October 26, 2005 - Insurance Coverage Digest - October 2005
Continuous Trigger Theory of Coverage Not Applicable to Mold Claim
The New Jersey Appellate Division has affirmed a lower court decision finding that the plaintiffs suffered no bodily injury or property damage during the policy period, that there was no basis to extend coverage under the continuous trigger theory of liability, and that the policy's pollution exclusion barred recovery of the claim. Crivelli v. Selective Ins. Co. of America (N.J. App. Div., Sept. 27, 2005).
In December 1986, Harry Svenson, Jr. installed asphalt shingles on the existing roof of plaintiffs' residence. In March 1988, he performed additional repairs to their roof, trimming, soffit and fascia. Plaintiffs filed suit against Svenson in 1996, alleging the contractor's negligent workmanship resulted in water infiltration and mold contamination in the home and causing bodily injury to their family. Svenson settled with plaintiffs and assigned his rights against his carriers, which had all denied coverage.
Plaintiffs sued Svenson's insurers, including Selective, which issued a CGL policy to Svenson with a policy period of December 6, 1992 to December 6, 1993. The trial court granted summary judgment to the Selective, finding that there were no "occurrences" during the policy period and that there was no basis to invoke the continuous trigger theory of liability as it had been applied in asbestos and environmental contamination cases. The judge expressly found the "earliest conceivable notation" of water infiltration to be in January 1994, when plaintiffs observed leakage in the roof and obtained estimates.
The Appellate Division affirmed, noting that plaintiffs' complaint did not allege any water infiltration into the house, much less property damage or bodily injury, prior to January, 1994. Additionally, the Court noted that there were no expert reports identifying the presence of water infiltration and mold in the house before the expiration of the Selective policy, nor in any way relating any condition in the house during the December 6, 1992 to December 6, 1993 policy period to plaintiff's bodily injury or property damage. Plaintiffs failed to present any proof that demonstrated an ongoing, progressive type of injury or damage resulting from the work performed by Svenson in 1986 or the repairs in 1988 that would trigger coverage under the Svenson's policies issued for the periods from 1988 through 1993.
No Coverage for Wrongful Death Allegedly Resulting from Self-Defense
The Appellate Division held that an individual's homeowner's insurance policy does not afford coverage when that individual is sued for wrongful death as the result of killing a person in self-defense. Automobile Insurance Company of Hartford v. Cook (N.Y. App. Div. - Third Department, Sept. 15, 2005).
On February 20, 2002, defendant Alfred Cook shot and killed Richard Barber after a disagreement over a business arrangement. The decedent had entered Cook's home without permission and, during their discussions, Cook, armed with a hand gun, retreated to his bedroom to retrieve a 12-gauge shotgun, and then returned to the living room where the fatal confrontation occurred. Cook was charged with second degree murder, stood trial and was acquitted on all counts of the indictment and lesser included crimes. Thereafter, the administrator of the decedent's estate pursued a wrongful death action commenced against Cook shortly after the shooting. Cook sought coverage under his homeowner's insurance policy issued by Hartford. The insurer commenced a declaratory judgment action seeking a declaration that it had no duty to either defend or indemnify Cook in the underlying wrongful death action.
The insurer sought summary judgment, arguing that the shooting was not a covered occurrence under the policy and fell within the policy's "expected or intended" exclusion. Defendants argued that Cook acted in self defense and that his acts were therefore covered. The trial court denied the insurer's Motion and partially granted Cook's Motion, finding that the plaintiff was obligated to provide Cook with a defense.
The Appellate Division reversed. The Appellate Division noted that Cook admitted at his deposition that while he did not intend to kill the victim, he knew by shooting him he would injure him. The Court observed that where harm to the victim is inherent in the nature of the act performed, the resulting injuries are, as a matter of law, intentional, even if they go beyond the insured's actual intent. As such, the Court concluded as a matter of law that Cook's actions were not covered by the homeowner's policy and that the policy's "expected or intended" exclusion applied.
Waiver of Stacking Applies to Intra-Policy and Inter-Policy Limits
A policyholder insuring only a single vehicle may waive stacking of uninsured and underinsured motorist's benefits. When the policyholder does so, the waiver applies to both intra-policy limits and inter-policy limits. By electing such a waiver, the policyholder may waive the right to stack the benefits provided under the policyholder's own policy. Generette v. Donegal Mut. Ins. Co. (Pa. Super. Sept. 9, 2005).
