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INSURANCE-RELATED COURT CASES COURT DECISIONS Digested from case reports published in Westlaw, 
Duplicate payment issue debated Donna Bowan was a physically and mentally disabled individual who required transportation to and from work. Express Medical Transporters (EMT), a non-emergency transporter, regularly drove her in a 15-passenger van. On August 17, 2001, the van was in an accident with a pickup truck. At the time of the accident, Bowan was not wearing a seat belt. She sustained serious injuries and was forced to move into a nursing home. The van driver was an Express Medical Transporters employee, Larry Briggs. The pickup truck driver was Amy Jo Demery. Bowan sued Express Medical Transporters and Demery. She argued that Briggs, Demery, and EMT were negligent in the operation of their vehicles, and that EMT and Briggs were negligent because they did not ensure that Bowan was wearing a seat belt before the collision. EMT had a commercial general liability policy with General Security Indemnity Company of Arizona with limits of $1 million. It also had a business auto policy with the same insurer with liability limits of $1 million. The business auto policy had underinsured motorist coverage with liability limits of $1 million. Before trial, Bowan and EMT entered into an agreement whereby General Security paid Bowan $960,000 through two different trusts. In exchange, Bowan agreed to pursue collection of any judgment through EMT’s insurance policies. The case went to trial, and the jury returned a verdict against Demery and EMT, with a judgment against them in the amount of $2.8 million. When Bowan attempted to collect the judgment from General Security, the insurer argued that there was no coverage under the commercial general liability policy because of an auto exclusion. It also argued that Bowan had already recovered $990,000 ($960,000 from General Security and $30,000 from Demery’s insurer) of the $1 million underinsured motorist coverage. Finally, the insurer argued that Bowan was not entitled to duplicate payments under the underinsured motorist provision and the liability portion of the automobile policy. At this point, the trial court entered judgment in favor of Bowan for $1.84 million in damages to be covered by the commercial general liability policy and the business auto policy, $208,303.79 in pre-judgment interest under the commercial general liability policy, and $248,626 in post-judgment interest under the commercial general liability and business auto policies. EMT and General Security appealed. The auto exclusion to the commercial general liability policy stated that it did not apply to “‘[b]odily injury’ or ‘property damage’ arising out of the ownership, maintenance, use or entrustment to others of any aircraft, ‘auto’ or watercraft owned or operated by or rented or loaned to any insured. Use includes operation and ‘loading and unloading.’” “Loading and unloading” was defined as the “handling of property.” The Missouri Court of Appeals, Eastern District, Division One, agreed with the trial court that the case did not fall under the “loading and unloading” definition in the policy. According to the court, the key issue was whether the failure to secure Bowan was a negligent act distinct from the “operation” of the vehicle and whether it was the cause of Bowan’s injuries. The court held that the Larry Briggs’ failure to secure Bowan with a seat belt was distinct from the operation of the van and was a cause of the injuries Bowan sustained. Therefore, the auto exclusion did not apply. The court then addressed the insurer’s argument that the commercial general liability, business auto liability, and underinsured motorist coverages could not all provide coverage for the judgment. The business auto policy stated: “[n]o one will be entitled to receive duplicate payments for the same elements of ‘loss’ under this Coverage Form and any … Underinsured Motorist Coverage Endorsement attached to this Coverage Part.” In addition, the underinsured motorist endorsement contained a provision that stated: “[n]o one will be entitled to receive duplicate payments for the same elements of ‘loss’ under this Coverage and this policy’s Liability Coverage. We will not make a duplicate payment under this Coverage for any element of ‘loss’ for which payment has been made by or for anyone who is legally responsible.” The court found that the term “duplicate payments” in the business auto policy and its underinsured motorist endorsement were ambiguous. For this reason, the court interpreted the ambiguity in the manner most favorable to the insured. The court found that Bowan did not receive “duplicate payments” under the different policies because she did not receive more than the full amount of damages she was entitled to under the trial court’s judgment under any one policy. The court concluded that General Security was liable under the commercial general liability policy for