The policies are designed to provide adequate but limited coverage for the dwellings. There are three policies; the DP 00 01, DP 00 02, and DP 00 03. The DP 00 01 is the most restrictive policy and provides the most limited coverage. The DP 00 03 provides the broadest coverage, and with endorsements can provide coverage close to an HO 00 03.

ISO has just revised the dwelling forms with filings effective July 1, 2014. The ISO Dwelling Program article discusses this and the recent changes to coverage

Post-Traumatic Stress Disorder and Bodily Injury

This case involves a claim for losses resulting from witnessing the death of a relative at the hands of a young driver. The case is Grange v. Sawmiller, 2014 WL 1384063.

Nancy Hertenstein and her sister Sandra Dieringer were walking side-by-side when Bradley Sawmiller, a minor who was driving in the same direction and on the same roadway, struck and killed Nancy with his truck. Sandra witnessed the accident and suffered severe emotional distress as a result.

Sandra and Michael Dieringer filed a complaint against Sawmiller's parents and the Dieringers' automobile insurer, Motorists Mutual Insurance Company (Motorists Mutual). Grange Insurance Company (Grange) issued the automobile insurance policy that covered Sawmiller. Grange filed a motion to join the case, but the trial court denied the motion. The trial court concluded that PTSD was not a “bodily injury” under the Motorists Mutual policy (Sawmiller I) but did not need to decide the broader issue of whether PTSD-related injuries were included within the policy definition of “bodily injury.”

Grange filed a separate declaratory judgment action asking the trial court to declare that Sandra was not entitled to recover under its policy because its policy also covered only “bodily injuries,” which Grange argued did not include PTSD-related conditions. The trial court granted Grange summary declaratory judgment based on Sawmiller I.

The Grange policy defines “bodily injury” as “bodily harm, sickness or disease, including death that results.” The definition in the Grange policy is identical to the definition of “bodily injury” in the Motorists Mutual policy of Sawmiller I. In this case, in addition to the averments made in Sawmiller I, a medical doctor stated that Sandra suffered a physical injury and physical damage to her brain and suffered the destruction or deterioration of brain cells as a direct and proximate result of witnessing the accident. This allowed the court to address whether “bodily injury” as defined in the policy included a PTSD-related injury.

The Ohio Supreme Court has concluded that “bodily injury” is commonly used to designate an injury caused by external violence. Appellate districts in Ohio have held that emotional injuries are not “bodily injuries.” Appellate courts in Ohio have specifically held that “bodily injury” does not include PTSD-related injuries. Several appellate districts have concluded that physical symptoms stemming from mental injuries, distress or anguish are not included in the definition of “bodily injury.” Based on this body of longstanding case law, the court found that Sandra's PTSD and physical symptoms stemming therefrom are not covered under the Grange policy; therefore, the trial court did not err by granting Grange summary, declaratory judgment.

Editor's Note: The issue as to whether emotional trauma can be considered bodily injury is one that has been through many courts. Of interest is that in this situation, a physician stated that there was actual physical damage to the brain cells as a result of witnessing the action. Other courts have found that this does constitute bodily injury. As in many things, jurisdiction is critically important in certain coverage issues.

Use of Premises Leads to Duty to Defend

After sixteen-year-old Karlye Newman's suicide, her mother, Judith Newman, filed survivorship and wrongful death claims against National Contract Services, LLC (National). In her complaint, Newman alleged that National provided services to Spring Creek Lodge, a behavior modification residential program for youth where Karlye was a student. The services (including misleading marketing, wrongful admission to the program, poor educational services and negligent training) were inadequate and contributed to Karlye's suffering and eventual death. This case is Newman v. United Fire and Cas. Co., 2014 WL 494529.

National was insured under a commercial general insurance policy and a commercial umbrella policy by United Fire and Casualty Company (United). United declined to defend, arguing that under the designated premises endorsement in the commercial general liability policy there was no coverage and no duty to defend. National settled with Newman, with judgment against National for the policy limits under the two policies, $3,000,000, and assigned all of National's first-party claims it might have against United to Newman. Newman filed this action against United for breach of contract for its refusal to defend and for declaratory judgment.

