INSURANCE-RELATED COURT CASES

Court Decisions

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

Children contest beneficiary designation

In 2003, Charles R. Evans Sr., purchased an accidental death and dismemberment insurance policy from Combined Insurance Company of America. His wife at the time, Barbara Connie Fisher, was the beneficiary under the policy. The policy authorized Evans to change the beneficiary “by giving Combined written notice satisfactory to Combined which is received by Combined at its home office during the ‘insured’s lifetime.’” Evans and Fisher divorced in 2004. The couple had no children; however, Evans did have three children from a previous marriage that ended in 1998.

On June 11, 2006, Evans died in a motorcycle accident. His three children claimed benefits under the Combined policy. The insurer denied their request, however, stating that Fisher was the designated beneficiary under the policy. The children claimed that Evans had filled out and mailed change of beneficiary forms, but they had no proof. Combined then filed an action asking the court to determine who was entitled to the proceeds.

The Evans children submitted affidavits from Evans’ first wife and their mother, Eva Marie Bruce, as well as Eva’s husband, Michael Bruce. Eva’s affidavit stated that Evans “showed [her] a letter that he was sending to Combined…that…said that he was divorced and that he wanted to change the beneficiary to [their] three children.”

According to Eva, Evans was angry with Fisher because she had filed a contempt action against him and did not want her to receive anything as beneficiary of any insurance policy. In addition, Eva claimed that Evans had told her he mailed the beneficiary change notice. Michael Bruce’s affidavit stated that he saw Evans show Eva some documents and that he heard him state that he wanted the children to be the beneficiaries.

The trial court found in favor of Fisher; the Evans children appealed.

The Court of Appeals of Georgia found that the Evans children had failed to produce admissible evidence that Evans “substantially complied with the terms of the Combined policy concerning a change in beneficiary.” Eva’s statement in her affidavit that Evans told her he mailed the letter was hearsay and was therefore inadmissible. Furthermore, Combined claimed it had not received any notice from Evans to change the beneficiary. Accordingly, the court found that the trial court correctly found in favor of Fisher.

The judgment of the lower court was affirmed.

Stanton vs. Fisher-No. A07A1916-Court of Appeals of Georgia-659 South Eastern Reporter 2d 692.

Insurance proceeds withheld for child support

In 2003, Oswall Torres was injured in a motor vehicle accident involving Richard Kunze Jr., who was insured by Geico Indemnity Company. The parties entered into a settlement agreement pursuant to which Geico agreed to pay Torres $13,000 on behalf of Kunze.

Geico company policy required it to contact the Child Support Lien Network to determine whether there were any outstanding liens on the settlement proceeds to be distributed to Torres. The network informed Geico that the state had placed a $3,304 lien on Torres for overdue child support payments. In addition, an investigator for the Bureau of Child Support Enforcement sent Geico, as well as Torres, notices to withhold insurance assets. As a result of all of this, Geico did not pay the proceeds to Torres.

In June 2005, Torres filed an action against Kunze and Geico, asserting claims against the insurer for breach of contract, unfair trade practices, and unfair insurance practices. Torres argued that Geico violated a Connecticut general statute that provided, in relevant part: “When an action to recover damages has been settled, any settling defendant shall tender all sums due from such settling defendant to any settling plaintiff or such plaintiff’s agent not later than thirty days after receipt by the person or office designated in writing to the settling plaintiff or such plaintiff’s agent by the settling defendant at the time of settlement of a duly executed release and a withdrawal discontinuing any court action, if any such action is pending, that are tendered by such settling plaintiff or plaintiff’s agent and are executed by or on behalf of the settling plaintiff…”

According to Torres, Geico violated the statute when it failed to tender the settlement proceeds within thirty days. The lower court disagreed with Torres and found that another statute was controlling. That statute dealt specifically with child support payments and provided in relevant part that anyone “having or expecting to have custody or control of or authority to distribute any amounts due [someone owing child support payments] under any judgment or settlement…shall withhold delivery or distribution of any such benefits, amounts, assets or funds until receipt of further notice from the [child support] agency.” The court found that Geico properly withheld the funds. Torres appealed.

On appeal, Torres conceded that the child-support-specific statute required Geico to withhold the settlement proceeds once Geico received notice from the agency that the child support payments were overdue. However, Torres argued that because Geico obtained the information regarding the lien on its own initiative and withheld the funds as a result of its own inquiry, rather than official agency notice, the withholding was improper.

