Court Decisions 12/99

Digested from case reports published in the North Eastern Reporter 2d,
West Publishing Co., St. Paul, MN

Can wife receive higher UM limits than husband agreed on?

In 1977, Nationwide Mutual issued to Walter Stacy its auto liability policy with limits of $100,000/300,000; but the UM coverage was shown as $12,500/25,000 in accordance with a written election made by the insured on June 7, 1977. The policy was secured through the company's agent, Roger Dickman. The following year, the insured's wife, Marilyn, told Dickman that she had just inherited a 1972 Oldsmobile Cutlass from her father and asked that it be insured. It was added to Walter's policy as an additional covered vehicle. Over the next several years, Walter and Marilyn added and deleted several cars from the policy; however, the policy number remained the same and Walter was at all times shown as the only insured named on the declaration page.

On December 7, 1983, Walter was killed in an accident with Alan Cavallin, who had no insurance. Walter was survived by Marilyn and their nine adult children. Marilyn was named as executor of her husband's estate. She retained Murray & Murray as her attorneys, agreeing to pay them one-third of any recovery "from any source, including any uninsured motorists proceeds."

On May 24, 1984, Nationwide issued its check for $12,500 to "Marilyn Stacy, Executrix of the Estate of Walter Stacy, deceased, and Murray & Murray, attorneys at law." On the same day, in her capacity as executor of Walter's estate, Marilyn signed a "Release and Trust Agreement--UMC" which stated that, in exchange for the sum of $12,500 she "does forever release and discharge Nationwide of and from all claims of whatsoever kind and nature prior to and including the date hereof growing out of the Uninsured Motorists Coverage of an Automobile Insurance Policy number 92B266-895 issued by Nationwide to Walter Stacy, and resulting or to result from an accident which occurred on December 7, 1983, at or near Sandusky, Ohio."

The release also provided that she would "reimburse, indemnify, and save harmless said Nationwide against any further claims under said policy resulting from the above accident, by or on behalf of any minor or deceased named above, her (his) representatives, heirs or assignees ...

In her first partial account filed in the Probate Court for the estate, Marilyn included "Pending claim for wrongful death" valued at $1, which was approved.

While the estate was pending, Marilyn, as executrix, filed a wrongful death action against Cavallin and others. A jury in that action returned its verdict for $750,000.

On August 9, 1985, Marilyn's attorney sent a demand letter to Nationwide for $100,000, and Nationwide replied that it had fulfilled its obligation under the policy when it paid the estate the policy limit of $12,500 and received a release.

The following February, Marilyn and her nine adult children signed a new agreement with the Murray firm stating that the firm would receive 40% of any UM or UIM benefits in excess of the $12,500 already paid by Nationwide; and in March, 1986, the complaint in this case was filed by Marilyn and her children. Their complaint alleged that, in fact, Marilyn was a "named insured, and she should have been told about the lower UM/UIM coverage. Their witnesses testified that wrongful death claims should be approved by the probate court and "a full and final release" obtained from "all family members of the deceased."

Dickman, the company's agent, stated in his deposition that it was the company's standard practice to "add on" an additional vehicle within the same household to an existing policy. He said he did not "write separate policies for additional vehicles unless specifically requested to do so, and the addition or subtraction of a vehicle without a change in coverage does not create a new insurance policy." He defined "named insured" as "whoever was named in the declarations of the policy" and added that Nationwide agents use a family insurance policy "for the convenience of both the company and insured." In order to become a named insured, Marilyn would have had to fill out an application for insurance and put down "appropriate money." He said Marilyn gave him no reason to believe she desired a separate policy, and "if she had requested one, he would have explained uninsured motorist coverage to her."

Marilyn, in her deposition, said that her husband had arranged for all their insurance, and she trusted his judgment; that he told her to make sure she had insurance on her car so they would "not lose their home if she had an accident." However, she did not speak to Dickman about coverage, but showed a woman in his office the bill of sale for her car, and asked that it be insured. She admitted that if she had been asked, she probably would have opted for the same coverage as her husband and probably would have had her car added to his policy. At the trial, she testified she did not know if she would have made the same choice; and, in hindsight, she would have wanted full coverage if Dickman had explained it to her.

