INSURANCE-RELATED COURT CASES COURT DECISIONS Digested from case reports published in the North Eastern Reporter 2d, Which insurer is primary in tow truck accident? On February 16, 1999, Thomas Graff was driving a delivery van for Sanfilippo and Sons, Inc., when the van broke down near Carthage, Illinois. Graff called for a tow. The tow truck driver for Brown’s Vehicle Inspection (Brown’s towing business) hitched the van to the tow truck and proceeded to drive toward Quincy, Illinois, with Graff as a passenger in the tow truck. During the trip, the van broke free and crashed into another vehicle. The driver and the passenger of that vehicle were injured. They sued the owner of the tow truck business, the tow truck driver, the delivery van owner, and the delivery van driver. The owner of the tow truck business held a $750,000 insurance policy issued by Pekin Insurance Company. Sanfilippo and Sons, Inc., had an insurance policy with a liability limit of $1 million and commercial umbrella liability insurance with a limit of $25 million, both issued by Fidelity & Guaranty Insurance Company (F&G). The tow truck company “deselected” its Pekin coverage and targeted F&G. In addition, Pekin filed a court action seeking a declaration that F&G owed a duty to defend the towing business and its driver. The trial court found that the towing business was not covered by Fidelity and that Pekin had a duty to defend the delivery van owner and its driver. On appeal, Pekin argued that F&G had a duty to defend Brown’s towing business and its driver because, at the time of the accident, the tow truck driver was a permitted user or omnibus insured of the delivery van. The relevant policy language stated that coverage was provided for an accident resulting from the “use” of a covered vehicle. Illinois defines “use” of a vehicle under an omnibus clause as “operation” or “control of operation.” The issue, then, was whether a tow truck “uses” or “operates” the vehicle it tows so as to be an omnibus insured under the towed vehicle’s policy. The Appellate Court of Illinois, Fourth District, found that, under the facts of this case, the tow truck could be seen to be “using” or “operating” the delivery van, and that therefore the towing business could be covered by the F&G policy. However, the court also found that, under similar analysis, the delivery van owner and its driver could also be covered by the Pekin policy. The key issue, then, was which insurer provided primary coverage. The court found Pekin was the appropriate primary insurer. In reaching its decision, it considered the principal purpose of mandatory automobile liability insurance—to protect the public by securing payment of its damages. According to the court, to allow Pekin to become the secondary insurer for Brown’s tow of the delivery van would violate public policy. In addition, allowing the tow truck business to “deselect” its Pekin coverage would render the mandatory automobile liability insurance law useless. Having established that Pekin was the primary insurer, the court considered whether Pekin had breached its duty to provide a defense. The court found it had not. Because the delivery van driver was not listed on the Pekin policy, mere notice of the lawsuit did not necessarily put Pekin on notice that it owed a defense. Pekin’s duty to defend was never triggered because the delivery driver never tendered defense. Finally, Pekin argued that the trial court erred in finding the F&G policy excluded coverage for Brown’s towing business under the policy’s business exception. According to Pekin, the business exclusion was void because it was against public policy. The court agreed. According to the court, the Illinois legislature decided that an insurer that issued a liability insurance policy to an insured must cover the insured and any other person who has received permission to use the vehicle. The court also stated that the policy of protecting the public is best served by having both the tow truck’s policy and the towed vehicle’s policy as available insurance. Therefore, the trial court erred in finding that the business exclusion applied and in finding in favor of Fidelity & Guaranty. The case was affirmed in part and reversed in part. Pekin Insurance Company vs. Fidelity & Guaranty Insurance Company-No. 4-04-0039-Appellate Court of Illinois, Fourth District-March 14, 2005-830 North Eastern Reporter 2d 10. Insurer seeks to reduce UM payment Scott Gillen was a paramedic for the City of Chicago Fire Department. While assisting at the scene of an accident, Gillen was struck by an uninsured motor vehicle driven by Carlando Hurt. His injuries were severe, and he died the same day. Gillen’s medical expenses totaled $76,612.10. They were paid by the City of Chicago pursuant to a municipal ordinance that was part of the Pension Code. Gillen’s wife, Teresa, was the special administrator of Gillen’s estate. She filed a claim with her insurer, State Farm Mutual Automobile Insurance Company, for uninsured motorist benefits of $100,000, the policy limit. State Farm paid Teresa $23,387.90, the difference between $100,000 and the amount already paid to her by the City of Chicago. According to State Farm, a limitation of liability clause in the policy allowed it to set off benefits already paid. Teresa filed a declaratory judgment action seeking a finding that State Farm was not entitled to setoff. State Farm argued that Illinois law supported its position and filed a motion to