INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Home owner disputes insurer's one-year suit limit

On March 19, 2002, Gary Hughes's house in Eaton, Indiana, was destroyed by an arson fire. The house was insured under an Auto-Owners Insurance Company homeowners policy. The policy provided that the insurer "may not be sued unless there is full compliance with all the terms of the policy. Suit must be brought within one year after the loss or damage occurs."

After the fire, Hughes hired Steve Lipke of Public Adjustment Bureau as a public adjuster, and Lipke functioned as Hughes's agent during the claims process.

On January 23, 2003, Auto-Owners denied Hughes's claim, citing "arson[,] fraud[,] misrepresentation[,] false swearing [, and] lack of the determination of ownership and/or an insurable interest."

On May 7, 2003, more than one year after the fire, Hughes sued Auto-Owners for breach of contract, tortious breach of duty to act in good faith, constructive fraud, and equitable estoppel. Auto-Owners argued that Hughes's lawsuit should be barred because of the one-year limitation in the policy. The court denied this request and eventually awarded Hughes damages in the amount of $166,792.83 on the breach of contract claim. Auto-Owners appealed the trial court's decision regarding the one-year limitation contained in the policy.

On appeal, Hughes argued that Auto-Owners could not assert the one-year limitation issue because it failed to provide him with a copy of the policy upon request. Auto-Owners argued that it had no duty to provide a copy of the policy to Hughes, and that, regardless, the evidence proved that the insurer did give him a copy. The Court of Appeals of Indiana first noted that an insurer has a limited duty to provide a copy of an insurance policy when the insured has requested one after a loss.

The court then evaluated the evidence with respect to whether Auto-Owners had provided a copy of the policy to Hughes. Lipke testified that he would not deny that he received a copy of the policy if Auto-Owners' records indicated that they sent it to him. He also testified that, had he not received a copy of the policy, there likely would have been a note in his file indicating that fact. Lipke's file contained no such note, and there was no note in the file that he made a second request for a copy of the policy.

The appeals court noted that, at most, Lipke's testimony indicated a lack of recall regarding receipt of a copy of the policy, and this was not enough to raise a genuine issue as to whether the policy was delivered to him. The court concluded that Hughes had failed to establish that a genuine issue existed as to whether Auto-Owners discharged its duty to provide him or his agent with a copy of the policy upon request. Therefore, the trial court had erred in denying Auto-Owners's request that the lawsuit be barred for failure to file it within one year of the loss.

The decision of the lower court was reversed, and the case was remanded with instructions to enter summary judgment in favor of Auto-Owners.

Auto-Owners Insurance Company vs. Hughes-No. 18A02-1006-PL-659-Court of Appeals of Indiana-March 1, 2011-943 North Eastern Reporter 2d 432.

Must broker disclose "incentives"?

Wells Fargo Insurance Services, Inc., a large insurance brokerage, acted as an agent for its clients. It obtained quotes from various insurers, presented those quotes to its clients, and made recommendations for purchase based on the clients' individual needs. The brokerage also entered into various "incentive" agreements, pursuant to which insurance companies would give it cash compensation based on the amount of business Wells Fargo brought them.

One of these programs was called the "Millennium Partners Program." The New York Attorney General filed a lawsuit against the insurance brokerage in connection with this program.

According to the complaint, Wells Fargo would direct its clients to insurance companies that participated in this program without disclosing to clients the existence of the incentive payments. The complaint did not allege that Wells Fargo made actual misrepresentations regarding insurance coverage in order to receive incentive payments, nor did it allege that clients suffered actual harm by purchasing inferior or inappropriate products.

The lower court dismissed the complaint, and the Appellate Division agreed. The attorney general appealed.

The Court of Appeals of New York noted as a preliminary matter that, because there were no allegations of affirmative misrepresentation or harm, the case was simply a claim of breach of fiduciary duty. The court then noted the well-established rule that "one acting as a fiduciary in a particular transaction may not receive, in connection with that transaction, undisclosed compensation from persons with whom the principal's interests may be in conflict." According to the court, however, this rule did not apply under the circumstances.

The court emphasized the complexity of the insurance broker's role, and it noted that several New York Appellate Division cases had determined that a broker need not always disclose to its clients the contractual arrangements it made with insurance companies. The court characterized the nondisclosure as "bad practice" but did not find it to be illegal. The court did note that a new insurance regulation required disclosure to a purchaser of insurance if a broker "will receive compensation from the selling insurer…based in whole or in part on the insurance contract" procured by the broker. Because this regulation was not in effect at the time of Wells Fargo's alleged illegal conduct, however, it did not apply.

The decisions of the lower courts dismissing the complaint were affirmed.

People vs. Wells Fargo Insurance Services-Court of Appeals of New York-February 17, 2011-944 North Eastern Reporter 2d 1120.

Is student covered by parents' policy?

In February 2003, Alexandra Waldron was a passenger on a motorcycle when the motorcycle struck an automobile that crossed into its lane. Alexandra sustained serious injuries. At the time of the accident, Alexandra was a 22-year-old college student. Her father, William Waldron, had a New York Central Mutual Fire Insurance Company auto policy with supplementary uninsured/underinsured motorist (SUM) coverage of $300,000 that he had purchased through Knox Insurance Agency, Inc. Alexandra was not listed on the policy as a member of the household.

