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

A tangled web: Sorting out policies' limits

In September 2004, James Isaacs failed to observe a stop sign at an intersection and crashed into a car driven by Anitra Lakes. Isaacs had one passenger in his car, Dustin Gavin. Lakes's mother, LuAnn, and her 12-year-old sister, Hannah, were passengers in Anitra's car. Everyone involved in the accident was injured.

At the time of the accident, Isaacs was insured by Viking Insurance under a personal automobile policy with limits of $25,000 per person and $50,000 per accident. Anitra Lakes's policy, issued by Grange Mutual Casualty Company, included underinsured motorist coverage with limits of $50,000 per person and $50,000 per accident. LuAnn's husband, Jerry Lakes, also had a Grange Mutual policy that included underinsured motorist coverage with limits of $100,000 per person and $300,000 per accident.

In January 2005, the Lakeses sued Isaacs and Grange Mutual for underinsured motorist coverage. Viking paid the $50,000 per-accident limit. This was divided among Hannah, Anitra, LuAnn, Jerry, and Dustin Gavin, with Hannah receiving $5,100. After Viking paid its policy limits, Isaacs was dismissed from the case with prejudice upon a joint stipulation by the parties.

In February 2010, Grange Mutual filed a motion for summary judgment and designation of evidence, claiming that Isaacs's vehicle was not an underinsured vehicle as a matter of law because the per-accident limit of his policy was equal to the UIM per-accident limit in Anitra's policy. Grange also argued that Jerry's policy excluded underinsured motorist coverage under these facts.

On May 5, 2010, prior to responding to Grange's motion, Anitra, LuAnn, and Jerry voluntarily moved to dismiss their claims with prejudice, leaving Hannah as the only party claiming underinsured motorist coverage under Anitra's policy. The next day the trial court granted the motion and dismissed all plaintiffs except Hannah. On the same day, Hannah filed her objection to summary judgment, her brief in opposition, and her designation of evidence.

The trial court granted Grange Mutual's motion for summary judgment. Hannah appealed.

On appeal, Hannah abandoned her claim under Jerry's policy and sought UIM benefits only under Anitra's policy.

The court of appeals reversed the lower court's decision, finding that Isaacs's vehicle was underinsured and that Hannah was entitled to recover up to $44,900 under Anitra's policy. This decision was vacated, however, when the Supreme Court of Indiana agreed to hear the case.

The central issue to be decided by the high court was whether Isaacs's vehicle was an underinsured motor vehicle within the meaning of the Indiana underinsured motorist statute. The statute states that "the term underinsured motor vehicle includes an insured motor vehicle where the limits of coverage available for payment to the insured under all bodily injury liability policies covering persons liable to the insured are less than the limits for the insured's underinsured motorist coverage at the time of the accident, but does not include an uninsured motor vehicle . . . "

Applying this language, Grange Mutual claimed that because the per-accident limits of Isaacs's policy and the per-accident underinsured motorist benefits under Anitra's policy were identical, Hannah received from Grange the same amount she would have received under Anitra's policy had Anitra's UIM benefits provided the only source of recovery.

Grange also argued that the Lakes family could not unilaterally trigger underinsured motorist coverage by dismissing all claims except Hannah's because such action encourages insureds to "structure their relationships" to maximize the available insurance coverage.

The court disagreed. It concluded that whether a driver's vehicle was underinsured depended on a comparison of what the insured actually received from the other driver's insurer and what the per-person, not per-accident, limit was under the insured's policy. Therefore Isaacs's vehicle was "underinsured" within the meaning of the statute. Whether Hannah Lakes would receive benefits under the Grange policy would depend on the damages she could prove in a trial court setting.

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

Lakes vs. Grange Mutual Casualty Company-No. 89S05-1109-CT-531-Supreme Court of Indiana-March 20, 2012-2012 WL 928137 (Ind.).

Beemer blues: Whose policy is primary?

