A National Insurance Law Newsletter September 11, 2006 Vol. 3, No. 4

A national insurance law newsletter September 11, 2006  Vol. 3, No. 4

CaseWatch provides timely summaries of and access to insurance law decisions from the nation’s appellate courts, and is distributed bi-weekly via e-mail. For ease of reference, we have organized the cases by topic. Jurisdictional information and links to full text decisions are found in individual case titles. We appreciate your interest in our newsletter, and welcome your feedback. We also encourage you to share the newsletter with your colleagues. If others in your organization are interested in receiving the publication, or if you do not wish to receive future issues, please contact Kevin T. Merriman.

Additional Insured

Latino v. Greg’s Landscaping (Super. Ct. N.J. Aug. 18, 2006) Certificate of Insurance Raises Questions of Fact Concerning Existence of Additional Insured Coverage Certificate of insurance naming entities as additional insureds (that were not listed as additional insureds on the actual policy) created question of fact regarding the existence of coverage. Question of fact also existed regarding whether named insured was liable for all damage for failing to procure insurance, and whether insurer could be called upon to indemnify the named insured for such claims.

Attorneys Fees

Federated National Insurance Company v Esposito (Fla. App., 4th Dist., Aug. 23, 2006) Insured not Entitled to Attorney’s Fees as Part of Appraisal Award The insurer appealed the granting of attorneys’ fees to the insured as part of an appraisal award. The insurer argued that the court erred in confirming the attorney’s fees award because it timely participated in the appraisal and paid the award without the need for court intervention. The court agreed, finding that because of the laudable goal of the appraisal process—to resolve disputes without litigation—and the potential to evade that goal by resort to the court system, there was no need to confirm an appraisal award where the insurer participated in the appraisal process without court intervention.

Auto—No-fault

Grisby v. Progressive Preferred Insurance (Ore. App. Sept. 6, 2006) PIP—Attorney Fees Allowed At issue on this appeal was whether an injured plaintiff that sustained personal injuries in an automobile accident where he was rear-ended was entitled to attorneys fees under ORS 742.061. The court held that the injured plaintiff who prevailed in an action against his insurer for PIP benefits was entitled to attorneys fees.

Auto—Liability

Liberty Mutual Insurance Company v. Montclair Art Museum (Super. Ct. N.J. August 28, 2006) Issue of Fact Raised Whether Employee Was Unloading Vehicle Question of fact existed regarding whether insured’s employee was unloading truck at time of accident where employee testified that he had completed unloading truck, and was aiding the persons designated to move the crate from the place of delivery to its final location. The employee testified that he had completed unloading, but the insured’s client testified that it was insured’s responsibility to unload the crate to its final destination.

Auto—Uninsured/Underinsured Motorist Coverage

Gormbard v. Zurich Insurance Company (Conn. Sept. 12, 2006) UM Provision Limiting Coverage to Use of Antique Auto Enforceable The court holds that an insurance carrier that issues a reduced premium, specialty auto liability policy on an antique automobile that is used only for activities such as exhibitions and parades lawfully may limit UM/UIM coverage under that policy to accidents involving the occupancy or use of the antique auto. The plaintiff and her husband purchased the policy to insure their 1929 Ford Model A. The plaintiff sustained injuries when the 1987 Chevrolet Blazer that she was operating was struck by an underinsured motorist, and sought coverage under the UM provisions of the specialty policy, claiming that the provisions of that policy purporting to limit UM/UIM coverage to accidents involving the Model A are unenforceable as against the public policy articulated in General Statutes (Rev. to 1993) § 38a-336 (a)(1). The court concluded that the policy does not violate public policy and are, therefore, enforceable. The court reasoned that antique vehicles used only for such activities as parades and exhibitions are materially different

-2- Goldberg Segalla LLP CaseWatch: Insurance from vehicles used for general transportation purposes. Thus, it is perfectly reasonable for owners to seek insurance at a cost commensurate with their limited use. Although §38a-336 mandates that UM/UIM coverage be portable, the court concluded the mandate was intended to apply to ordinary, personal use vehicles, and not to antique vehicles "maintained solely for use in exhibitions, club activities, parades or other functions of public interest." The court concluded, therefore, that the UM provisions did not contravene public policy.