dismiss. The trial court agreed with State Farm and dismissed Teresa’s complaint. Teresa appealed. The appellate court reversed the decision of the trial court. State Farm petitioned for leave to appeal to the Supreme Court of Illinois, and its petition was granted. The issue on appeal was whether State Farm could reduce its liability by deducting the medical benefits paid by the City of Chicago from the $100,000 due under the State Farm policy. The policy provision at issue stated: “Any amount payable under this coverage shall be reduced by any amount paid or payable to or for the insured under any worker’s compensation, disability benefits, or similar law.” According to State Farm, the municipal ordinance pursuant to which the medical benefits were paid was a “similar law” within the meaning of this provision. It argued that previously decided cases had established that the municipal ordinance and pension code provisions were similar to the Workers’ Compensation Act. The Supreme Court of Illinois disagreed. It stressed the fact that the limit of liability clause did not expressly identify the municipal ordinance and Pension Code. According to the court, the issue was whether the average person, for whom the policy was written, would reasonably understand that State Farm’s liability for uninsured motorist coverage would be limited for payments made pursuant to section 22-306 of the Pension Code and implementing municipal ordinance. The court concluded the average person would not read the provision to include the pension statute within the policy’s setoff clause. Because the payments already made to Teresa were not paid under “any worker’s compensation, disability benefits or similar law,” they could not be deducted from the $100,000. Accordingly, the court held in favor of Teresa. The judgment of the appellate court reversing the decision of the lower court was affirmed. Gillen vs. State Farm Mutual Automobile Insurance Company-No. 98919-Supreme Court of Illinois-May 19, 2005-830 North Eastern Reporter 2d 575. Ambiguity triggers dispute in trailer chain failure Margaret Dare sold a horse trailer to Robert Ellingson. Ellingson was injured when the chain used to restrain a horse at the rear of the trailer failed, resulting in the release of the horse. Ellingson sued Dare, claiming that she had modified the trailer so that the chain was unsafe. Dare tendered defense of the action to her homeowners insurer, United Services Automobile Association. USAA denied coverage, citing the following exclusion: “Medical Payments to Others do not apply to bodily injury or property damage: e. arising out of: (1) ownership, maintenance, use, loading or unloading of motor vehicles or all other motorized land conveyances, including trailers, owned or operated by or rented or loaned to an Insured.” USAA filed a declaratory judgment action seeking a finding that coverage was excluded by this provision. The lower court disagreed and concluded that the word “maintenance” in the policy exclusion was subject to more than one interpretation, and that Ellingson’s complaint alleged more than one theory of recovery and could potentially fall within the policy coverage. Dare filed a separate motion. In a separate order, the court found that USAA had a duty to defend Dare in the underlying action. USAA appealed both orders. On appeal, both Dare and Ellingson argued that the policy exclusion was ambiguous because it did not set forth any time constraints pertaining to “ownership” or “maintenance,” nor did the policy define those terms. Since Dare did not own the trailer at the time of the accident, both Dare and Ellingson argued that the exclusion did not apply. In addition, both parties argued there were multiple allegations in Ellingson’s complaint outside of the maintenance exclusion that could fall within the terms of the policy. Therefore, they argued, the duty to defend was triggered. The Appellate Court of Illinois, First District, First Division, agreed with Dare and Ellingson that the complaint alleged enough causes of action or theories of recovery that could potentially fall within the policy’s coverage. The complaint alleged that the trailer was maintained, designed, modified, distributed, and sold with a chain that was inadequate because of design and component characteristics that rendered it unsafe. The complaint also alleged Dare should have known the chain was inadequate, should have tested the chain, and that she failed to warn users of risks. Finally, the complaint alleged that Dare failed to design the trailer with a mechanism to adjust the height of the chain, and failed to design a proper and secure chain hook. USAA argued that so long as Ellingson’s injury arose out of Dare’s maintenance of the horse trailer, the vehicle exclusion applied. The court disagreed. According to the court, the allegations were independent from the exclusionary terms of ownership or maintenance of the trailer. USAA also pointed out that “but for” Dare’s ownership of the horse trailer, Ellingson would not have suffered injury. According to USAA, because Dare’s ownership of the horse trailer was a necessary link in the chain of causation leading to the injury, the exclusion applied. Again, the court disagreed. The term “ownership” was subject to more than one reasonable interpretation. Because it was unclear whether the exclusion applied only when the insured owned the trailer or whether ownership extended beyond the sale of the property, the policy