INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Agent denies liability for negligence

Robert Graff sued Robert Swendra and his insurance agency for failing to procure $1 million in additional underinsured motorist coverage. Graff testified that while he was working with Swendra to procure American Family Insurance Group insurance coverage, he asked Swendra to purchase a supplemental umbrella policy that included $1 million in additional underinsured motorist coverage. Swendra claimed the conversation never occurred, and that he never had an obligation to procure the additional insurance.

The issue arose after Graff was seriously injured in an automobile accident. After the other party’s insurance carrier paid Graff the policy limits, Graff demanded that American Family cover the balance of his damages. American Family refused to pay under the umbrella policy. After Graff settled disability and workers compensation claims with his employer, he settled with American Family for $100,000, the actual amount of underinsured motorist coverage that had been procured by Swendra. As part of that settlement, Graff released all claims he had against American Family.

When Swendra found out about Graff’s settlement agreement with American Family, he asked the court to dismiss the lawsuit against him. He argued that if the jury found that he had agreed to procure the $1 million in coverage, then American Family would be contractually bound, and he, Swendra, could not be independently liable.

The court considered the motion but continued with the trial. The jury eventually found that Swendra was 90% negligent for not obtaining additional underinsured motorist coverage and that Graff was entitled to damages of $753,000. Swendra again argued that he could not be independently liable. The court ruled against him on this argument, but it did reduce the amount of damages by $200,260 to reflect payments Graff had already received from other sources. Swendra and American Family appealed.

On appeal, Swendra continued to assert that, when Graff released his claims against American Family, he eliminated his claims against Swendra. The Court of Appeals of Minnesota disagreed. The court noted that Minnesota courts recognize that “an insurance agent may be held liable under a negligence theory for a failure to procure insurance.” The court also noted that the question of whether Swendra had bound coverage and created a contract between American Family and Graff was never before the jury. According to the court, the “fundamental premise of Swendra’s argument—namely, that a legally enforceable contract for the additional UIM coverage existed between American Family and Graff because Swendra bound coverage—was not actually at issue and not established.” Thus Swendra’s argument failed.

Swendra also argued, alternatively, that because Graff had settled with American Family, American Family must indemnify Swendra. Again the court disagreed. It emphasized that the losses Swendra faced were due to his own negligence. The court stated: “Absent an agreement or other special circumstances, American Family has no obligation to indemnify Swendra against losses caused by his negli­gence.” Because Swendra was not able to prove that he had an agreement entitling him to indemnification, the court found he was not entitled to it.

The remaining issues involved the deduction of payments Graff had received from other sources from the $753,000 in damages assessed against Swendra. The court found that the disability and workers compensation benefits were properly deducted from the jury award, but that attorney fees incurred to obtain those benefits were not properly deducted. The court also found that proceeds of the settlement agreement could be properly deducted.

The judgment of the lower court was affirmed.

Graff vs. Robert M. Swendra Agency, Inc.-Nos. A09-173, A09-522-Court of Appeals of Minnesota-December 29, 2009-776 North Western Reporter 2d 744.

Right vs. duty to defend

On July 22, 2005, LAM Truck Brokers, Inc., and BAM Transportation, Inc. (collectively, LAM/BAM), freight brokers, hired Genaeya Corporation, a truck transportation company, to transport a load of freight to a warehouse in New Jersey owned by World Trade Logistics. The freight was to be cross docked for delivery to California the following day.

Genaeya’s driver, Janusz, delivered the trailer containing the shipment to the location identified by LAM/BAM. The location was a partially fenced lot located next to a shipping facility owned by World Trade Logistics. There was no representative at the lot, so Janusz contacted LAM/BAM for instructions. LAM/BAM advised him to park the trailer against the wall of the World Trade Logistics building and to leave the bill of lading on the front of the trailer. Janusz did as he was instructed. He unhooked the trailer from the tractor and left. LAM/BAM informed Genaeya that the load would be cross docked the next day, Saturday, and that Genaeya could pick up the empty trailer on Monday.

On Tuesday morning, LAM/BAM advised Genaeya that the load was never cross docked. It then asked Genaeya to deliver the load to California. Janusz returned to the World Trade Logistics facility and discovered that the trailer and its contents were missing. Genaeya sued LAM/BAM to recover freight charges; LAM/BAM counterclaimed, seeking recovery of the alleged value of the shipment.

Genaeya’s insurance carrier, Harco National Insurance Company, refused to defend Genaeya on the LAM/BAM counterclaim or to indemnify it for any liability. Genaeya filed an action against Harco seeking a declaration that the insurer was obligated to defend and indemnify it. The trial court found in favor of Genaeya; Harco appealed.

