INSURANCE-RELATED COURT CASES

Court Decisions

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

Insured demands coverage under canceled policy

Joseph Kaufmann purchased a Leatherstocking Cooperative Insurance Company homeowners insurance policy through Hughson & Benson Associates Insurance. The policy was effective from June 25, 2004, through June 25, 2005. Kaufmann made a down payment of $94 and elected to pay the remainder of the premium in monthly installments.

By July 2004, he was behind in his payments. Leatherstocking sent him a notice of cancellation, advising him that the policy would be canceled on August 16, 2004, unless he made the minimum payment of $66.80. Kaufmann paid the $66.80, but the late payment caused a change in the payment schedule, resulting in a higher monthly payment for August.

In September, Kaufmann was behind on his payments again. On September 9, Leatherstocking sent him a letter informing him that his policy would be canceled effective September 26 if he didn’t make a minimum payment of $87.40. When Kaufmann failed to pay the $87.40, his policy was canceled.

On October 26, 2004, Kaufmann’s property was destroyed by fire, resulting in a loss in excess of $92,000. When Leatherstocking failed to provide coverage because the policy had been canceled, Kaufmann sued Leatherstocking and Hughson & Benson. The lower court found in favor of the defendants; Kaufmann appealed.

In support of its position, the insurer provided affidavits and testimony of Leatherstocking’s former president to establish that the installment payment schedule was altered as a result of Kaufmann’s first late payment, that this fact was fully disclosed, and that Kaufmann did not make the necessary payment. Through the affidavit of an employee, Leatherstocking also submitted proof of the standard operating procedure for mailing late payment notices and proof of the actual mailing to Kaufmann.

The Supreme Court, Appellate Division, Third Department, New York, found this evidence convincing and concluded that Leatherstocking met its burden of proof on the issue of notice. Nevertheless, Kaufmann continued to argue that the notice of cancellation was insufficient. First, he argued that the notice did not comply with a provision in the New York insurance law. The court quickly dismissed this argument, noting that the law cited was applicable only to automobile insurance. Kaufmann also argued that he had a “special services agreement” with Hughson & Benson that required the brokers to inform him that his payments were past due. Hughson & Benson submitted testimony that there was no such special arrangement, and the court found it especially convincing that Kaufmann did not submit proof of any conversations he had with Hughson & Benson personnel that would have indicated that there was a “special services agreement.” The court concluded that Kaufmann’s arguments were without merit, and the decision of the lower court was affirmed.

Kaufmann vs. Leatherstocking Cooperative Insurance Company-Supreme Court, Appellate Division, Third Department, New York-June 12, 2008-52 Appellate Division 3d 1010.

Insurers refuse coverage for sexual misconduct

J.G., a minor, and her mother, R.G., filed a civil lawsuit against Steven Wangard, alleging that he had sexually assaulted J.G. at two residences that Wangard shared with his wife, Deborah. The complaint also alleged that Deborah negligently failed to prevent the abuse. Wangard eventually pled guilty to second-degree sexual assault of a child.

One of the residences where the assaults occurred was insured by Great Northern Insurance Company, and the other was insured by Pacific Indemnity Insurance Company. The relevant language of both homeowners policies provided: “We cover damages a covered person is legally obligated to pay for personal injury or property damage which take place anytime during the policy period and are caused by an occurrence, unless stated otherwise or an exclusion applies.”

The term “occurrence” was defined as “a loss or accident to which this insurance applies occurring within the policy period.” Wangard was the named insured in the policies, but in the Coverage Summary of both policies a “covered person” included “you or a family member.”

The policies also contained severability clauses that read: “Coverage applies separately to each covered person. However, this provision does not increase the amount of coverage for any one occurrence.” Both policies excluded damage caused by the intentional acts of the insureds.

On July 20, 2005, Great Northern and Pacific Indemnity asked the lower court to declare that the homeowners policies did not cover the losses alleged in the complaint. The court agreed with the insurers and dismissed the case. That decision was appealed to the circuit court, which affirmed the lower court’s decision. Deborah then petitioned the Wisconsin Supreme Court for review.

On appeal, Deborah argued that she was entitled to coverage under both policies. She claimed that the intentional acts exclusion did not apply to her, and that the application of that provision to bar coverage violated her reasonable expectations of coverage. She also argued that the severability clauses of the policies could not be reconciled with the intentional acts exclusions, that their interaction created “contextual ambiguity,” and that these two provisions must be resolved in favor of coverage.

