INSURANCE-RELATED COURT CASES

Court Decisions

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

Did auto body shop’s policy cover borrowed motorcycle?

On March 30, 1998, James Christian went to Stanley’s Auto Body, Inc., to work on his girlfriend’s automobile. Christian’s friend, Michael Wilkowski, a Stanley’s shareholder, allowed Christian to use the body shop on a regular basis to work on his personal vehicle. On that day, Wilkowski let Christian borrow his personal motorcycle so that he could get a car part from an auto parts store. Before Christian left the premises, Wilkowski attached a motorcycle dealer or repairer’s license plate to the motorcycle. While running his errand, Christian and his girlfriend were involved in a serious accident with John Bly Jr. Bly was later found to be at fault.

Christian reached a settlement with Bly, then brought an uninsured motorist action against One Beacon Insurance, Stanley’s Auto Body, Inc.’s, insurance provider at the time of the accident. One Beacon filed a declaratory judgment action to determine whether it had an obligation to provide coverage. The court found that One Beacon was not obligated to provide coverage because the motorcycle was owned by Wilkowski personally and because the license plate number was not included in the policy’s schedule of covered autos.

Christian then filed an action against Stanley’s previous insurer, Harleysville Worcester Insurance Company, seeking uninsured motorist coverage. Christian claimed that a policy issued to Stanley by Harleysville in February 1995 was still in effect on the date of the accident. Specifically, Christian argued that the special financial responsibility insurance certificate filed with the department of motor vehicles, which stated that “this certificate is effective from February 1, 1995, and continues in effect until ten days after written notice to the department of the cancellation or the termination of the policy and renewals,” operated to keep the policy in effect in “perpetuity” until the department received notice that the policy had been terminated. In addition, Christian argued that because Wilkowski was a shareholder of Stanley’s, and it was Wilkowski who put the license plate on the motorcycle, the Harleysville policy covered the accident.

The lower court found in favor of Harleysville; Christian appealed, using essentially the same arguments. In addition, Christian argued that the policy and endorsements were ambiguous and were subject to numerous interpretations, including a reading that the motorcycle with the dealer license plate was covered.

The Harleysville policy listed five license plates under “Schedule of Covered Autos You Own.” Three plates matched specific vehicles: a 1985 Chevrolet Corvette, a 1985 Ford pickup and a 1987 Buick Grand Prix. Two of the plates were dealer plates for private passenger automobiles listed as DA 375 and DB 375. No motorcycle dealer plates were listed. In addition, the “Connecticut Uninsured and Underinsured Motorists Coverage” endorsement stated: “B. WHO IS AN INSURED: 1. You, 2. If you are an individual, any ‘family member’, 3. Anyone else ‘occupying’ a covered ‘auto’ or a temporary substitute for a covered ‘auto’. The covered ‘auto’ must be out of service because of its breakdown, repair, servicing, loss or destruction.” The “Connecticut Dealer or Repairer Plates Coverage” endorsement provided: “B. Any ‘auto’ you operate while used with plates described in this endorsement is a covered ‘auto’, but only while: 1. Used in your garage business, 2. Used by you or your full-time employees in personal affairs, or 3. Loaned to a customer: a. For demonstration; b. While an ‘auto’ he or she owns is left with you for service or repair …”

Christian argued that because the dealer plate that was placed on his motorcycle was issued to Stanley’s after the Harleysville policy was issued, the plate was covered under the policy. He also argued that “[i]f the vehicle, or in this case, license plate, owned by the insured is required to carry uninsured motorists coverage, it is deemed to be covered under the terms of the policy. Connecticut law mandates that all motor vehicles must carry uninsured motorists coverage.”

The Appellate Court of Connecticut disagreed with Christian. It found that the policy was not ambiguous and that the fact that the policy covered only automobiles was consistent with the fact that Stanley’s was exclusively a body shop for automobiles. The court also disagreed with Christian’s argument that the plate was covered under the policy because all automobiles in Connecticut must have uninsured motor vehicle coverage, stating that the statutory definition of “motor vehicle” did not equate to a dealer “plate.” Finally, the court noted that if anyone was required to provide insurance, it was Wilkowski because the motorcycle belonged to him. In short, the motorcycle was not within the insurer’s expectations of the type of risk to be covered by the policy, nor was it covered by the terms of the policy.

The decision of the lower court in favor of Harleysville was affirmed.

Christian vs. Harleysville Worcester Insurance Inc.-No 27913-Appellate Court of Connecticut-November 6, 2007-933 Atlantic Reporter 2d 1216.

Are two deaths one occurrence?

