In this issue, we have cases dealing with the waiver of coverage defenses because of inadequate and late ROR letters, and a case dealing with the waiver of a material misrepresentation defense because the insurer failed to void the policy. And of course, there are the UM-waiver decisions.
Waiver of Defense – Inadequate ROR
In Harleysville Group Insurance v. Heritage Communities, 2017 WL 105021 (1/11/17), the South Carolina Supreme Court joins the growing list of courts around the country that have found the insurer waived coverage defenses because the reservation-of-rights letter sent to the insured was inadequate. As the court stated:
Here, except as to punitive damages, Harleysville’s reservation letters gave no express reservation or other indication that it disputed coverage for any specific portion or type of damages. Nor did the letters or testimony indicate that, in the event Heritage was found liable in the construction-defect suits, Harleysville intended to file the instant lawsuit to contest various coverage issues. Specifically, Harleysville did not expressly put its insureds on notice that it intended to litigate the issues of whether any damages resulted from acts meeting the definition of occurrence, whether any damages occurred during the applicable policy periods, what damages were attributable to non-covered faulty workmanship, and whether certain damages resulted from intentional acts by the insured and were thus excluded. And in no way did the letters inform the insureds that a conflict of interest may have existed or that they should protect their interests by requesting an appropriate verdict. As the Fifth Circuit found in Duke v. Hoch, Harleysville’s reservation “was no more than a general warning” and “too imprecise to shield [the insurer].” 468 F.2d 973, 979 (5th Cir. 1972). We find there is evidence in the record to support he Special Referee’s finding that Harleysville’s reservation letters were insufficient to reserve its right to contest coverage of actual damages. (Emphasis added.)
Material Misrepresentations – Waiver By Continuing to Accept Premium and Renewing Policy
In his Safeway policy application, the insured made a material misrepresentation with arguably the intent to deceive. The policy application stated that, in the event of such a material misrepresentation, the policy would be null and void. But the policy stated that, in the event of such a material misrepresentation, the policy “shall be voidable, at our option.” Even after Safeway learned of the misrepresentation, it continued to renew the policy. The Louisiana Second Circuit Court of Appeal finds that by continuing to accept premium payments and renewing the policy after learning of the misrepresentation, Safeway waived its defense of material misrepresentation. Green v. Brown, 51,152 (2/15/17).
“Any Insured” Exclusion and the Separation Clause
Plaintiff, a stunt performer, was badly injured in an accident during a movie production. Plaintiff was employed by Flypaper. Plaintiff sued Noway, alleging that the accident occurred because Noway’s equipment used in the stunt was defective. And plaintiffs sued Flypaper’s insure Employer Fire, alleging that Noway was an additional insured under an additional-insured endorsement for equipment lessors in the Employers Fire policy issued to Flypaper.
The Employers Fire excess policy contained an “any employee” exclusion. The exclusion stated that the excess policy did not apply to bodily injury “to any current or former employee of any insured.” Plaintiff was an employee of named-insured Flypaper.
Plaintiff and Employers Fire filed cross-motions for summary judgment on whether the “any employee” exclusion applied. Plaintiffs argued that the separation-of-insureds clause in the policy made the “any employee” exclusion ambiguous or inapplicable, because under the separation clause each insured was treated as the only insured under the policy. Reversing the trial court’s summary judgment to plaintiff, the Louisiana First Circuit Court of Appeal found that the “any employee” exclusion in wording was clear and that the separation clause did not apply to an exclusion using the wording “any insured.”
Note that this writer was counsel for Employers Fire in this case. With this decision, the Louisiana First Circuit Court of Appeal joined a clear majority of courts around the country finding that the separation clause does not apply to exclusions using the wording “any insured.” Petrozziello v. Thermadyne Holdings Corp., 2015-1525 (2/17/17).
Waiving Coverage Defense – Late ROR
Megan Daigle, then a minor, ran a stop sign and hit a car driven by plaintiff. Megan was driving a car owned by her father and solely used that car. Megan’s father and mother were divorced, and Megan was living with her mother, who had legal custody. Allstate was the automobile insurer for Megan’s mother. Under the Allstate policy, Megan was an insured person, but her car was not an insured auto because she was driving a non-insured auto that was furnished for her regular use.
Plaintiff sued Megan, her mother, and Allstate. On May 22, the attorney hired by Allstate answered for all three defendants. But on June 23, the Allstate adjuster determined that a coverage defense should be raised. On June 24, the adjuster sent to Megan and her mother a reservation of rights letter. And on July 31, Allstate “split the defense” between Allstate, and Megan and her mother.
Allstate moved for summary judgment, contending correctly that there was no coverage because Megan’s car was not an insured auto. However, opposing the motion, plaintiff argued that Allstate had waived its coverage defense by defending Megan and her mother without issuing a reservation of rights letter. Reversing the trial court’s summary judgment in favor of Allstate, the Louisiana Third Circuit Court of Appeal finds that Allstate waived its coverage defense. The court stated:
The Rivers’ petitions provided Allstate all the information it needed to assert its coverage defense and issue a reservation of rights. Allstate failed to do so before filing an answer. If Allstate’s adjuster or attorney had questions regarding Megan’s vehicle and whether she maintained possession and use of it, they could have contacted their insureds and asked any clarifying questions they had before filing an answer. They did not, and Allstate’s unconditional undertaking of the Allemands’ defense waived its right to assert the coverage defense.
