The uninsured motorists coverage insuring agreement in the standard personal auto policy applies to damages which an insured is legally entitled to recover due to an auto accident. An insured includes the named insured and any family member, with a family member further defined as a relative who is a resident of the named insured's household, that is, a resident relative. But, if the relative does not live with the named insured, does the auto policy still consider that person an insured? The Georgia Supreme Court has handed down a decision to help clarify that issue. The case is Gordon v. Atlanta Casualty Company, 611 S.E.2d 24 ( Ga. 2005).

This case was brought to the state's highest court on a writ of certiorari. The court said that the point to be determined was whether Georgia 's uninsured motorist statute requires an insurer to pay damages for the death of an insured's son when the son was not considered a covered person under the terms of the auto policy. The court decided that the answer was yes.

Atlanta Casualty Company had issued an auto policy to O'Neal which provided uninsured motorist coverage for bodily injury sustained by a covered person. The insured's son was killed in an auto accident when he was struck by an uninsured motorist. At the time of the son's death, he was living with his mother because the mother and father were separated. The parents sued the uninsured motorists owner and driver for the wrongful death of the son and served Atlanta Casualty as the uninsured motorist carrier. The insurer moved for summary judgment, claiming that the son was not a covered person under the terms of the policy. The trial court denied the motion, the court of appeals reversed, and the case then went to the state supreme court.

That court looked at the language of the Georgia statute pertaining to uninsured motorists coverage and found that it is plain and logical. The statute clearly states that the insurer is to pay all sums that the insured shall be legally entitled to recover as damages from the owner or operator of an uninsured motor vehicle. The court read this to mean that since the named insured in this case is entitled to recover damages for the death of his son against the owner or driver of the uninsured vehicle, he is entitled to recover those damages against his insurer. All the statute requires is that the insured person be legally entitled to recover damages; it is not relevant whether the injured person is a covered person or not in the policy since the statute refers to the insured person. In this case, the father was clearly entitled to recover, he is the insured person in the policy, so the insurer must pay the uninsured motorists coverage.

Pollution Exclusion Update

The pollution exclusion on the CGL form continues to be the subject of coverage disputes despite the fact that most courts today have upheld the provisions of the exclusion. The following case from California shows that, even if a state's supreme court has weighed in on the subject, the application of the pollution exclusion is still subject to individual court interpretations. The case is Garamendi v. Golden Eagle Insurance Company, 25 Cal.Rptr.3d 642 ( Ct. App. 1st Dist. 2005).

This case consolidated appeals by Pauli Systems, Inc. (a claimant) from identical orders denying applications for orders to show cause in proceedings instituted by the claimant against Golden Eagle Insurance Corporation as third party administrator for Golden Eagle Insurance Company. The applications challenged Golden Eagle's denial of coverage for claims asserted by two groups of workers for silica-related injuries and damages. The trial court concluded Golden Eagle properly rejected the tenders of defense based on the pollution exclusion contained in the commercial general liability policy. This decision was then appealed.

The appeals court noted that the two underlying complaints contained allegations that the workers worked many years in, and were exposed to, an environment of silica-containing dust which caused serious and permanent bodily injury. The complaints were tendered to Golden Eagle for defense after the liquidation proceedings had been commenced against the insurer. The tenders were rejected based on the fact that, even though the insurer had issued a general liability policy during the relevant time period, the policy had the following exclusion: the insurance does not apply to bodily injury or property damage which would not have occurred in whole or in part but for the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time. Pollutants were defined as any solid, liquid, gaseous, or thermal irritant or contaminant including smoke, vapor, soot, fumes, acid, alkalis, chemicals, and waste.

Also noted at this time was the fact that the California Supreme Court had considered at length the interpretation of a pollution exclusion that defined pollutants in essentially the same language as that found in Golden Eagle's policy. In this case, MacKinnon v. Truck Insurance Exchange, 73 P3d 1205 ( Cal. 2003), the state's highest court had decided to limit the scope of the pollution exclusion to injuries arising from events commonly thought of as environmental pollution. Based on this finding, the claimant here alleged that silica was not a pollutant because it was not smoke, vapor, soot, fumes, acid, alkalis, chemicals, or waste, and the fact that silica may be an irritant or contaminant was simply not dispositive. Furthermore, the injuries caused here did not amount to wholesale environmental degradation, so the pollution exclusion was not applicable.

