INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Was teenagers' prank an "intentional act"?

On November 18, 2005, a group of teenaged boys thought of a prank. They decided to place a Styrofoam deer target along a two-lane county road in a place where drivers would not be able to see it until they were 15 to 30 yards away. The boys thought it would be fun to surprise motorists and to watch their reactions.

Robert Roby was driving along the road when he saw the fake deer. He swerved to avoid it and lost control of his vehicle, which eventually overturned. Roby and his passenger, Dustin Zachariah, were seriously injured in the accident. They sued the boys, their parents, and their homeowners insurance companies.

The insurance companies, Allstate Insurance Company, American Southern Insurance Company, Erie Insurance Exchange, and Grange Mutual Casualty Company filed declaratory judgment actions asking the court to find that they owed no duty to defend or indemnify their insureds because of their policies' "intentional act" exclusions. The actions were eventually consolidated. The trial court found in favor of the insurance companies, but the Tenth District Court of Appeals reversed. The Supreme Court of Ohio then agreed to hear the case.

The key question to be answered by the Supreme Court was whether intent to harm was to be inferred under the circumstances of the case (the inferred intent doctrine). As a preliminary matter, the court noted that all of the policies contained language excluding coverage for intentional acts. The Allstate, Erie, and Grange policies excluded from coverage harm that was expected or intended by the insured. The American Southern policy language was broader and declared that American Southern was not liable for harm resulting from any intentional act done by the insured.

The insurers argued that whether intent should be inferred was a matter of law, specifically whether the boys could have been "substantially certain" that their actions could have caused harm. The boys and their parents argued that the boys' intent should be resolved as an issue of fact to be decided by a jury. The court clarified the doctrine of inferred intent and stated that it applied only in cases in which the intentional act and the harm caused were "intrinsically tied so that the act has necessarily resulted in the harm."

The court then held that, when determining when intent to harm should be inferred as a matter of law, the "substantially certain" test should not be applied; rather, the court should examine whether the act necessarily resulted in the harm. Applying the standard to the case, the court concluded: "[w]hile the boys' act was ill-conceived and irresponsible and resulted in serious injuries, the action and the harm [were] not intrinsically tied…." Thus the doctrine of inferred intent did not apply to the circumstances of the case.

The court concluded that the court of appeals was correct in finding that the trial court erred in finding in favor of Allstate, Erie, and Grange. With regard to American Southern, because of its broader policy language, the court concluded that the trial court was correct to find no coverage.

The appeals court's decision was affirmed in part and reversed in part, and the case was remanded for further findings consistent with the Supreme Court decision.

Allstate Insurance Company vs. Campbell-No. 2009-2358-Supreme Court of Ohio-December 30, 2010-2010 WL 5538723.

Insureds allege bad faith after house fire

Donald and Barbara Carden owned a house in Pelham, New York. On January 31, 2007, the house was damaged by fire. The damage was so substantial that the couple was forced to rent another residence and put some of their possessions into storage.

At the time of the fire, the house was insured by Allstate Insurance Company. Allstate offered to settle the loss for $265,000, but the Cardens rejected this offer. They hired an environmental company to assess a potential mold problem. Allstate revised its estimate and in June 2007 offered $575,000 as a final settlement. The Cardens then demanded, pursuant to a policy provision, that the amount of the loss be determined by appraisal. The Cardens' appraisal estimated the cost to be $1,069,849. Allstate's appraisal was for $750,320. An umpire finally determined the cost to be $832,982; Allstate agreed to pay this amount in the spring of 2008.

The Cardens' house was reconstructed, but their driveway and landscaping were damaged in the process. In addition, because the settlement process took so long, the couple had to extend their outside rental period to 18 months. Allstate would not pay for the damage to the driveway and landscaping. It also refused to pay for more than the policy limit of 12 months of additional living expenses.

The Cardens filed a lawsuit against Allstate seeking reimbursement of expenses and consequential damages based on a bad faith delay in settling the claim. Allstate petitioned the court to dismiss the complaint. The Supreme Court of Westchester County, New York, heard the case.

The court first decided the issue of the damage to the driveway and landscaping. Allstate conceded that the damage to the landscaping was covered by the policy; however, the insurer argued that the driveway was not covered. The policy language provided that the term "dwelling" included attached structures. "Structures" was not a defined term. The court found that the driveway was a structure within the meaning of the policy and thus was part of the covered dwelling.

The court next evaluated the issue of the rental charges. Allstate asked the court to decide on the reasonableness of the rental charges, thus concluding the case without a trial, but the court concluded that this was an issue of fact to be determined at trial.

Finally, the court addressed the allegation of bad faith delay. The court concluded that the Cardens' evidence that Allstate offered them $265,000 and then $575,000 on a claim that was eventually valued at $832,982 was enough to establish a prima facie claim for breach of the covenant of good faith. It was therefore up to Allstate to submit enough evidence to require a trial. Because Allstate failed to submit such evidence, the court held that Allstate breached the covenant of good faith.

