Table of Contents 

INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Failure to transfer title triggers coverage dispute

Theresa Dassinger owned a 1993 Mazda automobile that she insured with State Farm Mutual Automobile Insurance Company. In March 2003, Dassinger gave the car to her son, Timothy. However, she never transferred the title. The State Farm policy was in effect at that time, with an expiration date of August 31, 2003.

On March 17, 2003, Progressive American Insurance Company issued an automobile policy covering the Mazda to Timothy and his then girlfriend, Tami Phillips. The Progressive policy was in effect for six months. The terms of the State Farm and Progressive policies were virtually identical. They both had bodily injury and property damage liability coverage with limits of $100,000 per person and $300,000 per accident. They both had collision coverage as well.

On May 8, Tami Phillips was driving the Mazda when she was involved in an accident with James Stokely. Stokely was injured, his vehicle was damaged, and there was damage to the Mazda. After they learned of the accident, State Farm and Progressive agreed informally to share responsibility for the claims.

Pursuant to the agreement between Progressive and State Farm, Progressive paid $3,201.25 for collision damage to the Mazda as well as Timothy’s $240 in car rental costs. It also paid $3,792.81 to the owner of the Stokely vehicle for damage to the vehicle. State Farm paid Progressive $1,896.41, one-half of the amount paid to the owner of the Stokely vehicle. Timothy paid the $250 deductible. After fulfilling its obligations under the agreement, Progressive learned that Theresa Dassinger had never transferred the title to the Mazda.

On March 22, 2005, Progressive filed a lawsuit against State Farm seeking $7,484.06 in restitution costs. It also asked the court to declare that Theresa was the owner of the Mazda at the time of the accident, that the State Farm policy provided primary coverage for all claims arising out of the accident, and that the Progressive policy provided excess coverage for all claims arising out of the accident. State Farm sought a declaration that the Progressive policy provided primary coverage, or that it at least shared a pro rata obligation. State Farm also asked the court to declare that the State Farm policy provided excess coverage.

The trial court found that only the Progressive policy provided liability and collision coverage for the Mazda at the time of the accident. Accordingly, it ordered Progressive to repay the amount State Farm had paid Progressive pursuant to the agreement. Progressive appealed.

The Court of Appeals of North Carolina reversed the decision of the lower court. While it did agree with the lower court that Theresa, not Timothy, owned the car at the time of the accident, it found that Theresa’s State Farm policy did not automatically terminate at the time the Progressive policy was issued. The State Farm policy contained an automatic termination clause that provided: “If you obtain other insurance on your covered auto, any similar insurance provided by this policy will terminate as to that auto on the effective date of the other insurance.”

“You” was defined as the “named insured” shown in the declarations. “Your covered auto” was defined as “any vehicle shown in the declarations.” The court reasoned that because the State Farm policy and the Progressive policy were procured by different persons, the State Farm policy did not automatically terminate on March 17, 2003.

With regard to liability coverage, both the State Farm and Progressive policies contained the following “Other Insurance” clauses: “If there is other applicable liability insurance we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits. However, any insurance we provide for a vehicle you do not own shall be excess over any other collectible insurance.”

Because Timothy did not own the Mazda at the time of the accident, Progressive’s liability coverage was excess. The State Farm policy was “other collectible insurance.” Therefore the State Farm policy provided primary liability coverage, and the Progressive policy’s liability coverage was excess.

With regard to collision coverage, both insurers agreed to “pay for direct and accidental loss to your covered auto or any non-owned auto, including their equipment.” Both policies also contained “Other Insurance” clauses that provided: “If other insurance also covers the loss we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits. However, any insurance we provide with respect to a non-owned auto shall be excess over any other collectible insurance.”

“Non-owned auto” was defined in relevant part as a vehicle “owned by or furnished or available for the regular use of you or any family member while in the custody of or being operated by you or any family member.” Under this definition, the Mazda was not a “non-owned auto.” Thus, the court found that State Farm and Progressive were to share pro rata the cost of damages to the Mazda.

The court concluded that the amounts paid by Progressive were paid under the mistaken belief that Timothy owned the Mazda. The State Farm policy provided primary liability coverage, and the Progressive policy provided excess liability coverage. Both policies provided collision coverage. Progressive was entitled to restitution for payments made that were not owed under the Progressive policy.

The judgment of the trial court was reversed, and the case was remanded.

Progressive American Insurance Company vs. State Farm Mutual Automobile Insurance Company-No. COA06-1032-Court of Appeals of North Carolina-July 17, 2007-647 South Eastern Reporter 2d 111.

