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

Cool AC triggers hot dispute

John Hanratty and Mary Blake Newman owned adjacent residential units in a small condominium complex. Hanratty's unit had an air-conditioning unit that projected into a yard area to which Newman held an exclusive easement. Newman complained that noise, hot air, and vibrations from the air conditioner were interfering with her enjoyment of her property. When Hanratty ignored her complaints, she sealed the air conditioner with duct tape so that it could not be used. In June 2007, Hanratty filed a complaint against Newman, asking the court to keep her from interfering with his right to use the air conditioner. Newman filed a counterclaim and asked the court to order Hanratty to remove the air conditioner.

Hanratty was insured under a homeowners policy issued by Citation Insurance Company. Citation agreed to defend Hanratty in the action, subject to a reservation of rights. Then, in May 2008, Citation filed a declaratory judgment action seeking a determination that it was not obligated to provide coverage for the claims asserted by Newman. Hanratty objected, alleging that Citation had breached its contract and the implied covenant of good faith and fair dealing. By the following fall, Newman and Hanratty reached an accord in the underlying lawsuit. Hanratty assigned his counterclaim against Citation to Newman. In June 2009, a judge found that Citation was not obligated to defend Hanratty. The court also dismissed Hanratty's counterclaim. Newman appealed.

On appeal, Newman argued that Citation had a duty to defend Hanratty and that, as Hanratty's assignee, she was entitled to attorney's fees and costs incurred by her and Hanratty. Specifically, Newman argued that Citation had a duty to defend Hanratty against her allegations of trespass and nuisance. She also argued that Hanratty's counterclaim should not have been dismissed.

The language of the policy provided, in relevant part, that Citation would defend and indemnify claims "brought against an 'insured' for damages because of…'property damage' caused by an 'occurrence' to which [the] coverage applie[d]." This coverage was subject to an exclusion for property damage "[w]hich [was] expected or intended by the 'insured.'" The policy defined "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results, during the policy period, in…'[p]roperty damage.'" "Property damage" was defined as "physical injury to, destruction of or loss of use of tangible property."

Citation argued that Newman's claims did not allege "property damage" as defined by the policy because any physical damage or loss of use affected only an easement, which is an "intangible" interest. The Appeals Court of Massachusetts, Middlesex, disagreed. In reaching its decision, it stated that the nature of Newman's interest in the yard did not make any difference. According to the court, "For purposes of deciding whether there has been injury to or loss of use of tangible property, it makes no meaningful difference which abstract legal concept has given rise to the claimant's rights in real property. Whether the claimant owns, rents, or holds an easement to it, the real property in question remains tangible property." The court concluded that the lower court should not have ruled in favor of Citation.

The decision of the lower court was vacated and the matter was remanded for further proceedings.

Citation Insurance Company vs. Newman-No. 10-P-0331-Appeals Court of Massachusetts, Middlesex-August 18, 2011-2011 WL 3595410 (Mass. App. Ct.).

Did policy wording bar lawsuit?

In July 2006, a storm caused a tree to fall on Dennis Dominish's house. Dominish filed a claim with his homeowners insurer, Nationwide Insurance Company. Nationwide investigated and assessed the damage, and issued a check for $6,741.96, which it sent to Dominish along with a partial-denial letter and a reminder about the policy's limitation-of-action clause. When Dominish received the check, he deemed the amount insufficient to cover the damage to his house. He wrote the word "void" on it and returned it to Nationwide. Nationwide issued another check in the same amount, and Dominish again returned the check with the word "void" written on it.

In July 2008, Dominish filed a lawsuit against Nationwide. Nationwide claimed the suit was prohibited by the language of the policy, which provided: "Suit Against Us. No action can be brought against us unless there has been full compliance with the policy provisions. Any action must be started within one year after the date of loss or damage." The lower court found in favor of Nationwide; Dominish appealed. The court of appeals reversed the decision of the lower court. Nationwide filed a discretionary appeal, and the Supreme Court of Ohio agreed to hear the case.

As a preliminary matter, the Supreme Court found that the policy language was not ambiguous. The court then addressed the question of whether or not Nationwide waived its right to enforce a limitation-of-action clause. The court noted that for an insurer to waive this right, it must have either recognized liability or held out a reasonable hope of adjustment so that an insured might be induced to delay filing a lawsuit.

The court then evaluated the facts of the case. When Nationwide communicated with Dominish, it clearly stated that it was not liable beyond the amount of the check. The insurer sent a partial-denial letter that stated: "The purpose of this letter is to advise you that Nationwide Mutual Fire Insurance Company has decided, based upon the investigation into the circumstances surrounding a claim made by you, that there is no coverage for certain aspects of your storm related claim under the Nationwide homeowners policy. In particular, there is no coverage available for your roof or any damage to contents of your home or any resultant mold formed as a result of your loss. There is coverage available for the resultant interior damage to your home. I will contact you to make final arrangements and payment regarding the interior damage."

This letter also noted that any suit Dominish wished to file against Nationwide had to be filed within one year and provided the relevant policy provision and language. The Supreme Court found that this evidence showed that Nationwide deemed itself to be liable for part of the claim, attempted to pay that part, denied all other claims, and informed Dominish of the limitation-of-action clause. Because Dominish was not induced by Nationwide to delay filing a lawsuit, Nationwide did not waive its right to enforce the limitation-of-action clause.

