INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Handwritten changes to dec page create coverage dispute

RMJ Enterprises owned several properties in Indianapolis, Indiana, including a two-story building located at 735 East Harrison Street. In 1995, Rural Insurance Agency submitted an application to Surplus Insurance Brokers Agency, Inc., the general agent for Scottsdale Insurance Company, requesting coverage on several of RMJ Enterprises’ properties, including the Harrison Street property. Scottsdale issued a one-year policy commencing August 17, 1995. The premium paid was $3,300. The supplemental declarations sheet described the “location, construction and occupancy” of the premises as “On the approved roof, frame building, occupied as a vacant building, 1 Apartment, located at 735 E. Harrison, Indianapolis, IN 46204.” The building was insured for $135,000.

For several years, Rural requested renewal of the policy for RMJ. In August 1996, a renewal certificate was issued for another year in exchange for a premium of $3,300. In 1997, another one-year renewal certificate was issued. This time the premium was $2,200, and the supplemental declarations sheet described the “location, construction and occupancy” of the premises as “On the approved roof, frame building, owner occupied as [an] office and upstairs apartment, located at: 735 E. Harrison, Indianapolis, IN 46204.” Coverage remained at $135,000. In 1998, Rural requested renewal of the policy, with “no changes.” In exchange for a $2,250 premium, Scottsdale issued a policy with a supplemental declarations sheet describing the coverage in two separate tables. The first table described the coverage as “on approved roof, frame bldg., owner occupied as office” with an insurance limit of $135,000. The second table described the coverage as “upstairs apartment” with an insurance limit of $135,000. A separate page contained a schedule of locations, listing 15 different properties covered under the policy. The “office” and “apartment 2nd floor” were listed separately, but they were both listed as “Prem. No. 1.” In 1999, a final one-year renewal certificate for the policy was issued in exchange for a premium of $2,250. The effective date of this certificate was August 12, 1999.

On October 6, 1999, a fire damaged the Harrison Street property. Damages exceeded $135,000. Scottsdale paid RMJ $135,000 plus $9,360 for debris removal. Referencing the language in two tables in the supplemental declarations pages issued in 1998, RMJ argued the policy limit was $270,000. Scottsdale disagreed. Eventually, RMJ filed suit against Scottsdale. During the proceedings, a copy of the 1998 supplemental declarations page was submitted by Scottsdale. This copy revealed a handwritten line drawn through the “upstairs apartment” table. The words “& apt.” were handwritten after “on approved roof, frame bldg., owner occupied as office.” Neither party provided evidence as to when the revisions were made to the page.

The lower court found as a matter of law that the policy limit was $135,000, thus finding in favor of Scottsdale. RMJ appealed.

On appeal, the only issue was whether the limit of coverage was $135,000 or $270,000. In reaching its decision, the Indiana Court of Appeals noted that a copy of the policy was not attached to RMJ’s original complaint. Therefore, the court was forced to use the supplemental declarations sheet submitted by Scottsdale in the earlier proceedings. Because neither party provided evidence as to whether the policy was issued with or without the handwritten revisions, there was a factual issue to be resolved. The court therefore reversed the trial court’s decision in favor of Scottsdale.

The case was reversed and remanded to the trial court.

RMJ Enterprises, Inc. v. Scottsdale Insurance Company-No. 49A02-0309-CV-796-Court of Appeals of Indiana-May 17, 2004-808 North Eastern Reporter 2d 159.

Damages sought for ATV injuries under homeowners policy

Gerry and Linda Wiegand owned a Kawasaki four-wheel all-terrain vehicle (ATV), which they used for snow removal and recreation. On August 25, 2000, the Wiegands’ daughter, Kayla, invited her friend, Emily Slaughterbeck, to spend the night at the Wiegand home. The next morning, Emily drove the Wiegands’ ATV and Kayla drove one belonging to a friend. After driving off the Wiegand property and onto a country road, Emily struck a tree and suffered severe injuries. Emily’s parents later filed a complaint for damages against the Wiegands alleging acts of negligence arising out of the operation of the ATV.

The Wiegands had a homeowners policy through Illinois Farmers Insurance Company. On April 2, 2002, Illinois Farmers filed a request for declaratory judgment, claiming there was no coverage for the Slaughterbecks’ claim under the policy. Specifically, the insurer claimed the ATV was a motor vehicle and thus fell under the motor vehicle exclusion of the policy. The Slaughterbecks argued that the ATV was not a motor vehicle and was not excluded from coverage. They also argued that, even if the ATV was excluded under the motor vehicle exclusion, their specific claim for negligent supervision was not excluded.

The trial court found that the ATV was a motor vehicle within the meaning of the policy, and that the motor vehicle exclusion applied. In addition, it held that to the extent that Emily Slaughterbeck’s injury resulted from the Wiegands’ negligent failure to supervise her, there was coverage under the policy.

Both parties appealed.

On the issue of whether the ATV was a motor vehicle within the meaning of the policy, the Indiana Court of Appeals affirmed the decision of the lower court. The policy language provided that a vehicle was not a motor vehicle falling under the policy’s motor vehicle exclusion if it was “a motorized land vehicle, not subject to motor vehicle registration, used only on an insured location.” Paragraph 11c of the policy defined a motor vehicle as a “motorized land vehicle designed for recreational use off public roads.” The court found this language to be clear and unambiguous. In addition, the evidence also indicated that the ATV was not driven only on the Wiegands’ property. Thus, the ATV fell under the motor vehicle exclusion of the policy and there was no coverage.

