INSURANCE-RELATED COURT CASES

Court Decisions

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

Was meth death an “accident”?

Alicia Hackbarth resided in the home of her friend, Gary Schwich. Hackbarth was a heavy drinker and marijuana smoker who also snorted methamphetamine. In March 2005 Jeanne Stone, another friend of Schwich, moved into the home. Stone and Schwich also used methamphetamine, but they injected the drug rather than snorting it. On March 10, Schwich went to work (after injecting meth), leaving Hackbarth and Stone at home. Hackbarth drank alcohol all day long and snorted meth twice. When Schwich returned home, he injected a second dose of meth. He and Stone then went out to run errands, leaving Hackbarth at home to continue drinking. When they returned home, Schwich injected meth again. He then pressured Hackbarth to inject rather than snort meth. Stone helped Hackbarth inject the meth. Schwich then fell asleep while Hackbarth sat in a Jacuzzi. Hackbarth died while in the Jacuzzi. The cause of death was cardiac arrhythmia caused by a combination of the effects of the meth and alcohol. Schwich was criminally convicted for aiding and abetting third-degree murder. A civil action for wrongful death followed.

Schwich’s homeowners insurer was State Farm Fire & Casualty Company. State Farm filed a declaratory judgment action asking the court to determine whether or not it was obligated to defend and indemnify Schwich in the wrongful death action. The policy provided coverage for an “occurrence,” defined as an “accident,” and excluded coverage for expected injuries or injuries caused by intentional acts. The lower court found that Hackbarth’s death was an “accident or occurrence” within the meaning of the policy because it was not intentional. The court also found that liability was not excluded as an “intentional, willful, or malicious act” because Hackbarth’s death did not necessarily result from Schwich’s wrongful conduct. Finally, the lower court concluded that it was not against public policy to allow coverage for liability resulting from a serious criminal act. State Farm appealed.

On appeal, the Court of Appeals of Minnesota first addressed the issue of whether Hackbarth’s death resulted from an intentional act. It found that Schwich’s act of providing Hackbarth with meth, preparing a syringe, and encouraging her to inject the drug was enough to be “intentional” within the meaning of the policy.

Next, the court addressed the issue of whether Schwich’s action was “willful and malicious” within the meaning of the policy. The court noted that cases involving malicious acts are usually “factually more extreme,” in which in the actor “knows or should have known that harm was substantially certain to result.” The court then concluded that Schwich’s act of providing Hackbarth with meth and pressuring her to inject it fell within this category. Therefore, Schwich’s behavior was malicious and willful, and coverage was excluded.

Finally, the court addressed State Farm’s argument that coverage for serious criminal acts should be void as against public policy. The court noted: “Insurance policies are intended to protect an insured from the consequences of unintended and accidental actions, even those undertaken with breathtaking stupidity and resulting in serious injury. But they are not intended to relieve an insured from the consequences of serious criminal acts, and we, as a matter of public policy, cannot condone coverage for such acts. We therefore hold that extending liability coverage for the act of providing an injured party with meth by preparing a syringe and pressuring the injured party to inject the drug is against public policy.”

The decision of the lower court was reversed.

State Farm Fire & Casualty Company vs. Schwich-No. A07-1093-Court of Appeals of Minnesota-May 20, 2008-749 North Western Reporter 2d 108.

HO insurer denies liability for truck injury

On January 20, 2004, Frank Costa was in his driveway changing a tire on his pickup truck. Costa’s business, Fleet Truck and Trailer Repair, was located next door to his home. While on his lunch hour, one of Costa’s employees, Ernest Arians, was walking on Costa’s driveway. He asked Costa if he needed help replacing the tire. While Costa responded, “No, I’ll do it, I’ll take care of it, go to lunch,” Arians slipped on ice and fell forward, striking his head on the top of the post of the bumper jack protruding from behind the pickup truck and suffering serious injuries.

Arians filed a personal injury lawsuit against Costa. At the time of the accident Costa had a Gulf Insurance Company commercial automobile policy as well as a Farmers Insurance Company homeowners policy. Arians’ personal automobile carrier, Penn National Insurance Company, provided Personal Injury Protection (PIP) benefits to Arians.

Penn National filed an action against Costa’s business and Farmers seeking to recover the benefits it had paid Arians. Naming Arians and Gulf as third-party defendants, Farmers sought a declaration that it was not obligated to provide coverage. The lower court found that the Farmers policy, not the Gulf policy, provided coverage. Arians later settled his personal injury suit, and a consent judgment was entered in the amount of $400,000. Farmers satisfied the judgment and then filed an appeal.

