Digested from case reports published in the North Eastern Reporter 2d,
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CGL policy doesn't cover employee's injuries

Midwestern Indemnity Company had issued to Paul Savage a commercial general liability policy, which included workers compensation coverage. While working as an employee of Savage, David Rich was seriously and permanently injured. He received workers compensation benefits but then filed an action for damages, alleging that his employer knew, or should have known, that the job assigned to Rich would place him in a hazardous situation that probably would result in serious injuries. The insured referred the action to Midwestern which denied liability and refused to defend. (A consent judgment of $1.3 million was entered in favor of Rich against Savage.) Midwestern then filed this action for declaratory judgment.

The policy excluded coverage of claims for bodily injury "expected or intended from the standpoint of the insured," and "bodily injury to an employee arising out of or in the course of (a) employment by the insured, or (b) performing duties relating to the conduct of the insured's business."

The trial court granted Midwestern's motion for summary judgment, and the employee appealed.

The higher court pointed out that Rich was injured while working for Savage and was performing duties assigned to him by the insured. The policy issued to the insured excluded such injuries as those sustained here by Rich.

The judgment entered in the trial court holding that the policy did not cover the injuries sustained by the employee was affirmed.

Midwestern Indemnity Company v. David Rich and Paul Savage, Appellant-No. 02CA1584-Court of Appeals of Ohio, Second District, Darke County-October 18, 2002-778 North Eastern Reporter 2d 141.

Homeowners policy will not cover claim arising out of work

Stephanie Button brought a tort action against Patricia Trimble for causing her to fall backwards off her chair, resulting in a severe back injury. The incident occurred at a CliniTech Services Facility, Inc., where Button worked as a lab assistant and Trimble as a phlebotomist. Trimble was living with her parents at the time of the alleged tort. Button argued that Trimble's parents' homeowners insurance carrier, Metropolitan Property and Casualty Insurance Company, should defend and indemnify Trimble.

The lower court ruled that Metropolitan was not required to provide a defense or indemnify Trimble because the incident fell within the "business pursuits" exclusion of the policy.

The Metropolitan homeowners policy stated that it did not cover "bodily injury or property damage arising out of or in connection with ... business activities." It further stated that this exclusion "applie[d] but [was] not limited to an act or omission, regardless of its nature or circumstance, involving a service or duty rendered, promised, owed, or implied to be provided because of the nature of the business."

On appeal, Button argued that the business pursuits exclusion was ambiguous and should be strictly construed against the insurer. The court disagreed. In its decision it stated that an ambiguity in an insurance policy is not created simply by the fact that a controversy exists between parties, each favoring an interpretation contrary to the other party's interpretation. Rather, the interpretation of the exclusionary clause in an insurance policy was a question of law for the trial judge and then for the reviewing court.

The court went on to reason that the manifest design of homeowners insurance is to protect home owners from risks associated with the home and activities related to the home. Because Trimble could not reasonably have expected protection under her homeowners policy from a claim arising out of or in connection with her work, the lower court was right to rule in favor of Metropolitan.

The lower court's judgment was affirmed.

Metropolitan Property v. Fitchburg Mutual - Appeals Court of Massachusetts - No. 01-P-344 - August 18, 2003 - 793 North Eastern Reporter 2d 1252.

Insurer seeks new trial to circumvent UIM arbitration award

Nancy Samek filed a claim with her automobile insurance carrier, Liberty Mutual Fire Insurance Company, under her underinsured motorist coverage. When Liberty denied her claim, Samek submitted her claim to an arbitration panel, in accordance with the provisions of the policy. The arbitration panel granted her a $50,000 award.

The policy contained a provision providing that either party had a right to demand trial de novo (a new trial or retrial in which a case is retried as if no trial whatever had taken place) in the event an arbitration award exceeded $20,000. When Samek filed a petition to confirm the $50,000 arbitration award, Liberty invoked the trial de novo provision, claiming it had a right to a trial because the arbitration award exceeded $20,000. The lower court confirmed the $50,000 arbitration award, stating that the trial de novo clause was void as being contrary to public policy. Liberty appealed the lower court's decision, claiming that the district should not follow decisions of other district courts which had previously found trial de novo clauses to be contrary to public policy.

The sole question before the appellate court was whether trial de novo clauses violate public policy. The court found in favor of Samek, holding that such clauses in underinsured policies violate public policy. In reaching its decision, the court reasoned that, realistically, insurance companies exercise their options under trial de novo provisions to avoid paying higher costs more often than insured parties invoke such clauses because an arbitration amount wasn't high enough. Thus the court argued trial de novo provisions take on a character of "take it or leave it," because the parties do not have equal bargaining positions.

Thus, the court affirmed the judgment of the lower court and affirmed the $50,000 award.

