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INSURANCE-RELATED COURT CASES COURT DECISIONS Digested from case reports published in Westlaw, 
Does misrepresentation of residence bar recovery? David H. Scannell owned a Massachusetts automobile insurance policy with uninsured motorist limits of $250,000 per person and $500,000 per accident. The policy was issued by John Hancock Property and Casualty Insurance Company. It listed Scannell’s residence as 540 Hancock Street, Quincy, and the principal place for garaging of the insured vehicle as 210 Pleasant Street, Weymouth. The Pleasant Street residence was owned by Scannell and his wife, Barbara. On June 25, 1996, while riding his bicycle, Scannell’s son, David C., was severely injured when he was struck by an uninsured motorist. At the time of the accident, David C. was living with his mother at the Pleasant Street residence. David H. sought and received personal injury protection and medical payment benefits under the John Hancock policy. The insurer paid the policy limits. Scannell then sought uninsured motorist benefits. Under the policy, if David H. Scannell lived at 210 Pleasant Street, then David C. was a “household member” within the meaning of the policy. John Hancock investigated David H. Scannell’s claim and discovered that he no longer lived at 210 Pleasant Street, and that he no longer garaged the insured automobile at that address. As a result of this investigation, John Hancock filed a claim seeking repayment of the benefits already paid to Scannell. The claim alleged that Scannell fraudulently misrepresented where he lived and where his vehicle was garaged, and that he breached his contract by refusing to cooperate with the insurer’s investigation. Scannell counterclaimed that the insurer’s investigation had violated a Massachusetts statutory provision, G.L. c. 93A. The jury awarded damages to John Hancock in the amount of the personal injury protection and medical payment benefits already paid to Scannell. The jury also found that the insurer’s investigation violated G.L. c. 93A. Nevertheless, on John Hancock’s motion, the judge entered judgment in favor of the insurer. Scannell appealed. On appeal, Scannell argued that John Hancock owed him uninsured motorist benefits because he had two residences, including the 210 Pleasant Street, Weymouth, home. He also claimed damages for John Hancock’s violation of G.L. c. 93A. The Appeals Court of Massachusetts acknowledged there are circumstances in which it is possible to have a residence in more than one place at the same time. However, the court found that Scannell’s circumstances did not support such a finding. On the policy application, Scannell listed his residence as 540 Hancock Street, Quincy. At no time did he inform John Hancock of a change of residence. Scannell argued he had retained the Quincy apartment, and later an apartment in Charlestown, as temporary residences while receiving cancer treatment. However, information in Scannell’s medical records revealed that he was no longer living at 210 Pleasant Street. In addition, Scannell did not contribute financially to the 210 Pleasant Street residence, did not vote in Weymouth, and did not garage the automobile in Weymouth. The court concluded that Scannell, having established a residence elsewhere, was no longer responsible for the home and family, and that David C. was not a “household member” under the policy. Accordingly, John Hancock did not owe Scannell benefits for David C. In light of these findings, the court also found that John Hancock did not violate G.L. c. 93A. The judgment of the lower court was affirmed. John Hancock Property and Casualty Insurance Company vs. Scannell-No. 04-P-0499-Appeals Court of Massachusetts-September 16, 2005-834 North Eastern Reporter 2d 305. Auto insurer disputes “dead storage” claim In February 2002, Josh Rogers purchased a 1978 Chevy Sierra pickup truck. He secured a temporary license plate and automobile insurance coverage for the vehicle. Soon after the purchase, the electric choke stopped working, but the truck was still operable. Josh continued to drive it until March, when the transmission failed. At this point, Josh cancelled his insurance coverage. His plan was to buy a new transmission and repair the truck himself with the help of a friend, John Burns. Josh lived with his mother and stepfather, Betty and David Rogers. He parked the truck behind their residence, then later moved it to their barn. In order to move it, he had to start the truck so that he could use the power steering and brakes. In April, Josh and John were working on the truck. Josh poured some gasoline into the carburetor to prime it. When the truck didn’t start, John poured more gasoline into the carburetor and Josh again attempted to start the truck. At