New Jersey law requires owners of motor vehicles to have liability coverage “insuring against loss resulting from liability imposed by law for bodily injury, death and property damage sustained by any person arising out of the ownership, maintenance, operation or use of a motor vehicle.” The Farmers policy excluded “bodily injury…arising out of…[t]he maintenance, operation, ownership, or use (including loading or unloading) of any…motor vehicles…owned or operated by…any insured.” On appeal, the issue was whether Arians’ injury arose out of the maintenance of a motor vehicle.

The Superior Court of New Jersey, Appellate Division, found that there was a direct relationship between Arians’ injuries and the maintenance of the pickup truck. The court noted: “It is undisputed that Farmers insured Costa, Costa was maintaining the vehicle at the time of the accident, and Arians approached with the intention to help Costa. Moreover, Arians’ injuries were the direct consequence of his head hitting the protruding post of the bumper jack, which was being used for the vehicle’s maintenance. Arians’ injuries were not solely related to the existence of ice and snow but directly connected with the maintenance of the Ford pickup…”

The court found that the exclusion in the Farmers policy was applicable. The decision of the lower court was reversed with directions to enter judgment in favor of Farmers and against Gulf.

Penn National Insurance Company vs. Costa-Superior Court of New Jersey, Appellate Division-April 29, 2008-946 Atlantic Reporter 2d 592.

Deck collapse triggers liability dispute

Ann Silverman Soled owned a beachfront house in Point Pleasant, New Jersey. She obtained homeowners insurance for it through insurance broker York-Jersey Underwriters. Soled died in 1990, and her sons Myron and Malcolm Silverman purchased the property from Soled’s estate in 1992. They canceled the CIGNA policy that had been issued to the estate, then purchased a new policy from The Hartford Fire Insurance Company.

The Hartford policy covered both physical property and personal liability and named Myron and Malcolm as insureds. The policy was renewed annually until 1997 when Hartford advised Myron that the coverage would be terminated. Changes in the industry had made it more difficult to obtain insurance for beachfront properties, so on May 20, 1997, the Hartford policy was replaced by York with a FAIR Plan policy issued by the New Jersey Insurance Underwriting Association. This policy did not include personal liability coverage.

Marilyn Raven was the York agent assigned to Myron’s account. When Raven replaced a homeowners policy with a FAIR Plan policy, she would typically contact her clients to inform them that the FAIR Plan did not include personal liability coverage.

The FAIR Plan coverage was renewed on an annual basis through 2002. Myron would sign the application and return it to the New Jersey Insurance Underwriting Association. The application stated that the policy did not include liability insurance, but Myron admitted he was very “lackadaisical” about reading the application.

On July 6, 2002, while the house was leased to summer tenants, the outdoor deck on the property collapsed, causing injury to 18 people. Sixteen individuals filed personal injury claims against several defendants, including Myron and Malcolm Silverman. The Silvermans in turn filed a complaint against York-Jersey Underwriters claiming professional negligence.

There was a jury trial. Prior to deliberations, the six-person jury was asked two specific questions: First, whether the Silvermans had proved that York was negligent and, second, whether the Silvermans had proved that such negligence caused them to suffer a loss. The judge instructed the jury on the need to have at least five jurors agree on each interrogatory. As to the order in which to answer the interrogatories, the judge instructed, “If you say no [to Question One] you don’t have to proceed any further; you return your verdict. If your answer to Question Number 1 is yes, you’ll now go to Question Number 2.” Despite this instruction, the jury reported that it could not reach a unanimous decision on the first question and then unanimously answered the second question “no.” The judge entered a judgment in favor of York; the Silvermans appealed.

On appeal, the Silvermans argued that the verdict should be reversed because the jury did not comprehend the judge’s instructions. They further contended that the jury did not follow the judge’s instruction that “if you can’t come to a conclusion on Number, 1 you don’t go to Number 2.” The Superior Court of New Jersey, Appellate Division, disagreed. The court noted that jury instructions are not grounds for reversal unless they are “misleading, confusing, or ambiguous.” It then noted that the record supported the conclusion that the jurors were well aware of the importance of having at least five jurors agree on each question. In addition, the court noted that there was nothing that precluded the jury from deciding the second question if it could not reach a conclusion on the first.

The Silvermans next argued that the jury’s unanimous decision on the second question was inconsistent with its split answer on the first question. According to the Silvermans, the jury had to decide York was negligent before it could decide whether York’s negligence caused harm to the Silvermans. Again, the court disagreed. It stressed that the first question dealt with the issue of fault, while the second dealt with whether York’s action caused damage to the Silvermans.

During the trial, Myron Silverman admitted that if he had reviewed the renewal notices’ statement that personal liability coverage was not included, he would have contacted his broker. This lack of action on his own part could have contributed to the loss suffered by the Silvermans. Thus, it was not unreasonable for the jury to find that York’s conduct was not the cause of the Silvermans’ loss.

