The article of the month discusses punitive damages, the reasons against coverage for those damages under a general liability policy, the conflict of laws in the varying jurisdictions over the insurability of punitive damages, and other relative material. See Insurability of Punitive Damages.

Duties of the Insurer after Loss

The insured appealed a judgment in favor of the insurer, claiming bad faith on the part of the insurer in denying coverage for a property loss. This case is Murphy v. Patriot Ins. Co., No. 2013-235, 2014 WL 3965639 (Vt. Aug. 14, 2014).

The insured, Murphy, reported to her insurer, Patriot Insurance, that a recent storm had caused damage to the flashing on her roof, allowing water to enter the house. The adjuster inspected the damage and concluded the storm and heavy rain did cause some damage. The insurer paid for wind and water damage to the house.

Murphy later filed an additional claim after a worker discovered damage from rot resulting from water infiltration near the front chimney. Although the insurer did pay additional sums to the insured, the insured filed an amended complaint against Patriot, adding claims for negligence in inspecting and processing and for bad faith in denying some claims. The trial court ruled in favor of the insurer and this appeal followed.

Murphy contended that the trial court erred in dismissing the negligence count that alleged that Patriot had an independent duty to handle her claim in a reasonable manner and violated that duty by negligently inspecting and processing her claim. The Supreme Court of Vermont affirmed that the trial court's refusal to find a cognizable legal duty was consistent with the majority of courts. The court listed opinions from several jurisdictions (Alabama, Arizona, California, and Texas) upholding the point that there is no compelling policy or other basis for the imposition of an independent, extra-contractual negligence duty on the part of the insurer. The duties of the insurer are noted in the insurance contract, and a negligence claim can exist only if there is a duty independent of any contractual obligations.

As for the bad faith claim, the court noted that in order to establish bad faith, the insured had to show that the insurance company had no reasonable basis to deny benefits of the policy, and that the company knew or recklessly disregarded the fact that no reasonable basis existed for denying the claim. In this instance, the court measured the facts against the bad faith standard and found no basis to disturb the trial court's ruling.

The ruling of the trial court was affirmed.

Editor's Note: The Supreme Court of Vermont predicated its decision in this case on a recognition that the relationship between the insured and the insurer is fundamentally contractual, defined and governed by the coverage provisions in the insurance policy and the covenant of good faith and fair dealing implied therein. Thus, there is no independent tort duty on the part of the insurer, and the insured cannot sue the insurer for a separate and independent claim of negligence in the way the insurer handled the claim as the insured in this case attempted to do.

Who Is an Insured under PAP

The auto insurer brought an action seeking a declaration that it was not obligated to indemnify the named insured's boyfriend in a personal injury action arising from an auto collision in which the boyfriend was involved with the named insured's vehicle. This case is Mountain Laurel Assur Co. v. Salinas, 994 F.Supp.2d 914 (W.D. Tenn. 2014).

While operating a vehicle owned by his girlfriend, Salinas had a collision with Mrs. Perkins. Salinas did not own the vehicle and did not have a driver's license. Moreover, the owner of the car had specifically told Salinas not to drive her car because he had no license. According to Salinas, he wanted to go meet a friend and asked his girlfriend to drive him. She was asleep and did not respond. Salinas took the car while the owner was asleep and then had the accident with Mrs. Perkins.

The insurer of the vehicle, Mountain Laurel, filed a declaratory judgment action, alleging that it had no duty to defend or indemnify Salinas after Perkins sued because he was not an insured under its policy with the owner of the car. Mount Laurel contends that Salinas was not an insured person as defined in the policy.

The United States District Court for the Western District of Tennessee noted that the auto policy defined an insured person as the named insured; the named insured's spouse residing in the same household; a relative of the named insured residing in the same household and related to the named insured by blood, marriage, or adoption; or a person using the vehicle with the permission of the named insured. In this instance, Salinas and his girlfriend were not married; they lived together and had minor children, but never married. So, the only question for the court was whether Salinas was driving the car with its owner's permission.

The court said that Tennessee recognizes both express and implied permission. Permission can be implied from the act or conduct of the named insured amounting to an intended selection of another to operate the auto. The essential point is whether the named insured exercises his personal discretion and grants his own permission to the particular person. In this instance, the court found that the named insured neither explicitly nor implicitly granted permission to Salinas to operate her vehicle on the date of the accident.

