Table of Contents 

INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Practical joke gets no laughs

Tina Alberts was a surgical assistant for Dr. Robert C. Woo, an oral surgeon. Alberts had a pet pot-bellied pig named Walter. Dr. Woo liked to tease Alberts about her pet. At times the teasing went so far, however, that Alberts was offended. In one incident, she alleged, Dr. Woo showed her pictures of his boar hunting trip and a skinned pig hanging on a hook and made comments like, “[T]here is how Walter will look.” She began to complain about Dr. Woo’s treatment of his staff and to demand overtime pay.

When Alberts chipped a baby tooth that had never been replaced by a permanent tooth, Dr. Woo agreed to remove the chipped tooth and another tooth and replace both with permanent implants. During the procedure, while Alberts was under general anesthesia, Dr. Woo played a practical joke on her. After the teeth were removed, he replaced them with temporary teeth designed to look like boar tusks. While prying her eyes and mouth open, he took pictures of her with the boar tusks protruding from her mouth. He then removed the tusks and replaced them with the proper implants. Staff members later gave Alberts the boar tusks and pictures. After their presentation, Alberts assisted Dr. Woo in a procedure, during which he mentioned the boar tusks and said that she had a trophy to take home. Alberts left the office that day and never returned, and then sued Dr. Woo. Her complaint included allegations of assault, outrage, battery, invasion of privacy, false light, public disclosure of private facts, nonpayment of overtime wages, retaliation, medical negligence, lack of informed consent, and negligent infliction of emotional distress. Albert’s husband and mother filed claims as well.

Dr. Woo’s insurer, Fireman’s Fund Insurance Company, refused to defend him in the Alberts lawsuit. Dr. Woo settled with Alberts, then filed a lawsuit against Fireman’s Fund alleging a bad faith breach of the duty to defend and violations of the Consumer Protection Act. The jury found in favor of Dr. Woo; Fireman’s Fund appealed.

The professional liability portion of the Fireman’s Fund policy provided coverage for damages “that result from rendering or failing to render dental services.” “Dental services” included “all services which are performed in the practice of the dentistry profession as defined in the business and professional codes of the state where you are licensed.” On appeal, Dr. Woo argued that placement of the boar tusks in Alberts’ mouth constituted dental services or the failure to render dental services. The Court of Appeals of Washington, Division 1, disagreed. According to the court: “No reasonable person could believe that a dentist would diagnose or treat a dental problem by placing boar tusks in the mouth while the patient was under anesthesia in order to take pictures with which to ridicule the patient. While Dr. Woo was clearly rendering dental services when he administered anesthesia, removed Alberts’ teeth and put in the proper [false teeth], we conclude as a matter of law that when he placed the boar tusks in her mouth and took pictures, he was not rendering professional services.”

The employment practices portion of the policy provided coverage for “damages as a result of sexual harassment, discrimination, or wrongful discharge that arise out of a wrongful employment practice.” Dr. Woo argued that Alberts’ complaint, while it did not allege a “wrongful employment practice” per se, implied a wrongful discharge claim conceivably covered by the policy. The court disagreed. It found that no cognizable cause of action for a wrongful employment practice was pled. Therefore, Fireman’s Fund had no duty to defend Dr. Woo.

Finally, the general liability portion of the policy provided coverage for claims of “bodily injury… caused by an occurrence” and “personal injury caused by an offense arising out of your business[.]” “Occurrence” was defined as an accident. Dr. Woo argued that because the complaint did not allege that Dr. Woo intended to give Alberts the photos, the fact that the photos were given to her by his employees could be considered to be an “accident” within the meaning of the policy. He also argued that because the incidents involved “employee relations,” the offense arose from the business of running a dental practice. The court disagreed with both of these arguments. The complaint alleged only intentional conduct by Dr. Woo. There was no “accident” within the meaning of the policy. In addition, the activities were not incident to providing professional dental services of administering anesthesia, removing teeth and fitting false teeth. Thus, any “personal injury” alleged in the complaint did not arise from Dr. Woo’s business.

The court concluded that Alberts’ complaint did not contain allegations that would impose liability upon Fireman’s Fund to defend Dr. Woo. The decision of the lower court was reversed, and the case was dismissed.

Woo vs. Fireman’s Fund Insurance Company-No. 53123-9-I-Court of Appeals of Washington, Division 1-June 13, 2005-114 Pacific Reporter 3d 681.

Statute of limitations challenged in default case

In 1992, Paul and Rance Brannon purchased restaurant franchising assets for three restaurants located in California. Terry Pfleiger, an associate of a real estate firm in Anchorage, Alaska, assisted them as a broker during the purchase. As payment, he received a 10% share in JROC, the corporation that managed the restaurants. In addition, Pfleiger, along with others, guaranteed the $750,000 note that secured the purchase agreement.