The Supreme Court addressed each of these arguments in light of previously decided cases and found that Deborah was not entitled to coverage under the policies. In reaching this decision, the court noted that the use of the phrase “any covered persons” in the intentional acts exclusions unambiguously precluded coverage for all insureds and that the exclusion “plainly” barred coverage as to Steven and Deborah because the damages arose out of Steven’s intentional acts.

The court also noted that the existence of a severability clause did not change the result. In sum, the court found that the intentional acts exclusion in the Wangards’ homeowners policies excluded coverage for damages “arising out of an act intended by any covered person to cause personal injury.” Steven Wangard was a “covered person” under the policies, and J.G.’s and R.G.’s injuries allegedly were the result of his intentional acts. Finally, the court found that Deborah had no reasonable expectation of coverage for damages arising out of Steven Wangard’s intentional acts.

The decision of the court of appeals was affirmed.

J.G. and R.G. vs. Wangard-No. 2006AP818-Supreme Court of Wisconsin-July 16, 2008-753 North Western Reporter 2d 475.

Is lessor or lessee liable for employee’s fall?

Duke Realty Corporation, doing business as Duke-Weeks Realty Services, leased space in one of its buildings in a business park to Trilithic, Inc. Under the lease, Duke was responsible for maintaining common areas. On January 11, 2001, an employee of Trilithic, Linda Swann, slipped and fell while walking from the parking lot to the employee entrance in the back of the Trilithic facility. It was undisputed that she fell in an area under the control and responsibility of Duke.

Trilithic was required under the lease to purchase liability and property insurance to insure its own business as well as Duke. It purchased a commercial general liability policy from Michigan Mutual Insurance Company. Trilithic was the named insured. Duke was added as an additional insured for no additional premium. The endorsement adding Duke provided, in relevant part: “WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule but only with respect to liability arising out of the ownership, maintenance or use of that part of the premises leased to you and shown in the Schedule…”

Swann and her husband filed a lawsuit against Duke. Duke tendered defense of the lawsuit to Michigan Mutual, but the insurer declined to defend or indemnify it. Duke then tendered the defense to its own general liability insurer, Liberty Mutual. Liberty Mutual provided the defense. The claims were eventually settled.

Duke filed its own lawsuit asking the court to declare that Michigan Mutual should have provided coverage. Michigan Mutual filed a counterclaim and also requested that Liberty Mutual be substituted for Duke as the real party in interest. The lower court found that Michigan Mutual had no obligation to defend or indemnify Duke; Liberty Mutual appealed.

On appeal, the parties agreed that the additional insured endorsement attached to the Michigan Mutual policy was ambiguous. Thus, Liberty Mutual argued that the policy should be construed against the insurer, Michigan Mutual. Michigan Mutual argued, however, that because the dispute was between two insurance companies, the policy should be neutrally construed. The Court of Appeals of Indiana acknowledged that this argument might have some merit; however, it declined to decide the issue, stating that the outcome of the case would be the same regardless. It then turned to the main issue of the case: whether Michigan Mutual owed Duke a duty to defend and indemnify under the circumstances of the case.

On this issue, Liberty Mutual argued that although the fall occurred outside the leased premises, Swann was injured while she was using the only route permitted by her employer for entering the Trilithic premises. Thus, Swann’s fall “arose out of” the use of the premises leased to Trilithic. The court disagreed with this expansive interpretation of the phrase “arising out of.” It noted that the only way Swann’s fall could be related to the leased premises was by virtue of the fact that Swann was on her way to work. This was not enough to bring the accident within the coverage of the policy. The accident was clearly the result of Duke’s own failure to maintain the pathway from the parking lot to the employee entrance. Thus, Michigan Mutual had no duty to defend or indemnify Duke.

The judgment of the lower court was affirmed.

Liberty Mutual Insurance Company vs. Michigan Mutual Insurance Company-No. 49A02-0708-CV-723-Court of Appeals of Indiana-July 29, 2008-891 North Eastern Reporter 2d 99.

Insurers debate meaning of “hoist” and “dock”

Global Ship Systems owned a shipyard in Savannah, Georgia. The shipyard used a marine railway to transport vessels into and out of the water. The marine railway consisted of: “(a) a set of parallel railway tracks mounted on a concreted bedplate, which are approximately 350 feet in length and on a 16-degree incline that runs into the Savannah River; (b) a cradle (flatbed) that rides on rollers (trucks) on the railway tracks and onto which a vessel is placed for movement[;] (c) a hauling chain, which is kept in tension by a separate chain (the tension chain), that is attached to the cradle and fed around two gear sprockets [;] and] (d) a six-stage speed reducer (reduction gears) that [is] coupled to an electric motor.”