On the evening of April 30, 1997, Justice Carr and Everett Hodgins, ages 14 and 15 respectively, decided to go fishing at the local cooling lakes located on Commonwealth Edison property near Carr’s house. That night, a severe storm with heavy rain, high winds and rapidly dropping temperatures struck the area. The boys never returned home. Their bodies were discovered several days later on property owned by Parrish Blacktop, Inc. which owned several acres of property, including an excavation pit. The boys’ bodies were found trapped just inches apart in the excavation pit. It appeared that they had followed a path leading into the pit, had become trapped in muddy soil, and had died because of exposure to the elements.

The parents of both boys filed sepa-rate lawsuits against Donald Parrish, the owner and operator of Parrish Blacktop. Addison Insurance Company, Parrish Blacktop’s commercial general liability insurer, defended Parrish in the consolidated lawsuit. It also filed a declaratory judgment action seeking a finding that the boys’ deaths resulted from a single occurrence, not two separate occurrences.

The Addison policy had liability limits of $1 million per occurrence and $2 million aggregate. In the declaratory judgment action, the trial court found that under the terms of the policy, the boys’ deaths were two separate occurrences, and that the aggregate limit of $2 million applied. Addison appealed.

On appeal, the Appellate Court of Illinois, Third District, explained that to determine the number of “occurrences” as the term is used in commercial general liability policies, courts usually employ one of two approaches: the cause theory or the effect theory. The court noted that the state of Illinois uses the cause theory. Under that approach, “Where each asserted loss is the result of a separate and intervening human act, whether negligent or intentional, or each act increased the insured’s exposure to liability, Illinois law will deem each such loss to have arisen from a separate occurrence within the meaning of liability policies containing [per occurrence] language.” Furthermore, if the cause and the injury are simultaneous or “so closely linked in time and space as to be considered by the average person as one event,” Illinois courts will find only one occurrence.

The court found that Parrish’s failure to properly secure the entrance to the excavation pit was a single negligent act that led to the boys’ deaths. In addition, the court found that the events that led to the boys’ deaths were closely linked “in time and space” and could be considered by the average person as one event. Accordingly, the boys’ deaths resulted from a single cause, and the policy’s $1 million maximum for a single occurrence applied.

The judgment of the lower court was reversed.

Addison Insurance Company vs. Fay-No. 3-06-0085-Appellate Court of Illinois, Third District-September 13, 2007-875 North Eastern Reporter 2d 190.

Funnel failure triggers coverage dispute

Willis and Patricia Peterson, owners of E-Z UZ Products, Inc., invented and designed a two-gallon polyethylene funnel that they planned to market. The funnel design included a threaded brass fitting that allowed it to be screwed into the top of a large drum. The Petersons hired Dakota Molding, Inc., to manufacture their invention. The agreement between the two parties required Dakota to manufacture the funnel according to the Petersons’ specifications.

After the funnels were manufactured and sold, the Petersons’ customers complained that the connection between the plastic funnel and the brass fitting was defective. Dakota attempted to correct the problem, but the Petersons continued to receive complaints. Eventually they were unable to sell the funnels, and some of their distribution contracts were terminated.

The Petersons filed a lawsuit against Dakota seeking compensation for their economic loss. The Petersons also alleged that they had supplied certain funnel parts to Dakota which, as a result of their inability to sell the funnels, could not be repaired, restored or reused. Dakota eventually agreed to pay the Petersons $35,000 and to allow a judgment against it in the amount of $1,519,420, so long as the Petersons agreed that recovery of the judgment would be collected only from Dakota’s commercial general liability insurer, National Fire Insurance Company of Hartford.

When the Petersons filed their original lawsuit, National Fire had refused to defend Dakota, claiming that there was no coverage under the CGL policy. Nevertheless, after judgment was entered against Dakota, the Petersons filed a motion asking the court to name National Fire as a garnishee in the action, thus enabling payment of the $1,519,420 judgment. The lower court denied the Petersons’ request, concluding there was no coverage under the policy. The Petersons appealed.

The language of the National Fire policy contained two exclusions that provided: “This insurance does not apply to: … k. ‘property damage’ to ‘your product’ arising out of it or any part of it … l. ‘property damage’ to ‘your work’ arising out of it or any part of it and included in the ‘products-completed operations hazard.’” On appeal, the Supreme Court of North Dakota held that exclusions (k) and (l) of the National Fire policy precluded coverage for the Peterson lawsuit because the completed funnels constituted the “product” and the “work” of Dakota Molding.

