INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Driver files claim under dead sister's policy

Patricia Ashu obtained a Progressive American Insurance Company automobile insurance policy covering her vehicle for the period from March 29, 2005, to September 29, 2005. Patricia's sister, Doreen Ashu, lived in Patricia's household and also used her vehicle. On May 4, 2005, Patricia died. Two days later, Doreen communicated the news of her sister's death to her sister's insurance agent, Emmanuel Fomukong. She explained that she wished to continue driving Patricia's car and that she would like to continue the insurance coverage. Fomukong told Doreen that as long as the premiums were paid she could continue driving the car with continued coverage until ownership of the car was transferred. 

Doreen continued to pay the premiums through either Patricia's bank account or her own. Progressive issued renewal policies for the period from September 29, 2005, to March 29, 2006, then from March 29, 2006, to September 29, 2006. Doreen paid all the premiums for the renewals.

On August 21, 2006, Mary Tabot was appointed personal representative of Patricia's estate. Doreen asked Mary to serve in this capacity because, not being a U.S. citizen, she was unable to serve. Approximately one month later, Doreen was involved in a motor vehicle accident with Charles John. When John filed a lawsuit against Doreen, Progressive denied coverage. John filed a declaratory judgment action asking the court to determine whether Progressive was required to cover the accident or whether his own insurer, Maryland Automobile Insurance Fund, was required to provide uninsured motorist coverage. The trial court found in favor of Progressive; Maryland Automobile appealed.

On appeal, Maryland raised several issues. First, the insurer argued that the lower court erred by failing to find an oral contract between Progressive and Doreen. The Court of Special Appeals of Maryland disagreed. In reaching its decision, the court noted that the Progressive policy was in Patricia's name only. The policy language provided that the policy could not be transferred to another person without written consent. The policy also provided: "If a named insured dies, this policy will provide coverage until the end of the policy period for the legal representative of the named insured, while acting as such, and for persons covered under this policy on the date of the named insured's death." 

Because there was no written transfer of the policy, and because Doreen was not the legal representative of the estate, the only way the policy could cover her was if she had been covered under the policy at the time of Patricia's death. The court concluded that because the accident occurred two renewal periods after Patricia's death, Doreen was covered under the initial policy period but was not covered at the time of the accident.

Maryland also argued that, regardless of the policy's written language, there was an oral agreement between Doreen and Fomukong that provided insurance for Doreen. Again the court disagreed. The court noted that, in order to find an oral modification of the written policy, it was necessary to show that both parties intended to modify the terms of the policy and that they understood they were waiving the policy's prohibition against oral modification of the contract. Similarly, in order to establish that a new contract was formed, it was necessary to show that the old contract was being rejected in favor of a new contract. The court found no persuasive evidence proving these factors.

Finally, Maryland argued that Progressive was estopped from denying coverage as a practical matter and as a matter of public policy because it accepted premium payments for over a year and renewed the policy. The court rejected these arguments as well.

The decision of the lower court was affirmed.

Maryland Automobile Insurance Fund vs. John-No. 2028, Sept. Term, 2009-Court of Special Appeals of Maryland-April 1, 2011-16 Atlantic Reporter 3d 1008.

Umbrella trigger disputed

In 2003 Vassar College hired Kirchhoff Construction Management, Inc., to perform construction work on premises owned by the college. Vassar was insured under primary general liability and umbrella liability policies with United Educators Insurance. Kirchhoff had three policies: a commercial general liability policy with ACE Property & Casualty Insurance Company; a commercial umbrella liability policy issued by Diamond State Insurance Company; and an excess liability policy issued by Scottsdale Insurance Company. Under the construction agreement, Kirchhoff was required to name Vassar as an additional insured in its policies. 

A Kirchhoff employee filed a personal injury action against Vassar, claiming damages for injuries sustained while performing work under the construction contract. ACE accepted coverage, as did United Educators under its primary policy, but Diamond State and Scottsdale denied coverage, claiming that notice was late. 

Vassar, along with United Educators, filed a declaratory judgment action asking the court to find that coverage under the United Educators umbrella policy was excess over coverage provided by Diamond State or Scottsdale. Scottsdale argued that its coverage was triggered after coverage under all other policies had been exhausted. Diamond State made the same argument, except that it acknowledged that the Scottsdale policy limits did not need to be exhausted before Diamond State's coverage was triggered. The lower court found in favor of Scottsdale and Diamond State. Vassar and United Educators appealed.

On appeal the Supreme Court of New York, Appellate Division, Second Department, disagreed with the decision of the lower court. In reaching its decision, the high court noted that the United Educators umbrella policy provided that coverage was triggered only after exhaustion of the United Educators primary policy and "any other insurance available to the insured."  

The court also noted that the Diamond State policy provided that it would pay the excess of the "retained limit," which was defined as the sum of the underlying insurance provided by the ACE policy and "[o]ther collectible primary insurance." Because the indemnity obligation under the Scottsdale policy accrued immediately after the Diamond State policy was exhausted, it was clear that the Diamond State policy contemplated that other excess policies would contribute coverage. Therefore the Diamond State policy limits had to be exhausted before the United Educators umbrella coverage was triggered.