Manzanares v. Allstate Insurance Company (N.M. App. June 28, 2006) Insured Not Entitled to Recover Punitive Damages under UIM Policy Due to Offset of Settlement with Tortfeasors After settling her claim with the driver and owner of the offending vehicle for their full policy limits ($25,000 and $35,000), the insured sought uninsured motorist (UIM) coverage under her auto policy for punitive damages. Insured’s UIM coverage was in the amount of $30,000 and intended to recover this amount in addition to the $60,000, which she already received from the tortfeasors. The tortfeasors did not have coverage for punitive damages, and the insured argued that she was therefore entitled to UIM coverage under her own policy. In affirming the grant of summary judgment to the insurer, the court held that the insurer was entitled to an offset of $60,000 against the insured’s $30,000 UIM policy coverage. The insured claimed that an offset in this case would result in consumers paying premiums for punitive damages coverage but never be able to recover such an amount. The court disagreed and referred to the insured’s policy language, which stated that the $30,000 was the “maximum amount payable for [UIM] coverage by this policy for any one accident.”

Hartford Insurance Company v. O’Mara (Super. Ct. Pa. Aug. 29, 2006) Selection Form Valid Coverage options form satisfied requirement where form notified the insured that the UIM coverage was optional in Pennsylvania, and advised that insured may reject such coverage. In the selection form, the language directs the insured to “select your coverage limits,” and advises that absent a selection, UIM amount would be policy limits.

Rawe v. Liberty Mutual Insurance Company (6th Cir. [Ky] Sept. 1, 2006) Claims which arose after UIM lawsuit was filed were not barred by release signed before inception of suit. Claimant cannot release a claim which had not yet arisen at the time of release.

Granger v. Government Employee Insurance (Haw. Aug. 9, 2006) Consent to Settle Reasonably Withheld The insured instituted an action against the UIM insurer seeking a declaration that the carrier was required to consent to settlement of the underlying tort claim or pay the alleged tortfeasors’ settlement offer and proceed with a subrogation. The court reversed and remanded the case, holding that an insurer must either consent to settle or assume subrogation rights after it has had a reasonable time to investigate.

-3- Goldberg Segalla LLP CaseWatch: Insurance State Farm Mutual Automobile Insurance Company v Coe (Ill App., 1st Dist., Sept. 5, 2006) Set-Off for WC Payments in UM Award Not Against Public Policy The court found that the term "amount payable under this coverage" in UM policy was not ambiguous and did not include the total damages incurred by the insured. The court further concluded that the setoff for workers' compensation benefits did not violate the purpose of the underinsured motorist statute, and therefore, did not violate public policy.

Abrohams v Atlantic Mutual Insurance Agency (Ga. App. Aug. 31, 2006) Umbrella Insurer Obligated to Provide UM Coverage Umbrella insurer filed declaratory judgment action, seeking a declaration that it was not obligated to provide underinsured motorist benefits under its policy. The policy at issue specifically excluded UM coverage. Nevertheless, a Georgia statute requires that insurers provide UM coverage in umbrella policies that provide motor vehicle liability insurance. Therefore, the court held that the provisions in the insured’s umbrella policy, which specifically excluded UM coverage, were void.

Bodden v State Farm Mutual Automobile Insurance Company (11th Cir. [Fla.] Aug. 31, 2006) Suit Dismissed for Failure to Join Underinsured Owner/Driver The court affirmed dismissal the insured’s suit against her underinsured motorist insurer because she failed to bring join the allegedly underinsured owner and/or driver in the action. The court held that the policy’s provision requiring that a suit for such benefits include the allegedly underinsured owner and/or driver was not so offensive to public policy so as to be unenforceable.

Bad Faith

Johnson v. Tennessee Farmers Mutual Insurance Company (Tenn. Aug. 28, 2006) Insurer liable for bad faith where evidence demonstrated insurer’s indifference to insured’s possible excess exposure. Insurer had insured both the tortfeasor-insured, and the injured claimant. Both the injured claimant and the tortfeasor sought UIM benefits, and the insurer paid each. The injured claimant then sued the tortfeasor. Claimant offered to settle for the policy limits. The carrier refused to settle, asserting that the policy limits were offset by the UIM amount paid, and the policy exhausted. The claimant then obtained an excess judgment over the tortfeasor. The court found that the jury could find bad faith under such circumstances, because the insurer did have duty to defend, and was on specific notice that the insured would face excess exposure if the insurer failed to settle.

Northern Insurance Company of New York v. Seville Homes, Inc. (Ky. App. Sept. 1, 2006)

-4- Goldberg Segalla LLP CaseWatch: Insurance Insurer could be liable for bad faith where it settled with plaintiff and obtained release from the tortfeasor, where insured was not represented regarding the bad faith claims against the insurer prior to the settlement.

Cancellation and Nonrenewal

Kolencik v Stratford Insurance Company (11th Cir. [Ga.] Aug. 28, 2006) Insurer Effectively Cancelled Policy Husband of deceased claimant brought suit against insurer of dump truck company that caused his wife’s death in a motor vehicle accident. The court held that the insurer was not obligated to indemnify the dump truck company in the underlying litigation because the company through which the dump truck company financed its insurance premiums cancelled the policy five months before the accident occurred. The court held that the insurer was not required to file a notice of cancellation with the state under Georgia statute because the dump truck company was not a registered motor carrier.

