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

Insurer makes payment; attorney embezzles funds

In May 1994, Joseph Margotte and his wife, Jean, were seriously injured in an accident involving the car in which they were passengers and a car driven by a person insured by Indiana Insurance Company. Mr. and Mrs. Margotte retained Bradley Catt as their attorney in an action for damages. Catt negotiated a settlement with Indiana for the policy limits of $500,000, with $100,000 in an annuity and a lump sum of $400,000 at the time of settlement.

On August 28, 1995, Catt met with his clients to have them sign a document which the attorney said he needed "to get things moving along." Neither of his clients read the document, which was a settlement agreement, before signing it. Two days later, Indiana issued its check for $400,000 payable to the Margottes and Catt jointly and mailed it to Catt as provided in the settlement agreement. Catt deposited the check in his trust account at Citizens Bank and embezzled the amount for his personal and business expenses. The Margottes received no part of that amount.

On December 23, 1996, the Margottes filed their complaint against Indiana, alleging breach of the settlement agreement, and later filed their motion for summary judgment. Indiana denied any breach, and filed a third-party complaint against Citizens for indemnification. The lower court found there was a question of fact and denied the motions for summary judgments filed by the parties. An appeal was granted to Indiana and Citizens.

The court noted that the parties conceded that the Margottes did not know what they were signing, and they signed due to the misrepresentations of their attorney. The court pointed out that the Margottes had a reasonable opportunity to read the document and they did not do so. While the agreement was voidable, it was not void, and was a binding contract between Indiana and the Margottes. Indiana authorities have ruled that acceptance of a check by a client's attorney and receipt of the proceeds of the check by that attorney amounts to payment of the obligation. The court said: " Having fully discharged its obligation, Indiana cannot be held liable for the Margottes' failure to receive the money ..."

The higher court concluded that Indiana was entitled to a summary judgment in its favor and there was no basis for Indiana's indemnification claim against Citizens.

The action was reversed and remanded for entry of summary judgment in favor of Indiana Insurance Company.

Indiana Insurance Co., Appellant v. Jean C. Margotte et al.-No. 42A05-9905-CV-202-Court of Appeals of Indiana-November 15, 1999-718 North Eastern Reporter 2d 1226.

State Supreme Court rules on arbitration requirement

The Supreme Court of Illinois has reversed the decision of the Appellate Court in the case of Julie Reed v. Farmers Insurance Group (685 N. E. 2d 385) where the insured sought a declaratory judgment that the UIM provision in her automobile policy requiring arbitration was unconstitutional. The trial court granted the company's motion to dismiss and the insured appealed to the Appellate Court of Illinois. That court reversed the trial court and remanded the action for further proceedings, and the company's appeal to the Supreme Court of Illinois was granted.

The insured had been injured in 1995 when one car collided with another, causing the second car to hit the insured's car. The driver of the first car fled the scene and could not be identified. Pursuant to an Illinois statute, the policy issued to Julie Reed contained a clause calling for arbitration if the insured and her insurance company could not agree upon the amount of the loss. Before the claim could be submitted to arbitration, the insured filed this action for declaratory judgment that the arbitration provision was unconstitutional because it violated public policy and limited her freedom of contract. The statute allowed either party to reject any award that exceeded the financial responsibility limit of $20,000.

The higher court concluded that the arbitration requirement of the statute and the policy did not violate public policy since it allowed either party to reject awards in excess of the financial responsibility limit of $20,000.

The judgment of the Appellate Court of Illinois was reversed, and the judgment entered in the trial court granting the company's motion to dismiss was affirmed. (Three of the justices dissented and dissenting opinion was filed.)

Julie Reed v. Farmers Insurance Group, Appellant-No. 84208-Supreme Court of Illinois-October 21, 1999-Rehearing denied November 29, 1999-720 North Eastern Reporter 2d 1052.

Insurer unable to raise time limitation defense

Susan L. Await was killed on November 22, 1987, when she was struck by a car driven by Andrew Clayton. The evidence showed the accident was caused by his negligence.

Clayton had two auto liability policies and Await's estate settled with those companies. Her administrator then filed a claim for UIM benefits under Await's policy which had been issued by State Farm, and which provided for UIM benefits of $250,000/500,000.

State Farm denied liability on the ground that Await was not an underinsured motorist as defined by its policy. State Farm then filed an action for declaratory judgment to determine its liability under the policy. The trial court ruled that State Farm was not liable for UIM benefits, and the administrator appealed.

The appellate court ruled that Clayton was an underinsured motorist and State Farm was obligated to Await's estate. The action was remanded for further proceedings, and the trial court ruled that State Farm was obligated under its policy to provide UIM coverage up to $250,000 in excess of the $350,000 which the estate received, or would receive from Clayton. It concluded that in no event would State Farm be obligated to pay more than $500,000.

On January 24, 1997, the administrator filed this action to secure payment of the UIM benefits which had been determined to be due in the action for declaratory judgment. The complaint showed that demand had been made to, and had been refused by, State Farm. In answer to that complaint, State Farm contended the action was barred because it had not been brought within two years from the date of the accident, as required by its policy. The trial court granted State Farm's motion for summary judgment, and the administrator appealed.

The only issue on appeal was whether the company's defense could be raised after judgment had been entered in the declaratory judgment action.

The higher court ruled that State Farm should have raised that defense in the prior action, which involved the same claim and the same policy. Since it failed to do so, it was barred from asserting the limitations provision as a defense to the administrator's claim for UIM benefits.

