INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

One year isn't "timely notice"

On September 15, 2006, Bobby Lee Lankford was driving his employer's truck when he was involved in an accident with Charles Kaucky. Kaucky's insurer was State Farm Mutual Automobile Insurance Company. His policy provided liability coverage of up to $50,000 per person. Lankford was also insured by State Farm under three different policies that included uninsured motorist coverage that could potentially cover expenses in excess of Kaucky's policy limits.

Lankford did not discuss his injuries or his workers compensation claim with his State Farm agent until September 2007, three months after undergoing surgery for his accident-related injuries. According to Lankford, his agent never told him he had to provide notice to assert a claim for uninsured motorist coverage.

On September 18, three days after the accident, a State Farm claims representative wrote a letter to Lankford referencing Lankford's "recent accident" and Kaucky's policy. About one month later, Lankford's employer wrote a letter to State Farm informing the insurer that it intended to seek subrogation recovery rights with regard to Lankford's injuries and workers compensation claim. The letter referenced Kaucky's policy and described Lankford's injuries as "ongoing."

On February 2, 2007, State Farm issued a check for $1,616.88 to cover the cost of repairing Lankford's employer's vehicle. The check referenced Kaucky as the "insured."

Five months later, in July 2007, Lankford underwent lumbar fusion surgery in connection with the injuries he sustained in the accident. That same month, his attorney requested and received disclosure of Kaucky's policy limits. In September 2007, Lankford first discussed his injuries and his workers compensation claim with his State Farm agent, Jim Coker. He asserted that Coker never advised him that he needed to provide written notice in order to assert a claim for UM recovery under his own State Farm policies.

In September 2008, almost two years after the accident, Lankford's attorney presented State Farm with a complaint seeking payment for personal injury, lost wages, and general damages arising out of the accident. This was the first time Lankford provided written notice that he had been involved in an accident and that he intended to claim uninsured motorist coverage under his own policies. State Farm argued that the lawsuit should be dismissed because Lankford had not given timely written notice as required by his policies. The lower court agreed with State Farm. Lankford appealed.

Lankford's policies required that he provide written notice of the accident or loss to State Farm or one of its agents "as soon as reasonably possible." The policies also contained a condition that "[t]here is no right of action against [State Farm]…until all the terms of this policy have been met." Lankford argued that State Farm had actual notice of the accident because someone had notified State Farm of the accident; this was evidenced by the fact that Lankford had received a letter from State Farm that referenced his "recent accident."

The Court of Appeals of Georgia was not convinced. The court noted that all of the correspondence submitted on behalf of Lankford referenced Kaucky's policy, not Lankford's. Furthermore, "notification by an unrelated third party such as Kaucky did not relieve Lankford of his separate, contractual obligation to provide notice to State Farm under his own policies."

Lankford also argued that he provided the required notice when he spoke with his agent in September 2007.

Again the court disagreed and noted: "But even if the conversation with Coker could satisfy the notice requirement, it did not take place until approximately one year after the accident, and Lankford offers no justification for this delay." The court held that the delay of almost one year was unreasonable as a matter of law.

The judgment of the lower court in favor of State Farm was affirmed.

Lankford vs. State Farm Mutual Automobile Insurance Company-No. A10A0806-Court of Appeals of Georgia-November 23, 2010-2010 WL 4723394 (Ga. App.).

Broker disputes timely notice claim

Countryside Cooperative owned a trailer-mounted tank that it kept on its property in Lancaster County, Nebraska. The tank was filled with anhydrous ammonia. In October 2004, William Boden was working on property that he owned that was adjacent to the Countryside Cooperative property. He sued Countryside, alleging that the tank had leaked and that he had suffered injuries as a result of exposure to the ammonia.

Countryside was insured under two liability policies. One was a commercial general liability policy issued by Michigan Millers Mutual Insurance Company. The other was a claims-made pollution legal liability policy issued by American International Specialty Lines Insurance Company.

Harry A. Koch was Countryside's insurance broker on the American International policy. Countryside informed Koch of the Boden claim on a timely basis, but Koch did not notify American International until several days after the reporting period had expired. For various reasons, including failure to report the claim, American International refused to defend Countryside. Michigan Millers received timely notification and defended Countryside under its policy. The parties eventually settled for $900,000.

Countryside and Michigan Millers entered into a post-settlement "memorandum of understanding" pursuant to which they agreed to jointly sue Koch for failure to timely report the Boden claim to American International. They filed a negligence action against Koch, claiming Countryside suffered damages because it lost the benefit of the American International policy.

The parties waived a jury trial and submitted the issue of damages to the court on a stipulation of facts. The trial court determined that both policies were primary and awarded Countryside and Michigan Millers one-half of the $900,000 settlement, one-half of the costs Michigan Millers incurred defending the claim, and the attorney fees incurred by Countryside. The total judgment against Koch was $478,237.14. Koch appealed, and the Supreme Court of Nebraska agreed to take the case.

