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

In Hartford Underwriters Insurance Company v. Donna Ledbetter, the Missouri Court of Appeals considered whether an insurance policy’s language was ambiguous thus warranting coverage in favor of the insured.  Ledbetter received injuries in a car wreck  when another car driven by Danny Harris struck her car.   Ledbetter sued Harris for her personal injuries and later settled the suit in exchange for his liability insurance policy limit of $50,000.   Ledbetter then attempted to recover $200,000.00  against her insurer, Hartford, under the Underinsured Motorist provision of the Policy. Hartford denied that Harris’ vehicle was underinsured.  Both parties filed a Motion for Summary Judgment and the trial court entered judgment in favor of Hartford finding that Harris’ vehicle failed to meet the Policy’s definition of an underinsured vehicle.  Ledbetter appealed. 

 The appellate court’s review focused on the Policy’s “Other Insurance” clause pertaining to underinsured motorist coverage. The applicable provision stated, “Any insurance we provide with respect to a vehicle you do not own shall be excess over any collectible insurance providing such coverage on a primary basis.”  Ledbetter argued the provision was ambiguous and required a construction that the underinsured motorist coverage was excess to the tortfeasor liability coverage regardless of whether she occupied the non-owned vehicle because a requirement that she actually occupy the non-owned vehicle was not contained in the policy.

 “Language in an insurance policy is ambiguous if it is reasonably open to different constructions, and the language used will be viewed in the light of the meaning that would ordinarily be understood by a layman who bought and paid for the policy.”  Hobbs v. Farm Bureau Town & Casualty Ins. Co., 965 S.W.2d 194, 197-98 (Mo. App. 1998).

 The Court considered Goza v. Hartford Underwriters Ins. Co., 972 S.W.2d 371, 372 (Mo. App. 1998) where Hartford’s  “Other Insurance” clause, which mirrors the “Other Insurance” clause in question, was found ambiguous and resolved in favor of the insured despite the fact that Goza was driving her own insured vehicle at the time of the accident.  The Goza  Court found the policy ambiguous because one could reasonably interpret the ‘excess coverage’ language as providing coverage for a vehicle that the insured did not own, while the ‘excess coverage’ language could also be interpreted as providing underinsured coverage in excess to amounts recovered from tortfeasor. 

This Court held that an objective examination of the ‘excess’ language of the “Other Insurance” clause suggests that the language might reasonably be interpreted by an average lay person to mean underinsured coverage was excess to amounts recovered from the tortfeasor.  It also could be interpreted to mean that the ‘excess’ language prevailed over the conflicting language contained in the Policy’s definition of an underinsured and Limits of Liability sections. 

 The trial court’s grant of summary judgment was reversed and remanded.

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In Union Insurance v. Mendoza, Mendoza was injured by breathing in ammonia fumes.  Ammonia fertilizer was being sprayed onto farm land next to where Mendoza was working on the highway, injuring her.  Summary judgment to the insurer was affirmed.  The claim was excluded under the pollution exclusion clause, which was not ambiguous.  Recent Kansas case law confirmed that the pollution exclusion was not ambiguous and therefore enforceable.  As a result, there was no coverage for Mendoza's claims and summary judgment was proper.  

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The city of Kinloch, Missouri, had an insurance policy with Scottsdale.  The policy had 4 parts:  four separate “coverage forms” that apply to various types of claims, including “Employment Practices Liability Coverage Form Claims Made Coverage,” “General Liability Coverage Form Occurrence Coverage,” “Law Enforcement Liability Coverage Form Occurrence Coverage,” and “Public Officials Liability Coverage Form Claims Made Coverage.” Each “Coverage Form” has its own definitions, exclusions and declarations page. There was also a general exclusion page which applied to all the coverages.

In the General Liability Coverage form, there was a jail exclusion, but that exclusion did not appear in the general exclusions applicable to all coverages.  Thus, the appellate court found there was a fact issue which precluded summary judgment.  Summary judgment would only be appropriate if there was no insurance (and therefore, no sovereign immunity).

