Table of Contents 

INSURANCE-RELATED COURT CASES

COURT DECISIONS

Digested from case reports published in Westlaw,
West Publishing Co., St. Paul, MN

“Timely notice” provision challenged

On July 14, 1999, Anthony Turner suffered on-the-job injuries when he fell off the roof of the New York State School for the Blind. At the time, the state was covered by an owner/contractor protective liability policy issued by Transcontinental Insurance Company. On July 23, a representative of New York’s Office of General Services notified Continental Casualty Company—incorrectly identified as the state’s insurance company—that there had been an accident. Continental or one of its companies created a workers compensation file.

Seeking compensation for his injuries, Turner filed a notice of intention to file a claim upon the state on October 12, 1999. The purpose of the “notice of intention to file a claim” was to extend the time Turner had to commence a claim in the New York Court of Claims. The following March, the state sent a copy of Turner’s notice to his employer as well as to the insurance agency that issued the Transcontinental certificate of insurance. Transcontinental argued it was not obligated to provide coverage to the state because the state did not comply with the notice requirement as set forth in the insurance policy.

The policy required the state to provide notice “as soon as practicable” of “any demands, notices, summonses or legal papers received in connection with the claim or suit.” According to Transcontinental, the period of time that elapsed from October 12, 1999 (the date the notice of intention to file a claim was filed), and March 8, 2000 (the date the state sent a copy of the notice to Transcontinental), was too long, and the “as soon as practicable” requirement was not satisfied. The state filed a third-party complaint against Transcontinental.

The Court of Claims of New York admonished both the state and Transcontinental, stating that “neither party appear[ed] before [the court] with pristine hands.” In the end, however, the court held in favor of the state. The court stated that the notice of intention to file a claim was not a legal paper in connection with a claim or suit within the meaning of the insurance contract. Thus, because there was no “suit” or “claim” at the time the notice of intention to file a claim was served, the state was not required to notify Transcontinental “as soon as practicable.” The court stressed that Transcontinental was a sophisticated litigant that could easily have defined the terms “suit” or “claim” to clarify the obligations of the parties, and that the contract’s vagary “should not serve to the detriment of the state.”

The court held in favor of the state, and Transcontinental was required to defend and indemnify the state in the Turner proceeding.

Turner vs. State of New York-No. 104542-Court of Claims of New York-June 20, 2006-818 New York Supplement 2d 896.

Binding authority irrelevant in failure to procure coverage

On March 11, 1998, Roger Parshall purchased a portable concrete plant for $40,000. Nine days later, his wife contacted Doyle Buetzer, an independent insurance agent, to request insurance for the new plant. Buetzer assured her that the coverage was bound as of that moment and that he would collect further details about the equipment later. He asked her to have Parshall call him, but he did not state that it was imperative. Buetzer made notes to himself to follow up but never did. Even when he spoke with Parshall on March 25 and March 30 on unrelated matters, he never requested additional information. Furthermore, he never submitted a policy application or an addendum to the intended insurer, Employers’ Mutual Casualty Company.

On April 28, a windstorm caused the concrete plant to collapse, destroying the plant and damaging a semi-tractor and trailer that also belonged to Parshall. The next day, Parshall reported the damage to Buetzer and initiated a claim with Employers’ Mutual under the insurance he thought Buetzer had obtained on his behalf. Employers’ Mutual denied Parshall’s claim, stating that it had never received notice of the existence of the concrete plant or that Parshall wished to obtain coverage for the plant.

Parshall sued Buetzer for negligence in failing to procure insurance. The lower court found in favor of Parshall and awarded damages to him. Buetzer appealed.

On appeal, Buetzer argued that he, as an agent for Employers’ Mutual, had the authority to bind the insurer. Indeed, Buetzer operated under an agreement with Employers’ Mutual giving him authority to bind it. However, pursuant to the agreement, his binding authority was limited to three days and to specific dollar amounts depending on the type of policy. For the type of policy that would have covered Parshall’s concrete plant, Buetzer’s binding authority was limited to $50,000. While $50,000 was sufficient to cover the $40,000 plant, the accident occurred far beyond the three-day period set forth in the agreement.

Nevertheless, Buetzer claimed that he had authority to bind Employers’ Mutual. The Missouri Court of Appeals disagreed. According to the court, nothing Employers’ Mutual did “clothed” Buetzer with “apparent” authority, causing him to believe he had more authority than he did. The agreement between Buetzer and Employers’ Mutual was the only evidence of authority in the case. Under the terms of the agreement, the court could “no more extend the time limitation from three days to 35 than it could extend the dollar limitation from $50,000 to one-half million.” Thus, Buetzer did not have the authority to bind Employers’ Mutual.