this point, flames ignited and John was severely burned. The Rogers owned a Deluxe Mobilehome Policy issued by Allstate Insurance Company. The Burns were insured under an uninsured motorist policy issued by American Family Insurance Company. The Burns filed a complaint against Josh, Allstate and American Family, seeking damages for John’s injuries. Allstate denied coverage, claiming that the truck fell under the motor vehicle exclusion set forth in the policy. The Burns and American Family argued that Josh’s truck fell within an exception to the motor vehicle exclusion because the vehicle had been placed in “dead storage.” The trial court found that Allstate had a duty to defend and indemnify Josh Rogers. Allstate appealed. The insurance provisions at issue were in the Family Liability Protection portion of the Allstate policy. As a resident relative under the care of the Rogers, Josh was an “insured person.” The motor vehicle exclusion read: “We do not cover bodily injury or property damage arising out of the ownership, operation, maintenance, use, occupancy, renting, loaning , entrusting, loading or unloading of any motorized land vehicle or trailer.” The “dead storage” exception to the exclusion read: “This exclusion does not apply to: a) a motorized land vehicle in dead storage or used exclusively on the residence premises.” The policy did not define “dead storage” or “maintenance.” The Allstate policy also contained a section titled “Guest Medical Protection Coverage” that provided a limit of liability of $1,000 per person for injuries sustained when the person was “on the insured premises with the permission of an insured person.” This coverage was subject to the same motor vehicle exclusion and exception to the exclusion. On appeal, Allstate argued that Josh’s truck was not in “dead storage” at the time of the accident within the meaning of the policy, and that therefore the motor vehicle exclusion applied. The Court of Appeals of Indiana disagreed. It found that the facts supported a finding that the truck was indeed in “dead storage.” It was no longer operable, licensed, registered, or insured. When it stopped working, Josh removed the truck from any “active daily use,” and it remained “virtually untouched” for almost two months. When it was moved, it was moved only on the Rogers’ property. Thus, the truck was in “dead storage.” Allstate also argued that the exclusion should apply because the evidence established that Josh was “maintaining” the truck within the meaning of the policy. In light of the court’s finding that the “dead storage” exception applied, this was a moot point. Nevertheless, the court found that Josh and John were not “maintaining” the vehicle because they were not trying to “preserve or keep (it) in an existing state or condition,” or acting “to prevent a decline, lapse, or cessation from that state or condition.” Finally, Allstate argued that the exception to the exclusion did not apply because the truck was not “used exclusively on the residence premises” within the meaning of the policy. According to Allstate, the term “exclusively” meant that the vehicle had to be used on the residence premises throughout the entire duration of the policy period. The court found that the policy language was not that restrictive, and that the truck’s status of particular use could fluctuate over the policy period. The court concluded that the trial court properly found that at the time of the accident Josh’s truck was in dead storage within the meaning of the policy and that the vehicle was exclusively used on the premises. Accordingly, the exception to the motor vehicle exclusion applied, and Allstate had a duty to defend and indemnify Josh. The judgment of the trial court was affirmed. Allstate Insurance Company vs. Burns-No. 88A01-0502-CV-58-Court of Appeals of Indiana-November 29, 2005-837 North Eastern Reporter 2d 645. Indemnification vs. contribution debated Capital Construction Company, as general contractor at a construction site, hired De Graf Concrete Construction, Inc., to perform work at the site. The contract between the parties contained an indemnification provision. In that provision, De Graf waived its right to “contribution” (distribution of a loss among responsible parties) against Capital, and agreed to indemnify Capital in the event of a claim against it arising out of the performance of the work De Graf was hired to do. As required by Capital Construction, De Graf purchased a commercial liability insurance policy from Northern Insurance Company as well as a workers compensation and employers liability policy from Virginia Surety Company, Inc. The Northern Insurance policy contained an employers liability exclusion that excluded coverage for bodily injury to “(1) An ‘employee’ of the insured arising out