Lashober v. City of Kinloch

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The Missouri Western Court of Appeals for the Western District was looking at an auto policy to determine if the liability coverage "stacked."  In finding that the policy was ambiguous, the Court indicates that exclusions make a policy ambiguous.

In Durbin v. Detrick, Durbin was injured by Deitrick, [the insured or covered individual], while Deitrick was operating a vehicle he did not own. Because Deitrick’s four personal automotive liability policies are ambiguous as to whether they may be stacked in this specific circumstance, we must construe the policy language against American Family and in favor of permitting stacking of Deitrick’s four liability policies. On cross motions for summary judgment, the trial court found for the insured, and this was affirmed by the Court of Appeals.

The Court notes: “Where an insurance policy promises the insured something at one point but then takes it away at another, there is an ambiguity.” Thus, “if policy language is ambiguous as to whether stacking is permitted, we construe the language of the policy against the insurer and in favor of stacking.”

The Court concluded “that while the Limits of Liability provision and Section 3 of the General Provisions in the American Family policies appear to generally prohibit the stacking of multiple liability policies, the language of the second sentence of the Other Insurance provision, analogous to that of Ritchie and Niswonger, could reasonably be understood by a lay person to indicate an exception to this general prohibition in the specific case where liability coverage is afforded for injuries incurred through use of a vehicle not owned by a covered individual.”

 

Here is the policy language

 

PART I – LIABILITY COVERAGE ….

We will pay compensatory damages an insured person is legally liable for because of bodily injury and property damage due to the use of a car or utility trailer. ….

LIMITS OF LIABILITY

The limits of liability shown in the declarations apply, subject to the following. . . We will pay no more than these maximums no matter how many vehicles are described in the declarations, or insured persons, claims, claimants, policies or vehicles are involved. ….

OTHER INSURANCE

If there is other auto liability insurance for a loss covered by this Part, we will pay our share according to this policy’s proportion of the total of all liability limits. But, any insurance provided under this Part for a vehicle you do not own is excess over any other collectible auto liability insurance.

….

GENERAL PROVISIONS

….

3.         Two or More Cars Insured. The total of our liability under all policies issued to you by us shall not exceed the highest limit of liability under any one policy.

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In Flores v. Monumental Life, the Tenth Circuit reversed a summary judgment entered in favor of the insurer on the breach of contract claim, but affirmed the dismissal of the bad faith and negligence per se claim.

Mrs. Flores had an accidental death policy with Monumental, which would pay off if death was caused by an accidental bodily injury, independent of all other causes. The policy said that “[t]he Injury must not be caused by or contributed to by Sickness.” Mrs. Flores was on blood pressure medicine when she fell and broke her arm. She was in the hospital for 10 days and was transferred to a rehab center when she died from toxic levels of her blood pressure medicine. The medical examiner could not determine if the high levels of the medicine was caused by Mrs. Flores liver problems or by an overdose of the medicine.

Monumental denied the claim for benefits because there was no evidence Mrs. Flores’s death had resulted from an accidental bodily injury independent of all other causes and because her death fell within the specific exclusion for sickness or its medical or surgical treatment. The district court found that Mrs. Flores high blood pressure was a contributing cause to the death and found there was no coverage. While the fall was not an injury which caused death, the Tenth Circuit found that there was a fact question as to whether an overdose of blood pressure medicine caused her death. If so, that would constitute an injury under the policy.

Just because the policy requires the injury causing death to be independent of all other causes, that doesn’t mean it must have occurred in a vacuum. Rather, the accidental injury itself must be the sole proximate cause of the death. Courts have long rejected attempts to preclude recovery on the basis that the accident would not have happened but for the insured’s illness. The court distinguished cases where either the disease was aggravated by the accident or the accident aggravated the disease. Where a pre-existing disease only contributed to death insofar as it placed the insured in a position where an unanticipated and unintended occurrence might happen, the Oklahoma Supreme Court has found coverage under the terms of similar accidental insurance policies.

