Insurance-Related Court Cases 12/05

INSURANCE-RELATED COURT CASES

COURT DECISIONS

Digested from case reports published in the North Eastern Reporter 2d,
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Insurers argue liability of driver using car for pizza delivery

Shirley Abbinante owned a minivan which she allowed her son, Ronald, to use to deliver pizzas for Casale Pizza, Inc. She had automobile insurance through Progressive Universal Insurance Company of Illinois. While working on August 25, 2000, Ronald struck and injured Mikhail Lavit, a pedestrian, who sued Ronald and Casale Pizza for personal injuries, including brain and spinal cord injuries, which were sustained in the accident. Progressive Universal defended Ronald under a reservation of rights. Later, Lavit obtained a payment of $100,000 (the policy limit for uninsured motorist coverage) from his own insurer, Liberty Mutual Fire Insurance Company. Liberty Mutual then demanded reimbursement from Progressive Universal.

Progressive Universal argued that coverage was excluded by a policy provision which stated that Progressive Universal’s duty to defend did not apply to bodily injury or property damage arising out of “the ownership, maintenance, or use of a vehicle while being used to carry persons or property for compensation or a fee, including, but not limited to, delivery of … food, or any other products.” The lower court found in favor of Progressive Universal. Liberty Mutual appealed, arguing that the exclusion was ambiguous and contrary to public policy.

The appellate court found that the exclusion was completely unambiguous and that Ronald’s conduct fell squarely within its terms. However, the appellate court agreed with Liberty Mutual that the exclusion violated public policy. The appellate court reversed the decision of the lower court and found in favor of Liberty Mutual. Progressive then successfully petitioned for appeal to the Supreme Court of Illinois.

On appeal, the Supreme Court conceded that the policy exclusion was unambiguous. Had the exclusion differentiated between the insured and those using the vehicle with the insured’s permission, the result would have been different. However, because the food delivery exclusion in the Progressive Universal policy applied to both the insured and permissive users, it did not conflict with Illinois’ public policy regulations. Therefore, it was not void and unenforceable.

The judgment of the appellate court was reversed, and the judgment of the circuit court, in favor of Progressive Universal, was affirmed.

Progressive Universal Insurance Company of Illinois vs. Liberty Mutual Fire Insurance Company-No. 98329-Supreme Court of Illinois-April 21, 2005-828 North Eastern Reporter 2d 1175.

Insurer denies coverage, seeks to recover defense costs

Midwest Sporting Goods Company was sued by the City of Chicago and Cook County for selling guns to inappropriate purchasers. Midwest tendered defense of the lawsuit to its liability carrier, General Agents Insurance Company of America (Gainsco). Gainsco denied coverage. Midwest tendered defense a second time, and Gainsco responded with a reservation of rights letter acknowledging receipt of the complaint and denying coverage. The letter, dated July 23, 1999, detailed several reasons why Gainsco believed Midwest was not covered under the policy. Nevertheless, Gainsco agreed to provide Midwest a defense. However, its reservation of rights letter specifically stated that Gainsco was not waiving any of its rights and defenses, including the right to recover any defense costs, if it was determined Gainsco did not owe Midwest a defense. Midwest did not respond to this letter. It did, however, accept Gainsco’s payment of defense costs.

On October 28, 1999, Gainsco filed a declaratory judgment action asking the court to find it did not owe Midwest a defense, and asking for recovery of all defense costs already paid to Midwest’s lawyer on behalf of Midwest. The trial court found in favor of Gainsco and ordered Midwest to pay Gainsco $40,517.34. The appellate court affirmed the decision. Midwest then petitioned the Illinois Supreme Court for leave to appeal, and its petition was granted.

On appeal, Midwest argued that the defense costs payments were made pursuant to the insurance contract between Midwest and Gainsco, and that this contract contained no provision allowing Gainsco to recover defense costs. According to Midwest, to create new rights for a party to a contract, when those rights were not part of the written document, would “unjustly enrich” that party. Gainsco argued the policy did not govern the parties’ relationship. According to Gainsco, its duty to defend extended only to claims covered under the policy. Thus, because the lower courts had found the policy did not apply to the underlying litigation, it had no duty to defend.

