Table of Contents 

INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Is injured worker covered in car wash accident?

Glen Rocker, an employee of Octopus Car Wash, was seriously injured when his coworker, Cornell Cousins, accidentally drove a customer’s car into him. The car Cousins was driving belonged to Andrew Paretti. Paretti had ordered a car wash and, per standard procedure, left his car while he entered an enclosed area to pay his bill. An employee drove the car in for washing. After it had been washed, Cousins got into the car to drive it off the conveyor and into the drying area. While driving off the conveyor, Cousins apparently stepped too hard on the accelerator. The vehicle lunged forward and struck Rocker.

Octopus’s insurer was General Casualty Company of Wisconsin. Prior to the accident, General Casualty had issued Octopus a policy with commercial general liability coverage to a limit of $500,000 and umbrella coverage of $2 million. Paretti had a personal auto policy with limits of $300,000/$500,000 and a personal umbrella policy with a limit of $2 million, both issued by USAA Casualty Insurance Company.

Rocker and his wife filed a lawsuit against Cousins and General Casualty. General Casualty filed a declaratory judgment action, claiming that its comprehensive policy did not provide liability coverage to Cousins for Rocker’s injuries as a result of Cousins’ alleged negligent acts. The lower court agreed with General Casualty. It found that the policy unambiguously excluded from the definition of insured an employee who injures another employee during the course of their employment.

USAA also filed a motion. It asked the court to declare Octopus a “motor vehicle handler” within the meaning of Wisconsin’s financial responsibility law. As a result of this finding, USAA would be entitled to limit its liability to $25,000 as set forth under the statute. The court found that Octopus was a “service station” and therefore a “motor vehicle handler” within the meaning of the Wisconsin statute. Accordingly, it permitted a reduction of USAA’s coverage to $25,000 and declared that once USAA paid this amount, it would be dismissed from the case. The matter was then certified to the Supreme Court of Wisconsin for a determination as to whether Octopus was a “motor vehicle handler” under the Wisconsin statute and whether the statute applied to commercial general liability policies and umbrella policies that provide automobile coverage.

Part of the Wisconsin financial responsibility law defines the term “motor vehicle handler.” The definition includes a “repair shop, service station, storage garage or public parking place.” On appeal, the Rockers, USAA and Cousins argued that the circuit court correctly held that Octopus was a service station. General Casualty argued that the term “service station” should be interpreted according to its common usage as of 1975 when the term was first used in the formulation of the law. According to General Casualty, at that time a service station was a gasoline or filling station. The Supreme Court of Wisconsin disagreed. It stated that the interpretation proposed by General Casualty was unreasonably restrictive given the plain meaning of the term “service station.” It held that Octopus was a “service station” and thus a “motor vehicle handler.”

The court next addressed the issue of whether the statute applied to the General Casualty policy. According to General Casualty, the statute did not apply to its policy. To apply, it would require an insurer to assume a risk that it did not contemplate and for which it received no premium. The Supreme Court disagreed. Another part of the Wisconsin financial responsibility law provides that “[n]o policy issued to a motor vehicle handler may exclude coverage upon any of its officers, agents or employees when any of them are using motor vehicles owned by customers doing business with the motor vehicle handler.” According to the court, the plain language of the statute compelled the conclusion that the statute applies to commercial general liability policies and commercial umbrella policies that include motor vehicle liability coverage.

The lower court’s decision granting General Casualty’s motion was reversed. The case was remanded for further proceedings consistent with the Supreme Court decision.

Rocker vs. USAA Casualty Insurance Company-No. 2004AP356-Supreme Court of Wisconsin-March 30, 2006-711 North Western Reporter 2d 634.

Auto exclusion invoked in negligence claims

Co Fat Le and Dao T. Phan held a homeowners policy with American Family Mutual Insurance Company. Their son, Trai Van Le, was listed as an insured. The policy contained a motor vehicle exception that excluded coverage for bodily injury or property damage “arising out of the ownership, supervision, entrustment, maintenance, operation, use, loading or unloading of any type of motor vehicle.” The policy also excluded coverage for bodily injury or property damage arising out of the use of controlled substances.