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

Mahin, Admr., Appellant, v. State Farm Mutual Automobile Insurance Company-No. C-970508-Court of Appeals of Ohio, First District, Hamilton County-September 11, 1998-718 North Eastern Reporter 2d 999.

UIM proceeds reduced by other collectible insurance

Grain Dealers Mutual had issued an auto liability policy to Sally and Timothy Wuethrich which provided UIM limits of $100,000 per person per incident. Sally was driving their car on November 18, 1993, when she stopped in a line of traffic because of construction and roadwork. Michael Bartelmann approached in his auto and collided with her car, and Sally was seriously injured. The insureds filed their complaint for damages against Bartelmann, Bucko Construction Company, the State of Indiana, and Grain Dealers, alleging that Bartelmann was negligent; that Bucko was negligent in its traffic control and placement of signs; and the State of Indiana was negligent in its maintenance of the construction area and did not adequately warn motorists of the hazards. The insureds settled with Bartelmann and were paid the "per-person" limits of $25,000 per person. Bucko Construction paid $150,000, and the State of Indiana settled for one dollar.

The parties stipulated that Sally's injuries exceeded Bartelmann's limits of $25,000 as well as Grain Dealers' UIM limits of $100,000. Grain Dealers contended it was entitled to a set-off of the other monies received by Sally ($150,001). The parties also agreed that if Grain Dealers was entitled to that credit, the insureds could not recover additional amounts. They also agreed that if Grain Dealers was not permitted to reduce its $100,000 policy limits by the total of those settlements ($150,001), then Grain Dealers was obligated to pay its insureds an additional $50,000.

The lower court entered judgment in favor of the insureds, holding that Grain Dealers was obligated to pay them an additional $50,000 and Grain Dealers appealed.

The higher court pointed out that the policy stated that the company's liability "shall be reduced by all sums paid because of the bodily injury ... by or on behalf of persons or organizations who may be legally responsible." Furthermore, the Indiana statute does not expressly or impliedly limit the set-off of amounts recovered only from "motorist tortfeasors."

Since neither the policy nor the Indiana statute limits the amount that may be set off as a result of the settlements made to the insureds, Grain Dealers was entitled to the total set-off and was not obligated to pay its insureds additional UIM benefits under its policy.

The judgment entered in the lower court in favor of the insureds was reversed and the action was remanded with instructions that the trial court enter judgment for Grain Dealers.

Grain Dealers Mutual Insurance Company v. Sally J. Wuethrich and Timothy J. Wuethrich--No. 66A04-9902--CV-70--Court of Appeals of Indiana--September 27, 1999--716 North Eastern Reporter 2nd 596.

Is insurer bound by agent's representations of coverage?

Brenda Medeiros and James Egan lived together in a house that they owned jointly. Brenda owned her automobile and had her own liability insurance on it, and James had his own car and a policy issued by Middlesex Insurance with limits of $100,000 UM/UIM. David Drinon, an agent for Middlesex, told Brenda that because she often drove Egan's car, her name should be shown as an additional operator of that car, and that such a change would be necessary "in order to be properly insured."

That policy provided coverage for damages caused by an uninsured or underinsured auto to or for "you, or any household member." "You" was defined as "the person named on the Coverage Selections Page." Egan was shown as the owner of the policy, and both Brenda Medeiros and Egan were listed on the coverage selections page as operators.

In October 1987, Brenda was seriously injured when the vehicle she was driving was struck by another car. She obtained the limit of $25,000 from the driver of that car, and $10,000 under her own UIM coverage. She then sought UIM benefits under the policy issued by Middlesex, but it denied liability on the ground that Brenda was not a "household member" inasmuch as she was not "related ... by blood, marriage or adoption." Brenda then filed this action based in part upon her inclusion in Egan's policy, and the statements of the company's agent as to coverage.

Later Brenda dismissed the action against the agent with prejudice but did not notify the company. The trial court granted summary judgment in favor of Middlesex. Brenda appealed, and the higher court found that summary judgment should not have been entered. A jury in the second trial found that the agent had promised Brenda that she would have the same coverage as Egan; that the agent owed her a duty to use reasonable care in giving her information about the policy; that his statements were negligently made, were material, and made with the intention that she would rely upon them.

The company relied upon the 1991 Massachusetts decision in Elias v. Unisys Corp. (573 N.E.2d 946) which held that a general release given to an agent in a separate action precluded any further action against the principal. The appeals court agreed in part, concluding that the prior dismissal of the agent, with prejudice, barred any further claim against the company arising out of his negligent representations. However, the judge ruled that this would not prevent her claim under the policy on the basis of her claim for UIM benefits. The higher court affirmed the lower court's finding that the cited case had no bearing upon a breach of contract claim and did not preclude Brenda's recovery on her contract claim.

The summary judgment entered in the trial court for the company was reversed since the facts showed the policy was ambiguous and that Brenda was entitled to UIM benefits under the Egan policy on the basis of her claim under the policy.

The court pointed out that there is a distinction between the company's liability for its agent's tortious acts and the company's liability for enforceable promises made by its agent in the conduct of authorized transactions. The liability for an agent's tortious acts is imposed by law regardless of the company's lack of fault or involvement in the transaction. In the second case, the liability is "the same as if the act is done by the company, and makes the company an actual party to the transaction."

After the judgment entered in the trial court was reversed in part, and vacated in part, the judgment in favor of Brenda on her claim for UIM benefits under the Egan policy was affirmed.

Brenda Medeiros v. Middlesex Insurance Company-No. 97-P-1053-Appeals Court of Massachusetts, Middlesex-October 5, 1999-716 North Eastern Reporter 2d 1076. *