North Dakota Supreme Court Rules on Occurrence Date

The Supreme Court of North Dakota has issued a ruling on when an occurrence does occur for insurance coverage purposes. The case is Grinnell Mutual Reinsurance Company v. Thies, 755 N.W.2d 852 (N.D., 2008).

The insurer that issued the homeowners policy to the insureds brought a declaratory judgment action against the insureds and the purchaser of the insureds' home,, seeking a declaration that it had no obligation to provide coverage for the purchaser's third-party claims against the insured. These claims arose from mold damage to the home. The district court entered summary judgment for the insurer and the insureds appealed.

The court noted that the argument against the insurer centered around when the occurrence took place. The insureds argued that an occurrence took place during the policy period because they negligently failed to discover and disclose mold while the policy was in effect and so, the insurer had a duty to defend them because there was a possibility of coverage at this time. The insureds said that an occurrence is determined by when the damage to the property occurs, not when the damage is discovered. The insurer argued that there was no occurrence while the policy was in effect because there were no damages to the home purchaser during the policy period.

The court, taking note of previous rulings, said that this case involved a third-party liability claim that requires the insurer to pay damages for which an insured becomes legally liable as a result of bodily injury or property damage caused by an occurrence. An occurrence is defined on the policy as an accident, including continuous or repeated exposure to substantially the same general harmful conditions which results during the policy period in bodily injury or property damage. The court then construed the phrase “during the policy period” to mean when the complaining party was actually injured. Here, the occurrence happened when the complaining party was actually damaged, rather than when any mold may have accumulated. Therefore, the lower court ruling was correct in deciding that the claimed occurrence did not take place while the Grinnell policy was in effect. The decision of the district court was affirmed.

UIM Coverage and Claims for Negligent Infliction of Emotional Distress

In Alaska , additional per-person limits in an underinsured motorist (UIM) policy are available to persons who are injured in the same accident as another person. The question in this case was whether this language encompasses parents who suffered severe emotional distress (including physical manifestations) upon viewing their daughter's body in the hospital after an auto accident. The case is State Farm Mutual Automobile Insurance Company v. Dowdy, 192 P.3d 994 (Ak., 2008).

Asa and Barbara Dowdy suffered severe emotional distress as a result of the death of their seventeen-year-old daughter, who died in an auto accident with an underinsured intoxicated driver. The Dowdys were not at the scene of the accident; they saw their daughter after she had died at the hospital.

The Dowdys asserted claims against the drunk driver's insurer for negligent infliction of emotional distress (NIED), loss of society, and punitive damages. They settled for the available limits of the driver's policy, $50,000. They then sought UIM coverage from their own State Farm auto policy which had per person limits of $100,000 and per accident limits of $300,000. State Farm paid the per person limits to the estate, but the Dowdys sought separate per person limits for themselves. State Farm brought an action for a declaratory judgment against the Dowdys and the trial court found for the insured. This appeal followed.

The Supreme Court of Alaska noted that the Dowdys were not at the accident scene, and indeed, that the accident occurred at 3:00 p.m. while the Dowdys were not notified of the accident until 5:00 p.m. They did not view the body in the hospital until after 8:00 p.m. So, to conclude that either Asa or Barbara were injured in the same accident as the daughter, the court said, would stretch the meaning of that phrase beyond any generally accepted usage. (To support this conclusion, the court listed opinions from several other jurisdictions: Hawaii, California, New Jersey, South Carolina, and Louisiana .)

The court decided that under the facts of the case, it was plain that the “in the same accident” language of the policy can not reasonably be construed to cover the NIED claim of the Dowdys. The Dowdys were not injured in an auto accident; rather, they were injured as a result of the death of their daughter in an auto accident. The State Farm policy provided coverage for their resulting injuries but only under their daughter's per person coverage, and since the limits for that coverage had been exhausted, they have no remaining policy coverage under which they may recover damages.

The judgment of the trial court was reversed.

Nontrucking Use Endorsement and Primary Insurance Coverage

This case is an appeal from the United States District Court for the Middle District of Louisiana concerning a nontrucking use endorsement that excluded liability coverage when the covered truck was used in the business of anyone to whom it was rented. The case is Mahaffey v. General Security Insurance Company, 543 F.3d 738 (U.S.C.A., Fifth Cir., 2008).

Farr leased a truck and provided a driver to First Coast Intermodal Service to haul a load from Kentucky to Louisiana . The driver dropped the load off in New Orleans at approximately 4:00 p.m. and called his dispatcher. The dispatcher told him to take the rest of the night off and call in the morning to see if there was another job for him. The driver then drove to a truck stop and stayed there for about seven hours. After this, he intended to go to a motel for the night, and on the way to the motel, he was involved in an accident with Mahaffey. Mahaffey brought a lawsuit against the driver, First Coast, and the insurer of First Coast , General Security Insurance (GSI).