The Illinois Supreme Court addressed both of these arguments and discussed prior case law supporting both theories. In the end, however, the court found in favor of Midwest. In reaching its decision, the court noted it could not condone an arrangement where an insurer could unilaterally modify its contract, through a reservation of rights, to allow for reimbursement of defense costs in the event a court later finds that the insurer owes no duty to defend. According to the court, the problem with Gainsco’s argument was that Gainsco was attempting to define its duty to defend based on the outcome of the declaratory judgment action. Gainsco’s reservation of rights letter expressed some uncertainty as to coverage. As long as there was some possibility that the claims were covered by the policy, there was a duty to defend. The court concluded that Gainsco was not permitted to recover defense costs absent an express provision to that effect in its insurance contract with Midwest.

The decisions of the lower courts awarding Gainsco reimbursement of defense costs were reversed.

General Agents Insurance Company of America vs. Midwest Sporting Goods Company et al.-No. 98814-Supreme Court of Illinois-March 24, 2005-828 North Eastern Reporter 2d 1092.

Driver seeks UM/UIM from employer’s policies

Eric Crow was involved in an automobile accident on January 22, 1992, and suffered bodily injuries. Crow and his wife were able to settle with the other driver’s insurance company for the policy limits of $100,000. They then sought UIM coverage under two insurance policies carried by Crow’s employer, Nationwide Mutual Insurance Company. The first policy was a business auto policy; the second was a blanket protector policy. The parties entered into a joint stipulation identifying these two policies.

On May 14, 2003, the parties entered into another stipulation in which the parties agreed that the blanket protector policy provided UM/UIM coverage to the Crows, in the amount of $1 million. In addition, they agreed the business auto policy did not provide UM/UIM coverage, or any other type of coverage, to the Crows. The following language was part of the stipulation agreement: “Nothing in this Stipulation shall constitute an agreement or admission regarding the amount and kind of damages sustained by Plaintiffs [the Crows], if any. The purpose of this Stipulation is to reach an agreement regarding the amount and kind of coverage available to the Plaintiffs, if they prove that they are entitled to damages.”

On November 13, 2003, Nationwide filed a motion to strike the stipulations based on a recent decision of the Ohio Supreme Court, Westfield Insurance Company vs. Galatis. In Westfield, the court held that “[a]bsent specific language to the contrary, a policy of insurance that names a corporation as an insured for UM/UIM coverage covers a loss sustained by an employee of the corporation only if the loss occurs within the course and scope of employment.” The decision in this case was relevant to Crow’s accident because Crow was not on Nationwide business at the time he was injured. The trial court granted the motion to strike. Nationwide then filed for summary judgment; the trial court granted this motion as well. The Crows appealed, arguing that the trial court erred in granting Nationwide’s motion to strike the stipulations and the subsequent summary judgment motion.

In addressing the Crows’ arguments, the Court of Appeals of Ohio, Fifth District, Fairfield County, emphasized that it is within the trial court’s discretion to grant relief from a stipulation. Unless there was “abuse of discretion,” the decision could not be interfered with. The court found no such abuse. It found that the stipulations were legal conclusions because they involved legal interpretation of an insurance policy. It then emphasized that stipulations of law or stipulations as to legal conclusion were not binding upon the court. Thus, the trial court did not abuse its discretion when it granted Nationwide’s motion to strike the stipulation.

The court also found that the lower court correctly granted Nationwide’s motion for summary judgment. While Crow was an employee of Nationwide, Crow was not within the course and scope of his employment at the time of the accident. Therefore, Nationwide’s policies did not cover Crow for injuries sustained as a result of the accident.

The judgment of the lower court was affirmed.

Crow vs. Nationwide Mutual Court of Appeals of Ohio, Fifth District, Fairfield County-December 27, 2004-824 North Eastern Reporter 2d 127.

Court rules on anti-stacking provisions

In this Illinois Supreme Court case, the court analyzed anti-stacking provisions of two insurance policies to determine whether they permitted intra-policy stacking of underinsured motorist coverage.

The first policy, issued to Lula Hobbs by Hartford Insurance Company of the Midwest, provided UIM coverage for two vehicles in the amount of $100,000 per person and $300,000 per occurrence. In June 2000, Hobbs was involved in a motor vehicle accident, allegedly sustaining injuries in excess of $200,000. She settled with the driver of the other car for $50,000, his policy limit. Hartford paid Hobbs $50,000, representing the difference between the $100,000 per-person UIM coverage under the policy and the $50,000 received under the other driver’s policy. Not satisfied with the result, Hobbs filed a declaratory judgment action, arguing that the Hartford policy was ambiguous and that she should be able to stack the UIM coverage for the two vehicles so that there was a per-person limit of $200,000 rather than $100,000. Hartford argued that the anti-stacking language of the policy prohibited this action. The trial court found in favor of Hobbs; the appellate court affirmed.