On appeal, Koch first argued that neither Countryside nor Michigan Millers had rights or interests that would entitle them to recover damages in the case. Specifically, Koch argued that Countryside had not suffered a loss because it had received benefits under the Michigan Millers policy. Koch also argued that Michigan Millers had no interest in the case because there was no contract between Koch and Michigan Millers.

The Supreme Court disagreed with both of these arguments. It noted that Koch could not escape liability to Countryside on the basis of benefits paid under the Michigan Millers policy. Furthermore, Michigan Millers had subrogation rights arising from its payment of the Boden claim. Therefore both parties had standing to file the lawsuit.

Koch next argued that the lawsuit against him could not proceed because the lower court had not found that there would have been coverage under the American International policy if the claim had been reported on a timely basis. Again the court disagreed. It addressed American International's alternative reasons for not providing coverage and found that none of them applied. It then evaluated the effect of Koch's failure to timely report the claim.

The American International policy was a claims-made policy. Under the terms of the policy, American International was obligated to pay claims…"provided such Claims are first made against the Insured and reported to the Company, in writing, during the Policy Period, or during the Extended Reporting Period if applicable." Countryside's extended reporting period expired on February 11, 2005. Evidence showed that Countryside reported the claim to Koch in November 2004 but that Koch did not report the claim to American International until February 14, 2005.

Applying these facts, the Supreme Court found that Koch's failure to timely report the Boden claim was the sole reason that the claim was not covered under the American International policy. Thus the lower court had properly found Koch liable for failure to timely report the claim.

The judgment of the lower court was affirmed.

Countryside Cooperative vs. Harry A. Koch Co.-No. S-09-896-Supreme Court of Nebraska-November 12, 2010-2010 WL 4539186.

Is in-home day care a "business"?

Benjamin Waldner owned a house in South Dakota that he shared with his sister, Sarah, Sarah's fiancé, Mark Decker, and others who rented rooms from Benjamin. Sarah did not pay rent, but she did keep house for Benjamin. The house was insured under a homeowners policy issued by Western National Mutual Insurance Company.

Sarah ran a babysitting service in Benjamin's house. She provided care five days per week, generally from 9:00 a.m. to 5:00 p.m. The babysitting service did not have a name, and Sarah did not enter into written contracts with the parents. She kept no records, nor did she file income tax returns.

In March 2000, Joe Decker (Mark Decker's cousin) and Joe's wife, Valerie, began to use Sarah for child care for their older son. Their second son was born in May 2000, and, according to Valerie, Sarah started to care for him in August 2000. Sarah sometimes charged Joe and Valerie for her services, typically when Valerie picked up the children. When Joe dropped off and picked up the children, Sarah did not charge him because of Joe's relationship with her fiancé.

On January 11, 2001, Joe dropped off the younger boy, who was eight months old at the time, with Sarah. When Joe left, Sarah put the child in his car seat to rest. Soon thereafter she noticed that he was choking on a small object. Sarah called for help, but the child suffered permanent brain damage.

Valerie Decker, as guardian of the injured child, filed a negligence lawsuit against both Sarah and Benjamin. Western National filed an action seeking a court declaration that it had no duty to defend either of them in the action because the homeowners policy excluded coverage for business pursuits. According to Western National, Sarah was running a business in the house at the time of the injury, and the injury was sustained as a result of the business activities. Because the policy excluded coverage for injuries resulting from activities related to the "business" of an "insured," there was no coverage. The lower court agreed with Western National; Valerie Decker appealed.

The Western National policy contained a definition of "business" that included "services regularly provided by an 'insured' for the care of others and for which an 'insured' is compensated." A "mutual exchange of like services" was not considered compensation.

On appeal, Valerie argued that the policy language was ambiguous and that it should therefore be construed against Western National in favor of coverage. She emphasized the fact that, on the day of the occurrence, Sarah did not charge Joe for her services. She also argued that there was a "mutual exchange of like services" because Sarah provided child care for free in consideration of the relationship between Joe and Mark.

The Supreme Court of South Dakota disagreed with all of Valerie's arguments. It found that the policy language was unambiguous and that the child care services provided by Sarah were a "business" within the meaning of the policy, even though Sarah sometimes did not charge the Deckers for her services. The court rejected the argument that there was a "mutual exchange of like services" and concluded that because the injury was related to Sarah's child care business, it was excluded from coverage.

The decision of the lower court was affirmed.

Western National Mutual Insurance Company vs. Decker-No. 25507-Supreme Court of South Dakota-December 8, 2010-2010 WL 4997387 (S.D.).