Professor Miller, Spring 2003
Note: This is one student’s effort to “nutshell” many of the cases addressed in Insurance Law in the Spring 03 Semester. It does not include the Maryland cases and statutes covered in the supplement or any of the material in the lectures.
GAF Corp v County School Bd
PROCEDURAL POSTURE: Defendant appealed from judgment of the United States District Court for the Western District of Virginia, at Abingdon, which found plaintiff properly invoked the provisions of Virginia’s Unauthorized Insurers Process Act, Va. Code § 38.1-63 et seq., when serving process in its suit against defendant related to materials defendant guaranteed.
OVERVIEW: Defendant contracted with plaintiff, a school board, to supply roofing materials to contractors building two schools. Under the contract, defendant guaranteed to repair damage caused by various defects in the materials and workmanship, but excluded leaks in the roof caused by events unrelated to any defect in defendant’s products. Subsequent to the formation of leaks in the roof, plaintiff sued defendant and served process under state’s unauthorized insurer law, contending defendant’s guarantee constituted an insurance contract. Noting that state law did not explicitly define “insurance contract,” the court analyzed the provisions of the parties’ agreement and held the guarantees at issue were considered provisions of a warranty rather than insurance. The court acknowledged that the guarantee contained traditional insurance elements of risk transfer and distribution. However, the court held that these elements did not give the contract its distinctive character, and the guarantee was not the type that the state’s insurance laws were meant to regulate.
OUTCOME: Judgment, which found plaintiff properly invoked the provisions of Virginia ‘s Unauthorized Insurers Process Act when serving process in its suit against defendant related to materials defendant guaranteed, was reversed and remanded with instructions to quash service of process as defendant’s guarantee did not fall within the ambit of insurance laws.
Holding: A small element of insurance should not be construed to bring a transaction within reach of insurance regulatory laws unless transaction involves “one or more of evils at which regulatory statutes were aimed” and elements of risk transfer and distribution give transaction its distinctive character.
Insurance is “contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.”
Rawlings v Apodaca
PROCEDURAL POSTURE: Plaintiff insureds sought review of the order from the Superior Court of Maricopa County (Arizona), which overturned a finding that defendant neighbors had negligently caused the fire and that defendant insurance company had breached its duty of good faith and fair dealing.
OVERVIEW: The insureds filed a suit alleging that their neighbors had negligently caused a fire at the insureds’ dairy farm and that the insurance company had breached its duty of good faith and fair dealing. The trial court found in favor of the insureds. The appellate court reversed the decision that the insurance company breached its duty of good faith and fair dealing. On appeal, the court held that the facts of the record supported the trial court’s determination that the insurance company breached the implied covenant of good faith and fair dealing, and that the trial court did not err in finding that the insurance company had committed a tort. The court held that the trial court did not err in awarding a compensatory tort award. The court held that the existence of the insurance company’s “evil mind” was needed in order to award punitive damages, and remanded that issue to the trial court. The court vacated the order from the appellate court, affirming the order from the trial court on all issues except punitive damages.
OUTCOME: The court vacated the order from the appellate court and remanded to the trial court the issue of punitive damages.
Holding: Good faith duty arises by virtue of contractual relationship. Essence of that duty is that neither party will act to impair right of the other to receive the benefits which flow from their agreement or contractual relationship. Conduct by insurer which does destroy the security or impair the protection purchased breaches the implied covenant of good faith and fair dealing implied in the contract.
The conditions of insurance are part of a bargain. They define risks that insurer agrees to bear for group of persons exposed to similar risks and paying similar contributions to fund from which losses are to be paid.
Fiduciary relationship implies more than honesty and lawfulness of purpose which comprises a standard definition of good faith. It implies a broad obligation of fair dealing and responsibility to give equal consideration to insured’s interests.
Deschler v Fireman’s Fund American Life Insurance Co
PROCEDURAL POSTURE: Respondent insured sought recovery from appellant insurer for the death of her husband in an accident involving a water ski kite. The insurer denied recovery on the basis of a policy exclusion for death resulting from the use of a device for aerial navigation. The trial court ( Utah ) held as a matter of law that the insured was not using an excluded devise and granted summary judgment in favor of the insured. The insurer sought review.