In 2001, as the owner and authorized agent of MCB Productions Ltd., Marilyn Brownell leased a 2001 BMW 325iT from BMW Financial Services NA, LLC. The lease agreement required the lessee to obtain "primary insurance during the [l]ease [t]erm" and to name BMW Financial Services "as an additional insured and loss payee."

MCB Productions obtained a personal automobile policy from Citizens Insurance Company of America/Hanover Insurance. The policy listed Brownell and her husband as insureds, and BMW was listed as an additional insured and loss payee. The policy contained an "other insurance" provision that stated: "If there is other applicable insurance we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits. However, any insurance we provide for a vehicle you do not own shall be excess over any other collectible insurance, including physical damage insurance provided under this or any other policy."

BMW Financial had a commercial automobile policy, issued by Empire Fire and Marine Insurance Companies, that provided contingent, excess, and interim liability coverage for vehicles that BMW leased to others. This policy contained an "other insurance" provision that stated: "It is agreed that the insurance afforded by this policy and Coverage Form is excess over any other collectible insurance whether primary, excess, contingent or self insurance, unless such insurance is specifically written to apply in excess of this policy."

On March 26, 2003, Brownell was operating the BMW while under the influence of alcohol when she struck and seriously injured a pedestrian. The pedestrian and her family sued Brownell and BMW Financial. The case eventually was settled, with Citizens and Empire paying their policy limits and the remainder being paid by BMW Financial's excess insurance carrier, AIG. Empire paid $98,955.92 in legal fees to defend BMW Financial, and Citizens reimbursed Empire for $23,060.62.

When Citizens refused to pay any further reimbursement, Empire filed a declaratory judgment action seeking a determination that Citizens was liable for reimbursement of all attorneys' fees. Citizens filed a counterclaim seeking repayment of the $23,060.62 and asking the court to find that Empire was the primary insurer and therefore responsible for all of the defense costs. The court found that the Citizens policy was primary; Citizens appealed.

On appeal, Citizens argued that the plain language of its "other insurance" provision stated that "coverage for a vehicle not owned by the named insureds is excess over any other collectible insurance," and, because the 2001 BMW was leased to MCB, not the Brownells, the vehicle was not owned by the named insureds. Therefore, Citizens contended, its coverage was not primary.

The Supreme Court of Rhode Island disagreed. In reaching its decision, it noted that a literal reading of the Citizens policy would actually result in no primary or excess coverage for BMW Financial because a named insured did not lease the car. The court found, however, that it could not "read Citizens' policy to render the additional insured lessor endorsement meaningless." This result, the court said, would be "unreasonable and unconscionable." According to the court, the test was what an ordinary insured would understand the language to mean. In this case, the ordinary reader and purchaser of the policy would have interpreted the policy to provide primary coverage for BMW Financial.

The decision of the lower court was affirmed.

Empire Fire and Marine Insurance Companies vs. Citizens Insurance Company of America/Hanover Insurance-No. 2011-33-Appeal-Supreme Court of Rhode Island-May 7, 2012-2012 WL 1592963 (R.I.).

Is five years "timely notice"?

In July 1999, Debra Kalthoff was injured when she slipped and fell on premises leased by Casual Male, Inc. At the time of the accident, Casual Male was insured under a liability policy issued by Arrowood Indemnity Company. Despite its knowledge of the incident, however, Casual Male did not inform Arrowood.

In 2001, Kalthoff and her husband filed a personal injury suit against Casual Male, but shortly thereafter the company filed for bankruptcy, so the lawsuit was put on hold. In May 2004, a stipulation was entered that allowed the Kalthoffs to proceed against Arrowood to obtain the liability policy proceeds. In October 2004, the Kalthoffs sent a letter to Arrowood informing it of the incident and their claims. Arrowood disclaimed coverage on the ground that it did not receive prompt notice of the incident and the lawsuit.

