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Insurers fail to notify claimant about statute of limitations

On August 7, 1989, Amy Reynolds was seriously injured in an accident involving the car in which she was a passenger, and a car operated by James Sauer. Arbella Insurance had provided primary coverage for $100,000 on the Sauer vehicle, and Allstate had issued an excess policy for $2 million.

Reynolds retained Susan Kendall as her attorney, and Kendall was able to negotiate a payment of $100,000 from Allstate. The cover letter stated that the $100,000 was "to be credited to the final settlement of your client's bodily injury claim." Neither Arbella nor Allstate provided written notice to Reynolds regarding the statute of limitations applicable to her claims, which, in her case, required suit to be filed within three years. Since she failed to do so, Allstate contended her claims were barred.

Reynolds argued that the statute was tolled under the provisions of the statute since she had not been given the statutory notice regarding limitation of suit. Allstate believed this did not apply since Reynolds had retained Kendall as her attorney, and the $100,000 payment made by Allstate was intended to be a "payment in full" of the Arbella policy and was not an "advance payment" within the meaning of the statute. The trial court granted summary judgment in favor of Reynolds, and Allstate appealed.

The higher court decided that the statute involved here made no exceptions where an advance payment was made to a claimant represented by an attorney. In this case, Allstate's check was made payable to "Amy Reynolds and her attorney, Susan Kendall."

The summary judgment granted in the lower court in favor of Reynolds was affirmed. However, Reynolds' request for "double costs" as allowed in some instances by statute was denied since the interpretation of the applicable statute was not "well-settled."

Allstate Insurance Company v. Amy Reynolds--No. 95-P-1429--Appeals Court of Massachusetts--October 23, 1997--685 North Eastern Reporter 2d 1210.

Lead paint not a "contaminant"

Gloria Willis and her small son, Lawrence, were tenants (from June 1989 until June 1991) in an apartment in Chicago owned by American National Bank as trustee for Katalina Stringfield. The Insurance Company of Illinois issued a general liability policy to Stringfield which was in force from October 2, 1990, through October 2, 1992.

In March, 1994, Gloria Willis filed suit on behalf of her son against several defendants, including Stringfield and the bank as trustee. Her complaint alleged that Lawrence had sustained lead poisoning due to his consumption of lead-based paint and plaster that had chipped, flaked, broken and fallen away from various exposed surfaces in the apartment.

In June the Insurance Company of Illinois filed this action for declaratory judgment that it had no duty to defend or indemnify its insured, Stringfield, in the suit filed by Willis. The company based its denial of liability upon the pollution exclusion in its policy, which stated the coverage did not apply "to bodily injury...arising out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants..." The policy defined "pollutants" as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed."

The trial court granted the company's motion for summary judgment, and this appeal followed.

The higher court believed the question before it was whether the lead-based paint was a "contaminant" or "irritant" and pointed out there was nothing before it to indicate that lead "irritates" and it is not usually believed to irritate. Therefore, the court based its decision on "contaminant." It concluded that a reasonably prudent person would not believe the lead-based paint was contaminated from the time it was made, nor was it later contaminated by a subsequent corruption by lead which caused the paint to become contaminated, such as would occur if lead from pipes corrupted a water supply.

The court concluded that the lead was purposefully incorporated into the paint by its maker, and the paint was intentionally applied to the insured premises. At that time, the paint was neither impure nor unwanted. Therefore, the pollution exclusion did not preclude coverage for personal injuries arising out of a minor's ingestion of lead. The minor's injuries in the underlying suit did not arise from the discharge, dispersal, release or escape of a "pollutant."

The summary judgment entered in the lower court in favor of the insurance company was reversed and remanded for further proceedings in accordance with this opinion.

Insurance Company of Illinois v. Katalina Stringfield et al., Appellants--Nos. 1-96-0347, 1-96-0344--Appellate Court of Illinois, First District, First Division--September 22, 1997--Rehearing denied October 28, 1997--685 North Eastern Reporter 2d 980.

UIM insurance company can intervene in tort action

On November 27, 1995, David Axsom, a pedestrian, was struck by a car owned and operated by Louise Beard. She had a policy issued by Farm Bureau Insurance with limits of $250,000/500,000. At the time of the accident Axsom was an employee of Adam Guernsey, dba United Plumbing, and the accident occurred during the scope of his employment. Guernsey had a policy issued by Westfield Insurance which included UIM limits of $500,000 per accident.

The Indiana statute provides that an underinsured motor vehicle includes one where the available coverage limits are less than the limits of the insured's UIM coverage at the time of the accident.

