INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Ambiguity in auto policy exclusion

Gilda Menendez, her grand­daughter, Fabiola G. Llanes, and Fabiola’s parents, Fabiola P. and Roger Llanes, were injured in an automobile accident while riding in Gilda’s car. The granddaughter, Fabiola G., was driving Gilda’s car with her permission. On the date of the accident, Fabiola G. lived with her parents. Gilda lived at a different address.

Gilda had a State Farm Mutual Automobile Insurance Company policy under which she was the named insured. The policy contained a household exclusion that provided in relevant part: “There is no coverage for any bodily injury to…c. any insured or any member of an insured’s family residing in the insured’s household.”

When Fabiola P. and Roger Llanes filed a declaratory relief action seeking coverage under the State Farm policy, the lower court found that there was coverage under the policy. Specifically, the court found that the household exclusion did not apply because it was ambiguous. State Farm appealed that decision.

On appeal, State Farm argued that Gilda’s granddaughter, Fabiola G., was an “insured” under the policy because she was a permissive user of Gilda’s car. According to State Farm, because Fabiola was an “insured,” and because she lived with her parents, the household exclusion applied and there was no coverage under the policy.

The Llaneses argued that the phrase “the insured” referred only to Gilda, the named insured, and that it did not apply to a permissive user. The District Court of Appeal of Florida, Third District, agreed with the Llaneses. In reaching its decision, the court referred to the definitional section of the policy. That section provided that “insured” meant “the person, persons or organization defined as insureds in the specific coverage…“You or your” was defined as “the named insured or named insureds shown on the declaration page.”

The court then referred to the section of the policy that contained the household exclusion. That section provided: “when we refer to your car, a newly acquired car or a temporary substitute car, insured means: 1. You; 2. Your spouse; 3. The relatives of the first person named in the declarations; 4. Any other person while using such a car if its use is within the scope of consent of you or your spouse; and 5. Any other person or organization liable for the use of such a car by one of the above insureds.”

Applying these various provisions, the court noted that it was clear that both Gilda and Fabiola G. were insureds and that the household exclusion applied to them. However, with regard to the Llaneses, the court found that the exclusion could be interpreted in more than one way. The court acknowledged State Farm’s argument, specifically that if it had intended for the phrase “the insured” to mean the “named insured,” the policy would have read: “Any insured or any member of an insured’s family residing in your household.”

The court also noted the Llaneses’ argument that the use of the word “the” before “insured” referred only to the insured referenced in the declarations. The court concluded that because the language of the household exclusion was ambiguous, it must be construed in favor of the insured. Thus the court found that the exclusion did not apply and that there was coverage for the Llaneses’ injuries.

The decision of the lower court was affirmed.

State Farm Mutual Automobile Insurance Company vs. Menendez-No. 3D08-2969-District Court of Appeal of Florida, Third District-January 6, 2010-24 Southern Reporter 3d 809.

Is pickup truck a “farm vehicle”?

Charles McLaughlin and his wife, Cheryl McLaughlin, sued Ronald and David Blodgett after Charles was injured when his motorcycle collided with a pickup truck owned and driven by Ronald Blodgett. The case was eventually settled for $1 million. The Blodgetts had a Midrox Insurance Company farmowners insurance policy. Midrox denied coverage on the ground that the accident occurred off the insured premises while Blodgett was operating a vehicle subject to motor vehicle registration. The McLaughlins filed an action seeking a determination that Midrox was obligated to provide coverage. After the lower court ordered Midrox to pay the McLaughlins $1 million, the insurer appealed.

The Midrox policy provided liability coverage for bodily injury and property damage that “occurs on the insured premises and results from the ownership, maintenance, use, loading or unloading of…motorized vehicles not subject to motor vehicle registration because of their type or use….”

The “insured premises” included the Blodgetts’ main farm (as described in the “Described Location” section) and “any premises used…in connection with the described location,” the “approaches and access ways immediately adjoining the insured premises,” and “other land [the insured] use[s] for farming purposes.” During the trial it was determined that at the time of the accident Ronald Blodgett was driving the pickup truck between the main farm and the leased farm property nine miles away. Midrox argued that the policy did not provide coverage because the accident occurred on a public roadway and because the truck was registered as an agricultural truck rather than as a farm vehicle.

The Supreme Court, Appellate Division, Fourth Department, New York, disagreed. In reaching its decision, the court emphasized the fact that the pickup truck was used exclusively for farm purposes and that the accident occurred along the most direct route between the two farm properties. The court did not find any merit in the insurer’s argument that the truck was not registered as a farm vehicle.

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

McLaughlin vs. Midrox Insurance Company-Supreme Court, Appellate Division, Fourth Department, New York-February 11, 2010 Atlantic Reporter 3d 1463.

