Reinsurance Law Blog

Employer of permissive user not an insured -- Missouri law

Jody Nathan — Fri, 18 May 2012 16:06:46 -0600

Ellis's grandparents let Ellis use their car while delivering for Papa Johns. The car was insured by Allstate. Ellis had an accident in the course and scope of his employment. As a result, Ellis and Papa John's was sued. Allstate defended Ellis and paid its policy limits, but refused to defend Papa Johns.

Summary judgment to Allstate was affirmed. Papa John's was not an insured under the policy. Papa John's was not using the car with the policyholders' permission at the time of the accident -- Ellis was.

Just because Ellis had permission to use the car in the course and scope of his employment with Papa John’s did not mean that Papa John’s had permission to use the car – for example, Papa John’s could not put another driver in the car. Simply because Papa John’s benefitted from Ellis being able to use the car did not make Papa John’s a permissive user. Papa John’s respondeat superior liability did not make it a permissive user. Legal responsibility for the use of a car is not synonymous with permissive use of the car.

Papa John's v. Allstate

State law claims preempted on national flood insurance policy -- Utah law

Jody Nathan — Thu, 17 May 2012 11:44:17 -0600

In Remund v. State Farm Fire & Cas. Co., the plaintiff built his cabin over a creek. He wanted flood insurance to cover any damages caused to his cabin or to the piers and channel which supported his cabin and affected the flow of the creek. He was told the policy would cover any damage to his property. But when high runoffs did damage the piers and channel, the claim was denied. He sued State Farm for breach of contract, breach of warranty, estoppel, and bad faith. The federal regulations on flood insurance say that representations regarding the extent and scope of coverage which are not consistent with the National Flood Insurance Act or the Program’s regulations, are void. Summary judgment to State Farm was affirmed on appeal.

The court found that the claims were preempted by federal law. 44 C.F.R. § 61.5(e). The regulation creates the legal fiction that an insurance agent “acts for the insured,” instead of for her employer (the private insurance company). Thus, § 61.5(e) shields the private insurance company from liability for certain of the agent’s tortious acts. Whether this is good public policy because it makes participation in the NFIP more attractive to private insurance companies, or bad public policy because it may result in injustice for some insureds, is not for the courts to decide.

Statutory damages for unsolicited faxes are not property damage (Missouri Law)

Jody Nathan — Fri, 11 May 2012 15:16:01 -0600

In Olsen v. Siddiqi, Olsen sued Siddiqi and Global in a class action for sending unsolicited faxes under the Telephone Consumer Protection Act (TCPA). Global tendered the defense to its commercial general liability insurer, American Family, which refused the defense, claiming the policy did not cover the claims. Global then settled the case for $4,917,500, with the parties agreeing the judgment could only be recovered from the proceeds of Global's insurance policy with American Family. Eventually, the trial court granted summary judgment to Olsen, and the Missouri Court of Appeals reversed.

The issue was whether the statutory damages awarded to Olsen constituted "property damage" under the policy and under Missouri law. Olsen relied on Universal Underwriters Ins. Co. v. Lou Fusz Automotive Network, Inc., 401 F.3d 876 (8th Cir. 2005), which held that statutory damages under the TCPA constituted "damages" under the terms of the insured's policy. But the policy in that case was materially different than the policy in this case. In Universal, the policy covered punitive damages. In this case, the policy did not.

Under Missouri law, unless otherwise bargained for, the term "damages" does not include fines and penalties. Thus, if the statutory damages awarded in the underlying judgment are in the nature of fines or penalties, they are not covered by Global's policy. The court concluded that the TCPA is both remedial- when an individual seeks recovery for actual monetary loss- and penal- when an individual seeks the statutory damages of $500.00 for each violation. As Olsen opted to recover statutory damages, those damages were penal in nature, and as penalties, did not constitute "damages" under the terms of Global’s policy.

The court concluded:

The statutory damages awarded to Olsen and the class members in the underlying suit do not constitute "property damage" under the terms of Global's general commercial liability policy and the laws of this State. As such, Global's policy provides no coverage for the damages awarded in the settlement agreement, and the trial court erred in determining otherwise. The case is remanded to the trial court with an order to enter summary judgment in favor of American Family.

