Table of Contents 

INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Ambiguity construed against insurer

Robert Sartno worked part time for Frankie’s Pizzeria and Restaurant. His job responsibilities included preparing food, delivering pizza, and cleaning the restaurant. He was paid $6 per hour and was allowed to keep any tips he earned when delivering pizzas. The pizzeria did not charge a fee for pizza delivery.

On February 13, 1998, Sartno was leaving the pizzeria parking lot to deliver some pizzas. He was using his personal car. Michele Hebal was walking in the parking lot with her infant daughter, Noelle. As he backed out of his parking spot, Sartno failed to see Michele and struck her with his car.

In December 2002, Michele and her husband filed a negligence action against Sartno and the pizzeria. The following June, Sartno’s insurer, Prudential Property and Casualty Insurance Company, filed a declaratory judgment action alleging that it had no duty to defend or provide coverage for Sartno. According to Prudential, the policy’s “cars for hire” exclusion applied to the case. The trial court found that the exclusion did not apply, and that Prudential had a legal obligation to enter a defense for Sartno and/or provide overage. Prudential appealed to the Superior Court.

The Superior Court reversed the trial court’s decision, reasoning that the policy language was ambiguous, then decided that in “those situations in which an insured is using his or her automobile in a “‘commercial environment’ to carry persons or property and receives money for doing so,” coverage should be excluded. The Supreme Court of Pennsylvania then accepted the case to determine whether the Superior Court’s decision was consistent with Pennsylvania case law.

The Prudential policy’s “cars for hire” exclusionary provision stated: “Cars for Hire: We will not pay for bodily injury or property damage caused by anyone using a car covered under this part to carry people or property for a fee. This does not include a car pool. But you and a resident relative are covered if either of you cause an accident while a passenger in a non-owned car for hire.” Prudential argued that because the pizzeria paid Sartno for duties that included pizza delivery, Sartno was carrying “property for a fee” when he used his own car to deliver pizza. Sartno and the pizzeria argued that Sartno was not carrying “property for a fee” because the delivery was free.

The Supreme Court found that the “cars for hire” clause was capable of at least two reasonable interpretations: (1) Sartno did not carry property for a fee because his deliveries occurred during the course of his employment for which he received wages, or (2) Sartno did not carry property for a fee because there was no delivery charge. Because the clause could be interpreted in two different ways, it was ambiguous. The court then noted that Prudential, as the author of the policy, could have been more specific by defining the word “fee” in its policy. Because Prudential chose not to be more specific, an ambiguity resulted, and the court was required to construe the policy in favor of Sartno and the pizzeria. Accordingly, the court found that the “cars for hire” exclusion did not bar coverage.

The decision of the Superior Court was reversed.

Prudential Property and Casualty Insurance Company vs. Sartno-Supreme Court of Pennsylvania-August 21, 2006-903 Atlantic Reporter 2d 1170.1.

Was assault on employee “expected”?

Cecil Reiners became an employee of Bloomington Steel & Supply Company in 1968. In 1991 he became the sole shareholder, officer, and director of the corporation. Reiners apparently had a bad temper and had previously used violence toward employees.

On October 18, 2000, Bloomington Steel was sharing a work area with an organization called Key Star. Key Star employee Jose Padilla angered Reiners by ignoring a request that he speak English rather than Spanish. Reiners responded by hitting Padilla in the head with a piece of wood, causing severe brain injury. Reiners pleaded guilty to first-degree assault.

Padilla sued Reiners and Bloomington Steel. Bloomington Steel had a commercial liability insurance policy with Travelers Indemnity Company and an umbrella liability policy with Charter Oak Fire Insurance Company, a unit of Travelers. Travelers defended Bloomington Steel but did so under a reservation of rights. When the court in the Padilla lawsuit found in favor of Padilla, Travelers brought a declaratory judgment action seeking the court’s determination that it owed Bloomington Steel no duty to defend or indemnify it.

The insurance policies excluded coverage for bodily injury “expected or intended from the standpoint of the insured.” The named insured was Bloomington Steel. The lower court found that coverage for Padilla’s injuries was barred by this exclusion. The court of appeals affirmed. Padilla then petitioned the Supreme Court for further review. The court granted the petition. The issue was whether Padilla’s injuries were expected or intended from the standpoint of Bloomington Steel.

Travelers argued that because Reiners was the sole shareholder, director, and officer of the company, his control was so complete that the intent and expectation must be imputed to the corporation. The Supreme Court of Minnesota disagreed. It stressed that the Travelers policy (as well as the Charter Oak policy) contained a “separation of insureds” clause which provided in relevant part: “[T]his insurance applies: [(1)] As if each Named Insured were the only Named Insured; and [(2)] Separately to each insured against whom claim is made or ‘suit’ is brought.” According to the court, the effect of this clause was to require that coverage exclusions be construed only with reference to the particular insured seeking the coverage. Because Bloomington Steel was the party seeking coverage, the exclusion was limited to bodily injury expected or intended by Bloomington Steel itself. The court stressed that Travelers could have drafted its policy to make it clear that it was not insuring Bloomington Steel for the risk of an intentional act committed by Reiners. Because it chose not to do so, the policy language did not require that Reiners’ intent be automatically imputed to the corporation.

