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

Interpretation of "vacant" or "unoccupied" determines insurer's liability for house fire

David Lundquist and his wife, Kathryn, who owned a home in Rockford, Illinois, had secured a homeowners policy from Allstate. The policy contained a provision excluding coverage when the property was vacant for more than 30 consecutive days before a fire loss. The policy did not define "vacant" or "unoccupied." The Lundquist's home was destroyed by arsonists on December 5, 1996. Allstate contended it was not liable because the home was vacant for longer than 30 days before the fire. (There had been previous vandalism damage for which Allstate had denied a claim "because nobody was living there.")

The record indicated that the insureds purchased the home in 1972 and lived there until August 1995, when they moved into a new house in Oregon, Illinois. On October 26, 1996, the insureds signed a contract to sell the Rockford house for $150,000, and the sale was to be finalized before Christmas.

The policy was effective from February 26, 1996, through February 27, 1997. In July 1996, David Lundquist told Allstate's agent, Robert Tucker, that he and his family would be moving to their new home. The policy was amended in September 1996, to show the insureds' new address.

The insureds presented affidavits showing that various members of the family stayed at the Rockford home on several weekends from August 1995 until the fire. David Lundquist stated that he had completed some repairs and stayed overnight at least once and possibly twice in November 1996. On those occasions he had showered, shaved, and had eaten breakfast. Mrs. Lundquist said that she had visited the house weekly in order to clean, and had eaten lunch there.

At the time of the fire, various paintings, clothing, personal items, bedding, kitchen appliances and cooking utensils were in the house, as well as a fully equipped weight room in the basement.

The trial court granted Allstate's motion for summary judgment, and the insureds appealed.

In regard to the vacancy or unoccupancy exclusion, the Illinois statute requires all policies to provide for a 60-day vacancy exclusion. The insureds argued, on appeal, that the Allstate exclusion violated this statutory provision since it excluded liability after 30 days.

The higher court decided that Allstate could not provide for less coverage. Furthermore, the standard policy does not exclude fires caused by vandalism. Therefore, such fires are covered unless the building has been vacant or unoccupied for more than 60 consecutive days.

The higher court ruled that there was a genuine issue of material fact as to whether the house was vacant and unoccupied. The trial court erred in granting a summary judgment in favor of Allstate, and the action was reversed and remanded for further proceedings.

David Lundquist and Kathryn Lundquist, Appellants, v. Allstate Insurance Company-No. 2-99-0863-Appellate Court of Illinois, Second District-June 19, 2000-Rehearing denied July 20, 2000-732 North Eastern Reporter 2d 627.

Insured's response to shove deemed intentional and thus not covered by HO policy

Jeff Presswood was in a bar in Lincoln, Illinois, when George Leverton entered, accompanied by Shannon Follis. Shannon had formerly dated Presswood, and she asked to speak to him privately in the alley. While they were outside, Leverton opened the alley door, bumping Presswood who was leaning against it and bumping him against Follis. According to Presswood, he turned quickly and swung the beer bottle (which was in his right hand) in the direction of the shove, striking Leverton in the face and severely injuring him. Presswood tendered the defense of the damage claim and subsequent suit to State Farm with whom he had a homeowners policy.

State Farm defended under a reservation of its rights and then filed this action for a declaratory judgment to determine its liability, if any, under its policy.

Its policy excluded ". . . bodily injury or property damage: (1) which is either expected or intended by an insured; or (2) to any person or property which is the result of willful and malicious acts of an insured."

In the civil action filed by Leverton against Presswood and State Farm, a jury found Presswood at fault and returned a verdict for $160,889.06. The jury also decided Leverton was at fault and reduced that verdict by 10%. Ultimately, the court reconsidered and agreed State Farm was not liable and vacated its previous order. The court then held that Presswood's actions were intentional and not accidental and, therefore, were not covered by the homeowners policy. Leverton appealed.

The court, on appeal, noted that Presswood was convicted in the criminal assault action of aggravated battery, which has been defined as "intentionally or knowingly causing great bodily harm, or permanent disability or disfigurement." Presswood testified that he swung the bottle as a reflex action in response to the shove and that he did not know it was Leverton who had pushed the door against him. The court said the evidence was insufficient to support any finding that Presswood's conduct was negligent or in self-defense.

Leverton's injuries were not the result of an accident and were not covered by the State Farm's homeowners policy. The judgment entered in the lower court in favor of State Farm was affirmed.

State Farm Fire and Casualty Company v. George G. Leverton et al., Appellants-No. 4-99-0069-Appellate Court of Illinois, Fourth District-June 26, 2000-732 North Eastern Reporter 2d 1094.

Son with own auto policy, living with parents, seeks coverage under their policy

Thomas Bettenhauser was living with his parents at the time he was seriously injured on November 22, 1995, but he was driving his own car at the time. His policy did not provide for underinsurance coverage. The other driver's policy had a $10,000 limit, and Thomas settled for that amount.

