimed responsibility for only a single $100,000 of coverage. State Auto brought an action seeking declaration that the total amount of liability insurance available for claims brought against Griffin on behalf of the cyclists was the single liability limit under the applicable policy.

The district court certified a question to the Supreme Court of Georgia, specifically, how to determine the meaning of the term “accident” in an automobile policy when the word was not expressly defined in the policy; and, more specifically, how to determine if there had been one accident or two when an insured vehicle struck one claimant and then very shortly thereafter struck another.

As an initial matter, the court addressed the claimants’ argument that the term “accident” must be construed to mean that two different impacts constituted two different accidents. The court looked at the statutory definition of “accident”: “an event which takes place without one’s foresight or expectation or design.” The court also evaluated various dictionary definitions of the word “event.” According to the claimants, under any of these definitions, two impacts could not be considered one “event” and therefore one “accident.”

The court rejected this approach, stating: “Such interweaving of inconsistent definitions of words defined in dictionaries with words defined in statutes is a slender reed upon which to base a clear meaning of a contractual term.” The court went on to evaluate various methodologies for construing insurance contracts and evaluating the intent of the parties.

According to the court, the State Auto policy, viewed as a whole, showed a “clear intent to limit liability in accidents involving multiple vehicles.” The issue was how to construe the word “accident” within the context of the policy.

After evaluating various theories, the court adopted the “cause” theory for aiding in the interpretation of the word “accident.” This theory determines the number of accidents by determining the number of causes of the injuries. The “cause” theory would find one accident if “[t]here was but one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damage.” In cases involving multiple collisions, courts evaluate whether the driver regained control of the vehicle before the next collision. The court concluded its analysis by adopting the “cause” theory for use in liability insurance cases in Georgia and for the State Auto policy.

The certified question was answered, and the case was remanded to the district court for a determination as to whether “[t]here was but one proximate, uninterrupted, and continu­ing cause which resulted in all of the injuries and damage.”

State Auto Property & Casualty Company vs. Matty-No. S09Q1846-Supreme Court of Georgia- March 1, 2010-690 South Eastern Reporter 2d 614.