Long Term Disability and Recoupment -- ERISA

Jody Nathan — Wed, 09 May 2012 11:18:19 -0600

Eissa vs. Aetna Life Ins. Co. involved Long Term Disability (LTD) benefits under an ERISA plan. Eissa received short term disability under Boeing's ERISA plan for physical and mental disabilities. The plan limited benefits for mental disabilities to 24 months total. In addition, the amount of benefits was reduced by any Social Security benefits awarded. Eissa was denied any LTD benefits because his disability was found to be mental rather than physical. This finding was affirmed on appeal. Aetna then sought to "recoup" payments made to Eissa based on the award of Social Security benefits. Eissa sought bankruptcy protection and was discharged, yet the trial court found that he owed the money anyway, under a recoupment theory. The Tenth Circuit reversed this ruling. Since Aetna did not owe Eissa any more money, there was no fund from which Aetna could recoup the money. Thus, there was no exception to discharge, and the debt was discharged by the bankruptcy.

Haunted Houses and Escape Clauses -- Oklahoma Law

Jody Nathan — Tue, 08 May 2012 22:47:23 -0600

Western World Ins. Company v. Markel American Ins. Company involved two insurance companies which insured a "Haunted House." Judge Gorsuch had some fun with his opinion some of which will be quoted below. Hodges' flashlight went out and he fell down an elevator shaft while looking for another. Western defended and paid the claim; then sued Markel. Markle claimed it owed nothing because of an escape clause in its policy. But the "escape clause" was found in the "who is an insured" part of the policy, not in the "other insurance" part of the policy. And, it was unclear whether the "escape clause" applied to all insureds or just additional insureds. Furthermore, the "escape clause" if applied as Markel claimed would make the other insurance clause superfluous, something that contract law doesn't like to do. Oklahoma law requires that ambiguities be resolved in favor of coverage, and that's what the Tenth Circuit did. Judge Gorsuch states:

“[I]f an insurer desires to limit its liability under a policy, it must employ language that clearly and distinctly reveals its stated purpose.” Spears v. Shelter Mut. Ins. Co., 73 P.3d 865, 868 (Okla. 2003). If (as here) the relevant limiting policy provisions are “unclear or obscure,” then the objectively reasonable expectations of a person “in the position of the insured” control. Id. Put differently, when a policy’s escape hatch is less a clearly marked exit than it is a hidden trap door, the reasonable expectations of an insured who has read and become familiar with the policy language supplies the rule of decision.

Finally the whole escape clause precludes any liability argument was not raised in Markel's reservation of rights letter to its insured -- which raised many other arguments as to why it should not cover the claim ("arguments it gave up the ghost on long ago")

The case was sent back to the trial court for determination of how much Markel should pay. No escape for either insurance company, indeed.

Please read the entire opinion for the full effect; here is how it starts:

Haunted houses may be full of ghosts, goblins, and guillotines, but it’s their more prosaic features that pose the real danger. Tyler Hodges found that out when an evening shift working the ticket booth ended with him plummeting down an elevator shaft. But as these things go, this case no longer involves Mr. Hodges. Years ago he recovered from his injuries, received a settlement, and moved on. This lingering specter of a lawsuit concerns only two insurance companies and who must foot the bill. And at the end of it all, we find, there is no escape for either of them.

Underinsurance - Stacking more than one UM policy -- Missouri law

Jody Nathan — Fri, 04 May 2012 12:11:29 -0600

In Graham v. State Farm, summary judgment to the insured was reversed on appeal. The primary UM limits exceeded the insured's UM limits. The State Farm policy language was clear and unambiguous, providing underinsured motorist coverage only to the extent that the State Farm policy limits exceed those of any primary underinsured motorist coverage. Thus, because the primary underinsured motorist coverage exceeded the State Farm policy limits, the trial court erred in granting summary judgment for $100,000 in favor of Graham. Reversed and remanded.

Other states would have permitted stacking of coverage up to all limits available to cover the insured's damages. In this case, the court distinguished the case from Jones v. Mid-Century Ins. Co., 287 S.W.3d 687 (Mo. banc 2009), noting there was a possibility that the insurer would have to pay limits in this case, while in the Jones case, the insurer would never have to pay limits.

