Table of Contents 

INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Junked jewelry: Does policy cover accidental disposal?

Phillip Livingston owned a jewelry store called Elegant Slumming. In June 2010, the store received two packages containing $141,640 worth of jewelry. Following standard procedure, employee Benjamin Killebrew signed delivery receipts and placed the packages under what the store referred to as the "wrap desk," where packages were stored until they could be opened and inventoried. Later that afternoon, after a particularly hectic day, Killebrew cleaned out trash located near the wrap desk.

Two days later, Livingston realized that the two packages had not been inventoried. When he asked Killebrew where they were, Killebrew realized he had accidentally thrown them out with the trash near the wrap desk.

Livingston submitted a claim to his insurance carrier, National Grange Mutual Insurance Company. NGM denied the claim, citing a policy exclusion that stated: "We will not pay for loss or damage to property that is missing but there is no physical evidence to show what happened to it, such as shortage disclosed on taking inventory." Elegant Slumming filed suit against NGM.

The trial court held that the exclusion required only "some evidence of what happened to the missing property." It found in favor of the jewelry store and awarded it $141,640 plus attorney fees totaling $50,443.50. NGM appealed.

On appeal, NGM argued that the lower court had erred in finding that the exclusion required only "some evidence" rather than "physical evidence" regarding what happened to the lost property. The Supreme Court of Delaware agreed. The court noted that the lower court's decision was based exclusively on testimonial evidence, and that meeting the "physical evidence" requirement by testimonial evidence was "contrary to the plain and ordinary meaning of the term." It concluded that the testimonial evidence by itself was insufficient to constitute the "physical evidence" intended by the exclusion.

The court noted, however, that Elegant Slumming also had presented "physical evidence" by providing the purchase order invoices, shipping receipts, photographs of the wrap desk, and photographs showing the close proximity of the trash bins to the wrap desk area. According to the court, this evidence, together with the testimonial evidence, was enough to show what happened to the jewelry packages. Therefore the court affirmed the decision of the lower court finding that the exclusion did not apply.

The court then evaluated the lower court's decision to award attorney fees. NGM claimed that the fees awarded were unreasonable because there was nothing unusual about the case and because an unreasonably high percentage of the total hours worked were billed by a partner. The court disagreed, noting that the issue was one of first impression, requiring "significant work on both sides to fully present the arguments." It affirmed the lower court's decision awarding attorney fees to Elegant Slumming.

National Grange Mutual Insurance Company vs. Elegant Slumming, Inc.-No. 278, 2012-Supreme Court of Delaware-January 9, 2013-2013 WL 119676 (Del. Supr.).

Fire sparks insurable interest debate

In August 2000, Thomas Franks purchased a house in Rome, Georgia. His lender required that he obtain homeowners insurance, and he applied for coverage with Georgia Farm Bureau Mutual Insurance Company. His application, and the policy that eventually was issued, listed Franks as the only insured. The "Conditions" section of the policy provided: "[e]ven if more than one person has an insurable interest in the property covered, [GFB] will not be liable in any one loss . . . [t]o the insured for more than the amount of the insured's interest at the time of loss[.]"

After closing on the property, Franks executed a warranty deed conveying the property to himself and his domestic partner, Sterling Morrison, "as joint tenants with right of survivorship and not as tenants in common."

In 2002, when Franks renewed his homeowners policy, he asked his agent, Todd Blankenship, whether it was necessary to add Morrison to the policy as an insured. Blankenship replied that it wasn't necessary to add Morrison because Franks was the only party liable on the debt secured by the property.

In July 2010, the house was destroyed by fire. At that time two loans totaling $104,175.65 were secured by the property, and the coverage amount for the dwelling under the policy was $246,000. Georgia Farm Bureau issued checks discharging the loans, then informed Franks that it would issue him a check for $70,912.18, one-half of the difference between the policy limits and the amount paid to discharge the debts. Franks filed suit against the insurer, arguing that he was entitled to the entire difference between the policy limits and the amount paid to discharge the debts. The lower court denied Georgia Farm Bureau's motion for summary judgment; the insurer appealed.

On appeal, Georgia Farm Bureau argued that Franks's "one-half undivided interest in the [p]roperty as a joint tenant" with Morrison meant that Franks's "interest in the [p]roperty is fifty percent." The insurer also argued that under Georgia's Insurable Interest Statute and other applicable laws, when an insured has an interest in property of less than 100 percent, the insurable interest is equal only to the portion of his ownership interest.

The Court of Appeals of Georgia disagreed. It noted that Georgia law defines an "insurable interest" in property as "any actual, lawful, and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction, or pecuniary damage or impairment." According to the court, having title or legal ownership is not essential to having an insurable interest.

The court further noted: "Although one who owns property with another as joint tenants with right of survivorship is commonly (and confusingly) referred to as having a 'one-half undivided interest' . . . this is not in all ways the equivalent of each having a 50 percent ownership interest."

The court rejected Georgia Farm Bureau's argument that Franks had a 50 percent ownership interest in the property and was entitled to recover only a fraction of the policy limit.

The decision of the lower court denying Georgia Farm Bureau's motion for summary judgment was affirmed.

Georgia Farm Bureau Mutual Insurance Company vs. Franks-No. A12A2196-Court of Appeals of Georgia-March 6, 2013-2013 WL 812427 (Ga. App.).

Up on the roof: Does policy cover damaged AC units?