The Harco policy provided, in relevant part: “We may elect to defend you against suits arising from claims of owners of property. We will do this at our expense.” The trial court had found that this terminology was vague and ambiguous and had, therefore, construed it against Harco.

On appeal, Harco argued that this language clearly and unambiguously conveyed that it had the right, and not the duty, to defend Genaeya against such lawsuits. The Superior Court of Pennsylvania agreed with Harco. The court noted that the relevant policy language stated that Harco “may elect” to defend its insured, Genaeya, against potential claims from property owners. According to the court, the use of the word “elect” underscored that the decision whether or not to defend was Harco’s.

On the issue of indemnification, the relevant portion of the Harco policy provided: “We will pay all sums you legally must pay for ‘loss’ to ‘cargo’ while it is in your custody and in or on a covered ‘auto.’” “Covered Property” included “Any trailer you own, lease, hire or borrow while it is being used in your business.” In addition, a trailer owned leased, hired or borrowed was a covered “auto” if: “1. It [was] in a garage, terminal, or depot for a period not exceeding seventy-two (72) hours; or 2. It [was] unattached, as the result of an accident or breakdown, for a period not exceeding twenty-four (24) hours while awaiting either repair or transfer of the ‘cargo’ to another trailer.”

Genaeya argued that subsection 1. applied because the trailer was left in a “garage, terminal, or depot.” The court disagreed. It stated that the unsecured lot was clearly not a “garage, terminal, or depot.” In addition, for coverage to apply, the cargo had to be in a “covered auto” and in Genaeya’s custody as well. Finding that neither of these requirements had been met, the court concluded that the trial court erred in finding a duty to indemnify Genaeya.

The decision of the lower court was reversed.

Genaeya Corporation vs. Harco National Insurance Company-Superior Court of Pennsylvania-March 15, 2010-991 Atlantic Reporter 2d 342.

Can insurer deny coverage for boarder’s dog bite?

Susan Hindman owned a single-family house in Sea Girt, New Jersey. In 1998, she rented part of the house to her friend, Mary Romano, who had an infant son, John. In subsequent years Hindman rented other portions of the house to several other boarders who stayed for shorter periods of times than the Romanos. The Romanos were still boarders in the house when, in March 2006, John was bitten by Hindman’s dog. The Romanos sued Hindman seeking recovery for John’s injuries. Hindman sought defense coverage under her Homesite Insurance Company homeowners policy.

Hindman’s policy contained a business activities exclusion as well as a rental exclusion. Homesite denied coverage, citing both of these exclusions. The business activities exclusion provided that coverage did not apply to bodily injury “[a]rising out of or in connection with a ‘business’ engaged in by an ‘insured.’ This exclusion applies but is not limited to an act or omission, regardless of its nature or circum­stances, involving a service or duty rendered, promised, owed, or implied to be provided because of the nature of the ‘business.’” The policy defined “business” as including “trade, profession, or occupation.”

The rental exclusion provided that coverage did not apply to bodily injury “[a]rising out of the rental or holding for rental of any part of any premises by an ‘insured.’ The exclusion did not apply, in relevant part, to “the rental or holding for rental of an ‘insured location’:…(2) In part for use only as a residence, unless a single family unit is intended for use by the occupying family to lodge more than two roomers or boarders.”

Homesite filed a declaratory judgment action asking the court to find that coverage for the dog bite incident was barred by both the business and rental exclusions. The court found that neither exclusion applied; Homesite appealed.

On appeal, Homesite argued that the business exclusion applied because, by renting a portion of the premises to boarders on an ongoing basis, Hindman was conducting a business. The Superior Court of New Jersey disagreed. It noted: “If the policy contemplated that a ‘business,’ defined as including a ‘trade, profession, or occupation,’ was meant to include rental of a portion of the insured premises, there would be no need for the rental exclusion in the policy.”

The court also rejected Homesite’s argument that the rental exclusion applied. It noted the exclusion’s exception and stated that the insured’s intent at the time of the accident was the key factor in interpreting the exception. The court went on to find that at the time John was bitten by the dog, the property was not held out for rental to more than two boarders. Thus the exception to the exclusion applied.

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

Homesite Insurance Company vs. Hindman-Superior Court of New Jersey, Appellate Division-April 23, 2010-992 Atlantic Reporter 2d 804.

Insured and carrier debate meaning of “surface water”

Northwest Bedding Company owned buildings and property in Spokane, Washington. During the winter of 2007-2008, Spokane experi­enced unusually heavy snowfall. As part of the snow removal process, authorities diverted snow into trenches surrounding Northwest’s property.

