INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Did agent breach duty to insured?

Dennis and Susan Langwith purchased the majority of their insurance from Janet Fitzgerald, a captive agent for American National General Insurance Company and American National Property and Casualty Company. The Langwiths consistently carried an automobile insurance policy with liability limits of $250,000 and an umbrella policy with limits of $3 million.

In 2003, American National suspended the Langwiths' automobile coverage after their son Ben's license was suspended. The insurer did not cancel the umbrella policy because Dennis and Susan agreed to sign a driver exclusion for Ben. Ben's license was eventually reinstated, and, at Susan's request, Fitzgerald obtained a high-risk policy covering Ben. The umbrella policy driver exclusion stayed intact, although the Langwiths assumed it had been removed.

On July 16, 2006, Ben was driving Dennis's Chevrolet Suburban when he was involved in an accident. A passenger in the vehicle, Corey Shannon, was severely injured. When Shannon sued, American National provided a defense under the automobile policy but denied coverage under the umbrella policy. 

Dennis and Ben filed suit against Fitzgerald alleging that she had breached her duty by failing to disclose that the umbrella policy's driver exclusion had stayed intact. They also claimed she breached her duty by not advising them that Dennis could avoid liability for Ben's driving simply by transferring the car title to Ben. The district court found that informing the Langwiths that the exclusion continued and advising them to transfer title were "outside the scope of Fitzgerald's duty as an insurance agent." The Langwiths appealed.

On appeal, the Supreme Court of Iowa noted that the duty of an insurance agent to his client is based on consideration of the circumstances. The court then held that, unless an insurance agent has assumed a duty beyond the procurement of requested coverage, the agent has no obligation to advise a client regarding additional coverage or risk management. 

Applying this standard to the facts of the case, the court noted that because Susan had asked Fitzgerald "what [they] could do about Ben," a finder of fact could conclude that she was seeking Fitzgerald's professional advice, giving rise to a implied agreement that Fitzgerald would give them advice regarding Ben's liability coverage, including the umbrella policy. The court concluded that the case should be remanded to the lower court for resolution of this factual issue.

On the issue of the transfer of title, the court found that Fitzgerald did not hold herself out as a specialist, consultant, or counselor on risk management issues. It noted that the long-standing relationship between Fitzgerald and the Langwiths did not automatically mean that there was an implied agreement that Fitzgerald would provide this kind of advice. Finally, the court rejected the Langwiths' argument that all insurance agents have a duty to give risk management advice. It then affirmed the lower court's decision in favor of Fitzgerald on the Langwiths' claim that Fitzgerald was negligent in failing to advise the Langwiths to transfer title of the Suburban to Ben.

The case was affirmed in part, reversed in part, and remanded.

Langwith vs. American National General Insurance Company-No. 08-0778-Supreme Court of Iowa-December 30, 2010-2010 WL 5393493.

Pit bull owner seeks offset to damage award

Orlando Vasquez lived in San Fernando, California, on a property owned by Antonio Mora and covered by a homeowners policy issued by Allstate Insurance Company. Vasquez had a pit bull. On June 9, 2006, the pit bull escaped, entered the San Fernando Middle School grounds, and attacked a seventh grader named Heiddy. Heiddy was severely injured. Three days later, Vasquez was charged with two felony counts, including one that was related to the attack on Heiddy, to which he pleaded no contest. As part of his plea, Vasquez agreed to pay restitution of $168,633.20, representing the damages suffered by Heiddy "so far." 

The order and abstract of judgment signed by the judge specified that the award was for Heiddy's "medical expenses." The minute order from the hearing provided: "Counsel and defendant stipulate to a restitution amount of $168,633.20 to date. The victim is still receiving medical treatment and any amount over the $168,633.20 will be pursuant to civil judgment."

In December 2006, a civil action was filed on behalf of Heiddy against, among others, Vasquez, Mora, and Maria Ruiz, who also lived in the San Fernando residence. In October 2007, these three parties agreed to a settlement of $300,000 to be paid from the homeowners insurance on the residence. Of this amount, $75,000 was payable to Heiddy's attorney, and $22,335 was identified as reimbursement for medical expenses already paid by Heiddy or her attorney. The remaining funds were to be used to fund a structured settlement annuity. 

On August 24, 2009, Vasquez filed a motion asking the court to find that the $300,000 settlement constituted an offset to the $168,633.20 restitution award. In support of his request, Vasquez filed the testimony of an Allstate claim representative who stated that Allstate agreed to pay the $300,000 in exchange for Heiddy's release of any further claims against Vasquez. The representative also testified that Allstate would not have paid the full $300,000 but for Heiddy's agreement to give up her right to seek any further payment from Vasquez. The court denied Vasquez's request. Vasquez appealed.

The California law governing the relationship between restitution orders and civil actions provides, in relevant part: "It is the intent of the Legislature that a victim of crime who incurs any economic loss as a result of the commission of a crime shall receive restitution directly from any defendant convicted of that crime…In every case in which a victim has suffered economic loss as a result of the defendant's conduct, the court shall require that the defendant make restitution to the victim or victims in an amount established by court order, based on the amount of loss claimed by the victim or victims or any other showing to the court…The court shall order full restitution unless it finds compelling and extraordinary reasons for not doing so, and states them on the record."

