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Court Decisions

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

No gold for mold

Karl and Diana DeVore purchased a homeowners policy from American Family Mutual Insurance Company covering their newly constructed home in Antioch, Illinois. In December 2003, while the DeVores were on vacation, a valve connected to their washing machine broke. The resulting water leak caused flooding in the laundry room, pantry, kitchen, living room, dining room, and basement. Pursuant to the policy, American Family compensated the DeVores for damage to flooring, cabinets, drywall, and baseboards.

The DeVores were concerned about mold, so they hired an organization called Safestart to test for mold and to develop a remediation plan. They hired another organization, ServiceMaster, to perform some of the work recommended in the remediation plan.

The American Family policy contained the following relevant language: “We do not cover loss to the property…resulting directly or indirectly from or caused by one or more of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss…6. Other Causes of Loss:…(c) smog, rust, frost, condensation, mold, wet or dry rot[.]”

American Family paid $2,600 of ServiceMaster’s $10,435 bill; the portion not paid was for ServiceMaster’s services related to the removal of “mold and/or its containment.”

The DeVores filed a three-part complaint against American Family asking the court to declare that American Family must provide coverage for mold remediation under the policy, and that American Family breached the insurance contract. The complaint also sought attorney fees.

The lower court found that there was, in fact, mold in the DeVores’ home, and that it was caused by water damage. However, the court found in favor of American Family, holding that the policy’s mold exclusion clause excluded coverage for the damage caused by the mold. The DeVores appealed.

On appeal, the Appellate Court of Illinois, Second District, affirmed the decision of the lower court. It found that the policy language clearly and unambiguously excluded coverage for losses that resulted from mold caused by the water event at the DeVores’ home. In reaching its decision, the court noted: “We do not understand how much clearer American Family could have been in excluding coverage relating to an event such as this one, wherein water caused damage to a home and created mold in the home.”

The court concluded that the losses suffered by the DeVores were twofold: (1) water damage; and (2) mold damage, and that the former was covered and the latter was not.

The decision of the lower court in favor of American Family was affirmed.

DeVore vs. American Family Mutual Insurance Company-No. 2.07-0154-Appellate Court of Illinois, Second District-June 24, 2008-891 North Eastern Reporter 2d 505.

Insurer disputes stacking attempt

In July 2004, Jesse Ayers suffered serious bodily injury when he was struck by a truck while he was riding his motorcycle. Immediately after he was struck, the truck rolled backwards over his body while he was lying in the street. The entire event constituted two separate accidents.

Ayers was insured by Government Employees Insurance Company (GEICO) under two insurance policies. The first policy insured his two motorcycles; the second insured his two pickup trucks. Both policies included stacking coverage.

Ayers collected the liability limits for both accidents from the truck driver’s insurance company. He then filed a claim for underinsured motorist coverage under his two GEICO policies. While GEICO acknowledged Ayers’s right to stack coverage for the two policies for the second accident, the insurer denied his right to stack coverage for the first accident because he was “occupying” the motorcycle when he was struck. In support of its position, GEICO cited the truck policy’s household vehicle exclusion that read: “When This Coverage Does Not Apply . . . This coverage does not apply to bodily injury while occupying or from being struck by a vehicle owned or leased by you or a relative that is not insured for [UIM] Coverage under this policy.”

GEICO filed a declaratory judgment action asking the court to find that it had no duty to arbitrate any underinsured motorist coverage claims with Ayers or to pay any underinsured benefits to him related to the first accident. The trial court found in favor of Ayers; GEICO appealed.

On appeal, Ayers argued that the household vehicle exclusion was contrary to the public policy contained in Pennsylvania’s Motor Vehicle Financial Responsibility Law. According to Ayers, he paid for inter-policy stacking and never willingly waived it. Thus, GEICO’s use of the exclusion to disallow inter-policy stacking constituted a de facto unknowing waiver of the inter-policy stacking.