OVERVIEW: The insurer claimed that the lower court erred in determining that the water ski kite was not a device for aerial navigation within the meaning of the policy’s exclusionary clause. The court agreed with this claim and reversed the lower court’s judgment. The court found that the water ski kite was a weight-carrying structure that operated on airfoil principles and that depended on the dynamic action of the air against its surfaces to stay aloft. Although the operator of a water ski kite could not maneuver the device to the same extent as a hang glider, the court found that the operator nevertheless had some control over speed, direction, and the determination of when and where to land. The court held that this element of control over direction, speed, and point of landing, together with the design of the kite, rendered it a device for aerial navigation. Thus, the court held that, as a matter of law, the water ski kite was a device for aerial navigation within the meaning of the policy exclusionary clause.
OUTCOME: The court reversed the lower court’s grant of summary judgment in favor of the insured and granted judgment in favor of the insurer.
Holding: Generally, the burden is placed on the insured to establish in first instance that a loss has occurred within coverage. If this burden is carried, the burden shifts to insurer to establish the applicability of particular exclusion. It is commonly said that exclusions are to be construed narrowly against the insurer.
A stock company is organized as a profit-making venture, with stockholders assuming risks that are transferred by individual insureds.
A mutual company is owned by its policy holder-members and is organized not for pofit but for purpose of providing insurance for the members. They rely on accumulated surplus , NOT paid-in capital as guarantee of solvency. Any money left after paying all costs of operation, including additions to surplus, is returned to policyholder-members in form of dividends. Liability is assumed col
Reciprocal exchange aka interinsurance exchange is like a mutual company. It consist of unincorporated aggregation of individuals, called subscribers, who exchange insurance risks. It is a cooperative organization like mutual and not operated for profit. Liability of each subscribers is limited to premiums paid by that member.
Lloyds association does not issue policies or underwrite insurance. It markets services of a group of individuals, each of whom is an insurer who issues policies and underwrites risks separately or collectively with other members of the group.
By 1960, two types of private health insurance:
- indemnity plans primarily sold by commercial insurers had patient/insured pay medical bills and then obtain reimbursement from plan to which premiums had been previously paid.
- Service-benefit plans (Blue Cross/Blue Shield) would persuade providers to accept plan’s payment for services. Patients not limited in choice of provider. Providers would be reimbursed directly from the plan
By 1970″s another plan, HMO.private health insurance-direct service plans. Insured would pay a monthly premium and would receive health care services from the same organization to which premium was paid.
Now, other plans:
- IPA independent practice association is plan that contracts with individual drs with independent practices
- PPO preferred provider organizations which involves designated provider network which offers its services to insureds on discounted fee-for-service basis; insured can go out of network but higher costs
- EPO exclusive provider organization which is a PPO but insured receives no coverage for care received outside the network
- POS point of service which is an HMO that allows subscribers to use non-network providers if insured pays more
- PHO physician-hospital organization which is a hospital-physician group joint venture that markets its services
Historically, insurance had three basic fields: (1) life (2) fire and marine (3) casualty
Private insurance is now commonly described in two groups (1) life and health (2) property and casualty
- • whole life: provides coverage at level premium for entire lifetime. Described as permanent insurance, which is true as long as premiums are paid. Sometimes referred to as straight life or ordinary life. It may be written on a limited payment or on a single-premium basis. It usually has a savings feature and over time builds up cash surrender value. If savings is invested in stocks the policy is labeled a variable life or universal life policy
- • term life: temporary insurance in that it is written for specific period; at end of period, it expires. Only protection against death within contract period. It may be convertible or nonconvertible. No savings element and no cash surrender value
- • endowment life: agreement to pay face amount only in event tat insured lives for a specified term.endowment period. If insured dies within period, nothing is due. It more appropriate for funding an income source for use later in life such as retirement program than for protecting against premature death
- • life annuities: provide for regular periodic income for life of the annuitant.
