Insurance-Related Court Cases

Court Decisions

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

Does CGL auto exclusion bar recovery?

In 2007, Dennis Pinto was diagnosed with dementia. His family contracted with R. Squared Enterprises, Inc., to provide nonmedical support services to Pinto. Starting on October 17, 2007, R. Squared assigned Kimberly Pereira to work with Pinto. The following day, Pereira drove Pinto to a restaurant for lunch in an automobile owned by Pinto's wife. While at the restaurant, Pereira consumed alcohol, allegedly becoming intoxicated, and she thereafter drove negligently. She crashed the automobile into a tree, and Pinto suffered serious injuries. R. Squared had policies in place to require background checks of prospective hires, including their criminal and driving records. Under those policies, Pereira should not have been hired because she previously had been convicted twice of alcohol-related offenses.

Pinto's family sued Pereira, R. Squared, and others associated with R. Squared, eventually naming as defendants R. Squared's principals, Robert and Raquel Mullaney. The claims included negligence against Pereira; liability for Pereira's negligence against R. Squared and the Mullaneys; and negligent hiring, training, supervision, or retention against the R. Squared defendants and Sandra Smith, a former employee of R. Squared.

R. Squared was the named insured under a business automobile policy issued by Pilgrim Insurance Company. The policy included coverage for automobiles owned by others. It was undisputed that this policy covered Pereira while using Pinto's wife's automobile. The policy also provided that anyone qualified as an insured if he or she was "liable for the conduct of [another] 'insured' ... but only to the extent of that liability."

R. Squared also held a commercial general liability policy with First Specialty Insurance Corporation (FSIC). The policy covered liability for bodily injury to third parties stemming from accidents in general but contained an automobile exclusion. The policy also contained a severability clause stating that coverage applied "[s]eparately to each insured against whom claim is made or 'suit' is brought." All of the R. Squared defendants were insureds under the policy.

FSIC disclaimed coverage and declined to defend the suit, except that it paid some of Smith's defense costs under a reservation of rights. Pilgrim provided a defense for the R. Squared defendants, and the Pinto suit was settled in April 2010, within Pilgrim's $1 million policy limit. All claims by the Pintos were dismissed with prejudice in May 2010. Pilgrim paid the settlement, which was not allocated among the various claims; FSIC did not contribute to it.

In March 2010, FSIC filed suit against Pilgrim, seeking a declaration that it had no obligation to defend or indemnify the R. Squared defendants, and consequently that Pilgrim had no right to contribution or subrogation from FSIC. Soon after the Pinto suit was settled, Pilgrim filed opposing counterclaims for equitable contribution and subrogation. On cross motions for summary judgment, the motion judge ruled in favor of FSIC and entered judgment accordingly. Pilgrim appealed.

On appeal, the court cited the automobile exclusion in the FSIC policy, which stated: [this] "exclusion applies even if the claims against any insured allege negligence ... in the supervision [or] hiring ... of others by that insured, if the 'occurrence' which caused the 'bodily injury'... involved the ... use ... of any ... 'auto' ... owned or operated by ... any insured."

In comparing the allegations of the complaint with the policy terms, the appellate court stated that the direct claim for negligence against Pereira obviously fell within the automobile exclusion. The court added that any claims seeking to impose vicarious liability on the R. Squared defendants for Pereira's negligence were also excluded, as they were not "separate and distinct from the use or operation of an automobile." The exclusion also precluded coverage for the claims against the R. Squared defendants for negligent hiring, negligent supervision, and the like. The decision of the motion judge was affirmed.

First Specialty Ins. Corp. vs. Pilgrim Ins. Co.-No. 12–P–1281-Appeals Court of Massachusetts, Suffolk-June 26, 2013-2013-WL 3186467.

Casualty or "act of God"?

45 Broadway Owner LLC was the owner and landlord of a building located at 45 Broadway in New York City in which the NYSA-ILA Pension Trust Fund was a commercial tenant.

In the lease, the parties agreed that their insurance policies would each contain an endorsement in which their respective insurance companies would "waive subrogation or permit the insured, prior to any loss, to waive any claim it might have against the other." The lease also provided that: "each party releases the other with respect to any claim (including a claim for negligence) which it might otherwise have against the other party for loss, damage or destruction with respect to its property by fire or other casualty ... occurring during the terms of this Lease."

When the pension fund's predecessor was the building tenant, it installed a supplemental HVAC system; that system connected to the building's water risers and remained in operation after the pension fund took possession of the premises in or around March 2002.

In April 2010, 45 Broadway informed all tenants that building management intended to shut down the building's water condenser and therefore that tenants should shut down any supplemental HVAC systems. Immediately after the "drain down" of the building's water, the lobby flooded. Building personnel discovered that a rusted and corroded pressure gauge on the supplemental HVAC system had burst off a supply pipe, allowing water to gush out. The flood damaged several floors of the building, as well as the elevator, mezzanine, lobby, and basement.

The repairs and restoration to the building cost 45 Broadway $76,760.14, and it gave injured tenants around $60,000 worth of monetary concessions to compensate for their damages. Total damages from the flood came to around $136,055.22, not including legal fees and costs. 45 Broadway filed suit against the NYSA-ILA Pension Trust Fund, alleging that it failed to meet its lease obligation to maintain the supplemental HVAC system and was therefore responsible for the damages resulting from the flood.

45 Broadway moved for summary judgment, and the pension fund cross-moved for the same relief. The court granted 45 Broadway's motion in its entirety, denied the pension fund's cross motion, and set the matter down for a hearing before a special referee to determine the amount of 45 Broadway's legal fees. The court ultimately entered judgment in 45 Broadway's favor in the amount of $166,013.96. The NYSA-ILA Pension Trust Fund appealed.

