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

Endorsement eliminating son as insured driver stands

After St. Paul Fire & Marine Insurance Company issued its auto liability policy (combined with HO coverage) to Allen Smith and his wife, June, it added their adult son, William. Investigation then showed that William's driving record was bad--that his license had been revoked because he had been driving under the influence and had been driving after his license was revoked. On January 22, 1996, St. Paul issued an endorsement to his parents' policy, removing William as a named insured. The endorsement excluded any and all liability on the part of St. Paul for loss incurred while the car was being driven by William. It was signed by Allen Smith, June Smith, and William in January 1996.

On June 3, 1996, William was driving his parents' car when he collided with a car driven by William Hardwidge. Hardwidge and his wife, Audrey, and William Smith died as a result of the injuries sustained by them. William had an auto policy in his name issued by Valor Insurance Company, and it paid each of the Hardwidge estates the limits of $20,000.

St. Paul then filed this action for a declaratory judgment to determine its duty to defend and/or indemnify its insureds or William's estate. It contended that the endorsement added to the parents' policy excluding William relieved it of any liability. Allen and William's estate tendered the defense to Valor. The lower court decided the endorsement eliminating William as a named insured violated public policy, and summary judgment in favor of Valor. St. Paul appealed.

On appeal, the court noted that Section 7-601(a) of the Illinois Code requires all motor vehicles to be insured. Section 7-317(b)(2) stipulates that a motor vehicle liability policy must insure the person named therein "and any other person using the car " with the permission of the insured. St. Paul pointed out that Section 7-602 recognized that insurance policies could exclude certain drivers.

The higher court decided that Section 7-602 created a limited exception for named driver exclusions to the Illinois insurance laws.

The court ruled that the named driver (William Smith) exclusion in St. Paul's policy was valid and did not violate public policy.

The judgment entered in the lower court in favor of Valor was reversed and remanded for further proceedings.

St. Paul Fire and Marine Insurance Company, Appellant, v. Allen Smith et al.-No. 1-02-0436-Appellate Court of Illinois, First District, Fourth Division-March 20, 2003-787 North Eastern Reporter 2d 852.

Pedestrian not eligible for UIM coverage from spouse's employer's policy

Eddie Wilson was struck by a car driven by underinsured motorist, Todd Wolfe. Wilson's wife, Serena Wilson, was employed by Buckeye Motor Lodge, which held a commercial auto policy and a commercial umbrella policy issued by Selective Insurance Company. Wilson sought UIM coverage under the Selective policy. The trial court found that Wilson was entitled to coverage under both policies.

Selective appealed, arguing that Wilson was not an "insured" under either policy. Ohio case law has allowed an insurance policy to be interpreted to allow coverage for a family member of an employee of an insured corporation, but only in cases where the language of the policy is ambiguous. Wilson used this case to support his argument, but the court found the "Who is An Insured" provision of the commercial auto policy to be unambiguous. The policy expressly conditioned coverage on circumstances which could be distinguished from those involved in this case. Specifically, the insured or another insured must have been occupying a covered auto. Because Wilson was a pedestrian who was struck by an underinsured motorist, the circumstances did not fall within the language of the policy.

Furthermore, because coverage under an umbrella policy flows directly from the right to coverage under an auto policy, Wilson was not insured under the umbrella policy.

The court reversed the judgment of the lower court and held in favor of Selective.

Selective Insurance Co. v. Wilson - No. CT2002-0009 - Court of Appeals of Ohio - July 29, 2003 - 794 North Eastern Reporter 2d 746.

Auto med pay claimant must reimburse insurer under subrogation clause

April Eddy and Floy Sybert had an auto accident on November 14, 1998. Each of them had an auto liability policy issued by State Farm Insurance Company. Sybert's policy had a limit of $100,000 per person. Eddy's policy provided for medical expenses of $25,000. Her policy also stipulated that State Farm would be subrogated to her rights against a third party for the amount paid by State Farm for medical bills.

After State Farm was notified of the accident, it sent a letter to April Eddy advising her of the policy-provided payment of her medical expenses up to $25,000, and also stating its subrogation right. It added it would not assert its subrogation right if Eddy's recovery "from the responsible party plus our payments do not exceed your damages."

In December 1998, Eddy filed suit against Sybert, and the action was settled the following year for the policy limits of $100,000. State Farm issued two separate checks, one of which was for $12,719.88 which was made payable to Eddy, her attorneys, and State Farm. State Farm refused to endorse the check and demanded the check under its right of subrogation.

During the period from the accident to July 2, 1999, State Farm paid $19,079.82 of Eddy's medical expenses. After the settlement, Eddy discovered that Dr. Peter J. Anderson's bill of $2,985 had not been paid. State Farm did not know of this debt until six months after the settlement. The trial court did not mention this bill, but the higher court pointed out that Dr. Anderson notified State Farm a few days after the accident. He later called State Farm about the outstanding bill. The court, on appeal, noted that State Farm had not paid the limit of its liability and found State Farm liable for Dr. Anderson's bill. State Farm could also subrogate this claim.