Buetzer also argued that Parshall contributed to his own loss by failing to provide the additional information Buetzer sought. Again, the court disagreed. Even if Parshall had breached some promise to provide information, there was no allegation that this lack of information would have kept Employers’ Mutual from providing coverage. The key reason the insurer denied Parshall’s claim was that Buetzer failed to do anything at all to procure coverage.

Finally, Buetzer argued that any damages should be limited by the terms of the policy that would have been issued to Parshall. According to Buetzer, the trial court should not have considered damages such as the $18,000 interest paid on the bank loan for the concrete plant or Parshall’s $210,000 in lost profit. Again, the court disagreed. It found that the evidence offered by Parshall was sufficient to support the amount of damages awarded by the jury.

The judgment of the lower court in favor of Parshall was affirmed.

Parshall vs. Buetzer-No. WD 65059-Missouri Court of Appeals, Western District-July 11, 2006-195 South Western Reporter 3d 515.

Breach of duty alleged in flood loss

Soon after Mark and Elizabeth Wisniski purchased a military surplus supply store, they contacted Brown & Brown Insurance Co. of Pennsylvania, Inc., to obtain commercial insurance. The Wisniskis claimed they talked to Donald Blood, an account executive, and Will Rineer, a CSR, telling them they wanted complete coverage for the property. Blood and Rineer requested information about the property, but did not inspect it before selling the policy to the Wisniskis. The policy was purchased and placed with EMC Insurance Co. The Wisniskis claimed they were never told that the policy had an exclusion for property damage caused by a flood or that flood insurance was available for an extra premium.

Over the years, the Wisniskis renewed their policy. At one point, in 1995, an EMC employee inspected the property at EMC’s request. The employee observed that the property was directly across the highway from a river, and that a stream ran under the building. Nevertheless, the employee did not recommend that the Wisniskis purchase flood insurance coverage.

In 1999, the store was flooded when the stream overflowed its banks. Damages exceeded $375,000. When the Wisniskis informed Brown & Brown of the loss, they were informed that there was no coverage for flood damage. The Wisniskis then filed an action against Brown & Brown and EMC, alleging that they breached a duty to “exercise the skill and knowledge normally possessed by members of the insurance profession in good standing in similar communities” because they failed to inform them that flood insurance was not included in the policy and recommend they purchase flood insurance.

Brown & Brown and EMC both filed motions for summary judgment. The lower court granted Brown & Brown’s motion, but denied EMC’s motion. The Wisniskis and EMC both appealed.

The Superior Court quashed EMC’s appeal, but heard the Wisniskis’ appeal. Brown & Brown petitioned to the Supreme Court of Pennsylvania. The Supreme Court ordered the Superior Court to vacate and reconsider its opinion according to a five-factor test for determining whether a duty exists. The factors to be considered were: the relationship of the parties; the social utility of the actor’s conduct; the nature of the risk imposed and foreseeability of the harm incurred; the consequences of imposing a duty upon the actor; and the overall public interest in the proposed solution. Evaluating these factors, the court emphasized the ability of insureds to make educated decisions about whether and to what extent they might need flood insurance.

The court also noted many reasons why imposing such a duty could be problematic, including the fact that insureds could seek coverage for a loss after it occurred merely by asserting that they would have bought additional coverage if it had been offered. The court concluded that the five factors did not weigh in favor of imposing a duty to inspect and advise clients based on that inspection. Thus, Brown & Brown did not have a duty to inspect and recommend that the Wisniskis purchase flood insurance.

The decision of the lower court in favor of Brown & Brown was affirmed.

Wisniski vs. Brown & Brown Insurance Company of Pennsylvania-Superior Court of Pennsylvania-August 15, 2006-906 Atlantic Reporter 2d 571.

Do misrepresentations bar homeowners coverage?

P.J. and Ann Lenhard purchased property in Altona, New York, where they planned to build a house. They began construction on the house in 1998 and arranged for its insurance. When the original policy was due to expire, the Lenhards’ agent, Andree LaBarge, contacted Edward Russell, an insurance underwriter, to obtain coverage with Genesee Patrons Co-operative Insurance Company. When LaBarge completed the Lenhards’ application for them, he erroneously represented that the house was located 5 miles from the fire department. In fact, the distance was between 9 and 9.4 miles. Ann Lenhard signed the application form, but did not notice the error. The application was processed, and construction of the house was completed in late 2000.

P.J. and Ann both worked for the Mohawk tribe in the Holistic Healing Clinic located in the Ganienkeh territory. In December 2000, P.J. left his job under “acrimonious circumstances.” P.J. eventually moved to Hawaii while Ann remained in New York to sell the Altona property. On February 10, 2001, while Ann was visiting family, the Lenhard house burned to the ground. Local police investigated the fire and found no evidence of arson. Genesee Patrons interviewed Ann, who misrepresented P.J.’s whereabouts. Later, she claimed she did this to protect P.J. from the Mohawks. According to Ann Lenhard, she feared for her family’s physical safety and had been threatened by a member of the tribe.