Michael Beish performed work under a subcontract with Allied Roofing, Inc. The subcontract provided that Beish would remove rubber roofing from a damaged roof at Brown Logistics' building in Columbus, Ohio, and replace it with new rubber roofing.

As part of Beish's work, he was required to remove and reinstall air-conditioning units that were located on the roof. At some point during this process the coils became twisted, causing the coolant to leak out. The damage to the units was discovered when they were turned back on after Beish completed his work. Allied Roofing reimbursed Brown Logistics for the damage, incurring costs of $10,148.

Beish was insured under a commercial general liability policy issued by Western Reserve Group. Allied Roofing filed suit against Beish and Western Reserve seeking to recover the costs of remedying the damage. Allied Roofing and Western Reserve entered into an agreement to adjudicate all coverage issues in exchange for an agreement that Allied Roofing would not seek to recover damages from Beish in his personal capacity and would limit any recovery to the proceeds available under the policy.

As part of the agreement, Allied Roofing and Western Reserve agreed to certain stipulations regarding the underlying facts of the case. Allied Roofing and Western Reserve each moved for summary judgment. The trial court granted Western Reserve's motion and denied Allied Roofing's motion, concluding that the damage to the air-conditioning units was not covered because of exclusions set forth in the policy. Allied Roofing appealed.

The Western Reserve policy provided in part that the insurer would pay all sums that the insured became legally obligated to pay as damages caused by "bodily injury" or "property damage" caused by an "occurrence." The policy defined "occurrence" as "an accident and includes repeated exposure to similar conditions."

Western Reserve asserted that it was entitled to summary judgment because the damage to the air-conditioning units did not constitute an "occurrence" under the terms of the policy. In the alternative, Western Reserve argued that various policy exclusions applied to the Allied Roofing claim.

Allied Roofing argued that it was entitled to summary judgment because the damage to the air-conditioning units was an "occurrence" under the policy and none of the exclusions cited by Western Reserve applied to exempt the damages from coverage.

According to the appellate court: "[T]he question is whether the claim in this case involves defective construction or workmanship." The court noted that Allied Roofing admitted that Beish was negligent in failing to ensure that the air-conditioner coils did not become twisted and that the units were damaged when the coils became twisted, causing the coolant to leak out. The court held that the claim was the result of Beish's defective workmanship in performing his obligations under the contract. The claim did not constitute "property damage" caused by an "occurrence," and therefore it fell outside the policy's coverage.

The judgment of the trial court was affirmed.

Allied Roofing, Inc., vs. Western Reserve Group—Ohio Court of Appeals, Tenth District—April 23, 2013—2013 WL 1749707.

Do covenants preclude recovery?

On April 14, 2007, Phillip Smith was driving near Clover, South Carolina, when his vehicle crashed into a vehicle occupied by Marcella and Claude Savage. The Smith vehicle was owned by Phillip's then-wife, Samantha Smith, and insured by Allstate Insurance Company.

Claude and Marcella Savage each brought an action against Phillip and Samantha seeking to recover for bodily injuries sustained as a result of the accident. Claude and Marcella alleged that Phillip resided with his parents in Gaston County, North Carolina, at the time of the accident and that he therefore was an insured under a North Carolina Farm Bureau Mutual Insurance Company automobile policy held by his father, Michael Smith.

On October 7, 2008, Marcella Savage entered into an agreement with Allstate, Phillip, and Samantha that provided in part:

"Marcella Savage, in consideration of the sum of [$50,000.00] ... specifically agrees and covenants never to attempt to collect any sum from [Phillip Smith] except to the extent allowed herein and agrees and covenants never to seek to execute except to the extent allowed herein any judgment obtained against [Phillip Smith] and will not seek to collect any such judgment out of the personal or real assets of [Phillip Smith] ..."

On December 9, 2009, Claude Savage entered into a similar agreement. Also on December 9, 2009, Marcella and Claude Savage executed an additional agreement with Allstate, Phillip, and Samantha on behalf of Charlotte Savage, the Savages' minor daughter, that set forth the same pertinent language as that in Claude's agreement.

On May 25, 2011, Farm Bureau filed a complaint seeking a declaratory judgment that it would not be held liable under Michael Smith's policy for any damages incurred by the Savages in connection with the accident. Farm Bureau also moved for summary judgment, arguing (1) that Phillip was not a resident of his parents' house at the time of the accident and therefore was not covered under the Farm Bureau policy; (2) that even if Phillip was covered under the policy, coverage was barred in this case because the settlement agreements executed by the Savages included covenants not to execute in favor of Phillip; and (3) that even if Phillip was covered under the policy, his failure to timely notify Farm Bureau of the accident had materially prejudiced Farm Bureau, thereby absolving it of any liability. The trial court granted summary judgment in favor of Farm Bureau. The Savages appealed.

The North Carolina Court of Appeals noted that the Farm Bureau policy "will pay damages for bodily injury or property damage for which any insured becomes legally responsible because of an auto accident." Assuming that Phillip was an insured under his father's policy, the issue was whether Phillip could be held legally responsible for the Savages' damages in light of the covenants executed by the Savages. The court found that the covenants precluded the Savages from executing on any judgment obtained against Phillip, even assuming that he was an insured under his father's policy.  The judgment of the trial court was affirmed.

North Carolina Farm Bureau Mutual Insurance Company vs. Smith-No. COA12–1442-North Carolina Court of Appeals-May 21, 2013-2013WL 2169577.

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