Global had insurance policies with Continental Casualty Company (CNA) as well as with Landmark American Insurance Company and Arch Specialty Insurance Company (Landmark/Arch). The CNA policy provided boiler and machinery coverage. It specifically excluded any “[c]onveyor, crane, elevator, escalator, or hoist” but did not exclude any “electrical machine or electrical apparatus mounted on or used with this equipment.”

The Landmark/Arch policies provided coverage for damage to or physical loss of “Covered Property” resulting from a “Covered Cause of Loss.” Covered property under these policies did not include “[bulkheads, pilings, piers, wharves[,] or docks.”

In December 2004 and May 2005, the marine railway suffered mechanical failure. Global sought coverage under the CNA and Landmark policies. When both companies denied coverage, Global brought a court action against them. The trial court granted summary judgment in favor of CNA and denied Global’s motion for partial summary judgment against Landmark/Arch. Global appealed.

The first issue on appeal was whether the marine railway was a “hoist” within the meaning of the CNA policy, and therefore excluded from coverage. CNA argued that it was a hoist, and that the coverage was limited to any electrical machine or electrical apparatus mounted on or used with the equipment. Global argued that the mere fact that the marine railway lifted or hoisted objects did not necessarily make it a hoist. The Court of Appeals of Georgia agreed with the lower court. Using a dictionary definition, it found that the marine railway was a “hoist” within the meaning of the policy.

The second issue on appeal was whether the marine railway was a “dock” within the meaning of the Landmark/Arch policy. Again applying a dictionary definition, the appellate court agreed with the lower court and held that the marine railway was a “dock” and therefore not “Covered Property” within the meaning of the policy.

The judgment of the lower court was affirmed.

Global Ship Systems, LLC, vs. Continental Casualty Company-No. A08A0354-Court of Appeals of Georgia-June 25, 2008-663 South Eastern Reporter 2d 826.

Intentional conduct is no accident

James Sustache was attending an underage drinking party hosted by Carrie Roman and her minor son, Anthony Fuller. During the party, a number of attendees called Jeffrey Mathews on his cell phone to coerce him to come to the party “to engage in a fight with [Sustache].” Shortly thereafter, Jeffrey arrived at the party, asked for Sustache, and proceeded to punch him. Sustache fell into a curb. He suffered serious injuries and eventually died.

Sustache’s estate and his parents filed a lawsuit against Jeffrey Mathews, Larry Mathews, and Carrie Roman. The Mathewses and Roman were both insured by American Family Mutual Insurance Company. American Family provided an initial defense to both parties under a reservation of rights. It then asked the court to find that it was not required to provide a defense for the Mathewses because the policy did not cover the Mathewses’ claims. The court dismissed the insurer from the lawsuit. The Supreme Court of Wisconsin agreed to review the dismissal of American Family with respect to the defense of the Mathewses.

On review, the issue was whether American Family had a duty to defend when the insured, “without warning or provocation, punched decedent out, causing him to fall into a curb thereby causing serious injuries and ultimately death,” leading to a count of “battery…by intentionally causing bodily harm…thereby causing decedent’s death.” The policy stated: “We will pay, up to our limit, compensatory damages for which any insured is legally liable because of bodily injury or property damage caused by an occurrence covered by this policy.”

The policy also provided: “If a suit is brought against any insured for damages because of bodily injury or property damage caused by an occurrence to which this policy applies, we will provide a defense at our expense by counsel of our choice. We will defend any suit or settle any claim for damages payable under this policy as we think proper.” The policy defined “occurrence” as “an accident, including exposure to conditions, which results during the policy period, in: a. bodily injury; or b. property damage.” The term “accident” was not defined in the policy.

The Supreme Court of Wisconsin analyzed the policy language and the allegations in the complaint and found that the policy language could not be reasonably construed to cover the Mathewses’ claim. In reaching its decision, the court noted: “Jeffrey’s alleged decision to intentionally ‘punch out’ Sustache may have produced unexpected results, but this intentional act did not constitute an ‘accident.’ One cannot ‘accidentally’ intentionally cause bodily harm.”

The decision of the lower court finding that American Family had no duty to continue to defend the Mathewses was affirmed.

Estate of James B. Sustache vs. American Family Mutual Insurance Company-No. 2006AP939-Supreme Court of Wisconsin-July 10, 2008-751 North Western Reporter 2d 845.