Reinsurance Law Blog

Reinsurance Law Blog

No claim of bad faith or breach of contract against rental car company where insurance was declined — Missouri

Posted in Contractual Liability, Duty to Defend, Insurance Bad Faith

In Clayborne v. Enterprise, Parker rented a car from Enterprise.  Parker declined insurance coverage and supplemental insurance when he rented the car.  Then he was in an accident and hit Clayborne.  Enterprise declined to defend the subsequent suit which Parker claimed was bad faith.  But summary judgment to Enterprise was affirmed.  Enterprise and ELCO (Enterprise’s self insured administrator) satisfied the only duty of coverage they had —  a statutory duty under the MVFRL (motor vehicle financial responsibility laws) to provide the minimum amount of $25,000 to third party Clayborne.

Enterprise is a self-insured car rental company and not an insurance company. Under the MVFRL, Enterprise, as a self-insured entity, only had a duty to pay third parties injured by the renters of its vehicles, and had no separate and independent duty to provide [Parker] as a renter with a defense or settle claims brought against him unless [Parker] so chose, which he was given an opportunity to do and affirmatively declined to do in two separate places in his rental agreement. Since Enterprise is not an insurance company, [Parker] paid Enterprise no premiums for insurance coverage, and the rental agreement did not subject Enterprise to any duties to defend or indemnify [Parker], [Parker’s] breach of contract and bad faith claims against Enterprise and ELCO fail as a matter of law and undisputed fact. Neither Enterprise nor ELCO had a contractual duty under the rental agreement or a statutory duty under the MVFRL to defend [Parker], and neither the rental agreement nor the MVFRL gave Enterprise or ELCO the exclusive right to contest or settle any claims against him or prohibited him from voluntarily assuming any liability or settling any claims against him without Enterprise’s consent.

Enterprise was not Parker’s liability insurer, and its only duty was to pay under the MVFRL, which it did.  Summary judgment was affirmed.

O.K. to depreciate labor in property loss — Tenth Circuit applying Kansas law

Posted in Contractual Liability

In Graves v. American Family Mutual, Graves had roof damage and damage to her kitchen ceiling after a hailstorm. Her American Family homeowner’s insurance policy provided for recovery of the “actual cash value” at the time of a covered loss as well as the “replacement cost” of the damaged property once repairs are completed. She was given $4,432.78 for the roof and $489.22 for the kitchen ceiling as actual cash value, and was told she would get more money if the repairs were completed in a year.  The roof was repaired and the additional amounts paid, but not the ceiling. Graves sued, claiming American Family improperly depreciated the labor required for the ceiling.  Summary judgment was granted to American Family, and the 10th Circuit affirmed, noting the policy permitted the depreciation.

The Tenth Circuit’s opinion relied heavily on an Oklahoma case, Redcorn v. State Farm Fire & Casualty Co., 55 P.3d 1017.

If American Family could depreciate only the cost of materials in determining the actual cash value of Graves’ loss, she would receive a windfall based on labor costs she never incurred with respect to her kitchen ceiling. Such a result is contrary to the principle of indemnity because she would be in a better position than she was before the damage occurred. Had she wanted to recover the full replacement cost under her policy she should have had the repairs completed by the one-year deadline.

Insurer gets summary judgment for untimely notice – claims made policy — no prejudice required — 8th Circuit Minnesota

Posted in Contractual Liability, Duty to Defend

In Food Market Merchandising, Inc v. Scottsdale Indemnity Company, Food Market was required to pay additional commissions to an employee.  It provided notice to Scottsdale 7 months after the employee sued for his commissions.  The trial court said it was too late, and the Eighth Circuit agreed.  The policy required the policyholder to “give Insurer written notice of any Claim as soon as practicable, but in no event later than sixty (60) days after the end of the Policy Period.” The notice was given within the policy period, but 7 months after suit was filed.

Both parties moved for summary judgment. The district court granted summary judgment to Scottsdale, finding “no genuine issue that [Food Market] failed to notify Scottsdale of the Spinner Litigation as soon as practicable. Because timely notice is a condition precedent to payment under the Policy, Scottsdale’s duty to defend/indemnify was never triggered, and Scottsdale is entitled to judgment as a matter of law.”

