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

Contractor's certificate doesn't mention self-insured deductible

Todesca-Forte, Inc. (Todesca), had been awarded a highway construction contract which required it to obtain public liability insurance with limits of $500,000 per person and $1 million per accident. The contractor was required to furnish a certificate signed by an authorized representative of the insurance company verifying that coverage was in effect. Todesca had secured the standard Department of Public Works certificate form underwritten by Reliance Insurance Company showing it had such a policy for those limits. However, that certificate did not mention that the policy was subject to a "self-insured deductible" pursuant to which Todesca paid the first $250,000 in damages for any single occurrence or $600,000 for more than one occurrence during the policy period.

In January 1992, Shirley O'Connell was injured in an accident, which she claimed was caused by a dangerous condition in the highway. She alleged that the condition was created by Todesca. She was allowed to amend her complaint to add Reliance as Todesca's liability carrier. Trial resulted in a judgment in her favor for $22,500 against Todesca, who then filed for bankruptcy. She then attempted to recover from Reliance, and that company denied liability because of the "self-insurance" exclusion.

The trial court granted Reliance's motion for summary judgment, and O'Connell appealed.

While O'Connell acknowledged her judgment fell within the deductible, she argued that her injuries arose from Todesca's negligent performance under the construction contract. She relied upon the certificate of insurance which showed limits of $500,000/$1 million and did not mention the exclusion requiring Todesca to pay the first $250,000 in damages. The certificate had been verified by MF&T International, which at one time had a general agency relationship with Reliance. The latter stated that the relationship had ended.

The record showed that after the termination of the agency agreement between Reliance and MF&T, the latter continued to act as a broker and continued to issue certificates of coverage, signing as an "authorized representative" of Reliance. In this instance, after signing the certificate, it gave the certificate to Todesca to file with the Department of Public Works. A copy was sent to Reliance with a cover letter asking the company to verify that the certificate was correct. This wasn't done, and the evidence indicated that Reliance reviewed for accuracy only a few of the certificates it received.

The court, on appeal, noted that despite knowledge that the broker was signing as an authorized representative, Reliance did nothing to stop the practice. The court cited the rule that "one cannot accept the benefits of a transaction purporting to be done in his behalf and later repudiate it." MF&T sold policies issued by Reliance and serviced those policies to some extent. "The relationship between them was such that Reliance had a duty to repudiate representations of MF&T purporting to speak
for Reliance."

The existence of the coverage represented in the certificate became a condition of the construction contract. It required Reliance to give the Department of Public Works 30 days' notice before it canceled or reduced coverage.

The judgment entered in the lower court in favor of Reliance was affirmed in part, reversed in part and remanded for further proceedings in accordance with this opinion.

Shirley M. O'Connell v. Reliance Insurance Company-No. 98-P-166-Appeals Court of Massachusetts, Plymouth-October 26, 2000-737 North Eastern Reporter 2d 13.

"Assumption of Liability" agreement deemed unenforceable

Scott Clark had obtained an auto policy covering his 1996 leased Chevrolet truck. On February 17, 1997, Scott's father, Patrick, took the truck to Jennings Chevrolet for repairs. Jennings lent Patrick a 1995 GMC Sierra pickup truck for use while Scott's truck was being repaired. Several days later, Scott was involved in an accident while driving the GMC. In January 1998, the driver of the other vehicle filed suit against Scott and Jennings Chevrolet.

Jennings Chevrolet had a dealer's policy issued by Federated Mutual, and Country Mutual tendered Scott's defense to Federated in the belief that Federated's policy provided primary coverage for the claims arising from the accident. Federated denied coverage, and Country Mutual provided Scott's defense under a reservation of its rights.

Later, Country Mutual filed this action for declaratory judgment to determine liability, and Federated filed its counterclaim for declaratory judgment absolving it from any liability.

Federated alleged that at the time Jennings lent the vehicle to Patrick, the latter signed an "Assumption of Liability Agreement" which stated that the truck was to be used exclusively by Patrick, and all expenses and loss or damage would be paid by him. In that agreement, Patrick represented that the leased truck was covered by liability, collision and property damage insurance. Patrick assumed full liability for all loss, damage, or injury to the truck, and all liability arising out of any accident "for damages or injuries to the person or property of any third person." Federated contended that Scott was not covered under its policy. Furthermore, the company argued that Scott did not have Jennings' permission to use the dealer's truck.

Country Mutual introduced evidence that Scott had made the arrangements with Jennings to borrow the dealer's truck while Scott's truck was being repaired. Country Mutual pointed out that Illinois statutes cover the use of a loaned vehicle once permission is given to the initial user by the owner, in the absence of theft or conversion.

Following a rehearing, the trial court reversed its original finding in favor of Federated and entered judgment in favor of Country Mutual. Federated appealed.

