Digested from case reports published in the North Eastern Reporter 2d,
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Trade secret misappropriation not covered under CGL

Amico, an Illinois corporation, had issued two comprehensive general liability policies to Lexmark, a Kentucky corporation, effective from April 3, 1997, to April 3, 1999. Transportation Insurance Company, also an Illinois corporation, had issued three commercial general liability policies to Lexmark, effective from March 27, 1994, to March 27, 1997. The insurance companies were asked to defend and indemnify Lexmark in litigation brought against the insured by BDT Products, Inc., and Buro Datentechnik GMBH & Co. (herein referred to BDT.) Both companies refused, and Lexmark filed suit against Amico and Transportation for a declaratory judgment that the companies had a duty to defend the insured.

The trial court granted summary judgment in favor of Lexmark, finding "there is a potential for coverage based upon the language" in the complaint. That court found the insurance companies were obligated to defend the action against its insured. The insurance companies appealed.

The policies issued to Lexmark were almost identical and covered personal injury and advertising injury claims against the insured. The basis for the action against Lexmark was a laser printer manufactured by BDT. The record showed that in 1992, and for several years thereafter, BDT provided information and prototype printers to Lexmark for evaluation and testing. The joint development project was stopped in September 1995. It was not until January 1997 that BDT became suspicious that Lexmark was misappropriating BDT's technologies. It later received Lexmark's new Optra S printer and was convinced that Lexmark was using its technology.

On appeal, the court pointed out that the key phrases in the policies involved were "personal injury" and "advertising injury." Both were defined in the policies. In this case, Lexmark did not buy insurance that specifically covered claims against it for misappropriation of trade secrets. The complaint did not allege "personal injury" or "advertising injury," and there were no allegations to show such injuries.

The judgment entered in the lower court in favor of Lexmark was reversed and remanded with instructions to enter summary judgment in favor of the insurance companies.

Lexmark International, Inc. v. Transportation Insurance Company et al., Appellants-Nos. 1-01-0719, 1-01-0962-Appellate Court of Illinois, First District, Third Division-December 19, 2001-761 North Eastern Reporter 2d 1214.

Court decides question of company's duty to settle

James Griffith was seriously injured in a one-car accident. Larry Woodley, Jr., owned the car. The police report showed that Woodley was driving. While in the emergency room, Woodley was issued a ticket for driving under the influence. The men were taken to different hospitals. A week later, Woodley said he did not remember the accident and did not know who was driving.

Woodley had an auto insurance policy with a limit of $20,000 per person. Griffith died, and his administrator notified Valor Insurance that the medical bills incurred as a result of the accident were in excess of $82,500. The attorney for the estate demanded settlement, and Valor replied on August 22, 1996, that it would discuss settlement after it received a copy of the police report. On March 7, 1997, Ella Haddick was named special administrator of Griffith's estate. On the same date, she demanded the policy limits within 14 days. The demand letter stated she would not settle the claim within the policy limit after that time. Valor replied it was still investigating to determine who was driving. The administrator extended the time limit to April 7, 1997. She filed suit a short time later.

About a year later Valor offered to settle for the policy limits, and the offer was refused. The trial court entered summary judgment in favor of the estate on the issue of liability. Judgment was later entered in favor of the estate for $150,924.80. The special administrator alleged that Valor had acted in bad faith by failing to settle the claim for the policy limit. The court dismissed the complaint on the ground Valor had no duty to settle prior to suit and the administrator could not maintain a bad-faith claim after Haddick had withdrawn her demand for the policy limit. The administrator appealed.

The court noted that the duty to settle in good faith does not arise until a claim has been made against the insured and there is a reasonable probability of recovery in excess of policy limits, and a reasonable probability of liability against the insured.

In this case, Valor was aware that the medical expenses were in excess of $80,000. The insured owned the insured automobile, and proof of ownership raises a presumption that the owner of the car was in control at the time of the accident. The court believed these facts were sufficient to show a reasonable probability of recovery in excess of the policy limits, and a probability of liability against Woodley. Valor did not offer to settle for the policy limits until April 1, 1998--almost a year after the administrator withdrew her settlement demand.

The higher court affirmed the judgment of the intermediate court which reversed the judgment of the lower court. The court concluded that the insurance company's duty to settle arises when the claimant makes a demand for payment of a claim within the policy limits and there is a reasonable probability of recovery in excess of the policy limits, and reasonable probability of the insured's liability.

The court pointed out that the question of the company's duty to settle was to be answered in the trial court. The action was remanded for further proceedings.

Ella Haddick, Special Adm'r. of estate of James Griffith, v. Valor Insurance, Appellant-No. 90226-Supreme Court of Illinois-November 21, 2001-rehearing denied February 4, 2002-763 North Eastern Reporter 2d 299.

Intentional act exclusion doesn't violate public policy

Ryan Slayko and Joseph France were drinking and smoking marijuana in a cabin owned by France's grandmother. France picked up a shotgun and pointed it at Slayko, believing it to be unloaded. The gun did not discharge, and Slayko told France he should never point a gun at somebody and pull the trigger. France laughed at him and pulled the trigger again. Slayko was wounded.

