Case Law Watch
Auto-Liability
Fields v. American Central Insurance Co.
(La. App., 2nd Dist., March 8, 2006)
Undated named driver exclusion endorsement sufficient to defeat coverage: Lensing was involved in a June 18, 2003, auto accident while driving a truck owned and insured by his father with American Central. American’s policy contained a named driver exclusion endorsement naming Lensing as an excluded driver, which was signed by both Lensing and his father. Louisiana state law allows insureds to exclude from coverage by written agreement any named person who is a resident of the same household as the named insured at the time the agreement is executed.
State Farm argued the endorsement was invalid because it was not dated and because there was no evidence that Lensing was residing with his parents at the time the endorsement was executed. The court disagreed because evidence established the endorsement was executed no later than Feb. 20, 2003, and remained valid for the life of the policy. Endorsement of a new form is not required when renewal, reinstatement, substitute or amended policies are issued to the named insured. State Farm did not present any affirmative evidence that Lensing did not reside at his father’s home when the endorsement was executed and the court said the father’s inability to recall whether Lensing resided at home on the date the exclusion was executed did not create an issue of material fact to defeat summary judgment.
Auto – Uninsured/Underinsured Motorist
Chesser v. Royal & Sunalliance Insurance Co.
(La. App., Fifth Cir., March 14, 2006)
UM coverage attaches to insured, not vehicle: Louisiana’s Fifth Circuit Court of Appeal expressly held that UM/UIM coverage attaches to the person of the insured, not the vehicle, and that any provision of UM coverage purporting to limit insured status to instances involving a relationship to the insured vehicle contravenes state law (LSA-R.S. 22:1406(D)).
Plaintiff was involved in a motor vehicle accident while driving under dispatch a Freightliner Tractor, the covered vehicle of Royal’s policy. UM coverage was provided by separate endorsement. Liability coverage was excluded while the vehicle was under dispatch. Royal argued that, since liability coverage did not apply, UM coverage did not apply either. The court disagreed citing policy language, Louisiana case law, and Louisiana’s UM statute.
Texas
Workers’ Compensation
Liberty Mutual Insurance Co. et al. v. Texas Department of Insurance, et al.
(Texas App. March 3, 2006)
TDI rule requiring insurers to pay retroactive rebates to employers found constitutional: A number of workers’ compensation insurers in Texas challenged the constitutionality of a 1997 Texas Department of Insurance rule requiring private Texas insurers to give rebates to policyholders for surpluses experienced by the residual workers’ compensation fund (which provides workers’ comp insurance to otherwise uninsurable Texas employers) in 1991 and 1992 that the state had passed on to insurers. In years in which there was a surplus, the rules allowed the insurers to pass the deficit charged to them on to the policyholders.
The court found the rule requiring the rebates to employers constitutional despite the insurers’ contention that the rule violated the Texas constitution’s rule against retroactive legislation. In a footnote, the court noted that the rule was a valid exercise of the state’s policy powers because it was implemented in order to save the state’s workers’ comp market. The court found the rule did not violate the contracts clause in either the state or federal constitutions because it was a valid exercise of police power and remedial in nature. Finally, the court found the rule did not deprive the property of the insurers without due process of law because the rule had a rational relationship to a legitimate state interest and because the insurers had no vested right, and therefore no protected interest, in the 1991 and 1992 surpluses.
Advertising Injury
Nutmeg Ins. Co. v. Employers Ins. Co. of Wausau and Virginia Surety Co.
(U.S. District Court, N.D. Texas, Feb. 24, 2006)
TCPA claims covered by “Advertising injury” provisions of CGL policies: Nutmeg Insurance Co. successfully defended its insured under a miscellaneous professional liability policy against a putative class action alleging violations of privacy rights caused by the insured’s sending of numerous uninvited advertising faxes. Nutmeg, subrogated to the insured’s right to recover defense costs under the defendants’ policies, sought summary judgment against Wausau and Virginia Surety contending both had a duty to defend the insured and that Nutmeg’s own coverage was excess to that provided by the commercial general liability policies issued to the insured by Wausau and Virginia Surety.
Wausau and Virginia Surety argued the allegations against the insured were not covered by their policies. Following Texas’ “eight corners” rule, the court found that the alleged violations were “advertising injuries” within the meaning of the Wausau and Virginia Surety policies. It said the plain, ordinary meaning of “publication” included dissemination of materials by fax and that “the average person would reasonably understand that he or she would be covered under the advertising injury provision of the policy because the transmission of an unwanted facsimile constitutes an intrusion on seclusion, and hence violates one’s right of privacy.”
The court found that Virginia Surety’s “first publication” exclusion did not apply and concluded that Wausau and Virginia Surety had a duty to defend the insured. It then engaged in a standard “other insurance” analysis, arriving at the conclusion that Wausau and Virginia Surety’s policies were co-primary, while Nutmeg’s policy was excess.
Occurrence
Lennar Corporation v. Great American Ins., et al.
(Texas App., 14th Dist., Feb. 23, 2006)
Negligent construction deemed “Occurrence”: The Texas Court of Appeals determined that defective construction could be a covered “occurrence” under standard CGL policies. Though the court considered a number of issues specific to each policy involved, it began its analysis considering whether the insured’s claim was a covered “occurrence” under any of the various policies held by the insured over the course of four years.
The insured, Lennar, built over 400 homes using synthetic stucco called Exterior Insul-ation and Finish System (EIFS). It later discovered the product was defective, allowed moisture to accumulate behind the finish, and damaged some of the homes. It removed and replaced the EIFS from all the homes on which it was installed and repaired any water damage. Lennar sought indemnification from the carriers for replacement and repair costs, including its costs to repair water damage and replace the EIFS, and overhead costs.
The carriers argued that defective construction cannot constitute an “occurrence” as a matter of law and that the insured’s damages were not “property damage” as defined by the policies. The court concluded defective construction can constitute an “occurrence” under the standard CGL policy because “(1) coverage for ‘business risks’ is ordinarily eliminated through exclusions-not through the ‘occurrence’ requirement in the initial ‘insuring agreement’; and (2) coverage for some ‘business risks’ is not eliminated when the damaged work, or the work out of which the damage arose, was performed by subcontractors.” The court reached these conclusions because it determined that “the ‘accident’ framework established by the Texas Supreme Court does not necessarily eliminate coverage for damage to the insured’s own work, i.e. a claim sounding in contract.” Further, it concluded that, while “property damage” did not include overhead costs or the cost of preventatively replacing the EIFS, “property damage” did include costs incurred to repair water damage to the homes.
This recurring feature examining insurance coverage decisions was compiled by the New York-based law firm of Goldberg Segalla LLP and edited by insurance attorney Kevin T. Merriman. Merriman can be reached at kmerriman@goldbergsegalla.com.