- • Group insurance: involves marketing of a master contract or policy to a policyholders, such as an employer with opportunity for individuals within a pre-defined class to subscribe to benefits. A form of term insurance and has no cash value
- • Credit life: protects creditors against risk of nonpayment due to death of debtors. Sold to short-term borrowers by lending institutions and retailers often purchase it to protect charge accounts
- • Health and accident insurance: coverage include (1) loss of income, such as long term disability (2) loss of life, sight, or limb such as accidental death and dismemberment insurance (3) health care costs
Marine insurance is divided into ocean and inland marine. Four types of contracts: (1) hull and (2) cargo policies cover property ownership interest in vessel and goods shipped, (3) freight is tariff or fare for transporting the cargo (4) liability.
Inland marine policy concerns perils arising from transportation activities. Four divisions: (1) property in transit (2) bailee liability (3) fixed transportation property (4) personal and commercial floaters, floater covers chattels that are subject to being moved but that have no particular location or destination.
Class 2Compagnie Des Bauxites v Insurance Co of North America
PROCEDURAL POSTURE: Plaintiff corporation appealed from a judgment of the United States District Court for the Western District of Pennsylvania that granted summary judgment to defendant insurance company and defendant excess insurers in plaintiff’s diversity action to recover on its business interruption insurance policies.
OVERVIEW: Plaintiff corporation filed suit against defendant insurance company and defendant excess insurers to recover on business interruption insurance policies. The district judge held that design defects made the failure at issue inevitable, and thus that no fortuitous loss had occurred. The district court entered summary judgment in favor of defendants. On appeal, the court determined that the duty of the district judge under the Erie doctrine was to predict what definition of a fortuitous event the Pennsylvania Supreme Court would apply. The reviewing court decided that it should review the district judge’s prediction as a determination of law, as to which review was plenary, rather than as a finding of fact reviewed by the clearly erroneous standard. The appellate court then held that the Supreme Court of Pennsylvania would hold that a loss arising from an unknown design defect was one caused by a fortuitous event.
OUTCOME: Summary judgment for defendant insurers was reversed because the court of appeals believed that the district court erred when it granted summary judgment to the insurers on the ground that a fortuitous event had not occurred.
Holding: A fortuitous event is an event which so far as the parties to the contract are aware, is dependent on chance. It may be beyond the power of any human being to bring the event to pass; it may be within control of third persons; it may even be a past event, such as the loss of a vessel, proved that the fact is unknown to the parties.
Business interruption or loss of use and occupancy coverages protect the insured against indirect or consequential losses resulting from direct losses to insured’s property. A similar policy is called contingent business interruption insurance which protects against losses resulting from direct losses to another’s property.
The loss may in fact be inevitable or even have already occurred, but as long as this information is unknown to the insured and insurer, it would seem that requirement of fortuity is satisfied.
All-risk coverage, the insured’s prima facie burden is to show that a loss within coverage occurred; once insured carries this burden, the insurer has burden to establish that cause of the loss was an excluded risk.
Specified-risk policy, the insured’s prima facie burden is to show not only that a loss occurred but also that the loss was caused by a covered (specified) peril. If insured carries this burden, the insurer has burden to establish that cause of the loss was actually an excluded peril.
Purposes of insurable interest requirement: (1) discourages practice of using insurance as device for gambling/wagering; (2) removing incentive for procurer of insurance to destroy subject matter of the insurance.
Snethen v OK State Union of Farmers Educational & Cooperative Union of America
PROCEDURAL POSTURE: Plaintiff insured sought a writ of certiorari to the Cou
rt of Appeals, Temporary Div. 129 ( Oklahoma ), after it affirmed an award of summary judgment to defendant insurer in a dispute over auto insurance coverage. The lower courts held that the insured, having purchased a stolen car, had no insurable interest in the car within the meaning of Okla. Stat. tit. 36, § 3605 (1981).
