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

Dude, my car: Unlicensed teen hits pedestrian

Seventeen-year-old Joshua Lockhart agreed to purchase a vehicle from his uncle. The uncle delivered the vehicle to Lockhart's mother, who added it to her existing automobile policy with Cornerstone National Insurance Company. Joshua lived with his mother at the time, but she failed to disclose that fact when adding his vehicle to her policy. When the revised policy was issued, Lockhart had a learner's permit but not a driver's license. He did not have his mother's permission to drive the vehicle. Nevertheless, in July 2009, he drove the vehicle with a licensed driver present and struck Joseph Kovacs as he was walking across the street.

Kovacs filed suit against Lockhart seeking compensation for the injuries he had sustained. Cornerstone filed a declaratory judgment action asking the court to declare that its policy excluded liability coverage for Lockhart's use of the vehicle (a) because Lockhart was not a permissive user of the vehicle according to the policy language and (b) because Lockhart was not listed on the policy as a household resident over the age of 15. The trial court found in favor of Cornerstone. Kovacs appealed.

The policy covered bodily injury for which an insured person becomes legally responsible. An "insured person" was defined as the named insured "or a relative with respect to an accident arising out of the . . . use of a covered vehicle[.]" A "relative" included any "person residing in the same household as [the insured] and related to [the insured] by blood[.]"

The policy contained a non-permissive user exclusion stating that coverage did not apply to "[b]odily injury . . . arising out of . . . the operation, maintenance or use of a covered vehicle that is without the express or implied permission of the owner." An "owner" was defined as "any person who (a) held legal title to the vehicle; (b) had legal possession of the vehicle that was subject to a written security agreement with an original term of six months or more; or (c) had legal possession of the vehicle that was leased to that person under a written security agreement for a continuous period of six months or more."

On appeal, the Court of Appeals of Georgia noted that neither Lockhart nor his mother met the definition of "owner" under the policy, and there was no evidence that Lockhart had permission to drive the vehicle. The appellate court concluded that the lower court erred when it found in favor of Cornerstone, reasoning that the insurer could have drafted the language to exclude coverage for use of a vehicle without the insured's permission, but it did not.

The court found, however, that another exclusion did bar coverage. That exclusion provided: "In your application for insurance you were asked to list 'all persons age 15 and older, LICENSED OR NOT, who reside with the applicant and any other drivers of the vehicle(s) on this application.' We will not provide coverage for any claim arising from an accident or loss involving a motorized vehicle being operated by a person age 15 and older, LICENSED OR NOT, who resided with the applicant at the time of the application. We will not provide coverage for any claim arising from an accident or loss involving a motorized vehicle being operated by a household resident who, at the time of the application, was not listed on the application. THIS EXCLUSION APPLIES TO ANY CLAIM FOR DAMAGES MADE AGAINST YOU, A RELATIVE, OR ANY OTHER PERSON OR ORGANIZATION THAT IS VICARIOUSLY LIABLE FOR SUCH ACCIDENT."

Kovacs argued that application of this exclusion was contrary to public policy because he had no health insurance to cover his medical bills and therefore was an "unprotected innocent victim." The court was not convinced. According to the court: "Under these circumstances, public policy [did] not justify enlarging insurance coverage for Kovacs's injuries."

The court concluded that the trial court's decision in favor of Cornerstone based on the non-permissive user exclusion was erroneous, but that the decision should stand based on the exclusion cited above. The judgment of the lower court was affirmed.

Kovacs vs. Cornerstone National Insurance Company-No. A12A0821-Court of Appeals of Georgia-October 19, 2012-2012 WL 5076294 (Ga. App.).

California dreaming turns to nightmare

In September 2007, Eric and Lizbeth Reichert purchased a house in Huntington Beach, California, that they planned to remodel. They hired architect Ben Cauthen to design the project and Krecu Construction to perform and/or oversee the work. The house was located in a federally designated flood plain. Plans were submitted to the appropriate city authorities.

Certain aspects of the plan triggered a city "in-fill" requirement that neighbors sign off on window placement. Also triggered was a Federal Emergency Management Agency (FEMA) requirement that the ground floor be above the base flood level. To avoid having to satisfy these requirements, the architect changed the plans.

The second set of plans called for certain walls to stay in place, eliminating the in-fill requirement. An independent appraiser determined that after remodeling, the property would be less than 50% improved; this eliminated the FEMA flood zone requirement. The city approved the second set of plans.

During the demolition process, Travis Bond, the on-site project manager for Krecu, discovered that the plans called for 10-foot ceilings, but that the walls that were to stay in place would only support eight-foot ceilings. Nevertheless, Cauthen and Krecu, when consulted, both told Bond to go ahead and tear down the walls.

The city eventually discovered that the project was not in compliance with the approved plans and increased the improvement level to more than 50%, triggering the in-fill and FEMA requirements. The city had the authority to issue a variance from the FEMA requirement, but it refused to do so. According to the city, bending the rule for the Reicherts would put their neighbors at risk. The property eventually was demolished by order of the city.