Bowan’s personal injury claims, and that Bowan did not receive “duplicate payments” under the different policies until all of her damages were paid. The court also found that General Security was required to pay pre-judgment interest. The decision of the lower court was affirmed. Bowan vs. General Security Indemnity Company of Arizona-Nos. ED 85145 & ED 85148-Missouri Court of Appeals, Eastern District, Division One-August 16, 2005-174 South Western Reporter 3d 1. Completed operations exclusion disputed Stainless Sales, Inc., an inter-national exporter of secondary steel products, entered into a contract with Quality Container Corporation for the purchase and delivery of electrolytic tinplate (ETP) coils. Pursuant to the contract, Stainless was to ship the coils from Stainless’ Michigan facility to Quality Container’s facilities in Manila, Philippines. Stainless hired Eastways Shipping Company to make all of its shipping arrangements. In fulfilling this responsibility, Eastways ordered shipping containers from Evergreen American Corporation. Once the arrangements were made, Stainless Sales’ employees loaded and secured the coils into shipping containers. The containers were then loaded onto trains and shipped to Chicago, Illinois. In Chicago, the coils were transferred to Burlington Northern Santa Fe (BNSF) trains to be transported to Tacoma, Washington. From there, the coils would be loaded onto an Eastways ocean vessel, destined for the Philippines. En route to Tacoma, a train carrying some of the coils derailed in North Dakota. Rail cars, trucks, commodities, and containers were damaged. Only a few of the containers were delivered to Washington, and none of them was delivered to Quality Container. Secura Insurance provided commercial general liability insurance to Stainless. The policy contained a “products-completed operations hazard” exclusion. Under this provision, if bodily injury or property damage occurred after the work called for in the contract was “completed or abandoned,” Secura was not obligated to provide coverage. Stainless filed suit against Evergreen and BNSF seeking compensation arising out of the loss of the coils and the sale to Quality Container. BNSF and Evergreen filed counterclaims, seeking compensation for costs and damages arising from the derailment. Secura claimed it was not obligated to defend or indemnify Stainless in the lawsuit because the “products-completed operations hazard” exclusion precluded coverage in this instance. The district court found in favor of Stainless, holding that the “products-completed operations hazard” exclusion did not preclude coverage because the contract between Stainless and Quality Container was not yet complete. Secura appealed. The United States Court of Appeals, Sixth Circuit, reviewed the case. Because the insurance contract was entered into in Michigan and Stainless was domiciled in Michigan, the court applied Michigan law. The issue was whether Stainless’ work was “completed” within the meaning of the insurance contract. Secura argued that the “products-completed operations hazard” exclusion applied because Stainless’ work had been completed once the coils were loaded into the containers at Stainless’ warehouse. The court disagreed. It found that the language of the insurance contract and the behavior of the parties supported a finding that Stainless’ work was not completed. The contract provided, in relevant part, that work was deemed completed “[w]hen all of the work called for in [the] contract has[d] been completed.” Most of the ETP coils never reached Tacoma, none of them was placed on the ocean vessel, and none of them was delivered to Quality Container. In short, because Stainless did not complete all the necessary acts to receive payment, its work was not completed. Therefore, the “products-completed operations hazard” exclusion did not apply. The decision of the lower court was affirmed. Secura Insurance vs. Stainless Sales, Inc.-No. 04-2000-United States Court of Appeals, Sixth Circuit-December 21, 2005-431 F.3d 987. Insured challenges geographic limitation clause In May 2001, Paula MacNealy was walking on a beach in Mexico when she was struck and injured by a dune buggy. MacNealy filed a claim for uninsured motorist coverage under her State Farm Mutual Automobile Insurance Company automobile insurance policy. State Farm denied coverage because the accident took place in Mexico. According to State Farm, under the terms of the policy, liability coverage applied to areas of Mexico, but uninsured motorist coverage was excluded. MacNealy filed a complaint claiming she was entitled to uninsured motorist coverage. The trial court and the appellate court decided in favor of MacNealy, finding that the geographic limitation provision relied upon by State Farm was invalid and unenforceable. Because its decision conflicted with decisions of other courts, the court of appeals certified two issues for review by the Supreme Court of Ohio. The first issue was