INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Did insureds have choice on UIM coverage?

On November 4, 2006, Mitchell Jenkins was injured in an automobile accident. At the time of the accident, Jenkins' brother, Jamie Jenkins, was driving Mitchell's car and Mitchell was a passenger. Another car was involved in the accident; that car was driven by Candice Fore.

Mitchell's automobile was insured by North Carolina Farm Bureau Mutual Insurance Company. The policy included bodily injury liability coverage of $50,000 per person/$100,000 per accident. Jamie Jenkins and his wife, Sharon, had a personal automobile policy, also issued by North Carolina Farm Bureau, with the same levels of bodily injury liability coverage. Mitchell's policy provided underinsured motorist coverage of $50,000 per person and $100,000 per accident. The Jenkinses' policy did not include underinsured motorist coverage.

North Carolina Farm Bureau offered to pay Mitchell the maximum liability coverage of $50,000 under his policy as well as the maximum coverage of $50,000 under Jamie and Sharon's policy. Mitchell argued that his damages exceeded $100,000 and that he was therefore entitled to $1 million, the maximum UIM coverage under the law. According to Mitchell, neither Jamie Jenkins nor his wife was offered an opportunity to select uninsured/underinsured motorist limits that were greater than the liability limits under their policy. North Carolina Farm Bureau filed a declaratory judgment action asking the court to find that Mitchell was not entitled to UIM coverage. The trial court found in favor of the insurer; Mitchell appealed.

The issue on appeal was whether there was a question of fact as to whether Jamie and Sharon Jenkins were given the opportunity to reject or select different underinsured motorist coverage limits. Sharon Jenkins submitted an affidavit that stated that she chose uninsured motorists coverage of $50,000 per person and $100,000 per accident, and that she chose not to purchase underinsured motorist coverage. Ms. Jenkins also stated in the affidavit: "I understood then and I understand now that I can purchase uninsured motorist coverage or combined uninsured/underinsured motorists coverage in various amounts up to $1,000,000. I have renewed this same personal auto policy every six months since 1994 and I have never changed my decision to buy uninsured motorists coverage but not underinsured motorists coverage."

The court found that Ms. Jenkins' affidavit was enough evidence to establish that she was given the opportunity to reject or select different UIM coverage limits. According to the court, her affidavit showed that she was aware of her options, and she made a conscious decision not to purchase UIM coverage. It did not matter that a selection/rejection form was not completed.

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

North Carolina Farm Bureau Mutual Insurance Company vs. Jenkins-No. COA09-1523-Court of Appeals of North Carolina-October 19, 2010-2010 Westlaw 4068703.

Decked out: Is insurer liable for collapse?

In 1995 and 1996, Max and Krista Sprague remodeled their house. The remodeling project included the addition of multi-level decks with support walls. In 2008, the Spragues discovered decay in the support walls and filed a claim with their homeowners insurer, Safeco Insurance Company of America. Safeco had been the Spragues' insurer since 1992.

Safeco hired Pacific Engineering Technologies to investigate the claim. Pacific found that the wood posts in the support piers were decayed and that the multi-level decks were "in a state of imminent collapse." Pacific also determined that these conditions were present and occurred prior to 2003.

The Safeco policy excluded coverage for damage caused by rot and construction defects. When Safeco denied coverage based on these exclusions, the Spragues sued. They argued that they were entitled to coverage because the collapse was an ensuing loss. The lower court found in favor of Safeco; the Spragues appealed.

The Safeco policy provided, in relevant part: "We insure for accidental direct physical loss to property described in Building Property We Cover except as limited or excluded." The policy then listed building losses not covered. They included, in relevant part: "5. Loss caused by: a. wear and tear, marring, deterioration;…c. smog, rust, mold, wet or dry rot;…g. birds, vermin, rodents, insects or domestic animals…Under items 1. through 5., any ensuing loss not excluded is covered."

The policy also excluded "losses caused directly or indirectly by Planning, Construction or Maintenance, meaning faulty, inadequate or defective:…b. design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;…c. materials used in repair, construction, renovation or remodeling; or d. maintenance; of property whether on or off the insured location by any person or organization. However, any ensuing loss not excluded or excepted in this policy is covered."

On appeal, the Spragues argued that because the collapse was not specifically excluded in the Safeco policies extant between 1999 and 2003, it was therefore an ensuing loss. The Court of Appeals of Washington, Division 1, agreed. It noted that the Spragues' pre-2003 homeowners policies with Safeco were all-risk policies that covered losses to the building and attached deck structures unless specifically excluded. Because collapse was not excluded as a peril, it was covered as an ensuing loss. The court also found that because Safeco's experts found that the decks were in a state of "imminent collapse," there was a "collapse" within the meaning of the policy.

The decision of the lower court in favor of the insurer was reversed.

Sprague vs. Safeco Insurance Company of America-No. 63933-1-I-Court of Appeals of Washington, Division 1-November 1, 2010-2010 WL 4274935.

