Reinsurance Law Blog : Oklahoma Insurance Lawyer & Attorney : Stauffer & Nathan Law Firm

An oral contract of insurance is possible. “The five elements necessary for an oral contract of insurance are: ‘First, the subject-matter; second, the risk insured against; third, the amount; fourth, the duration of the risk; and fifth, the premium.” Plaintiffs showed all elements so circuit court did not err in finding coverage.

MARK LAGERMANN and SHELLY LAGERMANN, Respondents vs. FARM BUREAU TOWN AND COUNTRY INSURANCE COMPANY OF MISSOURI, Appellant
Missouri Court of Appeals, Southern District - SD30721

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In American National Property and Casualty Company v. Ensz & Jester, P.C. et al., American National, an insurance company, hired the law firm of Ensz & Jester to represent its insured, Justin Kurtz, in an automobile accident. After Kurtz received a judgment that was in excess of his policy he sued Ensz & Jester for malpractice and American National for bad faith. They both independently settled Kurtz’s claims against them. American National then sued Ensz & Jester for professional negligence, breach of contract and breach of fiduciary duty. American National alleged as damages the amounts it paid in the bad-faith matter including its attorneys’ fees and the amounts it paid to Esnz & Jester in the automobile accident case.

Ensz & Jester argued that since it had entered into a good-faith settlement with Kurtz, section 537.060 barred American National’s claims. Section 537.060 bars any claim by another tort feasor for the indemnification for the same injury. The circuit court entered summary judgment in favor of Ensz & Jester holding that section 537.060 barred American National’s claim. On appeal, American National argued that the: (1) the parties had a “legal relationship”; or (2) its claims are not for “indemnity”. The Court found that regardless of how American National denominates its claims, part of its claims seeks reimbursement for the amounts it expended in discharging its liability to Kurtz; thus, seeking indemnification. On the other hand, American National’s claim to a refund of attorneys’ fees in the underlying accident case is not a claim for indemnity, so Section 573.060 does not bar them from asserting it.

American National then argued that even if some or all of its claims are for indemnity, section 573.060 does not apply because it had a “legal relationship” with Ensz & Jester via the attorney-client relationship and/or a contractual relationship that creates a duty to indemnify them. The Court of Appeals found that American National had an equitable indemnity relationship with Ensz & Jester. Equitable indemnity imposes “...indemnity due to the relationship of the parties...regardless of intention.” But, Section 573.060 discharges liability for equitable indemnity when the alleged indemnitor settled in good faith with the injured party. Since Ensz & Jester settled with Kurtz, their liability for indemnity has been discharged. Section 573.060 applies to tort feasors liable for the same injury unless (1) one of the parties contracts to indemnify the other or (2) one was held vicariously liable for the other’s conduct. There was no contract to indemnify and American National was not vicariously liable to Kurtz.

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In Greystone Construction v. National Fire & Marine Insurance Company, Richard and Lisa Hull bought a house built by Greystone, a general contractor. Greystone hired subcontractors to perform all work on the house. The house was built on soils containing expansive clays. Over time the soil expansion caused extensive damage to the home. The Hulls sued Greystone in 2005 asserting defective construction by the subcontractors. Greystone was insured under a commercial general liability (CGL) policy by National. National denied it owed Greystone a defense.

There is another home at issue. Douglas and Sandra Giorgetta bought a home in 1999, from Branan, a general contractor, who also hired subcontractors to build the house. Their home’s foundation also shifted due to being constructed on expansive soils. In 2006, the Giorgettas sued Branan asserting claims that mirrored the claims that Hull brought against Greystone. Branan also had a CGL policy with National, and National denied it was obligated to defend. The district court awarded summary judgment to National holding that Hull and Giorgetta complaints do not allege accidents that would trigger covered occurrences under their policies.

The main issue was whether property damage resulting from faulty construction by a sub-contractor was an “occurrence” under the terms of the policies. National argued that construction defects are not “occurrences” but rather the foreseeable result of poor workmanship, which is not covered by a CGL policy. The Court held that injuries flowing from improper or faulty workmanship constitute an “occurrence” so long as the resulting damage is to non-defective property and is caused without expectation or foresight. The Court considered the facts to determine if faulty workmanship was anticipated or accidental. The Court found that the damages suffered by the homeowners may have resulted from an unforeseen “occurrence” and the damage suffered was an unanticipated or unusual result flowing from a common place cause thus qualifying as a covered “occurrence” under the policy.

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Mid Continent v. Union Ins. Co. (Tenth Cir, not published)

When S&W’s contractor Griffin, was hurt working on Noble’s site, he sued Noble.  Noble asked S&W to indemnify it per their contract.  The issue was which one of S&W’s insurers (primary or umbrella) was liable to pay for Griffin’s injuries.  If the accident was Griffin’s fault, the primary carrier, Mid Continent was on the hook.  Otherwise, the umbrella carrier, Union, had to pay.

The Mid Continent Policy contains “exclusions,” which limit Mid-Continent’s coverage. The exclusions in turn contain “exceptions,” which limit the scope of an exclusion and broaden Mid-Continent’s coverage. If an event is listed in an exception to an exclusion, Mid-Continent must cover that event.

The issue in this case involves an exception to an exclusion in the Policy. The “Contractual Liability Exclusion” limits coverage for, among other events, bodily injury arising from a contractual assumption of liability. The “Insured Contract Exception” narrows the Contractual Liability Exclusion so that Mid-Continent covers S&W’s contractual assumption of liability if S&W assumes that liability as part of an “insured contract.” The Contractual Liability Exclusion in the Policy provides: “This insurance does not apply to: . . . ‘Bodily injury’ . . . for which the insured is obligated to pay damages by reason of the assumption of liability in a contract . . .”. The Insured Contract Exception to the Contractual Liability Exclusion provides: “This exclusion does not apply to liability for damages: . . . Assumed in a contract that is an ‘insured contract’ . . . .”

Thus, because of the Contractual Liability Exclusion, Mid-Continent generally does not provide coverage for bodily injuries for which S&W (the insured) has assumed liability in a contract. But, Mid-Continent provides coverage if S&W assumed that liability as part of an insured contract by virtue of the Contract Exception to the Contractual Liability Exclusion.  An insured contract is a contract where the insured assumes liability for bodily injury to a third party where the insured or those acting for the insured would be liable in tort.

It was agreed that Mid Continent would be liable if Griffin caused his injuries.  So the question became, what does “cause” mean?  Mid Continent relied on depositions to show that Griffin did not cause his injuries.  Union put on experts to opine that Griffin caused the explosion when he took apart the machine he was working on, and that Griffin’s failure to wear flame resistant clothes contributed to his injuries.   The trial court defined “cause” in its plain and ordinary usage to mean “be the cause of, effect, bring about; occasion, produce; induce.” The court found that Griffin caused, at least in part, his injuries because the explosion was caused by Griffin’s taking the machine apart.  Thus, Mid Continent was liable.

There is also a nice discussion of determining causation under Oklahoma law and with regard to insurance policies.

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