In April 2001, Trai Van Le drove his car into the garage of his parents’ home. Four of his friends were also in the car. Trai Van Le closed the garage door but left the car’s motor, air conditioning, and cassette player running. All five boys died from acute carbon monoxide intoxication, but methylenedioxymethamphetamine (Ecstasy) intoxication was also found to be a significant factor in the deaths. The parents of Trai Van Le’s four friends filed wrongful death lawsuits. The lawsuits alleged that Trai Van Le negligently used an automobile, and that Co Fat Le and Dao T. Phan were generally negligent and negligent in maintaining a dangerous condition on their premises.

Co Fat Le and Dao T. Phan notified American Family and requested it to provide their defense under their homeowners policy. American Family filed a declaratory judgment action, asking the court to declare that it had no duty to defend or indemnify Co Fat Le and Dao T. Phan because the claims were excluded under the policy’s vehicle and controlled substances exclusions. The United States District Court for the Eastern District of Missouri, applying Missouri law, found in favor of American Family, holding that the vehicle exclusion applied to both negligence claims. The parties to the underlying lawsuit appealed.

The United States Court of Appeals, Eighth Circuit, affirmed the decision of the lower court. It reasoned that Missouri law provides that when an insured risk and an excluded risk constitute “concurrent proximate causes” of an injury, an insurer is liable so long as one of the causes is covered by the policy. For this doctrine to apply, the court had to determine whether the allegations of negligence filed against Co Fat Le and Dao T. Phan were distinct from the claims arising out of the ownership or use of a vehicle. If they were not distinct, and the claims depended upon Trai Van Le’s use of the automobile, then the automobile exclusion applied. The court found that there would not have been an injury if Trai Van Le had not run the automobile in the closed garage. Thus, the negligence allegations were not distinct, and the automobile exclusion applied.

The judgment of the lower court was affirmed.

American Family Mutual Insurance Company vs. Co Fat Le-No. 05-2373-United States Court of Appeals, Eighth Circuit-March 3, 2006-439 Federal Reporter 3d 436.

“Occasional rental” meaning debated

John and Dorothy Piazza and their daughter, Marie, bought a house in 1995 and purchased homeowners insurance from State Farm Fire & Casualty Company. Marie lived in the house until 1998, when she left to attend school in Scotland. Before she left for Scotland, Marie and her parents entered into an agreement to rent out the house via Piazza Realty, the parents’ property management company. In her daughter’s absence, Dorothy leased the house to two different tenants over the next 26 months. The second tenant, the Moore family, lived in the house from January 1999 to May 2000.

After her graduation and subse-quent marriage, Marie decided to stay in Scotland and sell the house.

In December 2000, the Moores filed a lawsuit against the Piazzas, claiming illness due to mold in the rental property. The Piazzas tendered defense of the lawsuit to State Farm Fire and Casualty. State Farm filed a declaratory judgment action. It argued that its policy did not cover injuries resulting from rental of the property. The lower court found in favor of State Farm; the Piazzas appealed.

The State Farm policy did exclude coverage if the house was held for rental, but the exclusion did not include rentals “on an occasional basis.” “Occasional basis” was not defined in the policy. On appeal, Marie Piazza argued that the rental was “on an occasional basis” within the meaning of the policy. To support this argument, she asserted that the rental of the property was irregular, and that it “arose from the occasion” of the temporary absence of the owner (Marie). State Farm argued that the nature of the rental was regular and continuous for two years. The Court of Appeals of Washington, Division 1, agreed with State Farm. It found that an “occasional” rental should be interpreted consistent with the purposes of a homeowners insurance policy, not a landlord’s insurance policy. According to the court, a continuous rental arrangement of over 26 months could not be called “occasional” under any definition of the term. Therefore, the lower court was correct in finding in favor of State Farm.

The decision of the lower court was affirmed.

State Farm Fire and Casualty Company vs. Piazza-No. 56054-9-I-Court of Appeals of Washington, Division 1-April 3, 2006-131 Pacific Reporter 3d 337.

Was injured worker an employee or an independent contractor?

On July 17, 2000, Byron Carter was injured when he suffered electric shock while assisting with the movement of a house from one location to another. Three Star Properties, Inc., a company that renovates and moves houses, had been hired to move the house. Carter was retained by Mike Helms, Three Star’s president and part owner, to work as an extra laborer on this and other such projects. Three Star hired Benhower Building Movers, Inc., to help with the move.