The court concluded:

As explained in Sommers, the language regarding the limit of liability and the provision regarding other underinsured coverage are not duplicitous, uncertain, or indistinct. 954 S.W.2d at 20. The Supreme Court's analysis of substantially different policy language and circumstances in Jones does not alter this determination. The trial court erred in granting summary judgment against State Farm and in entering judgment in favor of Graham in the amount of $1 00,000. We reverse and remand for proceedings consistent with this opinion

No duty to defend claim of insured's negligent and unworkmanlike construction under a CGL policy

Jody Nathan — Thu, 19 Apr 2012 16:34:26 -0600

Employers Mutual Casualty Company v. Bartile Roofs, Inc., 10th Circuit Wyoming

Based on its previous rulings in the same case, the Tenth Circuit held there was no duty to defend claims based on an insured’s negligent and unworkmanlike construction under the CGL policy issued by EMC to Bartile. “[R]egardless of the label applied to a claim, “[u]nder [both] Wyoming and Utah law, the natural results of an insured’s negligent and unworkmanlike construction do not constitute an occurrence triggering coverage under a CGL policy.” Bartile I, 618 F.3d at 1174. . .”

In this case, the allegations were amended to specifically include claims of negligence. There was a claim that Bartile’s negligence caused damage to other parts of the building. It was claimed that “work was negligently performed so as to accident[ally] cause physical damage to, and loss of use of other parts of the work at the project”. . . i.e., water damage. Bartile claimed that Wyoming law would hold that conduct constituting both a breach of contract and a tort can trigger a duty to defend. But the court stated the tort/contract distinction is essentially irrelevant to the applicable definition of an “accident” per Bartile I. According to the court, Bartile made no argument that the consequential water damage at issue was not a natural result of Bartile’s own unworkmanlike or negligent construction. Thus, “Bartile has not established an “accident” subject to policy coverage.

MSJ affirmed on bad faith investigation claim - Okla law

Jody Nathan — Fri, 23 Mar 2012 13:58:57 -0600

In Walker v. Progressive, the Tenth Circuit affirmed a summary judgment in favor of the insurer on the plaintiffs’ bad faith claim. The bad faith claim involved the investigation of the theft loss of plaintiffs’ Tahoe while they were on vacation. The Tahoe was found later, burned. Progressive found that the steering column was not damaged, the car was for sale when it was stolen, it was a gas guzzler and plaintiffs had all the keys. Progressive said these were red flags for fraud, and had its Special Investigation Unit (SIU) investigate the claim. Plaintiffs were out of town when the theft occurred and Progressive wanted photos of the vacation. When the photos were received, they appeared altered. In addition, although the plaintiffs had said there were two keys, a third showed up. The key and the photos were explained and the claim was paid.

Plaintiffs’ bad faith claim is founded on the contention that Progressive’s investigation was both “untimely” and “improper,” and does not concern the disagreement between the parties concerning the value of loss or Progressive’s right to conduct a fraud investigation. The gist was the way Progressive handled the third key and photo issues. Plaintiffs offered no explanation as to how they were damaged by the alleged unreasonable actions of Progressive, which is a required element of the bad faith claim.

Once Progressive verified that the Walkers were out of town during the date of loss, it authorized
coverage for the claim, even though the origin of the third key remained unresolved. Thus, “it was irrelevant when Progressive determined the origin of the third key because Progressive agreed to pay for the repairs to The Vehicle in November 2008.” The expert report prepared after the lawsuit was filed and after payment was authorized was irrelevant to the claim at issue – and was prepared in response to the lawsuit itself.

Policy Expired, Duty Did Not -- Missouri Law

Jody Nathan — Fri, 23 Mar 2012 12:18:37 -0600

Circuit court erred in granting summary judgment to insurers based on a conclusion that appellants (successors in interest to the original insureds) are not an insured under policies. Policies unambiguously cover occurrences while policies were in effect, and cover successors, which include appellants. “Occurrence-based policies cover negligent acts or omissions which occur within the policy period, regardless of the date when the negligent acts or omissions are discovered or claim is made.” Allegations describing facts covered by policy trigger duty to defend. Therefore, if petition alleges that a covered event occurred within the policy’s effective date, insurer has a duty to defend though the policy has long expired. Presence of allegations on which no recovery is possible do not discharge duty to defend.

Renco v. Certain Underwriters at Lloyds

Insured and Excluded Risks Separate Causes Missouri law

Jody Nathan — Fri, 16 Mar 2012 14:49:56 -0600

Intermed Ins. Co. v. Hill

If two events, one excluded and the other covered, each constitute a “separate and distinct” cause of injury, exclusion of the one will not bar coverage of the other. Malpractice policy excluded liability for any person’s sexual conduct. Plaintiff alleged that, after insured failed to supervise employee, employee sexually assaulted plaintiff. Plaintiff alleged that failure to supervise proximately caused plaintiff’s injury separately and concurrently with employee’s conduct. In insurer’s declaratory judgment action, insurer failed to negate such causation. Summary judgment was improperly granted to the insurance company.

