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

We report here on major developments in case law, but also on practical points – cautionary tales, reality checks, and reminders.

Last year, one such case involved the issue of whether an insurer had an obligation to search for policies issued to other parties in the lawsuit – in that situation, the insurer did have that obligation. Safeco Ins. Co v. Parks, 170 Cal.App.4th 992 (2009). Today’s case concerns an insurer’s duty to examine coverage under multiple policies issued to the same insured and the risk of denying coverage under one policy even though there is coverage (at least in part) and a full defense being provided by another policy issued by that insurer. Risely v. Interinsurance Exchg. Of the Auto. Club, 2010 Cal.App. Lexis 399 (2010). The situation presented also created an opportunity for the insured to enter into a stipulated judgment even while being defended by the insurer.

 

The Risely case arose out of a car accident. Risely was riding in a car driven by Turner (the insured) who was allegedly driving erratically. Risely tried to get Turner to take her home or drive better. Risely claims Turner kept her in the car against her will. An accident occurred. Risely claims to have been severely injured.

Risely sued Turner for negligence and false imprisonment, among other claims. Turner tendered to his insurer under two policies: homeowners (with a $300,000 limit) and auto (with a $50,000 limit). The insurer agreed to defend the entire claim under the auto policy but denied defense and indemnity under the homeowners policy. (There is no mention of any auto exclusion in the homeowners or provision that only one of the company’s policies would apply to a claim.)

A settlement demand was made for $300,000 (the limits of the homeowners’ policy). The insurer declined the settlement demand on the grounds that it was in excess of the auto policy limits and there was no other applicable coverage. Thereafter, Turner (even though defended) entered into a stipulated judgment with Risely for $434,000 on the false imprisonment claim, and assigned his rights to Risely. Risely alleged the insurer refused to pay the judgment. (The insurer did pay its auto limits to Risely and other victims of the car accident.) Risely sued the insurer as judgment creditor and assignee of Turner’s rights under the homeowner’s policy.

 

The trial court granted summary judgment in the insurer’s favor on the basis that there could not be any damage for refusal to settle because, under Hamilton v. Maryland Cas. Co., 27 Cal.4th 718 (2002), an insured cannot settle behind its insurer’s back when the insurer is providing a defense. The trial court found that because the insurer provided a full defense, the failure to defend under the homeowner’s policy “was of no consequence.” 

 

The appellate court disagreed, focusing on whether a claim could be made by the insured (and in his shoes, Risely) that the insured had not been fully protected from the expense of the litigation (through the defense provided) and the liability

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exposure. (Potential liability exposure was also a factor that led the Safeco court last year to conclude there was an obligation in those circumstances to look for insurance for other parties.) At the crux of Risely’s claims, concluded the appellate court, were issues that had not been determined yet and which should be determined, i.e., whether there was coverage afforded by the homeowners policy, whether the insurer breached the contract by not agreeing to defend and indemnify under the homeowners policy, and consequently whether there was bad faith in not settling within those policy limits. Providing a full defense, according to the appellate court, did not mean the failure to provide coverage under the homeowners policy was of “no consequence” to the insured. The case was reversed and remanded.

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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.

In affirming the trial court’s dismissal of the case, the Montana Supreme Court first rejected Lee’s argument that the Great Divide policy was ambiguous as to its general reference to “you” as used in the section of “Who is an insured” and thus officers of the named insured corporate entity should be considered insureds. In rejecting this argument the court noted that the definition of “you” in the policy was the named insured corporation and the policy itself was identified as a “corporate policy.”



The Court also found that the policy expressly required Lee to “promptly send [Great Divide] copies of the legal papers if a 'suit' is brought.’” The court found that in addition to the large amount of time it took for Lee to notify Great Divide of the cases, he omitted the “most significant information of this claim and suit” from his notice which was a material breach of his policy obligations. This information included his failure to provide Great Divide a copy of the initial Complaint alleging UM coverage against American States as well as a copy of his Second Amended Complaint until 2 ½ years after filing his original complaint. Moreover, Lee’s notice to Great Divide failed to disclose that he had obtained a default judgment against the uninsured driver and he would be seeking coverage. Accordingly, the court found the late notice was sufficient to deny coverage to Lee.



In a strongly worded dissent, Justice Cotter raised several points including the fact that Lee had moved for summary judgment at the trial court level and that the court, in addition to denying his motion, sua sponte granted Great Divide summary judgment on coverage issues which, she believed, deprived Lee of his ability to properly raise issues of fact precluding summary judgment.

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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.

After the accident, the plaintiff sought to recover her medical expenses and lost income and filed a claim for PIP benefits under her automobile policy with State Farm. State Farm denied the claim on the basis that the accident was not the result of her “use” or “occupancy” of her car and, thus, fell outside the coverage prescribed under the terms of her policy and the Oregon PIP statute. On summary judgment motions of both parties, the trial court found that the facts “show that the injury resulted form the use of the vehicle [and was] a consequence resulting from plaintiff’s use of the vehicle to transport and store items.” The trial court found that it was immaterial that she did not intend to return to her car again after locking it and that she might have taken the dog for a walk after crossing the street had she not been injured and thus, her injuries resulted from her “use” of the car.



The Court of Appeals reversed finding that a causal nexus between the use of the plaintiff’s car and the injury by the cyclist was lacking. The court found that there must be a “consequential nexus between the use and injurious event” for recovery to occur. Accordingly, in this case, there was no nexus as the injured cyclist “was going to be there regardless of plaintiff’s use of the car –and, other than in a pure “but for” sense, nothing about plaintiff’s use of the car enhanced the likelihood that she would suffer an injury because of being struck by a cyclist.”

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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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