INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Can insurer duck liability for drunk driving deaths?

On March 17, 2006, Jacob Latta and Matthew Maisner, both age 22, celebrated St. Patrick's Day by patronizing several bars and drinking heavily at each. They eventually landed at a bar called Peccadillos, where they continued to purchase and consume alcohol. When they became rowdy and got involved in a physical altercation with another patron, Peccadillos ejected them from the premises. With Maisner as his passenger, Latta drove his car on a two-lane state highway. At the time, the weather was clear and the pavement was dry. While attempting to pass another car, Latta lost control of his vehicle, crossed over into the opposite lane, and slammed into a car driven by Heidi Spicer.

Spicer had three passengers in her car: Megan Ann Watson in the front passenger seat and Heidi's two minor daughters in the back seats. Latta, Maisner, Spicer and Watson were all killed in the accident. The two minors survived, but suffered emotional trauma and physical injuries.

The injured parties and the estates of the decedents sued Peccadillos for negligence, specifically for ejecting Latta from its premises in a dangerously inebriated condition, for failing to arrange alternate transportation for him, and for failing to summon police after the altercation. Peccadillos was insured under a commercial general liability policy issued by Penn-America Insurance Company, which denied coverage based on the policy's liquor liability exclusion. The insurer then sought a declaration from the trial court that it was not required to defend Peccadillos. The trial court denied Penn-America's request, and a three-judge appellate panel affirmed that decision. Penn-America then sought reconsideration by the Superior Court of Pennsylvania.

The Penn-America policy was structured so that coverage was governed by an "Insuring Agreement" clause, subject to policy limitations or exclusions. The "Insuring Agreement" clause provided: "a. We will pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies. We will have the right and duty to defend the insured against any 'suit' seeking those damages. However, we will have no duty to defend the insured against any 'suit' seeking damages for 'bodily injury' or 'property damage' to which this insurance does not apply."

The liquor liability exclusion provided, in relevant part: "This insurance does not apply to:…c. Liquor Liability…'Bodily injury' or 'property damage' for which any insured may be held liable by reason of: (1) Causing or contributing to the intoxication of any person; (2) The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or (3) Any statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages. This exclusion applies only if you are in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages."

On appeal, Penn-America argued that the negligence allegations fell squarely within the liquor liability exclusion. The Superior Court disagreed. It found that the "Insuring Agreement" paragraph clearly recognized the insurer's duty to defend, and that the obligation remained unless the liquor liability exclusion defeated every cause of action in the complaint. The court noted: "Although the liquor liability exclusion clearly excludes liability based on Peccadillos' having 'caused or contributed to the intoxication' of the now-deceased Latta, it does not limit, in any way, liability that may be assessed for other reasons." The court noted that Pennsylvania law recognized that the duty to defend is broader than the duty to indemnify. It admonished Penn-America, finding the insurer's argument that it was not obligated to defend Peccadillos "tendentious, noteworthy more for its concern with the company's financial interest than its recognition of Pennsylvania law." The court concluded that the allegations in the negligence complaint were sufficient to state a claim subject to coverage under the policy, thus triggering Penn-America's duty to defend.

The decision of the lower court was affirmed.

Penn-America Insurance Company vs. Peccadillos, Inc.-Superior Court of Pennsylvania-August 19, 2011-2011 WL 3633265 (Pa. Superior).

HO insurer "just says no" on drunk driver accident

Patrick Bernier and Julien Caron owned property in Lawrence, Massachusetts, and were insureds under a homeowners policy issued by Massachusetts Property Insurance Underwriting Association (MPIUA). On June 28, 2005, while the policy was in effect, Bernier and Caron were alleged to have negligently served, supplied, or permitted David DiFrancesco, a nonresident minor, to consume alcohol and become intoxicated at the insured premises. While under the influence of that alcohol, DiFrancesco was alleged to have negligently operated a motor vehicle that struck another vehicle operated by Malcolm Berry, who sustained serious injuries.

Berry sued Bernier and Caron for his injuries. MPIUA provided Bernier and Caron a defense to Berry's action, subject to a reservation of its rights under the homeowners policy. MPIUA, Berry, Bernier, and Caron then entered into a settlement agreement wherein Berry released Bernier and Caron from further liability and MPIUA agreed to pay Berry differing amounts depending on whether it had a duty under the homeowners policy to indemnify Bernier and Caron from liability to Berry as social hosts for his personal injuries arising out of DiFrancesco's subsequent operation of a motor vehicle. MPIUA filed an action seeking a declaration that it had no such duty to indemnify Bernier and Caron under the policy and cited the policy's motor vehicle exclusion as relieving MPIUA of the duty to indemnify its insureds.

On cross motions for summary judgment, the judge concluded that the motor vehicle exclusion applied and relieved MPIUA of any duty to indemnify the insureds for liability to Berry as social hosts. The judge entered a declaration and judgment in favor of MPIUA, and Bernier and Caron appealed.

On appeal, the question was whether MPIUA satisfied its burden of proving the applicability of its exclusion negating coverage for the injuries Berry sustained in the accident caused by DiFrancesco. The parties agreed that the insureds' service of alcohol to DiFrancesco, combined with DiFrancesco's subsequent operation of his motor vehicle under the influence of that alcohol so as to cause personal injury to Berry, was a covered "occurrence" within the meaning of the policy. Accordingly, the appellate court noted, the insureds satisfied their burden of proving policy coverage.