The court concluded that Eddy was liable to State Farm for its subrogation lien, less one-third reduction. The judgment was amended and State Farm was ordered to pay Dr. Anderson's bill of $2,985, and Eddy was ordered to reimburse State Farm for that bill, less one-third ($995.33). The judgment, as amended, was affirmed.

April D. Eddy, Appellant, v. Floy E. Sybert; State Farm Insurance Company-No. 5-01-0235-Appellate Court of Illinois, Fifth District-January 3, 2003-783 North Eastern Reporter 2d 106.

Rejection of UM/UIM disputed by "listed driver"

Progressive Insurance issued an automobile insurance policy to Joaquin Larriba. He signed a written rejection of UM and UIM coverage on March 31, 1999. A short time later he requested the company add Amy Little as a driver. Progressive sent a letter indicating it had complied with his request and enclosed a form for rejecting UM and UIM, and also a declarations page showing the policy did not include UM and UIM coverage. Larriba and Little were asked to sign and return the rejection form but they did not do so.

On November 27, 1999, Anthony Barnard's car "rear-ended" Larriba's car which was driven by Little. After Little discovered that Barnard did not have insurance, she filed a claim with Progressive for UM benefits, and the claim was denied. On October 2, 2001, Little filed suit against Progressive, but the trial court entered judgment in favor of Progressive, and Little appealed. She argued that she had a right to accept, or reject, UM/UIM coverage the same as the named insured.

The declarations page sent after Little was added to the policy still listed only Larriba as the named insured. Little's name was shown as a "listed driver." The court pointed out that the Indiana statute gave only the named insured the right to reject the UM/UIM coverage. The court, on appeal, said the policy remained the same as it was before Little was added as a "listed driver." Furthermore, it showed that Larriba had rejected UM/UIM coverage.

The judgment entered in the trial court in favor of Progressive was affirmed.

Amy Little, Appellant v. Progressive Insurance-No. 77A04-0205-CV-219-Court of Appeals of Indiana-February 11, 2003-783 North Eastern Reporter 2d 307.

Contractor's insurer must defend additional insured

Balthazar Rodriguez was injured when he fell while working on a construction project and he filed suit against the general contractor, R.A. Faganel Builders, to recover damages caused by his fall. He alleged that he fell off an upper level into a stairwell, and his fall was caused by the failure of Faganel and Kol Painting to "keep the worksite reasonably safe," because of their failure to place guardrails around the stairwell. Faganel had been named as an additional insured in a liability policy issued by Northwestern National Casualty Company to Kol Painting, but the policy limited Faganel's coverage to liability caused by Kol's actions. Northwestern refused to defend Faganel in the Rodriguez action.

Illinois Emcasco (Emcasco) had also insured Faganel, and it undertook the defense of the pending suit. Emcasco then filed this action for a declaratory judgment that Northwestern had a duty to defend Faganel. The trial court decided that the complaint did not show coverage under Northwestern's policy and granted its motion for summary judgment. Emcasco appealed.

The higher court noted that an insurance company may refuse to defend only when the allegations in the complaint do not show coverage under the policy.

The record showed that Kol purchased the Northwestern liability policy in 1997, and paid an additional premium to have the policy modified to show Faganel as an additional insured. However, the modification covered Faganel "only with respect to liability imputed to (Faganel) as a result of negligent acts or omissions of (Kol)."

Northwestern contended that Kol was an independent contractor and liability for Kol's negligence could not be imputed to Faganel. The court, on appeal, stated that the complaint did not show Kol's status.

The complaint showed a possibility of imputed liability and required Northwestern to defend Faganel. Northwestern breached its duty.

The summary judgment entered in the trial court in favor of Northwestern was reversed and remanded. The higher court noted Northwestern had failed to defend Faganel under a reservation of its rights and had not sought a declaratory judgment to determine its liability. Therefore, it was barred from raising any policy defense in the proceedings on remand.

Illinois Emcasco Insurance Company, Appellant, v. Northwestern National Casualty Company-No. 1-01-3716-Appellate Court of Illinois, First District, First Division-February 3, 2003-785 North Eastern Reporter 2d 905.

Employee entitled to UIM benefits under business auto policy

On September 18, 1999, Arnold Good was seriously injured when his motorcycle collided with a car driven by Carla Krohn. She was subsequently cited for failure to yield. Good was employed by Tower Automotive, Inc., and Lumbermens Mutual Casualty Company had issued a business auto policy to Tower. Good was not acting within the scope of his employment at the time of his accident.

In March 2000, Good filed suit against Krohn seeking damages for his injuries and alleging negligence on her part. Krohn had an auto policy issued by State Farm with a limit of $100,000. Good alleged Krohn was underinsured, and he amended his complaint and alleged he was entitled to UIM benefits under other policies, including the business automobile policy issued by Lumbermens.