of and in the course of: (a) Employment of the insured; or (b) Performing duties related to the conduct of the insured’s business.” The policy further provided that this exclusion did not apply “to liability as assumed by the insured under an ‘insured contract.’” “Insured contract” was defined as “That part of any other contract pertaining to your business … under which you assume the tort liability of another party to pay for ‘bodily injury,’ ‘property damage’ or ‘personal liability’ to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.” James Smith, a De Graf employee, was injured while working at the construction site. He sued Capital to recover expenses associated with his injuries. Capital filed a complaint against De Graf seeking contribution. De Graf tendered defense of Capital’s complaint to Northern Insurance and Virginia Surety. Virginia Surety accepted the tender, but Northern Insurance refused to defend or indemnify De Graf, citing the employers liability exclusion in its policy. Virginia Surety then filed an action seeking a declaration that Northern Insurance had a duty to defend and indemnify De Graf in the contribution action. The trial court found in favor of Northern Insurance; Virginia Surety appealed. On appeal, the Appellate Court of Illinois, Third District, agreed with the trial court and affirmed its decision. In reaching its decision, it emphasized the fact that Capital did not file a claim for indemnification against De Graf; its claim was for contribution. Contribution distributes the loss among responsible parties, while indemnification shifts the entire loss from one party to another. For the “insured contract” exception to the exclusion to apply, Capital needed to seek indemnification, not contribution. Capital’s complaint alleged only that De Graf should pay for its own negligence. It did not request that De Graf indemnify Capital for Capital’s negligence. Therefore the “insured contract” exception to the exclusion in the Northern Insurance policy did not apply. The judgment of the lower court was affirmed. Virginia Surety Company, Inc., vs. Northern Insurance Company of New York-No. 3-04-0701-Appellate Court of Illinois, Third District-December 22, 2005-840 North Eastern Reporter 2d 1271. Medical payments sought for tree felling injury Irving Theodore held a Commerce Insurance Company, Inc., homeowners property policy for his residence in Framingham, Massachusetts. He also owned property in the Dorchester section of Boston. This property was not insured. Theodore asked Timothy DeAmelio to help him cut down a dying tree on the Dorchester property. Theodore held an extension ladder while DeAmelio sawed the tree with a chain saw. Theodore left his spot at the ladder to keep onlookers from the area where the tree might fall. At this point, the ladder began to shift. DeAmelio lost his balance, fell to the ground, and was injured. DeAmelio brought a negligence action against Theodore. Commerce defended Theodore, but under a reservation of rights. It then filed a complaint seeking a judicial determination that it had no obligation to defend or indemnify Theodore. According to Commerce, under its policy, coverage for personal liability and medical payments to others “[a]rising out of a premises: (1) Owned by an ‘insured’ … that is not an ‘insured location’” were excluded. DeAmelio counterclaimed, arguing that his medical expenses were covered under the “medical payments to others” provision of the policy. The lower court found in favor of DeAmelio, holding that the exclusion cited by Commerce did not apply. Commerce appealed. On appeal, the Appeals Court of Massachusetts, Middlesex, held that the exclusion applied to the “personal liability” and “medical payments to others” coverages under the policy. The court found that there was a close relationship between the injury and the premises, and that it was not necessary that the condition of the premises be the actual cause of the injury. Where a third person was on the property to repair a condition of the property and, while the repair was being performed, an injury resulted, the injury was one “arising out of a premises.” Accordingly, the exclusion of coverage applied, and the medical expenses associated with DeAmelio’s injuries were not covered. The judgment of the lower court was vacated, and the matter was remanded to the lower court for entry of judgment consistent with the decision of the appeals court. Commerce Insurance Company, Inc., vs. Theodore-No. 05-P-383-Appeals Court of Massachusetts, Middlesex-January 30, 2006-841 North Eastern Reporter 2d 281 Insurers dispute liability in personal injury suit Stephen Chitwood leased his tractor-semitrailer to Foster Brothers. The parties agreed that Chitwood would drive the vehicle and deliver Foster Brothers’ products throughout the Midwest. Also pursuant to this lease agreement, Chitwood agreed to indemnify Foster Brothers for any loss that resulted from his own negligence. Both parties obtained liability insurance policies. Chitwood bought a Continental Western Insurance Company policy with a maximum limit of $750,000. Foster Brothers bought a Reliance Insurance policy with a $1 million coverage limit. Chitwood and Foster Brothers were insured parties under both policies. Chitwood was involved in an accident with another vehicle, and three people were injured. All three sued Foster Brothers. At first, Reliance defended the suit. Later, Continental provided an attorney. The parties agreed that Continental was the primary insurer and Reliance was the secondary insurer. Before trial, Continental reached settlement with the injured parties. For a payment of $600,000, Continental was released from any liability, and the parties agreed to limit any other recovery against Foster Brothers to the proceeds of the Reliance policy. In addition, the injured parties agreed that they would not seek payment under the Reliance policy unless the judgment against Foster Brothers exceeded $750,000, and that they would seek recovery only for the portion of the judgment that exceeded $750,000. Reliance reached its own settlement agreement with the injured parties, agreeing to pay $250,000 in exchange for their agreement to dismiss the lawsuit. It then filed a separate action alleging several theories of recovery against Continental. Under that action, Reliance sought recovery of the $250,000 it paid the injured parties, under the theory that it could take assignment of Foster Brothers’ indemnity rights under the lease agreement with Chitwood. It also argued that because Continental had paid only $600,000, it had not reached the policy limits of $750,000, and it therefore must pay the additional $150,000. Reliance argued that Continental breached its duty as a primary insurer to the secondary insurer, and it argued that Continental owed it $41,244.23 in attorneys’ fees that Reliance incurred in the personal injury action. Finally, Reliance argued it was entitled to prejudgment interest on all amounts claimed. The lower court, applying Missouri law, found in favor of Chitwood and Continental. Specifically, the lower court found that Reliance could not obtain Foster Brothers’ indemnity rights against Chitwood. To allow this would be the same as allowing Reliance, Chitwood’s insurer, to pass its loss to the insured—the same risk for which it had accepted premiums. The court also found that Continental’s settlement agreement with the injured parties exhausted its liability, and that there was no evidence of bad faith on the part of Continental to indicate it had breached some duty to Reliance. On the issue of attorneys’ fees, Continental agreed to pay the $41,244.23; however, the court denied Reliance’s request for prejudgment interest. Reliance appealed the lower court’s decision. The United States Court of Appeals, Eighth Circuit, reviewed the case. It agreed with the lower court’s decision to deny Reliance’s request for recovery of $250,000 from Chitwood under an indemnification theory. Like the lower court, it found that Missouri recognized the “anti-subrogation rule,” which prevents an insurer from passing its loss to the insured. To allow this would be to allow the insurer to “avoid coverage for the very risk for which it accepted premiums” and create “a conflict of interest that might deprive an insured of a vigorous defense.” The court then addressed the issue of whether Reliance could recover $150,000 from Continental. Again, it agreed with the lower court. The details of the settlement agreement confirmed that Continental had fulfilled its obligation, and that Reliance, had it gone to trial, would not have been required to pay the first $750,000 of a judgment against it. In addition, the court noted that Missouri courts have not recognized a duty of good faith between primary and excess insurers; however, even if they had, there was no evidence of a breach of duty on the part of Continental. Finally, the court turned to the issue of attorney’s fees and prejudgment interest. The court noted that Missouri law authorizes prejudgment interest. Therefore, it reversed the lower court’s decision denying interest and remanded the case to the district court to determine a date on which the interest on the $41,244.25 began to accrue. The case was affirmed in part, reversed in part, and remanded to the district court for a determination on the interest issue. Reliance Insurance Company in Liquidation vs. Chitwood-No. 05-1446-United States Court of Appeals, Eighth Circuit-January 10, 2006-433 Federal Reporter 3d 660. * |
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