Missouri courts have recognized "that where an insured risk and an excluded risk constitute concurrent proximate causes of an accident, a liability insurer is liable as long as one of the causes is covered by the policy." Under this rule, an insurance policy will be construed to provide coverage where an injury was proximately caused by two events -- even if one of those events was subject to an exclusion clause -- if the differing allegations of causation are "independent and distinct." that is:

[i]f the essential elements of a negligence claim asserting a cause of injury can be stated without regard to the essential elements of a differing claim of negligence that also is asserted to have caused the same injury, then the separate causes are independent and distinct from the other, and support the application of the concurrent proximate cause rule.

The proper supervision of medical personnel is not inherently related to the prevention of sexual assault. Because the Clinic's negligent supervision of PA constituted an independent, concurrent proximate cause of Appellant's injuries, the trial court erred in granting summary judgment in favor of the insurance company.

I don't quite follow how the court gets to its conclusion. Clearly, if the PA had not been sexually assaulting patients during his "examinations" the plaintiff would not have been injured by the failure to supervise. Supervision is required for medical care, and the opinion does not indicate the medical care caused any injury .

Unborn child "resides" with mother; household exclusion, Missouri law

Jody Nathan — Fri, 16 Mar 2012 14:29:13 -0600

Fire Insurance Exchange v. Horner, ;

A declaratory judgment action where the insurer claimed it had no defend or indemnify the mother and daughter who died as a result of the insured's negligence in failing to take them to the doctor. The insurance policy contained a household exclusion which provided that the policy did not cover bodily injury to any resident of Horner’s household. The court found that the mother resided with the insured, so the daughter resided there, too. The term “resident” has only one reasonable interpretation in this context – the unborn child, who was in her mother’s womb at the time of her injuries, resided wherever her mother resided. Therefore, the unborn child resided with her mother in Horner’s household. Because the policy excludes coverage for bodily injury to residents of Horner’s household, Fire Insurance Exchange has no duty to defend or indemnify Horner in the wrongful death action.

The household exclusion is in policies to prevent collusive lawsuits. There are better ways of doing that. Family exclusions seem to hurt those whom insureds would want to protect most.

Duty of Insurance Broker, Missouri Law

Jody Nathan — Mon, 12 Mar 2012 12:42:34 -0600

Emerson Electric v. Marsh & McLennan

Facts: Marsh & McLennan Co. has served as Emerson Electric Co.’s insurance broker for more than 20 years, helping Emerson procure excess liability, aircraft, international and other specialized insurance. The record does not reveal whether Emerson and Marsh operated under a written agreement, an oral agreement or a combination of both. But it does reveal that, during the course of their relationship, Marsh accepted contingent commissions from certain insurers based on the amount of business it placed with those insurers. The record also shows that Emerson paid its insurance premiums directly to Marsh, which placed the premiums in interest bearing accounts before forwarding them to the proper insurer. Emerson asserts that, as its insurance broker, Marsh was its agent and owed Emerson fiduciary duties of loyalty and due care. Emerson claims that Marsh breached its duty of loyalty by steering Emerson’s business to certain insurers
to maximize the commissions Marsh earned and by not disclosing its receipt of interest on the premiums it collected from Emerson prior to forwarding them to insurers. Emerson also claims that the receipt of the contingent commissions violated its duty of care because it prevented Marsh from obtaining insurance at the lowest possible price and that, even if insurance brokers have no general duty to obtain the best price, Marsh agreed to do so for Emerson. The trial court granted Marsh judgment on the pleadings, and Emerson appeals.
REVERSED AND REMANDED.
Court en banc holds: (1) Insurance brokers are agents of the insured when acting on behalf of the insured, and all agents owe fiduciary duties of loyalty and due care when acting in the scope of the agency relationship. Marsh, therefore, owed Emerson fiduciary duties of loyalty and due care when acting as Emerson’s agent. Nevertheless, unless otherwise agreed, brokers only have a duty to procure the requested insurance and have no duty to advise insureds about the proper types and amounts of insurance or to obtain insurance at the lowest possible price. As a result, absent an agreement to the contrary, Marsh did not violate the fiduciary duties of loyalty or care by failing to obtain insurance at the lowest possible price.
(2) Although under the common law a broker acts as the agent of the insured when procuring insurance, it usually acts on behalf of the insurer when collecting premiums from the insured. Missouri statute supports this interpretation by recognizing that brokers may act on behalf of insurers at certain times and insureds at others and by allowing brokers to keep premiums from multiple insureds in the same account. As a result, Marsh did not owe a fiduciary duty to Emerson to tell it about interest it might collect once it had collected premiums and prior to forwarding them to the relevant insurer.
(3) Missouri statute expressly authorizes brokers to receive commissions without limiting that authority to a particular type of commission; therefore, Marsh did not breach its fiduciary duties to Emerson by receiving contingent commissions. Furthermore, because commissions are authorized expressly, Marsh had no duty to disclose its receipt of contingent commissions, just as it had no duty to disclose any other statutorily authorized aspects of its financial arrangements.
(4) Although Marsh had no general duty to obtain the lowest cost insurance or to disclose its receipt of contingent commissions or the interest it collected on Emerson’s premiums, it did have a duty to use reasonable care in procuring insurance, and the record was inadequate for the trial court to grant judgment against it on the claim that the desire to obtain contingent commissions caused Marsh not to use due care. Furthermore, Marsh may have assumed additional duties through either contract or its course of dealing with Emerson, but because the case was decided on the pleadings, Emerson had no opportunity to develop evidence on this issue. It was error, therefore, to hold that Marsh was entitled to judgment as a matter of law.

