Court decisions: A monthly roundup of judicial wisdom

Rough Notes, Jul 2001

Contractor's certificate doesn't mention self-insured deductible

Todesca-Forte, Inc. (Todesca), had been awarded a highway construction contract which required it to obtain public liability insurance with limits of $500,000 per person and $1 million per accident. The contractor was required to furnish a certificate signed by an authorized representative of the insurance company verifying that coverage was in effect. Todesca had secured the standard Department of Public Works certificate form underwritten by Reliance Insurance Company showing it had such a policy for those limits. However, that certificate did not mention that the policy was subject to a "self-insured deductible"pursuant to which Todesca paid the first $250,000 in damages for any single occurrence or $600,000 for more than one occurrence during the policy period.

In January 1992, Shirley O'Connell was injured in an accident, which she claimed was caused by a dangerous condition in the highway. She alleged that the condition was created by Todesca. She was allowed to amend her complaint to add Reliance as Todesca's liability carrier. Trial resulted in a judgment in her favor for $22,500 against Todesca, who then filed for bankruptcy. She then attempted to recover from Reliance, and that company denied liability because of the "self-- insurance" exclusion.

The trial court granted Reliance's motion for summary judgment, and O'Connell appealed.

While O'Connell acknowledged her judgment fell within the deductible, she argued that her injuries arose from Todesca's negligent performance under the construction contract. She relied upon the certificate of insurance which showed limits of $500,000/$1 million and did not mention the exclusion requiring Todesca to pay the first $250,000 in damages. The certificate had been verified by MF&T International, which at one time had a general agency relationship with Reliance. The latter stated that the relationship had ended.

The record showed that after the termination of the agency agreement between Reliance and MF&T, the latter continued to act as a broker and continued to issue certificates of coverage, signing as an "authorized representative" of Reliance. In this instance, after signing the certificate, it gave the certificate to Todesca to file with the Department of Public Works. A copy was sent to Reliance with a cover letter asking the company to verify that the certificate was correct. This wasn't done, and the evidence indicated that Reliance reviewed for accuracy only a few of the certificates it received.

The court, on appeal, noted that despite knowledge that the broker was signing as an authorized representative, Reliance did nothing to stop the practice. The court cited the rule that "one cannot accept the benefits of a transaction purporting to be done in his behalf and later repudiate it." MF&T sold policies issued by Reliance and serviced those policies to some extent. "The relationship between them was such that Reliance had a duty to repudiate representations of MF&T purporting to speak for Reliance."

The existence of the coverage represented in the certificate became a condition of the construction contract. It required Reliance to give the Department of Public Works 30 days' notice before it canceled or reduced coverage.

The judgment entered in the lower court in favor of Reliance was affirmed in part, reversed in part and remanded for further proceedings in accordance with this opinion.

Shirley M. O'Connell v. Reliance Insurance Company-No. 98-P-166-- Appeals Court of Massachusetts, Plymouth-October 26, 2000-737 North Eastern Reporter 2d 13.

"Assumption of Liability" agreement deemed unenforceable

Scott Clark had obtained an auto policy covering his 1996 leased Chevrolet truck. On February 17, 1997, Scott's father, Patrick, took the truck to Jennings Chevrolet for repairs. Jennings lent Patrick a 1995 GMC Sierra pickup truck for use while Scott's truck was being repaired. Several days later, Scott was involved in an accident while driving the GMC. In January 1998, the driver of the other vehicle filed suit against Scott and Jennings Chevrolet.

Jennings Chevrolet had a dealer's policy issued by Federated Mutual, and Country Mutual tendered Scott's defense to Federated in the belief that Federated's policy provided primary coverage for the claims arising from the accident. Federated denied coverage, and Country Mutual provided Scott's defense under a reservation of its rights.

Later, Country Mutual filed this action for declaratory judgment to determine liability, and Federated filed its counterclaim for declaratory judgment absolving it from any liability.

Federated alleged that at the time Jennings lent the vehicle to Patrick, the latter signed an "Assumption of Liability Agreement" which stated that the truck was to be used exclusively by Patrick, and all expenses and loss or damage would be paid by him. In that agreement, Patrick represented that the leased truck was covered by liability, collision and property damage insurance. Patrick assumed full liability for all loss, damage, or injury to the truck, and all liability arising out of any accident "for damages or injuries to the person or property of any third person." Federated contended that Scott was not covered under its policy. Furthermore, the company argued that Scott did not have Jennings' permission to use the dealer's truck.