OVERVIEW: The insured bought a car for $ 6,500 without knowing that it was a stolen vehicle. He also gave his own car as a trade-in. The insurer, who also did not know that the car was a stolen vehicle, insured the car but refused to pay on an accident claim after the car’s status was revealed. The insurer successfully argued that the insured had no insurable interest in the car. The court reversed and remanded for further proceedings, overruling its own precedent on the topic. The court held that the insured did, in fact, have an insurable interest under § 3605. This was so because he had a substantial pecuniary interest in the car, coupled with an undisputed lack of knowledge of the vehicle’s stolen status. No public policy was violated because the insured would not be making a “profit” from collecting on his insurance coverage. The court further held that the insured established a lawful interest in the car, that is, although he was not the car’s true owner, he held an innocently acquired title as a qualified possessor that was good against the whole world except for the true owner. Consequently, the requirements of the statute were met and the insured was entitled to coverage.
OUTCOME: The court reversed the summary judgment awarded to the insurer and remanded the case for further proceedings.
Legal interest theory: require that insurable interest be rested upon a legally cognizable interest in the property
Factual expectation theory: there is an insurable interest in property if insd would gain some economic advantage by its continued existence or would suffer some economic detriment in case of its loss or destruction
A good-faith purchaser under a defective title cannot hold against the true owner, he does have lawful possession against rest of world (qualified possessory right in property)
Indemnity: concept that only actual loss will be reimbursed.
General rule in property insurance is that insurable interest must exist at time of the loss. A small minority hold that insurable interest must exist at inception and time of loss.
Mutual Savings Life Insurance v Noah
PROCEDURAL POSTURE: Appellant insurer sought review of an order of the trial court (Alabama) that rendered judgment in favor of appellant beneficiary on two life insurance policies and one burial policy because the brother-brother relationship was not sufficient to support an insurable interest and the decedent was in default at the time of the accident.
OVERVIEW: The decedent purchased two life insurance policies and one burial policy from the insurer and named his brother as beneficiary. After the decedent passed away, the insurer refused to pay on the policy. The beneficiary commenced a declaratory judgment action in equity and sought recovery under the terms of the policy. The trial court found for the beneficiary and the insurer sought review. On appeal, the court affirmed. The court held that (1) the brother-brother relationship was, in and of itself, sufficient to support an insurable interest except in the exceptional case where the natural love and affection common to the brother-brother relationship was missing; and (2) the insurer was required to pay upon the life insurance and burial policies, even though the decedent suffered an accident during the defaulting period where the beneficiary claimed coverage, because it retained the past due premium when it was paid.
OUTCOME: The court affirmed the order of the trial court that rendered judgment in favor of appellant beneficiary on two life insurance policies and one burial policy.
Holding: Test for insurable interest is that natural love and affection prevailing between the two and expectation that one will render the other aid in time of need is sufficient to overcome any wagering contract argument as well as any impulse to hasten the death of the insd.
One test for insurable interest which is pecuniary interest or some reasonable expectation of monetary benefit from continuance of insd’s life and within certain blood or affinity relationships this pecuniary interest or benefit is conclusively presumed.
Under indemnity principle, insd is entitled to receive benefits up to or equal to a loss, but not to receive benefits in excess of a loss. It means that proceeds paid under insurance contracts should reimburse the insd for loss, not provide the insd with net gain as a result of the loss.
Elberon bathing co v ambassador insurance co
PROCEDURAL POSTURE: Defendant sought review of a decision by the Superior Court, Appellate Division (New Jersey), affirming an appraisal award to plaintiffs for a loss due to a fire, under N.J. Stat. Ann. §17:36-5.15 et seq.
OVERVIEW: Defendant issued plaintiffs a fire insurance policy for their property, providing additional coverage over a primary policy issued to plaintiffs by another insurer. While the policy was in effect the property was damaged by fire, and the parties were unable to agree on coverage under the excess policy. A court-appointed umpire and plaintiffs’ appraiser awarded replacement cost for the damaged property, and defendant’s appraiser refused to sign the award. Plaintiff sought entry of judgment, and the trial court found replacement cost was the appropriate measure of loss. Appellate Division agreed and the supreme court granted certification. The court found that: 1) pure replacement cost did not consider depreciation and did not measure “actual cash value”; 2) broad evidence rule should be used to find “actual cash value” of loss; 3) appraiser’s failure to consider certain factors justified vacating award; and 4) trial judge should have determined liability before granting award.