Samek v. Liberty Mutual Fire Ins. Co. - No. 1-02-3525 - Appellate Court of Illinois - June 18, 2003 - 793 North Eastern Reporter 2d 62.

CGL's auto exclusion upheld in road test accident

Rosa Kresin was injured when she was struck by a van while it was being backed out of a Sears Automotive Center at a shopping mall. Charwil, Sears' landlord, had purchased general liability insurance from Acceptance Insurance Company and Travelers Casualty and Surety Company naming Sears as an insured for the common areas of the mall. Kresin won a judgment of nearly $15.7 million against Sears and its employee.

When Kresin sued Sears, Sears argued that Acceptance and Travelers had a duty to defend and indemnify Sears in the lawsuit. The insurers argued that the accident causing Kresin's injuries fell within the "automobile exclusion" of the insurance policy and that they therefore had no duty to defend or indemnify Sears. The lower court agreed with the insurers, and Sears appealed.

The automobile exclusion of the insurance policy expressly covered situations, such as a Sears Automotive Center, where the primary business was maintenance and use of vehicles. However, the automobile exclusion did not apply to situations in which cars were being parked or unparked. In its attempt to avoid application of the automobile exclusion, Sears argued that at the time Kresin was injured, the van was being unparked. Therefore, argued Sears, the automobile exclusion did not apply.

The court found that the circumstances surrounding the accident could not be characterized as "unparking," as Sears had argued. The driver of the van had been asked to make a road test after he had backed the van off the alignment rack. At the time Kresin was struck, the driver had backed the vehicle to a perimeter road to perform the test. The court saw this as a continuation of the maintenance that was being performed, and not as "unparking." Thus, the automobile exclusion applied, and Acceptance and Travelers were not required to indemnify Sears. The judgment of the lower court was affirmed.

Sears, Roebuck and Co. v. Acceptance Ins. - No. 1-01-4346 - Appellate Court of Illinois - June 30, 2003 - 793 North Eastern Reporter 2d 736.

Doctor seeks cash-out of disability benefits

Dr. Jorg Busse, an anesthesiologist, purchased two disability income insurance policies, one from Paul Revere Life Insurance Company, and the other from Provident Life and Accident Insurance Company. Under the terms of both policies, Dr. Busse was to receive benefits on a monthly basis in the event he was not able to practice anesthesiology due to mental or physical illness. In order for Dr. Busse to receive these benefits, the provisions of the policies required that he provide written proofs of loss within 90 days after the end of each monthly period for which he was claiming benefits. The policies did not provide for benefits for "permanent" disability or for benefits to be provided on a lump-sum basis.

In 1995, Dr. Busse paralyzed a patient while administering a spinal anesthetic. Soon after this, he began to suffer from major depression, anxiety, and involuntary tremors and was unable to continue working as an anesthesiologist. He filed claims on both of his disability insurance policies, and both companies began to pay him monthly income benefits.

In 1998, circumstances caused the insurance companies to question the validity of Dr. Busse's disability claims. He was asked to undergo independent medical examinations to substantiate his claims of disability. Correspondence was subsequently exchanged, indicating benefits would be discontinued. Eventually, Dr. Busse filed a court action seeking statutory remedies as well as future damages for breach of contract. The trial court held that future damages were not recoverable.

At issue in the case on appeal was the applicability of an Illinois statute (Section 155 of the Illinois Insurance Code) and whether its application preempted an additional cause of action for breach of contract. The statute is applicable to situations where there is a dispute between an insurer and the insured involving an unreasonable and bad faith delay in settling a claim. The damages under the statute did not include future damages, so Dr. Busse sought to obtain future damages through his breach of contract claim. He argued that he would be entitled to a lump-sum payment equal to the present cash value of the policies under a theory of anticipatory repudiation, an assertion by a party to a contract that he or she will not perform a future obligation. Dr. Busse presented an economist as a witness who estimated the present cash values of the policies to be just over $6 million.

The court found that in effect Dr. Busse's anticipatory repudiation argument was one for bad faith denial of benefits and, therefore, was preempted by Section 155 of the Illinois Insurance Code. In reaching its conclusion, the court stated that Dr. Busse was attempting to avoid the monetary limitations of the statute by bringing a claim under a contractual theory. Because the claim fell within the purview of the statute, the court found that the trial court properly held that future damages based upon a theory of anticipatory repudiation were not recoverable. The court remanded the matter to the trial court for further findings.

Busse v. Paul Revere Life Ins. Co. - No. 1-02-1306 - Appellate Court of Illinois - June 30, 2003 - 793 North Eastern Reporter 2d 779.

Insurer not liable for post-judgment interest

Judy Marks was involved in an automobile accident with Gary Willaman. After filing and subsequently dismissing an action against Willaman, Marks accepted an offer from Willaman's insurance company, Allstate Insurance Company, for $6,000 as full settlement of all claims against him. Marks cashed the check and signed a release discharging Willaman from any liability.

