INSURANCE-RELATED COURT CASES
Court Decisions
Digested from case reports published in Westlaw,
West Publishing Co., St. Paul, MN
Defective concrete “floors” home owners
In November 2002, Jeff and Connie Doerr hired Gary Epstein to pour a concrete foundation for a house they were building. Epstein poured the foundation; however, soon after the job was completed, the Doerrs discovered that the concrete Epstein used did not meet county building code standards. The Doerrs were forced to remove the sub-flooring and framing that had already been completed so that they could re-pour the foundation using concrete that met the county code.
The Doerrs filed a lawsuit against Epstein, alleging negligence and breach of contract. Epstein’s insurer, Columbia Mutual Insurance Company, initially provided a defense; however, it later withdrew its defense, claiming that the Doerr lawsuit was not covered under the policy. The Doerrs amended their petition, adding breach of implied warranty and products liability claims. Epstein filed a third-party petition against Columbia Mutual, alleging “vexatious refusal and bad faith.” Columbia then filed a declaratory judgment action, asking the court to determine that it was not required to defend or indemnify Epstein.
The court in the underlying lawsuit found in favor of the Doerrs on the products liability claim. In the declaratory judgment action, the court found that Columbia breached its duty to defend and indemnify Epstein. Columbia appealed.
Epstein’s policy with Columbia was a commercial general liability policy that insured Epstein for property damage for which he became legally obligated to pay because of “bodily injury” or “property damage” caused by an “occurrence” or an “accident.” On appeal, Columbia attempted to argue that the Doerrs did not allege an “occurrence” or an “accident.” In the state of Missouri, breach of contract actions are not considered to be “accidents” or “occurrences.” Columbia argued that the Doerrs’ lawsuit against Epstein was solely a breach of contract case regardless of what the pleadings stated, and that accordingly the case was not covered under the Columbia policy.
The Missouri Court of Appeals was not convinced by this argument. It disagreed with Columbia that the lawsuit was solely one of breach of contract. Rather, the court stressed that the products liability claim was the key claim. Epstein sold and delivered a defective concrete foundation, defective because the concrete itself was defective. In addition, the Doerrs’ claim constituted an “accident” because neither the defect in the concrete nor the necessity of tearing out the sub-flooring and framing was foreseeable to Epstein. Thus, the Doerrs alleged an “occurrence” or an “accident” within the meaning of the policy.
Columbia also argued that there was no “property damage” within the meaning of the policy because the Doerrs’ complaint did not allege that the defective foundation caused damage to any other property. The court disagreed. It found that the sub-flooring and framing were “damaged” because they had to be removed and replaced. There was a “loss of use” of that property, and therefore property damage.
The policy did contain an exclusion for “property damage” to “your product” arising out of it or any part of it. The court found that this exclusion applied; however, it applied only to damage to Epstein’s product: the foundation.
On the issue of Columbia’s alleged “recalcitrant and vexatious attitude,” the court found in favor of Epstein. It found that Columbia withdrew its representation of Epstein when it knew that the Doerrs’ petition would soon be amended to include additional allegations that would be covered under the policy. Columbia’s abandonment of its insured was “recalcitrant and vexatious.”
The decision of the lower court finding that there was an “occurrence” or an “accident” as well as “property damage” was affirmed. The decision was remanded on the issue of the exclusion for property damage to Epstein’s “product,” and the lower court was instructed to adjust the judgment accordingly.
Columbia Mutual Insurance Company vs. Epstein-No. ED 89577-Missouri Court of Appeals, Eastern District, Division One-December 4, 2007-239 South Western Reporter 3d 667.