The higher court found that Scott had made the arrangements to borrow the dealer's truck and had sent his father to the dealership. The court decided that the agreement signed by Patrick was not enforceable. Illinois law requires that all persons who "test drive" vehicles owned by dealers must be covered by the dealer's insurance policy; that the dealer's policy is primary and the driver's insurance is excess coverage.

In this case, the policy issued to Jennings Chevrolet contained the standard omnibus clause, which covered Scott while he was driving the borrowed truck. When Patrick exchanged Scott's truck for the dealer's truck, he told the dealer's employees he was doing so for his son. Patrick gave his son permission to use the truck.

The judgment entered in the lower court in favor of Country Mutual was affirmed.

Country Mutual Insurance Company v. Federated Mutual Insurance Company, Appellant-No. 4-00-0174-Appellate Court of Illinois, Fourth District-September 7, 2000-735 North Eastern Reporter 2d 1045.

Does insurer have duty to settle before as well as after suit?

James Griffith died following a single car accident on May 6, 1996, when he and Larry Woodley, Jr., were thrown from the car. Before his death, Griffith incurred medical expenses in excess of $80,000. His mother, Ella Haddick, was appointed administrator of his estate.

Valor Insurance had issued to Woodley its policy covering the car with limits of $20,000. Haddick showed that she had offered to settle the claim filed by the estate for the policy limits before filing suit, but Valor had not responded within the 14 days as requested. The administrator had shown there was some doubt as to which man was driving. Valor replied it was still investigating the claim. When nothing further was heard from Valor, Haddick notified the company the settlement offer was withdrawn and suit was being filed.

About a year later, Valor offered the policy limits and the offer was refused. The action went to trial and a judgment was entered in favor of the estate against Valor for $150,924.80. Woodley then assigned all of his causes of action against Valor to Haddick, and she filed this action contending it was liable for the entire judgment. The trial court dismissed the action, ruling that Valor had no duty to settle prior to the filing of the action by the estate. That court also decided that Haddick could not maintain a bad faith claim after she had withdrawn her demand for the policy limit.

On appeal, the higher court ruled that an insurance company has a duty to act in good faith both before and after suit is filed. The record indicated Woodley told the authorities he was driving the vehicle, even though he later said he could not remember. The higher court found that Valor knew at that time that its insured's liability could be more than the policy limits. Valor had several months within which to settle for the policy limits before Haddick's offer was withdrawn.

However, the court found that the question of whether Valor exercised bad faith was a question which should have been decided by the lower court.

The judgment entered in the trial court in favor of Valor and dismissing the complaint filed by the administrator was reversed and remanded for further proceedings in the action for bad faith after revocation of settlement offer.

Ella Haddick, Special Administrator of Estate of James Griffith, Appellant, v. Valor Insurance-No. 3-00-0027-Appellate Court of Illinois, Third District -August 14, 2000-735 North Eastern Reporter 2d 132.

Will grandparents' HO policy cover "visiting" grandchildren?

Auto-Owners Insurance Company had issued its HO policy to Wilma Entenman and Frederick Entenman covering their residence in Fremont, Indiana. Their son, William, had been living with them since his divorce from his wife, Debra. William and Debra were the parents of Joshua and Jemiah. The boys lived with Debra in Williams County, Ohio, in property owned by Merrick and Cynthia Seaman. William had limited visitation rights under the decree, but he and his former wife had agreed that the boys would visit their father every other weekend during the summer of 1996. The last visit occurred in August 1996, and the boys were not in his care or in his parents' home on October 4, 1996.

On October 4, 1996, the Seamans alleged that the minor boys had intentionally caused, or had negligently caused, a fire that destroyed the structures owned by the Seamans.

The HO policy issued to the Entenmans provided coverage to "an insured person who becomes legally obligated to pay damages because of ... property damage covered by this policy." The policy defined an insured person as:

"a. you;

b. your relatives residing in your household; and

c. any other person under the age of 21 residing in your household who is in your care or the care of a resident relative."

In the action brought by the Seamans, the trial court decided the minor boys were covered by the HO policy issued by Auto-Owners and ordered the insurance company to defend them in that suit. Auto-Owners appealed.

The only question before the higher court was whether the minor boys were residents of their grandparents' home under the HO policy issued to their father's parents.

The HO policy did not define "resident" and the court, on appeal, followed the general rule that the term covered children if they lived in the grandparents' home with their father for a term of some duration and regularity. However, in this instance there was conflicting evidence regarding a consistent pattern between the two households. The lower court erred in granting the children's motion for summary judgment since there were factual issues that should have been resolved.

The judgment entered in the trial court against Auto-Owners was reversed, and the action was remanded for further proceedings in accordance with this opinion.

Entenman et al. v. Auto-Owners Insurance Company et al., Appellants-No. WM-99-009-Court of Appeals of Ohio, Sixth District, Williams County-January 28, 2000-737 North Eastern Reporter 2d 119.