When Genesee Patrons denied coverage, the Lenhards filed a legal action. Genesee Patrons moved for summary judgment, claiming that the Lenhards were uncooperative and that they made material misrepresentations. The court found in favor of the Lenhards; Genesee appealed.

On appeal, Genesee argued that the Lenhards’ property was not 5 miles, but 9 to 9.4 miles away from the nearest fire department. They claimed that this fact was sufficiently material to justify noncoverage because the property had been inaccurately classified as “semi-protected.” According to Genesee, without this classification, it might have decided not to bind coverage on the property. The Supreme Court, Appellate Division, Third Department, New York, acknowledged Genesee’s arguments; however, it found that the arguments were not sufficient to warrant dismissal of the case before it went to trial. Neither Edward Russell, the insurance underwriter who worked with LaBarge on the Lenhards’ policy, nor Francis Spiotta, vice president of Genesee Patrons, claimed that they would not have underwritten the property if they had know its distance was 9 to 9.4 miles from the fire station.

Genesee also argued that Ann Lenhard’s misrepresentations concerning P.J. Lenhard’s whereabouts were sufficient to establish that Ann materially breached her duty to cooperate. Again, the court disagreed. Genesee Patrons did not establish that she made these misrepresentations with the intent to defraud, or that her deception, which caused a brief delay, could be found to justify dismissal of the case before trial.

The court found in favor of the Lenhards, and the decision of the lower court was affirmed.

P.J. Lenhard vs. Genesee Patrons Co-operative Insurance Company-Supreme Court, Appellate Division, Third Department, New York-July 6, 2006-818 New York Supplement 2d 644.

Does UM payment count toward retained umbrella limit?

Enviro Express, Inc., was a waste hauler and transfer station operator doing business in Connecticut. In June 1998, an Enviro Express tractor trailer was involved in an automobile accident with a car driven by Louis Mennillo, who was severely injured. Mennillo sued Enviro Express. The company’s primary insurer, Reliance National Indemnity Company, which had provided Enviro coverage of up to $1 million per accident, had been declared insolvent. However, Enviro also had an umbrella policy, issued by AIU Insurance Company, that provided coverage for amounts in excess of its $1 million primary insurance policy.

Mennillo was able to obtain $600,000 in uninsured motorist benefits from his own insurer, Safeco Insurance Company. The parties eventually settled for $2 million in addition to the $600,000 he already received. Thus, Mennillo’s total compensation was $2.6 million.

Enviro and AIU disagreed as to whether the $600,000 provided by Safeco should affect Enviro’s obligation to pay the first $1 million of Mennillo’s damages before AIU’s umbrella coverage obligation was triggered. According to Enviro, it was responsible for paying only $400,000 of Mennillo’s damages. According to AIU, Enviro was obligated to pay $1 million of the damages. Enviro eventually brought an action seeking a declaration that the $600,000 received by Mennillo should be applied toward the $1 million retained limit under the policy. The case was removed to a federal district court, which reserved judgment until the Supreme Court of Connecticut could answer a certified question: whether a payment made to an injured third party pursuant to an uninsured motorist policy should be treated as one that the tortfeasor (in this case, Enviro) was legally obligated to make, and counted toward the retained limit in the tortfeasor’s umbrella insurance policy.

The Supreme Court of Connecticut held that the $600,000 could be treated as an amount Enviro was legally obligated to pay for the purposes of determining if the retained limit of the umbrella policy had been met. In reaching its decision, the court found that the AIU policy was ambiguous as to the precise nature and source of payments that counted toward the retained limit. It noted that the retained limit clause made no distinction between a payment made by an insolvent insurer and a payment made to a party pursuant to an uninsured motorist policy. Furthermore, there were policy reasons to be considered.

The court noted that “the public policy established by the uninsured motorist statute was that every insured was entitled to recover for the damages he or she would have been able to recover if the uninsured motorist had possessed a solvent policy of liability insurance.” The court could not ignore the fact that the $600,000 payment was made to fulfill what should have been the primary insurer’s obligation. Furthermore, if the $600,000 were not applied to the retained limit, AIU would receive a windfall simply because the primary insurer was insolvent. It would have to pay only $1 million rather than $1.6 million of Mennillo’s damages.

The court concluded that the $600,000 paid to Mennillo was to be applied toward the policy’s retained limit. The certified question was answered.

Enviro Express Inc. vs. AIU Insurance Company-No. 17504-Supreme Court of Connecticut-July 25, 2006-901 Atlantic Reporter 2d 666. *

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