In late April 2003, William contacted the Knox agency to inform it of the accident, but he indicated that he did not want to file a claim with New York Central at the time. In July, Waldron advised Knox to go ahead and file a claim. New York Central denied the claim, stating that notice of the claim was untimely and that Alexandra was not an insured under the policy. The Waldrons filed a declaratory judgment action asking the court to find that Alexandra was entitled to coverage and alleging negligence and breach of contract on the part of the insurer and agency. The lower court found in favor of the defendants; the Waldrons appealed.

On appeal, the Supreme Court of New York, Appellate Division, addressed the issue of whether Waldron's April communication constituted timely notice. The New York Central policy required that notice of an accident be given as soon as reasonably practicable, but no more than 30 days after the accident absent proof justifying the delay.

At the time of the accident, Alexandra was in Florida and William Waldron was at home in New York. Alexandra's injuries were very serious, and William immediately left New York to be with her in Florida. Two months later she was still in the hospital, and there was concern that she might lose a leg. The court found that there was sufficient evidence to raise a factual issue as to whether the delay was justified under the circumstances.

The supplementary uninsured/underinsured motorist provision of the policy required notice of a claim "as soon as practicable," which meant "with reasonable promptness after the insured knew or should reasonably have known that the tortfeasor was underinsured [or uninsured]."

The court noted that, on the police report, the section for the automobile driver's insurance information was blank and that the absence of this information could constitute notice of a potential supplementary UM/UIM claim. The court also stated that, even if this notice did not constitute notice of a potential claim, New York Central did not establish that it was prejudiced by the delay.

After establishing that there was enough evidence to support a finding of a factual issue as to notice, the court addressed New York Central's argument that Alexandra was not covered under the policy because she was not a resident of her parents' household at the time of the accident.

The court was not persuaded by the insurer's argument. Although Alexandra rented an apartment on campus, she maintained a bedroom in her parents' home, kept clothing there, and visited on weekends and holidays. Her parents' address was considered to be her address for voting and tax purposes, and the college used her parents' address as Alexandra's permanent address. The court concluded that this evidence could support a finding that Alexandra was a resident of her parents' home at the time of the accident.

The decision of the lower court was reversed.

Waldron vs. New York Central Mutual Fire Insurance Company-Supreme Court, Appellate Division, Third Department, New York-May 5, 2011-2011 WL 1677237 (N.Y.A.D. 3 Dept.).

Carrier invokes "other insurance" clause in rental car accident

Bataa Baasanjay rented a car from Enterprise Leasing Company. The lease agreement contained an indemnification provision that stated: "Indemnification by Renter. Renter shall defend, indemnify and hold Owner harmless from all losses, liabilities, damages, injuries, claims, demands, costs, attorney fees, and other expenses incurred by Owner in any manner from this rental transaction, or from the use of Vehicle by any person, including claims of, or liabilities to, third parties. Renter may present a claim to Renter's insurance carrier for such events or losses; but in any event, Renter shall have final responsibility to Owner for all such losses." Baasanjay was offered but declined to purchase optional supplemental liability protection.

Baasanjay was insured under a Farmers Insurance Exchange automobile policy that covered the rental car. The Farmers policy contained an "Other Insurance" clause, which stated in relevant part: "[T]he insurance [provided by Farmers] with respect to a temporary substitute automobile or non-owned automobile shall be excess insurance over any other valid and collectible insurance."

While driving the rental car, Baasanjay was involved in an accident for which he was found to be at fault. Enterprise, which was self-insured, paid the other driver $5,000 and then sought repayment from Baasanjay. When Baasanjay refused, Farmers filed a declaratory judgment action asking the court to determine whether Enterprise had the right to reimbursement from either Farmers or Baasanjay or both. Enterprise asked the court to find that Baasanjay must indemnify it. The court found that Enterprise could seek indemnification from Bassanjay and that Farmers was liable for the amount paid to the other driver. Farmers appealed.

The first issue on appeal was whether Enterprise, as a self-insured rental car company, could seek indemnification from its renters for damages caused by their negligence once it satisfied its obligation to afford primary bodily injury and property damage coverage. Farmers argued that allowing Enterprise to seek indemnification would violate the anti-subrogation rule, which provides that an insurance company cannot seek indemnification from its own insured.

The Supreme Court of Virginia rejected this argument. According to the court, Enterprise, as a self-insured entity, was not an insurance company; therefore, the anti-subrogation rule did not apply. The court concluded that Baasanjay was obligated to indemnify Enterprise for the damages it paid to the third party.

The court next addressed the issue of whether the circuit court erred in ruling that Farmers was required to reimburse Enterprise for the damages caused by Baasanjay's negligence. Farmers argued that under the language of the "Other Insurance" provision, Farmers's coverage was limited to excess coverage because self-insurance qualified as "collectible insurance." Again the court disagreed. Because self-insurance was not the same as insurance under Virginia law, Enterprise's self-insurance was not "collectible insurance" within the meaning of the "Other Insurance" provision.

The judgment of the lower court was affirmed.

Farmers Insurance Exchange vs. Enterprise Leasing Company-No. 100082-Supreme Court of Virginia-April 21, 2011-2011 WL 1497816 (Va.).