The court found that the girlfriend obviously did not expressly allow Salinas to drive the car. As for implicit permission, the court ruled that the owner did not act in a manner that would provide any implied permission. She never acknowledged Salinas's request to use the car and in fact, Salinas acknowledged that he took the keys to the car while his girlfriend was asleep. This confirmed to the court that Salinas took the car in disregard of the owner's prior denial of permission. The girlfriend did not act in any manner that would reasonably suggest permission to Salinas to drive her car.

The question of the family purpose doctrine also was raised in this case. In Tennessee, the family purpose doctrine imposes vicarious liability on a head of a household for his family member's negligent operation of a vehicle where the head of the household maintains the vehicle for the purpose of providing pleasure or comfort for his family, and the family member was driving the vehicle in furtherance of that purpose at the relevant time with the head of the household's permission, either express or implied. However, because the girlfriend gave neither express nor implied permission to Salinas to drive her car on the date of the accident, Perkins did not establish the required elements of the family purpose doctrine.

The court ruled that Salinas was not an insured under the terms of the policy issued to his girlfriend and the insurer owed no duty to Salinas. Moreover, the insurer was not obligated to any third party for any actions or omissions by Salinas.

Editor's Note: The U.S. District Court simply lined up the clear and unambiguous policy language pertaining to the definition of an insured person with the facts of the situation and found that the driver of the car did not meet any of the requirements under the auto policy to qualify as an insured. Since there was no insured person driving the car at the time of the accident, the insurer had no duty to defend or indemnify.

Mobile Equipment versus Automobile

A food truck lessor's automobile insurer brought an action against the lessor's commercial general liability insurer seeking to establish coverage for injuries that the lessor sustained when hot oil from a deep fryer splashed and burned her while the truck attempted to avoid a traffic accident. This case is American States Ins. Co. v. Travelers Property Casualty Company of America, 223 Cal.App.4th 495 (2014).

Royal Catering Company owned a fleet of food trucks and leased those trucks to operators that drove them from site to site selling food. Gomez and his wife leased one of the trucks. On the day of the accident, Gomez was driving the food truck while Mrs. Gomez stood in the rear of the truck. At an intersection, Gomez swerved to avoid an approaching truck and this caused hot oil to splash and burn Mrs. Gomez. The Gomezes brought an action against Royal for the injuries sustained in the accident, asserting causes of action for products liability and property damage.

Royal tendered the lawsuit to its insurer, American States; American States had issued an automobile policy to Royal. American States in turn tendered the lawsuit to Travelers, which had a general liability policy on Royal. Travelers declined to participate in the action and American settled the claims with the Gomezes. American States then brought an action against Travelers seeking to establish Royal's coverage under the Travelers policy. The trial court held that the Gomezes' food truck was an auto and not mobile equipment and ruled in favor of Travelers. American States appealed.

American States argued that the trial court erred in holding that the food truck was an auto and not mobile equipment because the primary purpose of the food truck was to serve as a mobile kitchen and not to transport persons or cargo. The Court of Appeal, Second District, agreed.

The court noted that the Travelers policy defined mobile equipment to include vehicles maintained primarily for purposes other than the transportation of persons or cargo. The primary purpose of the food truck was to serve as a mobile kitchen and not to transport persons or cargo, and thus, said the court, the food truck was mobile equipment. The court added that a secondary purpose of the food truck was the transportation of persons (the Gomezes) but its core functional identity emerged when it operates as a mobile kitchen at specified locations. Moreover, if Travelers had intended to exclude food trucks from coverage as autos, it should have identified them along with the other special use vehicles it identified as autos in the policy.

American States also argued that the Gomez action was a products liability claim and the Travelers policy provided coverage for products claims while the American States policy excluded such claims. The appeals court agreed. The court noted that the auto policy excluded coverage because the Gomez action claimed bodily injury arising out of Royal's work, that is, leasing the food truck to Gomez, and that work included equipment furnished with the truck. The American States policy clearly excluded work or operations performed by the named insured and materials or equipment furnished in connection with such work.

The judgment in favor of Travelers was reversed and the matter remanded to the trial court to enter judgment in favor of American States.

