Table of Contents 

INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Insurer went overboard in denying boat injury claim

Valerie and Jeff Poage owned a 28-foot pontoon boat that they used on Table Rock Lake in Missouri. On July 30, 2003, the Poages and their guests took the boat out on the lake. They stopped and turned off the boat engine to swim for a while. Valerie Poage was swimming approximately 25 feet from the boat when she was struck and injured by another boat.

At the time of the accident, the Poages’ boat was insured by State Farm Fire & Casualty Company. The pertinent part of the State Farm policy stated: “We will pay the necessary medical expenses incurred or medically ascertained within three years from the date of an accident causing bodily injury . . . This coverage applies only for bodily injury caused by an accident resulting from the ownership, maintenance or use of your watercraft.” State Farm denied coverage, asserting that Valerie Poage’s injuries were not covered under the policy because they did not result from the “use” of the boat. The Poages filed a lawsuit seeking recovery under the policy, and the trial court found in their favor. State Farm appealed.

On appeal, State Farm argued that the language of the policy clearly did not provide coverage for Poage’s injuries. The Missouri Court of Appeals, Southern District, Division One, disagreed. The court found that the term “use,” as applied to the insurance policy, was a general catch-all term, capable of multiple meanings. Because the term “use” was ambiguous, it was necessary to construe the language liberally. The key question was whether the boat was in “use” when the engine was turned off and the Poages and their guests were swimming around it. The court found that, even though the boat was not running and was simply floating, it was still being “used” within the meaning of the policy.

State Farm also argued that there was not sufficient connection between the “use” of the boat and Valerie Poage’s injuries. According to State Farm, the use of the boat had to be the “proximate cause” of the injury. Again, the court disagreed with State Farm’s argument. It found that the causal connection needed only to be “reasonably apparent.” According to the court, “reasonably apparent” meant that “the injury or loss must be a natural and reasonable incident or consequence of the use of the injured vehicle.” Because it was “reasonably apparent that when a boat is used to take people swimming on a lake, one of these swimmers may be injured by another watercraft,” the court found that the State Farm policy was applicable to Valerie Poage’s injuries.

The court concluded that the boat was in “use” when Poage was injured and that her injuries were sufficiently related to the “use” of the boat within the meaning of the policy. Thus, the judgment of the lower court in favor of the Poages was affirmed.

Poage vs. State Farm Fire & Casualty Company-No. 27619-Missouri Court of Appeals, Southern District, Division One-October 23, 2006-203 South Western Reporter 3d 781.

Dog bites child: Which policy is “closest to the risk”?

David and Charlotte Goeman owned a primary residence in Richfield, Minnesota, and a cabin located in Frederic, Wisconsin. The cabin was insured through Trade Lake Mutual Insurance Company, and the Richfield residence was insured by Allstate Insurance Company. Each policy provided $100,000 of personal liability coverage. The Trade Lake policy limited its coverage to occurrences within the state of Wisconsin; the Allstate policy contained no such limitation.

In June 1998, an 8-year-old child was bitten by the Goemans’ dog in the living room of the cabin. The child’s father filed a lawsuit, and Trade Lake assumed defense. In October 2002, a jury awarded $34,209 in damages. Trade Lake paid a total of $54,272.07 in damages, other taxable costs, and legal fees and costs for the claim.

After the trial, Trade Lake and the Goemans filed a declaratory judgment action against Allstate, asking the court to require Allstate to pay half of the amount Trade Lake had paid. Applying the “closest to the risk” doctrine, the court found that Trade Lake was primarily liable. It also found that because $54,272.07 was under the $100,000 policy limit, there was no “excess” amount for Allstate to pay. Trade Lake appealed.

On appeal, Trade Lake argued that the two policies were equally “close to the risk,” and that they should provide concurrent personal liability coverage. Both insurers agreed that the policies had conflicting “other insurance” clauses that provided excess coverage. They also agreed that Minnesota applied the “closest to the risk” analysis when “other insurance” clauses conflict.

Under the “closest to the risk” doctrine, three factors determine which insurance is “closest to the risk” and therefore the primary insurance. First: whether a policy specifically describes the “accident-causing instrumentality.” Second: whether the premium reflects the exposure. Third: whether one policy contemplates the risk and use of the “accident-causing instrumentality” with greater specificity than the other policy.

