The Insurance Services Office (ISO) has developed several endorsements for the homeowners program that change the standard definition of residence premises. These endorsements change the definition to include properties in which the insured is no longer residing, and this has tremendous coverage implications for insurers since it greatly broadens coverage for properties that have been left unoccupied.

Information on the endorsements can be found in Residence Premises Definition Endorsements.

Waiver of Stacking and Other Insurance Provision

This case involves a dispute between the administrator of the estate of Giovanni Costa and the Progressive Preferred Insurance Company over the amount of underinsured motorist (UIM) coverage available under a car insurance policy issued by Progressive to the decedent's mother, Cynthia Costa, under which the decedent was an insured. This case is Costa v. Progressive Preferred Insurance Company, 2016 WL 3220515.

At the time of the accident, the decedent was an insured under three policies: a policy issued to his father by Safeco Insurance; a policy issued to his mother by Erie; and the Progressive policy at issue here. Mrs. Costa signed a waiver-of-stacking form, rejecting stacked limits of uninsured motorist coverage. In exchange for this waiver, Mrs. Costa received a five-dollar premium reduction every six months.

Following the accident, the administrator of the estate sought UIM benefits from the three insurance policies under which the decedent was an insured. Safeco and Erie settled for the full policy limits, but Progressive, taking the position that the other insurance provision limited its exposure to its pro rata share of the largest applicable single-vehicle UIM policy limit ($100,000), paid only $20,000. The administrator filed a lawsuit against Progressive, alleging breach of contract and bad faith based on Progressive's failure to tender its UIM limits.

The United States District Court for the Western District of Pennsylvania noted the argument put forth by Progressive that Mrs. Costa validly and voluntarily waived inter-policy stacking by signing the waiver form and so, under the policy's other insurance clause, the recovery is limited to the pro rata share. The court heard the administrator's argument that Mrs. Costa did not knowingly and voluntarily waive the inter-policy stacking and so, the other insurance provision was not triggered and that the clause violated Pennsylvania's public policy in favor of providing excess rather than gap UIM coverage. The court sided with the insurer.

The court explained that the basic concept of stacking is the ability to add the coverages available from different vehicles and/or different policies to provide a greater amount of coverage available under any one vehicle or policy. The former is referred to as intra-policy stacking and the latter, inter-policy stacking. The court noted that the Pennsylvania Supreme Court rejected the notion that the state statutes do not permit an inter-policy stacking waiver, but also that the waiver must be knowing in the sense that the insured must know that she is giving up the ability to stack coverage available from separate policies. The Supreme Court also held that when the policy covers only one vehicle, the insured could not have thought she was receiving a reduced premium for waiving intra-policy stacking because there could be no intra-policy stacking with only one vehicle on the policy.

In this instance, the policy covered just one vehicle and so, by signing the waiver and receiving a premium reduction, the court held that Mrs. Costa is presumed to have known that the waiver applied to inter-policy stacking. And, because Mrs. Costa waived stacking, the other provision clause applied and neither she nor any insured could recover more than the highest applicable limit for any one motor vehicle under any one policy. Since the estate already recovered the highest applicable limit, it cannot recover anything more from Progressive. The court said that the offer of $20,000 not only fully satisfied but actually exceeded what the state was entitled to under the other insurance provision, and allowing any additional recovery would provide the estate with coverage for which Mrs. Costa never paid a premium.

In sum, the court decided that the estate was bound by the waiver on inter-policy stacking, which through operation of the other insurance clause in the Progressive policy, limits recovery of UIM insurance. The estate is not entitled to recover any additional amount from Progressive and, accordingly, summary judgment is granted to the insurer.

Editor's Note: The U.S. District Court explains the basic concept of stacking and holds that the insured knowingly agreed to a waiver of stacking. Moreover, the other insurance clause prohibited any more UIM benefits than the amount paid by the insurer.

Right to Control the Defense Amid Conflict of Interest

The insurer commenced this action against the insured seeking damages for breach of contract and a declaratory judgment regarding the parties' rights and obligations under the general liability policy. This case is Valley Forge Insurance Company v. Hartford Iron & Metal, 148 F.Supp.3d 743 (2015).

This litigation arises from environmental contamination at a metal scrap yard. Hartford Iron operates the scrap yard and Valley Forge provided several general liability policies covering it. In 2006, the Indiana Department of Environmental Management (IDEM) found that the scrap yard was not in compliance with environmental regulations. Valley Forge initially agreed to defend Hartford but disputes soon arose between the insurer and the insured. The parties at first settled their disagreements but two years later, the parties were again at odds.

In 2014, Valley Forge filed this lawsuit seeking damages for breach of contract and a declaratory judgment regarding Hartford Iron's obligations. Valley Forge charged that Hartford Iron failed to cooperate with the insurer and sought to prevent Hartford Iron from withholding its consent to the appointment of a defense counsel.

The United States District Court for the Northern District of Indiana said that the legal issue here was whether, as a matter of law, Valley Forge retains the right to control the defense of the IDEM proceeding. Valley Forge argued that there was no conflict of interest here that would prevent it from controlling the defense and choosing defense counsel. The insurer said that it has already agreed to pay the costs of defending against the environmental claims and since there is no dispute as to coverage, there is no conflict of interest. The court did not agree.

