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INSURANCE-RELATED COURT CASES
COURT DECISIONS
Digested from case reports published in Westlaw,
West Publishing Co., St. Paul, MN
Condomania: Concrete collapse spurs coverage dispute
In 2005, Vision One LLC and Vision Tacoma, Inc. (Vision), began developing a condominium complex in Tacoma, Washington. Vision hired D&D Construction, Inc., for the concrete work. D&D hired Berg Equipment & Scaffolding Company, Inc., to construct a shoring structure to temporarily support the poured concrete slabs. On October 1, 2005, D&D poured a slab, and the shoring structure collapsed.
After Vision filed a claim with its insurer, Philadelphia Indemnity Insurance Company, Philadelphia hired BT & Associates to determine the cause of the collapse. BT & Associates' report concluded: "The marginal shoring design alone may not have caused the…collapse.…We suggest that this factor in combination with various shoring installation problems identified in this report, on a more likely than not basis, caused the shoring to collapse…"
Vision's policy expressly excluded loss caused by defective design and loss caused by faulty workmanship. However, the faulty workmanship exclusion did provide coverage for resulting losses by covered causes of loss. Philadelphia denied Vision's claim, stating that the only cause of the loss was defective design and faulty workmanship. According to Philadelphia, there was no "separate and independent loss that resulted in the claimed damage."
Vision sued Philadelphia for breach of contract, bad faith, and violations of the Consumer Protection Act. The trial court ruled that the collapse was covered under the "resulting loss" exception to the policy's faulty workmanship exclusion. In addition, a jury found that the insurer acted in bad faith and violated the Consumer Protection Act.
Vision also sued D&D, and D&D in turn sued Berg Equipment. Vision settled with both contractors, and the settlement released Berg from liability. Philadelphia moved to dismiss Vision's breach of contract claim by arguing that Vision breached its own insurance contract by impairing Philadelphia's recovery rights against Berg. The trial court disagreed and denied the insurer's motion.
Philadelphia appealed, and Vision cross-appealed.
On appeal, Philadelphia argued that the trial court should have dismissed Vision's breach of contract claim because Vision breached the policy by settling with Berg. The insurance contract provided: "If by any act or agreement after a 'loss' you impair our right to recover from others liable for the 'loss', we will not pay you for that 'loss.'"
The issue was whether Philadelphia could enforce this provision after denying Vision's claim.
The Court of Appeals of Washington, Division 2, found that it could not. The court emphasized that Vision submitted a claim to Philadelphia and settled with Berg only after Philadelphia denied the claim. Theoretically, the denied liability did not exist, so Philadelphia was not harmed by Vision's settlement. Therefore, Philadelphia was estopped from claiming that it was released from liability when it denied Vision's claim and Vision settled with Berg.
Philadelphia also argued that the trial court had erred by finding coverage before a jury determined the cause of the collapse, and that the concrete slab collapse was not a "resulting loss" under the resulting loss exception to the faulty workmanship exclusion.
On the issue of cause, the appellate court noted that throughout the trial the parties had disputed the cause of the collapse. Philadelphia had argued that the collapse was caused by faulty workmanship and defective design, and Vision had argued that faulty equipment also contributed to the collapse. The appellate court concluded that the cause of the shoring and concrete slab collapse remained in dispute. Accordingly, it reversed the trial court's resulting loss decision and remanded the case for a jury to determine what caused the collapse.
The court next addressed the issue of whether the concrete slab collapse qualified as a resulting loss under the resulting loss provision in the faulty workmanship exclusion. The court noted: "Assuming faulty workmanship caused the shoring and concrete slab to collapse, faulty workmanship was the initial excluded peril and the collapse was the loss. There was no independent covered peril (such as fire) that caused a covered resulting loss."
The court found that the concrete slab collapse did not qualify as a resulting loss under the resulting loss exception to the faulty workmanship exclusion in Vision's policy, and it concluded that the collapse would be covered only if the jury determined that faulty equipment caused the collapse.
The court reversed the judgment against Philadelphia and remanded the case for a jury to determine causation.
Vision One, LLC, vs. Philadelphia Indemnity Insurance Company-Nos. 38411-6-II, 41021-4-II-Court of Appeals of Washington, Division 1- October 19, 2010-2010 Westlaw 4069508.
Gap in umbrella coverage triggers dispute
On July 25, 2001, Anahid Khatchatourian was seriously injured in a motor vehicle accident. The driver who caused the accident fled the scene. At the time of the accident, Khatchatourian and her husband had a personal automobile policy with Encompass Insurance Company of Massachusetts. They also had an umbrella policy with United States Liability Insurance Company (USLIC). Both policies had been procured on their behalf by John Aftandilian, their long-time insurance broker.
The Khatchatourians had maintained their auto policy with Encompass, through Aftandilian, since 1998. The uninsured motorist coverage limit was $50,000 per person. Aftandilian had also helped the Khatchatourians procure umbrella coverage for losses in excess of $50,000, and in 2000 he obtained the USLIC umbrella policy. That policy provided coverage of $1,250,000 for losses in excess of $250,000. Thus there was a $200,000 gap in coverage between the two umbrella policies.