More than five years later, Marks filed an action against Allstate seeking recovery of 11 days' interest, on the settlement amount, for the period of time from the date of settlement until the day the settlement check was sent to Marks. Allstate filed to dismiss the case, and the lower court agreed. Marks appealed, arguing that the settlement agreement created a new set of obligations owed to her by Allstate, and that these rights and responsibilities were independent of any underlying claims originally brought against Willaman.

The higher court found in favor of Allstate. It reasoned that, in negotiating a settlement agreement, the insurer acts in the defendant's name and for the defendant's benefit. The new rights and responsibilities that arose as a result of the settlement agreement remained between Marks and Willaman. Therefore, Willaman, not Allstate, remained responsible for the payment of post-judgment interest. The judgment of the lower court was affirmed.

Marks v. Allstate Ins. Co. - No. 2002CA00417 - Court of Appeals of Ohio - July 28, 2003 - 794 North Eastern Reporter 2d 129.

Coffee roasting plant argues value of damaged beans

Interstate Gourmet Coffee Roasters brought an action to recover damages and cleanup costs when more than 16,000 pounds of coffee at its coffee roasting plant became contaminated--after it had been roasted but before it had been packaged. Seaco, the insurance company, disagreed with the methodology employed by the lower court to calculate damages.

The sole issue on appeal was the calculation of damages at actual cash value. The lower court calculated the damages as Interstate's intended selling price (estimated at $5.56 per pound) reduced by certain unincurred packaging and delivery expenses. Seaco asserted that the actual cash value of the destroyed coffee was Interstate's cost of buying the raw beans plus its costs of roasting, blending, and grinding the coffee.

The court of appeals concluded that the lower court's calculation of damages was correct. Because the coffee beans had already been roasted and blended before they became contaminated, the beans had a peculiar value to Interstate. This unique flavor blend was not freely obtainable in the market and thus could not be readily replaced. Therefore, it was proper for the lower court judge to consider Interstate's intended selling price less the costs it would have incurred to package and deliver the coffee had it not been contaminated.

The court also ruled that Interstate was entitled to cleanup costs of $69,504 under the debris removal provision of the insurance policy.

The decision of the lower court was affirmed.

Interstate Gourmet Coffee Roasters v. Seaco - No. 01-P-1548 - Appeals Court of Massachusetts--August 26, 2003-794 North Eastern Reporter 2d 607.

Self-insured company not obligated to UM/UIM state law

Gregory Hellman was injured in an automobile accident while he was a passenger in a vehicle driven by John Maenle. Maenle's negligence was later determined to be the cause of the accident. At the time of the accident, Hellman lived with his father, an employee of Phillips Electronics. Hellman filed a complaint seeking damages against Maenle, and also seeking declaratory judgment regarding the availability of UM/UIM coverage through several insurance policies. These policies included Hellman's employer's general liability and business automobile policies, issued by CNA Insurance Company, and Hellman's father's employer's commercial general liability and commercial automobile policies, issued by Travelers Indemnity Company of Illinois.

CNA argued that its insured, Pepsi Cola General Bottlers of Ohio, was self-insured and therefore not subject to the Ohio UM/UIM statute. Travelers argued that New York law applied and that Hellman was not an insured under the policies.

The lower court found that Hellman was not entitled to uninsured motorist coverage pursuant to the Travelers policies. Hellman appealed. He argued that Travelers had failed to make a proper offer of UM/UIM insurance as required by the Ohio law and that, therefore, coverage under the Travelers commercial auto policy arose as a matter of law. To bolster his argument, he attempted to characterize the Travelers commercial general liability policy as an "automobile liability or motor vehicle liability policy of insurance" as defined by the Ohio UM/UIM law.

The court of appeals disagreed, stating that the commercial general liability policy could not be characterized as an automobile policy because it did not serve as proof of financial responsibility for owners of motor vehicles specifically identified in the policy.

Hellman also argued that, because he was living with his father at the time of the accident, he was covered by the Travelers commercial auto policy. The court of appeals disagreed. Even if Hellman's father was found to be an insured under the policy, the policy did not define an insured as a resident relative or family member of the insured.

The lower court also found that Hellman was not entitled to UM/UIM insurance under the CNA policies issued to Hellman's employer, Pepsi. The court of appeals held that Pepsi, which maintained two policies of insurance with CNA, was self-insured. Each CNA policy included a $1 million per-occurrence liability limit and a $1 million per-occurrence deductible. Because of the matching deductible and liability limits, Pepsi was "self-insured in the practical sense" and therefore not subject to the Ohio UM/UIM law.

The judgment of the lower court was affirmed.

Hellman v. Motorists Mutual. Insurance Co. et al. - No. 12-02-14 - Court of Appeals of Ohio - May 28, 2003 - 794 North Eastern Reporter 2d 688. *