Next, the Silvermans argued that the court incorrectly barred them from informing the jury that 18 people were injured when the deck collapsed. According to the Silvermans, the jury needed this information to “appreciate the magnitude of liability to which plaintiffs were exposed by renting the house without liability insurance.” The court noted that the trial judge had good reasons for excluding that information, namely that it would be “highly prejudicial” to York.

For all of these reasons, the judgment in favor of broker York was affirmed.

Lancos vs. Silverman-Superior Court of New Jersey, Appellate Division-May 14, 2008-946 Atlantic Reporter 2d 1073.

Were insureds injured by agent’s negligence?

In 2002, Jerry and Becky French purchased a manufactured home for $76,950. They worked with their long-time insurance agent, Jane Hodson, to purchase State Farm homeowners insurance for their new home. As part of the purchase process, Hodson asked Jerry various questions and entered data into an “insurance to value” (IV) calculator to arrive at a replacement cost of $173,200.

The IV calculator is an electronic tool insurance agents use to determine a “reasonably accurate estimate of current replacement cost” coverage. Hodson also determined that the Frenches would need additional coverage during “construction” of the home (even though the home was a manufactured home), so she added a “dwelling under construction” endorsement to the policy. The Frenches also purchased an “increased dwelling limit” endorsement that increased their coverage by $34,640, as well as an additional $130,000 of personal property coverage.

State Farm offered different insurance policies “determined by the type of home you have.” Specifically, according to Hodson, State Farm offered “renter[’]s insurance,…mobile home insurance, [and]…homeowners.” And, according to State Farm, there are significant differences between a manufactured home and a stick-built home. A stick-built home is one that is built piece by piece at the construction site, as opposed to a home that is built entirely in the factory. Despite those apparent differences, Hodson did not ask Jerry French whether his new home was a manufactured or stick-built home, nor did she ask him about the purchase price of his new home.

The Frenches moved into their new home in August 2002. In February 2003, the house was destroyed by fire. State Farm claim representative Michael Schliessman told the Frenches that they “could use up to their policy limits—$176,837—to rebuild [their] home but [they] would be responsible for costs incurred over that amount.” He then sent Jerry French a follow-up letter that stated, in part: “The expenses for your building are payable under Coverage A. Any item that is permanently attached to the dwelling is included under this coverage. Your limit under this coverage is $176,837.” The letter described the process by which repair work was to be performed, including the following statement: “If your contractor’s estimate is higher than your claim representative’s estimate, we will work with your contractor to reconcile the differences.”

Because they thought an electrical defect in the manufactured home had caused the fire, the Frenches were hesitant to buy another manufactured home. Instead, although they intended to use the existing foundation, they wanted to build their new home on site using a local contractor, at an approximate cost of $184,445.

State Farm researched the cost of replacing the Frenches’ manufactured home. The cost of the same model had increased to $80,187.18, and this was the amount that State Farm offered to replace the home. The Frenches claimed that they had interpreted the Schliessman letter to mean that the full $176,837 was available. They accepted the $80,187.18 amount but reserved their right to seek further coverage.

In 2004, the Frenches sued State Farm and Hodson. Count I of the lawsuit alleged that State Farm breached its policy by limiting the coverage to $80,187.18. Count II alleged that, if the court found that the policy provided only $80,187.18 of coverage, then Hodson was negligent in her duties as their agent. On the issue of Hodson’s negligence, the court found in favor of Hodson. The Frenches appealed that decision, arguing that Hodson had overcharged them for illusory coverage and that she had breached her duty to ascertain the facts necessary to procure coverage.

On appeal, the Court of Appeals of Indiana noted that it had “serious misgivings” as to whether Hodson exercised “reasonable skill, care and diligence in the procurement of more than $200,000 in homeowners coverage for a $76,000 manufactured home.” Nevertheless, the key issue was whether the Frenches suffered an injury because of that negligence. According to the court, because of Hodson’s alleged negligence in procuring a policy with inflated limits, the Frenches received more benefits than they should have; not less. In addition, the court found that the Frenches did not rely on Hodson when they decided to build a “stick-built” home as opposed to purchasing another manufactured home. They made that decision even when they knew there was a coverage dispute.

The court concluded that to the extent there was any negligence on the part of Hodson, that alleged negligence did not cause the Frenches injury. Accordingly, the decision of the lower court in favor of Hodson was affirmed.

French vs. State Farm Fire & Casualty Company-No. 18A02-0612-CV-1161-Court of Appeals of Indiana-March 6, 2008-881 North Eastern Reporter 2d 1031. *