The Khatchatourians received the maximum uninsured motorist benefit of $50,000 under the Encompass auto policy, and in exchange signed a release and trust agreement settling their claim under that policy. They also filed a claim for uninsured motorist benefits under the USLIC policy. Total damages were eventually found through arbitration to be $1,375,000, and USLIC paid $1,125,000. Aftandilian's agency's errors and omissions insurer agreed to lend the Khatchatourians enough money to cover the $200,000 gap.
In exchange, the Khatchatourians agreed not to sue the agency, and they authorized the agency and its insurer to sue Encompass in their name. The loan was to be repaid from any award that resulted from the lawsuit. The lawsuit was filed on April 6, 2005. It alleged that Aftandilian was negligent in procuring inadequate uninsured motorist limits and sought reformation of the insurance agreement based on mutual mistake.
The negligence lawsuit was governed by a three-year statute of limitations beginning when the Khatchatourians' cause of action accrued. The lower court found that the statute had expired. The court also found that the loan agreement was in effect a settlement, rendering the reformation claim moot. The Khatchatourians appealed.
On appeal, the Khatchatourians claimed that, for purposes of the statute of limitations, their harm accrued on November 24, 2003, the date the arbitrator issued the $1,375,000 award. Therefore, they argued, the three-year period had not expired when they filed the lawsuit on April 6, 2005.
The Appeals Court of Massachusetts, Middlesex, disagreed. It concluded that "the latest date on which the Khatchatourians first knew or should have known that Aftandilian's conduct had caused them harm was February 28, 2002, the date on which [United States Liability] confirmed the $250,000 primary policy requirement in writing." The court reasoned that, at that point, the Khatchatourians should have known that Aftandilian had not obtained seamless coverage. Therefore their negligence claim was barred by the statute of limitations because it was filed more than three years after their harm accrued.
The court then addressed the issue of whether the loan agreement was in effect a settlement agreement. Noting that the loan was made without interest and was repayable only out of proceeds that could result from the lawsuit, the court found that the agreement did not create a settlement. Therefore the Khatchatourians' action seeking reformation of the contract was not rendered moot by the loan agreement.
The judgment of the lower court was affirmed in part and vacated in part, and the case was remanded to the Superior Court for further proceedings.
Khatchatourian vs. Encompass Insurance Company of Massachusetts-No. 09-P-1061-Appeals Court of Massachusetts, Middlesex-October 14, 2010-2010 WL 3991864.
Insurer claims right to ancestral portrait
In 1975, Helen Thompson's house in Concord, Massachusetts, was burglarized. One of the stolen items was an ancestral portrait painted by artist Angelica Kauffmann in 1765. The painting, a family heirloom, had been appraised for $25,000. Thompson's homeowners policy, issued by Northern Assurance Company, covered the loss of stolen unscheduled personal property up to $32,500. Thompson submitted a claim and attached a list of the stolen property. She estimated that the value of the items totaled $65,000, but the painting was the only item for which she had an appraisal.
Northern agreed to pay the policy limit of $32,500, and, as part of the claims process, required Thompson to sign a subrogation agreement. The agreement provided that Thompson accepted the $32,500 "in full release and satisfaction in compromise settlement" of her claim. The agreement contained the following language: "In consideration of the payment to be made hereunder, the assured does hereby subrogate to said insurer all right, title and interest in and to the property for which claim is being made hereunder, and agrees to immediately notify said insurer in case of any recovery of the property for which claim is being made hereunder, and will render all assistance possible in any endeavor to recover said property. Assured also agrees to turn over to said insurer, any such recovery which may be made, or reimburse said insurer in full to the extent of the payment for such property which may be recovered."
In 2007, the painting was found by an art dealer and turned over to the Concord police. By this time, Thompson had died and Northern Assurance Company was now OneBeacon Insurance Group. Both OneBeacon and Thompson's estate claimed rights to the painting, now valued at no less than $400,000. OneBeacon claimed it was entitled to the painting under the terms of the subrogation agreement. Thompson's estate claimed it could obtain rights to the painting by reimbursing OneBeacon $25,000. Eventually William Apthorp, the executor of Thompson's estate, filed a lawsuit seeking a declaration that the estate was entitled to possession of the painting in exchange for payment of $25,000. The court found in favor of the estate; OneBeacon appealed.
On appeal, the Appeals Court of Massachusetts, Norfolk, found that the subrogation agreement unambiguously provided that if the stolen property was recovered, the insured had a choice: either turn it over to the insurer or pay the insurer back. According to the court, the right of subrogation merely allowed Northern to exercise any rights that Thompson may have had to the extent of the payment Northern had made. This arrangement had the effect of preventing the insured from double recovery and the insurer from obtaining a windfall. The court concluded that the estate could choose to take possession of the painting and pay OneBeacon $25,000.
As a side issue, OneBeacon argued that, if the estate took possession of the painting, it should pay OneBeacon interest on the $25,000. The court found no merit in this argument and stated that "there was nothing in the subrogation agreement to support OneBeacon's contention that, if the estate were allowed to have possession and ownership of the portrait in exchange for reimbursing the amount paid by Northern, OneBeacon also should recover compound interest on that amount."
The decision of the lower court in favor of the Thompson estate was affirmed.
Apthorp vs. OneBeacon Insurance Group, LLC-No. 09-P-1258-Appeals Court of Massachusetts, Norfolk-October 18, 2010-2010 Westlaw 4030566.
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