MPIUA contended that because Berry's injuries arose out of DiFrancesco's use of a motor vehicle, the motor vehicle exclusion relieved it of the responsibility to indemnify its insureds.

In pertinent part, the policy defined "Motor Vehicle Liability" as "Liability for 'bodily injury' or 'property damage' arising out of the operation or use of a [m]otor vehicle 'by any person' (emphasis supplied). For purposes of this definition, 'motor vehicle' means a 'motor vehicle' as defined in [the Liability Coverages section."

Stating that it found no ambiguity in the language of the exclusion, the appellate court noted: "Berry's injuries arose out of the use of a motor vehicle such that the motor vehicle exclusion relieves MPIUA of a duty to indemnify the insureds." The judgment of the lower court was affirmed.

Massachusetts Property Ins. Underwriting Association vs. Berry-80 Mass.App.Ct. 598, 954 N.E.2d 584- Appeals Court of Massachusetts, October 6, 2011- No. 10-P-1485.

Bad night on the loading dock: Nightclub liable?

Mark Dzielski fell from a nightclub's loading dock as he was carrying sound equipment from the nightclub to his truck after the conclusion of a concert. According to Dzielski, the accident was caused by defects in the loading dock. The nightclub was insured by Essex Insurance Company. When Dzielski sued the nightclub, Essex denied coverage. The nightclub then sued Essex seeking a declaration that the insurer was obligated to indemnify the nightclub.

The Essex policy's "Restaurant, Bar, Tavern, Night Clubs, Fraternal and Social Clubs Endorsement" contained a "stage hand" exclusion that provided, in relevant part: "[t]he coverage under this policy does not apply to 'bodily injury,' . . . or any injury, loss or damage arising out of . . . [i]njury to any entertainer, stage hand, crew, independent contractor, or spectator, patron or customer who participates in or is a part of any athletic event, demonstration, show, competition or contest . . ." The lower court found that the exclusion did not apply, found in favor of the nightclub, and awarded it $950,000. Essex appealed.

On appeal, Essex argued that the policy language could be construed broadly to include all persons who performed any tasks in connection with a show, including loading and unloading sound equipment. Specifically, the insurer argued that the phrase "arising out of" required this broader interpretation.

The Supreme Court, Appellate Division, Fourth Department, New York, disagreed. It found that the policy could also be read narrowly to include only those persons who performed in the show or only that activity that occurred during the show. The court emphasized the fact that the accident was caused by a property defect in a location completely unrelated to the concert that was performed that night. The Supreme Court agreed with the decision of the lower court but noted that the policy had a limit of $500,000 per occurrence with a $500 deductible. Therefore, the court modified the lower court's judgment by reducing it to $499,500 plus interest and costs.

The decision of the lower court was affirmed with modifications.

Dzielski vs. Essex Insurance Company-Supreme Court, Appellate Division, Fourth Department, New York-December 23, 2011-90 Atlantic Reporter 3d 1493.

When contractors collide: Court eyes "additional insured" dispute

Brian Fay Construction, Inc., subcontracted with J.P. Spano and Company to perform some work on Fay's construction site. The parties agreed that Fay would defend, indemnify and hold Spano harmless from all claims arising from Fay's performance of certain subcontract work.

Fay asserted that after it entered into its agreement with Spano it had contacted its insurance agency, DFW Associates, Inc., to notify it that Spano needed to be added to Fay's general liability policy as an additional insured. DFW issued an "ACORD Certificate of Liability Insurance" naming Fay as the insured and Spano as an additional insured under Fay's general liability policy with Burlington Insurance Company and also naming Spano as an additional insured under Fay's workers compensation policy with Realm Insurance Company.

One of Fay's employees was injured on the job and sued Spano for damages. When Spano brought a third-party action against Fay, Fay filed a claim with its general liability insurer, Burlington. Burlington denied coverage, asserting that Fay's policy excluded coverage for losses arising out of bodily injury to the insured's employees, that an endorsement to the policy provided that there was no liability coverage for losses involving the insured's employees, and that "there was no evidence [that] Spano was an additional insured."

After Burlington stated its reasons for the denial of coverage, Fay filed an action against DFW and Morstan General Agency, Inc., another insurance broker, claiming that they "failed to properly name" Spano as an additional insured on the Burlington policy. The lower court found that DFW was obligated to defend and indemnify Fay in the underlying personal injury action brought by Fay's employee; DFW appealed.

On appeal, the Supreme Court, Appellate Division, Second Department, New York, noted that insurance agents generally have a "duty to obtain requested coverage for their clients within a reasonable time or to inform the client of the inability to do so." The court noted, however: "While Burlington's letter indicated that 'there was no evidence Spano is an additional insured,' the letter, by itself, did not establish that Spano was in fact not an additional insured under the liability policy, or that the claim was rejected on that basis, or that the claim would have been rejected, based on the employee liability exclusion, regardless of whether Spano had been named as an additional insured. Indeed, the letter may be interpreted as merely seeking additional information from the plaintiff." The court concluded that Fay had not met its initial burden of setting forth enough facts to entitle it to a decision in its favor as a matter of law with respect to DFW.

The judgment of the lower court was reversed.

Brian Fay Construction, Inc., vs. Morstan General Agency, Inc.-Supreme Court, Appellate Division, Second Department, New York-December 20, 2011-90 Atlantic Decisions 3rd 796.