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

Wind, mold, and dueling appraisers

Gervis Sadler owned a house in Swan Quarter, North Carolina. The house was insured by North Carolina Farm Bureau Mutual Insurance Company under a limited peril homeowners policy. Sadler discovered mold in the house and on September 1, 2005, gave Farm Bureau notice of a claim for mold damage.

Farm Bureau's adjuster and a professional engineer hired by Farm Bureau inspected the property, confirmed that mold was present, and sought to determine the cause of mold growth in the house. On November 30, 2005, Farm Bureau sent a letter denying Sadler's claim, stating that "[u]pon careful review of [the] policy,…it [could] find no coverage for mold not caused by a named peril."

Sadler disputed the denial of the claim. On March 6, 2006, he sent a letter to the insurer stating that a windstorm might have caused the damage and noting that he "found that the coast guard station recorded 112 miles per hour winds on May 6, 2005." Farm Bureau's adjuster examined the house a second time and estimated that repairs for "roof damage and interior damage due to roof damage" would cost $3,203.03. The insurer sent Sadler a check for that amount.

Sadler did not cash the check. Instead, on June 5, 2006, Sadler sent a letter to Farm Bureau notifying the insurer that he planned to invoke the policy's appraisal provisions. In a letter to Farm Bureau dated June 22, 2006, Sadler identified his appraiser, Lewis O'Leary. He also sought court appointment of an umpire. The court appointed Martin Overholt as umpire on June 30, 2006, and O'Leary sent Farm Bureau a letter informing it of the appointment. Farm Bureau informed Sadler of its choice of appraiser, Rick Manning, in a letter dated July 31, 2006.

Both appraisers inspected the house in October 2006. Manning recommended payment of $31,561.39. In his report, submitted on November 6, 2007, he stated that "the damages are…a result of a combination of wind and water damages, along with mold infestation in the lower section of the home, crawl space and floor system." On February 1, 2008, O'Leary and Overholt recommended an award of $162,500 "as the actual cash value of the damages as the result of wind." On March 18, 2008, Farm Bureau tendered a check to Sadler for the amount recommended by Manning.

Sadler again disputed the amount and refused to cash the check. Farm Bureau then filed a complaint asking the court to find that the appraisal award calculated by O'Leary and Overholt failed to itemize the damages so that Farm Bureau could determine covered losses and apply policy exclusions and/or limitations. The complaint also alleged that the O'Leary/Overhold award purported to determine the cause of the loss as "wind." Sadler filed a counterclaim alleging breach of contract, breach of good faith, and unfair claim settlement practices.

While the discovery process was under way, the trial court granted partial judgment in favor of Sadler, awarding him $150,500 for the breach of contract claim. Farm Bureau appealed, claiming that it was inappropriate for the court to make this decision as a matter of law. After the Court of Appeals affirmed the lower court's decision, the insurer petitioned the North Carolina Supreme Court for discretionary review.

After reviewing the facts and policy provisions, the Supreme Court found that the trial court erred in finding that, as a matter of law, Farm Bureau breached its contract with Sadler. According to the high court, further factual inquiry was necessary to determine which damages were caused by wind and were covered under the policy and which were directly caused by mold growth and therefore limited to a specific maximum amount. The court noted: "When, as here, the facts and circumstances surrounding a claim—especially causation—remain in dispute," the finder of fact must "determine whether the ultimate cause of the claimed damages falls within the scope of the policy's exclusionary provisions, as defined by the trial court."

The decision of the Court of Appeals was reversed, and the case was remanded to the trial court for further proceedings.

North Carolina Farm Bureau Mutual Insurance Company vs. Sadler-No. 267PA10-Supreme Court of North Caroline-June 16, 2011-2011 WL 2409876 (N.C.).

Under the umbrella? Not quite.

On January 9, 1998, George Billings and others filed a civil lawsuit against the trustees of a real estate trust. The lawsuit sought to annul a zoning board decision and to enjoin construction on a parcel of property. After several years the parties settled, and the action was dismissed. Several months later, Scott and Eric Peterson, individually and as trustees of the real estate trust, filed an action against Billings, alleging malicious prosecution and intentional infliction of emotional distress with regard to the 1998 lawsuit.

At the time the Peterson lawsuit was filed, Billings had a Commerce Insurance Company personal umbrella liability policy that provided coverage on an occurrence basis. However, the policy was not in effect when Billings filed the 1998 lawsuit. When Billings forwarded a copy of the Peterson lawsuit to Commerce and asked Commerce to defend him, the insurer declined. According to Commerce, "there [was] no allegation in the [c]omplaint of an offense which was committed during the coverage period."

Billings hired his own attorney to defend him, and the jury returned a verdict in his favor. Billings then filed a declaratory judgment action asking the court to find that Commerce had a duty to defend him in the Peterson action and that the insurer had committed unfair insurance practices. The lower court found in favor of Commerce; Billings appealed.

On appeal, the Supreme Judicial Court of Massachusetts, Barnstable, first addressed the claim of malicious prosecution. The court found that when a civil action is filed against a policyholder alleging a claim of malicious prosecution, and coverage is based on the date of the "occurrence" rather than the date of the claim, the "occurrence" is the filing of the malicious action. The court concluded that because the Commerce policy was not in effect on the date of the "occurrence," Commerce had no duty to defend Billings with regard to the malicious prosecution claim.

The court next addressed the claim for intentional infliction of emotional distress. In support of their claim, the Petersons alleged that Billings and the other defendants were "spreading rumors that the [Petersons] would fill the wetlands and build [sixteen] houses in the marsh." The issue on appeal was whether these allegations were covered under the policy and, if so, whether the claim occurred within the policy period.

