INSURANCE-RELATED COURT CASES

COURT DECISIONS

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

Was late notice of claim justified?

On December 22, 2009, Sandra Potosi slipped and fell in a stairway at the Jefferson Elementary School in Union City, New Jersey. The school nurse completed a written report noting the location of Potosi's fall, how the accident occurred, the injuries she claimed, and the name of the only witness, Potosi's 6-year-old son. The bottom of the form stated:

Send form to:

Kathy Guareno

Union City Board of Education

"Insurance Department"

On January 22, 2010, Potosi's attorney sent a notice of a tort claim to the Clerk of the City of Union City by certified mail, which notice was received by the city clerk on January 25, 2010. Nearly seven months later, on August 16, 2010, the city's third-party claims administrator, INSERVCO Insurance Services Co., Inc., advised Potosi's attorney that the "City of Union City does not own, maintain and or control the Jefferson Elementary School… [T]he City of Union City and the Union City Board of Education are two separate and distinct entities. As such, your claim has been misdirected."

Two days after receiving the letter from INSERVCO, Potosi's attorney filed a motion requesting leave to file a late notice of claim against the Board of Education under the Tort Claims Act. The plaintiff maintained that nothing about the name "Board of Education" would have suggested that the Board was a separate entity, distinct from the City. She maintained that her "confusion [,] or…reasonable belief that the…Board of Education…belonged to the City of Union City, was reasonable." The Board urged the court to deny the motion, contending that the Board was a separate entity, and that any reasonable investigation undertaken by the plaintiff would have revealed this fact.

The court granted the plaintiff's motion for leave to file a late notice of claim under the Tort Claims Act. The Board of Education appealed.

On appeal, the Board maintained that the plaintiff's motion for leave to file a late notice of claim approximately eight months after the incident should not have been granted because "the identity of the Board of Education as the owner and operator of the public school where plaintiff allegedly fell was readily available and as such,…plaintiff failed to demonstrate the requisite extraordinary circumstances mandated by…the Tort Claims Act."

The Board further maintained that the incident report prepared by the school nurse did not establish that an investigation of the incident was undertaken by the Board and did not excuse the plaintiff from the responsibility to serve a proper and timely notice of claim. Finally, the Board argued that "plaintiff has offered no explanation [for] why she was unable to determine within 90 days of the accrual of her cause of action that the school building in which she fell was owned, controlled and maintained by the Union City Board of Education" and, therefore, "no extraordinary circumstances exist."

The Superior Court of New Jersey agreed, stating that a reasonable investigation undertaken shortly after the plaintiff's fall would have disclosed that the entity responsible for the conditions at the Jefferson Elementary School was the Board of Education, and not the City of Union City. The court noted further that the plaintiff had been given a copy of the report filed by the school nurse, which clearly indicated that a copy of the form should be sent to the Insurance Department of the Union City Board of Education.

According to the court, neither (1) the plaintiff's failure to identify the responsible defendant nor (2) the third-party administrator's delay in notifying the plaintiff that she had served notice on the wrong entity constituted the "extraordinary circumstances" required to file late notice of a claim under the Tort Claim Act.

The lower court's judgment was reversed and remanded.

Potosi vs. Union City Board of Education-Superior Court of New Jersey, Appellate Division A.3d-June 24, 2011-WL 2496236.

Were greenhouse emissions an "occurrence"?

AES Corporation was in the business of generating and distributing electricity. It was insured under commercial general liability policies issued by Steadfast Insurance Company. In 2008, a small village called Kivalina, located on the northwest coast of Alaska, sued AES for allegedly damaging the village by intentionally conducting activities that caused global warming. According to the lawsuit, AES engaged in activities using fossil fuels that emit carbon dioxide and other greenhouse gases. The emissions allegedly caused sea ice that protected the village's shoreline to form or melt earlier or later than it had in the past, causing storm surges and resulting in shoreline erosion.

AES asked Steadfast to provide a defense, which it did under a reservation of rights. The insurer then filed a declaratory judgment action claiming it did not owe AES a defense or indemnification. The lower court found that the Kivalina lawsuit did not allege an "occurrence" within the meaning of the policy and that, therefore, the allegations in the complaint were not covered by the policy. AES appealed.

The Steadfast policies provided coverage for damage that resulted from an "occurrence." "Occurrence" was defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."

On appeal, the Supreme Court of Virginia noted that when a complaint alleges only intentional acts, if the resulting harm is a natural and probable consequence of those acts, there is no accident. However, if the injury resulted from an unforeseen cause, it may be an accident. Therefore the issue on appeal was whether the lawsuit could be construed as alleging that Kivalina's damages resulted from unforeseen consequences that a reasonable person would not have expected to result from AES's deliberate act of emitting carbon dioxide and greenhouse gases.

Kivalina's complaint alleged that AES intentionally released carbon dioxide into the atmosphere as a regular part of its energy-producing business. It also alleged that there was scientific agreement that these emissions could cause damage such as that suffered by Kivalina. Given these facts, the court found that AES knew or should have known the consequences of its actions, and that therefore there was no occurrence within the meaning of the policy.