* * * *

Food Market contends the district court erred in finding no genuine issue of material fact about the timeliness of notice. The policy required Food Market give Scottsdale written notice of any claim “as soon as practicable, but in no event later than sixty (60) days after the end of the Policy Period.” “Generally, whether the notice was given as soon as practicable is a fact-dependent question for a jury to determine.” Id. at 86, citing St. Paul Fire & Marine Ins. Co. v. Wabash Fire & Cas. Ins. Co., 264 F. Supp. 637, 642-43 (D. Minn. 1967).

But Food Market presented no evidence that providing notice over seven months after Spinner sued was “as soon as practicable.”  No plausible excuse was offered to explain the delay.  The notice provision was not ambiguous, and there was no waiver of the requirement.  Summary judgment was proper.

Ok to depreciate labor costs on property damage claim — Nebraska

Posted in Contractual Liability

In Henn v. American Family Mut. Ins. Co., Henn’s roof was damaged in a hailstorm.  She sued American Family and sought class certification when American Family depreciated labor costs in calculating actual cash value.  Under the policy, the insured will receive an actual cash value payment. If the insured repairs or replaces the damaged property, the insured can recover the difference between the replacement cost value and actual cost value payments. If the insured does not repair or replace the damaged property, the insured is entitled to receive only the actual cash value. The policy does not define “actual cash value” or depreciation, or describe the methods employed to calculate “actual cash value.” The policy also does not explain how American Family determines the difference between replacement cost value and actual cost value.

American Family sought summary judgment and the federal district court certified the following question to the Nebraska Supreme Court:

“May an insurer, in determining the ‘actual cash value’ of a covered loss, depreciate the cost of labor when the terms ‘actual cash value’ and ‘depreciation’ are not defined in the policy and the policy does not explicitly state that labor costs will be depreciated?”

The Nebraska court reviewed the cases in Oklahoma, Arkansas and Kentucky, Pennsylvania, Florida and Indiana.  The court said it can consider any relevant evidence in its calculation of actual cash value, including materials and labor. Further, in that absent specific language in the policy, the insured does “not pay for a hybrid policy of actual cash value for roofing materials and replacement costs for labor.” The property is a product of both materials and labor. Payment of actual cash value, which depreciates both materials and labor, does not underindemnify the insured.

Breach of notification provision, failure to give insurance company prompt notice voids coverage — 8th Circuit, Arkansas

Posted in Contractual Liability

In American Railcar Industries v. Hartford Insurance Company, Tedder, American Railcar’s employee, was hurt while on a break at work.  Tedder sought workers compensation coverage for the claim, which was eventually denied by the Arkansas Workers’ Compensation Commission.  Then, Tedder filed a civil tort action against American Railcar (ARI) in federal court. ARI did not send Hartford a copy of the complaint. Instead, a few weeks after the complaint was filed, ARI asked Hartford’s lawyer in the workers compensation action for any discovery in that action, and attached a copy of ARI’s answer to the request.  Tedder eventually got a $1.5 Million verdict, and then ARI sued Hartford for coverage.

The trial court found that ARI’s failure to tell Hartford of the federal civil action was a violation of the policy conditions, and therefore, no coverage was owed under the policy.  The Eighth Circuit affirmed.

Under Arkansas law, if an insurance policy treats the giving of notice of a lawsuit as a condition precedent to recovery, “the insured must strictly comply with the notice requirement, or risk forfeiting the right to recover from the insurance company” and the insurance company is not required to show prejudice.

Under part four of the insurance policy, ARI was required to “[p]romptly give[Hartford] all notices, demands, and legal papers related to the injury, claim,proceeding or suit.” ARI argues that Tedder’s claims throughout the workers compensation proceedings that he would file a civil action, ARI’s counsel’s September 21 letter to Hartford’s workers compensation counsel, and an ARI employee’s conversation with Diemer all put Hartford on notice that Tedder had filed a civil action against ARI. It is undisputed, however, that ARI did not forward to Hartford all of the notices, demands, or legal papers related to Tedder’s tort action.It therefore did not strictly comply with the policy and forfeited any right to recover from Hartford.

The judgment in favor of Hartford and against the policyholder was affirmed.

