July 2015 Dec Page

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Article of the Month

 

The subrogation provision is common in insurance policies. Essentially, subrogation is a means by which the insurer steps into the shoes of the insured, collecting from an entity responsible for a loss the money it has paid to the insured. There are some questions that do arise when subrogation comes into play. For example, how does the subrogation provision comport with a hold-harmless agreement? Can an insurer subrogate against its own insured? Who is entitled to any additional amount recovered from the responsible party?

 

The article of the month discusses these topics and others issues relating to subrogation, plus offering a review of several legal opinions on the subject. See Subrogation.

 

Malicious Prosecution Claim

 

The law enforcement liability insurer brought an action against the city, the police officers, and the exonerated former prisoner for a declaratory judgment that the policies provided no coverage since they were not in effect when the prisoner was prosecuted and convicted 18 years before release. This case is Indian Harbor Insurance Company v. The City of Waukegan, 2015 IL. App.2d 140293.

 

Rivera was wrongfully convicted in 1993 of rape and murder and was imprisoned for 20 years. After DNA evidence exonerated Rivera as the perpetrator, he was exonerated of all wrongdoing and released from prison. Rivera filed an action against the City of Waukegan and six former police officers, alleging that the city and the officers were responsible for denying him a fiat trial and for the loss of liberty that resulted from his wrongful conviction.

 

The city and the officers claimed they were covered by a law enforcement liability insurance policy issued by Indian Harbor and the claim was submitted to the insurer. The insurer denied coverage, saying that none of the claims by Rivera were covered because no wrongful act occurred within the policy periods. The insurer filed a motion for judgment on the pleadings and the circuit court granted the motion. This appeal followed.

 

The Appellate Court of Illinois, Second District, noted that the crux of the case concerns when coverage for a malicious prosecution claim is triggered under the policy language. The city and police officers contended that coverage is triggered at the termination of the prosecution in favor of the accused (that is, when Rivera was release). The insurer argued that the coverage is triggered at the commencement of the alleged malicious prosecution (when the policy was not in effect). The court found that, under the unambiguous language of the policy, the commencement of the alleged malicious prosecution was the occurrence triggering coverage, which occurrence took place outside the policy period. In doing so, the court noted that it followed the rationale of the majority of jurisdictions that had considered this issue.

 

The court ruled that the law enforcement liability section of the policy did not require that the offense of malicious prosecution be committed while the policy was in effect. Rather, that section provided coverage if the injury caused by the malicious prosecution happened while the policy was in effect. Thus, in order to determine whether a malicious prosecution claim triggered coverage under the law enforcement liability section, the court said it needed to determine when the injury resulting from the malicious prosecution happened not when the offense was committed. And, in accordance with the majority of courts that have addressed the issue, the court held that the commencement of a malicious prosecution is the event that triggers insurance coverage.

 

The court explained further that the injury flows immediately from the tortious act of filing a criminal complaint with malice and without probable cause, that is, a maliciously prosecuted criminal defendant suffers injury and damage immediately upon being prosecuted.

 

In affirming the trial court's ruling, the appeals court concluded that Rivera's malicious prosecution claim did not trigger coverage under the policy issued by Indian Harbor because the prosecution was commenced before the inception of the policies.

 

Editor's Note: The Appellate Court of Illinois holds that (along with a majority of jurisdictions) initiation of allegedly malicious prosecution, not its favorable termination when the prisoner was exonerated, was the wrongful act and thus, the triggering event for determining coverage.

 

Acting on the Named Insured's Behalf

 

The matter before the court centered on the duty to defend an additional insured based on the language of the additional insured endorsement. This case is Mt. Hawley Insurance Company v. National Casualty Company, 2015 WL 428768.

 

Speedway was a member and participating track of National Karting Alliance (NKA) which is insured by National Casualty Company (NCC); NKA is a membership-based association of independent tracks, clubs, and promoters of kart and small vehicle racing. Speedway, like other tracks, is listed as an additional insured on the general liability policy of NKA. The additional insured endorsement states that the organization shown in the schedule is an additional insured but only with respect to liability for bodily injury caused in whole or in part by “your acts or omissions or the acts or omissions of those acting on your behalf in the performance of your ongoing operations, or in connection with your premises owned by or rented to you”.

