When Does Property Damage Occur?

The prevailing rule in the country today is that property damage occurs at the time the damage is discovered or when it has manifested itself. A recent decision by a Court of Appeals in Texas has tweaked this rule a bit. The case is Allstate Insurance Company v. Hunter, 2007 WL 4126055 (Tex.App. – Forth Worth). (Note that this opinion has not as yet been released for publication in the permanent law reports, and until so released, the opinion is subject to revision or withdrawal.)

In the summer of 2002, the Hunters noticed a strange smell in their home. The Hunters had a homeowners policy with Allstate that expired on October 6, 2002, and this was replaced with another Allstate policy with an effective date of October 7, 2002. The strange smell persisted and on February 4, 2003, a general contractor inspected the home and found water damage and mold. The Hunters later testified that this was the first they knew of the mold damage or that the source of the odor was mold. Two days after the inspection, the Hunters notified Allstate of the claim.

Allstate denied coverage under the current homeowners policy because a plumber hired by Allstate reported that the water leak was ongoing and the policy covered only sudden and accidental plumbing leaks. The Hunters then sought coverage under the previous homeowners policy, but Allstate denied this claim also based on the Hunters' failure to promptly report the claim. The Hunters filed a lawsuit. The trial court entered judgment on the jury verdict for the insureds, and this appeal followed.

The appeals court started the opinion by discussing the trigger of coverage theories that are recognized by Texas courts. The court then noted that both parties to this lawsuit agreed that the manifestation trigger of coverage applied. However, the issue facing the appeals court was whether the trial court correctly charged the jury on the manifestation trigger of coverage theory applicable to a first-party claim under a homeowners policy. The insurer contended that the trial court erred by submitting the manifestation trigger of coverage theory question to the jury without inserting the word “easily” before the phrase “perceived, recognized, and understood”. The appeals court agreed and concluded this was an error since it could have allowed the jury to understand the manifestation as being triggered when it was theoretically capable of being perceived, as opposed to being triggered when it was easily capable of being perceived. And this latter interpretation is the correct view of the manifestation trigger of coverage.

The court said that all parties agreed that the Hunters in February 2003 told Allstate for the first time that the home had smelled musty since the previous summer or earlier. The evidence established that the damage to the home may have occurred prior to October 6, 2002; but, using the proper case law definition of manifest, that is, when the damage was capable of being easily perceived, recognized, and understood, there was no evidence that the damage manifested prior to that date. In fact, the evidence shows the damage to the home did not manifest until February 4, 2003 when the contractor found it.

The Hunters argued that damage manifests itself when it is capable of being perceived by one's senses and that, consequently, the mold manifested prior to October 6, 2002, because the Hunters smelled it prior to that date. The appeals court disagreed, but added that if this is so, the date the Hunters smelled the odor is the date when the duty to notify Allstate was triggered. So, since the Hunters did not notify Allstate until February 2003, the Hunters did not promptly notify the insurer of the claim. There was just no support for the Hunters' argument that their action of telling Allstate in February 2003 that they had been smelling an odor for ten months triggered coverage in the absence of the filing of a claim or notifying Allstate during that ten-month period.

The ruling of the trial court was reversed.

Additional Insured Ruling by Florida Supreme Court

The United States Court of Appeals for the Eleventh Circuit certified questions of law to the Florida Supreme Court. The questions were: is an insurance policy that defines a covered person as any other person with respect to liability because of acts or omissions of the insured ambiguous; and, does an insurance policy providing coverage for an additional insured with respect to liability because of acts or omissions of the named insured limit coverage to instances in which the additional insured is vicariously liable for acts of the named insured? The case is Garcia v. Federal Insurance Company, 2007 WL 3101820 ( Fla. ). This opinion has not as yet been released for publication in the permanent law reports and until so released, the opinion is subject to revision or withdrawal.