ERISA Exclusions, Accidental Death and Appellate Review

Jody Nathan — Mon, 20 Feb 2012 17:26:47 -0600

In Brimer v. Life Insurance Company of North America, the deceased insured's spouse and children sued the insurance company claiming that they were entitled to benefits under a group insurance policy.

James Brimer died and autopsy results attributed the death to acute combined drug toxicity due to the ingestion of prescription drugs. The medical examiner noted that Mr. Brimer had a history of hypertension and back pain. The medical examiner determined that Brimer's death was an accident.

Life Insurance Company of North America (LINA) insured Mr. Brimer under a group policy through his employer. The policy covered losses from accidental bodily injuries which directly and from no other cause, result in a covered loss. The policy's exclusions in relevant part were as follows: No benefits will be paid from losses resulting from: (1) intentional self-inflicted injuries or any attempt thereat; (6) benefits will not be paid for loss covered by or resulting from sickness, disease, bodily infirmity, or medical or surgical treatment thereof…;(7) voluntary self -administration of any drug or chemical substance not prescribed by, and taken according to the directions of, a licensed physician. [Accidental ingestion of a poisonous substance (is) not excluded.]

The Brimers submitted a claim to LINA and LINA denied the claim under Exclusion 7 (voluntary, self-administration of drugs). The Brimers administratively appealed the decision arguing that Mr. Brimer had ingested medication that was prescribed to him by his physician. LINA, on appeal, held that the denial was correct based on four grounds: (1) Mr. Brimer's death was not accidental, (2) Exclusion 1 applies, (3) Exclusion 6 applies, and (4) Exclusion 7 applies. LINA informed the Brimers that they had exhausted all administrative appeals.

The Brimers sued in state court alleging breach of contract and breach of the covenant of good faith and fair dealing. LINA removed the action to federal district court because of diversity and that the policy is governed by the Employee Retirement Income Security Act ("ERISA").

The District Court issued two opinions. In Brimer I, the court rejected the Brimers' argument that because LINA based the initial denial of their claim solely on Exclusion 7, not Exclusion 6, that it was only fundamentally fair the LINA be held to Exclusion 7. The District Court also affirmed LINA's decision to deny the claim because even if the Brimers could prove the death was accidental the claim was barred by Exclusion 6. LINA cited authority which was uncontested that an exclusion in an insurance policy for medical treatment of a sickness or disease, unambiguously includes death caused by accidentally overdosing on a drug prescribed by a doctor for a medical condition.

In Brimer II, the district court reversed its previous decision regarding the accidental nature of Mr. Brimer's death. It concluded that the Brimers have met the burden of proving the death was an accident.

The court also dealt with Exclusions 1 and 7. It ruled that Exclusion 1 was not a legitimate basis for denial and that Exclusion 7 was ambiguous. Exclusion 6 still applied.

The Brimers appealed and the appeals court affirmed the district court's judgment in favor of LINA. The court held that although LINA had violated ERISA the procedural violation did not prejudice the outcome. In spite of the procedural issues the district court did consider LINA's denial of benefits under Exclusion 6.

The Brimers asserted on appeal that the district court erred when it declined to consider their argument that Exclusion 6 was ambiguous when read along with Exclusion 7. LINA argued, and the appeals court agreed, that the Brimers forfeited this argument because they did raise it in a timely fashion and did not carry their burden on appeal of showing that plain error occurred.