The lower court's decision was reversed, and the case was remanded to the lower court for entry of a judgment declaring that the United Educators umbrella policy was excess over coverage provided by Diamond State and Scottsdale.

Vassar College vs. Diamond State Insurance Company-Supreme Court, Appellate Division, Second Department, New York-May 10, 2011-923 New York Supp. 2d 124.

Just say no: insurer denies methadone claim

Bradley Orr was a 17-year-old who lived with his mother, Lisa Orr, and Wayne Penn, the owner of the house. On May 31, 2007, Phillip Forman and Christopher Green, friends of Bradley, spent the night at the Orr/Penn home. When Lisa and Wayne retired for the evening, the boys were playing video games. The next morning Wayne and Lisa left the house to run errands while the boys were still sleeping. While they were still out of the house, Bradley called to inform them that Phillip could not be awakened. Phillip was eventually hospitalized and later claimed that he had suffered injuries from ingesting methadone that he obtained from the Orr/Penn home on the night of the sleepover. Lisa Orr had a valid prescription for methadone, and Bradley stated that Phillip took her methadone without his knowledge. Phillip claimed that Bradley furnished the methadone to him.

Forman sued Bradley, Green, Lisa, and Wayne, alleging negligent supervision and control over Lisa's methadone and negligence in caring for him after it was discovered that he could not be awakened. Wayne's homeowners insurer was Western Reserve Mutual Casualty Company. Western Reserve said it had no duty to provide a defense, arguing that the claim was excluded as "arising out of the use, sale, manufacture, delivery, transfer or possession by any person of [a Schedule II Controlled Substance]." The lower court found in favor of Western Reserve. Bradley and Wayne filed a petition for rehearing and an appeal.

On appeal, the Court of Appeals of Indiana noted that it was undisputed that Lisa Orr had a valid prescription for methadone. The court also noted that the policy language clearly excluded liability coverage for bodily injury arising out of the use by any person of a controlled substance. 

Bradley and Wayne argued that because Lisa had a valid prescription, the exclusion did not apply. The court disagreed. While the court sympathized with the argument that Bradley and Wayne were not involved in Phillip's decision to steal and ingest Lisa's prescription, the court ruled that the policy language was clear and unambiguous. Therefore the judgment of the lower court in favor of Western Reserve was affirmed.

Forman vs. Penn-No. 33A01-1007-CT-343-Court of Appeals of Indiana-March 14, 2011-945 North Eastern Reporter 2d 717.

Down the drain: who must pay for flood damage?

Sullivan Corporation was the general contractor for a project at the Sycamore School in Indianapolis. Sullivan subcontracted with McCurdy Mechanical to install sewer, domestic water and storm piping, roof drains, plumbing fixtures, and the HVAC system at the school. McCurdy's work was finished on or before May 3, 2005.

On June 23, 2006, the school sustained water damage from flooding caused by a fractured storm drain pipe. It was established that McCurdy had damaged the pipe in the winter or spring of 2005 while it was performing work at the school. Sullivan's insurer, Cincinnati Insurance Company, paid $146,403.06 to indemnify Sullivan for the damage sustained by the school and then filed an action against McCurdy and its insurers. Cincinnati sought subrogation for the amounts it had paid Sullivan as well as a declaration as to which of McCurdy's insurers provided coverage.

West Bend Mutual Insurance Company was McCurdy's commercial general liability insurer between May 23, 2004, and May 23, 2005. Grange Mutual Casualty Company insured McCurdy from May 23, 2005, to May 23, 2007. Both insurers agreed to settle Cincinnati's claim. They then filed cross-claims against each other asking the court to determine the rights and obligations of each insurer. The trial court ruled in favor of West Bend; Grange Mutual appealed.

Both policies contained substantially similar provisions for property damage. "Property Damage" was defined as: "a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the 'occurrence' that caused it." 

"Occurrence" is defined in the policies as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."

Both policies covered property damage only if: "(1) The…'property damage' is caused by an 'occurrence' that takes place in the 'coverage territory'; (2) The…'property damage' occurs during the policy period; and (3) Prior to the policy period, no insured…and no 'employee' authorized by you to give or receive notice of an 'occurrence' or claim, knew that the…'property damage' had occurred, in whole or in part…"

Finally, both policies provided that " '[P]roperty damage' which occurs during the policy period and was not, prior to the policy period, known to have occurred…, includes any continuation, change or resumption of that…'property damage' after the end of the policy period."

On appeal, the Court of Appeals of Indiana evaluated the policy language and found that both policies provided coverage for the damage caused by the fractured storm drain pipe. With regard to the Grange Mutual policy, the court found that coverage was triggered when the flooding occurred during its policy period. It did not matter when the original negligence occurred. With regard to the West Bend policy, the court found that coverage was triggered by the original fracturing of the storm drain pipe. 

The judgment of the lower court was affirmed in part and reversed in part. The court was directed to apportion damages to both insurers as directed by the court of appeals.

Grange Mutual Casualty Company vs. West Bend Mutual Insurance Company-No. 29A02-1008-PL-965-Court of Appeals of Indiana-March 15, 2011-946 NE2d 593.