On appeal, 45 Broadway argued that the flood was not a "casualty" under the relevant lease provision because it was not an act of God. Rather, the plaintiff said, the flood was an act of human beings in failing to perform maintenance on the HVAC system. The appellate court disagreed, noting that the language of the provision did not suggest that "casualty" was an event that resulted only from an act of God.

The court found that, in the context of the relevant lease provision, the concept of "casualty" did encompass the flood that resulted from the rusted gauge on the supplemental HVAC system. The court granted the defendant's cross motion for summary judgment and dismissed the plaintiff's claims.

45 Broadway Owner LLC vs. NYSA-ILA Pension Trust Fund-Supreme Court, Appellate Division, First Department, New York-June 27, 2013-2013 WL 321448.

Liability depends on tenant's coinsured status

Reid Beveridge owned a house in Plattsmouth, Nebraska, that he leased to John Savage. The lease provided that Savage was to repair any damage to the property that resulted from his failure to properly operate or monitor the operation of the heating and air conditioning system. Specifically, the lease provided, in relevant part: "Tenant is responsible to maintain the entire property . . . The Tenant will pay the first fifty dollars ($50.00) of all repairs. The maximum amount that may be charged to the tenant during one anniversary year is $200.00 unless the repairs were needed due to Tenant negligence . . . 13. The Tenant shall provide a liability and renter[']s insurance [policy] ($100,000) at Tenant's expense." Savage obtained renter's insurance, and Beveridge was insured by a separate policy.

Savage lived in the home with his wife, Jill, and her six-year-old son. The son was in the basement of the home, unattended, when he played with a cigarette lighter and lit a couch on fire. The fire caused significant damage to the house. Beveridge's insurer paid $161,545.01, the full cost of reconstruction, plus $7,824.18 for lost rent. The insurer then brought a subrogation action, in Beveridge's name, against the Savages. The lower court found that the Savages were coinsureds under Beveridge's fire insurance policy and therefore neither Beveridge nor Beveridge's insurer could bring an action against the Savages. Beveridge appealed.

On appeal, Beveridge argued that Savage agreed to be held responsible for damages caused by negligence and to purchase insurance to protect against "those perils." According to Beveridge, Savage was not a coinsured under his policy because Savage was required to buy his own policy. The Supreme Court of Nebraska disagreed. According to the court, if there was a clear provision in the lease requiring the tenants to obtain fire insurance for the property, then the tenants were on notice that they must obtain insurance coverage if they wished to protect themselves from personal liability in the event they negligently started a fire. The issue, then, was whether the lease expressly required Savage to obtain fire insurance.

The lease required Savage to obtain a "liability and renter[']s insurance [policy] ($100,000) at Tenant's expense." It did not state what "liability" was to be covered, so it was unclear as to Savage's obligations and what liability he was to insure. According to the court, "The lease's requirement that the tenant obtain liability insurance was insufficient to overcome the presumption that the tenant [was] a coinsured under the landlord's fire insurance policy." The requirement that Savage obtain renter's insurance did not overcome the presumption either. In short, there was no provision that gave Savage notice that he must obtain coverage in the event his negligence caused a fire. The court concluded that Beveridge and his insurer could not bring a subrogation action against the Savages because Savage was a coinsured under Beveridge's fire insurance policy. The decision of the lower court was affirmed.

Beveridge vs. Savage-No. S-12-1007-Supreme Court of Nebraska-May 24, 2013-830 Northwestern Reporter 2d 482.

Was misrepresentation material?

In December 2004, with the assistance of Dixie Kirk and the Niederwerder Agency, Inc., David Busskohl applied for homeowners insurance with De Smet Farm Mutual Insurance Company of South Dakota. On the front page of the application a question asked: "Has any insurer cancelled, refused, restricted, or declined to renew similar insurance?" Busskohl answered this question "No" and also stated on the second page of the application that all statements in the application were true and accurate. The insurer issued a homeowners policy with limits of $275,000 for Busskohl's residence, $27,500 for related private structures, $192,500 for personal property, and $55,000 for additional living costs.

On December 6, 2005, Busskohl's home was destroyed by fire. De Smet made payments to Busskohl totaling $476,350.

In 2007 Busskohl filed suit against Dixie Kirk and the Niederwerder Agency. He claimed that the coverage limits provided by the De Smet policy were inadequate, and that Kirk and Niederwerder were negligent in writing the policy. As the litigation proceeded, De Smet discovered that before submitting his application in December 2004, Busskohl had been informed by an agent for American Family Insurance Company that it would not insure his house. The basis for the refusal was a 1990 fire at Busskohl's former house.

After discovering Busskohl's misrepresentation, De Smet rescinded the homeowners policy it had issued. It sent a letter to Busskohl's attorney stating the basis for rescission and enclosing a check for $1,066.40, representing reimbursement of all premiums paid by Busskohl. The letter demanded that Busskohl repay the $476,350 plus interest. In response, Busskohl returned the $1,066.40 check and disputed the facts set forth in De Smet's letter.

On February 13, 2012, De Smet filed an action against Busskohl alleging that it had lawfully rescinded its insurance contract and seeking recovery of all monies paid to Busskohl under the policy. The court found that De Smet was entitled to rescind the policy because Busskohl made a misrepresentation on his application and the misrepresentation was material. The court granted summary judgment in favor of De Smet for $786,621.18 plus interest. Busskohl appealed.

On appeal, Busskohl argued that it was premature to enter judgment in favor of De Smet because a question of fact existed as to whether Busskohl made a material misrepresentation on his application for homeowners insurance. De Smet claimed that it was entitled to rescind the policy under the provisions of a South Dakota statute.