Insurer denies claim for roof damage
In 1991, the Winnisquam Regional School District in New Hampshire hired Steven Webster and Dutton & Garfield, Inc., to repair the roof of its middle school. In March 2001, after a heavy snowstorm, the school discovered problems with the roof. The district was forced to close the school gymnasium to assess the damage. The district eventually filed a lawsuit against Webster and Dutton & Garfield alleging various causes of action. In its complaint, the school district specifically alleged that support mechanisms (purlins) in the gymnasium had buckled and that there was “some separation between the purlin webs and support clips at the building frame.” The complaint indicated that the purlins were missing bolts and were not properly aligned and that “many roof purlins showed bowing, the early stages of rolling or lateral buckling…”
Webster and Dutton & Garfield notified their insurer, Acadia Insurance Company, of the lawsuit. The insurer refused to defend or indemnify them, claiming that the school district’s complaint did not contain allegations of property damage and that, even if there was property damage, several exclusions to coverage applied. Webster and Dutton & Garfield provided their own defense, then sued Acadia for recovery of their defense costs. The trial court found in favor of Acadia; Webster and Dutton & Garfield appealed.
The Acadia policy defined “property damage” as: “a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the ‘occurrence’ that caused it.”
On appeal, Acadia raised several arguments in an attempt to prove that there was no “property damage” within the meaning of the policy. First, it argued that the purlins did not sustain physical injury because the buckling was only temporary and the purlins did not require repair or replacement. The Supreme Court of New Hampshire rejected this argument, stating that the policy did not specify a minimum level of property damage. Arcadia also argued that because the purlins were “incorporated” into Webster and Dutton & Garfield’s work product, there was no damage to property other than the insured’s property, which was not covered. The court rejected this argument as well. According to the court, the purlins were part of the original school building and were not part of the work performed by Webster and Dutton & Garfield. Thus, they were not incorporated into their work product.
Acadia also argued that there was no “occurrence” within the meaning of the policy. The relevant portion of the policy provided: “This insurance applies to…‘property damage’ only if: (1) The…‘property damage’ is caused by an ‘occurrence’ that takes place in the ‘coverage territory’; and (2) The…‘property damage’ occurs during the policy period.” “Occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Acadia argued that Webster and Dutton & Garfield’s complaint alleged only faulty workmanship and not damage to other property. Again, the court disagreed. It noted that there was damage to the purlins, which was property separate from the insureds’ work product. In addition, the buckling, which first occurred after a heavy snowstorm, was “unexpected from the standpoint of the insured.” Thus, it was an “accident” within the meaning of the policy.
The decision of the lower court in favor of Acadia was reversed and the case was remanded to the trial court.
Webster vs. Acadia Insurance Company-No. 2006-945-Supreme Court of New Hampshire-October 17, 2007-934 Atlantic Reporter 2d 567.
Estate seeks stacked UIM coverage
In July 2001, Robert Everhart was killed in an automobile accident when his car was struck by another vehicle driven by Karen Stellmach. Everhart’s estate collected the maximum coverage under Stellmach’s insurance policy, then sought underinsured motorist coverage from PMA Insurance Group, the insurer of Everhart’s car.
Everhart’s car was leased by his employer, Russell Standard Corporation, and was one of a fleet of 323 vehicles, including 33 passenger vehicles, covered under the PMA commercial automobile fleet policy. Russell Standard was listed as the sole named insured.
The PMA policy provided $1 million in liability coverage, but the uninsured/underinsured motorist (UM/UIM) coverage was only $35,000. Everhart’s estate filed a declaratory judgment action against PMA, asking the court to find that the policy provided Everhart with stacked UIM coverage based on the 33 private passenger vehicles in the Russell Standard fleet: a total limit of $1,155,000. The trial court found in favor of PMA, and the estate appealed to the Supreme Court of Pennsylvania.
The issue on appeal was whether the Pennsylvania Motor Vehicle Financial Responsibility Law mandated the stacking of uninsured/underinsured motorist coverage under a commercial fleet policy. The estate argued that the law required all automobile insurance policies to provide for stacking of UM/UIM coverage unless a valid waiver was executed by the named insured. Because PMA did not offer stacked UM/UIM coverage to its commercial insureds, no waiver of stacked UM/UIM coverage was made by Russell Standard. PMA argued that the waiver requirement was not applicable to a commercial fleet policy because parties to commercial fleet policies are generally sophisticated enough to understand that stacking is not allowed under such policies and that their premiums are reduced accordingly.