The court concluded that the allegations could be "reasonably susceptible of an interpretation that roughly sketche[d] a claim for libel, slander, or defamation"; however, it could not be "reasonably susceptible of an interpretation that any defamatory statement occurred during the policy period."

The court concluded that Commerce was not obligated to defend Billings in the Petersons' action. The judgment of the lower court was affirmed.

Billings vs. Commerce Insurance Company-SJC-10656-Supreme Judicial Court of Massachusetts, Barnstable-November 4, 2010-2010 WL 4331230 (Mass).

Too many commas spoil the exclusion

Glenn Hines was the president of M & S Tractor Services, Inc. In June 2007, while performing work for M & S, Hines allowed his 7-year-old son to ride with him on a farm tractor. The boy fell from the tractor and was severely injured when one of the wheels hit him.

M & S was insured under a North Pointe Casualty Insurance Company liability policy. When the boy's mother sued M & S, North Pointe denied coverage. The parties to the lawsuit agreed to stay the litigation until the court could determine whether North Pointe was obligated to provide coverage. When the court found that the insurer did owe coverage, North Pointe appealed.

The main body of the policy contained a standard exclusion for bodily injury to the child of an employee when the injury was a consequence of the employment. However, the M & S policy had a special endorsement that replaced this standard exclusion. The relevant language of the special endorsement stated: "This insurance does not apply to: III: 'Bodily injury' sustained by the spouse, child, parent, brother or sister of any employee of any insured, or of a contractor, or of an employee of a contractor of any insured as a consequence of 'bodily injury' to such employee, contractor, or employee of such contractor, arising out of and in the course of such employment or retention by or for any insured." 

On appeal, M & S and the Hineses argued that because their son's injuries were not the result of an injury to an employee of an insured, the exclusion did not apply to his injuries. North Pointe argued that this interpretation was illogical because the drafters of the policy would not have intended to exclude payment for bodily injuries to children only if those injuries were the result of injury to the parent while at work. 

The District Court of Appeal of Florida, Second District, agreed with M & S and the Hineses. In reaching its decision, the court concluded that the exclusion was ambiguous. The court noted that the "plethora of commas that punctuate this provision, along with the placement of the restrictive clauses, probably allows for no interpretation that has a clear meaning." As a result, the Court of Appeal said, the trial court correctly concluded that the special endorsement did not unambiguously exclude the claim.

The decision of the lower court was affirmed.

North Pointe Casualty Insurance Company vs. M & S Tractor Services, Inc.-No. 2D10-2057-District Court of Appeal of Florida, Second District-June 24, 2011-2011 WL 2496684 (Fla. App. 2 Dist.).

Did emotional distress cause bodily injury?

Magdy and Manal Abouzaid and their minor son, Moustafa, lived in an apartment in a building owned by Jack and Sally Pomeranc, doing business as Mansard Gardens Associates, LLC. On August 22, 2007, Eman Kandil was visiting the Abouzaid home with her sons, Omar and Tarek Osman. Earlier that day, Jonathan Chaviano, who was performing repairs in the apartment on behalf of Mansard, had applied liquid paint thinner to the kitchen floor to remove tile adhesive and then left the room. Vapors from the paint thinner were ignited by the stove's pilot light, causing a flash fire. The children, Moustafa, Omar, and Tarek, were trapped by the flames, and the children's mothers saw their sons "engulfed by a fireball." The children were injured, but their mothers were not.

The children's fathers sued Mansard on behalf of their sons, and the boys' mothers joined the complaint as individual plaintiffs. The lawsuit involved several counts, including one for emotional distress. That count alleged that the mothers were "forced to endure emotional distress and suffering resulting from watching…their sons[ ] becoming engulfed by flames[.]"

Mansard was insured under a commercial general liability policy issued by Greater New York Mutual Insurance Company. GNY agreed to provide a limited defense but denied coverage and representation for the emotional distress claim. According to the insurer, that claim was not covered because it did not satisfy the policy's "bodily injury" requirement. Mansard filed an action against GNY, arguing that the insurer was obligated to defend Mansard against the emotional distress claim.

Before ruling, the trial court allowed the plaintiffs to amend their emotional distress complaint to add the following language: "Plaintiffs Manal [Abouzaid] and Eman Kandil have had to incur the cost of medical treatment for the physical impact caused by their emotional distress and suffering."

In response, GNY issued a "supplemental notice of reservation of rights," expanding its defense to include the amended emotional distress claim and reserving the right to deny coverage if it was found that Manal and Eman did not suffer distress with a physical manifestation. That same day, the court found that GNY's duty to defend was triggered by the language of the initial complaint. The court eventually awarded Mansard fees and costs of $38,345.75 under the language of the initial complaint. GNY appealed.

The Appellate Division disagreed with the lower court's decision and found that GNY was not obligated to defend Mansard until the complaint was amended to include an allegation of "physical impact." The Supreme Court granted Mansard's petition for certification.

On appeal, the Supreme Court of New Jersey disagreed with the Appellate Division's ruling. The court noted that it is well recognized that "emotional distress can and often does have a direct effect on other bodily functions."  According to the court, a policy that provides coverage for claims of "bodily injury" will be "understood to require a defense from the filing of an emotional distress complaint unless such defense is specifically excluded by other contract language." The decision of the Appellate Division was reversed, and the decision of the trial court was reinstated.

Abouzaid vs. Mansard Gardens Associates, LLC-Supreme Court of New Jersey-June 21, 2011-2011 WL 2450570 (N.J.).


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