Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

Last Friday, a U.S. District Court in the Northern District of Texas resolved a question of first impression in Texas when it determined that the standard Texas Auto Policy’s “reasonable belief” exclusion, which is inherently a subjective test of what the driver thought about his or her permission to operate the vehicle,  requires an objective test of the reasonability of the subjective belief held by the driver.  The dispute in Empire Indem. Ins. Co. v. Allstate County Mut. Ins. Co., Slip Copy, 2008 WL 1989452 , N.D.Tex. May 08, 2008), pitted two insurers against each other over which policy – a commercial liability policy or standard Texas auto - was responsible for defense and indemnify costs incurred when a repossession company employee caused a car wreck while street racing a repossessed car.  Empire insured the repossession company; Allstate insured the car through the former owner.  Allstate contended that the “reasonable belief” exclusion applied.  The reasonable belief exclusion applies when any person uses “a vehicle without a reasonable belief that that person is entitled to do so.” 

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The Montana Supreme Court this week ruled that a policy issued to a corporation provided no coverage to an officer of the corporation and that the officer’s 38-month delay in notifying the insurer was late notice. The case, Lee v. Great Divide Insurance Co., involved an automobile accident between an uninsured driver and Lee.  Lee was driving a Ford pickup insured by American States Insurance Company under a corporate policy issued to his corporation. Great Divide insured two trailers and a Ford pickup pursuant to a separate commercial policy issued to the corporation specifically naming Lee as an insured that was later amended by endorsement removing Lee. Lee filed suit against the driver of the other vehicle and for UM benefits from American States in May 2002 ultimately settling with American States and obtaining a $1 million default against the uninsured driver in April 2005. Lee did not notify Great Divide concerning the original lawsuit, the default or the settlement with American States then filed suit against Great Divide seeking to recover the amount of the default.

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Reversing a trial court’s grant of summary judgment for the plaintiff policyholder, the Oregon Court of Appeals found that a plaintiff’s injuries from being struck by a bicyclist as she crossed the street did not trigger PIP coverage under her auto insurance policy. In this case, the plaintiff had parked her car across the street from her residence and took several work related items from her back seat (although leaving her purse) and locked the car. She then crossed the street, descended a set of stairs to her home and opened the front door. Putting down the load she had taken from the car, she put a leash on her dog and walked with her dog across the street back to her car. She then unlocked the car doors and moved some of her personal times from the front seat to the hatchback of her car. She then closed and locked her car again and began to cross the street back to her house. When she was approximately three-quarters of the way across the road, she was struck by a cyclist riding down the hill and was injured.

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Thank goodness that Maine is a relatively small state, as its Law Court seems to have a boundless appetite for finding insurance coverage.

In the latest defeat for insurers, the court ruled in Ryder v. USAA General Indemnity Co., 2007 ME 146 (Me. December 6, 2007) that an auto insurer must pay an additional $50,000 "per person" UIM limit for the emotional distress that various family members suffered when the insured was struck and killed by another car as she got out of the insured vehicle.   The trial court had ruled that USAA owed only a single $50,000 limit, as the emotional distress claims were not a separate "bodily injury."  On appeal, however, the Law Court concluded that the USAA definition of "bodily injury" ("bodily harm, sickness, disease or death") was ambiguous.  The court held that the general rule that an adjective modified not only the noun next to it but all other nouns in the same sequence did not apply here, since there is no such thing as a "bodily death" (the justices plainly had no familiarity with flying on U.S.. Airways).   As a result, the court ruled that emotional distress is a "sickness" or "disease" and required the insurer to pay three additional limits for the by-standards claims.

The court's ruling highlights the significance of small variations in policy language.  The court made much of the fact that the USAA policy was different from the conventional ISO wordings (ie.  "bodily injury, sickness or disease, including death resulting at any time therefrom).  Also, USAA's position in this case was not aided by the fact that the tortfeasor's policy with Northern Progressive contained an unusual definition of "bodily injury" that explicitly made by-standers claims subject to the limit of coverage available for bodily injury claims.

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In Hospital for Joint Diseases v Travelers Prop. Cas. Ins. Co. (NY Nov. 20, 2007), the New York Court of Appeals has held that an insurer’s failure to timely request verification of a patient’s assignment of first-party no-fault benefits to a hospital rendering services precludes the carrier from contesting the validity of the assignment.

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In a much anticipated decision, the New York Court of Appeals has resolved a conflict between NY Ins. Law §3420(f)(2), which does not expressly impose a “serious injury” requirement as a condition to recovery of un/underinsured motorist (SUM) benefits, and Insurance Department Regulation 35-D, which does. In Raffellini v. State Farm Mut. Auto. Ins. Co. (NY Nov. 15, 2007), the court held that the serious injury requirement of Regulation 35-D is enforceable, and that the exclusion in State Farm’s SUM endorsement was for that reason enforceable.

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