The decision of the court of appeals was reversed and the trial court's decision in favor of Nationwide was reinstated.

Dominish vs. Nationwide Insurance Company-No. 2010-1431-Supreme Court of Ohio-August 23, 2011-WL 3760046 (Ohio).

No photos: Insurer won't defend suit filed by model

Aroa Marketing, Inc., hired model Tara Radcliffe to film an exercise video for Aroa's business. According to Radcliffe, the video was supposed to be used at the January 2007 Consumer Electronics Show (CES) and on the show's Web site. However, Aroa allegedly used her image to sell other unrelated products. Radcliffe repeatedly asked Aroa to compensate her for the unauthorized use of her image, but the company refused and continued the unauthorized use of her image. She sued Aroa for "misappropriation of likeness," i.e., using her "likeness to sell and market products beyond that which was allowed under the contract." According to Radcliffe, the association of her image with Aroa diminished her marketability and publicity value as an actor and model and "deprived [her] of her right to publicity."

Aroa was insured under a commercial general liability policy with Hartford Insurance Company of the Midwest. The policy covered any damages that Aroa became legally obligated to pay because of "bodily injury," "property damage" or "personal and advertising injury" arising out of Aroa's business. "Personal and advertising injury" was defined to include "'oral or written or electronic publication of material that violates a person's right of privacy.'" The policy contained an exclusion for "personal and advertising injury" arising out of "any violation of any intellectual property rights, such as copyright, patent, trademark, trade name, trade secret, service mark, or other designation of origin or authenticity."

Hartford refused to defend Aroa in the lawsuit. According to the insurer, the right of publicity was considered an intellectual property right, which was specifically excluded from coverage under the policy. Aroa filed suit against Hartford alleging breach of its duty to defend and indemnify Aroa. The trial court found in favor of Hartford; Aroa appealed.

On appeal, the California Court of Appeal, Second District, Division 4, found that the policy language included coverage for misappropriation of likeness claims, but the intellectual property rights exclusion operated to preclude coverage. In reaching its decision, the court rejected Aroa's argument that the intellectual property rights exclusion did not apply because the right of publicity was not specifically listed in the exclusion. The court also rejected Aroa's argument that Radcliffe's claim for misappropriation of likeness extended beyond her right of publicity. The court concluded that the lower court's decision was proper and that it did not abuse its discretion in denying Aroa's request to amend its complaint.

The decision of the lower court was affirmed.

Aroa Marketing, Inc., vs. Hartford Insurance Company of the Midwest-No. B228051-Court of Appeal, Second District, Division 4, California-August 23, 2011-2011 WL 3672295 (Cal. App. 2 Dist.).

Is legal indemnity plan "insurance"?

Timothy Allen was a licensed real estate salesperson who for several years worked for Burnet Realty LLC as an independent contractor. As part of his arrangement with Burnet, Allen participated in the organization's Legal Administration Program. The purpose of the program was to limit a sales associate's "personal liability exposure" in the event that he should become involved in a "dispute, arbitration proceeding, or lawsuit" related to his "actions which [were] contemplated within the scope of" his contract. Associates were charged a flat annual fee for participating in the program. Those who did not participate in the program were required to obtain "company-approved outside coverage."

The Legal Administration Program specified that when a "covered dispute" arose, the associate and Burnet would split all legal expenses according to a formula based on the associate's commission schedule. Liability of the associate was capped at $1,500. The associate was required to cooperate in the defense of the dispute, but Burnet retained the authority to choose the attorney and make decisions regarding settlements. Also, Burnet could not assert claims against the associate related to the "covered dispute."

About one year after he left Burnet Realty, Allen filed an action alleging that Burnet was selling insurance in violation of Minnesota law and that the organization was profiting by selling unauthorized insurance. Before ruling, the court asked the Minnesota Department of Commerce, which regulates both insurance and real estate, to render an opinion. The commerce commissioner concluded that the Legal Administration Program was "markedly different" from a typical insurer-insured relationship and was "a self-insurance arrangement" that "would not be regulated under Minnesota's insurance laws." The court found in favor of Burnet, and this decision was affirmed by the court of appeals. Allen sought review by the Supreme Court of Minnesota.

The question to be answered by the Supreme Court was whether the Legal Administration Program constituted "insurance" as defined by Minnesota insurance law, i.e., "any agreement whereby one party, for a consideration, undertakes to indemnify another in a specified amount against loss or damage from specified causes, or to do some act of value to the assured in case of such loss or damage."

The court found that the program did not constitute insurance because it did not specify an amount, above the $1,500, for which Burnet agreed to indemnify Allen. In addition, the program did not expose Burnet to any risk beyond that for which it was already liable, nor did it involve disputes with which Burnet had no connection or over which it had no control. There was no underwriting, associates shared legal expenses with Burnet, and the program protected against disputes other than those related to litigation. For all of these reasons, the court concluded that the Legal Administration Program did not constitute insurance under the applicable statute.

The decision of the lower court was affirmed.

Allen vs. Burnet Realty, LLC-No. A09-1963-August 3, 2011-Supreme Court of Minnesota-801 North Western Reporter 2d 153.


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