The court said that evaluating the risk of conflict requires close attention to the details of the underlying litigation rather than any bright-line rule. In this instance, Hartford Iron's defense is essentially that the fault for the contamination lies not with it, but with August Mack's shoddy remediation work. This is in direct conflict with Valley Forge's breach claim that alleges that the insured's bad faith failure to cooperate is the cause of any ongoing damage. So, the court concluded, any defense counsel appointed for Hartford Iron but controlled by Valley Forge would need to decide which of the two masters to serve when gathering evidence and preparing reports. The court found that this conflict is sufficient to materially limit the attorney's representation of Hartford Iron.

The court also noted that the conflict of interest was compounded by Valley Forge making inconsistent representations, by contradicting explanations for the continuing damages, thereby undermining the only defense to the violations that Hartford Iron could offer. These examples illustrated to the court the difficulty any attorney charged with representing both the insured and the insurer would encounter, and showed that it was not only likely but virtually certain that the conflict will materially limit the attorney's representation of Hartford Iron. Accordingly, the court ruled that the conflict of interest created by Valley Forge's breach of contract claim against Hartford Iron prevents Valley Forge from controlling the defense to the environmental actions as a matter of law.

Valley Forge then argued that even if a conflict exists with regard to the defense of the IDEM claims, it does not impact the insurer's absolute right to control the remediation itself. This argument was based on characterizing the cost of remediation as a settlement or damages rather than defense costs. The court found no authority for the proposition that a conflict that influences the defense to an environmental claim does not also infect the remediation costs.

The court denied Valley Forge's motion for summary judgment.

Editor's Note: The U.S. District Court rules that the insurer through its own actions created a conflict of interest that prevented it from controlling the defense.

Court Discusses Meaning of “Occupying”

An ambulance driver employed by a medical transport company to transport patients filed an action against the employer's auto insurer, seeking a declaratory judgment that she was entitled to underinsured motorists (UIM) coverage for her injuries when she was struck while standing on the shoulder of the road by an underinsured motorist. This case is Cramer v. National Casualty Company, 2016 WL 3162232.

After the plaintiff transported a patient to a doctor appointment, she witnessed an accident. She activated the ambulance lights and then exited the vehicle to assess the accident scene. After checking on the motorists, she walked to the shoulder of the road and was standing on the shoulder of the road when she was struck by an underinsured driver. The plaintiff estimates that she was about eight feet away from the ambulance when she was struck.

Plaintiff sought UIM coverage under the employer's auto policy. The insurer, National Casualty Company, denied coverage, asserting that the plaintiff was not an insured as defined under the terms of the policy. The plaintiff filed an action against the insurer seeking summary judgment.

The United States District Court, South Carolina, noted that the parties involved here disagreed on the interpretation of the UIM coverage definition of occupying. The plaintiff, Cramer, asserted that she was occupying the vehicle at the time of the accident and the insurer disagreed. The court said that while it was not convinced that the term “occupying” was ambiguous, the more important point to discuss was what reasonably constitutes “getting in”, since the court saw that as most aptly describing the plaintiff's actions.

The court decided that getting in describes the process of entering a vehicle. The term is not intended to require physical contact with the vehicle because the definition of occupying already includes being in or upon the vehicle. Thus, said the court, if one is in the process of entering a vehicle and is already physically in contact with the car, the person is by definition either in or on the vehicle, that is, occupying it. Therefore, the court ruled that getting in is clearly intended to include as an insured a category of people who are attempting to enter a vehicle, but have not yet made actual physical contact with it.

The court did note that the Supreme Court of South Carolina weighed the following factors in interpreting the word “occupying”: physical contact with the insured vehicle is not required for a plaintiff to be occupying the vehicle; the purpose of UIM coverage requires the construction of policy terms to be liberal wherever possible in favor of coverage; the court requires a causal connection between the accident and the use of the insured vehicle; and the court does consider factors such as time, intent, and proximity in its deliberations.

In this instance, the court found that Cramer was not in physical contact with the vehicle and that she was not getting out or off the vehicle. The court also decided that the ambulance was used to respond to emergencies and the hazards associated with the use of such a vehicle. As such, the plaintiff might be required to make trips between her vehicle and the vehicles involved in the accident and so, there was an elevated risk that she might be hit by a car. Therefore, the court ruled that Cramer was engaged in the completion of acts reasonably expected from one getting in an ambulance. The intent of Cramer to occupy the ambulance was clear to the court.

The court found that occupying as defined in the UIM coverage was not ambiguous, and based on the plain meaning of the term as defined in the policy, Cramer was occupying the insured vehicle because she was getting in the vehicle. Cramer was an insured pursuant to the terms of the policy. The court ruled that Cramer was entitled to summary judgment as a matter of law.

Editor's Note: The U.S. District Court, South Carolina, discusses the meaning of “occupying”, citing court rulings from South Carolina and other states. And, even though the plaintiff was eight feet away from the vehicle, the court then ruled that she was occupying the vehicle since her intent was to get back in the vehicle, thereby meeting that part of the definition of occupying that requires the insured to be getting in, on, out, or off the vehicle.