Court decisions

Court decisions

Premium finance company has cancellation authority

On December 15, 1983, Mission. National Insurance Company issued a policy to Evanston. Paper for three years, and the risks covered included fire loss of the insured’s building. The premium was financed through Afco Credit and it was given full authority, among other things, “to cancel the insurance policies…”

On September 19, 1985, Afco mailed the insured a notice of cancellation for nonpayment. Upon receipt of the notice, the insured’s president called Afco and was told the policy would not be canceled for another 10 days. During that period, payment was mailed; however, on September 30, 1985, the insured received a notice of cancellation from Afco.

When Afco received the insured’s check, it sent Mission a request for reinstatement of the policy, and a copy of that request loans sent to Evanston.

Mission did not respond to the request for reinstatement.

On October 16, 1985, a fire destroyed Evanston’s building.

Proof of loss was filed with Mission and it filed this suit for declamatory judgment to determine its liability.

(While the action was pending, Mission was liquidated, and the Illinois Insurance Guaranty Fund was substituted as plaintiff). The Fund’s motion for summary judgment was granted, and Evanston appealed.

Evanston contended that Mission could not effectively cancel the policy because Afco had not given it the notice required by Section 521 of the Illinois Code then infect.

On appeal from judgment in favor of Mission, the court said that Afco was acting under its authority as Evanston’s attorney in fact. Even if Afco violated its statutory duties, Mission was within its authority to rely upon Afco’s instructions and cancel the policy. Mission had not reinstated the policy before the fire.

The trial court was confident in granting summary judgment that Mission’s successor (the Fund) was not liable to Evanston for the loss.

The higher court pointed out that only Mission could reinstate the policy, and until Evanston was told it had been reinstated, it was not in force. Evanston could not rely upon Mission’s inaction.

The judgment rendered in the trial court in favor of Mission’s successor (the Fund) was firmed.

Illinois Insurance Guaranty Fund v. Evanston Paper & Paper Shredding Company, Inc., et al, Appellants — No. 1-93-4121 — Appellate Court of Illinois, First District, Fifth Division — April 21, 1995 — 649 North Eastern Reporter 2d 568.

UM ruled not available without physical contact

On August 16, 1988, Howard Rubin was driving a car leased to his employer, Heidelberg, by Jake Sweeney Auto Leasing, following his wifes car on Interstate 71. His car struck metal racks lying in the roadway, and he suffered fatal injuries. Mrs. Rubin testified that she had noticed a pick-up truck at the scene, but its driver was not found.

American. States filed this action to determine whether UM coverage was available to Rubin. Three insurance companies were involved.

The trial court ruled that UM was available except as to one company where that option was rejected.

All three policies required the unidentified vehicle to hit the car driven by the insured.

In this case, there was no physical contact between the insured’s car and an unidentified vehicle. Instead, it was stipulated that the racks were lying in the roadway. Therefore, since there was no “hit and run,” there was no coverage.

The judgment entered in the trial court against the companies was reversed and remanded, with directions.

American States Insurance Company, Appellant, v. Rubin, et al — Nos.C-920511, C-920512, C-920513 and C-920521 — Court of Appeals of Ohio, Hamilton County — November 17, 1993 (Appeal to Supreme Court of Ohio was dismissed) — 649 North Eastern Reporter 2d 1234.

Lessee’s premium payments nullify subrogation claim

The Zoltek Corporation had leased property from the trustees of Foundry

Industrial Park Trust, and the parties had executed a lease which contained several pertinent provisions:

The lessee (Zoltek) would pay an additional 56% of the operating costs each year. Those expenses included “hazard and liability insurance on the whole of the premises of which the leased premises are a part…”

It was further provided that Zoltek would reimburse Fondry all extra insurance premiums caused by Zoltek’s use of the property.

During the term of the lease, a pressurized tank on Zoltek’s premises plodded, causing substantial damage to all of the property.

Foundry had secured fire and other hazards insurance from Lumber Mutual, and it paid Foundry’s claim under that commercial liability policy. It then. filed this action for reimbursement from Zoltek on the ground that Zoltek’s negligence caused the explosion, and breach of contract.