The Appellate Court of Connecticut disagreed. It found that the plain language of the child-support-specific statute did not prohibit payors from acquiring information regarding overdue child support payments through alternative means. In addition, the court noted that Connecticut child support enforcement legislation “clearly evinces a strong state policy of ensuring that minor children receive the support to which they are entitled.” The court concluded that GEICO’s withholding of the settlement proceeds was proper.

The court affirmed the judgment of the lower court in favor of Geico.

Torres vs. Kunze-No. 28440-Appellate Court of Connecticut-April 8, 2008-945 Atlantic Reporter.

Insured disputes outbuilding exclusion

Miguel Arreguin had a homeowners insurance policy issued by Farmers Insurance Company of Idaho. Arreguin’s property included a detached garage. Before the policy was issued, a Farmers agent inspected the property and decided that the detached garage, which would normally be covered under the policy as a “Separate Structure,” should be excluded from coverage. Per the agent’s recommendation, Farmers added an “Outbuilding” exclusion to the policy and sent it to Arreguin.

After the policy was issued, fire caused damage to the detached garage. When Arreguin filed a claim, Farmers denied coverage, claiming that the “Outbuilding” exclusion applied. Arreguin sued Farmers for breach of contract and bad faith. The lower court found in favor of Farmers; Arreguin appealed.

On appeal, Arreguin argued that the “Outbuildings” exclusion was ambiguous, and it should therefore be interpreted in his favor. Farmers argued that the exclusion was unambiguous, but that even if it was ambiguous, Arreguin had notice that the detached garage was an “outbuilding” within the meaning of the policy.

The language of the Farmers policy provided, in part: “Coverage B-Separate Structures: We cover other structures on the residence premises separated from the dwelling, or connected to the dwelling by only a fence, utility line, sidewalk, driveway, patio or similar connection. Wall-to-wall carpeting attached to the structure is part of the structure. We do not cover land or the value of land, including land on which the separate structure is located or the cost to restore, replace, repair or rebuild land. If a covered loss causes damage to a separate structure and to the land on the residence premises, we do not cover any increased cost to repair or rebuild the separate structure because of damage to the land. We do not cover separate structures which are intended for use in business or which are actually used in whole or in part for business purposes.” The policy also contained a restrictive endorsement that read, in part: “We agree not to cancel this policy for 30 days from the date shown above. You and we agree that this policy does not cover loss by/to: 1. ALL OUTBUILDINGS…This endorsement is part of your policy. It supersedes and controls anything to the contrary. It is otherwise subject to all other terms of the policy.”

In an effort to prove that all definitions of “outbuildings” included detached garages, Farmers provided several definitions of “outbuilding.” The Supreme Court of Idaho found that these definitions demonstrated just the opposite. According to the court, one definition of “outbuildings” included both adjoining and separate buildings, while another included only detached buildings. This inconsistency led the court to conclude that the definition of “outbuilding” could vary. In addition, the court noted that there were other exclusions in the policy that were described in “clear and precise language,” and that Farmers could have simply used the word “garage” or another similarly clear and precise term if it wanted a detached garage to be excluded. For these reasons, the court concluded that the “Outbuildings” provision was ambiguous and should be strictly construed against the insurer.

Farmers also argued that regardless of whether the exclusion was ambiguous, Arreguin had been notified that the provision excluded the garage. The court found that the degree of Arreguin’s notice was a finding of fact to be determined at the trial court level. Thus, it would not consider the argument on appeal.

The court reversed the lower court’s decision in favor of Farmers and remanded the case to the lower court.

Arreguin vs. Farmers Insurance Company of Idaho-No. 33305-Supreme Court of Idaho-March 31, 2008-180 Pacific Reporter 3d 498.

Absent notice, what is insurer’s duty to defend?

Beatrice Crocker, a resident of Redwood Springs Nursing Home, was injured when a nursing home employee, Richard Morris, opened a door which struck her. Redwood Springs was owned by Emeritus Corporation. Emeritus had a commercial general liability policy issued by National Union Fire Insurance Company under which it was a named insured. Morris qualified as an additional insured because he injured Crocker while acting within the course and scope of his employment.