The appeals court found that even if silica is not one of the enumerated items listed in the policy definition of pollutants, that listing is not exclusive and that, indeed, federal regulations identified silica dust as an air contaminant. And, the court said, the widespread dissemination of silica dust as an incidental by-product of industrial sandblasting operations most assuredly is what is commonly thought of as environmental pollution; wholesale environmental degradation was not necessary for the pollution exclusion to be applicable. Furthermore, the pollution exclusion itself in the MacKinnon case was more limited than the one in Golden Eagle's policy. The exclusion in the Golden Eagle policy shifted the focus to injuries that would not have occurred at all but for the discharge of pollutants. So, the appeals court upheld the trial court's decision.

More on the Pollution Exclusion

The appeals court in the Garamendi case above respected the California Supreme Court decision in MacKinnon as the established law of the state, but it still found itself in the position of having to tangle with the extent and meaning of a pollution exclusion. As another example to show that this area of insurance policy interpretation is still unsettled, the following case is presented. This case is Garamendi v. Mission Insurance Company, 2005 WL 1140705 (Cal.App.2 Dist.) Note that this opinion has not as yet been certified for publication or ordered published.

There were several disputes in play in this case, and the pollution exclusion was one of them. Each policy at issue here contained a pollution exclusion that provided that the insurance did not apply to bodily injury or property damage arising out of a release or escape of pollutants into or upon land, the atmosphere, or any water course or body of water. There was an exception if the discharge or release was sudden and accidental. Coverage was denied based on this exclusion.

The insured (Henkel Corporation) contended that the pollution exclusion was inapplicable because the claimants used chemicals in the normal course of their business activities such that there was no discharge or release into the atmosphere or land. Henkel cited the MacKinnon case as support for its contention that since there was no environmental pollution here, the exclusion would not apply.

The court in this case took note of the MacKinnon ruling and the Garamendi v. Golden Eagle ruling but said that the case before it was distinguishable based on the wording of the pollution exclusion. This court decided that both the MacKinnon ruling and the Golden Eagle ruling allowed it to interpret the pollution exclusion language as it was in this instance, and as it pertained to the facts of this particular case. Based on its interpretation of the exclusion wording, the court said that there is coverage.

So, despite the supreme court decision in MacKinnon, the pollution exclusion would still seem to be subject to differing reasonable interpretations. The intent of the pollution exclusion in the current CGL form and the intent of the total pollution exclusion endorsement may be to control a liability policy's coverage for a pollution incident, but basically, the exclusion still is what a court says it is.

Credit Score Ruling by U.S. Court

The United States Court of Appeals for the Ninth Circuit has handed down a decision on the issue of credit scoring, a tool used by some insurers to underwrite risks. The court reviewed the practice of credit scoring in accordance with the provisions of the Fair Credit Reporting Act (FCRA), and said that the principal question before the court was: does FCRA's adverse action notice requirement apply to the rate first charged in an initial policy of insurance? The answer was yes. The case is Reynolds v. Hartford Financial Services, 2005 WL 1840054 (C.A. 9 Or. 2005). This case was actually a consolidation of two appeals: Reynolds v. Hartford and Edo v. GEICO.

Reynolds was the sole remaining named plaintiff in a class action lawsuit against Hartford Fire Insurance Company based on a violation of FCRA's adverse action notice requirement. Reynolds applied for both an auto and a homeowners policy from Hartford ; he had no existing policy with the insurer. An employee of Hartford tried to collect Reynold's credit score twice, but both times the report cited Reynolds as a no-hit. This led the insurer to issue Reynolds policies without the AARP premium rates. Reynolds sued based on the provisions of FCRA but the trial court ruled in favor of Hartford . Reynolds appealed.

