The Insurance Services Office (ISO) has revised many of the additional insured endorsements in an attempt to eliminate coverage under the named insured's CGL form for the additional insured's sole negligence; this was a reaction to the fact that some courts were allowing such coverage. The following case from New York offers an example of a court's thinking on the subject, with both sides of the question being presented here. The case is Raymond Corporation v. National Union Fire Insurance Company, 2005 WL 1523565 (N.Y., 2005). Note that this opinion is uncorrected and subject to revision before publication in the New York Reports.

The plaintiff, Raymond Corporation, manufactures sideloader forklifts. One of the plaintiff's vendors sold two new sideloaders to a customer. The units were refitted at the customer's place of business, but the vendor's technicians did not properly fit the forklift guide rollers. This caused one of the sideloader forklifts to wobble from side to side and to jam. An employee of the customer sustained serious head and brain injuries while operating the forklift. The injured worker sued Raymond and the vendor for damages.

There was no question that the vendor was negligent in its work, with one of the technicians essentially admitting that he knew that the sideloader was unsafe when he placed it into service. When the insured (Raymond) and the vendor settled the action prior to trial, Raymond looked to National Union to pay part of the settlement, contending that the vendor's endorsement made the vendor an additional insured. National Union contested the coverage. Both parties filed motions for summary judgment. The trial court granted summary judgment to National Union, ruling that the vendor's endorsement was limited to personal injury claims arising out of a product defect. The appeals court reversed and said that the endorsement was broad enough to cover claims arising out of the vendor's negligence. Upon appeal to the state's highest court, the trial court's ruling was reinstated.

This court noted that the policy endorsement covered vendors only with respect to bodily injury or property damage arising out of Raymond's products. This meant that coverage existed for the vendor only due to damages arising out of defects in the products. The court went on to point out that the vendor's endorsement had its genesis in products liability law, and so, such an endorsement covers the vendor's liability arising out of its role in passing the manufacturer's product on to customers, but does not cover vendors for their own negligence. Furthermore, the court pointed out, the majority view today is that the vendor's endorsement is inapplicable if the vendor, whether by participating in the creation of the product or by altering or repairing it, may be responsible for the alleged defect out of which the products liability suit arises.

The court held that, in sum, the endorsement in this case covered the vendor for defective product lawsuits arising out of its distribution, sale, repair, servicing, demonstration, or rental of Raymond's products; nothing in the wording of the endorsement suggests that the phrase “bodily injuries arising out of” Raymond's products encompasses the vendor's independent acts of negligence. The court said that its interpretation of the endorsement follows its language and comports with the traditional majority view, the origins of the vendor's endorsement as an outgrowth of products liability law, and common and economic sense.

In the dissenting opinion, the judge said that, after reading the exclusions in the vendor's endorsement, he could not believe that the author of the endorsement intended only actions arising out of product defects to be within the endorsement's coverage. This judge read the endorsement and the exclusions to mean that the endorsement was simply applicable to injuries caused by a Raymond product, whether the product was defective or not; cases from other jurisdictions were then cited to support this view. As for the majority viewpoint, this dissenting judge said that the majority view turned on an interpretation of language that was not similar to the language of the endorsement used in this case. And, the reliance of the majority in this case on Couch's treatise (which says that coverage under a vendor's endorsement is limited to injuries arising out of a defect in the manufacturer's products) is faulty because Couch did not offer the comment as an interpretation of any particular policy language; rather, the treatise merely described what the author believed a vendor's endorsement ought to say. The dissenting judge would have upheld the judgment against National Union.

For an enlightening, entertaining, and comprehensive commentary on this case, as well as other cases that have contributed to the additional insured morass, see “Coverage for Additional Insured-Vendors: Recent Markdowns by ISO and New York's High Court,” by Randy J. Maniloff, appearing in Mealey's Litigation Report: Insurance, July 26, 2005. FC&S readers will be familiar with Mr. Maniloff's writing. See Additional Insured Endorsements: ISO's Revisions, and see Additional Insureds Coverage and Legislative Changes on the Horizon for two other articles on this topic.

UM Payments and Setoff Clauses

The standard personal auto policy declares that the insurer will not pay uninsured motorists coverage for any element of loss if a person is entitled to receive payment for that same element of loss under a workers compensation law or any similar law. A recent case from Illinois has addressed the issue of whether such language is acceptable. The case is Gillen v. State Farm Mutual Automobile Insurance Company, 215 Ill.2d 381 ( Ill. 2005). Note that this case has not been released for publication in permanent law reports and is subject to revision or withdrawal.