Axsom filed suit against Beard on January 21, 1997, and notified Westfield that he intended to claim UIM benefits under Guernsey's policy. Westfield then filed a motion to intervene in his tort action against Beard. The trial court denied the motion and Westfield appealed. This was a case of first impression in Indiana.

Under the terms of Axsom's UIM policy, Westfield faces potential UIM coverage exposure of $250,000, representing the difference between Farm Bureau's policy and Westfield's policy. Questions involving liability and damages will be determined in the underlying suit.

The court, on appeal, decided that, in view of the disparity in the levels of coverage, Westfield was entitled to intervene in the pending action in order to protect its interests.

The trial court was instructed to grant Westfield's motion to intervene in the action brought by Axsom against Beard.

Westfield Insurance Company, Appellant v. David E. Axsom and Louise A. Beard--No. 03A01-9703-CV-102--Court of Appeals of Indiana--August 20, 1997--684 North Eastern Reporter 2d 241.

UIM insurer may have acted in bad faith

John Kehoe and Linda Kehoe had an automobile policy issued by Lightning Rod Mutual with coverage of $100,000 with UIM coverage of $50,000. The policy was in full force and effect on September 21, 1991, when the insureds were seriously injured in an accident caused by the negligence of Alexander Pline. The Kehoes filed suit. Pline had a policy issued by State Auto with a $50,000 limit, and it tendered the limit to Mr. and Mrs. Kehoe. At that time, Lightning Rod offered to pay $50,000, less $5,000 paid for medical expenses, and it then entered the case as a third-party plaintiff to protect its subrogation rights. The Kehoes apparently refused the offer, and the case went to trial and they were awarded $162,000 damages. Their counsel then made a demand on Lightning Rod for the payment of the $50,000 under the UIM policy and the company refused, although it had paid nothing to its insureds. Lightning Rod contended that it had no duty to pay since it was not a defendant in the underlying matter and no judgment had been entered against it. It appealed that verdict but then dismissed the appeal.

The insureds then sued Lightning Rod because it had acted in bad faith in failing to pay the undisputed $50,000 portion of its coverage until 11 months after the jury in the underlying case had determined their damages at $165,000. The trial court granted summary judgment in favor of Lightning Rod and the insureds appealed.

The higher court found that there were issues of fact on the issue of bad faith which should have been determined by a jury, and the trial court erred in granting summary judgment to the company, and denial of pre-judgment interest.

In reversing the judgment, the court noted that State Farm had tendered its limit of $50,000; the jury's verdict was for damages of $162,000 in favor of John Kehoe and $3,000 in favor of Linda Kehoe. Pline was, therefore, underinsured by $115,000, and Lightning Rod, by its policy, was liable for $100,000 for those injuries. As of June 28, 1994, when the verdict for damages was entered, Lightning Rod was bound to pay $50,000 of the limit of UIM of $100,000, and ignored the insureds' demand for payment for almost a year. The higher court said such conduct should have been submitted to the jury as to the company's bad faith.

The judgment entered in the trial court in favor of Lightning Rod was reversed and remanded for further proceedings.

Kehoe, et al., Appellants v. Lightning Rod Mutual Insurance Company--No. 70410--Court of Appeals of Ohio, Eighth District, Cuyahoga County--October 7, 1996--685 North Eastern Reporter 2d 255.

Adjuster's "damaging statements" not covered by businessowners policy

Pekin Insurance had issued a businessowners policy to L. J. Shaw & Company. One of Shaw's adjusters was William L. Hall. Pekin brought this action for declaratory judgment to determine its liability to defend Shaw and Hall in an underlying action for damages brought by Joseph P. Caulfield because of "damaging statements" made by Hall.

The record showed a fire had occurred at the printing plant of Litho Productions which caused substantial damage to the building and contents. Shaw and Hall represented the insurance company which covered Litho, and Caulfield represented Litho in the fire investigation and claim forms. Caulfield contended that Shaw and Hall had acted in a manner intended to induce Litho to terminate its relationship with Caulfield. The businessowners policy issued by Pekin excluded "property damage, personal injury, or advertising injury" due to rendering or failure to render any professional service. This included but was not limited to "...preparing, approving, or failing to prepare or approve maps, drawings, opinions, reports, surveys, change orders, designs or specifications."

The insured contended the policy covered since it applied to personal injury caused "by an offense arising out of your business..." The policy also covered injury arising out of oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services.