OUTCOME: Judgment reversed and cause remanded for further proceedings because the court found the “actual cash value” of loss was improperly measured by plaintiffs’ appraiser, who did not take into account depreciation when assigning pure replacement costs for the loss.
Case law reflects 3 general categories for measuring actual cash value: (1) market value.generally defined as price a willing buyer would pay a willing seller at a fair and bona fide sale by private contract, neither being under any compulsion (2) replacement costs less depreciation (3) broad evidence rule.every fact and circumstance which would logically tend to formation of correct estimate of the loss. It may consider original cost and cost of reproduction; opinions upon value given by qualified witnesses; declarations against interest; gainful uses to which the blds might have been put; any other fact reasonably tending to throw light upon the subject
Cunningham v metropolitan life insurance co
PROCEDURAL POSTURE: Plaintiff insured sought review of a decision of the court of appeals (Wisconsin), which affirmed
the trial court’s judgment and held that defendant insurer was equitably subrogated to the insured’s interest in the settlement proceeds of the insured’s wrongful death action against third-party tort-feasors.
OVERVIEW: The insured had received benefits for the care of his daughter who sustained injuries for which she was hospitalized and which ultimately resulted in her death. The court affirmed in part and reversed in part and held that the specific language of the insurer’s group medical expense insurance-extended coverage rendered that portion of the policy indemnity insurance, and an insurer who paid benefits under that portion of the policy was equitably subrogated to the insured’s claims, notwithstanding the absence of an express subrogation clause. The specific language of the group hospitalization and physicians’ services insurance rendered that portion of the policy investment insurance, and in the absence of an express subrogation clause, the insurer who paid benefits under such an investment policy was not equitably subrogated to the insured’s claims. Because the record failed to disclose what portion of the insurance proceeds were paid under each of the riders and what portion of the settlement proceeds in trust were paid under each of the insurance categories, the court could not determine to what extent the insurer was subrogated to the insured’s claims against the tort-feasors.
OUTCOME: The court affirmed in part, finding a right of equitable subrogation regarding the medical expense insurance-extended coverage. The court reversed in part, finding no right of equitable subrogation regarding the group hospitalization and physicians’ services insurance. The court remanded for further proceedings.
Primary function of subrogation is to prevent an insurer from paying and insd from receiving more than the parties bargained for in contract of insurance
Subrogation is an equitable remedy which operates when a victim of loss is entitled to recover from two sources, one of whom bears a primary legal responsibility. If secondary source pays the obligation, it succeeds to the rights of the party it has paid, against the 3 rd party, who was the primarily responsible party. Deals with rights of the insurer to be put in position of the insd in order to pursue recovery from 3 rd parties, legally responsible to the insd, for a loss paid by insurer to insd.
No implied rights of subrogation in area of personal insurance i.e. life, medical expense and hospitalization benefits, and accident benefits at least in absence of policy provision so providing.
An insurer of joint tortfeasor who settles with tort victim may pursue a right of contribution or indemnity possessed by the insd against another joint tortfeasor.
If court finds contract is indemnity then subrogation is allowed, even in absence of subrogation clause. If contract is one of investment, the court will not permit insurer to received subrogation in absence of express subrogation clause.
Objectives of state insurance regulations:
- ensuring that consumers are charged fair and reasonable prices for insurance products
- protecting the solvency of insurers
- preventing unfair practices and overreaching by insurers
- guaranteeing availability of coverage to the public
the “prior approval” approach usually has mechanism under which a filed rate becomes effective unless the dept disapproves the rate within a specified period of time
the ‘file and use’ approach allows the insurer to use the filed rate, unless the insurance dept takes steps to disapprove the rate with specified period of time
‘flex rating’ combines these two methods. Insurers can file and use their rates provided they are within a specified range; but any rate changes outside the range must receive the dept’s prior approval
‘open competition’ relies upon market forces to set rates
all states have some kind of ‘residual market plan’ through which auto insurance is sold to people unable to obtain insurance in voluntary market.
‘redlining’ refers to practice of drawing ‘red lines’ around certain geographic areas on a map and then declining to sell products or services in that location.
