INSURANCE-RELATED COURT CASES
Court Decisions
Digested from case reports published in Westlaw,
West Publishing Co., St. Paul, MN
Agent sues for termination pay
On February 5, 1974, Gerald Reisbeck entered into an “Appointment Agreement” governing his employment as a district manager for several insurance companies, including Farmers Insurance Exchange (Companies). Pursuant to the agreement, Reisbeck was paid an override commission on all business produced by the companies’ agents. An addendum to the agreement provided that the Companies would retain $1,610 per month from Reisbeck’s override amount. There was no explanation in the agreement as to why the money was retained or what it was to be used for.
On November 9, 1999, the Companies informed Reisbeck that he was to be terminated effective December 11, 1999. They offered to pay him seven times his last six months’ override, which amounted to $836,222.73; however, they did not pay him the funds they had retained during the term of his employment. Reisbeck claimed that the Companies breached the agreement by not reimbursing him this retained amount, which he calculated as $495,880. He filed a lawsuit, alleging breach of the written agreement as well as oral representations. He also asserted negligence, emotional distress, and breach of the covenant of good faith and fair dealing.
The lower court found in favor of the Companies, concluding that the agreement contained express provisions governing termination pay, and that those provisions did not provide for reimbursement of retained funds. The court found that the agreement was unambiguous, and it would not consider any other evidence outside of the agreement itself. Furthermore, because the agreement expressly required modifications to be made in writing, and no modification had in fact been made, the court would not consider Reisbeck’s argument that the Companies made subsequent oral representations concerning the retained amounts. Reisbeck appealed.
On appeal, Reisbeck argued that the court should have considered evidence supporting his claim that the Companies made verbal representations concerning the retained funds after the original agreement was executed. He claimed that the agreement was ambiguous concerning the retained funds because, while it did not indicate that the funds would be returned to him, it also did not indicate that the funds would not be returned to him. According to Reisbeck, returning retained funds in these circumstances was “custom, practice, and [his] expectation,” and he should have been allowed to present evidence supporting this argument.
The Supreme Court of Montana was not convinced by Reisbeck’s arguments. It found that the agreement provided a “precise formula for calculating the monies to be paid to Reisbeck upon termination, and [that] that formula [did] not contemplate or even mention the inclusion of any retained funds.” The court further noted: “If the Agreement’s failure to explain the purpose and the ultimate disposition of these funds was a cause of concern to Reisbeck, he should have addressed it when the Agreement was made, or sought written modification at some point over the life of the contract.” Thus, the terms of the agreement prevailed, and Reisbeck was not entitled to provide additional evidence of oral representations.
The decision of the lower court was affirmed.
Reisbeck vs. Farmers Insurance Exchange-No. DA 06-0234-Supreme Court of Montana-July 17, 2007-163 Pacific Reporter 3d 1289.
Did faulty generator service cause house fire?
Anthony and Debra Adams owned a home in the Biltmore Forest section of Asheville, North Carolina. On August 9, 2004, they hired Genelect Services, Inc., to service their home generator. Genelect’s service technician performed the work and completed a standard service report. The report indicated that the generator was in good working order.
Between August 9 and September 18, 2004, two hurricanes hit the Asheville area: Hurricane Frances and Hurricane Ivan. During that time, the generator operated sporadically until September 16, 2004, when it began running more or less continuously. On September 18, fire broke out near the generator, causing more than $400,000 worth of damage to the home. The Adamses filed a claim with their homeowners insurer, Peerless Insurance Company. Peerless paid the claim and then, as subrogee of the Adamses, sued Genelect. According to Peerless, the fire was caused by Genelect’s negligence because the generator had been improperly serviced. After hearing the evidence, the trial court found in favor of Genelect. Peerless appealed.