On February 1, 1996, Thomas filed a UIM claim with Worcester Insurance Company under his parents' policy, which provided for that coverage. Their policy covered the insureds and "any family member who is a resident of your household." Following that paragraph was an exclusion that stated, "We do not provide Underinsurance Motorists Coverage for 'bodily injury' sustained by any person: 1. While 'occupying' or when struck by, any motor vehicle owned by you or any 'family member' which is not insured for this coverage under this policy."

Worcester denied liability to Thomas under his parents' policy since he was driving his own car and his insurance policy did not provide for UIM coverage. Over the next several months, the company and Thomas negotiated. Finally Thomas demanded arbitration, and a hearing on his petition was set for March 24, 1997. Worcester then filed this action to permanently stay arbitration, based on the exclusion. It argued for the first time that no coverage existed since Thomas was driving his own car and not a car owned by his parents. The Supreme Court of New York granted the stay, concluding that the parents' policy did not cover the injuries. This appeal followed.

The Court of Appeals of New York found that Worcester waived its right to rely upon the policy exclusion by failing to deny coverage in a timely manner. In this instance, the company delayed for over a year to deny liability because of the exclusion. The Insurance Code requires insurance companies to give written notice of a disclaimer of liability or coverage as soon as possible. In the meantime, the company demanded discovery procedures and consented to his settlement with the other driver.

The judgment of the lower court was reversed and the petition to stay arbitration was dismissed.

In the Matter of Worcester Insurance Company v. Thomas Bettenhauser, Appellant-Court of Appeals of New York-June 20, 2000-734 North Eastern Reporter 2d 745.

Mixed decisions ensue from incorrect flood insurance quote

In 1993, Robert and Charleen Carpenter agreed to purchase a home in Proctorville, Ohio, for $64,500, provided they could secure a conventional mortgage for at least $35,000. The purchasers were to pay the balance of the purchase price in cash at the time of closing. The National City Mortgage Company granted the mortgage but required the purchasers to obtain flood insurance since the home was located in an area susceptible to flooding. The purchasers talked with Scherer-Mountain Insurance Agency about the flood insurance, and the agency quoted a yearly premium of $220 for the $75,000 coverage desired. The insurance agency told the applicants there would be a delay in the issuance of the flood policy since all applications for that coverage had to be approved by
the National Flood Insurance Program (NFIP).

At the closing, the Carpenters paid the insurance agency the premium of $220 and were given a copy of the application that the agency had signed and completed. The application showed that the policy period was from October 28, 1993, to October 28, 1994.

Several months later, the insurance agency discovered that the property was located in an area requiring a higher annual premium for the amount of coverage wanted. The agency notified the Carpenters that the annual premium was $7,000 and not the $220 that they had paid in 1993.

In October 1994 the insureds filed their complaint against the agency, alleging negligence, misrepresentations, breach of contract and "detrimental reliance." The record showed that the annual premium of $220 paid by them entitled them to coverage of only $3,700. The insureds alleged that the sale would not have been consummated since the mortgage would not have been granted. During the pendency of the action, a flood occurred causing damage of $15,000 to the property. The court found that because the initial policy period had expired, the company and the agency could not be held liable for that damage. The trial court also granted the motions for summary judgments filed by the company and the agency. The Carpenters appealed.

(The Board of Commissioners of Lawrence County was named as a third-party defendant in the action by the insurance agency, but the court ruled it was protected by sovereign immunity with respect to the claim that it failed to fulfill the mandatory requirements under NFIP. The judgment entered in favor of the Commissioners was affirmed by the higher court.)

The higher court stated that an insurance agent can be held liable if, as a result of his/her negligent failure to perform the obligation to procure insurance, the applicant suffers a loss because of the lack of insurance coverage. That liability would be the amount of any loss. The Carpenters suffered no flood loss during the term of the policy. In this case, the flood damage sustained by the Carpenters occurred in 1997, and the policy issued to the Carpenters had expired long before that time.

On appeal, the court stated that Ohio did not recognize a loss for "detrimental reliance,"and said that was an element in an action based upon promissory estoppel or misrepresentation. It could not be the basis for a cause of action by itself.

While the insurance agency misquoted the annual premium for the amount of flood insurance needed, it contended it was only a "tentative quote" for that coverage. The Carpenters retorted the quotation was not tentative, and the agency accepted the payment of $220 for payment of the premium for the $75,000 flood insurance. The receipt given by the agency to the Carpenters noted the payment was for an "Annual Premium-Flood Insurance." The higher court ruled there was a genuine issue of fact of whether the agency negligently or intentionally misrepresented the cost of the insurance. The trial court erred in granting summary judgment in favor of the agency. However, the agency was entitled to a summary judgment in its favor on the actions based on negligence and breach of contract.