Rivers v. Daigle, 16-805.
UM – Waiver
Another UM case illustrating how hypertechnically UM waivers can be reviewed.
In 2013, plaintiff, driving a truck owned by his employer O’Neal, was injured in an accident. At the time, plaintiff was acting in the course and scope of his employment. Plaintiff sued Penn Miller, O’Neal’s automobile insurer, seeking UM coverage. Since 2007, Penn Miller had covered O’Neal annually with a commercial auto insurance policy. In 2007, O’Neal had executed a valid UM waiver. Each year, O’Neal completed a renewal form provided by Penn Miller. In 2009, O’Neal increased its liability limit in its umbrella insurance policy from $2,000,000 to $3,000,000 without executing a new form. But in 2011, O’Neal did execute a second UM waiver.
Reversing the trial court’s summary judgment to plaintiff, the Louisiana Third Circuit Court of Appeal in a five-judge panel finds that there was a valid UM waiver. But this case, with separate dissenting and concurring opinions, addressed a number of issues.
First, the majority found that the 2007 UM waiver was valid, noting that, though the policy number was not listed in the waiver, the policy number at the time of the waiver was not yet available and satisfied the then regulations of the insurance commissioner.
Second, plaintiff argued that each annual form completed by O’Neal was a new application resulting in a new policy requiring a new waiver. Noting that the policy number never changed (except for the last two numbers reflecting the number of years the policy had been in effect), the majority found that the policy was each year simply renewed.
Third, the majority found that the 2009 general umbrella liability limit increase did not require a new UM waiver for the commercial auto policy, and that the 2007 waiver remained at all times effective.
In a dissenting opinion, Judge Chatelain found that the insurer’s requirement for completion of a new form each year resulted in a new policy requiring a new waiver; that a waiver for even the underlying commercial auto policy was required when the 2009 umbrella liability limit was increased; and that the 2011 UM waiver was invalid because the insurer’s name or logo did not appear in the lower left-hand corner of the waiver form.
And in a concurring opinion, Judge Conery found that the 2009 umbrella policy limit increase required a new waiver for the underlying policy, but that the 2011 waiver was valid because the name of the insurer was printed on each page of the waiver form. The concurring opinion cited Gingles v. Dardenne, 4 So.3d 799 (La. 2009, and Ashmore v. McBride, 11 So.3d 720 (La.App.3 Cir. 2009), in support of its conclusion that the 2009 waiver was valid. Hayes v. DeBarton, 16-5416.
UM – Exclusion for Covered Auto When Used in Business of Lessee
Guidry v. US Agencies Casualty Insurance Company, 2016-0562 (2/16/17), offers convoluted facts and many issues. Under an independent-contractor service agreement, Denise leased her truck to Venture as a hotshot vehicle. Denise and Venture agreed that Denise’s husband Calvin would be the truck’s designated driver; that Denise would carry “bobtail” insurance in the amount of $1,000,000 with Venture listed as an additional insured; and that, if Denise failed to obtain the insurance, Venture at its option could buy the insurance at Denise’s expense. And under the agreement, Venture paid Denise 75 percent of “line haul revenues,” which was defined as “the portion of revenue derived by transporting a shipment from the consignor’s origin to the consignee’s designation as related on Venture’s shipping documents.”
Venture sent Denise a dispatch order to pick up and drive a load to a Chevron plant. After the delivery, the truck was involved in the accident, and driver Calvin and passenger Denise sued a number of parties, including Hudson, the insurer providing the “bobtail” coverage, for UM coverage. But Hudson contested coverage, arguing that the policy excluded coverage because of its liability-coverage exclusion for a covered auto “while used in the business of anyone to whom the ‘auto’ is rented.”
On summary judgment, the trial court rejected Hudson’s argument that the plaintiffs were in business with Venture at the time of the accident and found Hudson provided UM coverage. Hudson’s appeal raised a number of issues, including law of the case and prescription. However, for purposes of an insurance-coverage newsletter, there were three issues of particular note.
First, the Louisiana First Circuit Court of Appeal actually agreed with Hudson that its prior unconditional tender of $100,000 did not result in a waiver of defenses or an admission of liability.
Second, Hudson argued that under federal regulations requiring motor carriers to assume “exclusive control” and “complete responsibility” for its leased vehicles, there was a rebuttable presumption that plaintiffs were in the business of Venture. But the court found that the regulation, 49 C.F.R. §376.12, created the presumption only as to third parties injured in an accident, not to the driver and owner of the leased truck. Adopting the plaintiff’s argument, the court stated: “In other words, they are not the plaintiffs the presumption was intended to protect.”
Third, the court found under these facts that plaintiffs were not in the business of Venture.
As a result, the court of appeal affirmed the trial court’s summary judgment to plaintiffs.