Next, the court evaluated whether or not the specific claim of negligent supervision was covered by the policy. The relevant policy language excluded coverage for bodily injury or personal injury that “results from the ownership, maintenance, use, loading or unloading of … motor vehicles” or that “results from the entrustment of … motor vehicles … Entrustment means the permission you give to any person other than you to use any … motor vehicles … owned or controlled by you.” Illinois Farmers argued that, because each of the Slaughterbecks’ claims alleged acts of negligence arising out of the operation of the ATV, they were all excluded by the policy. The court of appeals agreed. It found that a negligent supervision claim was excluded from coverage where the injury would not have resulted but for the use of the motor vehicle. Thus, the trial court erred by finding the Slaughterbecks’ negligent supervision claim was covered under the policy.

The judgment of the trial court finding that the ATV was a motor vehicle under the policy was affirmed. In addition, the judgment of the trial court finding that the negligent supervision claim was covered under the policy was reversed.

Illinois Farmers Insurance Company v. Wiegand-No. 79A05-0307-CV-349-Court of Appeals of Indiana-May 17, 2004-808 North Eastern Reporter 2d 180.

Insureds dispute denial of diminished value claim

On December 10, 2000, Marisa Martin and Bruce Beebe were involved in an automobile accident. Both had automobile insurance with State Farm Mutual Auto Insurance Company. Adam and Marisa Martin sought coverage for repairs to their vehicle under Beebe’s insurance policy. During discussions with State Farm to settle the claim, the Martins alleged that State Farm said it would “take care of [their] claim without the need of [their] retaining an attorney” because both parties (Martin and Beebe) were represented by State Farm. They also alleged that State Farm concealed the fact that they were entitled to additional compensation for the diminished value of their vehicle. As a result of these alleged representations, the Martins claimed they were injured. They sought damages against State Farm under several legal theories, all of them based on the premise that State Farm owed them a duty to disclose their right to compensation for the diminished value of their car under Beebe’s automobile policy.

The trial court found that State Farm did not owe the Martins a duty to disclose a potential claim for diminished value of their vehicle. It also found the Martins’ complaint legally insufficient to establish a cause of action. The Martins appealed.

The Appellate Court of Illinois agreed with the lower court. In reaching its decision, it stated that while negotiations between third-party claimants (in this case, the Martins) and a defending insurer (State Farm) are normally arm’s length, a fiduciary relationship may arise as a result of special circumstances where one party places trust and confidence in the other. The court found that the Martins’ claim that State Farm made a representation to them was simply not enough to establish a fiduciary relationship. There was no evidence of a history of dealings or long-standing relationship between the parties, no history of the Martins’ entrusting the handling of their insurance affairs to State Farm, and no evidence that State Farm was influential by any other reason. The plaintiffs simply failed to sufficiently plead facts to establish a fiduciary relationship leading to a duty on the part of State Farm to disclose the diminished value coverage.

The Martins also argued that in paying for their property damage claims, State Farm formed settlement contracts with them, and then breached those contracts by failing to disclose the diminished value coverage. Unconvinced, the court found this argument was not grounded in any legal principles.

The court of appeals found that the trial court properly dismissed the Martins’ complaint.

The judgment of the lower court was affirmed.

Martin v. State Farm Mutual Auto Insurance Company-No. 1-03-0572-Appellate Court of Illinois, First District, Fourth Division-March 25, 2004-808 North Eastern Reporter 2d 47.

Insurer not permitted to subrogate against additional insured

Opus North Corporation was the general contractor and the owner of one of the buildings on a construction project called Willow Creek Center. Prairie Material Sales, Inc., was a subcontractor on the project. On October 27, 1998, while making a delivery to the Willow Creek Center, the operator of a cement truck owned by Prairie backed into a support column, damaging the building Opus owned. Damage to the property was in the amount of $105,021.

Opus’s insurer, Chubb Insurance Company, made payments on behalf of Opus. It then filed suit, as subrogee of Opus, against Prairie, seeking damages for negligence. The lower court found that Prairie was an additional insured under the Chubb policy, and that the damage to the building was covered by that policy. Because Chubb was not permitted to subrogate against its own insured (commonly referred to as the anti-subrogation rule), the lower court found in favor of Prairie. Chubb appealed.

The Appellate Court of Illinois confirmed that Prairie was an additional insured under the terms of the policy. During the discovery phase of the case, Chubb had admitted that Endorsement No. 9 of the policy provided that contractors “and subcontractors of every tier” were additional named insureds. However, Chubb argued that, even if Prairie was an additional insured, it was still entitled to subrogation against Prairie because the Chubb policy did not provide coverage to Prairie for the harm at issue. The court disagreed. The Chubb policy covered “the property of others for which the Insured may be legally liable.” Because the term “others” was not limited in any way, the Opus building was “property of others,” and the damage to the building was a loss covered by the policy for which Prairie was legally liable.

Next, Chubb argued it was entitled to subrogation because its policy was excess coverage. According to Chubb, coverage was not available to Prairie because its own insurance adequately covered the damages. Again, the court disagreed. The fact that the defendants had primary coverage did not exclude coverage under the Chubb policy.

The court concluded that Chubb’s claim against Prairie was barred by the anti-subrogation rule because Opus and Prairie were insured for the same risks under the same policy. The judgment of the circuit court was affirmed.

Chubb Insurance Company v. DeChambre-No. 1-02-3686-Appellate Court of Illinois, First District, Third Division-March 24, 2004-808 North Eastern Reporter 2d 37. *