The court further ruled the agency was not liable for any flood loss occurring after the policy term had expired. Even if a valid contract covering flood damage existed between the parties as evidenced by the application, no loss had occurred during the policy term. While the agency had a duty to use due care in procuring the insurance requested by the Carpenters, the latter had to prove their damage based upon the agency's failure and they had no loss during the policy term.

The Carpenters argued that the purchase of the home would not have been consummated if the correct premium had been quoted. The mortgage company would not have granted the loan because the Carpenters could not have afforded the higher premium. The higher court found there was a question of fact that should have been decided by the trial court. The misrepresentation of the cost of flood insurance could have caused the Carpenters to make an unwise decision. Summary judgment should not have been granted on that issue.

The judgment of the trial court was affirmed in part, reversed in part, and remanded for further proceedings consistent with this opinion.

Carpenter et al., Appellants, v. Scherer-Mountain Insurance Agency et al.-No. 98CA39-Court of Appeals of Ohio, Fourth District, Lawrence County-October 19, 1999-(Discretionary appeal to Supreme Court of Ohio was not allowed) 733 North Eastern Reporter 2d 1196.

6ct4 Insured receives higher award through arbitration

Dennis Parker was injured in a car accident. The owner of the car in which Parker was a passenger had a liability policy with a limit of $20,000. Parker settled his claim for that amount. He then filed a claim with American Family under his own policy and requested arbitration. His policy contained the following provision for arbitration:

"Any arbitration award not exceeding the minimum limit of the Illinois Safety Responsibility Law will be binding; and (2) May be entered as a judgment in any court having jurisdiction. . . . If any arbitration award exceeds the minimum limits of the Illinois Safety Responsibility Law, either party has a right to trial on all issues in any court having jurisdiction."

The arbitration panel awarded Parker $75,000, minus the settlement of $20,000. He filed a petition for judgment on the award in the circuit court, but American Family moved to dismiss and filed a counterclaim for a trial on all issues. The trial court denied the company's petition and entered judgment in favor of Parker for the amount of the arbitration award. The company appealed.

The higher court noted that other jurisdictions have found the "escape clause" allowing the company a new trial on all issues to be in violation of public policy, and void. The company contended that the entire provision was void and unenforceable, but the court disagreed.

The judgment entered in the lower court in favor of Parker on the arbitration award was affirmed. (One justice filed a dissenting opinion.)

Dennis Parker v. American Family Insurance Company, Appellant-No. 3-97-0534-Appellate Court of Illinois, Third District-July 20, 2000-734 North Eastern Reporter 2d 83.

7ct5 Garage liability policy is primary coverage for test driving accident

Mike Murphy Ford gave David Evans permission to "test drive" a vehicle owned by the Murphy dealership. The dealer had a garage liability policy issued by Universal with $100,000/$300,000 limits. Evans had a personal automobile policy issued by Country Mutual with limits of $20,000/$40,000 and $15,000 property damage. While Evans was driving the vehicle, he was involved in an accident. His company contended Universal was primarily liable, and Universal argued that Country Mutual was liable for a pro rata share.

The policy issued to David Evans provided "any insurance we provide with respect to a vehicle you do not own will be excess over any other collectible insurance." Universal's policy stated that the most Universal would pay on a claim arising from a customer's accident "is that portion of such limits needed to comply with the minimum limits provision law in the jurisdiction where the occurrence took place."

Evans tendered his defense to Universal but it refused to defend him. Country Mutual subsequently defended him under a reservation of rights against Universal, and settled all the claims against Evans for $49,808.13. It then filed this action against Universal for reimburse-ment. The lower court granted Country Mutual's motion for summary judgment, and Universal appealed.

The higher court pointed out that a garage liability insurance company had the responsibility for providing primary coverage to a customer "test driving" one of the dealer's vehicles. In this case, Universal must provide primary coverage to Evans as a customer "test driving" a vehicle owned by the dealer.

On the other hand, Country Mutual's policy clearly stated it would be excess insurance under the circumstances here.

Universal also argued that its policy provided only for the minimum statutory limits required by the Illinois statute, $20,000/$40,000 and $15,000 for property damage. However, another statute requires limits of $100,000/$300,000 and property damage limits of $50,000 for car dealerships.

The court, on appeal, ruled that the latter statute controlled and Universal was primarily responsible for the damages which resulted from the accident which occurred while Evans was "test driving" the dealer's vehicle.

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

Country Mutual Insurance Company, as Subrogee of David Evans, v. Universal Underwriters Insurance Company, Appellant-No. 3-99-0686-Appellate Court of Illinois, Third District-September 1, 2000-Rehearing denied September 25, 2000-735 North Eastern Reporter 2d 1032.