INSURANCE-RELATED COURT CASES
Digested from case reports published in Westlaw,
West Publishing Co., St. Paul, MN
Lamborghini on the lam: Insurer denies theft claim
On March 4, 2008, Barry Byrd parked his 2005 Lamborghini at a car dealership owned by David Jordan. Byrd and Jordan had an established business relationship whereby Jordan would sell cars for Byrd. If Jordan had an interested buyer, Byrd would sell the car to Jordan for an agreed-upon price. He would sign the car title over to Jordan; then Jordan would sell the car to the interested buyer. Jordan's brother was also in the car dealership business, but Byrd never had business dealings with him.
Byrd returned to the dealership and discovered that the Lamborghini was gone. Jordan's brother told him that he had sold the vehicle. David Jordan followed up with Byrd about a week later and confirmed that the vehicle had indeed been sold. On May 28, Byrd and Jordan agreed to a sale price of $225,000, which was to be paid within 30 days. Also on May 28, Byrd cancelled the automobile policy he had maintained on the Lamborghini. The policy had been issued by United Services Automobile Association (USAA).
Byrd never received the $225,000, and the vehicle was never returned to him. By June 30, 2008, Jordan's car dealership was closed and neither Jordan nor his brother could be located. The car dealer for the buyer claimed that she had paid Jordan's brother $225,000 and that he had promised to deliver the title to her. She took possession of the vehicle on May 22, 2008, but she never received the title from Jordan's brother.
According to Byrd, when Jordan contacted him on May 24, Jordan told him that the buyer had made only partial payment of the sale price. Byrd deposed that upon filing a theft report with the police in July 2008, he learned the buyer's identity, contacted her, and learned that she had paid more than $200,000 for the vehicle. Byrd stated that he had never agreed to sell the vehicle.
Byrd continued to make payments for the vehicle to the bank that had financed the vehicle and retained the title.
On July 21, 2008, Byrd filed a theft claim with USAA. The insurer denied the claim on the ground that there had been no criminal taking of the vehicle and there was no felonious intent to steal the vehicle. Byrd filed suit against USAA, alleging breach of contract and bad faith. The trial court found in favor of USAA as a matter of law. Byrd appealed.
The relevant portion of the policy stated: "Loss means direct and accidental damage to the operational safety, function, or appearance of, or theft of, your covered auto . . ." On appeal, USAA argued that, while it was undisputed that the proceeds from the sale had been stolen, there was no evidence that the vehicle itself was stolen at the time the policy was in effect. Byrd argued that the loss of his vehicle resulted from theft by taking and theft by conversion, which were covered under the policy.
The Court of Appeals of Georgia agreed with Byrd. The court noted that there was evidence from which a jury could find the fraudulent intent required to commit theft by conversion. Jordan's brother allegedly told the buyer's dealer that Byrd had consented to the sale of the car when in fact he had not. In addition, Jordan allegedly told Byrd he would pay him $225,000 within 30 days, but he never did. Finally, there was evidence that by the end of June the dealership was closed and neither Jordan nor his brother could be located.
The court rejected USAA's argument that Byrd had ratified the sale by agreeing to the sale price; according to the court, by the time Byrd agreed to the sale price, the car was already in the possession of the buyer's dealer. Based on this evidence, the appeals court decided that the trial court had erred by finding in favor of the insurer as a matter of law. The court concluded that a genuine issue of material fact existed as to whether Jordan's brother had sold Byrd's car with the fraudulent intent required to commit theft within the meaning of the policy.
The decision of the lower court was reversed.
Byrd vs. United Services Automobile Association-No. A12A001-Court of Appeals of Georgia-June 26, 2012-2012 WL 2384426 (Ga. App.).
Something's fishy: Can insurer demand data from care providers?
Selective Insurance Company of America insured several individuals who were injured in automobile accidents and received medical treatment from Hudson East Pain Management Osteopathic Medicine and affiliated providers. The insureds assigned their contractual rights to seek reimbursement under their Selective Insurance policies to Hudson East, which in turn submitted claims to Selective.
In evaluating the claims, Selective noticed what it considered to be suspicious patterns in the treatments and in the corporate connections among the entities that provided treatment. To investigate these patterns, Selective asked Hudson East to provide data regarding its ownership structure, billing practices, and regulatory compliance. Hudson East refused to provide the requested information.
Selective then filed a declaratory judgment action alleging that Hudson East had breached its duty to cooperate, and that it had violated the New Jersey personal injury protection (PIP) discovery statute by failing to provide the requested information.
The court found in favor of Selective and directed Hudson East to respond to Selective's request for information. Hudson East appealed.
On appeal, Selective argued that Hudson East, as an assignee of the injured parties, was bound to the terms of the insureds' policies. It asserted that under the language of those policies it had the right to demand and receive the information it sought.
The Superior Court of New Jersey, Appellate Division, disagreed. The panel set forth three grounds in support of its decision. First, it determined that Selective's reliance on the cooperation clause in its policies was unavailing. It also analyzed the statutory framework for discovery of facts with respect to PIP coverage and held that Selective's discovery demands sought information far beyond what was statutorily authorized. Finally, while acknowledging the state's strong interest in combating insurance fraud, the Appellate Division panel held that Selective could not seek the information through the vehicle of a declaratory judgment complaint, which sought no substantive relief other than discovery.
The Appellate Division reversed the trial court's decision, holding that Selective's demands were inconsistent with New Jersey's PIP statute and that the insurer could not seek the information by filing a declaratory judgment action without seeking other substantive relief. Selective filed for review of the case by the New Jersey Supreme Court.