Evaluating these three factors, the lower court found that the third factor was determinative. According to the lower court, the Trade Lake policy more accurately covered the location where the dog bite occurred because its coverage was limited to the state of Wisconsin. Thus, the Trade Lake policy contemplated the risk with more specificity. The Court of Appeals of Minnesota disagreed. It found that the location of the injury was merely “fortuitous” and that neither policy linked coverage for a dog bite to a particular place. The “accident-causing instrumentality” here was mobile and “not limited to any particular residence.” Thus, because both policies equally contemplated the risk of a dog bite injury, the lower court erred in finding that the Trade Lake policy was “closest to the risk” and therefore the primary policy.

The decision of the lower court was reversed, and the decision was remanded with directions to enter judgment in favor of Trade Lake.

Goeman vs. Allstate Insurance Company-No. A-06-425-Court of Appeals of Minnesota-December 19, 2006-725 North Western Reporter 2d 375.

Did court overreach in defining “occurrence”?

Bethlehem Steel Corporation hired Kvaerner Metals Division of Kvaerner U.S., Inc., to design and construct a coke oven battery according to certain plans and specifications that were set forth in the contract. Kvaerner designed and constructed the battery, but Bethlehem was not satisfied with the results. According to Bethlehem, the battery did not meet the contract specifications and warranties or even industry standards. In June 1997 Bethlehem filed a lawsuit against Kvaerner asserting claims of breach of contract and breach of warranty.

Kvaerner contacted its insurer, National Union Fire Insurance Company of Pittsburgh, Pennsylvania, seeking defense and indemnity under two commercial general liability policies it had with National Union. The first policy was a claims-made policy for the period of September 30, 1995, to September 30, 1996; the second was an occurrence policy for the period of April 1, 1997, to December 31, 1997. National Union denied coverage, stating that the allegations contained in the complaint did not fall within the coverage provisions of the policies. Kvaerner then filed an action against National Union seeking a declaratory judgment that National Union had a duty to defend and indemnify it.

The trial court found that National Union was not obligated to provide coverage because Bethlehem was seeking damages for breach of contract, and the policies were meant only to cover “accidental” damages. Kvaerner appealed the case to the Superior Court.

That court looked beyond the allegations contained in the complaint and considered an expert report submitted by Kvaerner. Looking at the report, the court reasoned that the battery’s damage might have been caused by various events, including “torrential rains” on October 31, 1994. Heavy rains would have clearly constituted an “occurrence” under the policy. In addition, the court found that in order to determine whether the policy’s “business risk/work product” exclusions applied, it was necessary to determine whether or not the battery’s damage was caused by the work of Kvaerner’s subcontractors. The court remanded the case to the trial court to address these issues.

National Union then petitioned the Supreme Court of Pennsylvania to consider whether the Superior Court erred by looking beyond the allegations raised in the complaint to determine whether National Union had a duty to defend Kvaerner. The Supreme Court granted the petition and found that the Superior Court had indeed overstepped its authority. The Supreme Court stated that there is well-established precedent that an insurer’s duty to defend and indemnify is determined solely from the language of the complaint against the insured. It did not matter, as Kvaerner argued, that the policy itself did not require that a civil complaint be filed to trigger coverage. What mattered was that National Union contracted to defend Kvaerner only when a “suit” or “proceeding” was brought against Kvaerner seeking or alleging compensation for property damage that was the result of an “occurrence,” which was defined by the policy as an “accident.”

The court then concluded that claims based on faulty workmanship did not satisfy the requirement of an “occurrence” under the policy. According to the court, “Such claims simply do not present the degree of fortuity contemplated by the ordinary definition of ‘accident’ or its common judicial construction in this context.” Thus, the court held that the Superior Court had erred in vacating the trial court’s finding in favor of National Union. The decision of the Superior Court was reversed, and the trial court’s decision in favor of National Union was reinstated.

Kvaerner Metals Division of Kvaerner U.S., Inc., vs. Commercial Union Insurance Company, National Union Fire Insurance Company, et al. -Supreme Court of Pennsylvania-October 25, 2006-908 Atlantic Reporter 2d 888.

Totaled Tempo triggers claim dispute

Wendy Vasconcellos was the holder of a standard Massachusetts automobile policy issued by Arbella Mutual Insurance Company. The policy provided coverage for any vehicle meeting the policy’s definition of “your auto.” “Your auto” was defined as “A. The vehicle or vehicles described on the Coverage Selections Page. B. Any auto while used as a temporary substitute for the described auto while that auto is out of normal use because of a breakdown, repair, servicing, loss or destruction. But the term ‘your auto’ does not include a substitute vehicle owned by you or your spouse. C. A private passenger auto, trailer, motorcycle, pickup truck, van or similar vehicle, to which you take title or lease as a permanent replacement for a described auto or as an additional auto. We provide coverage for an additional auto only if you ask us to insure it within seven days after you take title or the effective date of the lease.”