whether limiting the geographic scope of uninsured motorist coverage violated the statute that governed uninsured motorist coverage in Ohio. The second issue, which was dependent upon resolution of the first, was how to define the scope of the geographic limitation of the State Farm policy. MacNealy argued that geographic limitations on uninsured motorist coverage are unenforceable because they keep insureds from obtaining coverage for causes of action recognized by Ohio law. The Supreme Court of Ohio disagreed. The court explained that the public policy of the state is to ensure that all motorists maintain some form of liability coverage on motor vehicles operated within Ohio. To construe the law to preclude insurers from imposing geographic limitations would require them to insure risks that were either unknown or so high as to make coverage impractical. Premiums would dramatically increase, and motorists who did not travel outside the country would end up subsidizing those who did. The court concluded that Ohio’s uninsured motorist statute did not prohibit insurers from limiting uninsured motorist coverage to accidents occurring in the United States and Canada. Next, the court evaluated the geographic scope of the coverage under the State Farm policy. As required by Ohio law, when MacNealy applied for her automobile insurance, State Farm offered her uninsured motorist coverage as well. As to coverage in Mexico, the relevant provision in the policy stated that “The liability, medical payments and physical damage coverages also apply in Mexico within 50 miles of the United States border. A physical damage coverage loss in Mexico is determined on the basis of cost at the nearest United States point.” Uninsured motorist coverage was limited to the United States and Canada. Because the law did not require State Farm to offer uninsured motorist coverage that was equivalent in all ways to the liability coverage available under the policy, and because MacNealy accepted State Farm’s offer of uninsured motorist coverage, the court held that MacNealy was not entitled to uninsured motorist coverage for the accident that occurred in Mexico. The judgment of the court of appeals was reversed. Fazio vs. Hamilton Mutual Insur-ance Company-No. 2004-1559-Supreme Court of Ohio-October 12, 2005-835 North Eastern Reporter 2d 20. Was injured passenger “culpably uninsured”? Victor Dziuba was injured in an accident when he was a passenger in an automobile owned and operated by Scott Fletcher. Dziuba’s related medical expenses were approximately $9,300. Victor and his wife, Alexandra, sued Fletcher and the other parties involved in the accident, Louis and Kristen Vanderhook. They also sued First Trenton Indemnity Company, Fletcher’s liability carrier. The claim against First Trenton was for personal injury protection benefits. The claim against the Vanderhooks was for economic and non-economic loss. Fletcher and Kristen Vanderhook moved for summary judgment, arguing that Victor and Alexandra were not able to meet the state of New Jersey’s “verbal threshold,” a limitation on tort recovery whereby an injured party must prove that the bodily injury suffered is of a type or degree that falls within one of nine defined categories. The lower court agreed. New Jersey statutory law provides that an insurer may exclude a person from personal injury protection benefits if that person, at the time of the accident, was “culpably uninsured” i.e., “was the owner or registrant of an automobile registered or principally garaged in this State that was being operated without personal injury protection coverage.” According to the judge, Victor Dziuba was “culpably uninsured” because the Dziubas themselves owned three automobiles, none of which was insured at the time of the accident. As such, he was subject to the “verbal threshold test,” which he did not meet. First Trenton then argued that Dziuba was ineligible for economic loss damages, including personal injury protection benefits, since he was “culpably uninsured” at the time of the accident. Fletcher and Vanderhook made similar arguments. These motions were heard by a second judge, who, based upon the first judge’s ruling, found in favor of First Trenton, Fletcher, and Vanderhook. Dziuba appealed. On appeal, Dziuba argued that he was not “culpably uninsured.” To support his argument, he claimed he was not the “owner or registrant” of the three Dziuba vehicles because they were owned or registered by his spouse, Alexandra. The Superior Court of New Jersey, Appellate Division, rejected this argument. According to the court, it is common that a husband and wife jointly own the family cars, even though only one can be the registrant. The evidence showed that Victor and Alexandra Dziuba jointly owned several uninsured vehicles. In fact, they themselves continuously used the pronoun “we” in describing their use and ownership of the vehicles. The court concluded that the first judge was correct in concluding that