Since the medical examiner said he could not tell if the high levels of the medicine were caused by Mrs. Flores bad liver or by an overdose, it was up to the jury to decide. The sickness exclusion did not preclude coverage. The definition of “sickness” is “Sickness means an illness or disease which results in a covered Loss.” Because of the use of covered in the definition of sickness, the court found a reasonable person could believe that sickness could result in a covered loss, despite the sickness exclusion. In other words, the policy was ambiguous.

The court affirmed summary judgment on the bad faith claims, finding no basis for bad faith from the defendant’s general claims handling, failure to have written guidelines, or failure to train its claims handlers in Oklahoma law. There was a legitimate dispute as to coverage.

Plaintiff argues that he stated a valid negligence per se claim based on Defendant’s violation of two Oklahoma statutes: an administrative code which requires that warning language be put at the beginning of accident-only policies; and a statute which requires an insurer to adopt and implement reasonable standards for claims investigations. There was no evidence that violation of the first caused damages and no evidence of violation of the second.

It is interesting that the court found that a definition could create coverage, as usually coverage is found in the coverage clause, not in definitions. It is also interesting that the court was not interesting in trying the claims handling process of the defendant insurance company.

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Payless was sued in California for making hourly employees work "off the clock."  It asked its insurer, Travelers, to defend and indemnify, but Travelers declined, saying that the claim was not covered.  Payless settled the claims and then went after Travelers for reimbursement of the settlement and defense expenses.  Travelers got summary judgment and the Tenth Circuit affirmed.

See, Payless v. The Travelers. 

The Tenth Circuit found that this was a case of a misplaced modifier.  The clause at issue excluded certain statutory claims against employers and stated: 

The Insurer shall not be liable for Loss on account of any Claim made
against any Insured . . . for an actual or alleged violation of the Fair
Labor Standards Act (except the Equal Pay Act), the National Labor
Relations Act, the Worker Adjustment and Retraining Notification Act,
the Consolidated Omnibus Budget Reconciliation Act of 1985, the
Occupational Safety and Health Act, the Employee Retirement Security
Act of 1974, any workers’ compensation, unemployment insurance,
social security, or disability benefits law, other similar provisions of
any federal, state, or local statutory or common law or any
amendments, rules or regulations promulgated under any of the
foregoing; provided, however, this exclusion shall not apply to any
Claim for any actual or alleged retaliatory treatment on account of the
exercise of rights pursuant to any such law, rule or regulation.

emphasis added. 

The question was whether "other similar provisions" modified all the listed exclusions, or just the underlined exclusions.  The court found that even though bad grammar was used, the clause excluded all claims arising out of the Fair Labor Standards Act or other similar state law. 

The court held that bad grammar did not make the clause ambiguous and even quoted Groucho Marx: 

The opinion states:

All this underscores that, while the rules of English grammar often afford a valuable starting point to understanding a speaker’s meaning, they are violated so often by so many of us that they can hardly be safely relied upon as the end point of any analysis of the parties’ plain meaning. So it is that Groucho Marx could joke in Animal Crackers, “One morning I shot an elephant in my pajamas. How he got into my pajamas I’ll never know,” leaving his audience at once amused by the image of a pachyderm stealing into his night clothes and yet certain that Marx meant something very different. In the more mundane task of contract interpretation, we must be no less entitled to acknowledge the parties’ plain meaning without being straight-jacketed by a grammatical rule into reaching a patently unintended result.

Grammar and Groucho in an insurance policy interpretation case. Doesn’t get much better than that!

 

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In Rasenack vs. AIG Life Insurance Company, the Tenth Circuit ruled that AIG’s delays in deciding Rasenack’s claim for benefits under an accidental death and dismemberment policy (ADD policy) were substantial enough to result in a de novo review of the claim by the trial court.  Generally, under ERISA, claims decisions by administrators such as AIG are reviewed by the courts under an arbitrary and capricious standard.  Under the arbitrary and capricious standard, so long as the decision is supported by evidence, it will be upheld, while under a de novo standard, no weight is given to the claims administrator’s decision.  Summary judgment for AIG was reversed, and the case was remanded.