Donegal issued a policy to Generette that covered her one and only vehicle. Generette selected UM/UIM limits of $35,000 per accident and elected to waive stacking. She was involved in an accident while a passenger in a vehicle insured by Nationwide, recovered the tortfeasor's full liability limits of $25,000 and then presented a claim for underinsured motorist benefits to Nationwide. Nationwide paid Generette its $50,000 limits. Generette then presented a claim for UIM benefits to her own insurer, Donegal.
Donegal denied the claim, taking the position that under its Non-Stacked Underinsured Motorists Coverage Endorsement she could only recover if the limits under her Donegal policy were greater than the limits provided by the vehicle in which she was a passenger at the time of the accident. Generette sued Donegal, contending that the Motor Vehicle Financial Responsibility Law only permits waiver of "intra-policy" stacking (i.e. where one policy insures more than one vehicle) and that Donegal's anti-stacking endorsement was void as to her policy.
An en banc Superior Court ruled that a waiver of stacking is permissible on a policy insuring only a single vehicle, distinguishing prior cases that appeared to hold to the contrary as dicta and relying on a declaratory opinion issued by the Insurance Commissioner in 1998 which concluded that §1738(b) permitted all classes of policyholders to waive stacked UM/UIM coverages. policy wording in Donegal's policy in this case precluded such recovery.
Three members of the Court dissented, contending that the concept of stacking applies only to motor vehicles for which the injured person is an insured. Further, the dissent noted that nothing in the waiver of stacking form informed Generette that by waiving stacking, she was waiving the UIM coverage for which she paid the premium.
Federal Court Dismisses Coverage Action as Premature
In American States Insurance Company v. Component Technologies, Inc. (M.D. Pa., Sept. 15, 2005), the United States District Court for the Middle District of Pennsylvania dismissed a declaratory judgment action which sought an adjudication as to the insurer's duty to indemnify the insured for certain elements of damages only as premature since the insured had not yet been found liable for damages in the underlying action. The Court observed that three factors determine whether a matter is ripe for declaratory relief:
The Court rejected the insurer's argument that the case was ripe for adjudication because resolution of the issues presented would provide guidance for the parties in the underlying action, and possible facilitate a settlement. The court reasoned that the parties' interests were not adverse because the insurer had assumed the duty to defend and indemnify and therefore they shared the interest in proving that the defendants were not liable in the underlying lawsuit. Further, the Court observed that if it declared that the insurer has a duty to indemnify the insured for some damages but not others, the Court would provide a disincentive for the insurer to properly defend the entire lawsuit. The Court also noted that at the present posture any decision regarding the insurer's duty to indemnify would be hypothetical because there was its relevancy would be contingent upon the insured being held liable in the underlying suit. Accordingly, the Court dismissed the declaratory judgment action without prejudice to the insurer's ability to file a lawsuit following the imposition of liability in the underlying lawsuit by settlement or otherwise.
Insured's Failure to Cooperate With Insurer Vitiates Coverage
A Philadelphia judge determined that an insured materially breached his duty to cooperate under the terms of his insurance policy when he failed to respond to communications from his defense attorney. In Atlantic States Insurance Co. v. Hunt (Phila. C.C.P., Sept. 19, 2005), defendant Patrick Hunt failed to return a phone call from D. Scott Bonebrake, the attorney provided to Hunt by Atlantic States Insurance Company; failed to verify the Answer prepared on his behalf by Bonebrake; failed to appear for his scheduled deposition; failed to provide any information to Bonebrake so that Bonebrake could respond to discovery propounded upon Hunt; and failed to respond to nine separate letters from Bonebrake over a four-month period. It was also undisputed that Hunt was the only known witness to the motor vehicle accident at issue in the underlying personal injury claim against him.
The policy at issue required the insured to "cooperate with us in the investigation, settlement or defense of the claim" or "suit" in "full." The Court found that Hunt's failure to cooperate was substantial and resulted in prejudice to the insurer's defense of the claim. It thus constituted a material breach which relieved the insurer of its obligation to defend and indemnify.
Insurer Obligated to Defend Officials Despite Insured's Knowledge of Facts Supporting Civil Rights Claim
The United States District Court for the Middle District of Pennsylvania ruled that an insurer must defend a Pennsylvania county under a claims made public officials liability insurance policy for an underlying civil rights action. Coregis Ins. Co. v. City of Harrisburg (M.D. Pa., Sept. 9, 2005).
On April 15, 2002, John D. Payne, Chairman of the Dauphin County Commissioners, signed an application to obtain public officials insurance coverage for Coregis. In the application, Payne indicated that no claims had been made or were pending against Dauphin County or any of its officials or employees. Payne further represented that no Dauphin County official or employee had any knowledge of any fact, circumstance, or situation that might reasonably be expected to give rise to a claim against them or the County. Coregis issued a public official's liability policy effective from June 15, 2002 to June 15, 2003. The policy excluded claims arising out of any matter that was listed or should have been listed on the insurance policy application.
