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Insurance-Related Court Cases

Court Decisions

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

Coverage amount defaults to higher UM limit

In February 2007, IDS Property & Casualty Insurance Company issued a vehicle liability policy to Tommy McGraw. McGraw signed the application for insurance and was the named insured, but his wife made all of the decisions regarding the policy's terms. The application itself did not refer to uninsured/underinsured motorist coverage. The declarations page of the policy reflected $100,000 per person of bodily injury liability coverage and $50,000 per person of uninsured/underinsured motorist coverage. Every six months IDS issued new policies with the same information on the declarations page as the February 2007 policy.

In December 2008, IDS sent a letter to Tommy McGraw informing him that his uninsured/underinsured motorist coverage had been revised to reflect a change in Georgia law. In the letter, McGraw was asked to complete a "renewal declaration page" to "readjust [his] UM coverage to more specifically meet [his] needs." An election form was enclosed in the letter giving McGraw a choice of "UM Added-on to At-Fault Liability Limits" or "UM Reduced by At-Fault Liability Limits." The instructions on the form asked McGraw to choose an option or reject UM coverage altogether. Additional language on the form provided: "If you do not complete and return this form, we will continue to apply UM Added-on coverage to the current limit shown on your renewal declaration page."

On June 12, 2009, McGraw and his wife were involved in a motor vehicle accident; the wife died from her injuries. McGraw filed an action for damages against the driver of the other vehicle involved in the accident. He claimed that he was entitled to UM coverage under the IDS policy in an amount equal to the bodily injury liability coverage ($100,000) because he did not choose a lesser amount. IDS argued that McGraw was entitled to only the UM coverage specified on the declarations page ($50,000) because he did not request a higher amount on renewal. The lower court agreed with IDS, finding that there was $50,000 of UM coverage. McGraw appealed.

On appeal, the Court of Appeals of Georgia noted that Georgia law required that insurance policies contain provisions for UM coverage which at the option of the insured "shall be (i) not less than $25,000 per person, or (ii) equal to the policy's bodily injury liability insurance coverage, if higher than $25,000 per person." The court also noted that the law required that "[i]n any event, the insured may affirmatively choose [UM] limits in an amount less than the limits of liability [for bodily injury]," and that the law was intended "to make a policy's liability limits the default provision for UM coverage, unless an insured affirmatively elects UM coverage in a lesser amount." The court then reviewed the terms of the IDS policy. According to the court, the policy provided for less UM coverage than the law required, so the lesser amount shown on the declarations page could be enforced only if McGraw affirmatively chose it. Although IDS was not required to obtain McGraw's written choice regarding the amount of UM coverage, the insurer was required to prove that McGraw affirmatively chose a lesser amount. The undisputed evidence did not show that McGraw made this choice, so the statutory default amount of coverage applied. Thus, the trial court erred in construing the policy to provide a lesser amount of coverage.

The judgment of the lower court was reversed.

McGraw vs. IDS Property & Casualty Insurance Company-No. A13A0547-Court of Appeals of Georgia-June 27, 2013-2013 WL 3215464 (Ga. App.).

Insureds challenge carrier's ACV method

The California insurance code requires all fire insurance policies written in the state to be on a standard form that requires insurers to pay "the actual cash value of property at the time of loss." The insured must give written notice to the insurer and "furnish a complete inventory of the destroyed, damaged and undamaged property, showing in detail quantities, costs, actual cash value and amount of loss claimed[.]"

The calculation for actual cash value is set forth in the insurance code as follows: "In case of a partial loss to the structure, or loss to its contents, the amount it would cost the insured to repair, rebuild, or replace the thing lost or injured less a fair and reasonable deduction for physical depreciation based upon its condition at the time of the injury or the policy limit, whichever is less. In case of a partial loss to the structure, a deduction for physical depreciation shall apply only to components of a structure that are normally subject to repair and replacement during the useful life of that structure." If the parties fail to agree on the actual cash value or the amount of the loss, they are required to participate in an appraisal.

Frances Marc Alexander and Thomas and Anna Downie had Farmers Insurance Company fire insurance policies on their houses. In 2009 and 2010 they each suffered partial fire losses to their houses and personal belongings. After disputing Farmers' method of adjusting their claims, they filed a class action lawsuit alleging that Farmers had failed to comply with the method for determining actual cash value as set forth in the code. Instead, they alleged, "Farmers determines the [actual cash value] of personal property contents by first determining a replacement cost. Farmers then deducts depreciation according to a secret schedule that is based on the age of the item."

For example, the Downies submitted a claim for a set of lead crystal wine glasses that were 10 years old and had a replacement cost of $82.13. They also submitted a claim for a 20-year old solid walnut china buffet with a replacement cost of $1,594.32. Farmers calculated the actual cash value of the wine glasses to be 82 cents and the buffet to be $15.94. The Downies complained that Farmers "arbitrarily depreciated the majority of items" and that the depreciation rates were contrary to the California insurance code.

They alleged similar illegal practices when it came to the structural components of damaged buildings, complaining that "Farmers is taking depreciation from structural components that are not normally repaired or replaced within the useful life of the structure . . . instead calculating a depreciation percentage on a straightline basis by dividing the age of the component by an estimate of the component's useful life."

