INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Degrees of negligence in garbage chute mishap

Garito Contracting, Inc., was hired by general contractor Bovis Lend Lease LMB, Inc., to perform demolition work on a building. As part of the project, Garito removed a garbage chute. While at the site, John Armentano fell through the hole created when the garbage chute was removed. When Armentano sued, Bovis filed a declaratory judgment action against Garito and its insurer, Twin City Fire Insurance Company, arguing that Bovis was covered under the Twin City commercial general liability policy. Neither Bovis nor Garito could locate the contract pursuant to which Bovis had hired Garito, but the trial court determined that Garito was required to procure insurance on Bovis’s behalf.

In the underlying action, the jury found that Bovis and Garito were both negligent, but that Bovis’s negligence was a “substantial factor” and Garito’s was not a “substantial factor” in causing Armentano to fall through the hole. In the declaratory judgment action, the court found that Bovis was an additional insured under Garito’s Twin City policy and that it was entitled to coverage. Garito and Twin City appealed.

The Twin City policy provided coverage to Bovis “only with respect to liability arising out of:…‘[Garito’s] work’ for [Bovis]…or…[a]cts or omissions of [Bovis] in connection with [its] general supervision of ‘[Garito’s] work.’” On appeal, Twin City argued that because the jury found that Garito’s negligence was not a substantial factor in creating the conditions that caused Armentano to fall, it followed that Bovis’s liability did not arise out of Garito’s work.

The Supreme Court of New York, Appellate Division, First Department, agreed. In reaching its decision, the court affirmed its earlier decision that Twin City was obligated to provide Bovis with a defense; however, the court found that the insurer was not obligated to indemnify Bovis. The court noted that the jury had found that Bovis’s liability had arisen from its own work. It also noted that to require Twin City to indemnify Bovis would “confer a windfall” on Bovis’s own insurer. In short, the court held that Twin City was not obligated to indemnify Bovis because the jury found that Garito’s negligence was not a substantial factor in the accident

The decision of the lower court was affirmed as to the duty to defend and modified as to the duty to indemnify.

Bovis Lend Lease LMB Inc. vs. Garito Contracting, Inc.-Supreme Court, Appellate Division, First Department, New York-September 8, 2009-885 New York Supplement 2d 59.

Winner of arbitration seeks attorney fees

Araceli Cardenas suffered injuries in a hit-and-run accident. She sought uninsured/underinsured motorist benefits under her Farmers Insurance Company automobile policy. Farmers paid her $800, and in exchange she signed a document that “release[d} and discharge[d]” Farmers “from all rights, claims, demands and damages of any kind…resulting from bodily injury arising from” the accident. At the time she signed the agreement, Cardenas did not speak English, and she was not represented by a lawyer.

More than a year later she hired an attorney, who contacted Farmers in an attempt to have the agreement rescinded and to obtain additional benefits for his client. Farmers took the position that the claim had already been “settled and paid.” Several days later, however, Farmers sent a letter to Cardenas offering to arbitrate the decision. Cardenas then filed suit, seeking $37,500 in additional underinsured/uninsured benefits. Farmers denied that it owed any additional benefits, then repeated its offer to arbitrate.

This time Cardenas accepted the offer. The arbitrator found in favor of Cardenas, concluding that the docu­ment Cardenas had signed was void because she did not understand what she was signing. The recommended award was $11,889.05 (less what she had already been paid); however, the arbitrator did not award attorney fees. Cardenas filed an appeal with the circuit court. That court awarded attorney fees of $16,036.83, but this amount did not include fees incurred in the preparation of the appeal of the arbitrator’s decision. Both parties appealed the decision of the circuit court.

On appeal, Farmers argued that it was not required to pay Cardenas’s attorney fees because it was insulated under an Oregon statute providing a “safe harbor” for insurers. The language of the statute provided that insurers were not required to pay attorney fees if, no later than six months from the date the claim was filed, “(a) the insurer [had] accepted coverage and the only issues [were] the liability of the uninsured/underinsured motorist and the damages due the insured; and (b) the insurer [had] consented to submit the case to binding arbitration.”

According to Farmers, it met all the requirements of the statute because the dispute was about the “damages” due, even if the dispute was about whether damages were owed at all. The Court of Appeals of Oregon disagreed. It noted that because it was necessary for the arbitrator to decide the issue of the release’s enforceability before it could address the issue of damages, damages were not the only issue submitted to arbitration. Thus the requirements of the statute were not met and Farmers did not qualify for the “safe harbor.”

Cardenas also raised an issue on appeal. She argued that Farmers was obligated to pay the attorney fees she incurred in preparing for her appeal of the arbitrator’s decision. The court acknowledged that these fees could be awarded, so it remanded the issue to the trial court for determination.

The lower court’s decision in favor of awarding Cardenas attorney fees was affirmed, and the case was remanded for decision on the amount of the attorney fees.

Cardenas vs. Farmers Insurance Company-Court of Appeals of Oregon-August 19, 2009-215 Pacific Reporter 3d 919.

Fathers and sons: auto policy dispute

In December 2005, George Soussou was driving his 2000 minivan when he collided head-on with Arcangelo Cassilli. At the time of the accident, Soussou was insured by State Farm Insurance Company. Cassilli suffered serious injuries in the accident and sued Soussou. State Farm eventually paid Cassilli $100,000, the policy limit. Cassilli then sought additional coverage under a personal auto policy issued to Soussou’s son, Roger, by Selective Insurance Company of America.