On March 28, 2003, Steven Crawford commenced the underlying action against Dauphin County, the City of Harrisburg, and a number of individual defendants for alleged civil rights violations, fraud, false imprisonment, conspiracy, and intentional infliction of emotional distress relating to his arrest, conviction and imprisonment for murder. Earlier that year, Crawford was released from prison, having been incarcerated for 28 years for murder. Crawford was released after his attorney discovered certain potentially exculpatory evidence that had allegedly been suppressed by law enforcement officers involved in Crawford's prosecution and trial.
The insurer argued that the policy's "prior knowledge" limitation barred coverage because the facts and circumstances surrounding Crawford's Petition for Post-Conviction Relief came to light in late 2001 and early 2002, were known to members of the County's District Attorney's office, and thus Dauphin should have reasonably expected to give rise to a claim against the County. The District Court rejected the argument, relying on Selko v. Home Insurance Company, 139 F.3d 146 (3rd Cir. 1998), which required courts to engage in both a subjective and objective analysis to determine whether an insured's claims for coverage are excluded on the basis of prior knowledge because it concluded that the facts and circumstances of which Dauphin County officials may have been aware in 2001 and 2002 regarding alleged law enforcement malfeasance would have not have caused a reasonable attorney to believe that Crawford would bring an action against the County itself.
Insured's Lack of Understanding of Policy Terms Does Not Preclude Enforcement by Insurer
Where an insured has no understanding of the relevant terms of an automobile insurance policy, but nevertheless indicates agreement to those terms, the contract will be enforced provided that the insurer complied with statutory notice provisions of Pennsylvania law. Gillam v. State Farm Mutual Automobile Ins. Co. (W.D. Pa., Sept. 7, 2005).
The plaintiff, Kenneth Gillam, applied for automobile insurance from State Farm in July 1998 through the Lewistown office of a State Farm agent, Robert Richard. Gillam did not speak with the agent, but instead asked his father to asked his father to obtain the insurance for him, specifically stating that he wanted the same insurance as his father had obtained. Gillam did not know what insurance his father had, but nevertheless wanted the same coverage. The agent filled out an application, gave it to Gillam's father who gave it to Gillam, who then filled it out according to instructions given by his father. The application elected underinsured motorists' (UIM) coverage in the amount of $15,000.00 per person and $30,000.00 per accident. Gillam made the same choice with regard to uninsured motorists' (UM) benefits and checked the boxes labeled stacking. Kenneth then signed the second page of the application, but did not read it and did not understand what it meant. Gillam received declaration pages from State Farm, but did not read them.
After Gillam was involved in an accident with an uninsured driver, he made a claim for UM benefits against his policy, but contended that his limits should be $100,000/$300,000 instead of the $15,000/$30,000 limits selected on the application. He argued that he thought that by selecting the "15/30" option he was choosing limits of $100,000/$300,000 and that if the coverages had been explained to him, he would have elected UM coverages at $100,000.00 to match his liability limits. The Court rejected Gillam's arguments that the term "15/30" on the application was ambiguous or that Gillam's selection was not knowing or voluntary. The insurer had complied with statutory requirements by providing Gillam with the "Important Notice" mandated by 75 Pa.C.S. §1791 and this is all that the insurer is required to do. The Court also rejected Gillam's argument that the policy limits should be reformed based upon his alleged misunderstanding. Under Pennsylvania law a unilateral mistake of this type will result in an avoidance of the contract only when the other party has knowledge of the mistake so as to justify an inference of fraud. There was no evidence that the insurer had any knowledge that Gillam did not understand the terms of the contract.
Supreme Court of Appeals Interprets Meaning of "Occurrence" in Liability Policy
The West Virginia Supreme Court of Appeals has added to jurisprudence interpreting of the term "occurrence" in a liability policy. In Columbia Casualty Company v. Westfield Ins. Co. (June 10, 2005), the Court considered whether the Randolph County Commission was entitled to liability coverage for two suits filed against it by the estates of county prison inmates who committed suicide. The policy defined "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."
The insurer argued that any death by suicide is by definition not an "accident," because the suicidal person deliberately intended his or her own death. The Supreme Court agreed that, from the prisoners' perspective, the suicides were not "accidents." However, the Court held that it was necessary to determine whether the event was an "accident" from the standpoint of the insured, which was the Randolph County Commission. As to the Commission, the suicides were not "deliberate, intentional, expected, desired, or foreseen" and, accordingly, coverage could not be denied on this basis.