On the day of the accident, Benhower Building Movers instructed Carter with regard to loading the house onto the truck. Additional instructions were given by Helms. Helms asked Carter to climb on top of the house to push overhead wires out of the way as the house was being transported. Carter questioned the safety of this procedure. Benhower never permitted anyone to be on a roof during a move. Nevertheless, Carter did as Helms said and was electrocuted during the move. In February 2001, he filed a lawsuit against Three Star, Helms and Benhower, seeking damages for the injuries he suffered as a result of the electrocution.

Three Star had a commercial general liability insurance policy issued by Property Owners Insurance Company. The policy excluded coverage for employees injured in the course of employment. Property Owners defended Three Star and Helms, but reserved its right to question its obligation to do so. On May 14, 2003, Property Owners filed a complaint against Carter, arguing that its policy did not cover him because he was an employee, as opposed to an independent contractor, of Three Star. Before the case went to the jury, the trial court found that Carter was in fact an employee of Three Star and thus found in favor of Property Owners; Carter appealed.

On appeal, Carter initially argued that the trial court should not have decided the question of whether he was an employee or an independent contractor of Three Star. According to Carter, that decision should have been made by the court that decided the original Carter lawsuit. The Court of Appeals of Indiana disagreed. Because Property Owners was not an actual party to the original Carter lawsuit, there was nothing wrong with the trial court in the Property Owners lawsuit considering the question.

Carter next argued that the Property Owners policy was ambiguous because it did not define the terms “sub-contracted work” and “employee.” The appellate court agreed with this argument. Accordingly, it evaluated Carter’s relationship with Three Star in light of Indiana’s 10-factor test to distinguish between employees and independent contractors. These factors are: (1) the extent of control which, by the agreement, the “master” may exercise over the details of the work; (2) whether or not the one employed is engaged in a distinct occupation or business; (3) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision; (4) the skill required in the particular occupa-tion; (5) whether the employer or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (6) the length of time for which the person is employed; (7) the method of payment, whether by the time or by the job; (8) whether or not the work is a part of the regular business of the employer; (9) whether or not the parties believe they are creating the relation of “master and servant;” and (10) whether the principal is or is not in business.

According to the court, the leading factor was the extent of control Three Star exercised over the details of the work being performed. Helms testified that Three Star gave Carter only general instructions regarding the work to be done, and that Benhower exercised primary control over Carter. However, some of Helms’s testimony indicated otherwise, and Carter’s testimony seemed to indicate that Benhower’s instructions were limited to specific portions of the move only. The court concluded that the testimony seemed to lean toward a finding that Carter was an independent contractor, but the proper approach was for a jury or a trier of fact to evaluate the question.

The other nine factors were similarly evaluated. The court found that some factors weighed in favor of independent contractor status and some weighed in favor of employee status. They were fairly evenly split. Under the circumstances, the court found that the trial court’s decision should be reversed and remanded so that the jury or the trier of fact could evaluate Property Owners’ position.

The judgment of the trial court was reversed and remanded for trial.

Carter vs. Property Owners Insurance Company-No. 27A02-0511-CV-01035-Court of Appeals of Indiana-May 3, 2006-846 North Eastern Reporter 2d 712.

Did agent misrepresent insurer’s financial condition?

On October 28, 1999, Michael Spires’ car was struck by a truck operated by James Williams, an employee of Halls of Cross, Inc., a sand and gravel trucking and hauling operation in South Carolina. Spires suffered significant injuries and incurred medical bills of approximately $100,000.

Halls of Cross was insured by Acceleration National Insurance Company. It had purchased its Acceleration policy in May 1998 after “shopping” its business among several insurance agencies. One of the agencies was RDR Insurance Specialists, Inc. Bob Royster, an agent for RDR, was unable to obtain insurance with a carrier represented by RDR; however, through a managing general agency, he eventually located and received a quote from Acceleration. Royster presented this quote to Richard Halls, the owner of Halls of Cross. According to Halls, Royster told him that Acceleration was a good, reliable and sound insurance company. In addition, he claimed he relied upon this representation in making his decision to purchase the insurance from Acceleration.