At the time of the accident, Roger and George lived in the same home. Roger, an adult, was a part-time college student. The declarations sheet of the Selective policy listed Roger’s name and address in the upper left-hand corner. The document listed three vehicles that were principally garaged at the family’s address. George’s minivan was not one of the listed vehicles, but George was identified as an operator of each of the three listed vehicles.

The Selective policy contained an exclusion that provided in relevant part: “B. We do not provide Liability Coverage for the ownership, maintenance or use of: 2. Any vehicle, other than ‘your covered auto,’ which is: a. Owned by you; or b. Furnished or available for your regular use. 3. Any vehicle, other than ‘your covered auto,’ which is: a. Owned by any ‘family member’; or b. Furnished or available for the regular use of any ‘family member.’” A “covered auto” was further defined as “any vehicle shown in the declaration [page].” This exclusion was not applicable to the named insured when the named insured was using a non-covered vehicle owned by another family member.

The lower court found that there was no coverage under the Selective policy because the exclusionary clause unambiguously barred from coverage any vehicle that was not a “covered auto.” Cassilli appealed, claiming that because there was no “named insured” on the declarations page, a reasonable person in Soussou’s circumstances would expect that individuals named in the “Operator Section” were the named insureds.

The Superior Court of New Jersey, Appellate Division, disagreed. It noted: “While there is no question that as a ‘family member’ residing in the same household as his son Roger, defendant Soussou was a potential ‘insured’ under the Selective policy, nowhere in that policy is he designated a ‘named insured.’” The court concluded that because the minivan was not a “covered auto,” and because George was not designated a named insured under his son’s policy, the lower court had found correctly that there was no coverage under the Selective policy.

The decision of the lower court was affirmed.

Cassilli vs. Soussou-Superior Court of New Jersey, Appellate Division-July 6, 2009-973 Atlantic Reporter 2d 986.

Was security service’s error an “accident”?

On August 12, 1997, Michael Young was working in a liquor store when he was abducted by a robber, tied to a tree in a park, and beaten. The crime occurred shortly before midnight. Three hours later, at approximately 3:00 a.m., the store’s security service generated a report indicating that Young had not set the store’s night alarm at midnight as scheduled. The store’s general manager was called and arrived at the store at about 3:30 a.m. to find that money and Young were missing. Young was located at 6:00 a.m., still alive and tied to the tree, but he died of his injuries later that day.

In August 1999, Young’s estate filed a wrongful death action against the security company, Tri-Etch, Inc. The complaint alleged that Tri-Etch breached a duty to notify the store’s manager within 30 minutes of closing if the night alarm had not been set, and that if Tri-Etch had acted promptly, Young would have been found earlier and would have survived. A $2.5 million jury verdict was eventually entered in favor of the estate.

At the time of the robbery, Tri-Etch was insured under a $1 million commercial general liability policy issued by Scottsdale Insurance Company. This policy included errors and omissions coverage for alarm installation and monitoring. Tri-Etch also held two Cincinnati Insurance Company commercial general liability policies: a primary policy with a $1 million limit, and a $2 million umbrella policy. The Cincinnati policies did not include errors and omissions coverage.

Immediately after the wrongful death action was filed, Tri-Etch contacted Scottsdale, which provided the defense. It was not clear exactly when Tri-Etch contacted Cincinnati. After the $2.5 million verdict was awarded, Scottsdale paid its $1 million policy limit and Tri-Etch assigned its claims against Cincinnati to the estate.

In May 2005, the estate, Tri-Etch, and Scottsdale filed an action against Cincinnati seeking the $1.5 million balance of the judgment. In addition, Scottsdale requested contribution from Cincinnati for the cost of the defense and the $1 million it had already paid. The Court of Appeals found in favor of the estate and Scottsdale and ordered Cincinnati to pay the remaining $1.5 million. It also granted Scottsdale one half of its defense costs from the time Cincinnati was given notice of the claim. At this point, the Supreme Court of Indiana accepted transfer of the case.

Both Cincinnati policies insured against liability for “bodily injury” caused by an “occurrence.” “Occurrence” was defined as “an accident.” On appeal, the parties disagreed as to whether Michael Young’s death resulted from an “accident.” The estate argued that Tri-Etch’s failure to call the store manager immediately after the midnight alarm was not set was an “accident” because no one claimed that Tri-Etch intentionally delayed its call.

The court disagreed. Noting that a “lack of intentional wrongdoing does not convert every business error into an accident,” the court found that Tri-Etch’s oversight in failing to call for more than three hours was negligent performance of a commercial or professional service, not an “accident.” Because there was no “accident” and therefore no “occurrence,” there was no coverage under the primary Cincinnati policy. The court also found that there was no coverage under the umbrella policy because the policy specifically excluded bodily injury “arising out of any act, error or omission of the insured in rendering or failing to render telephone answering, alarm monitoring or similar services.”

The decision of the trial court was reversed, and the case was remanded, with instructions.

Tri-Etch, Inc., vs. Cincinnati Insurance Company-No. 49S02-0901-CV-8-Supreme Court of Indiana-July 21, 2009-909 North Eastern Reporter 2d 997.