Coach Knight demands HO coverage for shoving aide

This case involves a dispute between basketball coaches Robert (Bobby) Knight and Ronald Felling. Knight was the head basketball coach at Indiana University, and Felling was an assistant basketball coach. In December 1999, the two coaches were arguing in an office in Assembly Hall at Indiana University. Felling moved to leave the office and Knight jumped up and made physical contact with him, causing him to fall into a television set. Knight described the contact as a “bump.” Felling eventually filed a lawsuit against Knight in the United States Southern District Court of Indiana.

At the time of the dispute, Knight had a homeowners policy with Indiana Insurance Company. In October 2002, Knight notified Indiana Insurance of the Felling lawsuit. The insurer sent a reservation of rights letter to Knight referencing several provisions of the policy and informing Knight that there might not be “bodily injury” or “property damage” caused by an “occurrence” as defined by the policy. On August 26, 2002, the insurer issued a letter denying coverage for the Felling lawsuit, citing the “business exclusion” and the “other exclusions” cited in the reservation of rights letter. On August 30, 2002, the Felling lawsuit was settled; Knight paid $25,000 to Felling and admitted that he shoved Felling in anger.

Knight filed a complaint seeking indemnification from Indiana Insurance and his employer, Indiana University. While the claim against the university was pending, the trial court found in favor of Indiana Insurance. Knight appealed this decision.

The Indiana Insurance policy provided coverage for an “occurrence” that results in “bodily injury” or “property damage.” “Bodily injury” was defined as “personal injury” or “bodily harm, sickness, or disease, including required care, loss of services and death that results.” “Personal injury” was defined as an injury arising out of “false arrest, detention or imprisonment, malicious prosecution, wrongful entry or eviction, libel, slander, defamation of character or invasion of privacy.” The Court of Appeals of Indiana found that, given these definitions, there was no “occurrence” of “bodily injury” as defined in the policy. Knight’s admitted conduct was a “tort” covered by tort law but broader than conduct protected by the policy.

Furthermore, the policy excluded injury or damage “arising out of or in connection with a business engaged in by an insured.” “Business” was defined to include “trade, profession or occupation.” The court agreed with the trial court that this exclusion applied because the incident arose out of Knight’s profession as a basketball coach.

Knight argued that even if Indiana Insurance was not obligated to indemnify him, it was required to investigate and defend him in the Felling lawsuit. Again, the court disagreed. While it acknowledged that an insurer’s duty to defend is broader than its duty to indemnify, it found that the insurer was justified in refusing to defend Knight. Before denying coverage, it interviewed Knight and concluded that the incident was a workplace incident that resulted in no bodily injury. According to the court, “a reasonable claims manager would be able to discern the lack of contractual obligation at that juncture.” Therefore, Indiana Insurance did not breach its duty to reasonably investigate and defend Knight in the Felling lawsuit.

The court found in favor of Indiana Insurance, and the decision of the lower court was affirmed.

Knight vs. Indiana Insurance Company-No. 49A05-0608-CV-416-Court of Appeals of Indiana-August 8, 2007-871 North Eastern Reporter 2d 357.

Was policy in effect at time of accident?

On February 20, 1999, Audie Dominique Jr. and Shanna Warren were traveling in Warren’s car on Louisiana Highway 45 when they were struck by a vehicle owned and operated by Anielka Rodriguez. The following November, Dominique filed a lawsuit against Rodriguez and her insurer, Allstate Insurance Company. He later added Warren as a defendant along with her liability insurer, National Automotive Insurance Company. Warren filed a cross-claim against Rodriguez and Allstate for damages to her vehicle. Eventually, Dominique’s claims against Warren, National Automotive, and Rodriguez were dismissed. Warren also dismissed her cross-claim against Rodriguez. Allstate, the only remaining defendant, filed a motion for summary judgment on October 24, 2003. According to Allstate, Rodriguez’s Allstate policy was not in effect on the date of the accident.

During the trial, Allstate agent Carrell Devillier testified that Rodriguez had purchased liability insurance from Allstate with a term beginning August 4, 1998, and terminating February 4, 1999. According to Devillier, at the end of the term, when he contacted Rodriguez regarding renewal of the policy, she told him she would not be renewing the policy because it was too expensive.