The Superior Court of Pennsylvania disagreed with Ayers’s argument. According to the court, Ayers did not “waive” intra- or-inter-policy stacking. He purchased both forms of coverage with exclusions. The court quoted another court’s opinion, which stated: “[T]here is an important distinction between paying for something you cannot receive (e.g., paying for stacking in a policy which contains an exclusion of all stacking) and paying for something that all parties know is limited by the terms of the policy (e.g., the situation here where the household exclusion clause limits stacking only in certain situations and does not otherwise affect the insured’s right to stack). The latter is contractually valid and not inconsistent with public policy.”

The court reversed the decision of the lower court and entered judgment in favor of GEICO.

Government Employees Insurance Company vs. Ayers-Superior Court of Pennsylvania-August 18, 2008-955 Atlantic Reporter 2d 1025.

Is murder an “accident” under auto policy?

On February 12, 2002, Ronald Popadich struck Neil Spicehandler with his car, fatally injuring him. Popadich, who had fled the scene, was arrested and eventually pleaded guilty to second-degree murder, admitting that he intentionally caused Spicehandler’s death by striking him with an automobile. Robert Langan, the administrator of Spicehandler’s estate, sought uninsured motorist coverage under a State Farm Mutual Automobile Insurance Company policy issued to Langan. State Farm denied coverage, claiming that Spicehandler’s injuries were not the result of an “accident” because they were caused by Popadich’s intentional conduct. The insurer then filed a declaratory judgment action asking the court to find that it was not obligated to provide coverage. The lower court found in favor of State Farm. An appeal followed.

On appeal, the Supreme Court, Appellate Division, Second Department, New York, found that State Farm had established its case by proving that Spicehandler’s injuries were caused by Popadich’s intentional criminal acts. The court noted, however, that this finding alone did not completely resolve the issue of coverage. Langan had also argued that the estate was entitled to recover benefits under the policy’s mandatory personal injury protection endorsement and its death, dismemberment, and loss of sight provisions.

The court addressed this argument, and agreed with Langan. According to the court, in contexts other than uninsured motorist coverage, whether an event is deemed “accidental” is usually determined by looking at the casualty from the point of view of the insured. In this case, from Spicehandler’s point of view, the incident was “unexpected, unusual, and unforeseen.” In addition, it was not the result of any “misconduct, provocation, or assault” on his part. Therefore, State Farm was obligated to provide benefits for Spicehandler’s injuries under the mandatory personal injury protection endorsement and its death, dismemberment, and loss of sight provisions.

The decision of the lower court was affirmed, then modified.

State Farm Mutual Automobile Insurance Company vs. Langan-Supreme Court, Appellate Division, Second Department, New York-September 16, 2008-55 Appellate Decisions 3d 281.

Two brothers, two households?

Steven Korson and Dean Korson were brothers who lived in the same house in Warwick, New York. Steven lived on the second floor of the home. Dean occupied the first floor and the basement with his wife, Brenda, his stepdaughter (Brenda’s daughter), Crystal Wise, and Crystal’s daughter, Aaliyah Powell. In 2005, Wise filed a lawsuit against Steven and Dean Korson claiming that Aaliyah suffered from lead poisoning while she lived in the home. Steven had a homeowners policy issued by Preferred Mutual Insurance Company. Both Steven and Dean were named insureds under the policy.

Preferred denied Steven’s claim for defense and indemnification in Wise’s lawsuit, relying on a policy exclusion that excluded liability coverage for “bodily injury to you, and if residents of your household, your relatives, and persons under the age of 21 in your care or in the care of your resident relatives.” The policy contained no definition of the term “household.” Steven filed an action asking the court to declare that Preferred was obligated to defend and indemnify him. The lower court found in favor of Preferred. Steven appealed.

On appeal, the issue was whether or not Dean resided with Steven in his household within the meaning of the policy exclusion. The Supreme Court, Appellate Division, Second Department, New York, found that Steven failed to show that Dean did not reside with him in his household. The home had a single mailbox and one electric meter. There was only one gas bill for the home’s address, and access from floor to floor was not restricted. Finally, the homeowners policy itself named Steven and Dean as insureds with respect to “12 Orchard Street, Warwick, New York.” Under these facts, the court found that coverage was excluded.