The Kalthoffs ultimately obtained a default judgment against Casual Male. In June 2008, after an inquest, the Kalthoffs were awarded almost $812,000. When Arrowood refused to pay, the Kalthoffs filed a declaratory judgment action seeking to compel payment of the default judgment. Arrowood moved for summary judgment dismissing the complaint, and the Kalthoffs cross-moved for summary judgment, arguing that Arrowod's disclaimer of coverage was not effective against them. The New York Supreme Court ruled in favor of the Kalthoffs; Arrowood appealed.

On appeal, Arrowood asserted that the Kalthoffs were aware in February 2003 that Casual Male had a liability policy with Arrowood and that they did not provide notice to Arrowood until October 2004.

The Kalthoffs argued that the complicated facts and circumstances of their case as a result of the bankruptcy excused them from the burden of demonstrating that their delay was reasonable.

The court disagreed, holding the Kalthoffs' "professed confusion regarding the applicable law to be insufficient as a matter of law to constitute a reasonable excuse for their delay in notifying defendant of the accident and their claims." The court concluded it could not find that the Kalthoffs' efforts to provide timely notice were reasonable.

The decision of the lower court was reversed, and the complaint against Arrowood was dismissed.

Kalthoff vs. Arrowood Indemnity Company-Supreme Court, Appellate Division, Third Department, New York-May 3, 2012-2012 WL 1537575.

Framed: Insurer denies claim for code compliance costs

Ronald Koziol and his wife decided to act as general contractors on a house they were building in Cumberland, Rhode Island. They entered into an agreement with a subcontractor to frame the house. The framer's work did not comply with the town's building code, so the Koziols were forced to pay another contractor to bring the house up to code.

The Koziols' homeowners insurer was Peerless Insurance Company. In addition to basic coverage, the Koziols had paid an extra premium for "Homeowners Special Ultra Plus Coverage." Assuming that this coverage would reimburse them for the extra expense they had incurred to bring the house up to code, the Koziols filed a claim for that amount. When Peerless denied coverage, the Koziols filed a declaratory judgment action. The court ruled in favor of the plaintiffs; Peerless appealed.

The "Special Ultra Plus" endorsement was included in the "base coverages and premiums" section of the policy's premium outline. The description of the coverage was on page 17 of the policy and stated: "MORE PROTECTION FOR LESS! For a nominal premium charge, your Homeowners Policy with Special Ultra Plus Coverage provides you with a lot of protection." Beneath the headline was a list of items covered, including "Ordinance or Law Compliance for Buildings (required after a loss)." Under the amount of coverage for this item, the word "covered" was listed. The term "loss" was not defined. A statement at the bottom of page 17 read: "The information contained in this summary is a brief description only. The summary is not an insurance contract. Coverage may vary from state to state and is subject to change. For these reasons, please consult your agent, policy and endorsements for a complete description of coverages and limits." On appeal, Peerless argued that two exclusions in the policy precluded coverage for the Koziols' claim. First, the policy excluded coverage for faulty workmanship. Second, the ordinance or law exclusion applied.

The Koziols argued that these exclusions, combined with the summary of the Special Ultra Plus endorsement, caused the policy to be ambiguous. According to the Koziols, an ordinary reader could reasonably believe that the policy covered their claim.

In reaching its decision, the Supreme Court of Rhode Island stated: "We have no trouble concluding that, despite being cloaked with the label 'summary,' the terms cited by plaintiffs are part of their homeowners insurance policy and that they should be considered together with the other terms of the agreement."

The court further stated: "Like a declaration page, the contents of an insurance coverage summary—particularly when it is found within the four corners of the policy, as it is here—are of paramount importance because it is common knowledge that the detailed provisions of insurance contracts are seldom read by the consumer."

The judgment of the lower court was affirmed.

Koziol vs. Peerless Insurance Company-No. 2010-244-Appeal-Supreme Court of Rhode Island-April 11, 2012-2011 WL 1201939.


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