No Coverage Under Fungus Endorsement Where Cause of Loss is Excluded

Posted on October 27, 2009 by Diane Polscer

In Marsh v. American Family Mut. Ins. Co., ___ Or. App. ___, (2009), an opinion issued on October 14, 2009, the Oregon Court of Appeals reversed the judgment of the trial court and held that damage caused by water leaking from a shower was not covered under the terms of the particular homeowners’ policy.

 

The insurer appealed a judgment for its insureds asserting that the homeowners’ policy did not provide any coverage for the insureds’ claim. The insureds cross-appealed, assigning error to the trial court’s limitation of their recovery to $5,000.

 

The case arose after the insureds noticed a musty odor and a “mushy” floor in a bathroom of their home. The insureds hired a contractor to remodel the bathroom who later testified at trial that a leak had occurred in the bathroom shower that permitted water to penetrate the area under the shower, causing the sub-floor to sustain dry rot. The insureds made a claim under their homeowners’ policy to recover the cost of repairs to the bathroom; the insurer denied the claim on the basis that the damage was not covered under the terms of the policy. The insureds then filed an action against the insurer for breach of the policy.

 

Relying on evidence that the structure under the shower membrane had deteriorated to the point that it did not provide structural support, the trial court concluded that the damage caused to the structure was so severe that it constituted a “collapse” covered under the terms of the Supplementary Coverages – Section I of the policy. Having made that finding, the trial court then determined that a provision of the “Losses Not Covered” section for “continuous or repeated seepage or leakage of water” excluded coverage. However, the trial court determined that there was coverage under an endorsement regarding fungi, wet or dry rot, or bacteria that was not subject to any exclusion, but limited the insureds’ recovery under the coverage to $5,000 in accordance with the supplemental coverage limits.

 

After addressing the relevant policy terms, and employing Oregon’s rules to interpret the terms of an insurance contract, the appellate court held that the trial court, based on the circumstances that it found, correctly ruled that the exclusion for “continuous or repeated seepage or leakage of water” excluded coverage under Section I of the policy. The appellate court also held, however, that the trial court had ruled incorrectly in finding coverage under the endorsement.

 

The appellate court found that language in the Endorsement - Supplemental Coverage section of the policy predicates coverage on whether the loss covered by the supplemental coverage is a “covered cause of loss.” The appellate court held that the cause of loss in this case was not a covered cause but an excluded cause, and reversed the trial court’s ruling by holding that the endorsement regarding fungi, etc., was also subject to the exclusion for “continuous or repeated seepage or leakage of water.”
 
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60 Day Notice Provision in Expanded Coverage was Enforceable; California's Notice-Prejudice Rule Did Not Apply

Posted on July 2, 2009 by Sara Thorpe

The insured had to comply with the notice provision in the “special” “expanded” coverage under a “pollution buy-back” endorsement to a policy, which policy otherwise excluded coverage for property damage or bodily injury caused by pollution. In Venoco, Inc. v. Gulf Underwriters Ins. Co. (2009) __ Cal.App.4th __ (2009 WL 1875640), California’s appellate court held there was no coverage for claims by students and administrators at Beverly Hills High School who claimed injuries from oil wells drilled at what became the site of their school.

Gulf Insurance Company’s policy excluded coverage for pollution. The policy was endorsed with pollution coverage if the claims stemmed from an accident and the claim was reported to Gulf within 60 day of discovery of the accident. (Provisions with similar timing requirements are also found in automobile liability policies and in other coverage add-ons.)

The insured did not report any accident nor did it report any such accident within the 60 day time requirement. The court found the policy provision to be conspicuous and reporting requirements like this one to be enforceable. The court further held there was no requirement that the insurer show prejudice due to late notice of the claim. The notice-prejudice rule, the court explained, pertained to late reporting of a claim otherwise covered by the policy. Here the timing requirement was one of the conditions for coverage, as was that there be an accident that caused the pollution.

Nonetheless, the insured argued there was a duty to defend because the policy provided the insurer would defend “groundless” claims. Not so, explained the court. “Groundless” claims must still be claims potentially covered by the policy, and this claim was not.