Rain on the roof: Insurer rejects water damage claim

Jermaine Phillips rented and later purchased a house in Whistler, Alabama. While he was still a tenant, Phillips noticed that the roof leaked, so when he decided to purchase the home, he required the seller to repair the roof. The roof repair was performed, and in February 2007, Phillips purchased the home. He quickly discovered, however, that the roof still leaked. One month after the closing, the roof was replaced, but it continued to leak.

At the time he purchased the house, Phillips also purchased a National Security Fire & Casualty Company homeowners policy with an effective date of February 16, 2007. The policy explicitly excluded coverage for damage caused by faulty workmanship or materials, so the cost of replacing the roof was clearly not covered. However, Phillips did file a claim for water damage to the interior of the house pursuant to the policy's "ensuing loss" provision. When its adjuster determined that the water damage did not result from one of the listed perils in the policy, National Security denied the claim. Phillips sued the insurer for breach of contract and bad faith. The trial court found in favor of National Security; Phillips appealed.

On appeal, National Security argued that because the water damage to the interior of the home was not the result of any of the perils listed in the policy, Phillips could not file a claim under the ensuing loss provision. The Court of Civil Appeals of Alabama agreed. The court noted that Phillips acknowledged that water damage to the interior of the house was not caused by any of the perils listed in the policy. Instead, he blamed the damage on faulty workmanship. The court stated: "Phillips could not have been indemnified for the water damage to the interior of Phillips' house under one of the perils covered by the policy, and he cannot use the ensuing loss provision to expand that coverage."

The judgment of the lower court was affirmed.

Phillips vs. National Security Fire & Casualty Company-209082-Court of Civil Appeals of Alabama-October 15, 2010-2010 WL 4034867.

Parties debate collateral source rule

In 2002, Dean Do was injured when his vehicle was struck by a vehicle driven by Julie Wagner, who was found to be the at-fault driver (tortfeasor).

At the time of the accident, Do's vehicle was covered by a personal automobile policy issued by American Family Mutual Insurance Company. The policy included $30,000 in no-fault medical expense benefits. After the accident, Do incurred medical bills totaling $40,853.13. Do submitted the bills to American Family for payment, but American Family paid only $865.50. American Family refused to pay the other bills on the grounds that Do's medical expenses were not reasonable, necessary, or related to the accident.

Do commenced a tort action against Wagner and reached a settlement with her automobile insurer, which paid Do $28,000 of her policy's $30,000 liability limit. The settlement payment was not allocated to any specific items of damage.

Do later commenced an action against American Family, seeking no-fault and underinsured motorist benefits. Do's action proceeded to trial, and the jury returned a verdict against American Family, awarding Do damages of $49,416.13. The jury award included $39,416.13 for past medical expenses, $5,000 for past pain and disability, and $5,000 for future pain and disability.

American Family filed a post-trial motion for a collateral source offset and amended findings. The district court found that under Minnesota law the $28,000 payment from Wagner's insurer was a collateral source. Therefore, the district court deducted the $28,000 settlement payment and the $865.50 in no-fault benefits previously paid by American Family from the jury verdict of $49,416.13, resulting in a net award of $20,550.63. The court reasoned that if there were no offset for the settlement payment, there would be a total recovery of $58,000, which would result in a "double recovery" contrary to the state's no-fault act. Do appealed.

The court of appeals affirmed the district court's judgment, concluding that Do's prior settlement with Wagner's insurer was a collateral source under Minnesota law and therefore the district court did not err in deducting the $28,000 settlement payment from the ultimate jury award against American Family. Do then petitioned for review, asking the Supreme Court of Minnesota to decide whether the district court and the court of appeals correctly classified the $28,000 settlement payment from Wagner's insurer as a collateral source under state law. The Supreme Court granted the petition.

In its review, the Supreme Court noted that a claim for no-fault benefits is separate and distinct from a tort claim against the tortfeasor and the tortfeasor's insurer. The court cited a provision in the Minnesota no-fault law that states: "A no-fault insurer has a duty to provide basic economic loss benefits to reimburse an injured person's loss even when the injured person is entitled to compensation for the same loss from a different source."

The court then added: "But the No-Fault Act does provide statutory offsets to avoid duplicate recovery. When an injured person brings a negligence action, an offset provision requires the court to deduct from any tort recovery the value of no-fault benefits paid or payable by the no-fault insurer:…"

Turning to an examination of the collateral source statute, about whose wording the court noted that it had concerns, the court cited an earlier case in which it stated that "a tortfeasor's liability insurance payment does not trigger" the collateral source statute. Quoting from its opinion in that case, the court said that "while it might not be precisely clear exactly what the legislature meant to include as a collateral source, it is patently clear that a tortfeasor's liability insurance can never be within the definition of collateral source."

Consistent with that opinion, the court concluded that because the jury had found that Do reasonably incurred medical expenses that exceeded the $30,000 medical expense limits of his American Family policy, he was entitled to recover from American Family the policy limits of $30,000 minus the $865.50 previously paid.

Do vs. American Family Mutual Insurance Co.-No. A07-1461-Supreme Court of Minnesota-March 25, 2010.