The Supreme Court of Pennsylvania found that the plain language of the motor vehicle financial responsibility statute did not on the surface indicate whether stacking of coverage was required under a fleet policy. However, the court noted that a primary purpose of the statute was to cut costs, and that requiring such coverage under commercial fleet policies would dramatically increase premium costs, thereby under-cutting the primary purpose of the statute. The court also noted that parties to fleet policies would not expect the insurer to allow stacking because such coverage would lead to prohibitively high premium costs. Finally, the court found that prior to enactment of the motor vehicle financial responsibility law, Pennsylvania case law had consistently held that stacking of coverage did not apply to commercial fleet policies. Because there was nothing in the statute that addressed this precedent, there was no reason to find that the state General Assembly intended to overrule those findings.
The court concluded that the statute was to be read “in conjunction with, not in contradiction to, the pre-existing common law”; i.e., that stacking was not required for commercial fleet policies.
The decision of the lower court was affirmed.
Everhart vs. PMA Insurance Group-Supreme Court of Pennsylvania-December 27, 2007-938 Atlantic Reporter 2d 301.
Was cancellation notice timely?
On September 6, 2002, Anchor Enterprises, a carpentry business owned by Gordon Harvey, submitted an application and an initial premium payment of $200 for a commercial liability insurance policy to Pekin Insurance Company. The policy had an effective date of September 6, 2002, an expiration date of September 6, 2003, and an annual premium of $474.
On December 9, 2002, Pekin sent Anchor an invoice for $10.34, the next premium installment due on the policy. The due date was December 22, 2002. Anchor did not pay this premium installment. As a result, on January 7, 2003, Pekin mailed Anchor a notice of cancellation for nonpayment of the premium. The notice stated that the policy would terminate on January 17, 2003, at 12:01 a.m. standard time.
In June 2003, Tracy L. Wallace was injured while working for a drywall contractor at an Anchor worksite. He filed a negligence action against Anchor. Anchor tendered defense of the negligence action to Pekin. Pekin refused to defend Anchor, claiming that Anchor’s insurance policy had been terminated for nonpayment of premium. Pekin filed a declaratory judgment action in September 2005, asking the court to determine whether it had a duty to defend Anchor. Wallace and Anchor responded by arguing that the policy had not been properly terminated because the termination notice had not been mailed a full 10 days prior to the effective date and hour of cancellation.
The lower court found in favor of Wallace and Anchor, holding that Pekin had failed to provide a proper notice of cancellation and that there was coverage under the policy. Pekin appealed.
On appeal, the Appellate Court of Illinois, Fifth District, found in favor of Pekin. It noted that the time provision under the policy began to run on the day the notice was mailed. Pekin provided proof that notice of cancellation was mailed on January 7, 2003. The effective date of the cancellation was January 17, 2003, at 12:01 a.m. According to the court, notice was in fact mailed on the 10th day prior to the effective date of cancellation. It did not matter, as Wallace and Anchor argued, that Pekin provided 9 2/3 days’ notice, rather than a 10 full days’ notice. There was nothing in the language of the policy or the Illinois Insurance Code that required the cancellation notice to “state the fixed hour and minute when the cancellation bec[ame] effective.” The court also emphasized that Anchor’s policy terminated more than five months before the date of the accident. The court stated: “As a general rule, the law will not recognize fractions of a day unless that recognition is deemed important to the interests of justice or necessary to a decision regarding conflicting interests. The case at bar does not present such a situation.” The court concluded that the lower court erred in finding in favor of Wallace and Anchor.
The decision of the lower court was reversed, and the court entered judgment in favor of Pekin.
Pekin Insurance Company vs. Harvey-No. 5-06-0655-Appellate Court of Illinois, Fifth District-December 26, 2007-879 North Eastern Reporter 2d 540.