Vlastos v sumitomo marine and fire insurance co
PROCEDURAL POSTURE: Plaintiff challenged the judgment of the United States District Court for the Western District of Pennsylvania, which found that plaintiff had made an unambiguous warranty in an insurance policy issued by defendant.
OVERVIEW: Plaintiff had sought to recover under an insurance policy issued by defendants. The policy was issued on a commercial building which was destroyed by fire. Plaintiff owned the building. Based on the trial court’s declaration that plaintiff unambiguously warranted that the third floor of her building was occupied exclusively by a janitor, the jury found that plaintiff had breached her warranty. On appeal, plaintiff contended that the jury was incorrectly instructed that the warranty was unambiguous. The court held that plaintiff did warrant that the floor would be occupied as a janitor’s residence. Yet, the warranty was found to be ambiguous since it was susceptible to more than one interpretation. While defendant’s view, that the floor would be occupied exclusively by a janitor, was a possible construction, a reasonable person could have understood plaintiff has having warranted merely that the janitor lived there.
OUTCOME: Finding that the interpretation of plaintiff’s warranty was susceptible to more than one meaning, the court reversed the judgment of the trial court insofar as it instructed the jury that plaintiff made an unambiguous warranty in the insurance policy.
Class 5Berger v Minnesota Mutual Life Insurance
PROCEDURAL POSTURE: Plaintiff appealed from a jury verdict that denied her recovery of the proceeds of her husband’s credit life insurance policy issued by defendant insurer, because of the husband’s misrepresentations in his policy application.
OVERVIEW: Plaintiff’s husband had a credit life insurance policy issued by defendant insurance company. Following his death, plaintiff submitted a claim. Discovering a pre-existing diabetic condition of the husband, defendant refused payment under its policy, claiming that a misrepresentation on the application was material to the husband’s insurability and that defendant would not have issued the policy had the truth been disclosed at the time the application for insurance was made. Plaintiff appealed from a judgment entered on a jury verdict that denied her recovery of the proceeds of the policy. The court held that the jury was properly instructed regarding the statutory elements required to determine whether the misrepresentation was sufficient to avoid the policy, and there was a reasonable basis in the evidence to support the jury’s verdict. The evidence supported the conclusion that, although not fraudulent, the husband’s concealment of his diabetic condition was knowing and intentional. The misrepresentation was material in that it prevented defendant from appraising its risk on the basis of the facts as they truly existed at the time the contract was made. The verdict was affirmed.
OUTCOME: The court affirmed the jury’s verdict because the evidence supported the conclusion that the insured’s concealment of his diabetic condition was knowing and intentional, and was material, therefore, coverage was denied.
Mutual Benefit Life Insurance v JMR Electrics Corp
PROCEDURAL POSTURE: Defendant insured appealed the order of the United States District Court for the Southern District of N
ew York, which granted plaintiff insurer’s motion for summary judgment in its action seeking a declaration that defendant’s life insurance policy was void and ordered recission of the policy.
OVERVIEW: Defendant insured was president of a corporation that submitted an application for a “key man” life insurance policy on his life. After defendant’s death, plaintiff insurer discovered that representations made in the application concerning defendant’s smoking history were untrue. Plaintiff then filed an action seeking a declaration that the policy was void due to the misrepresentations. Defendant appealed the trial court’s order that granted summary judgment to plaintiff and rescinded the policy, and the court affirmed. The court held that, under N.Y. Ins. Law § 3105 , defendant’s misrepresentations about being a non-smoker were material as a matter of law and thus plaintiff was allowed to avoid liability under the policy. As the risk insured was not the risk covered by the policy, the court ruled that the award of summary judgment to plaintiff and recission of the policy were proper.
OUTCOME: The court affirmed summary judgment in favor of plaintiff insurer. The court held that defendant insured’s misrepresentation regarding his smoking history on his life insurance policy application was material as a matter of law and warranted recission of the policy.
Purpose of materiality inquiry is to make certain tat risk insured was risk covered by policy agreed upon.
Test for materiality is that the information sought is material if it would significantly affect the decision of the underwriter in issuing the policy at all, or in estimating the degree or character of the risk, or in fixing the amount of premium to be charged for the coverage.