Gillen was employed by the Chicago fire department as a paramedic. While on duty at the scene of an accident, Gillen was hit by an uninsured motor vehicle and died. Gillen's wife made a claim with her auto insurer, State Farm, for the UM benefits of $100,000. The auto policy had a limitation clause to the effect that any amount payable under the coverage shall be reduced by any amount paid or payable to or for the insured under any workers compensation law or any similar law. Using this clause, State Farm set off the amount paid by the city of Chicago for the medical expenses of Gillen ($76,612.10) and delivered a check for $23,387.90 to Gillen's wife. The wife then filed a complaint against State Farm seeking a declaration that State Farm is not entitled to a setoff under the policy language and as a matter of public policy. The trial court granted a judgment to State Farm; the appeals court reversed. The case was then sent to the Illinois Supreme Court.

The court noted that State Farm did not dispute the underlying facts that gave rise to the wife's claim for UM benefits. The only issue was whether State Farm could reduce its limit of liability by deducting the amount of medical benefits the city paid on behalf of the deceased from the UM limits of $100,000.

State Farm contended that the validity of a setoff is determined by comparing the result for the insured if the setoff is allowed with the result if the tortfeasor had been insured. According to State Farm, where the insured is no worse off with the setoff applied, the setoff is allowed. In this case, the wife was in no worse position, argued State Farm, since the city paid the medical expenses. The wife of the deceased argued that the clause in the policy pertaining to setoffs refers only to deductions for payments made under any workers compensation, disability benefits, or any similar law. And, since the payments from the city were made pursuant to the pension code and a corresponding municipal ordinance, the policy language, on its face, did not permit deductions.

The court said that the key was whether the average person for whom the policy is written would reasonably understand that State Farm's liability for uninsured motorists coverage would be limited for payments made pursuant to the pension code and city ordinance. In other words, was the setoff clause clear, definite, and specific? The court did not believe that it was. To the court, the phrase “workers compensation, disability benefits, or similar law” would simply not convey to the average, ordinary, normal, reasonable person an intention to include the pension statute within the setoff clause of the auto policy. Had State Farm intended to include a setoff for payments made in accordance with the pension code, it easily could have modified the policy language to so provide. So, the court found that State Farm's failure to include an explicit reference to the pension code or otherwise make plain that its liability for uninsured motorists coverage will be reduced for payments made pursuant to the code is inexplicable. The Illinois Supreme Court decided that it could not allow State Farm under these circumstances to avoid its obligations under the auto policy. State Farm had to honor the wife's claim for UM coverage with no offset for the medical benefits paid by Chicago .

Car 54, Where Are You?

Well, if Car 54 is a 1999 Acura Integra or a 2002 BMW M Roadster, chances are it has been stolen and could be anywhere—a chop shop, on its way to a foreign country, whatever. These were the top two favorite car theft targets for 2004, according to a recent report by CCC Information Services (as reported by CNN/Money, July 19, 2005). In addition, the Acura Integra (model years 1998, 1996, 1995, and 1997) took four of the remaining “Top Ten” spots. This is something to keep in mind when trying to explain why physical damage rates are so high for these vehicles.

Across the Pond

This headline “Police Vehicle Chase Crash Figures Rise Sharply” was arresting. According to an article posted by Reuters News, more than 2,000 people were injured as a result of accidents involving police vehicles in the year ending April 2004 in England and Wales . This figure does not include persons being chased—these are innocent motorists or pedestrians who just happened to get in the way.

The number increased sharply from the previous year.

One police officer was clocked doing 159 MPH because he said he was testing a new pursuit car, but his superiors did not know about his “test.” The court dismissed the charge.

The Home Office (no United States equivalent) said that “it understood the potential dangers involving police vehicles engaged in pursuits or emergency responses, but said chances were necessary to catch offenders.”

Hurricane Modeling

A June 10th article in the Wall Street Journal (“Hurricane Forecasters Try Model That Focuses on Chances of Landfall,” by Sharon Begley) indicates that we will continue to see an active hurricane season. Seasonal hurricane forecasting has previously been based upon ocean temperature and current. Last year, the National Oceanic and Atmospheric Administration predicted the 2004 season would be 50 percent more active than normal, with two to four major hurricanes. Then, in August, just before Charley formed, NOAA revised the forecast down, as did the Colorado State University Hurricane Forecast team. Florida is still recovering from Charley, Frances , Ivan, and Jeanne.

Now, new methodology has been developed by British scientists that measures the irregularities and intensities of winds generated from 2,400 feet to 24,000 feet above sea level in six regions. The methodology indicates that weaker than normal trade winds coupled with warmer than normal water temperatures will produce more intense hurricanes.

The British scientists intend to make their 2005 forecast on August 4. Since as of this writing we've already been visited by Dennis and Emily, we can't wait to see what's coming.