In 1994, JROC defaulted on the $750,000 note. The holders of the note sued the guarantors, including Pfleiger, in an Alaska court. The Brannons then sued Pfleiger for $1 million, claiming that Pfleiger, as a broker and agent, owed fiduciary duties to them.

Pfleiger’s real estate firm had a professional liability insurance policy with Continental Casualty Company. Continental disclaimed coverage on August 13, 1997, via a letter sent from Continental to Pfleiger’s attorney. The letter cited several policy exclusions. In addition, the letter stated that Pfleiger was not working within the scope of his duties as an agent for the real estate firm at the time he entered into the franchise purchase agreement with the Brannons. Continental did continue to defend the real estate firm, but under a reservation of rights. The Brannons eventually settled with the real estate firm for $60,000.

In 1997, Pfleiger filed for bankruptcy. As part of the bankruptcy filing, Pfleiger assigned any rights he had against Continental to the Brannons. The Brannons continued to pursue Pfleiger, within the guidelines established by the bankruptcy court. Eventually, Pfleiger confessed judgment to the Brannons in the amount of $2,889,863. The Brannons then filed a complaint against Continental, alleging breach of duty to defend. However, Continental had denied Pfleiger a defense on August 13, 1997, and the Brannons did not file their complaint until March 15, 2002. Alaska has a three-year statute of limitations for breach of duty to defend cases, so the court found the Brannons’ complaint was untimely. The Brannons appealed.

On appeal, the Brannons argued that the duty to defend did not “accrue” until August 28, 2003, the date Pfleiger’s confession of judgment was entered. The Supreme Court of Alaska agreed with this argument; however, it decided that the statute of limitations should be “equitably tolled” (temporarily halted) until entry of final judgment in the underlying lawsuit. The court found that such an approach would “promote judicial economy, lead to certainty of damages, and assist courts by establishing a ‘bright-line rule.’” Thus, while August 13, 1997, was the correct date for accruing time for the duty-to-defend claim, the statute of limitations should have been tolled until August 28, 2003, the date Pfleiger confessed judgment. Thus, the Brannons still had time to file their complaint against Continental.

The decision of the lower court was vacated, and the case was remanded to the lower court.

Brannon vs. Continental Casualty Company-No. S-11505-Supreme Court of Alaska-June 9, 2006-137 Pacific Reporter 3d 280.

Claimant alleges insurer breached its duty

On June 5, 1996, Pearl Ann McClelland was involved in an automobile accident with Ron Shuler. McClelland’s insurer, Liberty Mutual Insurance Company, contacted Shuler and learned that he was complaining of neck pain and stiffness as well as headache. Shuler also told the Liberty Mutual adjuster that he had undergone neck surgery in the past to have a disc removed. Shuler claimed he was not at fault in the accident. The adjuster told Shuler that McClelland had received a ticket after the accident and that Liberty Mutual would be accepting liability.

Liberty Mutual settled the property damage claim with Shuler and closed the file with a notation stating that Shuler might file a bodily injury claim. Shuler did indeed retain an attorney who contacted the insurance company, seeking a statement of coverage and a copy of the policy. Liberty Mutual provided policy information, but it did not send a copy of the policy. During the next several months, the adjuster made notations in the file indicating the insurer’s belief that the case was possibly one of “excess exposure.” The insurer concentrated its efforts on determining the amount of Shuler’s medical bills. By December, it learned that he had incurred medical costs of $27,063.

In February 1997, Shuler’s attorney sent a letter to Liberty Mutual offering to settle the bodily injury claim. He enclosed medical bills exceeding $71,000. In exchange for Shuler’s settlement, Liberty Mutual was required, within 20 days, to tender the policy limits of $10,000 and provide certain sworn statements from McClelland. Liberty Mutual received the letter on February 17, but misplaced it. It found the letter by February 28, and decided to settle the case. The company obtained no medical authorizations, nor did it notify or discuss the settlement with McClelland. On the twentieth day, it issued a check for $10,000 and sent the check to Shuler’s attorney with a release form. It did not provide the sworn statements from McClelland, nor did it inform Shuler’s attorney as to why the statements were not being provided. Shuler’s attorney returned the check and rescinded the settlement offer.

Shuler sued McClelland, and Liberty Mutual represented McClelland in the suit. The insurer argued that a settlement had been reached when it mailed the check to Shuler’s attorney, but the lower court disagreed. The jury found in favor of the Shulers and returned a verdict for $96,735 plus costs of $4,606.