Ok to reduce coverage if building is vacant — even if valued policy West Virginia

Posted in Contractual Liability

In Ashraf v. State Auto, the West Virginia Supreme Court upheld a vacancy provision in a fire insurance policy which provides that the insurer is allowed to reduce by 15% the stated amount of coverage payable for the total loss of a building destroyed by fire is enforceable, where the building has been vacant for more than 60 consecutive days prior to the loss. The provision did not conflict with this State’s valued policy statute, W.Va. Code, 33-17-9 [2005], or West Virginia’s Standard Fire Policy, 33-17-2.   Under the Standard Fire Policy, included in the State Auto policy, a
vacancy beyond a period of sixty days authorized a complete denial of liability for the loss. The 15% reduction in the State Auto policy, is, therefore, more favorable to the policyholder than the Standard Fire Policy. And since the reduction applied to the stated value of the building in the policy, the reduction does not subject the parties to a factual dispute over valuation, a dispute intended to be avoided by the adoption of the valued policy statute. Thus, the 15% vacancy reduction was enforceable.

State Auto was off the hook for asbestos testing and removal within the fire damaged structure.  State Auto was not required to provide pollutant removal coverage in addition to the coverage it provided for debris removal. A Pollutant Cleanup and Removal provision in the policy, which covered the expense of extracting pollutants from “land or water” at the insured premises, did not apply to asbestos testing and removal, where the asbestos removed is located within the fire-damaged structure. This Court holds that a Pollutant Cleanup and Removal provision in a fire insurance policy, which covers the expense of extracting pollutants from “land or water” at the insured premises, does not apply to asbestos testing and removal, where the asbestos removed is located within the fire- damaged structure.

Summary judgment to homeowner insurance company reversed on burst pipe claim — 10th Circuit, Utah

Posted in Contractual Liability, Insurance Bad Faith

In Wheeler v. Allstate Insurance Company, Wheeler insured his cabin with Allstate.  A friend stopped by the cabin in the spring and found a pipe had burst and there was water in the basement.  There was extensive damage.  It was determined that the pipe burst two months before discovery and was likely caused by a failed valve.  Allstate said it was unlikely the claim would be covered, and sent an outside adjuster to look at the cabin.  The adjuster  “inspected the cabin for “ten minutes tops” and “took like two or three pictures and left” without inspecting the source of the water.”  Summary judgment was granted to Allstate and the Tenth Circuit reversed.

Mr. Wheeler’s homeowners insurance policy (the “Policy”) contained several provisions concerning coverage for water damage. The language relevant to this case reads as follows:
Losses We Do Not Cover Under Coverage A, Coverage B and Coverage C
A. We do not cover loss to the property described in Coverage A— Dwelling Protection or Coverage B—Other Structures Protection consisting of or caused by the following:
. . . .
3. Seepage, meaning continuous or repeated seepage or leakage over a period of weeks, months, or years, of water, steam or fuel:
a) from a plumbing . . . system; or
b) from, within or around any plumbing fixtures, including, but not limited to . . . sinks or other fixtures designed for the use of water or steam.
. . . .
7. a) wear and tear, aging, marring, scratching, deterioration, inherent vice, or latent defect;
b) mechanical breakdown;
. . . .
d) rust or other corrosion;
. . . .
If any of a) through h) cause the sudden and accidental escape of water or steam from a plumbing . . . system within your dwelling, we cover the direct physical damage caused by the water or steam. If loss to covered property is caused by water or steam not otherwise excluded, we will cover the cost of tearing out and replacing any part of your dwelling necessary to repair the system or appliance. This does not include damage to the defective system or appliance from which the water escaped.

For ease of understanding, we will refer to section A.3 as “Exclusion 3”; to section A.7 as
“Exclusion 7”; and to the final paragraph of section A.7 as the “Exception to Exclusion
7” or the “Exception.”

On April 26, 2011, Allstate sent Mr. Wheeler a letter denying his claim; the letter cited to Exclusion 3.

Mr. Wheeler, the policyholder claimed that the long term damage excluded under Exclusion 3 could be separated from the short term damage he was claiming, based on his expert’s report.  Whether Wheeler could prove short term damages distinct from long term damages was a material fact as to both the breach of contract claim and bad faith claim.  So, summary judgment to Allstate was reversed.