In reaching its decision, the court analyzed the language of the policy as well as the language of the manufacturing contract. Under the policy, “[y]our product” was defined as “[a]ny goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by … [y]ou … and [c]ontainers (other than vehicles), material, parts or equipment furnished in connection with such goods or products.” “Your work” was defined as “[w]ork or operations performed by you or on your behalf” and “[m]aterials, parts or equipment furnished in connection with such work or operations.”

Applying these definitions to the language of the manufacturing contract, the court found that Dakota Molding’s work product was the production of the polyethylene cone used in the funnel as well as the assembly of the entire funnel, including any material, parts or equipment furnished in connection with its product or work. Because Dakota Molding’s “product” and “work” included all of the various parts and assembly of the funnel, the funnels and all of their parts, exclusions (k) and (l) applied and coverage for the Peterson lawsuit was precluded. The court also noted that allowing coverage under the policy would effectively convert Dakota Molding’s commercial general liability policy into a performance bond or guarantee of contractual performance.

The decision of the lower court in favor of National Fire was affirmed.

Peterson vs. Dakota Molding, Inc.-No. 20060356-Supreme Court of North Dakota-August 30, 2007-738 North Western Reporter 2d 501.

Insured challenges replacement cost denial

George Nicolaou’s home was insured for $223,000 with Vermont Mutual Insurance Company when it was extensively damaged in a fire. The policy also contained an endorsement that allowed for additional coverage under certain circumstances.

After the fire, Nicolaou filed a claim under his Vermont Mutual policy. The insurer paid him the $223,000 coverage limit. Not satisfied with this amount, Nicolaou requested the replacement cost of his dwelling, even though he had not actually repaired or replaced it. Vermont Mutual refused this request, claiming that under the terms of the policy, in order to obtain additional coverage, Nicolaou had to actually repair or replace the dwelling and, in doing so, incur costs in excess of the policy limit. Nicolaou filed suit against Vermont Mutual in a New Hampshire court. When the court found in favor of Vermont Mutual, Nicolaou appealed.

On appeal, Nicolaou argued that under New Hampshire’s “policy value statute” he was entitled to full replacement cost. The policy value statute, RSA 407:11, contains the following language: “If a building insured for a specified amount … is totally destroyed by fire or lightning without criminal fault on the part of the insured or his assignee, the sum for which such building is insured shall be taken to be the value of the insured’s interest therein …” Moreover, “[e]very provision and stipulation in a contract to which [RSA] chapter [407] is applicable in conflict with [that] chapter shall be void and no waiver of any part thereof shall be set up by the insurer.”

The Vermont Mutual policy contained a “valuation clause” that read: “If a building insured for a specified amount … is totally destroyed by fire or lightning without criminal fault on the part of [the policyholder or his or her] assignee, the total amount for which the building is insured shall be taken to be the value of [the policyholder’s] interest in the building.” The policy also contained a requirement that to receive additional coverage, the insured must actually repair or replace the damaged building.

Nicolaou argued that there was a conflict between the policy value statute and the repair or replacement requirement of the additional coverage endorsement that voided the repair or replacement requirement. Once the policy language was void, he argued, the “specified amount” for which his property was insured was its replacement cost. As a result, Vermont Mutual was obligated to pay that cost, even if Nicolaou did not actually repair or rebuild the house.

The Supreme Court of New Hampshire disagreed with Nicolaou’s argument. It found that there was no conflict between the policy value statute and the policy provision requiring Nicolaou to repair or replace his house before Vermont Mutual was required to pay him any difference between the coverage limit and the replacement cost of the home. The court noted that the purpose of the policy value statute was to guarantee a policyholder payment of the dollar amount stated in the policy without having to defend against insurance company claims that the property was actually worth less than the stated coverage limit when the primary evidence, the property itself, has been destroyed. The court concluded that by paying Nicolaou $223,000, Vermont Mutual had complied with the statute.

Nicolaou also argued that the terms “specified amount” and “actual cash value” as used in the Vermont Mutual policy were ambiguous and should be construed to mean replacement cost. Again, the court disagreed. It found that the term “specified amount” could not mean replacement cost because a replacement cost could not be determined by a pre-insurance inspection. It also concluded that the policy clearly and unambiguously required Nicolaou to repair or replace his house before the insurer would incur any obligation to pay him the difference between the stated policy limit and the replacement cost. It was not enough to elect to repair or replace; the repair or replacement had to be performed.

The decision of the lower court in favor of Vermont Mutual was affirmed.

Nicolaou vs. Vermont Mutual Insurance Company-No. 2006-651-Supreme Court of New Hampshire-July 19, 2007-931 *