When the snow melted, water overflowed from the trenches, damaging Northwest Bedding’s property and buildings. National Fire Insurance Company of Hartford insured Northwest Bedding under an all-risk commercial property and general liability insurance policy. When Northwest Bedding filed a claim, National Fire denied coverage, claiming that the loss was the result of surface water and was therefore excluded from coverage.

Northwest Bedding sued National Fire seeking a declaration that the loss was a covered loss under the policy. The court found in favor of National Fire; Northwest Bedding appealed.

On appeal, the parties agreed that the policy excluded coverage for damage caused by flooding or surface water. The issue was whether or not the damage was in fact caused by surface water, as the lower court had concluded. Northwest Bedding argued that the loss did not result from surface water but rather that it resulted from third parties channeling water onto its property. National Fire argued that the fact that the water was channeled onto the property did not change the fact that the loss was the result of surface water.

The Court of Appeals of Washington agreed with National Fire. In reaching its decision, the court noted that because the policy itself did not define “surface water,” it was necessary to look at how Washington courts had characterized “surface water” in the past. In the past, courts had stated: “The chief characteristic of surface water is its inability to maintain its identity and existence as a body of water. It is thus distinguished from water flowing in its natural course or collected into and forming a definite and identifiable body, such as a lake or pond.”

Using this language as a guide, the court noted that “regardless of what form it took between its origin and across the land of Northwest Bedding’s neighbors, the water that caused the damage to Northwest Bedding’s property was certainly surface water once it overflowed the ditch.” The court also noted that the water could be characterized as floodwater. In conclusion, the court found that the water that damaged Northwest Bedding’s property could reasonably be characterized as flood or surface water, and that coverage therefore was excluded under the policy.

The court also found that overflow of the drainage system was not an “independent peril” from the snowmelt and surface water/flood that damaged Northwest Bedding’s property.

The decision of the lower court was affirmed.

Northwest Bedding Company vs. National Fire Insurance Company of Hartford-No. 28044-6-III-Court of Appeals of Washington-February 11, 2010-225 Pacific Reporter 3d 484.

Is auto insurer liable for trooper’s injury?

In February 2004, Virginia State Police Trooper James Inge was parked in the median of a four-lane divided highway when his radar detected a speeding vehicle driven by Malcolm Robertson. Inge turned on his lights and siren and began to pursue Robertson. Robertson did not pull over; instead he began to speed away. Inge called for assistance. Nottoway County Sheriff’s Office Deputy Charles Simpson responded to Inge’s call. After a dangerous chase, Robertson lost control of his vehicle and crashed. The three men emerged from their vehicles, and a struggle ensued. Inge tackled Robertson, and all three men fell to the ground. Simpson tried to get Robertson’s arm behind him so that he could be handcuffed. As he did this, Simpson suffered an injury to his left shoulder.

Simpson sued Robertson for the injury to his arm, and Robertson’s automobile insurer, GEICO, denied coverage. According to GEICO, Simpson’s injuries did not arise out of the “use” of Robertson’s vehicle and, even if they did, Robertson’s policy excluded coverage for intentionally caused injuries. Simpson’s personal vehicle was insured by National Grange Mutual Insurance Company (NGM), which claimed it was not liable because neither Simpson nor Robertson was using any vehicle at the time. Nottoway County’s insurer was Virginia Municipal Liability Pool (VMLP). It filed a declaratory judgment action arguing that Simpson was not covered by its policy because Simpson was not “occupying” the sheriff’s cruiser at the time of his injury, and because Robertson was not “using” his vehicle at the time of the injury.

The lower court ruled that Robertson, Inge, and Simpson were not “using” or “occupying” a motor vehicle when Simpson was injured because the drivers were no longer using their vehicles to “escape or apprehend.” Accordingly, the court found that none of the insurers had a duty to defend Robertson or to provide coverage for Simpson. Simpson appealed.

On appeal, the Supreme Court of Florida stated that “cases involving the terms ‘use’ and ‘occupancy’ in automobile insurance policies present to the courts such an infinite variety of factual patterns that it is impossible to formulate bright-line rules of universal application or a list of factors dispositive of the issue in every case.” The court did state, however, that the “critical inquiry” is whether there was a “causal relationship between the incident and the employment of the vehicle as a vehicle.” In this case, the court found that there was no evidence that at the time the injury occurred Simpson’s vehicle was used or relied upon in any way to accomplish his mission of pursuing, stopping, arresting, and taking Robertson into custody. Because the use of the vehicles played no role in the injuries, none of the three automobile insurance policies afforded coverage for them.

The decision of the lower court was affirmed.

Simpson vs. Virginia Municipal Liability Pool-Record No. 090596-Supreme Court of Virginia-April 15, 2010-692 South Eastern Reporter 2d 244.