Exclusions—Business Risks

Stuart v Weisflog’s Showroom Gallery (Wis. App. Aug. 23, 2006) Business Risk Exclusions Found Inapplicable A claimant brought suit against a remodeling firm and its liability insurer after the remodeling firm misrepresented the fitness of its design plans. The insurer denied coverage based upon the damage to “your product” and “your work” exclusions. The court held that the damage to “your product” exclusion did not apply because the remodeling firm did not misrepresent the fitness of the remodeled home, but rather, the fitness of the design plans. In addition, the court held that the damage to “your work” exclusion did not apply because the claimant alleged code misrepresentation under a Wisconsin statute, and if the insurer meant to lump this distinct sort of misrepresentation claim together with common-law claims of misrepresentation, it would have done so.

Exclusion—Dram Shop

Property Owners Insurance Company v Ted’s Tavern, Inc. (Ind. App. Aug. 31, 2006) Dram Shop Act Exclusion Found Applicable Insurer filed declaratory judgment action against insurer, seeking declaration that it was not obligated to defend or indemnify the insured in an underlying action arising from a motor vehicle accident in which the insured’s patron was involved. The claimant alleged that the insured was

-5- Goldberg Segalla LLP CaseWatch: Insurance negligent in supervising and training its employees who served alcoholic beverages to the intoxicated patron. The court held that the insurer was not obligated to defend or indemnify its insured because the claims in the underlying action were based upon the service or sale of alcohol to the patron, which is the efficient and predominating cause of the insured’s liability to the claimant. Therefore, the claims were excluded from coverage. The court also found that the policy was not ambiguous as to the meaning of "intoxication" and/or "under the influence."

Fraud and Misrepresentation

Gonzalez v Eagle Insurance Company (Fla. App., 3rd Dist., Sept. 1, 2006) Premium Must Be Returned Where Insurer Denies Coverage Based on Misrepresentation The court held that an insurer is not entitled to deny coverage for material misrepresentation in the insurance application and retain the premiums it collected. Such conduct, the court found, is contrary to the law of contract and constitutes unjust enrichment.

Insureds

Hartford Insurance Co. v. Cline (N.M. June 20, 2006) Insurer May Properly Exclude Domestic Partner from the Definition of Insured “Family Member” Since New Mexico does not recognize a common law marriage and there is no public policy of recognizing domestic partners as “family members,” insured’s domestic partner was denied Class I underinsured motorist coverage under named insured’s two automobile policies. The policies defined “family member” as “a person related to the named insured by blood, marriage or adoption who is a resident of the named insured’s household….” Until the legislature makes a policy determination that domestic partners are entitled to the same protection and benefits as married couples, the exclusion of domestic partners from automobile policy definitions (by implication in this case) is not invalid on public policy grounds.

Life, Health and Disability

Naifeh v. Valley Forge Life Insurance Company (Tenn. Aug. 28, 2006) Life insurance policy was not backdated, even though insurer apparently backdated the policy to give the insured the advantage of lower premiums. The insured did not “consciously accept” or “expressly request” the backdating, therefore the policy could not be backdated.

-6- Goldberg Segalla LLP CaseWatch: Insurance Insurance Legislation Update

Amendment of Insurance Code/Property and Casualty Guaranty

Michigan House Bill 5292 (Introduced on October 12, 2005 by Representative Mortimer) This Bill amends the Insurance Code; relates to the property and casualty guaranty association; provides that the association may bring action against any third party administrator, agent or attorney of an insolvent insurer to obtain custody and control of claims information; provides for a refund of unearned premiums; relates to health care corporations, self- insured worker's compensation programs, self- insurers and foreign guaranty associations; provides for reinsurance collections; provides for a claims cap. (Current Status: Referred to Senate Committee on Banking and Financial Institutions on Sept. 6, 2006)

Amendment to Insurance Code of 1956

Michigan House Bill 6224 (Introduced on June 20, 2006 by Representative Mortimer) This Bill amends the Insurance Code of 1956; relates to guaranty associations; provides that collateral assigned to the insurer or subsequently the receiver to secure the obligations of a policyholder under a deductible agreement shall not be considered an asset of the estate and shall be maintained and administered by the receiver; includes foreign guaranty associations; relates to captive reinsurance, adjustable premiums, liquidation, claims, right of recovery and claims against an insolvent insurer's estate. (Current Status: To Governor on Sept. 6, 2006).