The trial court entered summary judgment in favor of Zoltek, and Lumber Mutual appealed.

The higher court pointed out that, as subrogee, Lumber Mutual succeeded only to any rights to reimbursement which Foundry had. However, the lease provided that Zoltek would contribute to the cost of the policy issued by Lumber Mutual. By so doing, the court ruled Zoltek was an additional insured under the policy. Therefore, Lumber Mutual had no more right to recover from Zoltek than it had against Foundry, since the parties were considers.

Another lease provision required Zoltek to maintain the property in good condition “damage by fire and other casualty only excepted.” Another provision stated that, when the lease expired, Zoltek would “deliver to Foundry the premises in good condition, damage by fire or other casualty excepted

The court concluded by affirming the judgment of the trial court, acting that “the result we reach is simply giving Zoltek the benefit of the insurance which it purchased.’

Lumber Mutual Insurance Company v. Zoltek Corporation — Supreme Judicial Court of Massachusetts, Middlesex — March 14, 1995 — 647 North Eastern Reporter 2d 395.

Insured kidnapped from car is denied coverage under UM

Travelers had issued an auto policy to Theresa Lattanzi and her husbad which covered their 1983 Cadillac. It included UM coverage.

On August 14, 1985, Theresa was driving the car in Boardman, Ohio and had stopped at a stop light and her car was struck by another car. A man from that car forced his way into the Cadillac, and, at gunpoint, took over its operation. She had not been injured in the collision.

The company agreed that, at that point, the Cadillac became an “uninsured motor vehicle” since her assailant took control of it without permission. She was then blindfolded ad taken to an unknown destination where she was taken from the car into a house. She suffered bodily injuries and psychological injuries as a result of rape. She and her husband filed a claim under the uninsured motorist coverage of their policy.

The policy contained the usual provision that injuries must arise out of “the ownership, maintenance or use of the uninsured motor vehicle.”

The trial court entered judgment against the company, and that judgment was affirmed by the Court of Appeals of that county. The action was then certified to the Supreme Court of Ohio for decision.

The intermediate court said that it was the assailant’s intention to kidnap Theresa and use the Cadillac as a “manner of transport.’

The Supreme Court of Ohio disagreed, stating that, in this case, Theresa sustained all of her injuries after she was taken from her car into the unknown house. It pointed out that at the time she was taken from her car, she had not been injured. Any injuries sustained by her after that was not through the use of the car. Once she left the car, the assailant’s own brutal and criminal conduct was the only cause of her injuries.

The court said: “Uninsured motorist provisions compensate for injuries caused by motor vehicles; they typically do not compensate for, or protect from, the evil that men do.”

The judgment in the lower courts in favor of the insured’s was reversed.

Lattanzi et al v. Travelers Insurance Company, Appellant No. 932404 — Supreme Court of Ohio-June 28, 1995 — 650 North Eastern Reporter 2d 430.

Underinsured benefits equal to umbrella limits

David and Gene Kammeyer were returning from a job site in a truck owned by their employer, Mack Iron Works, when a car driven by an under-insured driver crossed into their lane anal struck their truck head-on. David was killed and Gene was seriously injured.

Claims were filed with United States Fidelity & Guaranty under its policy issued to Mack Iron. Works, and with Nationwide for benefits under the policy issued to the Kammeyers by Nationwide. USF&G contended that the Kammeyers were entitled to no more than $25,000 (later amended to show $50,000) under the under insurance clause of its policy.

The lower court found in favor of the companies and the Kammeyers appealed.

The Kammeyers argued they were entitled to under insurance coverage up to the limits of the $2 million umbrella coverage of the policy issued by USF&G, on the ground the company failed to offer such an amount (the limit of the policy issued to Mack Iron), and there was no acceptance or rejection by Mack Iron of a lesser amount.

USF&G admitted it had no written waiver of the full UM coverage, but relied on the fact that the insured’s president was an attorney and “sophisticated in insurance matters.”