Mr. Rasenack was severely injured as a pedestrian by a hit and run vehicle.  He was in a coma for three weeks and remained hospitalized for months.  He claimed he was entitled to paralysis benefits under the AIG policy because he lost the use of both legs and his left arm.  The plan says that claims will be determined in 90 days, or under special circumstances, within 180 days; AIG took 16 months to deny the claim.  Rasenack appealed.  Appeals were to be decided in 60 days.  Seven months later, with no decision by AIG on the appeal, Rasenack sued.  AIG then denied the appeal.

First the court held that the claims administrator’s decision was entitled to no deference where the decision was made by operation of law, rather than the use of discretion.  Then the court found that the policy was ambiguous.  The policy’s definition of hemiplegia as “complete and irreversible paralysis” is wholly dependent on the meaning of “paralysis,” which the policy does not define. AIG claimed that the definition of hemiplegia carries a plain meaning, i.e., that the entire arm and leg of one side of the body must be “completely paralyzed,” and that “anything less than ‘no movement at all’ would not be ‘complete’ paralysis.”  While complete absence of movement may be a reasonable interpretation of ‘paralysis’, it was not the only interpretation, as found in various medical texts.  And the summary plan description defined hemiplegia as the loss of “use of both upper and lower limb on same side of body.”  The language was strictly construed against AIG, the drafter of the policy.

The court then reviewed the record, finding that there was evidence which supported the claim.  This was important because AIG stated in its denial that there was no evidence to support the claim.  The failure of AIG to consider evidence in support of the claim made the decision fatally one sided: 

Comparing AIG’s explanations of its decision to deny the claim to the information contained in the administrative record, it appears that AIG cherry-picked the information helpful to its decision to deny Mr. Rasenack’s claim and disregarded the contrary opinions of the medical professionals who examined, treated, and interviewed Mr. Rasenack. 

Thus, the Tenth Circuit reversed and remanded the case back to the district court for a de novo review.  It declined to remand the case back to the plan administrator, finding that AIG’s delays made such an option inappropriate.

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The Tenth Circuit has affirmed a summary judgment in favor of State Farm, which held that the earth movement exclusion is not ambiguous.  In Davis-Travis v. State Farm Fire & Casualty Co, a pipe in the bathroom had burst and flooded the house.  An inspection revealed damage to the flooring and baseboards as well settlement damage to the residence.  The settlement damage was determined to have been caused by movement of the clay under the foundation.  State Farm covered the portion of the claim related to interior water damage but denied the portion related to the foundation movements caused by settlement. The denial was based on the policy’s earth movement exclusion, which the court called the lead-in clause. The homeowners sued for breach of contract and bad faith, claiming the policy covered the settlement damages.  The trial court found that neither the lead-in clause nor the term earth movement was ambiguous, and granted summary judgment to State Farm, which was affirmed by the Tenth Circuit.

The court notes that in Duensing v. State Farm Fire and Casualty Company, 2006 OK CIV APP 15, 131 P.3d 127, the Oklahoma Court of Civil Appeals construed the identical provisions and found the lead-in clause unambiguous, but found the earth movement clause was ambiguous. The trial court found both clauses unambiguous. The Tenth Circuit noted that the opinion of the Oklahoma Court of Civil Appeals is not precedential. On appeal, the homeowners claimed that the earth movement clause was ambiguous, not the lead-in clause, even though the lead-in clause had triple negatives and other courts had found it ambiguous.