On appeal, the Court of Appeals of North Carolina reviewed the evidence and found there was not enough evidence to prove that Genelect had created the condition that caused the fire. The fire inspector testified that the extension pipe connected to the exhaust pipe was facing the ground and buried in about 2 inches of mulch. (The Genelect service technician had indicated that the pipe should typically be at a 45-degree angle.) Another generator inspector, hired by Peerless, observed the same condition as the fire inspector; however, he could not conclude that the condition caused the fire.
The court noted that after the Genelect technician serviced the generator there had been “two hurricanes, torrential rainfalls, fire hoses with high water pressure, firemen crawling through the window above the generator, and the fire itself.” According to the court, there were so many other possible causes of the unsafe condition that there was not enough evidence to conclude that negligent maintenance occurred. The court concluded: “The discovery of an exhaust pipe pointed directly at the mulch is not evidence of poor maintenance any more than it is of being displaced due to the force of the storm or the actions of the firemen.”
The decision of the lower court in favor of Genelect was affirmed.
Peerless Insurance Company vs. Genelect Services, Inc.-No. COA06-1369-Court of Appeals of North Carolina-November 6, 2007-651 South Eastern Reporter 2d 896.
Is emotional distress “bodily injury”?
On May 23, 2001, 14-year-old Joshua Hobbs was riding his bicycle when he was struck by and dragged under a vehicle driven by Helen Goldey. Joshua’s mother, Jelana Hobbs D’Angelo, arrived at the scene of the accident and attempted to lift the vehicle off her son. Emergency personnel tried to free Joshua from the wreckage as well. Joshua’s injuries were serious, and he eventually died. As a result of the accident, D’Angelo suffered emotional distress that manifested itself in uncontrollable crying, loss of appetite, sleeplessness and inability to concentrate. She did not seek medical treatment for her symptoms.
Goldey was found to be at fault in the accident. Her Shelter Mutual Insurance Company automobile policy had personal injury limits of $25,000 per person and $50,000 per accident. D’Angelo’s automobile insurer, State Farm Mutual Automobile Insurance Company, authorized her to settle with Goldey. D’Angelo settled with Goldey and received $25,000 from Shelter for Joshua’s wrongful death and $25,000 for a claim of negligent infliction of emotional distress.
D’Angelo’s policy with State Farm provided liability limits for underinsured motorist coverage in the amount of $100,000 per person and $300,000 per accident. “Bodily injury” was defined as: “bodily injury to a person and sickness, disease or death which results from it.” In addition, the policy provided that State Farm would “pay damages for bodily injury an insured is legally entitled to collect from the owner or driver of an underinsured motor vehicle. The bodily injury must be sustained by an insured and caused by accident arising out of the operation, maintenance or use of an underinsured motor vehicle.”
D’Angelo filed a claim under her State Farm policy for underinsured motorist coverage for Joshua’s wrongful death and for her emotional distress. The insurer agreed to pay $75,000 in settlement of the wrongful death claim, but it denied the claim for emotional distress “on the basis that her claim arose from the bodily injury of Joshua and that [D’Angelo] had not suffered a separate bodily injury independent of the bodily injury suffered by Joshua.” D’Angelo then filed a legal action against State Farm, arguing that she was “entitled to recover the proceeds of the underinsured motor vehicle coverage” contained in State Farm’s policy. She argued that negligent infliction of emotional distress qualified as a “bodily injury” under the State Farm policy and was therefore covered under the policy.
State Farm acknowledged that negligent infliction of emotional distress was a covered loss under its underinsured motorist policy. However, it argued that D’Angelo’s claim did not constitute an “independent ‘bodily injury.’” According to State Farm, the claim was “included in Joshua’s ‘per person’ limits for the ‘bodily injury.’ ” The trial court found in favor of D’Angelo; State Farm appealed.