Farmers denied the allegations and moved to compel appraisal, asserting that the insureds were contractually obligated to complete an appraisal before taking legal action.

The trial court denied the motion to compel appraisal, stating that the motion was premature. Farmers appealed the ruling.

According to Farmers, the dispute was about calculating the actual cash value of the insured property, which was subject to appraisal, not the legality of Farmers' uniform depreciation policies, which were not subject to appraisal; therefore, the "appraisal must be exhausted before a suit or action is 'sustainable in any court.'"

The Court of Appeal, Second District, Division 8, disagreed. It stated that the dispute was about both of these issues, and that the question was whether appraisal could be deferred pending resolution of the claims. According to the court, the trial court had the discretion to defer appraisal in appropriate circumstances, and judicial economy favored such a decision. The court concluded that even if an appraisal was ordered, the home owners could proceed with a challenge to the insurer's alleged improper method of calculating depreciation.

The decision of the trial court denying the motion to compel appraisal was affirmed.

Alexander vs. Farmers Insurance Company, Inc.-B239840-Court of Appeal, Second District, Division 8, California-September 23, 2013-2013 WL 5308722.

Nightclub, dancer challenge battery exclusion

Roberta Busby, a nightclub dancer, sued her employer, Oxnard Hospitality Enterprise, Inc., for negligence after she sustained serious injuries when a patron threw a glass of flammable liquid on her and set her on fire. The alleged negligence was for failure to provide adequate security.

The trial court found in favor of Busby and entered a $10 million judgment. Oxnard assigned all of its rights against its insurer, Mount Vernon Fire Insurance Company, to Busby.

Busby's original complaint included a cause of action on behalf of her minor children for negligent infliction of emotional distress. Oxnard filed a demurrer, which the trial court sustained, with leave to amend, because Busby's children were not present at the time she was attacked. The children never amended the complaint, nor did they take further action. In addition, Busby's first amended complaint did not include the claim for negligent infliction of emotional distress on her children. Nothing in the record showed that Oxnard sought or obtained dismissal of the claim or that the children ever filed a voluntary dismissal.

While the underlying action was being litigated, Mount Vernon filed an action seeking a judgment that it had no duty under the policy to pay any damages that might be awarded against Oxnard. The insurer cited the "Assault or Battery" exclusion in the policy. That exclusion provided, in relevant parts: "This insurance does not apply to: Any claim, demand or 'suit' based on 'assault' or 'battery', or out of any act or omission in connection with the prevention or suppression of any 'assault' or 'battery', including the use of reasonable force to protect persons or property, whether caused by . . . an insured . . . [or] patrons . . . Further, no coverage is provided for any claim, demand or suit in which the underlying operative facts constitute 'assault' or 'battery'. This exclusion applies to all 'bodily injury' . . . arising out of 'assault' or 'battery' . . . including but not limited to 'assault' or 'battery' arising out of or caused in whole or in part by negligence . . . 'Assault' means the threat or use of force on another that causes that person to have apprehension of imminent harmful or offensive conduct, whether or not the threat or use of force is alleged to be negligent, intentional or criminal in nature. 'Battery' means negligent or intentional physical contact with another without consent that results in physical or emotional injury."

Busby argued that the exclusion did not apply to her situation because the definition of battery required actual "body-to-body" physical contact. She also argued that "physical contact" plainly meant "actual physical touching between one person and another." Mount Vernon argued that "physical contact" meant the union or junction of things that have a material existence, or the touching of material things" and cited a different dictionary's definition of "physical" as "'of or relating to natural sciences,' 'having material existence,' and 'of or relating to the body.'" The trial court agreed with Mount Vernon; Busby and her children appealed.

On appeal, the Court of Appeal, Second District, Division 3, affirmed the decision of the lower court. It found that the patron's act of throwing flammable liquid on Busby and lighting it on fire constituted a "battery" within the meaning of the policy. In reaching its decision, the court found that there was no ambiguity in the policy language, and that the case left "no question" that the definition extended to the attack on Busby. The court noted: "Had her assailant struck Busby with a closed fist, there could be no argument that such a striking was not a 'battery' under Oxnard's policy. Could the answer be any different if that fist contained a glass container that was used to strike Busby? Certainly no reasonable person would make such an argument. How, then, could or should the result be any different if the glass container were filled, as in this case, with a flammable substance used to set Busby afire?"

Having found that the definition of "battery" and therefore the exclusion applied, the court concluded that Mount Vernon had no obligation to its insured for any damages to Busby. Nevertheless, the minor children argued that, even if the exclusion applied to Busby, it did not apply to them because the trial court lacked jurisdiction to enter a judgment against them because no actual controversy existed. The court rejected this argument. It stated that because the negligent infliction of emotional distress action from the original complaint in the underlying action was technically unresolved, the court did not err when it granted a judgment for declaratory relief to Mount Vernon against the minor children.

The judgment of the lower court in favor of Mount Vernon was affirmed.

Mount Vernon Fire Insurance Corporation vs. Oxnard Hospitality Enterprise, Inc.-B244569-Court of Appeal, Second District, Division 3, California-September 16, 2013-2013 WL 5161656.

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