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

Friends don't let friends ride ATVs

In June 2010, Michael Chiarello, a minor, and his mother sued Frank and Lori Rio for injuries that Michael sustained while operating the Rios' all-terrain vehicle on their premises when he was a guest at their vacation home. At the time of the accident, July 2007, the Rios' house was insured by Encompass Insurance Company of America. The Rios sent a copy of the lawsuit paperwork to Encompass in July 2010, the month after they were served. On August 5, Encompass disclaimed coverage. It stated that the Rios had failed to notify Encompass of the occurrence within a reasonable time and also that the occurrence fell within policy exclusions.

The Rios filed a third-party action against Encompass seeking indemnification and damages for breach of contract and negligence. Encompass asked the court to dismiss the complaint or, in the alternative, to sever the third-party action from the primary action. The lower court denied Encompass's motion; Encompass appealed.

The Encompass policy stated that the insurer did not have a duty to provide coverage unless the insured notified it of an occurrence "as soon as practical." It also excluded coverage for any accident involving the all-terrain vehicle while it was not being operated on the Rios' property. Encompass argued that notice was a condition precedent to the receipt of benefits under the policy, and that it had established that the Rios did not provide the required notice because they did not inform Encompass about the accident until three years after it had occurred.

The Rios argued that Michael had taken the all-terrain vehicle without their permission and contrary to their instructions. They said that Michael told them the accident occurred while he was attempting to cross a "sand pit" that was not located on their property and that they had warned him not to drive in. They said further that Michael gave no indication after the accident that he intended to file suit against them, so they had no reason to think they needed to inform Encompass of the potential for a claim.

Because there was an issue of fact with regard to whether it was reasonable for the Rios not to inform Encompass of the accident until they received a summons and complaint, the Supreme Court, Appellate Division, Second Department, New York, found that the lower court properly denied the insurer's request for dismissal of the action for indemnification and coverage based on breach of contract. The court also found that the lower court properly denied the insurer's motion for dismissal of the action based on negligence. According to the appellate court, the claim for breach of contract did not automatically give rise to a negligence action unless a legal duty independent of the contract had been violated. Finally, the appellate court stated that it could not review the lower court's decision denying severance of the third-party action absent a showing of prejudice; and that in any event, any showing of prejudice could be mitigated with appropriate jury instructions.

The decision of the lower court was affirmed except as it applied to the breach of contract claim.

Chiarello vs. Rio-Supreme Court, Appellate Division, Second Department, New York-December 12, 2012-2012 WL 6176622 (N.Y.A.D. 2 Dept.).

Can wife recover when spouse sets fire to house?

Michelle and David Postell were married for 31 years. Since 1989, they had lived in a house in Dixon, Iowa, that they owned as joint tenants.

During their marriage, Michelle left David numerous times because she said he was verbally, physically, and emotionally abusive, but the couple always reconciled. She permanently separated from him in January 2009 and was in the process of seeking a divorce. During that time, Michelle still considered the house to be her residence and planned to return there after David moved out.

David became depressed and suicidal. On February 14, 2009, he attempted suicide by pouring gasoline throughout the house, turning on the stove, and lighting candles. Several people tried to stop him, but he eventually set fire to the house and suffered burns over 60% to 70% of his body. Three days later he died from his injuries.

An agent from the Iowa State Fire Marshal's office investigated the fire and concluded that the cause of the fire was arson. It was uncontested that Michelle had no role in setting or contributing to the fire.

The house was insured under an American Family Mutual Insurance Company residential fire insurance policy. Although Michelle paid all the premiums, both David and Michelle were named insureds under the policy.

After the fire, Michelle submitted a proof of loss claim to American Family, reporting losses in the amount of $195,902.28 for buildings, $44,140.96 for personal property, and $2,786 for loss of use. The insurer denied her claim and refused to pay.

Meanwhile, LaSalle Bank, the mortgage holder on the property, filed a petition for foreclosure on the heavily damaged house. Michelle filed a cross petition against American Family for denying her claim and refusing to pay. American Family paid off the mortgage, then filed a motion for summary judgment, arguing that, because David intentionally set fire to the house, Michelle could not recover because the intentional loss exclusion of the policy applied.

The court found that the exclusion barring coverage applied and that Michelle was not entitled to coverage for the fire started by David, a coinsured. Michelle appealed.

The policy's intentional loss exclusion defined an intentional loss as "any loss or damage arising out of any act committed: a. by or at the direction of any insured; and b. with the intent to cause a loss." The policy contained two other provisions that denied coverage for "neglect of any insured to use all reasonable means to protect covered property at and after the time of loss" and in cases where an insured had committed "fraud," defined as "concealment, misrepresentation or attempt to defraud by any insured either in causing any loss or in presenting any claim under [the] policy."

On appeal, Michelle asked the Supreme Court of Iowa to decide whether the suicidal coinsured, David, who set fire to the house, formed the requisite intent to cause a loss within the meaning of the policy. She also asked the court to determine whether she, as an innocent coinsured, could recover under the policy when "any insured" caused an "intentional loss" or a hazard to the insured property. Michelle argued that David did not have the requisite intent to cause a loss because he suffered from a mental defect causing an "uncontrollable impulse to commit suicide."

The high court disagreed. In reaching its decision, the court noted: "Our court of appeals has recognized [that] the intent to commit suicide [by setting fire to property] does not negate the existence of the intent to commit intermediate acts necessary to achieve the ultimate objective, and "[T]he existence of the intent to commit suicide does not negate the existence of the knowledge [that] the property would be damaged or destroyed by the alleged suicide attempt."