On appeal, the Indiana Court of Appeals held in favor of State Farm, concluding that D’Angelo’s claim for emotional distress did not qualify as an independent bodily injury pursuant to State Farm’s policy. According to the court, D’Angelo’s claim for emotional distress arose from the fact that she witnessed Joshua’s injuries. Her damages resulted from Joshua’s bodily injury, and her claim therefore was subject to the $100,000 limit applicable to Joshua’s injuries. Furthermore, the limit of $300,000 per accident did not apply to D’Angelo because the “Each Accident” coverage applied only to people who were actually involved in the accident at issue. In this case, D’Angelo came upon the scene after the accident and was not in the accident. Therefore, coverage under the limits for “Each Accident” was not available for D’Angelo.
The decision of the trial court was reversed, and the case was remanded to the lower court.
State Farm Mutual Automobile Insurance Company vs. D’Angelo-No. 73A04-0612-CV-703-Court of Appeals of Indiana-November 9, 2007-875 North Eastern Reporter 2d 789.
Was storage tank settlement “reasonable”?
In 1996, William and Karyl Martin purchased a home from H.E. Sherry Johnson. In the 1970s, Johnson had converted the home’s heating system from oil to electric. She did not, however, remove the home’s underground storage tank, and in 1994 the tank began leaking oil. When Johnson sold the house to the Martins, she completed a disclosure statement and stated that she was unaware of any underground storage tanks. The Martins’ home inspector did not discover the tank.
When the Martins sold the home in 2004, the buyer discovered the storage tank and required its removal as a condition of the purchase. The cost of removing the tank and cleaning the contaminated soil and groundwater was $61,415.63. The Martins filed an action against Johnson’s estate (Johnson died after discovery of the tank but before the Martins filed their claim), claiming that Johnson was liable for the costs of the cleanup and that she negligently failed to remove the tank or warn the Martins of its existence.
Metropolitan Property & Casualty Insurance Company was Johnson’s homeowners insurer while Johnson owned the home. Metropolitan agreed to defend the estate in the Martin lawsuit; however, it reserved its right to contest coverage. The parties eventually settled for $81,928.63, representing the Martins’ cost of cleanup and attorney fees; however, the settlement was contingent upon whether or not a court found the settlement to be reasonable. Metropolitan then filed a declaratory judgment action asking the court to declare that it was not obligated to provide coverage for the Martins’ claim against the estate. The estate asked the court to find that the settlement was reasonable, and Metropolitan intervened. The lower court found in favor of the estate; Metropolitan appealed.
On appeal, Metropolitan first tried to argue that the court should not have decided on the issue of reasonableness of the settlement at all. It raised several arguments in support of its theory, including an argument that the Martins were required to wait for a formal finding of bad faith before they could negotiate a settlement. The Court of Appeals of Washington, Division 2, disagreed with the insurer, and found that the trial court did not err in deciding on the issue of reasonableness of the settlement. According to the court, Metropolitan had informed the estate that it was denying coverage, so it was aware that it could be facing liability. It was in the estate’s best interest to negotiate a settlement, and there was no reason to allow Metropolitan to keep it from pursuing this opportunity.
Martin vs. Johnson-No. 35322-9-II-Court of Appeals of Washington, Division 2-November 6, 2007-170 Pacific Reporter 3d 1198.
Insurers challenge doctors’ “prompt pay” suit
A medical doctor and a chiropractic group filed a lawsuit against 10 automobile casualty insurance companies alleging that they had failed to promptly pay the plaintiffs for medical services provided to patients who carried their insurance. Specifically, the doctors alleged that the insurance companies had violated the state of Nevada’s “prompt pay” statute. They sought a determination that they had a private right of action to recover individual and class damages for this violation. They also sought injunctive relief and claimed rights to recover damages under theories of negligence and unjust enrichment.
The insurance companies claimed that the doctors had no private right of action under the “prompt pay” statute to bring suit in district court. They also argued that patient claims under the statute could not be assigned to the doctors and that even if the claims could be assigned, there was no proof that the claims actually had been assigned.