Waxes v Reserve Life Insurance
PROCEDURAL POSTURE: Appellant, administrator of decedent’s estate, sought review of an order from the Johnson District Court (Kansas), which entered summary judgment in favor of appellee in a contract action brought by appellant, alleging that appellee breached when it refused to pay benefits under an insurance contract for medical expenses incurred by deceased.
OVERVIEW: Appellant, administrator of decedent’s estate, brought an action on an insurance contract, to recover for medical expenses incurred by decedent. The trial court determined that decedent had made a fraudulent misrepresentation on his application, and granted appellee’s motion for summary judgment. Appellant sought review, arguing that summary judgment was erroneous because appellee failed to establish that decedent made a false answer on his insurance application, with intent to deceive. The court reversed and granted summary judgment to appellant, because it believed decedent had omitted the information at issue from his application in good faith. The court explained that fraudulent misrepresentation in an action to rescind an insurance contract required an untrue statement of fact, known to be untrue by the party making it, made with intent to deceive or recklessly made with disregard for truth, where another party justifiably relied on the statement and acted to his detriment. Decedent had answered the questionnaire honestly. It was appellee’s responsibility to ask questions to which it wanted more detailed answers, and appellee failed to do this.
OUTCOME: The court reversed the judgment of the trial court and granted summary judgment to appellant, because appellee failed to establish decedent made false answer on insurance application, with intent to deceive.
Omaha Sky Divers Parachute Club v Ranger Insurance Co
PROCEDURAL POSTURE: Appellant owner challenged a decision of the District Court for Douglas County (Nebraska), which sustained appellee insurer’s motion for summary judgment and dismissed the owner’s petition seeking to recover insurance coverage to recover for damage to the insured aircraft.
OVERVIEW: The airplane was operated by a pilot whose medical certificate had expired. A brake on the plane failed upon landing and the aircraft was damaged in the resulting wreck. The owner sought recovery for the damage done to the airplane and filed suit against the insurer. The trial court granted the insurer’s motion for summary judgment and dismissed the complaint. The owner appealed. The court affirmed the decision of the trial court. The insurance policy contained an exclusion clause that prevented application to any damage occurring while the aircraft was operated in flight by other than a certified pilot. Both the exclusion clause and the declaration were clear and unambiguous. The medical certificate, which had lapsed 5 months before the accident occurred, and before the issuance of the policy, was not a “valid and effective” medical certificate. A renewal shortly thereafter did not validate it retroactively. The district court was correct in granting summary judgment.
OUTCOME: The court affirmed the decision of the trial court granting summary judgment in favor of the insurer in the suit brought by the owner of the airplane seeking payment on an insurance policy.
In the Matter of Mostow v State Farm Insurance
PROCEDURAL POSTURE: Following an auto accident, an arbitration panel awarded appellee insured party an amount greater than the supposed per person limit under her underinsured motorist endorsement in her policy with appellant insurer. The trial court reduced the award to the per person limit. The Appellate Division of the Supreme Court in the Second Judicial Department (New York) reinstated the panel’s award because the policy was ambiguous. The insurer appealed.
OVERVIEW: The appellate division determined that the policy provisions were ambiguous because they appeared to limit recovery for bodily injury to $ 100,000 per person, but also appeared to allow a greater per person recovery where two or more people were injured in the accident. In light of N.Y. Ins. Law § 3420 , the court found that the policy did not contain any language deeming the $ 300,000 per accident limit “subject to” the $ 100,000 per person limit. The court held that the absence of such language in the subject policy, coupled with the policy provision which stated that the $ 300,000 limit for each accident was the total amount of coverage for all damages due to bodily injury to two or more persons in the same accident, rendered the policy language susceptible of two reasonable interpretations. Because both constructions of the policy were reasonable and not contrary to law, its terms were ambiguous. Further, ambiguities in the insurance policy were construed in favor of the insured party and against the insurer, the drafter of the policy language. Thus, the appellate division properly declined to reduce the award from to $ 100,000, as the insurer requested.
OUTCOME: The court affirmed the judgment of the appellate division, which reinstated the arbitration panel’s award to the insured party.