The trial court entered summary judgment against Pekin on the duty to defend, and Pekin appealed.

The higher court noted that Caulfield contended that Hall, as an employee of Shaw, had falsely represented to several people that Caulfield had "grossly overstated, and possibly engaged in fraudulent misrepresentations of Litho's fire loss damage." Hall did this, according to the complaint, as a pretext to cause Caulfield's termination by Litho, which, in fact, occurred.

In conclusion, the higher court agreed with Pekin that the "professional services" exclusion was not ambiguous, and it relieved Pekin of any duty to defend Shaw and Hall since Hall's statements were "professional opinions expressed by an adjuster in course of adjusting claim on behalf of fire insurer..."

The judgment entered in the trial court in favor of Shaw and Hall was reversed and judgment was entered in favor of Pekin.

Pekin Insurance Company, Appellant v. L. J. Shaw & Company, and William L. Hall--No. 1-96-0535--Appellate Court of Illinois, First District, Fourth Division--August 21, 1997--684 North Eastern Reporter 2d 853.

Unauthorized settlement terminates UIM coverage

Raymond Colegate was driving on River Road, in Ohio, with Greg Eilerman as a passenger, when his vehicle was struck by a truck which backed out of a driveway. The truck was owned by Browning-Ferris Industries (BFI). Eilerman was killed. His father, as administrator of his estate, filed suit against Colegate and BFI (a self-insurer). The administrator settled with Colegate, and later with BFI; but the settlement was not authorized by Eilerman's insurance company (Great American). BFI filed a third-party complaint to determine whether UIM coverage was available to the estate of Greg Eilerman, and sought contribution, indemnification and a determination of liability under the policy issued by Great American to Greg's parents. Great American filed a motion for declaratory judgment that it was not liable, which was granted by the trial court. BFI appealed.

BFI contended that the decedent's father, as administrator, had assigned all his rights under the Great American's UIM coverage to BFI, and that BFI's claim for contribution should have been allowed, despite the fact that Greg Eilerman was in no way responsible for the accident.

On appeal, the court stated that since the administrator had settled with BFI without the consent of Great American, that settlement terminated any rights that the administrator had to UIM coverage under Great American's policy. That policy provided for subrogation, and also provided that the person to whom a payment has been made would cooperate with Great American, and would do "nothing after loss to prejudice them."

The administrator's unauthorized settlement with BFI fully released BFI from further liability, and Eilerman breached the subrogation clause in his policy. The higher court also noted that BFI had no right of contribution from Great American since Eilerman was the victim in the accident.

The judgment entered in the lower court in favor of Great American was affirmed.

Eilerman, Admr. v. Colegate et al.; Browning-Ferris Industries of Ohio, Inc., et al.--No. C-950937--Court of Appeals of Ohio, First District, Hamilton County--July 31, 1996--685 North Eastern Reporter 2d 548.

Builder sued over defective roofs

Thompson & Associates had secured commercial general liability policies from Monroe Guaranty Insurance Company and Commercial Union Insurance Company to protect Thompson & Associates from damages arising from its building and development business. Thompson had developed Sandpiper Bay located in Indianapolis. In 1993, the Sandpiper Bay Homeowners Association filed suit against Thompson for breach of implied warranty of habitability. The Association alleged that the roof decking on some of its buildings had been damaged due to degradation of the plywood used for a portion of the roof; that the attics were improperly vented; that clothes dryers were improperly vented directly into the attics; that the roof system had been built in a substandard manner which allowed excessive heat and moisture in the attic areas. It sought damages in an amount equivalent to the cost of repairs and/or replacement.

Thompson & Associates filed this action for declaratory judgment against their insurance companies, which denied liability and filed a motion for a summary judgment, which was granted by the trial court. The insured builder appealed.

The court determined that the deterioration of the plywood roofing material was not caused by an "accident" as required by the policies; that the condition resulted from increased temperature and inadequate ventilation; that the condition of the plywood was natural and an ordinary consequence of the work. Therefore the economic losses sustained by the homeowners were natural consequences of faulty workmanship, design, and use of defective materials. Under such circumstances, the loss did not involve property damage and was not covered by the policies since the loss was not a result of an accident or occurrence.

The judgment entered in the trial court in favor of the insurance companies was affirmed.

R. N. Thompson & Associates, Inc., Appellant v. Monroe Guaranty Insurance Company and Commercial Union Insurance Company--No. 49A05-9609-CV-362--Court of Appeals of Indiana--October 14, 1997--686 North Eastern Reporter 2d 160. *