Garcia sought coverage under a homeowners policy issued to her employer. Garcia worked as a caregiver for the insured (Laura Anderson), and as part of her duties, ran errands for the insured using a Volvo owned by the insured's son-in-law. One day, Garcia drove to the supermarket and as she drove into the parking lot, her foot slipped off the brake pedal and the car struck and seriously injured a pedestrian. The injured person sued both Garcia and Anderson and Garcia sought coverage under Anderson 's policy, arguing that she qualified as an additional insured. The insurer denied her claim and said that the additional insured clause only covers individuals who become vicariously liable for the acts or omissions of the named insured. Because the victim sued Garcia for her own negligent acts, not for any acts or omissions of Anderson , the insurer concluded that she did not qualify as an additional insured.

Garcia sued Federal seeking a declaration that she was a covered person under the homeowners policy. The trial court ruled in favor of the insurer. Upon appeal, the circuit court certified questions to the Florida Supreme Court for guidance.

The Supreme Court examined the policy language and noted two phrases of particular relevance to the case: with respect to and because of. When these words are considered in context, they clearly indicated to the court that an additional insured is only entitled to coverage concerning liability that is caused by or occurs by reason of acts or omissions of the named insured. An additional insured's liability thus must be caused by the acts or omissions (that is, the negligence) of the named insured. The homeowners policy does not cover an additional insured's liability arising from her own negligent acts. And, since the injured person sued Garcia for her own negligence in failing to maintain the brake pedal, and did not allege that Garcia was liable for Anderson 's acts or omissions, Garcia was not entitled to coverage. The answers to the certified questions were “no” and “yes”, respectively.

The court concluded that the presence of the words “because of” in Federal's policy requires that an additional insured's liability be caused by the acts or omissions of the named insured, in other words, vicarious liability. The court noted that courts from other jurisdictions interpreted similar language to arrive at the same result. Court rulings from Illinois, Ohio, Texas, and New York were cited.

Illegal Acts of Single Insured Affects Coverage for Other Insureds

The insurer of a condominium owner sought a declaratory judgment of no duty to defend or indemnify the insured owners against a negligence action brought by parents of a condominium guest who had died as a result of the criminal act of the owners' son. The son lived at the condominium and was a co-insured under the insurance policy. The case is Allstate Insurance Company v. Berge, 2007 WL 3256697 (D.N.D.).

This case arose out of the death of a 16-year-old girl (Berge). Streeper, son of the condominium owners, invited Berge to a party and gave the girl alcohol and drugs. Berge then died at the scene due to an overdose. Streeper was subsequently charged with and convicted of manslaughter. Streeper's parents were not at home during the party and, in fact, were out of town; nevertheless, Berge's parents sued Streeper's parents as owners of the condo and alleged negligence against them.

The condo insurer, Allstate, contended that the claims against the Streepers were excluded due to the intentional and criminal acts exclusion. The Berges said that the exclusion does not preclude coverage for all the insured persons just because of the criminal acts of a single insured.

The court reviewed the condo policy which defined an insured person as: the named insured, any relative, and any dependent person in the care of the named insured; thus, the Streepers and their son were insured persons. However, the policy also declared that the terms of the policy imposed joint obligations on persons defined as an insured person. This meant that the responsibilities, acts, and failures to act of a person defined as an insured person would be binding upon another person defined as an insured person. And, upon reviewing cases from various courts around the country (Alaska, California, Florida, Louisiana, Maine, New Hampshire, Tennessee, and Washington), this court found that when the exclusionary language refers to intentional acts of “an insured”, as opposed to “the insured”, the exclusion applies to all claims that arise from the intentional acts of any one insured, even though the claims are stated against another insured.

The court found that there was clearly no coverage for negligence claims made against co-insureds arising from the intentional or criminal acts of any other insured; the claims of negligence asserted against the Streepers were barred by the intentional or criminal acts exclusion in the condo policy. The fact that the Streepers did not engage in any criminal behavior was immaterial because the Allstate policy exclusions applied to the criminal behavior of any insured. Allstate's motion for summary judgment was granted.

Timely Notice Dispute

Edwards v. Lexington Insurance Company, 2007 WL 3245437 (C.A.1 Me. ) is a case involving timely notice of a claim under a claims-made policy.