The court of appeals held that since the procedural defect in the administrative appeal did not prejudice the Brimers or foreclose judicial review of Exclusion 6, because the Brimers forfeited their argument that Exclusion 6 conflicts with Exclusion 7 and failed to argue plain error, and finally, because the Brimers have not otherwise challenged the district court's conclusion, that Exclusion 6 precludes coverage.

Statutory cause of action caps punitive damages - Missouri

Jody Nathan — Mon, 20 Feb 2012 17:18:55 -0600

In Estate of Max E. Overbey v. Chad Franklin National Auto Sales North, L.L.C., and Chad Franklin, the Overbeys sued Chad Franklin National Auto Sales (National) for fraudulent representation in violation of the Missouri Merchandising Practices Act. The Overbeys enrolled in the "payment-for-life" membership plan at National. As a "Payment-for-Life" member, the Overbeys paid a $500 enrolment fee and National paid them $3253 which lowered the their monthly car note to $49. The salesman promised the Overbeys that they could trade the SUV in six months for another vehicle. The Overbeys returned to National in six months to trade the SUV and a National salesperson told the them that they were required to pay $719.52 per month for the remaining 65 months left on the contract.

The jury found in favor of the Overbeys and entered judgment against National for $76,000 in actual damages and $250,000 in punitive damages. The jury also awarded $4500 in actual damages and $1 million in punitive damages against Franklin but the trial judge reduced the punitive damages amount to $500,000 pursuant to a statutory punitive damages cap contained in 510.265, RSMo. Supp. 2010. The Overbeys appealed arguing that the trial court's reduction of punitive damages violated their right to a jury trial, due process and equal protection and violates the separation of powers doctrine. Mr. Franklin appealed on the basis that the Overbey's failed to make a submissible case and that the reduced amount of punitive damages was excessive.

The Overbey's overcame their burden of proof by proving that Mr. Franklin used deception, fraud, false pretense, misrepresentation, unfair practice or the concealment, suppression or omission of any material fact connected to the sale or advertisement of the sale of merchandise. The Court held that the following evidence was sufficient for a submissible case: (1) Mr. Franklin was the sole owner of National and Chad Franklin Suzuki; (2) Nationals commercials offering the "payment-for-life" program; and (3) Chad Franklin Suzuki's commercials advertising a similar program.

The Court relied on Missouri precedent that considered the egregiousness of conduct when awarding significant punitive damages in a case where there were minimal actual damages. The Court held that the $500,000 in punitive damages was reasonable and proportionate to the harm Mr. Franklin inflicted.

Furthermore, the Court held that the Overbey's decision to sue under a statutory cause of action subjected them to the remedies defined under the Missouri Merchandising Practices Act. As such the trial court's decision to cap the punitive damages did not violate the separation of powers doctrine or their right to a trial by jury or due process and equal protection.

Coverage Without Title -- Missouri Law

Jody Nathan — Fri, 17 Feb 2012 14:38:21 -0600

In an automobile policy, title is not necessary for coverage, only an insurable interest. Insurable interests include use and pecuniary interest without title or even possession. Appellants’ payment for and investments in RV constituted such interests. Directed verdict on appellants’ counterclaim for breach of contract and vexatious refusal to pay reversed.
American Family Mutual Insurance Co., Respondent, v. Pamela C. Coke and Ward Ferrell, Appellants.
(Overview Summary)

Damage to "your work" exclusion may render completed operations coverage illusory (Missouri)

Jody Nathan — Fri, 03 Feb 2012 13:28:22 -0600

In Cooks v. Mid-Continent, Cooks was insured by Mid-Continent when it installed some equipment made by Greystone and sold to LaFarge. The equipment collapsed, causing damages including lost income while the equipment was being repaired. LaFarge and Greystone settled, and then Greystone sought indemnity from Cooks, which was granted. In the meantime, Mid-Continent said there was no coverage because the damage arose out of Cooks work, and was therefore subject to the damage to your work exclusion, even though the policy had products completed operations (PCOH) coverage. The trial court granted summary judgment to Mid-Continent, saying the "own work" exclusion precluded coverage. The appellate court reversed.

The own work exclusion states

This insurance does not apply to:
I. Damage To Your Work
“Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard.”