The Court of Appeal, Second District, Division 7, California, applied this language to the case and noted that because the restitution order was an agreement between the defendant and the state, the victim could not release the defendant from his financial debt to the state. The court added: "Payments received by a crime victim from his or her insurance company or from an independent third party for economic losses suffered as a result of the defendant's criminal conduct cannot reduce the amount of restitution the defendant owes." The court noted further: "To the extent the defendant has his or her own insurance that has compensated the crime victim for losses included in the restitution order, however, the defendant is entitled to an offset for the sums paid."

The question was, what was the proper amount of the offset? As the party seeking the offset, Vasquez had the burden of proving how much of the $300,000 should be applied. In this case, $168,633.20 was designated for medical expenses incurred "to date" and "so far," and $22,335 was for reimbursement of medical and other expenses paid by Heiddy or her attorney. In response to the state's argument that Heiddy incurred medical expenses after the restitution order and would have significant expenses in the future, the court decided that the trial court had reasonably concluded that the $300,000 was to be applied to losses in addition to those she had already suffered at the time the restitution order was entered. Therefore Vasquez was not entitled to an offset.

The decision of the lower court was affirmed. 

People vs. Vasquez-No. B218802-Court of Appeal, Second District, Division 7, California-December 13, 2010-2010 WL 5061014 (Cal. App. 2 Dist).

Dad rejected UM coverage; son sues agency

Corey Mitleider sued Brier Grieves Agency, Inc., and its employee for negligence, negligent misrepresentation, and vicarious liability. Mitleider claimed that the agency did not offer or inform him of uninsured motorist coverage, and that it advised him that it was not necessary to obtain uninsured motorist coverage to be fully protected. 

Brier Grieves filed a motion asking the court to dismiss the case, noting that Mitleider's father, who had executed the policy, had signed a form rejecting uninsured motorist coverage. The lower court granted the agency's motion to dismiss, citing the language of the Florida statute that provided that "the execution of the form waiving uninsured motorist coverage created a conclusive presumption that the rejection of coverage was informed and knowing." Mitleider appealed.

Section 627.727(1) of the relevant Florida statute contained a provision that stated: "If this form is signed by a named insured, applicant, or lessee, it shall be conclusively presumed that there was an informed, knowing acceptance of such limitations." Mitleider acknowledged that the presumption applied to the insurer with regard to coverage but claimed that it did not apply to the agency and its agents. 

The District Court of Appeal of Florida, Fourth District, disagreed. It found that the presumption did apply to the agency and that it could not be rebutted by testimony that the person who signed the form did not read it. According to the court, "It would not make sense to enforce this conclusive presumption against the insurance company on a coverage issue, recognizing that the written rejection was informed and knowing, and not equally recognize the same action of written rejection of insurance as informed and knowing, where the claim is against an insurance agent instead."

The judgment of the lower court was affirmed.

Mitleider vs. Brier Grieves Agency, Inc.-No. 4D09-3362-No. 4D09-3362-District Court of Appeal of Florida, Fourth District—February 16, 2011-52 Southern Reporter 3rd 410.

Is faulty workmanship an "occurrence"?

Hathaway Development Company was a general contractor. Hathaway hired Whisnant Contracting Company as its plumbing subcontractor, with unhappy results. On one project, Whisnant incorrectly installed four-inch pipe where the contract called for six-inch pipe. On another, Whisnant incorrectly installed a dishwasher supply line. On a third project, Whisnant improperly installed a pipe, which separated under hydrostatic pressure. 

Hathaway sued Whisnant to recover the cost of repairs needed because of the faulty workmanship as well as costs associated with resulting water and weather damage. When a default judgment was entered against Whisnant, Hathaway sought payment from Whisnant's insurer, American Empire Surplus Lines Insurance Company. 

American Empire refused to pay, asserting that the claim was not covered because it did not arise out of an "occurrence" as defined by Whisnant's commercial general liability policy. The trial court found in favor of American Empire, but the court of appeals reversed the decision. The Supreme Court of Georgia then agreed to hear the case.

The American Empire policy defined "occurrence" as "an accident, including continuous or repeated exposure to substantially the same, general harmful conditions." American Empire argued that Whisnant's negligent workmanship was not an "accident" within the meaning of the policy. The term "accident" was not defined.

On appeal, the Supreme Court of Georgia noted: "It is commonly accepted that, when used in an insurance policy, an 'accident' is deemed to be 'an event happening without any human agency, or, if happening through such agency, an event which, under circumstances, is unusual and not expected by the person to whom it happens…[I]n its common signification the word means an unexpected happening without intention or design." 

The court also noted that Georgia courts had previously found that faulty workmanship can constitute an "occurrence" under a commercial general liability policy. The court concluded that because an occurrence can arise where faulty workmanship causes unforeseen or unexpected damage to other property, the Court of Appeals correctly determined that Whisnant's acts constituted an "occurrence" under the policy.

The decision of the Court of Appeals in favor of Hathaway was affirmed.

American Empire Surplus Lines Insurance Company vs. Hathaway Development Company, Inc.-No. S10G0521-Supreme Court of Georgia-March 7, 2011-2011 WL 768117 (Ga.).