INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Dealer plate dispute in fatal crash

On May 20, 2003, Nikolas Topintzis purchased a used Plymouth Voyager from Carbone’s Auto Body, Inc. Topintzis could not register the van in his own name because Carbone’s had not obtained title from its wholesaler. Topintzis operated the van pursuant to a loaner agreement that he had entered into with Carbone’s on that date. Pursuant to that agreement, the Voyager was equipped with dealer plates, numbered DD 929, which the state had issued to Carbone’s. Six days later, Topintzis was involved in a serious accident while driving the Voyager. Felix Santaniello was injured in the accident, and Elizabeth Santaniello was killed. Subsequently, a wrongful death action was filed against Topintzis and Carbone’s.

Carbone’s insurer was National Grange Mutual Insurance Company. National Grange filed a declaratory judgment action asking the court to determine if it had a duty to defend or indemnify Carbone’s and Topintzis in the wrongful death action.

The trial court concluded that the policy did not provide liability coverage for the Voyager because the dealer plate coverage had been deleted pursuant to a subsequent endorsement and because the garage operations portion of the policy did not apply to the sale of used cars. The case was eventually appealed to the Supreme Court of Connecticut.

The National Grange policy was issued to Carbone’s on January 9, 2003, with an effective date of December 12, 2002. Although the application requested coverage for four sets of dealer plates, the actual policy insured three sets because the fourth set of plates was permanently affixed to a tow truck. The policy separately listed and insured the truck, so there was no reason to provide coverage for a fourth dealer plate. The total premium for the policy as originally issued was $14,171; $7,317 of that was attributable to the dealer plate endorsement.

Approximately one month after the policy was issued, and with Carbone’s consent, National Grange deleted coverage of the three dealer plates. It sent an addendum to Carbone’s insurance agent with a refund of $7,317. The addendum stated: “Description of Change: MTC #1 Effective 12/12/02-Deleting three sets of dealer plates and form CA2003, which no longer applies.” The agent forwarded the addendum and refund to Carbone’s with a cover memo that stated: “Confirming your [recent] request, we have deleted [three] sets of dealer plates from your policy. Attached is the corresponding endorsement.”

On appeal, Felix Santaniello claimed that the dealer plate affixed to the Voyager was covered under the National Grange policy. He argued that the deletion of the dealer plate coverage was not a proper endorse­ment and therefore did not effectively amend the policy. The Supreme Court of Connecticut disagreed. It held that even though the word “endorsement” was not included on the policy form, the form and evidence of Carbone’s acknowledgement of the deletion supported a finding that the policy was amended.

Santaniello also argued that the trial court improperly concluded that the policy initially provided coverage for three rather than four sets of dealer plates. According to Santaniello, if the original policy provided coverage for four sets of plates, and the cancellation applied to only three sets of plates, then one set of plates was still covered. The court disagreed with this argument as well. It concluded that the trial court properly concluded that the policy never provided coverage for a fourth floating dealer plate.

Finally, Santaniello argued that the trial court improperly found that the garage operations provision of the policy did not apply to the sale of used cars. The language of the policy provided that it would pay sums an insured legally must pay because of “bodily injury” or “property damage”…caused by an “accident” and resulting from “garage operations” other than the maintenance or use of covered “autos.” The policy defined “garage operations” as “all operations necessary or incidental to a garage business.” The court acknowledged that the “necessary or incidental” language was broad. Nevertheless, it concluded that it did not apply to the sale of used cars, especially in light of the fact that Carbone’s could have purchased insurance specifically for that purpose.

Having disagreed with Santaniello on all issues, the court affirmed the judgment of the lower court in favor of National Grange.

National Grange Mutual Insurance Company vs. Santaniello-No. 17961-Supreme Court of Connecticut-January 13, 2009-961 Atlantic Reporter 2d 387.

Does auto policy cover repo’d vehicles?

In November 2004, David Michael Best entered into a handwritten contract with Steve Lazzarini and Diana Marsh whereby Best agreed to purchase two vehicles, furniture, and other household items from Steve and Diana for $42,000 in cash. On the date the agreement was signed, Best tendered a $39,000 check that was supposed to be deposited only if he did not deliver the $42,000 in cash by December 15.

Best took possession of the vehicles and most of the items in the contract; however, he claimed that he never received two sets of bedroom furniture to which he was entitled. Because of this, he did not pay the $42,000 in cash by December 15. Although they had a right to do so, Steve and Diana did not deposit the $39,000 check.

Best claimed that he eventually paid Steve and Diana, through a wire transfer, the sum of $36,504, an amount he claimed represented the contract price less approximately $6,000 for the furniture he claimed he never received. Steve and Diana claimed they never received payment from Best. They also claimed that Best received all of the items covered by the contract, including the bedroom furniture. Because she allegedly had not been paid, in October 2005, Diana, acting on her own, took possession of the two vehicles from Best.

Best had purchased automobile insurance for the two vehicles from West American Insurance Company. Two months after Diana took back the vehicles, Best informed the insurer that the vehicles were missing. The policy contained a provision stating that the vehicles were covered by loss due to theft. Best argued that the vehicles had been stolen, but West American denied coverage, stating that Diana had properly repossessed the vehicles because she was their true owner. Best then filed a lawsuit claiming that West American had improperly denied his claims, had not dealt with him in good faith, and had violated the Kentucky Unfair Claims Settlement statute. Both parties submitted affidavits telling their respective stories and filed motions asking the court to make a decision as a matter of law. After evaluating the “dueling affidavits,” the lower court found in favor of West American; Best appealed.