The Reicherts filed suit against Cauthen and Krecu and filed a claim under their State Farm General Insurance Company homeowners policy. State Farm denied coverage on the grounds that the demolition was not an "accident" as defined in the policy and that the policy excluded coverage for loss caused by the enforcement of any law or ordinance. The Reicherts sued State Farm, and the insurer filed a motion for summary judgment.

The court found in favor of State Farm, holding that the demolition was not an "accident" within the meaning of the policy and that there was an obvious exclusion of losses caused by enforcement of any law or ordinance. The Reicherts appealed.

The relevant language of the law or ordinance exclusion stated: "We do not insure under any coverage for any loss which is caused by one or more of the items below, regardless of whether the event occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as a result of any combination of these: a. Ordinance or Law, meaning enforcement of any ordinance or law regulating the construction, repair or demolition of a building or other structure."

On appeal, the Reicherts acknowledged that this exclusion was clear; they argued, however, that the policy provided coverage under "Option OL," a building ordinance or law coverage option. This option appeared on the declarations page of the Reicherts' policy and provided for an additional 25% of coverage over the policy limit of $800,000 for the increased cost of complying with building, zoning, or land use law in rebuilding a dwelling damaged by an insured loss. The appellate court found that, although Option OL would have provided additional coverage if the house had burned down, nothing in the option affected the law or ordinance exclusion.

The Reicherts also argued that the law or ordinance exclusion did not apply because the cause of the demolition was not the city's enforcement of the ordinance, but the negligence of the architect and contractor. The court acknowledged that, although their argument was understandable, the exclusion clearly applied. The court noted: "Here, interposed between the plans which called for the simultaneous having, and dispensing, of certain eight-foot walls and the eventual demolition of the property, was the very deliberate decision of a city not to risk its FEMA rating, and the concomitant decision to enforce its building code." Thus demolition of the house by order of the city was within the ordinance or law exclusion.

The lower court's decision in favor of State Farm was affirmed.

Reichert vs. State Farm General Insurance Company-G046582-Court of Appeal, Fourth District, Division 3, California-December 28, 2012-2012 California Appellate Reporter 4th 1543, 152 California Reporter 3d 6.

Funding terrorism is not an "accident"

Chiquita Brands International, Inc., was accused in several claims of illegally financing terrorist groups in Colombia between 1989 and 2004. To ensure that its defense was covered by insurance, Chiquita filed a declaratory judgment action against Federal Insurance Company, American Motorists Insurance Company, and Lumbermens Mutual Casualty Company. The company asked the court to find that the insurers were obligated to defend it in the numerous claims filed against it.

Chiquita also was insured under policies issued by National Union Fire Insurance Company of Pittsburgh, Pennsylvania. Federal, American Motorists, and Lumbermens Mutual filed a complaint against National Union asking the court to declare that it had an obligation to defend Chiquita. National Union then filed a complaint against Chiquita asking the court to declare that it did not have a duty to defend or indemnify Chiquita in the underlying lawsuits and that, even if it did owe a duty, it was entitled to contribution from the other three insurers. Chiquita then filed a counterclaim against National Union, alleging that it too had a duty to defend Chiquita in the underlying suits.

Chiquita eventually settled with Federal, American Motorists, and Lumbermens. Chiquita and National Union both filed motions for summary judgment. The trial court found that National Union had a duty to defend Chiquita in the underlying lawsuits. It also held that National Union must reimburse Chiquita for the defense costs it had incurred, and that the insurer was responsible for all losses that occurred in the period during which its policies were in effect. National Union appealed.

On appeal, National Union argued that the Chiquita's alleged actions did not constitute an "occurrence" within the meaning of the policies and that it therefore was not obligated to provide coverage.

The Court of Appeals of Ohio, First District, Hamilton County, agreed. The court noted that the National Union policies covered "bodily injury" if the bodily injury . . . "[was] caused by an occurrence that [took] place in the coverage territory." An "occurrence" was defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."

According to the court, the record showed that the underlying complaints against Chiquita were all based on Chiquita's alleged intentional conduct, specifically that the company was liable for the "deaths and injuries of numerous people through murder, torture, kidnapping and other atrocities," and that Chiquita "aided and abetted, conspired with, and participated in a joint criminal enterprise with the terrorists." These alleged activities could not be construed as negligent or accidental. Therefore they did not constitute "occurrences" within the meaning of the policy language.

National Union also argued that all of the alleged injuries occurred outside of the policies' coverage territory. Again the court agreed. The policies defined the "coverage territory" as "[t]he United States of America (including its territories and possessions), Puerto Rico and Canada." In addition, the court noted that Chiquita had purchased policies from the insurers with which it settled to cover its foreign liability. Because the alleged harmful events took place in Colombia, the alleged conduct did not constitute an occurrence within the coverage territory. Therefore coverage did not apply.

The lower court's decision in favor of Chiquita was reversed.

Chiquita Brands International, Inc., vs. National Union Fire Insurance Company of Pittsburgh, PA, and Federal Insurance Company, et al.-No. C-120019-Court of Appeals of Ohio, First District, Hamilton County-March 6, 2013-2013 WL 836861 (Ohio App. 1 Dist).

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