In the Edo case, Edo (also the sole remaining named plaintiff in a class action lawsuit) obtained an auto policy from GEICO. Following Edo's call to GEICO for a policy, an employee of the insurer used the credit information he obtained on Edo to place Edo in GEICO Indemnity. GEICO then applied its policy for determining whether an adverse action had occurred, and calculated that it had not, even though a neutral credit rate was used as opposed to the highest credit weight and this resulted in Edo not receiving a lower insurance rate. Edo filed a lawsuit, the trial court ruled in favor of the insurer, and this appeal followed.

The appeals court noted that FCRA seeks to ensure the accuracy and fairness of credit reporting through a variety of means. Central to this goal, FCRA limits the persons who may obtain consumer credit reports and requires users of such reports to notify consumers when, in reliance on a consumer report, adverse action has been taken. An adverse action notice advises consumers that an adverse action has been taken against them, notifies the consumer of the nature of that action, and alerts the consumer that he may view a copy of the consumer report that triggered the adverse action free of charge. The principal question then is whether this adverse action notice requirement applied to rates first charged in an initial policy of insurance, or is it limited to an increase in a rate that the consumer has previously been charged?

The statute defines an adverse action with respect to insurance as a denial or cancellation of, an increase in any charge for, or a reduction or other adverse or unfavorable change in the terms of coverage or amount of, any insurance, existing or applied for, in connection with the underwriting of insurance. Reynolds said he was charged an increased rate because of his credit rating when he was compelled to pay a rate higher than the premium rate because he failed to obtain a high score. The appeals court agreed; the court found that the rate Reynolds paid was increased above that which it would have otherwise been because of the credit report.

The court said this was an adverse action taken against Reynolds on the basis of information contained in a credit report.

As for the Edo dispute, GEICO contended that its method of determining which consumers were entitled to receive adverse action notices comported with FCRA; GEICO only sent out notices to those consumers with below-average credit who would have been charged a lower rate for insurance had they received an average credit rating. Edo argued that under GEICO's procedure, numerous consumers who were charged increased rates because of their credit rating failed to receive the statutorily required notice. The appeals court agreed with Edo and noted that FCRA does not limit its adverse action notice requirements to actions that result in the customer paying a higher rate than he would otherwise be charged because his credit rating is worse than the average consumer's rating. Instead, the act requires such notices whenever a consumer pays a higher rate because his credit rating is less than the top potential score. In other words, if the consumer would have received a lower rate for his insurance had the information in his consumer report been more favorable, an adverse action has been taken against him.

In a brief summary of the ramifications of its decision in this case, the appeals court noted the following: FCRA's adverse action notice requirement applies whenever a consumer would have received a lower rate for insurance had his credit information been more favorable, regardless of whether his credit rating is above or below average; charging more for insurance on the basis of a transmission stating that no credit information or insufficient credit information is available constitutes an adverse action based on information in a consumer report, and therefore, requires the giving of notice under FCRA; to comply with FCRA's notice requirement, a company must communicate to the consumer that an adverse action based on a consumer report was taken, describe the action, specify the effect of the action upon the consumer, and identify the party taking the action; when a consumer applies for insurance with a family of companies and is charged a higher rate for insurance because of his credit report, two or more companies within that family may be jointly and severally liable; and, a company is liable for a willful violation of FCRA if it knowingly and intentionally committed an act in conscious disregard for the rights of others.

Cost of Terrorism

We noted in our July article on yacht coverage (see Yacht Coverage) that the Straits of Malacca, a major shipping route running between Indonesia and Malaysia , were particularly susceptible to pirates. An August 11 Reuters article by Stefano Ambrogi confirmed this, but added that, according to Ken Alston, managing director of marine practice at Marsh & McLennan in London, costs for ship charters would not be much affected. The addition of this shipping lane as a terrorist target led to regional governments and the shipping industry calling for a reversal of the rating. Mr. Alston stated that even though the war risk rating should not much affect the cost of insurance, it meant shipping companies would need to inform underwriters of the planned route. He thought it was a mistake to make an additional charge for ships passing through the Straits.