The decision of the lower court was affirmed.

Korson vs. Preferred Mutual Insurance Company-Supreme Court, Appellate Division, Second Department, New York-October 28, 2008-866 New York Supplement 2d 338.

Road rage victim seeks UM coverage

On March 19, 2004, Lester Kinzy was driving his car when a pickup truck pulled behind him. In an effort to get Kinzy to speed up, the driver of the pickup truck, Michael Drake, continuously honked his horn at him. Kinzy, however, refused to exceed the speed limit. He motioned to Drake, encouraging him to go around him. After passing Kinzy, Drake pulled the truck in front of him and slammed on his brakes. Kinzy was forced to drive over the curb and into someone’s yard. Drake stopped at a stop sign. Kinzy reentered the road, drove his car next to Drake, then asked Drake “what in the hell was wrong with him.” Both men proceeded to exit their vehicles. Drake then punched the 74-year-old Kinzy, rendering him unconscious. Kinzy was taken by ambulance to the hospital.

Kinzy eventually sued Drake, who had a personal auto policy with a $25,000 coverage limit. Kinzy settled his claim with Drake’s insurer for this amount. Believing his damages exceeded $25,000, Kinzy filed an underinsured/uninsured motorist claim with his own insurer, Farmers Insurance Exchange. Farmers claimed that Kinzy’s damages were not covered by the policy’s UM provision. The lower court agreed with Farmers; Kinzy appealed.

The Farmers Insurance UM provision stated that the insurer was obligated to provide coverage for damages Kinzy was “legally entitled to recover from the owner or operator of an uninsured motor vehicle.” To be covered, however, the damages had to “arise out of the ownership, maintenance or use of the ‘uninsured motor vehicle.’”

On appeal, the Court of Appeals of Georgia noted that for damages to “arise out of the ownership, maintenance or use of the ‘uninsured motor vehicle,’” Georgia law required a “causal connection” between the use of the vehicle and the injury. The court found that, although Drake’s driving may have provoked the argument, his decision to leave his vehicle was independent from his use of the vehicle. Therefore, Kinzy’s injuries were too remote from the use of the vehicle to fall within the UM provision, and Farmers Insurance was not obligated to provide UM coverage for Kinzy’s injuries.

The decision of the lower court was affirmed.

Kinzy vs. Farmers Insurance Exchange-No. A08A1148-Court of Appeals of Georgia-September 10, 2008-667 South Eastern Reporter 2d 673.

Burn victim seeks no-fault coverage

On May 29, 2005, when Harold Hammond was pumping gasoline into the tank of a car, the pump nozzle popped out of the car’s fuel tank. Gasoline spilled on the ground and onto some of Hammond’s clothing; however, Hammond didn’t realize that the latter had occurred. Hammond went into the gas station store and purchased some cigarettes. He and his friend then drove away, the friend driving the car. Shortly after they left, Hammond started to light a cigarette. The gasoline on his clothing caught on fire and he was severely burned.

Hammond filed a no-fault insurance claim with GMAC Insurance Group, but the insurer denied coverage. According to GMAC, Hammond’s injuries were not covered because they did not arise out of the use or operation of a motor vehicle. Hammond filed a lawsuit asking the court to find that he was entitled to coverage. The lower court found in favor of GMAC; Hammond appealed.

On appeal, the Supreme Court, Appellate Division, Third Department, New York, found in favor of the insurer. The court noted that no-fault insurance benefits were payable only if the injury arose out of the use or operation of a motor vehicle. According to the court, the vehicle was not the “proximate cause” of the injuries; in fact, they could have occurred even if Hammond had not re-entered the vehicle. Because the vehicle itself was not the cause of the damage, Hammond was not entitled to no-fault coverage.

The decision of the lower court in favor of GMAC was affirmed.

Hammond vs. GMAC Insurance Group-Supreme Court, Appellate Division, Third Department, New York-November 6, 2008-866 New York Supplement Reporter 2d 456.
















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