France subsequently pleaded guilty to second degree assault. Slayko then filed an action against France for damages. France's grandmother had a homeowners policy covering the premises, and the insured tendered the defense to Security Mutual Insurance Company. It refused to defend. A default judgment was entered against France, and Slayko commenced this action against Security Mutual and France, on the ground Security Mutual had a duty to defend and indemnify France.

The policy excluded liability "caused intentionally by or at the direction of any insured." It also did not cover damages "arising directly or indirectly out of instances, occurrences or allegations of criminal activity by the insured." The lower court entered judgment in favor of Slayko, finding that the intentional act exclusion did not apply, and the "criminal activity exclusion" violated public policy because it "clearly defies the reasonable expectations of the insured." The higher court disagreed with the finding that the "criminal activity exclusion" was in violation of public policy.

The court, on appeal, found there was no evidence that France intended to hurt Slayko. The two young men were friends, and France was surprised when the gun discharged. He took steps to stop the bleeding and called for immediate help. His conduct was reckless but not intentional.

The "criminal activity exclusion" in this policy did not violate public policy and was enforceable.

The judgment entered in the lower court in favor of Slayko was reversed and judgment was entered that Security Mutual had no duty to defend and indemnify the insured.

Ryan A. Slayko v. Security Mutual Insurance Company, Appellant, et al.-Court of Appeals of New York-July 2, 2002-774 North Eastern Reporter 2d 208.

Insured's failure to cooperate is at issue in personal injury claim

Gallant Insurance Company had issued an auto liability policy to Donald Chadwick, and it was in force on June 22, 1996. Jeffrey Oswalt filed suit against Chadwick on December 13, 1996, claiming damages for personal injuries resulting from an auto collision with Chadwick.

On April 7, 1997, Gallant notified Chadwick that he had failed to comply with the terms and conditions of the policy; therefore, Gallant would defend him in the action brought by Oswalt, but under reservation of its rights. Apparently Chadwick had moved, and Gallant had experienced difficulty in locating him. Chadwick did show up at the office of the attorney retained for him by Gallant, and completed interrogatories.

Chadwick failed to appear at the trial after notice, and Oswalt obtained a judgment in excess of $50,000. In January 2000, Oswalt started supplemental proceedings in an effort to reach the policy proceeds, naming Gallant as garnishee-defendant. Gallant then filed its answer asserting that Chadwick had failed to cooperate as required by the policy and that as a result, Gallant was not liable. Gallant's motion for summary judgment was denied, and summary judgment was granted in favor of Oswalt.

On appeal, the court decided that the trial court erred in granting the motion for summary judgment. It said there was a genuine issue of material fact insofar as the insured's failure to cooperate was concerned. The court said the trial court should decide whether the insured had failed to cooperate and whether his failure was sufficient to relieve Gallant of liability. It was noted that the insured had telephoned the attorneys retained for him by Gallant asking that the trial be postponed so he could be there, but he was told that a postponement was impossible. The court further pointed out that the evidence did not show that the insured was ever told that Gallant would be relieved of all liability if he failed to cooperate.

The trial court's denial of summary judgment in Gallant's declaratory judgment action was affirmed. The higher court further decided that the trial court erred in granting Oswalt summary judgment in his garnishment proceedings against Gallant.

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

Gallant Insurance Company, Appellant, v. Jeffrey Oswalt, and Donald Chadwick-No. 43A04-0104-CV-148-Court of Appeals of Indiana-February 12, 2002-762 North Eastern Reporter 2d 1254.

Uninjured family members not entitled to "per-accident" limit

Johnny Justice was killed on June 29, 1997, in an auto accident involving a UM driver. The decedent had an auto policy issued by State Farm Insurance Company with limits of $100,000 per person. State Farm paid the $100,000 limit to the estate, but the decedent's family members filed this action to recover the "per-accident" limit of the UM/UIM coverage.

The policy provided the following limits of liability on the declarations page: "...Under 'Each Person' is the amount of coverage for all damages, including damages for care and loss of services, arising out of and due to bodily injury to one person. Under 'Each Accident' is the total amount of coverage, subject to the amount shown under 'Each Person' for all such damages arising out of and due to bodily injury to two or more persons in the same accident."

The policy further stated: "The maximum total amount payable to all insureds under this coverage is the difference between the 'each accident' limits of liability of this coverage and the amount paid to all insureds by or for any person or organization who is or may be held legally liable for the bodily injury."

The lower court decided that State Farm's liability was limited to the "per-person" amount of coverage if only one person sustained bodily injury.

In affirming the decision of the trial court, the appellate court found that the company was permitted to consolidate all the claims which arose from one accident into a single claim and, thus, was liable only for the single-person limit. The court ruled that the policy language was clear and not ambiguous. State Farm had already paid the limit of its liability for the "per-person" amount, and the decedent's heirs could not recover further under the policy.

The summary judgment entered in the lower court in favor of State Farm was affirmed.

Justice, Admr., et al., Appellants, v. State Farm Insurance Company-No. 2000CA29-Court of Appeals of Ohio, Fifth District, Licking County-October18, 2000-763 North Eastern Reporter 2d 186. *