The homeowners claimed the earth movement clause was ambiguous because the term “earth” is not defined in the policy and “earth” could be interpreted to mean many different things, citing Duensing. The court disagreed, stating that “A word in an insurance policy is not ambiguous simply because it is undefined.” When read in context, the word “earth” was not ambiguous. The court states:

The evidence in this case shows that water leaked through the slab of the home to the sub-grade, causing it to swell and then shrink. The policy states, “Earth movement [means] the sinking, rising, shifting, expanding or contracting of the earth, all whether combined with water or not.”

       The record is clear that the earth supporting the slab expanded and contracted, as a result of water, from whatever the source, and caused settlement damage. Coverage for this damage was unambiguously excluded by the earth movement clause.

Further, because the term “earth movement” is not ambiguous in context, the court did not reach the issue of bad faith, noting that a determination of liability under the contract is a prerequisite to a recovery for bad faith breach on an  insurance contract.

 

 

 

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In Miller v. Monumental Life, the Tenth Circuit found that an ERISA plan requirement that an insured “present proof of a Social Security Disability Award” was ambiguous.  After an accident, the insured had applied for Social Security disability under both Title II (insurance)  and Title XVI (welfare).  The court explains: 

Although the Social Security Administration (SSA) administers both programs, the Supreme Court has outlined their distinctions: “Title II is an insurance program. Enacted in 1935, it provides old-age, survivor and disability benefits to insured individuals irrespective of financial need. Title XVI is a welfare program. Enacted in 1972, it provides [Social Security Insurance] benefits to financially needy individuals who are blind, or disabled regardless of their insured status.”

www.ca10.uscourts.gov/opinions/05/05-2247.pdf

Title II disability benefits were denied because Miller did not have sufficient quarters of coverage to confer disability insured status.  Miller was granted disability under Title XVI.  Monumental denied payment on the grounds that it was not a Social Security Disability Award.  The trial court affirmed, but the Tenth Circuit reversed.  First, the Tenth Circuit notes that the case must be decided under federal common law, not under New Mexico law. 

The district court found that the “phrase [Social Security Disability Award] has a technical meaning that does not include [Social Security Income] payments” and refused to “go beyond the technical meaning of Social Security Disability Award.”  The court emphasized “that the language in each of these places means what Monumental meant it to say when it wrote [the] definition.”  The Tenth Circuit notes the definition of disability is the same under either Title II or Title XVI, and that a reasonable person could conclude that a finding of disability under either title was sufficient.  The court rejected Monumental’s claim that since the Title XVI benefits would cease when Monumental  began paying Miller, that such payments were not sufficient under the policy, finding that the argument placed Miller in a classic Catch 22.  The court found the term ambiguous.  It also found that any extrinsic evidence should have been presented in the summary judgment motions, but was not.  The Court adopted the rule of contra proferentem in cases of ambiguous language with a de novo standard of review, which means that terms are construed against the drafter. The court then held that Miller’s receipt of Title XVI benefits satisfied the plan requirements.  It remanded the case, however, to rule on an issue the trial court did not reach – whether Mr. Miller’s accident was the “sole cause” of his disability.

The decision is remarkable in several respects.  First, it reverses a trial court’s ruling on summary judgment on a plan determination.  It should be noted that the plan did not give the administrator the authority to interpret ambiguous provisions, therefore, the court had de novo review.  Second, it finds that the term social security disability is ambiguous, as it could apply to any finding of disability under the social security laws. Third, it specifically adopts the contra proferentem rule in ERISA cases in the Tenth Circuit, joining the majority of courts which have considered the issue.  Finally, the court notes that it has never construed a term against an ERISA beneficiary, which would be against the policies of ERISA. 