On appeal, the court pointed out that the Ohio statute makes it mandatory for an insurance company to make an offer of UM coverage in an amount equal to liability limits before there can be a knowing and informed waiver of such coverage.

The policy issued to the Kammeyers by Nationwide provided it would pay its insureds’ bodily injury damages due to them by law from the owner or driver of an uninsured/underinsured motor vehicle when those damages arose out of the use of that motor vehicle. “Bodily injury” included the death of any person.

The higher court stated the Kammeyers were, by statute, presumed to have been damaged by the death of their son. It added: therefore, damages are due them from a tortfeasor who is uncontrovertedly underinsured, The death of (Kammeyers’) son is that of ‘any person’; therefore, it constitutes a bodily injury of the type Nationwide has agreed to cover.”

The fact that their son was not an “insured’ under the policy did not prevent recovery since the policy language did not condition UM coverage upon the wrongful death of an insured.

The judgments entered in the trial court in favor of the companies were reversed, and judgment was rendered in favor of the Kammeyers; the court further declared that the limit of the USF&G policy was $2 million, which was equivalent to the umbrella coverage of that policy; furthermore, the court ruled that Nationwide was liable under its policy up to its limits.

United States Fidelity & Guaranty Company v. Kammeyer et al, Appellants; Nationwide Insurance Company — No. 930T063 — Court of Appeals of Ohio, Ottawa County — September 16, 1994-646 North Eastern Reporter 2d 244.

What is liability of BB gun pellet maker for pellets sold to minor?

Sportmart operated a retail sporting goods chailz in Chicago. Daisy Manufacturing made “BB” guns and the .177-caliber pellets used in the guns. Olympic Distributors was a subsidiary of Sportmart and contracted with Daisy to sell the guns and pellets. As part of the contract, a certificate of insurance was issued to Olympic on Daisy’s behalf: Daisy then secured a comprehensive liability policy from Continental Casualty.

The policy corctained an Additional Insured-Vendors” endorsement which covered vendors of Daisy’s products “but only with respect to bodily injury or property damage arising out of (Daisy’s) products which are distributed or sold in the regular course of the vendor’s business.

That endorsement contained the following exclusion:

“The insurance afforded (Sportmart) does not apply to:…

“e. Any failure to make such inspections, adjustments, tests or servicing as (Sportmart) has agreed to make or normally undertakes to make in. the usual course of business, in connection with the distribution or sale of the products. . .”

The complaint in this case alleged that on. December 2, 1987, Anthony Micelle, 15 years old, loads shooting a BB gun near his home using pellets he had purchased from Sportmart. One of the pellets ricocheted off a light pole and penetrated his left eye, causing him to partially lose his vision. The complaint, brought by Anthony by his father, Frank Miceli, Jr., stated that Sportmart, and its employees, were negligent in. the sale of the pellets to a minor, in violation of an Illinois statute, and they failed to ascertain his age.

Sportmart gave prompt notice to Daisy and tendered defense of the action. to it. On January 31, 1981, Daisy refused to defend the action because the complaint was based on Sportmart’s negligence in selling the ammunition, and did not allege by defect in the product. Tender of the action was then made to Continental which also refused to defend. An amended complaint was then filed seeking a determination of the coverage.

The trial court entered judgment in favor of Sportmart and Continental.

On appeal, the higher court noted the primary issue was the meaning of the phrase “arising out of” in the vendor’s certificate. The court found there was nothing in Continental’s policy limiting coverage to claims based on product defect. Likewise, if the product is sold in the same condition as when it left Daisy’s control, there was no exclusion for injuries directly caused by the product but which were also attributable to the negligence of another.

The judgment of the lower court was reversed, and partial summary judgment was entered for Sportmart against Continental on the duty to defend.

The court did not decide whether Continental had a duty to indemnify Sportmart in the event of a judgment against it.

Sportmart, Inc., Appellant, v. Daisy Manufacturing Company et al — No. 1-93-2660 — Appellate Court of Illinois, First District, Fourth Division — December 15, 1994 — 645 North Eastern Reporter 2d 360.

Copyright Rough Notes Co., Inc. Dec 1995

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