United's endorsement in the CGL policy limited coverage to “bodily injury property damage, and advertising injury arising out of the ownership, maintenance or use of the premises and operations necessary or incidental to those premises.” This “Limitation of Coverage to Designated Premises” is an exclusion; therefore it must be strictly construed against the insurer. Karlye's injuries were causally related, arising out of National's “ownership, maintenance or use” of the premises. United failed to show that it did not have a duty to defend. After the complaint alleged facts which if proven, would result in coverage, and United failed to provide a defense, it breached this duty to defend and it is now responsible for all defense costs and judgments. Accordingly, Newman is entitled to a judgment of $3,000,000.

Editor' Note: Under Montana law, the duty to defend is independent from and broader than the duty to indemnify created by the same insurance contract. It arises when a complaint against an insured alleges facts, which if proven, would result in coverage. Where a complaint alleges facts that represent a risk outside the coverage of the policy, but also avers facts that, if proved, represent a risk covered, the insurer is under a duty to defend.

When a court compares allegations of liability advanced in a complaint with insurance policy language to determine whether the insurer's obligation to defend was triggered, a court must liberally construe allegations in a complaint so that all doubts about the meaning of the allegations are resolved in favor of finding that the obligation to defend was activated. If there is any dispute as to the facts relevant to coverage, those factual disputes must be resolved in favor of coverage. When an insurer unilaterally decides coverage issues in its own favor and refuses to defend, the insurer proceeds at its own risk, becoming liable for defense costs and judgments.

Occurrence or Claims-made Policy

In 2002, Steven Thomas & Sons, LLC, a South Dakota limited liability company, performed excavation and soil compaction work for a school building. Damage to the floor was first observed in 2005. AMCO Insurance Company was Thomas & Sons's commercial general liability (CGL) insurer in 2005 and 2006. Then, in April 2007, Thomas & Sons switched to a CGL policy insured by Employers Mutual Casualty Company. Finally, in 2008, a geotechnical investigation company and an engineering firm investigated issues with the building, including cracks on interior walls and settling issues, and issued a report which attributed the problems to negligently performed work by Thomas & Sons. The case is AMCO Ins. Co. v. Employers Mut. Cas. Co. 2014 WL 1512423.

EMC received notice from the school district of potential claims and issued a letter stating that the terms of the contract excluded coverage for an unknown loss that was in progress at the inception date of the policy or that occurred before the inception date of the policy. When the school district brought a suit against Thomas & Sons, EMC officially withdrew from participating in or contributing to Thomas & Sons's defense and asserted that it had no duty to defend. AMCO asked EMC to reconsider its decision because the damage was unknown to Thomas & Sons before EMC's policy took effect. AMCO paid defense costs and indemnified Thomas & Sons for its share of the arbitration award in favor of the school district. AMCO brought a declaratory judgment action against EMC seeking a ruling that EMC had a joint duty to defend Thomas & Sons because EMC's policy exclusion was void as against public policy. The circuit court granted EMC summary judgment and dismissed AMCO's cross-motion for summary judgment. AMCO appealed.

AMCO argued that it is the policy in South Dakota that CGL coverage insure against risks outside the insured's control, and that EMC's exclusion was antithetical to the nature of insurance, excluding coverage and leaving insureds without indemnity coverage in cases involving continuous injury.

EMC argued that its exclusion did not conflict with the purpose of insurance. The language of the policy identified the risks that EMC agreed to assume in return for the premiums paid.

The court emphasized the absence of any constitutional or statutory provision, administrative agency action, or judicial decision that prohibits a commercial general liability insurer from excluding coverage for an unknown continuous or progressive loss that occurs before the inception date of the policy. The court had a duty to maintain and enforce the parties' contract.

EMC's policy provision was not prohibited by statute, condemned by judicial decision, or contrary to identifiable public morals. Commercial general liability insurance contracts limit the risks that the insurer intends to indemnify. EMC created a specific contract exclusion, and there was no indication that the exclusion violated public policy.

Editor's Note: This case highlights the importance of the difference between occurrence-based or claims-made policies, and how important it is for the insured to be aware of the coverage he is buying. A claims-made policy would have provided coverage since the claim was made during the policy period.