INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Teen tragedy: Was each drink an "occurrence"?

Marqui Cook, Tiffany Oliver, and Nikole Brown, all minors, attended a party at the Meek residence, which was insured under a homeowners policy issued by Citizens Property Insurance Corporation. The Meeks allegedly served or allowed alcoholic beverages to be served to the minors at the party in violation of a state statute. The minors became intoxicated, drove away from the party in a motor vehicle, and were involved in a serious car crash, resulting in the deaths of Cook and Oliver and serious injuries to Brown.

The personal representatives of the estates of Cook and Oliver filed a declaratory judgment action against Citizens and the Meeks, seeking a judicial decree interpreting the term "occurrence" in the Citizens policy.

The estate representatives contended that the policy's liability limit of $100,000 per occurrence applied to each alcoholic drink consumed by each of the deceased minors, in addition to a separate $100,000 occurrence limit for the Meekses' negligence in "allowing the minors to become intoxicated, and then to leave the Meek residence operating a motor vehicle while in an intoxicated state."

Citizens disagreed, arguing that there was only one occurrence: the car crash. Both parties moved for judgment on the pleadings.

The trial court ruled that "the complaint alleges multiple 'occurrences' under the policy" and held that each alcoholic drink served or allowed to be served to Cook and Oliver at the Meek residence was a separate "occurrence" for which the Meeks and Citizens were liable. Citizens appealed.

In reviewing the trial court's interpretation of the Citizens policy, the Court of Appeal of Florida, Fifth District, noted that the liability portion of the policy provided, in relevant part:

COVERAGE E—Personal Liability

If a claim is made or a suit is brought against an insured for damages based on "bodily injury" or "property damage" caused by an "occurrence" to which this coverage applies, we will:

1. Pay up to our limit of liability for the damages for which the "insured" is legally liable . . .

SECTION II—CONDITIONS

1. Limit of Liability

a. Our total liability under Coverage E for all damages resulting from any one "occurrence" will not be more than the Coverage E limit of liability shown in the Declarations.

This limit is the same regardless of the number of "insureds," claims made or persons injured.

All "bodily injury" and "property damage" resulting from one accident or from continuous or repeated exposure to substantially the same general harmful conditions will be considered to be the result of one "occurrence."

The policy defined an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results, during the policy period, in: a. 'Bodily injury'; or b. 'Property damage.' " The policy did not define the term "accident."

The appellate court stated that, in reaching its decision that each drink provided to each deceased minor was a separate occurrence, the trial court had misinterpreted rulings in two previous cases. For that reason, and based on the Citizens policy wording, the appellate court concluded that there was only one occurrence, the car crash, and therefore reversed the trial court's judgment.

Citizens Property Ins. Corp. vs. Cook-No. 5D11-1555-District Court of Appeals of Florida, Fifth District-July 20, 2012-37 Fla. L. Weekly D1726.

Foot dragging insurer dragged into penalty box

Katie Realty, Ltd. owned real property located in Houma, Louisiana. In 2008, the property was damaged due to Hurricane Gustav. Katie filed a claim with its commercial insurance provider, Louisiana Citizens Property Insurance Corporation. After the claim was denied, Katie filed suit seeking payment of its unpaid property damage claim of $192,423.98 plus statutory penalties and attorney fees. The parties eventually submitted the matter to mediation and agreed upon a written settlement agreement. Under that agreement, Citizens was to pay $250,000 plus court costs up to $1,000 within 30 days "from today" (July 16, 2010). The settlement amount included payment for Citizens' "arbitrary and capricious conduct in the handling of plaintiff's claim."

Katie's attorney sent an e-mail to Citizens' attorney on August 11, 2010, asking him to ensure that funds were received by August 16. On August 16, Citizens' attorney contacted Katie's attorney asking for a completed IRS W-9 form. This form was delivered to Citizens' attorney the same day. On August 17, Citizens' attorney left a message for Katie's attorney that a paralegal would be contacting him regarding the settlement papers. Eight days later, Citizens' attorney sent an e-mail to Katie's attorney attaching a receipt and release, and a copy of the settlement checks. Katie's attorney requested changes to the receipt and release, reserving Katie's right to sue for penalties and attorney fees. The receipt and release was signed and delivered on August 27. On August 28, Citizens' attorney sent an e-mail that the checks were mailed "yesterday afternoon." On August 30, Katie's attorney filed a Motion and Order to Enforce Settlement and Assess Damages, Penalties, and Attorney's Fees. The checks were finally received on August 31, 2010. The envelope was post-marked August 30, 2010.

In its motion, Katie sought penalties and attorney fees pursuant to a Louisiana statute which provided that failure to "pay the amount of any claim due any insured within thirty days after receipt of satisfactory proof of loss" . . . "when such failure is found to be arbitrary and capricious, or without probable cause, shall subject the insurer to a penalty, in addition to the amount of the loss, of fifty percent damages on the amount found to be due from the insurer to the insured . . . as well as reasonable attorney fees and costs." Katie also sought penalties under a second statute that provided that a "claimant may be awarded penalties . . . in an amount not to exceed two times the damages sustained or five thousand dollars, whichever is greater" if an insurer knowingly "fail[s] to pay a settlement within thirty days after an agreement is reduced to writing." According to Katie, the statutory language required Citizens to pay a penalty of ½ the amount due as well as attorney fees and costs. Citizens argued that it owed only the maximum penalty of $5,000 set forth in the second statute.

