INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

"Auto business" exclusion debated

On November 14, 2006, Laurie Ann Sensebe was driving when her car was rear-ended by a pickup truck owned by Gregory Hyneman and driven by Deborah Boudreaux. Boudreaux was transporting the truck from Dub Herring Ford, Inc., the dealership from which Hyneman had purchased it, to Top Hatch, Inc., her employer. Dub Herring had contracted with Top Hatch to replace the truck's seat covers.

The pickup truck was insured by Mississippi Farm Bureau Casualty Insurance Company. Sensebe sued Farm Bureau as well as Top Hatch's insurer, Canal Indemnity Company.

Farm Bureau claimed it owed no coverage because its policy contained an "automobile business" exclusion. The exclusion applied to "any person or organization, or to any agent or employee thereof, operating an automobile business." "Automobile business" was defined as "an automobile sales agency, repair shop, service station, storage garage, or public parking place."

Farm Bureau acknowledged that there was a possibility the court might find the exclusion to be contrary to public policy. If that was the case, the insurer argued that coverage should be limited to the statutory minimum limits of $10,000 per person and $20,000 per accident, rather than the policy limits of $100,000 per person and $300,000 per accident. Canal Indemnity argued that the exclusion violated public policy and also that Top Hatch was not the type of business contemplated by the automobile business exclusion because it did not fit the policy definition of "repair shop."

The lower court found in favor of Farm Bureau, holding that the exclusion was not against public policy and that it applied to exclude coverage. Canal Indemnity and Top Hatch appealed.

The court of appeal reversed the district court. It found that the "automobile business" exclusion did not apply because "the installation of leather upholstery [was] an after-market upgrade and not an automobile repair or service as reasonably contemplated by these terms." The court did not address the issue of whether the exclusion was contrary to public policy. Farm Bureau sought a writ of review by the Supreme Court.

The Supreme Court of Louisiana granted Farm Bureau's request. It found that the policy language supported a finding that the exclusion applied because Top Hatch fit within the contractually excluded category of "repair shop." Nevertheless, the court found the exclusion itself to be contrary to public policy.

In reaching its decision, the court noted that the Louisiana Motor Vehicle Safety Responsibility Law requires automobile insurance policies to cover persons who drive with the permission of the named insured. The policy language fulfilling this requirement is called the "statutory omnibus clause." The court concluded that the Farm Bureau policy fulfilled the statutory requirement because it contained such an omnibus clause, but the automobile business exclusion negated it. Therefore the exclusion could not be enforced because it conflicted with the legislative public policy of affording coverage to permissive drivers.

The court next addressed Farm Bureau's argument that the statutory limits, rather than the policy limits, should apply. It noted that because Farm Bureau did not raise this issue in its writ application, the matter should be remanded to the district court.

The Supreme Court affirmed the decision of the lower court finding that the exclusion did not apply. The case was remanded for discussion of the amount of policy limits.

Sensebe vs. Canal Indemnity Company-No. 2010-C-0703-Supreme Court of Louisiana-January 28, 2011-2011 WL 259929 (La.).

Is 76 days "timely notice" of claim?

The building superintendent for Amsterdam Apartments, LLC witnessed an accident on the property after which the injured party had to be removed from the scene by ambulance. The superintendent informed the property manager of the accident after it happened, but the company chose not to pursue a formal investigation of the accident or an inquiry as to the extent of the injuries.

Amsterdam was insured by Tower Insurance of New York. The Tower policy required that notice of an occurrence be given to the insurer "as soon as practicable." Amsterdam informed Tower of the occurrence only after the accident victim filed a personal injury lawsuit.

Tower filed a declaratory judgment action, asking the court to find that it had no duty to indemnify and defend Amsterdam because notice of the occurrence was untimely. The lower court granted the insurer's request. Amsterdam appealed.

On appeal, Amsterdam argued that, relying on his discussion with the building superintendent, the property manager concluded the injury was not serious. The company therefore assumed that the occurrence would not result in a lawsuit. According to Amsterdam, this was why the company did not inform its insurer of the incident until after a lawsuit was filed.

The Supreme Court, Appellate Division, First Department, New York, did not find this argument convincing. The court acknowledged that failure to give timely notice could be excused if the insured had a good faith belief of non-liability. The court noted, however, that this belief had to be reasonable. According to the court, the insured could not have formed a reasonable belief of non-liability because it did not investigate the accident or inquire as to why the property manager thought the injury was only slight.

The court concluded that the insured knew of the occurrence 76 days before it notified the insurer. This notice was untimely as a matter of law, and therefore Tower Insurance had no duty to indemnify and defend Amsterdam.

The decision of the lower court was affirmed.

Tower Insurance of New York vs. Amsterdam Apartments, LLC-Supreme Court, Appellate Division, First Department, New York-March 8, 2011-2011 WL 781368 (N.Y.A.D. 1 Dept.).