Victor was “culpably uninsured,” and the second judge was correct to deny personal injury protection benefits and economic damages. Despite the court’s finding, however, Dziuba argued that he was still entitled to damages for non-economic loss. The issue was whether an individual who is culpably uninsured must be actually operating the uninsured vehicle at the time of the accident in order to be barred from recovery of non-economic damages. The court evaluated the relevant statute, which read: “[a]ny person who, at the time of an automobile accident resulting in injuries to that person, is required but fails to maintain medical expense benefits coverage mandated by [N.J.S.A. 39:6A-4] shall have no cause of action for recovery of economic or non-economic loss sustained as a result of an accident while operating an uninsured automobile.” The court concluded that while Victor was barred from recovery of personal injury protection benefits and from recovery of economic loss, he was not precluded from recovery of non-economic loss because he was not operating one of his uninsured vehicles at the time of the accident. Thus, the judgment of the lower court barring Victor’s claim for non-economic losses was reversed. The case was affirmed in part and reversed in part. Dziuba vs. Fletcher-Superior Court of New Jersey, Appellate Division-December 27, 2005-887 Atlantic Reporter 2d 732. Vendor’s negligence not covered by products liability Raymond Corporation manufactured sideloader forklifts, which run on rail systems in the aisles of warehouses. National Union Fire Insurance Company was Raymond’s primary liability insurer. Raymond’s policy with National Union contained a vendor’s endorsement that provided that an insured included “any person or organization (referred to below as ‘vendor’) shown in the schedule, but only with respect to ‘Bodily Injury’ or ‘Property Damage’ arising out of ‘Your Products’ [Raymond’s products] shown in the schedule which are distributed, sold, repaired, serviced, demonstrated, installed or rented to others in the regular course of the vendor’s business.” This vendor’s endorsement was subject to several exclusions. Arbor Handling Services was one of Raymond’s vendors. In 1994, Arbor sold two new Raymond sideloaders to Philadelphia steel distributor Joseph T. Ryerson & Son. To cover the period of time between the sale and the delivery date of the new sideloaders, Arbor arranged to provide rental sideloaders to Ryerson. Arbor had one rental sideloader in its fleet, and agreed to “support … as if it were its own” any second sideloader that Ryerson might locate. Ryerson located another sideloader in Chicago and had it transported to Philadelphia. Arbor then had its technicians reassemble and adjust the sideloader for use at Ryerson’s plant. The technicians did not properly fit the sideloader’s guide rollers within the rails, and a Ryerson employee was seriously injured as a result. The injured worker sued Raymond and Arbor. The parties did not dispute that Arbor’s negligence—not any defect in Raymond’s product—caused the action. They settled the action prior to trial for $6 million. Arbor’s primary liability insurer contributed $3 million. Raymond made a claim under its policy with National Union, but National Union contested coverage. Eventually, while reserving their rights to resolve their coverage dispute, National Union contributed $2.5 million and Raymond contributed $500,000. Raymond and Arbor then brought an action against National Union for Raymond’s $500,000 contribution. National Union counterclaimed against Raymond, seeking its $2.5 million. The trial court concluded that the vendor’s endorsement was limited to personal injury claims arising out of product defect and found in favor of National Union. The Appellate Division found that the vendor’s endorsement was broad enough to cover claims arising out of the vendor’s negligence, and it reversed the trial court’s decision. National Union appealed. On appeal, the Court of Appeals of New York concluded that bodily injuries “arising out of [Raymond’s products]” meant injuries arising out of defects in the products rather than arising out of the vendor’s negligence. The court noted that this was the majority view, and that it was consistent with “the origins of the vendor’s endorsement as an outgrowth of products liability law.” It was also consistent with the exclusions to the endorsement. The endorsement covered Arbor for defective-product suits arising out of its distribution, sale, repair, servicing, demonstration or rental of Raymond’s products. It did not cover Arbor for its own independent act of negligence. The order of the Appellate Division was reversed, and the decision of the trial court in favor of National Union was reinstated. Raymond Corporation vs. National Union Fire Insurance Company of Pittsburgh, PA-Court of Appeals of New York-June 29, 2005-833 North Eastern Reporter 2d-232. * |
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