The Supreme Court evaluated the language of Selective's cooperation clause, which appeared in all of the policies. That language provided, in relevant part: "PART EóDUTIES AFTER AN ACCIDENT OR LOSS . . . We have no duty to provide coverage under this policy unless there has been full compliance with the following duties . . . B. A person seeking any coverage must: 1. Cooperate with us in the investigation, settlement or defense of any claim or suit."
The high court noted that, unless language or circumstances indicate the contrary, the acceptance of an assignment operates as a promise to perform any duties not yet performed by the assignor. The court also noted that an assignee can have no rights or duties that are greater than those of the assignor.
According to the court, because the insureds had no duty to provide information to Selective with respect to the ownership structure, billing practices, or referral methods of the medical providers they used, the insureds' assignees likewise did not have this duty.
Selective also argued that the appellate panel erred when it held that Selective's discovery demands contravened New Jersey's PIP statute. Again the Supreme Court disagreed. Subsection (b) of the PIP statute states that health care providers "shall, if requested to do so by the insurer . . . furnish forthwith a written report of the history, condition, treatment, dates and costs of such treatment of the injured person, and produce forthwith and permit the inspection and copying of his or its records regarding such history, condition, treatment dates and costs of treatment."
The court held that the information sought by Selective far exceeded the limitations set forth in the statute. It refused to expand the scope of the statute "merely because plaintiff [had] formed the belief that defendants may not have complied with the requirements of other statutes or regulations."
The judgment of the Appellate Division was affirmed.
Selective Insurance Company of America vs. Hudson East Pain Management Osteopathic Medicine-Supreme Court of New Jersey-July 18, 2012-2012 WL 2913768 (N.J.).
Out of order: Insurer's missteps bar its defense
James Hoover worked for Emergency Water Extraction Services (EWES). On October 20, 2004, Hoover's supervisor asked him to deliver a ladder to a worksite where an independent roofing contractor was repairing a roof. While Hoover was delivering the ladder, the roofing contractor asked Hoover to assist him with something on the roof. Hoover agreed, even though his duties did not include climbing on ladders or making roof repairs. A few minutes later, the contractor asked Hoover to retrieve something on the ground. As he was descending the ladder, he fell and sustained a serious brain injury.
One of the co-owners of EWES, Jeff Owen, visited Hoover in the hospital. He spoke with Hoover's stepfather, Jerry McEntee, who requested information about EWES's insurance. McEntee, who was an insurance agent, told Owen that he planned to contact EWES's commercial liability insurer, Maxum Indemnity Company, to verify policy information. About a week later, McEntee told Owen that he had notified the insurer of the occurrence and that he had learned that the policy had a $1 million liability limit.
In September 2006, Hoover filed suit against EWES. On October 19, 2006, EWES forwarded the complaint to Maxum. In a letter dated October 23, Maxum disclaimed coverage and stated that it would not provide a defense or indemnification. The letter also stated that the October 19, 2006, correspondence from EWES was its first notice of Hoover's injury, and that in any case coverage was excluded under the policy's employers liability exclusion.
Under the exclusion, coverage was excluded for bodily injury to "(1) An employee of the insured arising out of and in the course of: (a) Employment by the insured; or (b) Performing duties related to the conduct of the insured's business."
In February 2007, Maxum filed a declaratory judgment action stating that EWES's claim was precluded by the employers liability exclusion. In its pleadings, Maxum did not mention EWES's failure to give timely notice as a rationale for denying defense and indemnification.
Hoover eventually obtained a judgment against EWES in the amount of $16.4 million. He then filed suit against Maxum alleging breach of duty to defend and seeking indemnification. At this point, Maxum brought up lack of timely notice as a defense.
The trial court found that Maxum could deny coverage because it had not received timely notice of Hoover's injury. The court also found, however, that Maxum had breached its duty to defend. Both parties appealed.
The appellate court affirmed the decision regarding timely notice, but it reversed the finding that Maxum had breached its duty to defend. At that point, the Supreme Court of Georgia agreed to evaluate whether the Court of Appeals had properly analyzed the assertion that Maxum had waived its right to assert a defense based on lack of timely notice and whether timely notice of the occurrence was a prerequisite to Maxum's having a duty to defend.
The Supreme Court found that Maxum could not reserve its right to assert a defense of lack of timely notice after denying coverage on other grounds. In reaching its decision, the court noted the importance of a proper reservation of rights. It emphasized that a reservation of rights "is only available to an insurer who undertakes a defense while questions remain about the validity of the coverage." According to the court, Maxum's October 23, 2006, letter was not a proper reservation of rights because the insurer did not agree to defend under a reservation of rights and then file a declaratory judgment action. Furthermore, Maxum did not raise lack of timely notice as a defense when it filed its declaratory judgment action.
The court concluded that because Maxum failed to provide a proper reservation of rights or raise lack of timely notice as a defense, it waived its right to assert the defense. In addition, because Hoover was not performing duties related to the conduct of EWES's business when he was injured, the employers liability exclusion did not apply. Because Maxum had no defense, the Supreme Court found that the trial court was correct when it decided that Maxum had breached its duty to defend in the underlying tort action.
The judgment of the Court of Appeals was reversed.
Hoover vs. Maxum Indemnity Company-Nos. S11G1681, S11G1683-Supreme Court of Georgia-June 18, 2012-2012 WL 2217040 (Ga.).