On appeal, the Court of Appeals of Kentucky acknowledged that an insured may not recover under an insurance policy for theft of a vehicle when the vehicle that was in the insured’s possession has been repossessed by someone with a bona fide claim of right to the vehicle. However, the court reversed the decision of the lower court. It found that enough evidence had been presented to question whether Diana could lawfully repossess the vehicles or whether Best was a victim of theft. Therefore, a finding in favor of West American as a matter of law was inappropriate.

The decision of the lower court was vacated and remanded for further proceedings.

Best vs. West American Insurance Company-No. 2007-CA-002289-MR-Court of Appeals of Kentucky-September 26, 2008-270 South Western Reporter 3d 398.

Parties dispute meaning of “occurred”

In 2004, KPE Firstplace Land, LLC (KPE), purchased property in Tyler, Texas, that included a 90,000-square-foot building. On December 31, 2005, KPE discovered that thieves had stolen copper coils from the air-conditioning equipment on the roof of the building, damaging the equipment. KPE filed a report with the Tyler Police Department that day. KPE’s insurance agent reported the loss to KPE’s insurer on February 13, 2006.

At the time KPE discovered the damage to the air-conditioning equipment, its building was insured under a policy issued by CMI Lloyds. The policy provided that there was no coverage for loss or damage caused by theft if the building had been vacant for more than 60 consecutive days before that loss or damaged occurred. At the time KPE’s loss was discovered, the building had been “vacant” as defined by the policy for more than 60 consecutive days. On March 6, 2006, KPE’s claim was denied. The parties attempted to settle the matter but were unable to do so. KPE eventually filed a lawsuit alleging breach of contract, unfair settlement practices, and failure to comply with the prompt payment statute. The trial court found in favor of KPE; Lloyds appealed.

On appeal, the key issue was whether the loss “occurred” when the property had been vacant for more than 60 days. KPE argued that the date the loss “occurred” was the date the air conditioner became damaged. Lloyds argued that the date the loss “occurred” was the date the loss manifested itself or was discovered. The Court of Appeals of Texas concluded that damage “occurred” when the property actually became damaged. Applying this defini­tion, the court found that the insurer could not prove that the building was vacant for more than 60 days on the date the air-conditioning equipment was damaged. Thus, the trial court had properly found in favor of KPE.

The judgment of the lower court was affirmed.

Central Mutual Insurance Company vs. KPE Firstplace Land, LLC-No. 12-07-00314-CV-Court of Appeals of Texas, Tyler-November 26, 2008-271 South Western Reporter 3d 454.

Was 15-year-old “entitled” to drive friend’s car?

On March 28, 2005, 15-year-old Nancy Avila and her friend Philip Austin Pounds were killed in an auto­mobile accident. Nancy, an unlicensed driver, was driving a car owned by Philip’s father. Philip was in the passenger seat.

Philip’s father filed a wrongful death action against Nancy’s father, Rodney Smith. Smith sought coverage for the lawsuit under his automobile insurance policy issued by Haulers Insurance Company, Inc. Haulers denied coverage. It then filed a declaratory judgment action asking the court to find that it was not obligated to defend or indemnify Smith.

Haulers based its decision to deny coverage on the following policy exclusion: “We do not provide Liability Coverage for any ‘insured’:…[u]sing a vehicle without a reasonable belief that that ‘insured’ is entitled to do so…” The lower court found that the exclusion barred coverage; Smith appealed.

On appeal, the Missouri Court of Appeals, Southern District, Division Two, applied a two-part analysis to determine if the exclusion applied. The first question was whether the driver had a subjective belief that he or she was entitled to use the car. The second question was whether this belief was reasonable. With regard to whether the belief was reasonable, the court outlined five factors for consideration: “(1) whether the driver had express per­mission to use the vehicle; (2) whether the driver’s use of the vehicle exceeded the permission granted; (3) whether the driver was ‘legally’ entitled to drive under the laws of the applicable state; (4) whether the driver had any ownership or possessory right to the vehicle; and (5) whether there was some form of relationship between the driver and the insured, or one author­ized to act on behalf of the insured, that would have caused the driver to believe that he was entitled to drive the vehicle.”

As a preliminary matter, the court acknowledged the difficulty of applying the first two factors because it was impossible to know what Philip and Nancy believed. The court then identi­fied the key question, i.e., “whether the fact that Nancy was fifteen years old, unlicensed, and unable to legally drive any automobile on the public roadways [was], of itself, sufficient as a matter of law to make unreasonable any subjective belief she may have had that she was ‘entitled’ to drive Philip’s car at the time of the collision.”

In his deposition, Philip’s father had stated that Philip was the primary driver of the vehicle and that he trusted Philip’s judgment with regard to Philip’s driving “perimeters, responsibilities, and allowances.” The court found that such “broad and unfettered” use of the vehicle implied that Philip had implied authority to allow others to use it. Thus, it could not be concluded, as a matter of law, that Nancy’s belief that she was entitled to use the vehicle was unreasonable. The court concluded that Haulers had not established that its policy exclusion applied.

The decision of the lower court was reversed and the case was remanded to the lower court.

Haulers Insurance Company vs. Pounds-No. SD 29068-Missouri Court of Appeals, Southern District, Division Two-December 31, 2008-272 South Western Reporter 3d 902.