Case Law Watch

Anti-assignment Clause

Holloway v. Republic Indemnity Co. of America
(Oregon, Nov. 16, 2006)

Ruling: At issue on this appeal was whether an anti-assignment clause that provided that “[y]our rights or duties under this policy may not be transferred without our written consent” is ambiguous. Although the policy did not provide an explicit definition of the phrase “rights or duties,” the court held that the policy was not ambiguous because the phrase had a plain meaning.

Attorneys Fees

Gardiner v. York
(Utah Court of Appeals, Dec. 14, 2006)

Ruling: The court clarified the consequential damages exception to the general rule that attorneys’ fees are only recoverable when authorized by statute or contract. The consequential damages exception includes the “insurance contract” exception, providing that attorneys fees may be recovered in direct actions between an insured and his insurer. The exception also includes “third-party litigation” exception providing that attorneys’ fees may be recovered where original breach of contract foreseeably caused a party to incur attorneys’ fees in subsequent litigation with a third-party. The case was remanded for analysis and application of both exceptions.

Auto – Liability

State Farm Fire and Casualty v. Zahnow Bros. Tile Inc.
(Washington Court of Appeals, First Division Dec. 18, 2006)

Ruling: At issue in this case was whether an employee driving from a park-and-ride after work is considered an employee at that time. In this case, an employee was involved in a fatal crash while operating a business vehicle. The accident occurred while driving from a park-and-ride after work. The contractor’s liability policy provided coverage for auto-related claims if the auto was a non-owned auto used in a corporation’s business. Employees are insureds if acting within the scope of employment. The court held that driving home after work from a carpool/park and ride is not within scope of employment.

Auto – Uninsured/Underinsured Motorist Coverage

Bouton v. USAA Casualty Insurance Co.
(California Court of Appeals, Fourth District, Dec. 21, 2006)

Ruling: This case involved a dispute as to whether claimant, who was the insured’s brother, was also an insured under the auto policy’s uninsured motorist coverage provision. The court held that the dispute involved a jurisdictional fact that was subject to mandatory arbitration under the insurance code and could not be restricted or limited by policy language.

Bad Faith

Valdez v. Himmelfarb
(California Court of Appeals, Second District, Nov. 20, 2006)

Ruling: An injured former employee sued his employer for personal injury, unfair competition and a declaratory relief against his employer who failed to carry workers’ compensation coverage. The court dismissed the action based on the running of the one-year statute of limitations applicable to personal injury actions. The plaintiff/employee and his counsel were sanctioned for bringing a bad faith action.

Camus v. State Farm Mutual Automobile Insurance Co.
(Colorado Court of Appeals, Sixth Division, Dec. 14, 2006)

Ruling: In this case, the plaintiffs commenced a bad faith suit against their auto liability insurer after the underlying personal injury case had settled, alleging bad faith in the handling of their uninsured motorist claim. The insurer had intervened in the personal injury action seeking a determination as to all issues including liability, causation and damages. Thus, the insurer argued that the subsequent bad faith suit was barred by the doctrine of claim preclusion. The court held that plaintiffs’ bad faith claims were not precluded because neither the terms of the policy nor the insurer’s refusal to pay the UIM claim was at issue in the personal injury action.

Cancellation and Non-renewal

Blood v. Kenneth A. Murray Insurance Inc.
(Alaska Nov. 3, 2006, and Dec. 22, 2006.

Ruling: The insured’s auto policy in this case was cancelled because he failed to pay premiums. At issue was whether the cancellation was effective, despite the fact that the insurance sent to notice of termination to the wrong address. The court held that the insurer met its statutory notice obligation (Alaska statute 23.36.220) because although the insured did not reside at the address, that was the only address the insured ever provided.

In the second ruling on Dec. 22, 2006, the court affirmed judgment from the Superior Court holding that the insurer satisfied its notice obligations to the insured by mailing several notices of termination of coverage albeit to insured’s former and unoccupied address, although statute required the insurer to obtain a certificate of mailing and none were obtained.

Exclusions – Expected/Intended Harm

First National Insurance Co. v. Lawton
(California Court of Appeals, Second District, Nov. 1, 2006) (Unpublished)

Ruling: At issue on this appeal was whether a party who was injured from a gun shot was entitled to personal injury benefits under a homeowners policy issued to the person who shot the victim. The court held that coverage was excluded for the bodily injury “arising out of physical or mental abuse” and also excluded for bodily injury which “is expected or intended by the [insured] or which results from the violation of criminal law … .”

Fire and First Party

Bear River Mutual Insurance Co. v. Williams
(Utah Court of Appeals, Dec. 14, 2006)

Ruling: The court held that an exclusion for “vandalism and malicious mischief” in a homeowners’ policy unambiguously excluded coverage for property damage losses caused by arson.

Frontline Processing Corp. v. American Economy Insurance Co.
(Montana, Dec. 27, 2006)

Ruling: The following question was certified to the Supreme Court: Does “direct loss” when used in context of employee dishonesty coverage include consequential damages that were proximately caused by the alleged dishonesty, or is term limited to damages that directly result from employee dishonesty? The court answered that “direct loss” applies to consequential damages and all losses proximately caused by an employee’s dishonesty.

Miscellaneous

O’Hanesian v. State Farm Mutual Auto Insurance Co.
(California Court of Appeals, Fourth District, Dec. 19, 2006)

Ruling: An insured is required to complete arbitration proceedings before bringing a lawsuit for breach of contract and bad faith, as clearly stated by terms of the policy and uninsured motorist statute. The court disregarded the fact that the insured obtained judgment of $3.75 million at trial of underlying action against tortfeasor who was only insured up to $100,000.

Subrogation

RLI Insurance Co. v. CNA Casualty of California
(California Court of Appeals, Second District, July 7, 2006)

Ruling: A primary insurer and excess insurer each paid $1 million to settle a claim against their insured for a fatal traffic accident. Subsequent to the settlement of the case, the excess insurer sought subrogation against the primary insurer alleging that the primary insurer unreasonably refused an offer to settle the tort claim for an amount within the primary insurer’s $1 million policy limits. The court dismissed the excess insurer’s subrogation claim because the tort claim did not go to trial and no excess judgment was entered against the insured.

Workers Compensation

Star Insurance Co. v. William Neighbors, et al.
(Nevada, July 20, 2006)

The issue considered on this appeal was whether a workers’ compensation insurer may avoid payment of a claim submitted under retroactive coverage procured by an employer’s fraud. The court held that the fraud in this instance voids the retroactive coverage from its inception and that NRSA 616B.033 governing rights as between the workers’ compensation insurer and the injured employees, does not negate a fraud defense as asserted by the employer below. The court also held that the uninsured employers’ claim account (NRS 616C.220) is prospectively applied.

Compiled by Kevin T. Merriman, newsletter editor for Goldberg Segalla (www.goldbergsegalla.com). Gordberg Segalla counsels and represents individuals and businesses in specialized areas of civil litigation, contractual and extra-contractual disputes and regulatory matters before state and federal agencies. E-mail: kmerriman@goldbergsegalla.com. Copyright 2007 Goldberg Segalla LLP. All rights reserved.