On October 11, 2002, Edwards suffered injuries during a hunting excursion when a safety harness securing him to a tree malfunctioned, causing him to fall seventeen feet to the ground. Edwards filed a lawsuit against the manufacturer of the harness and obtained a default judgment. However, the manufacturer filed for bankruptcy and Edwards was unable to execute the judgment. So, he then filed a lawsuit against the insurer ( Lexington ) of the manufacturer seeking to collect his judgment. Lexington had previously received notice of the lawsuit against the manufacturer but had disclaimed coverage.

In due course, Lexington moved for summary judgment and this was granted because the policies of the insured manufacturer were claims-made policies, and Edwards had failed to provide notice of the claim within the required time period. Edwards appealed.

The appeals court noted that the insurance policy would have covered the incident but only if notice of a claim was provided to either the insured or the insurer during the claim period which ran from April 2002 to June 2003. Formal notice of the claim was provided in January 2004. Based on the failure of Edwards to provide evidence establishing timely notice, the court found that the claims-made requirements were not met and so, judgment for the insurer was affirmed.

Loaned Servant Doctrine and WC Coverage

Lundstrom, an employee of Truck Crane Service, was injured on a job site operated by Maguire Tank. He collected workers compensation from Truck Crane and then sued Maguire Tank for negligence. Maguire Tank asserted that under the loaned servant doctrine, it was Lundstrom's special employer and so, workers compensation was the only recourse available to Lundstrom. The district court granted Maguire Tank's motion for summary judgment and this appealed followed. The case is Lundstrom v. Maguire Tank, 2007 WL 4233158 (C.A. 8 Minn.).

The appeals court found that Maguire Tank had employed Truck Crane to lift into place various parts of a water tower. Lundstrom was employed by Truck Crane but was sent to the Maguire Tank jobsite to ensure that the 300-ton crane functioned properly and be responsible for preparing the crane for transport. Smith was the foreman in charge of the job site for Maguire Tank. Smith testified that he did not give any special directions to Lundstrom about how he should perform his job, and that he did not recall even speaking with Lundstrom at the job site. After the lifting job was done, Smith signed the time sheets with Tollefson who was the crane operator. Then, a lifting lug fell and struck Lundstrom on the arm, causing severe injuries which, in turn, resulted in this lawsuit being filed.

Reviewing the trial court ruling and the arguments asserted by both Lundstrom and Maguire Tank, the appeals court noted that the loaned servant doctrine provides that if an employer lends an employee to another for the performance of some special service, then that employee, with respect to that special service, may become the employee of the person to whom his services have been lent. This doctrine applies so long as the employee has made a contract for hire (express or implied) with the special employer, the work being done is essentially that of the special employer, and the special employer has the right to control the details of the work.

In this instance, the court found that Maguire was not entitled to judgment as a matter of law that Lundstrom made an implied contract for hire with Maguire. A contract for hire is made only if the employee consents to the alleged special employment relationship, and the burden of proving such consent is on the party invoking the doctrine (Maguire). The basis for implying consent is the employee's unequivocal acceptance of the detailed control of his work by the special employer. That did not occur in this instance. Lundstrom took no instructions from any Maguire Tank employee regarding how to do his job, and as noted previously, Smith, the Maguire foreman, did not recall even speaking with Lundstrom during the job.

Furthermore, the facts of the incident showed that Lundstrom was not doing the work of Maguire Tank at the time he was injured. The lifting job was completed and the preparation of the crane for transport had been completed. All Lundstrom had to do was get in his truck and drive away.

Finally, the facts showed that Maguire Tank did not actually exercise detailed control over Lundstrom. Lundstrom did recognize that Smith was in charge of the job site and that he (Lundstrom) was there to provide a service. But, this does not go beyond the general deference that any subcontractor would give a general contractor. Lundstrom's job duties were to set up, maintain, pack up, and move the crane; there was no indication that Smith ever spoke to Lundstrom or directed him on how to perform these duties. Nor could the court find any reason why Maguire Tank would give, or believe that it had the right to give, such directions in light of the expertise that Truck Crane's employees have in transporting and maintaining cranes.

The grant of summary judgment was reversed by the appeals court.