The district court found that the doctors could bring suit under the statute. However, the court also required the doctors to seek relief through the Nevada Insurance Commissioner before filing a district court action. The insurance companies appealed.
On appeal, the insurance companies asserted that the Nevada Division of Insurance had exclusive jurisdiction over “prompt pay” statutory claims, and that the district court should not have heard the lawsuit in the first place. The Supreme Court of Nevada stated that the Insurance Division not only had the authority to conduct a hearing in accordance with the relevant statutes, it also had the authority to assess penalties to enforce the code and deter future violations. The court concluded that given the NDOI’s exclusive original jurisdiction over this matter, the district court erred in granting declaratory relief and finding a private right of action in favor of the doctors under the “prompt pay” statute.
The court affirmed the district court’s order to the extent that it concluded that the doctors must first exhaust their administrative remedies. It reversed the district court’s order granting the doctors a private right of action under the “prompt pay” statute.
Allstate Insurance Company vs. Thorpe-No. 44467-Supreme Court of Nevada-November 21, 2007-170 Pacific Reporter 3d 989.
Bad butter flavoring spurs claim dispute
On September 7, 2001, 30 current and former employees of Gilster Mary Lee Corporation, a microwave popcorn packaging plant in Jasper County, Missouri, filed a class action lawsuit against International Flavors & Fragrances, Inc., and Bush Boake Allen, Inc., alleging that the companies manufactured and sold butter flavoring containing diacetyl and other volatile organic compounds that caused respiratory system injuries. At least 18 separate shipments of this butter flavoring were sent to the Jasper plant from 1992 through 1996.
International Flavors and Bush Boake filed a declaratory judgment action against their insurers, including American Home Assurance Company and National Union Fire Insurance Company, members of the American International Group (AIG), asking the court to find that the insurers had a duty to defend and indemnify them under various commercial general liability policies.
In dispute was the application of deductibles or self-insured retentions (SIRs) in the amount of $100,000 or $50,000 for each “occurrence,” which is uniformly defined in all of the policies as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The first two policies, issued by National Union in 1991 and 1992, apparently provided that a self-insured retention was to be applied on a per-claim basis, which would require application of the deductible to each of the 30 injured workers’ claims. The remainder of the policies, issued on or after May 1, 1993, and affording coverage through May 1, 1999, provide that a “per-occurrence” deductible applies “[t]o all damages because of ‘bodily injury’ or … ‘property damage’ as the result of any one ‘occurrence,’ regardless of the number of persons or organizations who sustain damages because of that ‘occurrence.’ ”
The insurers filed a motion for summary judgment, asking the court to declare that each of the personal injury claims constituted a separate occurrence, therefore requiring a separate deductible or self-insured retention (ranging from $50,000 to $100,000) for each claim. The court found in favor of the insurers. International Flavors and Bush Boake appealed.
On appeal, the Supreme Court, Appellate Division, First Department, New York, noted that the policies issued by AIG all provided that “the deductible applies … [t]o ‘bodily injury’ as the result of any one ‘occurrence’ … regardless of the number of persons or organizations who sustain damages because of that ‘occurrence.’ ” The court went on to state: “While the language of the policies’ deductible provision makes it clear that it is to be applied without regard to the number of persons injured, the definition of ‘occurrence’ does not require the conclusion that the exposure of multiple individuals ‘to substantially the same general harmful conditions’ constitutes a single event for the purpose of applying the deductible.” Here, there was no single incident that could be identified as the event resulting in injuries to multiple employees. If the parties, which were all sophisticated businesses, wanted to combine all claims resulting from exposure, they could have changed the definition of “occurrence” or they could have inserted a specific aggregation provision into the insurance agreements.
The decision of the lower court in favor of the insurers was affirmed.
International Flavors & Fragrances vs. Royal Insurance Company of America-Supreme Court, Appellate Division, First Department, New York-October 30, 2007-844 New York Supplement 2d 257.