Spires eventually sued Williams and Halls of Cross for damages suffered as a result of the 1999 accident. Although the Acceleration policy was in effect at the time of the accident, Acceleration was unable to provide a defense in the Spires lawsuit because it became insolvent after the policy expired. Instead, the South Carolina Property and Casualty Insurance Guaranty Association assumed the defense.

Spires, Williams, Halls of Cross and the Guaranty Association entered into a settlement agreement. Under the agreement, Williams and Halls of Cross agreed to a judgment in favor of Spires in the amount of $1,729,000. This amount was reduced by the amount paid by Spires’ insurer and $228,875 paid to Spires by the Guaranty Association. In the agreement, Williams and Halls of Cross also agreed to assign to Spires their rights to any misrepresentation claims against Bob Royster and RDR Insurance.

In January 2004, in an attempt to recover the balance of the judgment, Spires filed a negligent misrepresenta-tion and negligence per se action against various parties, including RDR and Royster. In the lawsuit, Spires alleged, among other things, that Royster had falsely represented that Acceleration was “financially solvent and financially sound.” According to Spires, at the time the statement was made, Acceleration had been given a “B” rating by A.M. Best, proving that Royster’s statement was necessarily false.

The U.S. District Court, D. South Carolina, disagreed. According to the court, the only evidence Spires presented to show that Royster made false statements were the depositions of Richard Halls. The court did not find the content of the depositions convincing. According to the depositions, the most Royster had said was that Acceleration was a “sound” insurance company. This statement was not automatically made false by the fact that Acceleration had a “B” A.M. Best rating. In addition, the court noted that an insurance company’s Certificate of Authority is evidence of the Depart-ment of Insurance’s determination that such company is in a sound condition. Acceleration’s South Carolina Certifi-cate of Authority was not suspended until 2000. The court concluded that Spires did not prove that Royster made a false statement, an essential element of a cause of action for negligent misrepresentation or negligence per se under South Carolina law.

RDR and Royster’s motion to dismiss was granted, and the case itself was dismissed.

Spires vs. Acceleration National Insurance Company-No. C.A. 9:04-1989-23-United States District Court, D. South Carolina-January 12, 2006-417 Federal Supplement 2d 750.

Insurer charged with negligent investigation

Magda Benavides purchased a ground floor condominium unit in Santa Monica, California, in 1994. In 2001, mold was found in the exterior walls of the property, including walls adjacent to her unit. Subsequent testing revealed mold inside Benavides’ condominium, and she was advised by a physician to move out. Benavides submitted a claim to her homeowners insurance provider, State Farm General Insurance Company, for additional living expenses. State Farm hired a civil engineer to investigate. It denied the claim, stating that the mold was a loss excluded by the policy, and that it was not caused by a covered peril. Benavides sued State Farm, alleging it had failed to properly investigate the claim. She also sued Lisa Haley, the owner of the condominium unit directly above Benavides. According to Benavides, during remodeling of Haley’s condo in May 2000, water had leaked into Benavides’s kitchen and living room, eventually causing the mold problem.

The jury found that Haley was not negligent with regard to water leakage. It also found that State Farm negligently investigated Benavides’ claim, causing her $260,000 in damages. State Farm appealed the negligent investigation decision. The issue on appeal was whether Benavides could recover for negligent handling of her claim despite the fact there was no coverage under the terms of the insurance policy.

The Court of Appeal, Second District, Division 5, California, held in favor of State Farm. In reaching its decision, the court emphasized that coverage for mold was indeed excluded under the terms of the policy. It also noted that the relationship between State Farm and Benavides was contractual. Benavides’ primary right was to receive compensation for covered losses; State Farm’s duty was not to unreasonably withhold the payments due. Because there were no benefits due, negligent investigation did not interfere with Benavides’ right to the benefits of her contract. Neither did State Farm’s actions fall within the circumstances identified by the California Supreme Court, which allow a contract-based cause of action to be pursued as a tort claim (e.g., fraud, conversion, deceit, undue coercion, etc.) Accordingly, the court held that State Farm could not be held liable for negligent investigation, absent a covered loss under the policy.

The decision of the lower court with regard to Benavides’ claim for negligent investigation against State Farm was reversed.

Benavides vs. State Farm General Insurance Company-No. B179028-Court of Appeal, Second District, Division 5, California-February 23, 2006-39 California Reporter 3d 650. *

CONTACT US | HOME