Michelle also argued that she was entitled to compensation as an "innocent spouse." Again the court disagreed. According to the court, it is "well-settled law in [the state of Iowa] that 'any insured' is an unambiguous phrase that precludes coverage for all insureds, including an innocent coinsured spouse." Therefore, the court held, American Family properly denied coverage to Michelle under the intentional loss exclusion.

Next Michelle argued that a severability clause in the policy provided coverage to her. That clause stated: "Each person described above is a separate insured under this policy." She asked the court to interpret the policy as if she were the only insured, allowing her to recover because she did not set fire to the house.

The court refused to construe this language to allow coverage. The court reasoned: "If we construe all references to 'any' or 'the' insured as a 'separate insured,' this renders the exclusion's express language imposing joint obligations a nullity." According to the court, Michelle did not have a reasonable expectation that the policy covered this kind of loss; therefore, she was not entitled to recover.

The lower court's judgment that Michelle was not entitled to coverage under the policy was affirmed.

Postell vs. American Family Mutual Insurance Company-No. 12-0098-Supreme Court of Iowa-November 16, 2012-823 North Western Reporter 2d 35.

Limits in limbo: Which policy applies?

On June 17, 2005, Charles Leatherwood allegedly was injured when the motorcycle he was driving collided with a van driven by Diana Lynn Tarrant. At the time of the accident, the van was leased from Huntington Bank and registered to Blue Ribbon Cleaning, Inc., a cleaning business operated and solely owned by Mrs. Tarrant and her husband, John Tarrant. Leatherwood subsequently filed suit against the Tarrants, alleging that the accident was caused by Mrs. Tarrant's negligence and seeking compensation for personal injury and property damage.

After Leatherwood sued the Tarrants, a dispute arose between the Tarrants and their insurer, Allstate Insurance Company, as to the amount of liability insurance coverage that was available on the van. Allstate's position was that the van was covered under a personal auto policy with liability limits of $100,000 per person and $300,000 per accident; the Tarrants maintained that the van was covered under a commercial auto policy with liability limits of $500,000.

Allstate alleged that before the accident, the insured had instructed his insurance agent to transfer the van from the commercial policy to the personal policy. The insured denied this and alleged that he had instructed the agent to retain the van on the commercial policy. The trial court ruled that because the insurer had sent the insured a letter and premium bills showing the change in coverage and the insured had paid the bills without objection, he had ratified the transfer and the van was covered under the personal policy. The Tarrants appealed, and the court of appeals reversed the lower court's decision. Allstate appealed to the Supreme Court of Tennessee.

On appeal, the high court noted that the trial court had found that both John Tarrant and the agency producer who handled his request were credible and stated: "Because a trial court is in a position to observe witnesses and assess their demeanor and other indicators of credibility, a trial court's determination of credibility will not be overturned on appeal unless there is clear and convincing evidence to the contrary."

The high court reversed the appellate court's decision on the ground that Tarrant's Allstate agent was not acting in Tarrant's stead and for his benefit when the van was transferred from the commercial policy to the personal policy and, therefore, the insured did not ratify the mistaken transfer by making premium payments on the personal policy. The court held further that the insured acted on his own behalf when he instructed the insurer's agent to place all vans under the commercial policy and all other vehicles under the personal policy; that the agent did not perform any tasks that the insured would have been able to perform himself because he did not have access to insurer's computer system; and the agent was the agent of the insurer, not the insured.

Allstate Insurance Company vs. Diana Lynn Tarrant et al.-No. E2009-02431-SC-R11-CV-Supreme Court of Tennessee-March 26, 2012.

How late is too late?

In March 2007, Kenneth Rosier was replacing garage doors at an automobile repair shop when he fell off a ladder into a deep pit in the garage. The building that housed the repair shop was owned by Joseph Stoeckeler. In late October 2008, Rosier's attorney sent a letter to Stoeckeler regarding the incident. Stoeckeler faxed a copy of the letter to his insurance broker, C.S. Benson & Sons, Inc., at the beginning of November. Benson did not inform American Western Home Insurance Company, Stoeckeler's insurer, or American Western's agent, LoVullo Associates, of the incident.

In February 2009, Rosier and his wife filed suit against Stoeckeler. Stoeckeler promptly informed Benson, but Benson lost the documents and again failed to notify American Western or LoVullo.

At the end of February, American Western disclaimed coverage, citing failure to provide prompt notice. Stoeckeler filed a default judgment action against Benson and American Western.

The court found in favor of Stoeckeler with regard to Benson but not with regard to American Western. According to the court, the notice given to American Western was late, so the insurer was not obligated to defend or indemnify Stoeckeler. The Rosiers and Stoeckeler appealed.

On appeal, the New York Supreme Court, Appellate Division, noted that the American Western policy clearly stated that prompt notice was to be given to American Western or its agent, LoVullo. American Western did not receive notice of the March 2007 incident until June 1, 2009. It did not matter that Stoeckeler forwarded a copy of the letter from the Rosiers' attorney to Benson. Benson was a broker, not an agent of American Western and, therefore, was not authorized to receive notice on the insurer's behalf. The appellate court concluded that the trial court had properly determined that the delay in giving notice to American Western was unreasonable.

The decision of the lower court was affirmed.

Rosier vs. Stoeckeler-Supreme Court, Appellate Division, Third Department, New York-December 13, 2012-101 Appellate Division 3rd 1310.


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