The lower court found that Citizens was to pay a penalty of ½ of the amount due, $125,000, inclusive of attorney fees. The appellate court affirmed that decision. The Supreme Court of Louisiana granted writs to further consider the issue and eventually reversed the decision of the lower court. According to the court, the phrase "proof of loss" contained within the first statute cited by Katie meant proof of "the amount of any claim due any insured" arising under its contract of insurance issued by an insurer. The settlement was not an insurance claim arising under the contract of insurance; rather, it was a compromise resolving the dispute over the insurance claim. The court concluded that the written settlement of the contested insurance claim did not constitute proof of loss of an insurance claim sufficient to subject the insurer to the penalties set forth in the statute allowing penalties of ½ of the damages. The court additionally found that the statute awarding a maximum of $5,000 in penalties applied.

The decision of the lower court was reversed and judgment was rendered awarding Katie $5,000 in penalties.

Katie Realty, Ltd. vs. Louisiana Citizens Property Insurance Corporation-No. 2012-C-0588-Supreme Court of Louisiana-October 16, 2012-2012 WL 4901067 (La.).

Did renewal comply with the law?

Jonathan Schupp was the owner, general manager, and sole shareholder of Northern Pine Lodge, Inc. (the lodge), a resort in Hubbard County, Minnesota. Beginning in 2003, the lodge purchased commercial general liability insurance through Ross Nesbit Agencies and insurance agent Tom Rykken. Since 1986 Schupp had maintained a separate policy, through a different agency, for automobile insurance coverage.

The lodge's CGL policy, procured by the Nesbit agency, was issued by United Fire & Casualty Company. At all times since the lodge first bought the policy in 2003, it contained an exclusion for losses resulting from bodily injury or property damage arising out of the "ownership, maintenance, use or entrustment to others of any . . . 'auto' . . . owned or operated by or rented or loaned to any insured." The lodge renewed this policy every year after 2003, including the relevant time period of July 2, 2009, through July 2, 2010.

The lodge owned a 1989 Plymouth Voyager minivan. In 2009, Schupp again purchased an automobile policy through another agency to cover the vehicle. On August 12, 2009, Schupp was driving the minivan when he collided with a motorcycle. Both of the motorcycle riders were killed, and wrongful death claims were brought against Schupp and the lodge. Schupp's and the lodge's auto insurer partially paid the claims, but the decedents' next of kin sought additional amounts from Schupp and the lodge to settle their claims.

The lodge sought additional coverage from its CGL insurer, United Fire & Casualty. Citing the policy's automobile exclusion, the insurer denied coverage. Schupp and the lodge sued United Fire and the Nesbit agency, bringing claims for estoppel and declaratory relief. The parties filed cross-motions for summary judgment; the district court granted Schupp's and the lodge's motion, and denied United Fire's motion. The district court concluded that United Fire could not enforce the automobile exclusion because it had not complied with statutory requirements when it renewed the policy in 2009.

The district court awarded Schupp and the lodge $122,317, representing attorney fees incurred in litigating the declaratory judgment action against United Fire and Nesbit, as well as attorney fees incurred in litigating the underlying wrongful death actions. United Fire & Casualty appealed.

Schupp testified at his deposition that he had received and read a complete copy of his commercial general liability policy when it was first issued by United Fire in 2003, and that he would "page through" the renewal documents each year. He claimed that he had never seen the automobile exclusion and that he assumed the CGL policy would cover any losses arising from the use of an automobile over and above his separate auto insurance. Schupp acknowledged that neither agent Rykken nor anyone else at the Nesbit agency had ever told him that he had auto coverage under the CGL policy. Schupp admitted that he did not recall speaking with Rykken about auto coverage when he first purchased the CGL policy in 2003.

Rykken confirmed that he had received no information about Schupp's automobiles because "[Schupp] wasn't interested in having me quote his autos."

Unlike with new policies, United Fire said it did not give the customer a full copy of its policy with every applicable form when it renewed a policy. Instead, United Fire asserted that it was customary practice in the insurance industry, and required by law, that the insurer provide the insured a declarations page and copies of any forms that changed or modified the policy. When Northern Pine Lodge renewed its policy in 2009, it received 91 pages of documents from United Fire.

A 15-page "Commercial General Liability Coverage Part" contained a page titled "Forms and Supplemental Declarations," which listed the various coverage forms and exclusions applicable to the policy, including the CGL coverage form. Any form that had been added or amended since the previous policy period was noted with an asterisk. The remaining pages of the "Commercial General Liability Coverage Part" were copies of each amended provision.

The automobile exclusion at issue appeared in the CGL coverage form. Because the form had not been modified or amended since 2007, however, a copy of it was not attached to the 2009 renewal. All declarations and forms for the lodge's policy were available at all times on United Fire's Web site, and a page in the renewal policy so informed the lodge.

The Minnesota Court of Appeals noted that the relevant statute provided in part: "A statement in full of the conditions of insurance shall be incorporated in or attached to every policy . . ."

In concluding that United Fire's renewal documents had not sufficiently set forth the entire policy, the district court had found that the legislature's use of the words "incorporated in" rather than "incorporated by" were telling. The appellate court disagreed, stating it found no material distinction between the prepositions "in" and "by."

The court therefore concluded that the statute was not ambiguous and did not require an insurer to physically attach each and every term and condition of insurance to a renewal policy; rather, the insurer could comply with the statute by incorporating terms and forms by reference.

The appellate court reversed the district court's grant of summary judgment in favor of Schupp and the lodge, and held that United Fire was entitled to summary judgment.

Schupp vs. United Fire & Cas. Co.-No. A12-0453-Court of Appeals of Minnesota-October 1, 2012-2012 WL 4476636.