Mid-Continent focused on the phrase “arising out of,” arguing that because all damages at issue arose out of Cooks’ work, they are not covered. Cooks responded that the exclusion applies only to “damage to your work” (emphasis added), and that to read the policy as Mid-Continent urges would be to render PCOH coverage illusory. The court agreed with Cooks and states:

A plain reading of these two policy provisions reveals that while the PCOH definition in the instant case encompasses certain “‘property damage’ … arising out of … ‘your work,’” the exclusion addresses only the portion of that same property damage which was actually caused to “your work.” Both contain the same language concerning property damage arising from the insured’s work, and both clearly address property damage falling within the definition of PCOH. However, the exclusion contains the qualifying phrase “to your work,” thereby removing from coverage property damage that falls within the PCOH definition, but that actually occurred to the insured’s work. Any remaining property damage meeting the definition of PCOH but occurring to property that was not the insured’s work, it follows, would be covered. We find no ambiguity in these provisions.

CGL policies, such as this one, insure the risk of the insured causing damage to other persons and their property, but not insuring the risk of the insured causing damage to the insured’s own work. The court states:

In fact, an ambiguity is present only when reading the policy as Mid-Continent does. If the exclusion in fact addresses all property damage arising from “your work” and “included in the PCOH definition,” then the exclusion would remove coverage for all property damage included in the PCOH definition, rendering the latter provision illusory. Such a conclusion would not be warranted even if the wording was as Mid-Continent suggests.

The exclusion, then, only applied to the equipment that Cooks actually installed. Since there was other damages, summary judgment was not proper. Furthermore, since the claim was covered, Mid-Continent had a duty to defend Cooks in the underlying lawsuits.

The appellate court concluded that the trial court erred in granting summary judgment in favor of Mid-Continent because the CGL policy’s exclusion for “Damage To Your Work” did not apply to alleged damage to property that was not Cooks’ “work.” In this light, based on our finding that the state and federal petitions alleged potentially covered claims, the trial court erred in determining Mid-Continent had no duty to defend Cook’s in either suit. It reversed the trial court’s grant of summary judgment to Mid-Continent and remanded for a determination of the amount of damages to property that was not Cooks’ work and was thus covered by the policy.

No bad faith where there was a dispute as to whether the accident caused the injury

Jody Nathan — Thu, 02 Feb 2012 22:05:30 -0600

In Haltom v. Great Northwest Ins., the issue was whether Plaintiffs' knee injury arose out of the car accident she was in a few weeks before. When Haltom was checked out after the accident, she complained of many things, but not her knee. A few weeks later, while doing yoga, her knee began to hurt. She sought treatment and an MRI 4 months after the accident showed no tear. But a few months after that, she had a tear in her knee and got it fixed. She told the doctor her knee was hurt in the car accident. In the meantime, the other driver agreed to pay policy limits and Haltom asked Great Northwest for a subrogation waiver. Eventually, Great Northwest agreed to the waiver and paid her $10,000 in med pay. Later, it declined any payment under her underinsured motorist coverage, claiming that the knee problem was not related to the accident.

Summary judgment to the insurance company was affirmed. It was not unreasonable to question whether the knee was injured in the accident, especially since there was no evidence of injury to the knee after the accident in the emergency room, and the first MRI did not show any tear.

No bad faith for failure to pay life policy in 30 days

Jody Nathan — Thu, 02 Feb 2012 21:53:14 -0600

Toppins v. Minnesota Life

Mr. Toppins died in an airplane crash within 2 years of taking out a million dollar life insurance policy – i.e., within the 2 year contestable period. Minnesota Life began a routine investigation because the death occurred within 2 years of the policy. The investigation included a telephone interview with Mrs. Toppins, the beneficiary, and a request that she sign the investigator’s report and some medical information release forms. Rather than sign the documents, counsel for Mrs. Toppins demanded immediate payment and disputed Minnesota Life’s right to conduct an investigation. Suit was filed against Minnesota Life about 35 days after the claim was sent. Five days later, Minnesota Life was told there were no changes to the report, and Minnesota decided to pay the claim without Mrs. Toppins signature on the report or authorization. Minnesota Life contacted its reinsurer to confirm the decision, and sent off the check for the face amount of the policy plus interest. The claim was paid 47 days after it was received.

Summary judgment was later granted to Minnesota Life on Mrs. Toppins claims of breach of contract and bad faith. The Tenth Circuit affirmed.