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Yaffe v. Great American, Case No. 06-7057 (10th Cir. 8/27/07);
http://www.ca10.uscourts.gov/opinions/06/06-7057.pdf

After an explosion at the insured's plant, the insured's total liability was $1,785,000. Because the underlying CGL policy had a $10,000 per claim deductible (rather than a per occurrence deductible), the primary carrier paid only about half of its million dollar limits.  The insured wanted its excess carrier to pay the amounts over its primary carriers' million dollar limits, but the excess carrier said it was not required to pay because the primary carrier had not paid its limits.  The trial court sided with the excess carrier on summary judgment, but the Tenth Circuit reversed, finding that excess carrier's loss payable clause was ambiguous.  This case involved a dispute between an insured, Yaffe, and its excess carrier, Great American.  As a result of an explosion at Yaffe’s scrapyard in Muskogee, Oklahoma. Yaffe incurred  $1,785,986.89 in liability on claims by numerous parties. Yaffe had two insurance policies – a  commercial general-liability policy issued by ACE with limits of $1,000,000 per occurrence; and a commercial umbrella policy issued by Great American with limits of $25,000,000.  The ACE policy, however, had a per claim deductible, rather than a per occurrence deductible.  Since most of the claims were under $10,000, ACE paid just under $500,000 of Yaffe’s total liability of over $1,785,000.  Yaffe wanted Great American to pay the difference between what Yaffe paid out in claims and the ACE policy limits – about $785,000.  Great American claimed it had no liability because the ACE policy had not been exhausted.  The trial court granted summary judgment to Great American, holding that the Great American policy was unambiguous and that Great American is only liable after the ACE policy is exhausted. The Tenth Circuit reversed, finding that the Great American policy was ambiguous.  The Tenth Circuit refused, however, to grant summary judgment to Yaffe, since Great American had not had an opportunity to respond to Yaffe’s motion for summary judgment in the trial court. 


The Tenth Circuit discussed three different clauses of the Great American policy: the loss payable clause and the retained limit definition; the other insurance clause and the defense clause.  Under the loss payable clause, the Great American policy applied to damages in excess of the retained limit–  defined as the total amounts stated as the applicable limits of the underlying policies (e.g., the $1 million dollar limit of the ACE policy).  Great American claimed that it had no duty to pay until the underlying ACE policy limits were exhausted.  But the Tenth Circuit said that under the policy terms, Great American was obligated to pay once Yaffe incurred liabilities exceeding $1,000,000. 
Under the loss payable clause, the policy states: 

Coverage under this policy will not apply unless and until [Yaffe] or [Yaffe’s] underlying insurer is obligated to pay the “[R]etained [L]imit.”

 The court discussed three reasonable constructions of this clause: 1.  When the loss payable clause refers to what Yaffe “is obligated to pay,” it refers to Yaffe’s legal liability, regardless of whether Yaffe is protected by insurance coverage for that liability. Since Yaffe had to pay more than $1 M, there could be coverage, but the reference to Yaffe’s “underlying insurer” becomes superfluous.  2.  Since umbrella policies are designed to fill gaps in coverage, the loss payable clause could mean that Great American only pays when either Yaffe (in the case of an event not covered by insurance) or Yaffe’s underlying insurer (in the case of a covered event) is obligated to pay the retained limit.  Since the accident was covered in part by insurance, this would mean that Great American was not required to pay until the ACE policy limits were exhausted.   3.  The reference to Yaffe in the loss payable clause is merely to protect Yaffe in the event of a default by its primary insurer, ACE. 

The Tenth Circuit also found that other clauses were open to more than one reasonable interpretation, including the “other insurance” clause and the “defense” clause.  The court found there could be a reasonable expectation of coverage under the other insurance clause.  And, while defense was not an issue in the case, Yaffe argued successfully that the defense clause showed that the drafters of the policy could unambiguously require exhaustion of coverage when they wanted to.

This case is interesting on several levels.  First, it provides practitioners with a guide on how to successfully argue ambiguity in one clause by showing that another clause is more clear.  Second, it shows that an appellate practitioner might have success in arguing that a policy is ambiguous on appeal, since whether a contract is ambiguous is a question of law for the court, and therefore, the appellate court will review the matter de novo.  Finally, it shows the importance of consistency in language for policies; defined terms should be used in the same way for the same thing throughout the policy – the failure to do so might cause the policy to be considered ambiguous.  

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