The defendants filed a third-party complaint against Redland Insurance Company, alleging that because the driver was bobtailing (a truck without its trailer) at the time of the accident, the Redland insurance policy provided primary coverage. This was because the Redland policy provided insurance on the truck and had a nontrucking use endorsement; this endorsement provided that the truck insurance did not apply to the covered auto while used to carry property in any business of anyone to whom the truck is rented. The magistrate judge hearing this action by GSI found that since the driver had no pending definite assignment and no requirement from First Coast that he stay in New Orleans the night of the accident, the driver was not in the business of First Coast at the time of the accident; therefore, the Redland policy provided primary coverage.

Upon appeal, the court noted that the Louisiana Supreme Court had not yet considered when an independent trucker is acting in the business of a lessee. So, in the absence of a decision interpreting this phrase, the circuit court said that it must ascertain how the Louisiana Supreme Court would rule if faced with such a situation by looking for guidance to the state constitution, codes, and statutes, decisions from intermediate appellate courts and federal courts applying Louisiana law.

The court found no constitutional provision, code or statute defining when a trucker is acting in the business of a lessee. There was a Louisiana court of appeals case that held that bobtail insurance was primary for an accident as a matter of law. That court said that there was no bright-line rule to determine whether an independent trucker is acting in the business of the lessee, there were no specific factors to be considered in determining whether a driver is in the business of another for the purpose of Louisiana insurance law. However, that court did offer points of consideration on the subject.

The circuit court in this case reviewed these points and used them to arrive at its decision. The courts said that the driver here was under dispatch or standby for further deliveries; he was not heading home and in fact, he was not released by First Coast dispatch to return home; he would have lost the opportunity to earn return-trip income if he had left New Orleans before ascertaining whether a load would be available the following morning; and First Coast would have lost an available driver if he had left the area; the driver was furthering First Coast's commercial interests by being on standby; and, driving to a motel far from home in order to sleep so as to be adequately rested is a work-related function for a commercial driver. Accordingly, the court decided that the driver was acing in the business of First Coast as a matter of law.

Because the driver was in the business of First Coast at the time of the accident, the circuit court reversed the trial court's grant of summary judgment to GSI and rendered judgment for Redland.

Notice of Cancellation Issue

The Insurance Company of the State of Pennsylvania sought a declaratory judgment of no coverage regarding an auto policy. The insured filed a counterclaim for coverage and for breach of contract damages. This case is The Insurance Company of the State of Pennsylvania v. Lyons, 2008 WL 4444288 (S.D.Fla.). This is a slip copy.

Lyons received an auto insurance policy from the insurer on May 5, 2005. Lyons gave the insurer his personal information over the phone and the telephone representative typed in Lyons ' street address as 1224 NE 16th, without the complete information of 1224 NE 16th Avenue . Numerous correspondence passed between Lyons and the insurer over the years but there was never any correction on the address. In 2007, the insurer sent a renewal premium notice to Lyons that was returned as undeliverable. Attempts were made to telephone Lyons but to no avail. On May 10, 2007, the insurer mailed an offer to reinstate and a notice of cancellation to the address at 1224 Northeast 16th. This was returned to sender on May 18, 2007 for insufficient address by the Postal Service.

On May 19, 2007, Lyons had an accident which he promptly reported to the insurer. He was not asked abut paying his premium to keep his policy from lapsing and the insurer actually sent a reservation of rights letter to Lyons to his correct address. On May 30, 2007, Lyons called the insurer about never receiving a premium bill and was told that his policy was cancelled as of May 6, 2007. Lyons said that he never received the renewal notice or the notice of cancellation.

When the coverage dispute reached the court, that court noted that the auto policy described the terms for cancellation during a policy period; the language required the insurer to mail items to the named insured at the last known address shown in the records of the insurer, with sufficient proof of notice being sent. This sufficient proof was the United States postal proof of mailing or certified or registered mailing of notice. Moreover, state law required the insurer to mail to the insured at least 30 days advance notice of the renewal premium of the policy, and if the insurer failed to comply, this resulted in an extension of coverage at the existing rates until 30 days after the notice is given.

In this case, the insurer could not show postal proof of mailing as defined. The only proof the insurer had was a sworn statement from an employee that he mailed the notice, and this was not recognized by the court as proof of mailing. In addition to this, the court said that the insurer knew from the first month of coverage that there was a problem with the address. The customer file indicated that the insurer knew its address for Lyons was incorrect and it failed to follow its own procedures to inquire about this point. Clearly, the insurer failed to fulfill its duty to send notices to the insured's correct address. Therefore, the court decided that notice was not properly given until after the accident occurred, and the policy coverage was extended by statute at the existing rates. Lyons was granted a declaratory judgment that claims resulting from the May 19, 2007 accident were covered. The breach of contract claim was also decided in favor of the insured.