The trial court found that the release signed by Marilyn was ineffective due to lack of consideration, and it should have been approved by the Probate court; that it was not binding "as to any claimants other than the personal representative since they did not sign the release."

It also decided that Marilyn was a "named insured" under Walter's policy, and she should have been given the same opportunity to reject higher UM/UIM coverage. It also ruled that Walter's rejection of equivalent coverage was ineffective at the time of his death since he had changed vehicles without signing a new rejection form. It concluded that Nationwide was liable for the UM/UIM limit of $300,000 and entered judgment against it for $275,000.

On appeal, this court found that the trial court erred in finding that Nationwide should have required Walter to sign a new rejection statement each time he changed vehicles. It further found that Marilyn was not a "named insured" in the policy that was in effect at the time Walter died. The court also found that the trial court should not have used the contract for a contingent fee to fix the amount of attorney's fees, and it should not have granted prejudgment interest.

The judgment entered in the trial court against Nationwide was affirmed in part, and remanded to the lower court for a redetermination as to whether the attorney fees were "necessary and proper" in this case, and the amount of such fees. Court costs of this proceeding should be assessed equally to each party.

Stacy et al. v. Nationwide Mutual Insurance Company, Appellant--No. E-96-053--Court of Appeals of Ohio, Sixth District, Erie County--February 27,1998--(Discretionary appeal to the Supreme Court of Ohio was dismissed (1999)--709 North Eastern Reporter 2d 519.

Divorced wife's HO policy won't cover former husband's claim in death of son

David and Stephanie Martin were divorced and living apart at the time their eight-year-old son, Ricky, shot and killed his six-year-old brother, Michael, with a rifle. Stephanie had an HO policy issued by Cincinnati Indemnity. David Martin, who was appointed as administrator of Michael's estate, filed a wrongful death action against his former wife alleging she was negligent in failing to supervise the children, and in failing to safely store the rifle. Cincinnati filed this action for declaratory judgment to determine whether its policy covered the accident. The parties stipulated that Michael and Ricky were covered under the policy since they were relatives living in the same household as Stephanie, the named insured, but David was not.

The lower court granted summary judgment in favor of the company, ruling that Cincinnati had no duty to defend or indemnify Stephanie against the wrongful death claim filed by David Martin. This was the only question submitted to the appeals court.

The policy provided coverage for the insured for "care, loss of services and death resulting from bodily injury" and "insured" meant the named insured, and household residents, which included the named insured's spouse and relatives.

However, the policy coverage specifically excluded "bodily injury ... to you or an insured ..."

The administrator contended that the exclusion applied only to injuries suffered by another insured and did not apply to injuries suffered by him, who was not covered. He claimed he had suffered his own injury as a wrongful death beneficiary.

The court disagreed and affirmed the judgment entered in the trial court in favor of the company, declaring the company had no duty to defend or indemnify its insured in a wrongful death action brought by a non-insured based on the death of an insured.

Cincinnati Indemnity Company v. Martin, Appellant--Nos. 98-1384, 98-1492--Supreme Court of Ohio--June 16, 1999--710 North Eastern Reporter 2d 677.

Roofing contractor sued over rain damage

In April 1996, Community Action entered into a contract with Wahid Abdullah and Milton Salib, d/b/a Best For Less Home Improvement, for the installation of a new roof on Community's office building in Indianapolis. Best For Less sub-contracted with Darrell Lakes to do the job. At that time, Lakes had a commercial liability policy issued by Indiana Farmers Mutual Insurance Company.

