INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Is reimbursement a bar to class action?

On March 5, 2007, Carolyn Wallace’s car was damaged in an automobile accident. Wallace obtained an estimate of the repair costs and presented it to her insurer, GEICO. GEICO informed her that it would not pay the full amount because the hourly charge for labor was in excess of what GEICO considered to be the prevailing rate. Wallace went ahead with the repairs. In addition to her $500 deductible, she was forced to pay an additional cost of $387.56, the difference between what GEICO was willing to pay and the actual labor costs she was charged.

In April 2007, in response to various complaints alleging that GEICO had refused to reimburse labor rates that it considered to be above the prevailing rate, GEICO entered into a consent agreement with the California Department of Insurance. Pursuant to that agreement, GEICO agreed, among other things, to conduct an internal audit, and to reimburse any parties who had complained that they had paid incremental repair costs resulting from the difference in the labor rate charged by a repair shop and the amount paid by GEICO. Wallace had not filed a complaint, so she was not one of the parties to be reimbursed under the consent agreement.

In August 2007, Wallace filed a proposed class action complaint against GEICO alleging that GEICO’s refusal to pay the full cost of her repairs violated the California Insurance Code. The complaint also alleged breach of contract and breach of the covenant of good faith and fair dealing.

In October 2007, GEICO sent Wallace a check for $387.56. The cover letter accompanying the check stated: “This payment is being made in accordance with the [consent order].” GEICO then argued that Wallace’s class action lawsuit could not proceed because she had already obtained relief.

Wallace refused to accept the check and argued that the lawsuit should be allowed to proceed. The trial court found that Wallace did not have standing to serve as the class representative because GEICO had paid her for her injury; however, it allowed her time to locate a substitute class representative. After considerable time passed and Wallace still had not located a desig­nated class representative, the court stayed the action pending her appeal of its order striking the class allegations.

On appeal, Wallace argued that she should be able to act as the representative plaintiff in the class action lawsuit. GEICO argued that she was no longer a member of the class she sought to represent because her injuries had been remedied by its tender of payment of $387.56.

The Court of Appeal, Fourth District, Division 1, California, acknowledged the general rule that the named plaintiff in a class action must be a member of the class he purports to represent. The court then noted, however, that where a defendant in a class action has forced a settlement on the representative plaintiff after the lawsuit is filed, the receipt of relief does not, of itself, prevent the class plaintiff from continuing as a class representative. In this case, because Wallace had not filed a complaint prior to filing her lawsuit, GEICO was not required under the terms of the consent order to reimburse her. GEICO voluntarily chose to pay Wallace, and thus her class allegations could not be automatically stricken.

The order striking Wallace’s class action allegations was reversed, and the matter was remanded for further proceedings.

Wallace vs. GEICO General Insurance Company-No. D055305-Court of Appeal, Fourth District, Division 1, California-April 19 2010-183 California Appellate Reporter 4th 1390.

Under the umbrella? Court says no.

On February 15, 2005, while working as a groundskeeper for Lisa Sutphin, Bruce Adkins was operating a tractor on a public street when he was struck from behind by a van operated by Kenneth Neese. Adkins sustained serious injuries and incurred medical expenses totaling more than $100,000. He filed a lawsuit against Neese on August 31, 2006. Neese’s automobile insurer agreed to pay $100,000. Adkins then filed an amended complaint seeking underinsured motorist coverage under Sutphin’s automobile, homeowners, and umbrella policies.

At the time of the incident, Sutphin was insured by three separate policies. The first was an automobile insurance policy issued by State Farm that provided underinsured motorist coverage with limits of $500,000 per person for bodily injury. The second policy was a homeowners policy issued by Chubb National Insurance Company that provided liability coverage with limits of $1,000,000, but no underinsured motorist coverage.

The third policy was an excess liability umbrella policy issued by Vigilant Insurance Company that provided liability coverage with limits of $5,000,000 and underinsured motorist coverage with limits of $5,000,000. The excess umbrella policy required the policyholder to maintain primary underlying liability insurance for the types of excess liability coverage it provided.

Specifically, Sutphin was required to maintain “[p]ersonal liability (homeowners) for bodily injury and property damage in the minimum amount of $50,000 each occurrence,” auto insurance “in the minimum amount of $250,000/$500,000 bodily injury and $25,000 property damage or $300,000 single limit each occurrence,” and “[u]ninsured/underinsured motorist protection in the minimum amount of $250,000/$500,000 bodily injury and $25,000 property damage or $300,000 single limit each occurrence.”

Sutphin’s automobile insurer, State Farm, was dismissed from the case because the court found that the tractor was not an insured vehicle under the policy. The court also determined that Sutphin’s homeowners policy did not provide underinsured motorist benefits. With regard to the Vigilant excess umbrella policy, the court found that the policy did not provide underinsured motorist coverage because the tractor was not a covered vehicle under the applicable “Required Primary Insurance Policy,” i.e., Sutphin’s policy. Adkins appealed.