 

At the track operated by Speedway, during a practice session, a maintenance/recovery vehicle entered the racetrack and collided with and killed a minor go-karter. The parents then sued Speedway and Speedway sought coverage as an additional insured under the liability policy issued by NCC. NCC denied coverage, claiming that Speedway did not qualify as an additional insured. Speedway had its own general liability policy issued by Mt. Hawley Insurance Company and that insurer filed a motion against NCC, seeking a declaration that NCC breached its duty to defend Speedway as an additional insured, and for a pro rata contribution of the defense costs it incurred on behalf of Speedway.

 

The United States District Court, Colorado, noted that the parties dispute whether NCC has a duty to defend Speedway as an additional insured under NCC's general liability policy for NKA. The court said that in order for Speedway to be covered as an additional insured, two things had to be proved: the practice session when the minor was killed had to be a covered program, and Speedway had to be acting on NKS's behalf during the practice session. The court decided that the second item took precedence.

 

The court noted that the parties do not dispute that the minor go-karter suffered bodily injury or that this bodily injury was not caused by NKA's acts or omissions. Thus, the issue to be decided is whether Speedway as a member of NKA was acting on NKA's behalf, and so, is an additional insured pursuant to the language in the additional insured endorsement. In order to determine the meaning of “acting on your behalf”, the court looked to binding precedent from the Supreme Court and the Seventh Circuit, and finding none, decided to examine the additional insured endorsement for any ambiguity. The court found nothing confusing about the terms used in the additional insured endorsement and said the words were simple and easy to understand within the context of the policy. Having found the plain language of the provision to be unambiguous, the court next addressed the competing contentions regarding the scope of coverage for Speedway.

 

In this case, the court said that the facts are undisputed. On the day of the accident, Speedway leased its premises to Colorado Junior Karting Company, which in turn, hosted a sanctioned race event. Speedway acted voluntarily and for its own benefit on the day of the accident and not at the direction, request, or benefit of NKA. Accordingly, Speedway did not act on behalf of NKA and was not an additional insured as defined in the endorsement. The court found that NCC had no duty to defend Speedway. NCC's motion for summary judgment was granted.

 

Editor's Note: The U.S. District Court reviewed the additional insured endorsement and found that the party claiming additional insured status simply did not meet the requirements for that status. The facts showed that Speedway was not acting on behalf of the named insured when it leased its race track the day of the accident.

 

Coverage for Named Driver Only and Public Policy

 

The passenger in the vehicle brought an action against the driver and the owner of the vehicle for claims based on an accident and brought an action against the auto insurer for a declaration that the insurer had a duty to defend the driver and owner. This case is Byoung Suk An v. Victoria Fire & Casualty Company, 2015 WL 1743163.

 

In 2012 An filed a complaint in the county court of common pleas against Gilmore and Walker. An alleged that he was injured in a motor vehicle accident involving a vehicle owned by Walker and operated by Gilmore. At the time of the accident, the vehicle owned by Walker was insured under a personal auto policy issued by Titan Indemnity Company and underwritten by Victoria Fire and Casualty Company. The policy did not provide liability coverage for any person not listed as a named driver on the policy and Walker was the sole driver listed.

 

An filed an action for a declaratory judgment seeking a declaration that Victoria had a duty to defend and indemnify Walker and Gilmore. Victoria filed a motion for summary judgment claiming it had not duty to defend or indemnify Walker or Gilmore because the policy specifically stated that Victoria will not provide coverage when the driver of the auto is not listed on the policy. The trial court ruled in favor of the insurer and this appeal followed.

 

The Superior Court of Pennsylvania noted that An's main argument was that the named driver only coverage exclusion in the Victoria policy conflicts with and is contrary to the named driver exclusion of the Pennsylvania Motor Vehicle Financial Responsibility Law, and is therefore, invalid. That law allowed an insurer or the first named insured to exclude any person from benefits when the first named insured has requested that the person be excluded from coverage while operating a motor vehicle. A review of Walker's application showed that she agreed to and initialized the warranties that a person not listed will not be permitted at any time to operate any vehicle identified in the declarations, and that the policy will not provide coverage when the vehicle is being operated by any driver that is not listed in the driver information section of the application.