Editor's Note: A question sometimes arises as to whether a food truck such as the one in this case is an auto or mobile equipment for insurance coverage purposes. The Court of Appeal in the Second District of California ruled in favor of the food truck being mobile equipment, based on the definition of mobile equipment including vehicles maintained primarily for purposes other than the transportation of persons or cargo. Since the court saw the primary purpose of the food truck as operating as a mobile kitchen, the food truck was deemed mobile equipment by definition and coverage was provided by the general liability insurer and not the auto insurer.

Mobile Equipment versus Automobile Again

Affiliated insurers brought an action for a declaratory judgment against an auto driver and truck owner seeking a determination whether the general liability policy provided coverage for injuries to a driver allegedly resulting from a collision with the truck. This case is Hartford Cas. Ins. Co. v. Ewan, 890 F.Supp.2d 886 (W.D. Tenn. 2012).

The current dispute arises out of an accident where the driver of a 1990 Mack MR6 truck with an attached tree spade allegedly disregarded a red light and struck a car driven by Ewan, causing her severe injuries. Ewan filed a lawsuit, and the auto policy insurer settled the case for policy limits. After the settlement, Ewan learned that the insured also had a general liability policy with limits of $1,000,000. Ewan then filed another lawsuit seeking to rescind the settlement that was based on the auto policy limits of $500,000, arguing that the general liability policy provided coverage to which Ewan was entitled.

The named insured had purchased two policies, an auto policy for his truck and a general liability policy for his tree service business. Hartford Underwriters wrote the auto policy and Hartford Casualty wrote the general liability policy. The truck together with the tree spade is specifically identified in the auto policy.

Hartford filed an action for declaratory judgment in response to the refiled Ewan lawsuit and claimed that the auto policy and the general liability policy are designed to provide dovetailed coverage so that no risk the policies together seek to insure is excluded and no risk is insured twice. Thus, the insurer argued, the court ought to construe the auto policy and the general liability policy together because the two were executed at the same time by the same agent, and this means Ewan's injuries cannot be covered by both the auto policy and the general liability policy. Ewan argued that the policies ought not to be construed together because the policies were not executed between the same parties, and there is insufficient proof that they executed contemporaneously.

The United States District Court for the Western District of Tennessee noted that under Mississippi law, when separate documents are executed at the same time, by the same parties, as part of the same transaction, they may be construed as one instrument; construing in concert contracts that were executed as part of the same transaction allows a court to ascertain the true intent of the parties. In this instance, it is undisputed that both policies were executed at the same time as part of the same transaction. The court found that the purpose of the two policies was to create full coverage for any liability arising in relation to the tree service. Therefore, the court ruled that the auto and general liability policies were part of a single transaction.

Ewan argued that the policies were not executed by the same parties. The court acknowledged that the two policies were signed by separate legal entities: Hartford Casualty and Hartford Underwriters. However, the court found that these two companies were represented by the same agent and belong to the same insurance group. In the eyes of the insured and the court, the two insurance companies appeared as a single insurance entity.

Ewan also argued that the Mack truck and the tree spade could, by definition, be both a covered auto and mobile equipment. Ewan said that the tree spade is permanently mounted to the Mack truck and the truck was maintained primarily for purposes other than the transportation of persons or cargo, and is therefore, mobile equipment. Hartford countered that the truck and the tree spade are covered only by the auto policy because they are expressly identified as a covered auto and the truck and tree spade are excluded from the general liability policy because the two existing policies are construed together. The court agreed with Hartford.

The court said that in this case, it need not construe the definitions of the policies because the parties expressly agreed that both the Mack truck and the tree spade constitute an auto and both are covered under the auto policy. The truck and the spade were listed as the only covered auto on the auto policy and so it follows logically that the parties intended that the general liability policy not cover the truck and spade.

The court declared that the general liability policy did not provide coverage for the alleged damages and the accident was covered exclusively under the auto policy with its attendant $500,000 limit of liability.

Editor's Note: The U.S. District Court relied on the intent of the insured and the insurer to have the truck and tree spade covered as an auto. The fact that the truck and tree spade could have been included in the definition of mobile equipment and thus, covered under the CGL form, did not overrule the expressed actions and intent of the parties to the insurance contracts.