Note the decision is 35 pages plus a dissent.


Homeowners policy did not cover privacy, negligence claims where there was no physical injury to person or property — 10th Circuit, Oklahoma law

Posted in Contractual Liability, Duty to Defend

In State Farm Fire v. Dawson, Dawson was sued for negligence and privacy violations after receiving inappropriate photos of an under aged student. Dawson wanted State Farm to pay his defense and any judgment.  But State Farm claimed there was no physical injury to tangible property and no bodily injury such that the policy did not cover the claim.  The trial court agreed with State Farm, and granted State Farm summary judgment.  The Tenth Circuit affirmed.

The policy only provided coverage “If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage to which this coverage applies, caused by an occurrence. . .”

“bodily injury” is defined as “physical injury, sickness, or disease to a person. . . .”  Importantly, for our purposes, the definition continues, stating that bodily injury does not include “emotional distress, mental anguish, humiliation, mental distress, mental injury, or any similar injury unless it arises out of actual physical injury to some person.” And “property damage” is defined by the Policy as “physical damage to or destruction of tangible property, including loss of use of this property. . . .”

Since there was no evidence of either bodily injury or property damage, summary judgment was affirmed.

Kansas law applied to accident in Kansas — no UM stacking allowed — Missouri

Posted in Contractual Liability

In Kerns vs. Alliance Indemnity Company , Kerns was in a head on accident with an uninsured driver.   Kerns obtained a judgment in Kansas against the operator of the other vehicle for negligence and against the owner of the other vehicle for negligently entrusting the vehicle to the operator at the time of the accident, each of whom was found to be 50% liable.   Because the collision occurred in Kansas, the circuit court applied Kansas law, which bars the stacking of uninsured motorist coverage. The policies provided a maximum payout per insured per accident and Kansas law provides that the number of tortfeasors—one for negligent entrustment and one for negligent driving—is irrelevant.  There was only one accident, and it didn’t matter how many tortfeasors were involved. The policy limit very plainly referred to “all damages . . . arising out of ‘bodily injury’ sustained by any one person in any one accident.”

Though both the owner and the operator were legal causes of Cherity Kerns’s injuries in the sense that both of their negligent acts contributed to her injuries, there was but one event causing the harm overall—the single head-on collision.

Summary judgment against the policyholder was affirmed.

Misrepresentations in insurance application let insurer off the hook for fatal building collapse — Pennsylvania

Posted in Contractual Liability

In Berkely Assurance Company vs Campbell, Campbell was hired to demolish a building in Philadelphia.  During the demolition, an unbraced wall fell onto an adjacent Salvation Army store killing and injuring employees and customers. Berkely issued a policy to Campbell, but claimed it was void because of misrepresentations in the application and because Campbell failed to pay for the policy. The judge ruled the policy was invalid from the beginning, making the arguments about payments moot.

The Application stated:

[t]his application does not bind the applicant nor the company to complete the insurance, but it is agreed that the information contained herein shall be the basis of the contract should a policy be issued.

In the application, Campbell said he documented the conditions of nearby structures before demolition begins, that he had a formal loss control or safety program and a risk manager or safety director; and that he did not use subcontractors. Apparently, these were all lies.

In this case, the deposition testimony of Campbell shows that he not only made misrepresentations in his Application for demolition insurance, but was also aware that he was lying. Specifically, Campbell knew that he had not documented the conditions of nearby buildings prior to demolition, yet answered “Yes” —that he had. He knew that he had no risk manager/safety director, nor any safety measures in place, yet he answered “Yes”. And he wrote “Yes” to two related questions asking whether he had such personnel and safety plans. He also knew that he used a subcontractor to demolish 2138 Market Street, yet answered “No” to the question asking him whether he indeed had such a subcontractor. Indeed, Campbell not only knowingly misstated this fact, but his deposition transcripts show he thoroughly understood the difference between an employee and a subcontractor.

All of the falsehoods are material misrepresentations since each one, “if given, would have influenced the judgment of … [Berkley] in issuing the policy, in estimating the degree and character of the risk, or in fixing a premium rate.”

The court also found Campbell’s misrepresentations were “palpably and manifestly material” such that the Court could  enter judgment without a jury finding on bad faith or fraud.