When Morris was served papers informing him that he had been sued, he did not notify National Union of the lawsuit. He also did not submit papers to or appear in court. National Union tried to contact Morris via phone and mail but was never able to communicate with him. Morris did have some contact with Crocker’s attorney.

The lower court allowed Crocker to sever the claims against Morris, and the claims against Emeritus went to trial. The court eventually found that Emeritus, acting “by and through its agents acting within the course and scope of their employment,” was not negligent. However, because Morris did not appear and the claims against him were severed, a $1 million default judgment was entered against him. Crocker then sued National Union to collect the $1 million judgment.

National Union argued that it was not obligated to provide coverage because Morris never triggered its duty to defend. The National Union policy provided, in relevant part: “Before coverage will apply, you must notify us as soon as possible of an occurrence or offense which may result in a claim or suit against you. Notice should include:

• How, when and where the occurrence or offense took place;

• Names and addresses of any witnesses and injured people;

• Nature and location of any injury or damage.

Before coverage will apply, you must notify us in writing of any claim or suit against you as soon as possible. You must:

• immediately record the specifics of the claim and the date you received it;

• send us copies of all demands, suit papers or other legal documents you receive, as soon as possible.”

According to National Union, Morris did not comply with the policy’s notice provisions. Crocker argued that because National Union had actual knowledge of the lawsuit, it was liable for the judgment. The lower court agreed with Crocker. National Union appealed to the United States Court of Appeals for the Fifth Circuit, which in turn asked the Texas Supreme Court to certify three questions to guide the circuit court’s decision.

The first and second certified questions asked whether National Union owed Morris a duty to inform him of his coverage and right to a defense or to provide him with a defense, and, if so, what was the extent of the duty.

The Supreme Court of Texas found that “an insurer that has not been notified that a defense is expected bears no extra-contractual duty to provide notice that a defense is available to an additional insured who has not requested one.”

In reaching its decision, the court cited a previous case wherein it stated that it declined to require the insurer to perform “the sentry duty of tracking back and forth to the court house to keep a check on if or when…[the insured] may be served with process.”

The third certified question was whether National Union could claim it was prejudiced by Morris’s failure to comply with the policy’s notice provision even though it had actual knowledge that Morris had been served. The court found that even though National Union was aware that Morris had been sued, and even though it had time to defend him, National Union could still claim that Morris failed to comply with the policy’s notice-of-suit provisions.

In conclusion, the court noted that National Union owed no duty to provide an “unsought, uninvited, unrequired, unsolicited defense” to Morris. It found that Texas law imposed no “extra-contractual duty” on an insurer to notify an additional insured of available liability coverage, and that actual knowledge that an insured had been sued did not establish that the insurer had not been prejudiced by the insured’s failure to notify the insurer as required by the policy.

The certified questions were answered.

National Union Fire Insurance Company of Pittsburgh, PA vs. Crocker-No. 06-0868-Supreme Court of Texas-February 15, 2008-246 South Western Reporter 3d 603.

Damages adjusted in vehicle theft

Darla Vetland left her vehicle with Executive Valet Services for parking and storage. When the vehicle was stolen from their premises, she sued Executive for negligence. Executive’s insurer, Allstate Insurance Company, refused to indemnify Vetland. The lower court found that Executive was negligent and that Allstate had breached its contract by refusing to indemnify Vetland. The court also determined Vetland’s damages to be $57,650: the cash value of the vehicle adjusted by the amount of the deductible and Vetland’s rental car expenses. Allstate and Executive appealed the lower court’s decision with regard to the calculation of damages.

On appeal, the Supreme Court, Appellate Division, Second Depart-ment, New York, reevaluated the calculation of damages. The court confirmed that the cash value of the vehicle on the date of loss was $57,750, and that it was proper to reduce the cash value by $1,000, representing the deductible, then add an additional $900 to compensate Vetland for rental car costs. However, the court noted that it was also necessary to subtract the amount representing the reduction in Vetland’s loan obligation, in this case, $13,744. Thus, the proper amount owed to Vetland was $43,906. The court concluded that both Executive and Allstate were entitled to this credit.

The decision of the lower court was affirmed with modifications to the calculation of damages.

Vetland vs. FX Enterprises I, Ltd.-Supreme Court, Appellate Division, Second Department, New York-March 11, 2008-49 Atlantic Reporter 3d 632. *