At the end of the work day on April 18, 1996, the roof was not done, and a heavy rain was in the forecast. An attempt was made to secure the building, but that evening the building was flooded by a heavy downpour, and Community Action sustained about $170,000 in damages. A year later, Indiana Farmers notified Lakes it would not indemnify him; and on February 20, 1998, Community filed an action for damages against Best For Less, Lakes and Indiana Farmers. The only count in that action against Indiana Farmers asked for a declaratory judgment as to that company's liability under its policy. Indiana Farmers filed its answer asking for a dismissal since Indiana law precludes such a direct action by a third party against the insurance company. The trial court agreed and dismissed that count in the complaint, and Community Action appealed.

On that appeal, the court ruled that, based on case law, the injured victim of an insured's tort has "a legally protectable interest in the insurance policy before he has reduced his tort claim to judgment."

In reversing the judgment of the trial court dismissing the count against Indiana Farmers, the court concluded that: Where the insurance company is not being sued to establish that its insured was negligent and caused the loss, but is being sued to establish whether the insurance company could deny coverage or whether the insurance policy remained in effect, such suit is not a direct action suit against the insurance company.

The judgment entered in the trial court dismissing the count against Indiana Farmers was reversed and remanded for further proceedings consistent with this opinion.

Community Action of Greater Indianapolis, Appellant v. Indiana Farmers Mutual Insurance Company--No. 49A02-9809-CV-734--Court of Appeals of Indiana--April 7, 1999--708 North Eastern Reporter 2d 882.

Does parents' HO policy cover minor's dirt bike accident?

On June 14, 1990, Pedro Flores, Jr., (then 15 years old) was riding his "dirt bike" on a former municipal dump in Brockton, Massachusetts. As he drove down a hill, he crashed into Frank Lima, one of his riding friends who was below him on his three-wheel all terrain vehicle. Lima suffered severe injuries as well as permanent physical impairments. Pedro's parents, Pedro Flores, Sr., and Laurie Flores, had an HO policy issued by Worcester, which also covered Pedro. In 1992, a negligence action was filed against Pedro's parents, and they gave notice of the action to Worcester, which denied liability and refused to defend or indemnify the insureds. They retained their own counsel, but he later was permitted to withdraw his appearance since the Flores could not pay legal fees.

The policy contained the usual provision excluding recreational vehicles owned by the insureds and involved in the accident. This action was brought by the bankruptcy trustee and Laurie Tavares (formerly Flores). So the question before the court was the company's liability to defend third-party actions under the allegations in the complaint.

Judgment was entered against Pedro's parents in the amount of $422,352.33. Pedro Flores, Sr., filed bankruptcy and was discharged May 2, 1996. The chief debt discharged was the negligence judgment. The trustee in bankruptcy was asked to reopen the proceeding to allow institution of this action against Worcester for its breach of its duty to defend and indemnify its insureds. This was permitted, and the lower court granted summary judgment in favor of the parents, and summary judgment was entered for the company on the claim that the company was liable for increased penalties permitted by the consumer protection statutes, but the judgment in favor of the trustee and Laurie (Flores) Tavares was affirmed. The company appealed.

The higher court ruled that the claim for damages was covered under the policy provision that the company would pay up to its limit of liability for the damages for which the insured was legally liable and provide a defense at its expense. Since the insureds were alleged to have been negligent in their supervision, this fell within the policy coverage, and the company should have defended the insureds. (The court noted that the company chose not to pursue the customary suit for declaratory judgment.)

The policy provided it would apply separately to each insured, and the policy also excluded "a recreational vehicle not owned by an insured." The higher court believed this should be read in conjunction with the severability clause, resulting in a conclusion that the present parents were entitled to coverage since they did not own the recreational vehicle involved in the accident.

However, the court also found that, while the insureds were not entitled to the statutory penalties from the company because of its handling of the claim, they were entitled to attorney's fees and expenses incurred in the present action.

The judgments entered in the lower court were affirmed, and remanded for assessment of legal costs incurred in this action.

Stephen E. Shamban, trustee, et al. v. Worcester Insurance Company--No. 97-P-1568-Appeals Court of Massachusetts, Norfolk--May 27, 1999--710 North Eastern Reporter 2d 627. *