Ms. Toppins argued that Minnesota Life breached its duty of good faith and fair dealing as follows: (1) it delayed payment while waiting for the reinsurer’s confirmation of its decision to pay, (2) it delayed payment while it waited for Ms. Toppins to sign her statement and complete the medical records authorizations, (3) it engaged in a standard practice of conducting underwriting review after an insured’s death, and (4) it did not pay on the policy within 30 days of receipt of the claim.

As to the 4 days delay in payment caused by consulting with the reinsurer, the court said that it was reasonable for an insurer to consult with its reinsurer, and the 4 day delay was not unreasonable. The insurer was entitled to investigate the claim because the insured died within 2 years of the policy inception. As to Mrs. Toppins claim that Minnesota Life was in bad faith for conducting post claims underwriting, the court rejected the claim, saying that “The tort of bad faith breach of an insurance contract must be based upon an insurer’s wrongful denial of a claim; it cannot be based upon the conduct of the insurer in selling and issuing the policy.”

Oklahoma law says that life insurance claims shall be paid within 30 days after proof of death, otherwise, interest must be added to the amount paid. The failure to pay within 30 days, coupled with the fact that Minnesota Life did not know of the statute was not bad faith. The payment of the full amount of the life insurance policy, plus interest, 47 days after receipt of proof of death did not constitute bad faith.

Off road trail is not a road; exclusion upheld

Jody Nathan — Wed, 01 Feb 2012 15:06:28 -0600

In Hale v. Allied Insurance, Plaintiff was hurt in an accident involving a non-owned ATV on a wilderness trail. The ATV was not registered, and not covered by insurance. Plaintiff claimed he was entitled to UM coverage under his own policies for his injuries. The insurer denied the claim, relying on an exclusion for accidents involving “any vehicle or equipment . . . [d]esigned mainly for use off public roads while not upon public roads.” Reasoning the ATV was designed for off-road use and the trail was not a public road, the insurer denied the claim. The trial court agreed, granting summary judgment to the insurer.

The Tenth Circuit affirmed. It noted that although "road" wasn't defined in the policy, the policy distinguishes between public roads and terrain suitable only for specially designed vehicles. The policy’s language excludes coverage for accidents involving vehicles “designed mainly for use off public roads while not upon public roads.” The trail where the accident happened was not a road, but an obstacle course, which inexperienced drivers were told to avoid.

In addition, Plaintiff argued that UM coverage was mandated by Wyoming law, which required motor vehicles be covered; since ATV 's are defined as motor vehicles, they are required to be covered. But, since this argument wasn't made to the trial court, the Tenth Circuit declined to consider it.

Arkansas ok's workers comp exclusion in auto med pay

Jody Nathan — Tue, 31 Jan 2012 14:15:36 -0600

BOHOT V. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, 2012 Ark. 22, No. 11-881 (1-26-12)

The Arkansas Supreme Court, affirming summary judgment for an insurer, upheld an exclusion to medical payments coverage contained in its policy which stated, “THERE IS NO
COVERAGE FOR AN INSURED . . . IF ANY WORKERS’ COMPENSATION LAW OR ANY SIMILAR LAW APPLIES TO THAT INSURED’S BODILY INJURY.” The exclusionary language applied to preclude coverage for medical bills incurred in a motor vehicle accident while working, despite the fact that workers’ compensation benefits did not cover all bills, as physical therapy bills were denied since they were not ordered by the claimant’s authorized treating physician.

Justice Danielson rejected arguments that medical payments coverage applied to cover the unpaid bills, noting that an insurer may exclude certain risks, and while there is statutory language authorizing such things as intentional acts, commission of a felony or evasion of arrest, in Ark. Code Ann. § 23-89-205, the Court has held that is not an exclusive list.

The Court pointed out by a previous decision, Aetna Insurance Co. v. Smith, 263 Ark. 849, 568 S.W.2d 11 (1978), it has upheld a similar occupational exclusion. In that case, the exclusion read, “This coverage does not apply to bodily injury (a) sustained by any person to the extent that benefits therefor are in whole or in part paid or payable under any workmen’s compensation law, employer’s disability law or any similar law.”

The Court explained its earlier ruling:

“Therefore, the exclusion clearly applied in all scenarios where workers’ compensation benefits either had been paid in whole or in part or could be paid in whole or in part. In other words, the exclusion this court upheld in Aetna would have applied even had workers’ compensation not covered the medical bills in full, and there is no distinction between it and the exclusion at issue in the instant case.”

The Supreme Court rejected arguments that it should overrule the Aetna case, citing case law supporting stare decisis “unless great injury or injustice would result.” The Court declined to
rewrite precedent with this case.