The second policy analyzed in this case was issued to Richard Anheuser by Prudential Property and Casualty Insurance Company. This policy covered three vehicles. Richard’s daughter, Lee Ann, was involved in an accident in September 1999. The Anheusers settled with the other driver, Dana Sample, for her policy limit of $100,000. They then sought UIM coverage under their Prudential policy. Prudential argued that Sample was not an “underinsured” under the policy because Sample’s policy limits were equal to the UIM benefits under the Prudential policy. The Anheusers argued the Prudential policy was ambiguous and that stacking should be permitted. The trial court ruled in favor of the Anheusers, concluding that the UIM limits were $300,000 per person.

Hartford petitioned the Illinois Supreme Court for leave to appeal, and Prudential appealed directly to the Supreme Court. The two cases were consolidated for review.

The Hartford and Prudential policies did not contain identical anti-stacking language, so the court examined each policy separately.

The relevant anti-stacking provision of the Hartford policy, titled LIMIT OF LIABILITY, read in relevant part: “The limit of liability shown in the Declarations for each person for Underinsured Motorists Coverage is our maximum limit of liability for all damages, including damages for care, loss of services or death, arising out of bodily injury sustained by any one person in any one accident. * * * This is the most we will pay regardless of the number of: 1. Insureds; 2. Claims made; 3. Vehicles or premiums shown in the Declarations; or 4. Vehicles involved in the accident.” The “Declarations” page was organized in column form, listing the coverages, the limits of liability, and the premiums by auto. In the space allotted for the UIM premium, the term “INCL” was noted. Directly above the columns, a heading read: “COVERAGE IS PROVIDED ONLY WHERE A PREMIUM IS SHOWN FOR THE AUTO AND COVERAGE.” On appeal, Hobbs argued that this language, combined with the “INCL” notation in the UIM premium column, created an ambiguity.

The anti-stacking clause of the Prudential policy read: “LIMIT OF COVERAGE: If you or any other person insured under this policy is in an accident: 1. In a car that is insured by this policy - - We will not pay more than the limit of coverage for that particular car … This limit of coverage applies regardless of the number of policies, insureds, insured cars, claims made, or cars involved in the accident or loss. Coverages on other cars insured by us cannot be added to or stacked on the coverage of the particular car involved.” Page 3 of the declarations listed the coverage, limits, and premiums for each of the three vehicles. Spaces were allotted for premiums for each type of coverage, in much the same way as the Hartford policy; however, the abbreviation “INCL” was not used. The following statement preceded the information on page 3: “If a premium charge does not appear, that coverage is not provided.” Finally, part 4 of the policy, which was specifically applicable to uninsured/underinsured motorists, stated that the limit of liability was the limit shown on the declarations. On appeal, the Anheusers argued that the anti-stacking clause could not override the more specific UM/UIM provisions found in part 4 of the policy.

In determining whether or not the language of the Hartford policy allowed stacking, the court emphasized that the existence of UIM coverage was not at issue, only stacking. Thus, it considered only whether the policy was ambiguous as to the extent of UIM coverage. It found it was not. Emphasizing the importance of examining the entire document, not just the declarations page, the court noted that the unambiguous answer to the question of whether UIM coverage could be stacked was found in the “Limit of Liability” clause. Accordingly, the court held that stacking was not permitted under the Hartford policy. The court then followed the same analysis for the Prudential policy. Here, the answer to the question as to whether coverage could be stacked was found in the anti-stacking clause: “Coverages on other cars insured by us cannot be added to or stacked on the coverage of the particular car involved.” This statement did not conflict with the statement in part 4, which referred to the declarations for limits of liability, because the declarations listed the $100,000 per-person UIM limit once. The only reasonable reading was that the policy provided $100,000 of UIM coverage. Refusing to “torture ordinary words until they confess to ambiguity,” the court found in favor of Prudential.

The judgments of the lower courts in both cases were reversed.

Hobbs vs. Hartford Insurance Company of the Midwest-No. 97481-Supreme Court of Illinois-January 21, 2005-823 North Eastern Reporter 2d 561.

Anheuser et al. vs. Prudential Property and Casualty Insurance Company-No. 98309- Supreme Court of Illinois-January 21, 2005-823 North Eastern Reporter 2d 561. *