On appeal, Adkins argued that Neese’s automobile policy, as opposed to Sutphin’s policy, should have been considered the “underlying insurance” giving rise to coverage under the umbrella policy. The Court of Appeals of Indiana disagreed. It stated that the umbrella policy, when read as a whole, provided coverage only after the loss exceeded the insured’s relevant underlying policy. Because the damages were not covered by either of Sutphin’s underlying policies, the damages were not covered by the umbrella policy.

The decision of the lower court was affirmed.

Adkins vs. Vigilant Insurance Company-No. 06A01-0911-CV-530-Court of Appeals of Indiana-May 17, 2010-927 North Eastern Reporter 2d 385.

Steering wheel grab spurs multiple suits

Shannon Doyle was driving a vehicle on a highway in North Carolina when one of her two passengers, Amy Giacometti, grabbed the steering wheel and pulled to the right. The vehicle went off the road and crashed. All three people in the car were injured.The vehicle Doyle was driving was leased from General Motors Acceptance Corporation (GMAC) and insured by Progressive Halcyon Insurance Company.

Several lawsuits followed. Giacometti filed a lawsuit against Doyle. The other injured passenger, Marle Fiocco, filed lawsuits against Giacometti, Doyle, and GMAC. Doyle filed a lawsuit against Giacometti. Progressive Halcyon filed a declaratory judgment action, asking the court to declare that it was not obligated to defend or indemnify Giacometti or GMAC. The lower court declared that Progressive was obligated to defend and indemnify Giacometti or GMAC. Progressive appealed.

On appeal, Progressive argued that it was not obligated to defend or indemnify Giacometti because she was not an insured person within the meaning of the policy. The Supreme Court, Appellate Division, Fourth Department, New York, agreed. The policy defined an “insured person” as “any person with respect to an accident arising out of that person’s use of a covered vehicle with the express or implied permission of you or a relative.”

Because she had leased the vehicle for more than 30 days, Doyle was considered to be the owner and, as the owner, it was presumed that she gave Giacometti permission to operate the vehicle. However, Doyle overcame that presumption by providing sufficient evidence that she did not give Giacometti permission to grab the wheel. Thus Giacometti was not an insured person within the meaning of the policy, and Progressive was not obligated to defend or indemnify her.

Progressive also argued that it was not obligated to defend or indemnify GMAC in connection with Fiocco’s negligent entrustment cause of action because the claimed negligence was based on the entrustment of the motor vehicle and not the vehicle’s condition. The court rejected this argument, stating that the fact that the claimed negligence was based on negligent entrustment did not alter the fact that the claim arose out of the ownership and use of the vehicle. Thus the court modified the lower court’s findings with regard to Progressive’s duty to defend and indemnify GMAC.

The decision of the lower court was affirmed as modified.

Progressive Halcyon Insurance Company vs. Giacometti-Supreme Court, Appellate Division, Fourth Department, New York-April 30, 2010-72 Appellate Decisions 3d 1503.

Fiancé contests subrogation

On January 31, 2002, a fire caused extensive damage to a house owned by Lisa Deveau. At the time of the fire, Deveau shared her home with her fiancé, Stephen Palumbo. Palumbo had moved in with Deveau shortly after she purchased the house, approximately two and a half years before the fire occurred. The couple equally shared all the expenses of the house, including the homeowners insurance. Palumbo would give Deveau cash or checks to cover his share of the expenses, and Deveau would pay the bills.

Deveau was the sole named insured under an Allstate Insurance Company homeowners policy covering the house. The policy was issued to Deveau as the insured, but the couple assumed that Palumbo would be covered because he was Deveau’s fiancé and a cohabitant of the house, and because he paid a share of the homeowners premium.

Palumbo made many improvements to Deveau’s property, including installing a water heater. After the fire, it was determined that the water heater had been installed improperly, and that this improper installation had been the cause of the fire.

Allstate eventually paid Deveau $62,615.25 to cover her expenses and damages. The insurer then filed an equitable subrogation action against Palumbo, alleging that it was entitled to reimbursement because Palumbo’s negligence had caused the fire.

The lower court and the appellate court found in favor of Allstate. The Supreme Court of Connecticut then certified the case for appeal.

The court began its analysis by acknowledging that the lower court had emphasized the nature of Deveau and Palumbo’s relationship as dispositive. The court noted that the facts showed that their relationship was more than that of host and social houseguest or landlord and tenant. The court also noted, however, that the trial court did not address whether or not it was inequitable, under the facts, to allow subrogation. The court stated that neither Deveau nor Palumbo would have reasonably believed that Deveau would bring an action against Palumbo for his negligent acts.

Although Deveau did not expressly tell Palumbo that she was obtaining the insurance for the benefit of both herself and him, she regularly accepted his contribution toward the premium payment. The court noted that “[c]ourts have long recognized that where one party has agreed with another to obtain insurance for their mutual protection, the insurer will not be allowed to recover its losses from the noninsured party by means of subrogation or indemnity.” It then concluded that the “totality of the circumstances” weighed against subrogation.

The judgment of the Appellate Court was reversed, and the case was remanded with instructions to reverse the judgment of the trial court and render judgment in favor of Palumbo.

Allstate Insurance Company vs. Palumbo-No. 18276-Supreme Court of Connecticut-May 18, 2010-994 Atlantic Reporter 2d 174.