INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

What is “regular” use of farm?

Weldon Carfield, a farmer, owned farm equipment including a combine, tractors, and a planter. His son, Keith Carfield, owned a sprayer. Both men owned their own farms, but they helped each other with their respective farming operations and shared the equipment. In 2001, Weldon purchased a truck. As with the farm equipment, both men used the truck for farming operations. Keith’s use of the truck, however, was almost exclusively confined to the spring planting and fall harvesting periods.

In 2004, Keith was driving the truck when he was involved in an accident with another vehicle. The other driver, Bruce Mohr, was killed. At the time of the accident, the truck was insured by Weldon. Keith held a Buckeye State Mutual Insurance Company automobile policy, but the truck was not listed on the policy and was not a “covered auto” under the terms of the policy. Nevertheless, when Mohr’s estate filed a lawsuit, Keith sought coverage under his Buckeye policy.

The Buckeye policy excluded liability coverage for “any vehicle, other than ‘your covered auto,’ which [was] ‘furnished or available for your regular use.’” Buckeye filed a declaratory judgment action asking the court to find that this exclusion applied, and that Keith was not entitled to coverage under the policy. The trial court found that the exclusion did not apply; Buckeye appealed.

On appeal, the Court of Appeals of Indiana concluded that the lower court was correct when it found that the exclusion did not apply. The court noted that the truck was considered to be the “farm truck” used by both Weldon and Keith. It was used to transport equipment from field to field and to move farming materials. Both men used the truck during the planting and harvesting seasons. There was only one set of keys, and they were always left in the truck. Keith did not use the truck on a routine or recurring basis. According to the court, this kind of use did not make the truck “furnished or available for your regular use” as required by the policy exclusion. The court concluded that the exclusion did not apply and that Keith was entitled to coverage under the Buckeye policy.

The decision of the lower court was affirmed.

Buckeye State Mutual Insurance Company vs. Carfield-No. 70A04-0902-CV-95-Court of Appeals of Indiana-October 7, 2009-914 North Eastern Reporter 2d 315.

Estate challenges pollution exclusion in carbon monoxide deaths

Nancy and Richard Sachs hired Omaha Gas Appliance Company, doing business as Rybin Plumbing and Heating, to repair and eventually replace the boiler system in their home. After the system was replaced, the Sachses both died of carbon monoxide poisoning. Victoria Beck, the personal representative of the estate of Nancy Sachs and the special administrator of the estate of Richard Sachs, filed a legal action against Rybin. At the time of the accident, Rybin had general liability and umbrella policies with Harleysville Insurance Group. Harleysville filed a declaratory judgment action alleging that coverage was excluded under the policies’ pollution exclusions. The lower court found that the insurer was not obligated to defend or indemnify Rybin because the carbon monoxide was a “pollutant” excluded from coverage. Beck appealed.

On appeal, Beck acknowledged that the language of the general liability policy excluded coverage for carbon monoxide poisoning. Instead, she focused on the language of the umbrella policy. That policy provided that Harleysville would pay the “‘ultimate net loss’ in excess of the ‘applicable underlying limit’ which the insured becomes legally obligated to pay as damages because of…[b]odily injury…covered by [the] policy.” The policy had a limited pollution exclusion that provided: “This insurance does not apply to…[a]ny liability caused by pollutants excluded by ‘underlying insurance.’”

According to Beck, the umbrella policy extended coverage to pollution occurrences excluded by the general liability policy because the limited pollution exclusion applied only to strict liability pollution claims: claims stemming from the pollutants themselves without any human causal element. The Supreme Court of Nebraska disagreed. Evaluating the language of both policies, and focusing on the interplay of the policies, the court found that there was “no basis for Beck’s conclusion that the phrase “[a]ny liability caused by pollutants excluded by ‘underlying insurance’ could be construed as providing coverage.” The court concluded that the umbrella policy excluded coverage for liability caused by the release of pollutants, no matter what “human culpability” was involved.

The judgment of the lower court in favor of Harleysville was affirmed.

Harleysville Insurance Group vs. Omaha Gas Appliance Co.-No. S-07-1235-Supreme Court of Nebraska-September 18, 2009-772 Northwestern Reporter 2d 88.

Cost to replace cleaner wasn’t just peanuts

Birdsong Peanut Company hired Smith Mechanical, an equipment repair company, to move a peanut cleaner from its foundation to a truck arranged by Birdsong for shipment to another Birdsong plant. Smith Mechanical was using a crane to perform this operation when the asphalt beneath the crane caved in, causing the crane to drop and then fall on the peanut cleaner. Bobby Royce Smith, Smith Mechanical’s principal, arranged for the purchase of a replacement peanut cleaner for $27,500. Birdsong purchased the replacement cleaner for that amount, and Bobby Royce Smith gave Birdsong a promissory note for $27,500, which Smith Mechanical repaid to Birdsong in two payments, along with interest.

Smith Mechanical timely submitted a claim and required proofs of loss to its insurer, Owners Insurance Company, for indemnification under its commercial general liability policy. Owners paid for damage to the crane but denied coverage for the peanut cleaner. Smith Mechanical filed a lawsuit seeking indemnification for the property damage to the cleaner. The lower court found in favor of Smith Mechanical; Owners appealed.