McClelland later declared bankruptcy. The bankruptcy trustee filed suit against Liberty Mutual alleging bad faith. Before the case went to trial, the circuit court found in favor of Liberty Mutual. The bankruptcy trustee appealed.

On appeal, the District Court of Appeal of Florida, Second District, noted that an insurer is “duty-bound to use the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of his own business.” The court admonished the insurance company for misplacing the settlement letter, not informing McClelland of the settlement offer or determining whether she had additional insurance, and for ignoring some of the conditions of the settlement. According to the court, it could not be concluded, as a matter of law, that Liberty Mutual fulfilled its duty. Whether or not Liberty Mutual fulfilled its duty was a question of fact to be answered by a jury. Thus, the court concluded that the lower court erred in finding in favor of Liberty Mutual before the case went to trial.

The decision of the lower court was reversed and remanded.

Menchise vs. Liberty Mutual Insurance Company-No. 2D04-5713-District Court of Appeal of Florida, Second District-June 16, 2006-932 Southern Reporter 2d 1130.

Who violated agency agreement?

In 1988, Allen Schirado and Farmers Insurance Exchange entered into an “Agent Appointment Agreement.” Pursuant to this agreement, Schirado agreed to act as an agent for Farmers. As agent, he would sell various lines of insurance provided by Farmers. He also agreed to submit to Farmers all requests or applications for insurance for the classes underwritten by Farmers and eligible in accordance with Farmers’ rules and manuals. The agreement also provided that all manuals, lists, and records, including those containing policyholder information, were the confidential property of Farmers. These were to be returned to Farmers upon termination of the agreement. Finally, the agreement required Schirado to give three months’ notice of termination. Upon termination of the agreement, Schirado was to be paid “Contract Value” payments, which could be paid in installments.

On December 18, 2001, Schirado claimed that he faxed a letter to Farmers stating that he intended to resign effective March 31, 2002. Farmers’ representative claimed she never received the letter.

In late March 2002, Schirado sent a letter to his clients informing them that he had severed his relationship with Farmers. A portion of the letter stated: “This was not an easy decision to make after representing the company for over 14 years. The reasons for this decision are varied, but deal with ethics and the treatment of my clients.” Schirado also explained that he would continue to work as an independent insurance agent with a new agency. He also stated: “As you may have noted on the letter-head, my agency address and phone number are different. There is a clause in the Farmers contract which may allow them to take over my office and old phone number. I do not intend to allow that to happen without a fight but, like the man said, pray for the best but prepare for the worst.” The letter also stated that he [Schirado] would not be able to solicit clients for a period of one year, but “you on the other hand are free to contact whomever you desire.”

Farmers became aware of Schirado’s letter and determined that it violated the terms of the Agent Appointment Agreement. Accordingly, it terminated the agreement via fax on March 28, 2002. Schirado requested his Contract Value payments, and Farmers sought return of the policyholder information and documents. A dispute arose between the parties. Schirado eventually received two Contract Value payments. He returned documents and records to Farmers, but Farmers claimed they were delivered too late to be useful.

Farmers sued Schirado in August 2002 for breach of contract, misappropriation of trade secrets, tortious interference with contract, conversion, unjust enrichment, and breach of fiduciary duty. It claimed that before the agreement was terminated, Schirado sold policies to clients through other insurance companies. It also claimed that Schirado tried to induce clients to leave Farmers, and that his retention of records and documents kept Farmers from servicing existing policies. According to Farmers, it suffered monetary damages as a result of these alleged wrongdoings. Schirado denied all of Farmers’ claims and filed a counterclaim seeking payment of the remaining Contract Value payments.

The district court determined there were no issues of fact to be decided at trial, found in favor of Schirado, and entered judgment of $6,690 plus interest. Farmers appealed.

On appeal, the Supreme Court of North Dakota found that the district court had erred by applying the wrong evidentiary standard. The district court had concluded that all of Farmers’ claims were precluded because “Farmers failed to present direct evidence through the testimony of individual policyholders explicitly stating that they left Farmers due to Schirado’s conduct.” According to the Supreme Court, this kind of evidence was not required to bring the case to trial. It was enough that there was evidence presented that could allow an inference that Shirado’s conduct caused Farmers to suffer economic loss. In addition, Farmers’ inability to precisely prove its damages did not preclude its recovery of damages once the case had been tried. Finally, because Schirado’s Contract Value payment claims were part of the overall dispute, the court found he was not entitled to payments unless and until the dispute was resolved in a trial setting.

The decision of the district court was reversed, and the case was remanded for further proceedings.

Farmers Insurance Exchange vs. Schirado-No. 20050221-Supreme Court of North Dakota-June 29, 2006-717 North Western Reporter 2d 576. *

CONTACT US | HOME