Collision damage waiver triggers coverage dispute
In 2000, several Massachusetts drivers rented temporary replacement vehicles from two separate rental companies: Revolution Replacement Rentals and Eastfield Auto Sales, Inc. The rental companies were insured under identical commercial lines policies issued by Empire Fire and Marine Insurance Company. The drivers themselves were insured under standard Massachusetts automobile insurance policies issued by Commerce Insurance Company. The Commerce policies provided optional comprehensive and collision coverage.
Both rental company contracts contained “collision damage waivers” pursuant to which the rental companies, for a fee, agreed to waive claims against the renter for damages to their rental cars. The renters all declined to purchase the collision damage waivers.
The Revolution rental agreement provided: “You are responsible for all damage or loss of the vehicle resulting from collision, theft, vandalism, fire, or acts of God regardless of fault.…The renter agrees to make a claim with his/her insurance carrier for any damage and related costs. The renter further acknowledges that his/her insurance is primary.” The Eastfield rental agreement provided: “If I decline optional PDW [collision damage waiver], I will pay [y]ou 100% of all [l]oss whether it is [m]y fault or not. Loss includes the cost of the the [c]ar if it is stolen or lost, cost of repairs and [y]our out-of-pocket expenses including loss of use, administrative, appraisal, towing and storage costs.” Thus, in declining the protection of a collision damage waiver, the renter-drivers agreed to subject themselves to personal liability for any damage to the rental vehicle.
All of the rented vehicles were involved in accidents or were stolen or vandalized. The rental companies filed claims with Commerce. When Commerce denied coverage, the rental companies submitted the claims to Empire. Empire paid for the losses and brought subrogation claims against Commerce. Commerce then filed a declaratory judgment action.
The lower court found that the drivers were personally liable to the rental companies for loss or damage to the rental cars and that Empire, the rental companies’ insurer, was subrogated to the rights of the renters. Commerce appealed.
Empire’s policies contained the following language: “For any covered ‘auto’ you own, this [c]overage [f]orm provides primary insurance. For any covered ‘auto’ you don’t own, the insurance provided by this [c]overage [f]orm is excess over any other collectible insurance.” On appeal, policies were primary because they stated they were primary; Commerce also contended that the language of its own policies made the policies excess.
Specifically, Commerce claimed the “other insurance” provisions in both the collision and comprehensive provisions of the policies made the Commerce insurance excess. The “other insurance” language provided: “[i]f an auto covered under this [p]art is not owned by you at the time of the accident, the owner’s auto insurance must pay its limit before we pay. Then, we will pay, up to the limit shown on your [c]overage [s]elections [p]age, for any damage not covered by that insurance less the deductible amount you selected.” According to Commerce, the “other insurance” language made its coverage excess because the cars were owned and fully insured by the rental companies at the time of the loss. The Appeals Court of Massachusetts, Middlesex, disagreed. It noted that because there was no collision or comprehensive coverage available to the renters under the Empire policies, the “other insurance” provisions in the Commerce policies did not apply.
Commerce also argued that the “antisubrogation rule,” which provides that an insurer cannot recover by means of subrogation against its own insured, applied. If the drivers received a benefit from the rental companies’ insurance with Empire, then the antisubrogation rule would apply. The Empire policies defined “Who Is An Insured” in Section II as “[y]ou [the rental companies] for any covered ‘auto’ “ and “[a]nyone else while using with your permission a covered ‘auto’ you own, hire or borrow.” According to Commerce, the drivers fell under the second part of the definition and therefore received a benefit under the policy. The court disagreed. It noted that under the rental agreements, the renter-drivers were fully aware that they would be held personally liable and could not expect to benefit from the rental companies’ insurance policies with Empire. Because they knew they would receive no benefits under the policies, they were not “implied insureds.” Therefore, Empire could subrogate to the rights of the renters.
The judgment of the lower court was affirmed.
Commerce Insurance Company vs. Empire Fire and Marine Insurance Company-No.06-P-1876-Appeals Court of Massachusetts Middlesex-February 1, 2008-879 North Eastern Reporter 2d 1272. *