The Owners policy specifically excluded liability for “property damage to…[p]ersonal property in the care, custody or control of the insured.” On appeal, Owners argued that it was not required to reimburse Smith Mechanical for the damage to the peanut cleaner because it was in the care, custody, or control of Smith Mechanical at the time it was damaged.

The Supreme Court of Georgia disagreed. In reaching its decision, the court stated that the facts of the case did not support a finding that Smith Mechanical had exclusive “care, custody, or control” of the cleaner at the time of the accident. The job was performed on Birdsong’s site, a Birdsong employee was supervising the job, and Birdsong retained custody and control of the cleaner even when it was being moved. According to the court, “Smith Mechanical was operating as an instrumentality of Birdsong, moving Birdsong’s peanut cleaner to serve Birdsong’s purposes while under Birdsong’s direction and control.” Therefore the exclusion did not apply.

Owners also argued that even if the exclusion did not apply, it was not obligated to reimburse Smith Mechanical for the peanut cleaner because Smith Mechanical incurred no liability in the first place. The court rejected this argument as well. It found that Birdsong’s possession of the peanut cleaner was not “all-encompassing” and that Smith Mechanical “essentially settled” with Owners when it purchased the new peanut cleaner.

The decision of the lower court in favor of Smith Mechanical was affirmed.

Owners Insurance Company vs. Smith Mechanical Contractors, Inc.-No. S09G0-0480-Supreme Court of Georgia-September 28, 2009-683 South Eastern Reporter 2d 599.

Building owner “trapped” in ACV dispute

Terrey Pirtle purchased an historic building with the intent to restore it. During the restoration process, the building was used as rental property. Pirtle purchased insurance for the property from Rockford Mutual Insurance Company. In 1999 the building was valued at $165,000. In November 2000 it was damaged by a fire.

The Rockford policy provided replacement cost coverage up to $193,000 for the building, up to $8,000 for personal property, and up to $19,300 for fair rental value. The policy further provided: “5. Loss Settlement. Covered property losses are settled as follows: (c) Buildings under coverage A or B at replacement cost without deduction for depreciation, subject to the following:…(4) When the cost to repair or replace the damage is more than $1,000 or more than 5% of the amount of the insurance in this policy on the building, whichever is less, we will pay no more than the actual cash value of the damage until actual repair or replacement is completed.”

Pirtle filed a claim under the policy. In January 2001 Rockford offered Pirtle $80,000 to “cash out” the policy, meaning that would be all the money Pirtle would receive, even though the policy limit under Coverage A was $193,000. Pirtle rejected the offer, contending that it was insufficient to satisfy his mortgage obligation or repair the building so that he could continue to use it as rental property. He then hired his own contractor, who estimated the damage at $232,915.

In May 2001, Rockford increased the settlement offer to $193,000, the policy limits, but stated that it would pay only $69,874, representing the “actual cash value” of the building, with the balance of the $193,000 to be paid when the property was repaired. This offer was made six months after Rockford said that Pirtle would be entitled to replacement cost coverage only after repairs to or replacement of the building had been completed. The parties continued to disagree as to the actual cash value. An independent adjuster eventually completed an analysis that established the actual cash value at $86,146.

On September 24, 2001, Pirtle sued Rockford for breach of contract and bad faith. The parties eventually settled the bad faith claim when Rockford paid the $86,146 in March 2002, although Pirtle continued to dispute that amount. Rockford argued that Pirtle’s recovery was limited to actual cash value because the building had not been repaired or replaced. The trial court rejected that argument and eventually found that Rockford breached its contract with Pirtle. Pirtle was awarded $124,149 on the breach of contract claim plus $406,136 for consequen­tial damages. Rockford appealed.

On appeal, Rockford continued to argue that Pirtle was entitled only to the actual cash value of the building because Pirtle had failed to repair and replace the building after the fire. According to Rockford, Pirtle should have used the actual cash value funds to begin repairs on the building. The Court of Appeals of Indiana rejected this argument. The court noted that the parties had reached an impasse regarding the calculation of the actual cash value of the building.

According to the court, “Because of the impasse, Pirtle struggled to meet his obligations under the mortgage. Pirtle was trapped in a no-win situation. By the time he received the actual cash value payment in March of 2002 he was behind on the mortgage payments and had no rental income. Pirtle had little choice but to use the funds to satisfy the mortgage at a loss to the mortgage holder, which left nothing to start the repairs.”

Further, the court noted that the jury had been instructed: “When one party prevents the other from performing any part of the contract, the other party is excused from the remainder of his duties. The party excused may also recover for any work and any other damages sustained as a direct result of the prevention of performance.” According to the court, Pirtle was excused from the “actual repairs” requirement because Rockford could have advanced money to assist in commencement of the rebuilding and could have entered into agreements with Pirtle for repairs.

Rockford also argued that damages should have been capped at the policy limits. The court rejected this argument as well, stating that the jury’s award was within the scope of the evidence.

The decision of the lower court was affirmed.

Rockford Mutual Insurance Company vs. Pirtle-No. 77A01-0802-CV-94-Court of Appeals of Indiana-August 11, 2009-911 North Eastern Reporter 60.