The decision of the lower court was affirmed.

AES Corporation vs. Steadfast Insurance Company-No. 100764-Supreme Court of Virginia-September 16, 2011-2011 WL 4139736 (Va.).

Spilt milk: Late notice bars coverage

Two families, the Marrows and the Schwartzes, were co-owners of Hermany Farms, Inc., a milk processing plant in the Bronx. Gregory Broome, a milkman, was employed by Knoll Creek Dairy, a company that distributed milk bottled by Hermany Farms. On August 23, 2005, Broome fell off a truck while working in the Hermany Farms facility. Seven days after the accident, he applied for workers compensation benefits through Knoll Creek. One year later he filed a lawsuit against Hermany Farms.

Upon receiving notice of the lawsuit, Hermany Farms' chief operating officer, Robert Marrow, notified the company's insurer, Seneca Insurance Company, of the claim. Seneca disclaimed coverage, alleging that Hermany failed to provide notice to Seneca as soon as practicable after Broome's fall. According to Seneca, Knoll Creek was aware of Broome's fall on the day it occurred because Norman Marrow, the owner and president of Knoll Creek, was also a part owner and treasurer of Hermany.

Hermany filed a declaratory judgment action demanding that Seneca defend and indemnify it in the Broome lawsuit. The lower court found in favor of Hermany; Seneca appealed.

On appeal, Hermany argued that on the day of the accident Robert Marrow was in charge of the daily operations of the milk processing plant, and that he first learned of the accident one year later at the time the lawsuit was filed. However, employees of both Hermany and Knoll Creek testified that they knew of the accident immediately after it happened, and Norman Marrow admitted that he had seen the workers compensation form prepared by Knoll Creek's bookkeeper.

The Supreme Court, Appellate Division, First Department, New York, found this testimony to be "fatal to Hermany's argument" that the company was unaware of the accident until the day the lawsuit was filed. According to the court, it was "reasonable to believe that Hermany, through its owners, knew of the incident within days of its happening." Therefore, the court said, Hermany failed to establish a reasonable excuse for failing to notify Seneca of the accident as soon as practicable.

The decision of the lower court was reversed.

Hermany Farms, Inc., vs. Seneca Insurance Company, Inc.-Supreme Court, Appellate Division, First Department, New York-September 21, 2010-2010 WL 3632456.

Business pursuits exclusion vs. no-fault law

Jared Boom worked as a subcontractor, picking up and delivering books. For this service, he was paid a fee of $148 per day plus a surcharge for gas. While driving to a library, Boom was killed when another vehicle collided with his van. Gregory Latterell, Jared's stepfather, with whom Jared resided, filed a claim on behalf of Jared's heirs against the other driver's insurer and received the policy's liability limit of $100,000. He also sought to recover underinsured motorist benefits from Boom's insurer, Progressive Northern Insurance Company.

Progressive denied coverage based on a business-use exclusion in the policy that provided: "Coverage under this part III [UIM coverage] will not apply to: a. a covered auto while being used to carry persons or property for compensation or a fee, including, but not limited to, pickup or delivery of magazines, newspapers, food, or any other products."

After Progressive denied coverage, Latterell sought UIM benefits under his own policy with AIG Insurance Company. The AIG policy provided some coverage for family members residing with Latterell.

AIG denied the claim, citing an exclusion for injuries sustained while occupying a vehicle owned by the resident relative but not insured under the AIG policy.

Latterell then sued both Progressive and AIG. The lower court found in favor of the insurers, and the court of appeals affirmed. Latterell successfully petitioned the Supreme Court of Minnesota for review of the decision regarding the Progressive policy.

On review, Latterell argued that the phrase "for compensation or a fee" in the Progressive policy was ambiguous because the phrase was so broad that it could include nearly any arrangement between two parties. The Supreme Court rejected this argument, stating: "Latterell's argument…mistakenly equates breadth with ambiguity; just because contractual language is broad does not mean it is ambiguous." The court found that Progressive's business-use exclusion unambiguously excluded UIM coverage because Boom was transporting books for a fixed daily wage.

The court next considered the question of whether the exclusion was enforceable under Minnesota's no-fault law. The court concluded that it was not.

The court noted that the validity of an exclusionary provision in an insurance policy may depend on whether the exclusion applies to first- or third-party coverage. That is because the no-fault act "leaves unaltered the basic framework of the law of liability insurance," but imposes restrictions on the ability of insurers to exclude first-party benefits. The court explained that UIM coverage constitutes first-party coverage because UIM benefits "compensate an insured under his own policy if he is legally entitled to recover damages from the owner or operator of an underinsured motor vehicle."

Noting that it was more likely to invalidate an exclusion in first-party coverage so that the purpose of the no-fault act would not be frustrated, the court stated that it had consistently invalidated exclusions involving first-party coverage in the past. The court reversed the decision of the lower court and remanded the case with instructions to enter judgment in favor of Latterell.

Latterell vs. Progressive Northern Insurance Company-No. A09-1138-Supreme Court of Minnesota-August 31, 2011-2011 WL 3820744.