Dam failure triggers coverage dispute

The Town of Fort Ann, New York, hired Heynan Teale Engineers and Kubricky Construction Corporation to perform engineering and reconstruction work on the town’s Hadlock Pond dam in 2004 and 2005. On July 2, 2005, the dam failed. Heynan was insured by Steadfast Insurance Company, and Kubricky was insured by Liberty Mutual Insurance Company.

When the dam failed, numerous property owners filed lawsuits against the town.

The town and its insurer, New York Municipal Insurance Reciprocal, sought defense and indemnification from Steadfast and Liberty Mutual. When both insurers denied they had any obligation, the town filed a declaratory judgment action asking the court to find that both insurers were obligated to defend and indemnify the town, and that Kubricky had breached its contractual obligation to obtain insurance coverage for the town.

The lower court decided only one issue: specifically, that Steadfast was obligated to defend the town for underlying property damage actions. All other arguments were denied. The town and New York Municipal appealed; the other insurers cross-appealed.

The written contract between Kubricky and the town required Kubricky to maintain additional insured coverage until the town accepted the completed project. On appeal, Liberty Mutual argued that the town’s additional insured coverage had terminated because the policy itself provided that coverage would remain in effect only as long as Kubricky had “ongoing operations at the project.”

The Supreme Court, Appellate Division, Third Department, New York, noted that while construction had ended one to two months before the dam failed, the term “ongoing operations” could be extended to include the period of inspection of the project by the engineers. Because the engineering inspection had not yet occurred when the dam failed, the court found that the town was still an additional insured for purposes of the duty to defend.

The Steadfast policy provided that a client of Heynan would be an additional insured when “required by written contract executed and effective before the performance of ‘your work’ or ‘covered operations.’” Heynan’s contract with the town stated that “[c]ertificates of insurance will be furnished upon request naming the Town of Fort Ann…as additional insured.”

On appeal, Steadfast argued that it was not obligated to provide coverage because the town did not request the certificate of insurance until after the dam failed. The court disagreed, noting that “the fact that certificates of insurance are not issued until after the loss does not compel the conclusion that such entity is not an additional insured.” The court concluded that Steadfast had a duty to defend.

The decision of the lower court was affirmed and modified so that both Liberty Mutual and Steadfast were obligated to defend the Town of Fort Ann.

Town of Fort Ann vs. Liberty Mutual Insurance Company-Supreme Court, Appellate Division, Third Department, New York-January 28, 2010 Appellate Decisions 3d 1261.

Is mistaken belief an “accident”?

Kenneth and Dorothy Bourguignon owned property next to property owned by Louise Leach. In 1984, Ms. Leach granted the Bourguignons an access easement over her property. Later, the Bourguignons wanted to rebuild/renovate their home after it was damaged by an earthquake. As part of the process, Leach agreed to sign a “Lot Line Adjustment” application for a five and one-half foot easement. The application was approved, and the Bourguignons completed the construction project. A corrected certificate of compliance was recorded in October 1995.

In 2002 Leach agreed to sell her property to the Parsons. However, during the negotiation process, the lot line adjustment appeared as a cloud on the title. Only after the Parsons obtained an assignment of Leach’s right to contest the validity of the lot line adjustment did they agree to purchase the property. The Parsons then sued the Bourguignons, and the Bourguignons sued the Parsons.

The Bourguignons had a Fire Insurance Exchange homeowners policy. When Fire Insurance Exchange refused to defend the suit, they sued the insurer for breach of contract and bad faith. The trial court denied Fire Insurance Exchange’s motion for summary judgment; the insurer appealed.

The Fire Insurance Exchange policy covered “those damages which an insured becomes legally obligated to pay because of…property damages…resulting from an occurrence to which this coverage applies.” An “occurrence” was defined as “an accident including exposure to conditions which result during the policy period in…property damage.”

On appeal, Fire Insurance Exchange argued that the Bourguignons’ action of building a structure at a specific location was not an accident within the meaning of the policy, but an intentional act. The Bourguignons argued that because they mistakenly believed that they owned the property, rebuilding the house was an accident within the meaning of the policy.

The Court of Appeal, Fourth District, Division 2, California, found in favor of the insurer. In reaching its decision, the court noted the general rule that an accident does not occur when the insured performs a deliberate act unless some additional, unexpected, independent, and unforeseen happening occurs that produces the damage. In this case, the Bourguignons acted under a mistaken belief that they owned the property and had a legal right to build on it. There was no unexpected and unintended event between the intentional construction of the building and the encroachment. According to the court, “The Bourguignons’ mistaken belief in their legal right to build [did] not transform their intentional act of construction into an accident.” The court concluded that there was no coverage because the claimed damage did not arise from an “accident” within the meaning of the policy.

The decision of the lower court was set aside.

Fire Insurance Exchange vs. Superior Court of San Bernardino County-No. E046531-Court of Appeal, Fourth District, Division 2, California-181-January 26, 2010 California Appellate 4th 388.