Travelers also argued that general corporate legal principles created an exclusion from coverage not found within the insurance policy itself. According to Travelers, “a corporation is charged with constructive knowledge … of all material facts of which its officer or agent … acquires knowledge while acting in the course of employment within the scope of his or her authority.” The court rejected this argument as well, again stressing the language of the insurance policy. However, because there was no admissible evidence of Reiners’ history of violence on the record, the court expressed no opinion as to whether Bloomington Steel expected the assault or whether it was negligent in its retention or supervision of Reiners.

Finally, Travelers argued that Reiners should not be allowed “to hide behind a corporate form to protect himself from the economic consequences of his violent assault.” The court acknowledged the legitimacy of this concern but concluded it was not a reason to override the terms of an insurance policy.

The court concluded that Reiners’ intent could not be automatically imputed to Bloomington Steel, but reversed and remanded the case for a determination on unresolved factual issues.

Travelers Indemnity Company vs. Bloomington Steel & Supply Company-No. A04-1713-Supreme Court of Minnesota-August 3, 2006-718 North Western Reporter 2d 888.

Snowmobile accident on vacant land

Gregory Jablonske was a land developer who owned a residential housing development company called Greg J. Homes, Inc. In the early 1990s, Jablonske purchased a plot of land he called “South Oaks.” He planned to develop South Oaks but did not do so immediately. Instead, he leased the land to the Bauer family, who farmed the property until the fall of 2001. South Oaks was rented for $2,000 per year, and the Jablonskes claimed this payment as income on their personal income tax returns.

Jablonske had a homeowners policy issued by Metropolitan Property and Casualty Insurance Company. The policy covered the South Oaks property, subject to certain exclusions. One excluded coverage for “accidents happening on [Jablonske’s] business premises,” specifically for “liability or claims connected with any business profession or occupation.” Another exclusion stated that coverage would not apply for claims that arose from “accidents or incidents on [Jablonske’s] business premises.” Yet another clause stated that coverage for incidents in connection with vacant land was provided so long as the land was not used for farming or ranching.

Adjacent to the South Oaks property was a parcel of land called Century South. This parcel was being developed into a residential housing development by a company called Lyman Construction. As part of this development, it was necessary to construct a sanitary sewer and water connection, as well as a storm sewer outlet. These improvements affected the South Oaks property as well as Century South, and Jablonske understood they would benefit his South Oaks development project as well. Jablonske granted several easements and a right of entry permit for South Oaks as part of the process.

On January 14, 2002, Joseph Senko was injured while snowmobiling on the South Oaks property when he struck a ditch constructed as part of the storm sewer outlet. Senko sued Jablonske as well as other organizations involved in the construction of the storm sewer. Jablonske tendered the issue to his business insurer, State Farm Insurance Company, and to Metropolitan. Initially, both insurance companies accepted defense of the claim, but State Farm later denied coverage and withdrew its defense. Metropolitan continued its defense but filed a declaratory judgement action to determine its obligations.

In the declaratory judgment action, the lower court found that there was no coverage under the Metropolitan policy because the business activities and farming exclusions applied. The Senkos, standing in the shoes of Jablonske, appealed.

The Senkos argued that there was a distinction between a “business” exclusion and a “business pursuits” exclusion, and that a “business” exclusion should be interpreted narrowly. According to the Senkos, the Metropolitan policy had a “business” exclusion. Interpreting the exclusion narrowly, the Senkos argued, their claims were not connected to Jablonske’s business; thus, they were not excluded.

The Court of Appeals of Minnesota disagreed. It found that under Minnesota law there was no distinction between a “business” exclusion and a “business pursuits” exclusion. According to the court, the key question was whether the liability-causing conduct (the dangerous, unmarked ditch) was “connected with [Jablonske’s] business, profession, or occupation.” The court agreed with the lower court’s finding that the conduct was, in fact, related to Jablonske’s business and that the exclusion applied.

The Senkos also argued that the “business premises” exclusion did not exclude coverage because South Oaks was not used in a business or rented for profit. Again, the court disagreed. It found that the construction of the storm sewers, sewers, and water lines were essential elements of the development of the property, and that the process to develop South Oaks had begun long before the accident. Thus, South Oaks constituted a “business premises” within the meaning of the policy, and the exclusion applied.

The court also agreed with the lower court’s findings that the farming exclusion applied. According to the court, until the fall of 2001, the customary use of the land was for farming. The fact that Jablonske did not rent it for farming purposes after that time did not “suddenly transform the land into vacant land.” The land still showed evidence of farming and was farming land in January of 2002. Thus, the farming exclusion applied.

The court concluded that the lower court correctly found that there was no liability coverage under the Metropolitan policy, and the decision of the lower court was affirmed.

Metropolitan Property and Casualty Insurance Company vs. Jablonske-No. A05-2541-Court of Appeals of Minnesota-October 3, 2006-722 North Western Reporter 2d 319. *

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