The trial court entered judgment in favor of Lumbermens, and dismissed all claims against it and other companies, and Good appealed.

The Lumbermens policy contained UM/UIM endorsement number 26, effective April 18, 1997, and it was in effect on the date of the accident. It specifically provided that the provisions in the endorsement controlled over those in the policy, and defined "insured" as "1. You."

Since the "insured" in the Lumbermens policy was a corporation, the higher court found the term "You" to be ambiguous. It then decided that Good was an insured under the UM/UIM provisions of the policy. The court believed that Good's motorcycle was a covered auto since a motorcycle was not specifically excluded by the policy. Furthermore, the policy did not limit its coverage to persons acting within the scope of their employment.

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

Good, Appellant, v. Krohn et al.; Lumbermens Mutual Casualty Company (a discretionary appeal to the Supreme Court of Ohio was not allowed)-No. 1-02-18-Court of Appeals of Ohio, Third District, Allen County-August 6, 2002-786 North Eastern Reporter 2d 480.

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.

Auto policy may exclude driver with poor record

After St. Paul Fire & Marine Insurance Company issued its auto liability policy (combined with HO coverage) to Allen Smith and his wife, June, it added their adult son, William. Investigation then showed that William's driving record was bad; that his license had been revoked because he had been driving under the influence and had been driving after his license was revoked. On January 22, 1996, St. Paul issued an endorsement to his parents' policy, removing William as a named insured. The endorsement excluded any and all liability on the part of St. Paul for loss incurred while the car was being driven by William. It was signed by Allen Smith, June Smith, and William in January 1996.

On June 3, 1996, William was driving his parents' car when he collided with a car driven by William Hardwidge. Hardwidge and his wife, Audrey, and William Smith died as a result of their injuries. William had an auto policy in his name issued by Valor Insurance, and it paid each of the Hardwidge estates the limits of $20,000.

St. Paul then filed this action for a declaratory judgment to determine its duty to defend and/or indemnify its insureds or William's estate. It contended that the endorsement added to the parents' policy excluding William relieved it of any liability. Allen and William's estate tendered the defense to Valor. The lower court decided the endorsement eliminating William as a named insured violated public policy, and entered a summary judgment in favor of Valor. St. Paul appealed.

On appeal, the court noted that Section 7-601(a) of the Illinois Code requires all motor vehicles to be insured. Section 7-317(b)(2) stipulates that a motor vehicle liability policy must insure the person named therein "and any other person using the car" with the permission of the insured. St. Paul pointed out that Section 7-602 recognized that insurance policies could exclude certain drivers.

The higher court decided that Section 7-602 created a limited exception for named driver exclusions to the Illinois insurance laws.

The court ruled that the named driver (William Smith) exclusion in St. Paul's policy was valid and did not violate public policy.

The judgment entered in the lower court in favor of Valor was reversed and remanded for further proceedings.

St. Paul Fire and Marine Insurance Company, Appellant, v. Allen Smith et al-No. 1-02-0436-Appellate Court of Illinois, First District, Fourth Division-March 20, 2003-787 North Eastern Reporter 2d 852.

Additional insured gets coverage on primary, not excess, basis

Pecker Iron Works had entered into a construction contract with Upfront Enterprises whereby Upfront was to furnish labor, materials and equipment, under the supervision of a general contractor. Upfront was to furnish Pecker with certificates of insurance for liability and workers compensation, and Pecker was to be named as an additional insured.

Travelers Indemnity provided Upfront with primary coverage and also covered such "additional insureds" as Upfront would designate in a written contract. The policy also stipulated that coverage for the additional insureds would be excess only, unless Upfront agreed in a written contract for this insurance to apply on a primary or contributory basis.

An employee of Upfront was injured at the site and filed suit against the general contractor and the property owner. Pecker was then added as a defendant, and it sought a judgment declaring that Travelers was obligated to provide primary coverage.

The lower court concluded that Travelers provided only excess coverage, and this appeal followed.

The higher court decided the policy provided primary coverage for the additional insureds. The court said, in part: "When Pecker engaged Upfront as a subcontractor and in writing provided that Upfront would name Pecker as an additional insured, Pecker signified, and Upfront agreed, that Upfront's carrier--not Pecker's--would provide Pecker with primary coverage on the risk. Pursuant to the policy provision at issue, Travelers agreed to provide primary insurance to any party with whom Upfront had contracted in writing for insurance to apply on a primary basis. When Upfront agreed to it, the policy provision was satisfied."

The judgment entered in the Court of Appeals against Travelers was affirmed.

Pecker Iron Works of New York, Inc. v. Travelers Insurance Company, Appellant, et al-Court of Appeals of New York-February 13, 2003-786 North Eastern Reporter 2d 863. *