was ambiguous. As such, it had to be construed against the insurer in favor of coverage. The decisions of the lower court in favor of Dare were affirmed. United Services Automobile Association vs. Dare-No. 1-04-1216-Appellate Court of Illinois, First District, First Division-May 31, 2005-830 North Eastern Reporter 2d 670. Is policy language ambiguous regarding UM, UIM? On December 18, 1998, Robert McClure, Jr., was killed in a motor vehicle accident. The insurance company for the party at fault paid its policy limit of $25,000. West American Insurance Company, the McClures’ insurer, paid $75,000 in underinsured motorist benefits, representing the difference between the policy’s limit of $100,000 per person and what was already paid. The McClures disagreed with West American that the policy limit was $100,000. They claimed the policy language was ambiguous and must be interpreted to impose underinsured motorist benefits of $300,000 per person. They filed a complaint for declaratory judgment. The trial court found in favor of West American; the McClures appealed. The language of the West American policy expressly defined uninsured motorist coverage (UM) to encompass both uninsured motorist (UM) and underinsured motorist (UIM) coverage. Coverage limits of $100,000 per person and $300,000 per accident were listed on the declarations page under a column labeled “UM” (uninsured motorist coverage). However, the same declarations page had a second column labeled “UIM” (underinsured motorist coverage) that was left blank. The McClures argued that this blank column rendered the policy ambiguous. According to the McClures, because of this ambiguity, the policy must be read in favor of the insured to provide underinsured motorist limits of $300,000 per person. The Court of Appeals of Ohio, Sixth District, Lucas County, disagreed. According to the court, additional policy language clearly established a UM (defined as UM and UIM) per-person maximum coverage limit. The limits could be identified by the insured by reference to either the UM schedule or the declarations page. The schedule stated, in part, “Subject to this limit for each person, the limit of liability shown in the Schedule or in the Declarations for each accident is our maximum limit of liability for all damages for ‘bodily injury’ resulting from any one accident.” The schedule did not contain the coverage limits, so it was necessary to refer to the declarations page, which contained the limits for UM coverage. Again, UM was defined as including uninsured and underinsured motorist coverage. The court concluded that payment of $75,000 was consistent with the language of the policy. The judgment of the lower court was affirmed. McClure vs. West American Insurance Company-No. L-04-1265-Court of Appeals of Ohio, Sixth District, Lucas County-June 3, 2005-829 North Eastern Reporter 2d 783. Diplomatic immunity triggers coverage dispute Alexey Konovalov, a Russian diplomat, was driving in New York City when he rear-ended another car. His passenger, Svetlana Tikhonova, was injured. Tikhonova sued Konovalov and the car’s owner, Ford Motor Company, in New York Supreme Court, Bronx County. The lower court dismissed the suit against Konovalov, citing diplomatic immunity. Ford claimed that its suit should also be dismissed, for the same reason. The lower court agreed with Ford and concluded Ford could not be held liable. It also held that the Diplomatic Relations Act required Tikhonova to pursue an action in federal court. The Supreme Court, Appellate Division, reversed the decision of the lower court and reinstated the complaint against Ford. Ford appealed to the Court of Appeals of New York. Two statutes, one state and one federal, were applicable to the case. The federal statute, part of the Diplomatic Relations Act, requires members of a diplomatic mission to secure automobile liability insurance, and gives injured persons the right to sue the wrongdoer’s insurance carriers in federal court. The state statute, the Vehicle and Traffic Law, provides that vehicle owners are vicariously liable for the negligence of those whom they allow to drive their vehicles. The issue on appeal was whether a vehicle owner is vicariously liable for the negligence of a diplomat, himself immune from suit. Ford argued that there were other cases that found there was no derivative liability where the wrongdoer was immune. The Court of Appeals of New York distinguished between these cases. It stressed that the purpose of the Vehicle and Traffic Law was to assure injured plaintiffs that there would be a financially responsible party to provide compensation for negligent driving. According to the court, Ford was attempting to interpret the law to absolve an owner of liability whenever the driver could not be held liable. Accordingly, the court held that a vehicle owner can be vicariously liable for the negligence of a diplomat, himself immune from suit. Ford also argued that because Tikhonova could sue in federal court under the Diplomatic Relations Act, she could not sue in state court. Again, the Court of Appeals disagreed. It found that allowing a federal suit against the driver’s carrier did not foreclose a state court suit against another party. The decision of the Appellate Division in favor of Tikhonova was affirmed, with costs. Tikhonova vs. Ford Motor Company-Court of Appeals of New York-May 5, 2005-830 North Eastern Reporter 2d 1127. * |
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