Burned: Insured blames agent for rejected claim

Peter Lewiarz and his wife owned a house that was insured by Travco Insurance Company (Travelers). In July 2001, the house was destroyed by fire. Travelers paid the claim but then notified the Lewiarzes that it would not renew their homeowners policy when it expired. In 2003, Lewiarz and his wife rebuilt their house. They tried to obtain homeowners insurance on their own but were unsuccessful. Lewiarz called Karen Kenney, a real estate agent with whom he had previously done business, for assistance. Kenney and Sils Brokerage Corporation worked together to prepare an application to Travelers for homeowners insurance on Lewiarz's behalf. Travelers issued a policy with an effective date of June 11, 2003.

On September 29, 2006, the Lewiarzes' house was again destroyed by fire. Lewiarz filed a claim under the policy, but in July 2007, Travelers rejected the claim. According to Travelers, the claim was properly denied because Lewiarz had concealed the fact that he had previously suffered a fire loss at his residence. In December 2007, Lewiarz and his wife filed a lawsuit against Kenney and Sils, alleging that they were negligent in preparing the application for insurance coverage.

In support of the allegation, Lewiarz submitted evidence that, in June 2003, he called Delores Buonocore Agency, a firm primarily devoted to real estate and solely owned by Delores Bunocore, through whom Lewiarz had previously obtained insurance. From time to time, Buonocore would obtain homeowners insurance on behalf of its customers by contacting insurance agencies, including Sils, which would obtain quotes and procure insurance policies, with Buonocore receiving a share of the commissions paid on the policies and any subsequent renewals.

Karen Kenney was an independent real estate agent who shared office space with Buonocore. In exchange for use of the space, Kenney performed basic secretarial and clerical work for Buonocore. This work included, at Buonocore's instruction, how to take basic information from someone who called looking for homeowners insurance.

When Lewiarz called Buonocore, Kenney took his information and then faxed it to Sils's office manager. Relying solely on the information provided by Kenney, Sils then submitted an application to Travelers. In late July 2003, Sils assumed Buonocore's insurance portfolio, and, in September 2003, Kenney became an employee of Sils, but she was not an employee at the time Lewiarz's policy was issued.

Lewiarz's complaint alleged that Kenney was negligent in taking down the information for his application and that Sils was negligent in submitting it to Travelers. The trial court rejected the defendants' motion for summary judgment, finding that "material issues of fact remain in relation to whether…Kenney and Sils failed to exercise due care in handling plaintiff's insurance transaction." The defendants appealed.

On appeal, the Supreme Court of New York, Appellate Division, Third Department, partially affirmed and partially rejected the decision of the lower court. The high court noted: "If proven, the evidence establishes, at a minimum, the existence of a principal-agent relationship between Buonocore and Kenney." The court rejected the lower court's decision with regard to Kenney's personal liability. According to the court, if the tasks performed by Kenney were within the scope of her employment or principal-agent relationship, she could not be held personally liable. Therefore the action against Kenney should have been dismissed.

The judgment of the lower court was affirmed in part and rejected in part.

Lewiarz vs. Travco Insurance Company-Supreme Court, Appellate Division, Third Department, New York-March 24, 2011-2011 WL 1045626 (N.Y.A.D. 3 Dept.).

Home owners challenge code enforcement limit

On June 20, 2007, a fire severely damaged Rex and Brenda Allemand's house in Kittitas, Washington. The house was built in 1940 and did not comply with modern building codes at the time of the fire. When the Allemands began to rebuild their house, the city would not issue permits for repairs. Instead it required that the house be razed and a new house built. The estimated cost of repairing the existing structure was $50,676.95. The cost of totally replacing the house was $96,669.56.

The Allemands' house was insured by State Farm Insurance Companies. The maximum coverage under the policy to repair or replace the house with similar construction was $89,866. The policy excluded "increased costs resulting from enforcement of any ordinance or law," including "construction, repair or demolition." The Allemands had purchased optional additional coverage allowing for payment of a sum equal to 10% of the policy maximum for costs resulting from building code enforcement (Option OL). State Farm paid the Allemands the policy maximum for repairs plus the 10% Option OL coverage, for a total of $59,663.55.

Unhappy with this amount, the Allemands filed a declaratory judgment action against the insurer. The trial court found in favor of the Allemands, awarding them an additional $37,001. State Farm appealed.

On appeal, the Allemands argued that the policy was generally ambiguous and should be construed in their favor. In addition, they argued that the provision that addressed Option OL was ambiguous because the provision referenced the policy limits shown in the declarations page, but the coverage limits page was not titled "Declarations."

The Court of Appeals of Washing­ton, Division 3, disagreed. According to the court, the policy expressly provided that it covered building code upgrades only under the optional OL coverage, and the Allemands were aware that under Option OL the coverage was limited. The court concluded that the policy's limit on losses resulting from the building code upgrades was appropriate.

The decision of the lower court was reversed.

Allemand vs. State Farm Insurance Companies-No. 28954-1-III-Court of Appeals of Washington, Division 3-March 3, 2011-248 Pacific Reporter 3rd 111.