Allstate agent Thomas Burlette testified as follows: Rodriguez visited the Allstate office on February 22, 1999, two days after the accident, and asked to make payment on her policy. When Burlette informed her that her policy had expired, she admitted the discussion she had with Devillier but claimed she had changed her mind. Burlette explained that the policy could not be renewed because it was not reinstated within seven days of its expiration. Rodriguez applied for and purchased a new policy.

Rodriguez testified that she believed she had insurance on the day of the accident. According to Rodriguez, she mailed her renewal payment on February 2, but it was returned to her with an “insufficient address” notification. She denied the discussion with Devillier, and she claimed that she did not know her renewal check had not been posted until she reported the accident.

The trial court found that according to the policy, Allstate could cancel the policy for nonpayment of premium, but the date of cancellation had to be at least 10 days after the date of mailing the notice of cancellation. The court noted that when preparing the notice of cancellation for mailing, the Allstate agent copied the wrong address on the paperwork. He copied Rodriguez’s address as “West Pork Court” instead of “West Park Court.” In addition, the letter was not dated.

Considering all this evidence, the trial court found that Allstate did not prove there was no policy in effect. It awarded $12,467.29 in damages to Dominique and $600 to Warren. Allstate filed a motion for a new trial. That motion was denied; Allstate appealed.

The Court of Appeal of Louisiana, Fifth Circuit, found the trial court’s reasoning and analysis to be flawed. First, it held that the cancellation provisions of the Allstate policy did not apply to the case. According to the court, there was no evidence that Allstate attempted to cancel the policy prior to its natural expiration on its own terms on February 4, 1999. According to the court, “When a policy expires from the running of its term, it is not being disrupted, but instead it is dying a natural death.”

The case involved the renewal of a policy, not a cancellation, because there was no evidence that the policy was being disrupted or terminated prior to February 4. Under Louisiana law, if the insurer has clearly manifested its willingness to renew the policy, and the insured does not renew within the time period allowed, the insurer is not required to renew a policy or give notice of its intention not to renew. Thus, the fact the Allstate agent copied the wrong address was irrelevant because no notice was required.

The Allstate policy stated: “If we offer to renew your policy and your required premium payment isn’t received on or before the end of the then current policy period, your policy will terminate on the expiration date of the then current policy period.” According to the court, Allstate manifested its willingness to renew Rodriguez’s policy. The evidence showed that the premium was not received on or before the end of the policy period. Thus, Rodriguez’s policy expired on February 4, 1999.

The judgment of the trial court in favor of Dominique was reversed.

Dominique vs. Rodriguez-No. 06-CA-578-Court of Appeal of Louisiana, Fifth Circuit-November 28, 2006-947 Southern Reporter 2d 63.

Declaratory judgment action triggers attorney fee dispute

Robert Levesque was a defendant in a personal injury cause of action. His insurer, Foremost Insurance Company, hired an attorney to defend Levesque, but under a reservation of rights. While the lawsuit was still pending, Foremost filed a declaratory judgment action seeking a declaration regarding both its duty to defend and its duty to indemnify Levesque. Foremost advised Levesque to hire an attorney to defend him in the declaratory judgment action, which Levesque did. The court found in favor of Levesque in the declaratory judgment action; Levesque then asked the court for reimbursement of his attorney fees. The judge ordered Foremost to pay the fees; Foremost appealed that decision.

On appeal, the Supreme Judicial Court of Maine stated that the general rule (the so-called American Rule) is that parties in a breach of contract action are responsible for their own attorney fees absent a statutory or contractual provision to the contrary. However, the court noted that there is a special relationship between insurer and insured, and that there is a “heavy burden that can fall on an insured when the insurer unsuccessfully forces the insured to defend a declaratory judgment action.”

According to the court, there were several factors that put Levesque at an unfair disadvantage. First, had Levesque not hired an attorney to defend him in the declaratory judgment action, Foremost would have prevailed through a default judgment. Second, the declaratory judgment action was brought before judgment in the personal injury lawsuit and had the effect of essentially stopping the personal injury lawsuit until the declaratory judgment action was resolved. Third, Levesque lost the “benefit of his bargain” when he had to pay an attorney to defend him against his insurer. For these reasons, the court decided to join the minority of jurisdictions that allow attorney fees when an insured defends a declaratory judgment action brought on by the insurer.

Because Levesque hired his own attorney to defend him against Foremost in the declaratory judgment action, the lower court properly awarded him attorney fees. The decision of the lower court was affirmed.

Foremost Insurance Company vs. Levesque-Docket No. CUM-06-396-Supreme Judicial Court of Maine-July 26, 2007-926 Atlantic Reporter 2d 1185. *

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