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U.S.D.C. for Southern District of Mississippi Allows Insurer to Correct Admission as to Operative Policy

Posted on October 10, 2008 by Diane Polscer

Geico Insurance Co. v. Hall, 2008 U.S. Dist. Lexis 77347 (S.D. Miss. Oct. 1, 2008) presents at least some evidence that in some states insurers are able to make mistakes and still prevail. When Geico filed its complaint, it included a copy of the insurance policy Geico claimed was the operative policy at issue. Under that policy, the limits were arguably as much as $200,000 for defendant’s claim against Geico’s insured. (Defendant also alleged that the insured’s copy of the policy was lost during Hurricane Katrina.) Later in the case, Geico discovered and presented what it claimed was the actual policy, with an endorsement that established available limits at $25,000.

 

Despite somewhat equivocal testimony provided by Geico as to whether the disputed endorsement was sent with the renewal policy, the court accepted the endorsement as established, relying primarily on Wells Fargo Bus. Credit v. Ben Kozloff, Inc., 695 F.2d 940, 944 (5th Cir. 1982) (“Placing letters in the mail may be proved by circumstantial evidence, including customary mailing practices used in the sender’s business.”).  Citing Ben Kozloff, the court found that its decision was justified because no evidence was presented to rebut the legal presumption that “Once properly mailed, the endorsement is presumed to have been received by the insureds.” The court therefore allowed Geico to substitute what the court deemed to be the actual policy at issue for the one Geico had originally presented, and limited Geico’s liability to $25,000.

 
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New York U.S. District Court Dismisses Coverage Complaint for Accident at Non-Scheduled Location

Posted on June 24, 2008 by Diane Polscer
In Ten Seventy One Home Corp. v. Liberty Mutual, 2008 U.S. Dist. Lexis 47328 (2008), the court granted an insurer’s CR 12(b)(6) motion dismissing another insurer’s complaint seeking a coverage determination for a personal injury claim.

On June 14, 2002, Leonard Hutchings was seriously, severely and permanently injured when Morton Yuter closed an overhead garage door on Hutchings’ head and neck at 3001 Arlington Avenue in the Bronx, New York. Josh Neustein and Ten Seventy One Home Corporation owned 3001 Arlington and used it as an office from which they operated, administered and maintained a number of rental properties in the Bronx and Manhattan.
Hutchings sued Yuter, Neustein and Ten Seventy One for his injuries. They tendered the defense and indemnification of Hutching’s suit to their insurer, Liberty Mutual, who disclaimed coverage. Yuter, Neustein and Ten Seventy One then sued Liberty Mutual for defense and indemnification. Liberty brought a third party action against Greenwich Insurance seeking a declaration that Yuter, Neustein and Ten Seventy One are insureds under its policies and that the policies are primary to the Liberty policies. Greenwich issued two liability policies, both of which were in effect on the date of the accident, but neither of which listed 3001 Arlington a designated premises for coverage.

The Greenwich policies included endorsements titled “Limitation of Coverage to Designated Premises or Project.” The endorsement provided coverage for “bodily injury . . . arising out of . . . the ownership, maintenance or use of the premises shown in the Schedule and operations necessary or incidental to those premises” (emphasis added). Neither Greenwich policy Schedule listed 3001 Arlington as a designated premises. Liberty argued that 3001 Arlington, as the office for premises that were listed on the Greenwich policies’ Schedule, was covered as “operations necessary or incidental to” the other, scheduled premises.

Greenwich moved to dismiss Liberty’s complaint pursuant to CR 12(b)(6) and the court granted its motion. It explained the phrase “operations necessary or incidental to” scheduled premises has a spatial meaning extending the premises listed on the schedule to certain non-scheduled, appurtenant spaces such as location entryways “necessary or incidental” to the enjoyment or use of the insured premises. The court refused to more broadly construe the phrase to include 3001 Arlington. The fact that 3001 Arlington was Ten Seventy One’s business address did not allow Liberty to essentially reform the Greenwich policies to hold it liable for insuring a premise not contemplated in its agreements with its insured.
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