 

Thus it was clear to the court that the policy provided coverage only for the driver named in the policy. The court found that this did not conflict with and was not contrary to state law. The court concluded that the policy language was clear and unambiguous in limiting coverage only to the named driver.

 

An also argued that the named driver only policy was contrary to public policy. He said that the named driver only policy increased the number of uninsured motorists on the roads. The court responded that it is only when a given policy is so obviously for or against the public health, safety, morals, or welfare that there is a virtual unanimity of opinion in regard to it, that a court may constitute itself as the voice of the community in declaring that the insurance contract is against public policy. In this instance, the court held that the provision of a low-cost, affordable policy in return for the motor vehicle liability coverage of only the named driver does not violate public policy. The court found that it could not conclude that this policy is so obviously for or against the public health, safety, morals, or welfare that there is a virtual unanimity of opinion in regard to it. Therefore, the court decided that it could not constitute the voice of the community in declaring that the contract is against public policy.

 

The decision of the trial court was affirmed.

 

Editor's Note: Simply put, the Superior Court held that the statute addressing auto insurance policy provisions excluding named drivers did not apply to a policy provision here allowing coverage of only the named driver, and that this policy provision allowing coverage of only the named driver was not contrary to public policy.

 

Covered Travel Issue

 

A high school student, through his mother, brought an action against the insurer for the Kansas State High School Athletic Association seeking a declaratory judgment that the excess catastrophic insurance policy provided coverage for the student's severe injuries sustained in a traffic accident on his way to a school soccer game. This case is Rodriguez v. Unified School District No. 500, 2015WL 3646669.

 

Rodriguez was traveling to a soccer match when the pickup truck he was a passenger in collided with another car. Rodriguez was severely injured and his mother filed a claim. The school district had purchased a Mutual of Omaha policy to cover injuries sustained by participants during events the district sanctioned, as well as during certain types of travel to and from such events. When Mutual received the claim, it denied coverage, reasoning that the travel during which Rodriguez was injured did not qualify as covered under the policy. According to Mutual of Omaha, the school had indicated no request for reimbursement for the travel had been made and, the travel was not subject to reimbursement because the school had indicated that it had been unable to locate any requests for reimbursement or payment of expenses incurred by a parent or student using a private vehicle to transport students to a sporting event.

 

The mother filed a lawsuit and the trial court ruled in favor of the insurer. The court of appeals affirmed the ruling in part and reversed in part. The appeal then went to the Supreme Court of Kansas.

 

The Supreme Court noted that no significant facts are at issue. The permission slip signed by Rodriguez' father was unchallenged. The circumstances of the accident and the injuries are undisputed. Therefore, said the court it faced two pure questions of law: was Rodriguez' travel authorized by the school and was the travel subject to reimbursement by the school?

 

The court agreed with the court of appeals that the school system of obtaining parental consent and then allowing the type of travel at issue here leads inexorably to the legal conclusion that the travel in the pickup truck was authorized by the school. Although the travel was not arranged for or supervised by the school, it was authorized, in that nothing in the administrative guidelines ran contrary to the system of allowing such travel once parents agreed to it.

 

As for the travel being subject to reimbursement, the court said that the pickup driver's expense in transporting Rodriguez to the soccer match qualified as “subject to reimbursement” under the Mutual of Omaha policy. The court said that it was the responsibility of the insurer to draft the coverage language it deemed necessary to define and contain its risk. In this instance, the insurer did not restrict the definition of covered travel to that actually paid for or even likely to be paid for, but rather it expressly included travel merely “subject to” reimbursement. In the court's view, a reasonably prudent insured would understand the phrase to include travel that could be reimbursed and not limit its application to travel that was likely or would be or was required to be reimbursed.

 

The court ruled that the travel during which Rodriquez was injured was authorized within the meaning of covered travel and so, was subject to reimbursement. The Mutual of Omaha policy applied in this instance.

 

Editor's Note: The Supreme Court of Kansas finds that a Mutual of Omaha policy provided coverage for catastrophic personal injury suffered by a student traveling in a private vehicle to a soccer game. The policy provided coverage for covered travel, a term defined as “team or individual travel for purposes of representing the school that is to or from the location of a covered event and is authorized by the school, provided the travel is paid for or subject to reimbursement by the school”. The court found that the facts of the incident clearly met the definition in the policy.

 

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