Carden vs. Allstate Insurance Company-Supreme Court of Westchester County, New York-December 10, 2010-912 New York Supplement 2d 867.

No coverage for excluded driver

On April 3, 2008, Roberta Pechey was driving a car owned and insured by her husband, Steven Pechey, when she collided with a motorcycle driven by Gregory Yates. Roberta had a valid learner's permit and was operating the motor vehicle with the full knowledge and consent of her husband, Steven Pechey, a licensed adult driver, who occupied the front passenger seat while Roberta drove.

At the time of the accident Steven was the named insured under a Progressive Preferred Insurance Company automobile insurance policy with limits of $50,000 per person and $100,000 per accident. The policy contained a named driver exclusion endorsement and a named driver exclusion election. Roberta was named as an excluded driver. The driver exclusion was signed by Steven but not by Roberta.

On April 10, 2008, Progressive notified Yates that the policy did not provide coverage for the accident. On January 13, 2009, Yates, who had been injured in the accident, filed suit against Roberta and obtained a $100,000 judgment against her. Yates then filed a petition in equitable garnishment against Progressive. The trial court found that Progressive owed no coverage because Roberta was an excluded driver under the policy. Yates appealed.

On appeal, Yates and Progressive raised several points, but the Missouri Court of Appeals chose to address one key issue: whether the lower court erred by finding that the named driver exclusion violated public policy and that it conflicted with the state's Motor Vehicle Financial Responsibility Law. The court began its analysis by noting that the purpose of the law was to ensure that persons injured in motor vehicle accidents would collect at least minimal damage awards against negligent motor vehicle operators.

The court also noted that the statute was amended to add section 303.190.2(3), which provides that insurance policies "[m]ay exclude coverage against loss from liability imposed by law for damages arising out of the use of such motor vehicles by a member of the named insured's household who is a specifically excluded driver in the policy." 

According to the court, this amendment was added "to encourage all owners to obtain coverage by removing an impediment to obtaining coverage and to encourage owners not to allow uninsured drivers to operate their vehicles." Because the named driver exclusion was consistent with this goal, it did not violate public policy. The court concluded that the exclusion was effective to prevent coverage under the policy.

The judgment of the lower court was affirmed.

Yates vs. Progressive Preferred Insurance Company-No. WD 71859-Missouri Court of Appeals, Western District-February 1, 2011-2011 WL 291239 (Mo.App. W.D.).

"Customer's auto" exclusion debated

Candice Rhea left her car at Gabe's Auto for minor repairs and an inspection. After the work was finished, the car's system warning light would not reset unless it was driven for a while. Craig Donaghey, an employee of Gabe's, with the permission of Gabe's owner, drove the car to a town approximately 60 miles away to pick up his son. On his way back, he rear-ended a vehicle occupied by Jeanette Bosket and Gloria Card, who later filed a lawsuit.

Donaghey's insurer was Progressive Northeastern Insurance Company. Gabe's Auto was insured by Charter Oak Fire Insurance Company. Progressive filed an action seeking a declaration that it was not obligated to defend or indemnify Donaghey. Gabe's filed two cross-claims asking the court to declare that Charter Oak was obligated to defend and indemnify it and that Charter Oak was obligated to reimburse Gabe's and its owner, Gabriel O'Loughlin, for the cost of hiring substitute counsel to defend them. The lower court found in favor of Gabe's; Charter Oak appealed.

The Charter Oak commercial general liability policy contained an "Operation of Customers' Autos Garage Operations" endorsement. While the policy excluded injuries and property damage arising from the use of any "auto" owned, operated, rented, or loaned to the insured, the endorsement provided that the exclusion "[did] not apply to any 'customer's auto' while on or next to those premises you [the insured] own, rent or contract and (emphasis added) that are being used for any 'garage operations.'" 

Gabe's argued that the endorsement was ambiguous and that it could be interpreted to limit the exclusion if the vehicle was being used at the time for "garage operations." 

The Supreme Court of New York, Appellate Division, Fourth Depart­ment, disagreed. It found that such an interpretation would be "strained, unnatural and unreasonable." The court emphasized the use of the conjunction "and," and noted that two conditions were required for the accident to be covered: (1) the auto must have been on or next to the premises, and (2) the premises had to be used for "garage operations." Thus, even if the car was being used for garage operations, because the accident occurred almost 60 miles away from the premises, there was no coverage under the policy.

The court concluded that Charter Oak was not obligated to defend or indemnify Gabe's Auto, Gabriel O'Loughlin, or Craig Donaghey in the underlying personal injury action and was not obligated to reimburse Gabe's Auto and Gabriel O'Loughlin for the cost of hiring substitute counsel.

Progressive Northeastern Insurance Company vs. State Farm Insurance Companies-Supreme Court, Appellate Division, Fourth Department, New York-February 10, 2011-2011 WL 458873 (N.Y.A.D. 4 Dept.).