Vasconcellos’s “described auto” under the policy was a 1989 Ford Escort LX. However, when the Escort’s engine failed, she purchased a 1991 Ford Tempo. She transferred the license plate from the Escort to the Tempo; however, she did not transfer the registration. Four or five days later (still within the seven-day grace period), on August 25, 2001, Vasconcellos was involved in an accident. The Tempo was totaled, and Vasconcellos spent 10 days in the hospital.

Vasconcellos’s attorney contacted Arbella to make a claim for property damage to the Tempo as well as a personal injury claim for Vasconcellos’s injuries. The attorney provided Arbella’s adjuster, Jeffrey White, with a copy of the bill of sale for the Tempo as well as a statement from the seller that she had sold the Tempo to Vasconcellos. The attorney also provided Arbella with a personal injury protection application and medical bills in the amount of $19,493.67. Arbella requested a statement from Vasconcellos describing the accident, but she did not provide that statement until February 11, 2002.

On October 29, 2001, Vasconcellos’s attorney accepted an oral offer from White for the property damage to the Tempo in the amount of $2,100. He sent a letter to White confirming acceptance and obtained and paid for a duplicate certificate of title for the Tempo. The duplicate certificate was sent directly to Arbella.

In December 2001, Jeffrey White left Arbella. Vasconcellos’s personal injury protection benefits of $8,000 were issued in late February, directly to one of the medical providers. The claim for damage to the Tempo, however, was denied via a letter from Jeffrey White’s replacement, Patricia Ray.

Vasconcellos’s attorney demanded that the $8,000 check be reissued directly to Vasconcellos rather than to the service provider. Arbella complied with this request in March, after receiving a “hold harmless” letter from the attorney. Vasconcellos then sent a statutory demand letter to Arbella demanding “relief from allegedly unfair or deceptive acts or practices.” When Arbella did not respond to the letter, Vasconcellos sued Arbella in District Court. The Appellate Division of the District Court eventually found in favor of Arbella on all issues. Vasconcellos appealed.

On appeal, the key issue was whether Arbella had committed a breach of an oral contract to settle Vasconcellos’s property damage claim for $2,100. Arbella set forth three arguments as to why it did not breach the contract. First, Arbella argued that the parties did not have a “meeting of the minds” and therefore did not have a contract, because the offer was “implicitly conditioned on the existence of coverage.” It also argued that Vasconcellos had made fraudulent misrepresentations that induced Arbella to make the settlement offer. Finally, Arbella asserted that Vasconcellos did not prove it relied on the settlement to her detriment.

The Appeals Court of Massachusetts, Barnstable, disagreed with Arbella on all three arguments. Because there was nothing in the record to show that Arbella had conditioned its settlement offer on a lack of coverage, it could only be assumed that Arbella’s agent acknowledged coverage. Thus, there was a “meeting of the minds.” In addition, there was no proof that there was a misrepresentation of fact sufficient to prove fraud. The simple fact that Vasconcellos submitted a claim was not enough. Finally, the court found that Vasconcellos had indeed relied on Arbella’s settlement to her detriment. The simple fact that she abandoned her claim, along with her attorney’s action in furtherance of the settlement—securing the replacement certificate of title—was enough. Thus, the court concluded that Arbella breached its oral settlement agreement with Vasconcellos.

Vasconcellos also argued that Arbella committed “undue delay and unfair claim settlement practices” under Massachusetts law. On this issue, the court sided with Arbella. Vasconcellos took more than six months to provide a written statement, medical reports and other information requested by Arbella. When this information was finally provided, Arbella promptly produced a check. The court concluded that “in contrast to its attempted repudiation of the settlement of the collision claim, Arbella acted properly in all respects, and well within the requirements of [the law].”

The court found in favor of Vasconcellos on the issue of breach of oral contract and in favor of Arbella on the issue of undue delay and unfair claim settlement practices. The decision of the Appellate Division of the District Court was affirmed in part and reversed in part.

Vasconcellos vs. Arbella Mutual Insurance Company-No. 05-P-1493-Appeals Court of Massachusetts, Barnstable-September 6, 2006-853 North Eastern Reporter 2d 571. *

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