Court decisions

Rough Notes, Jun 2003

Digested from case reports published in the North Eastern Reporter 2d, West Publishing Co., St. Paul, MN

CGL policy excludes accident resulting from vehicle maintenance

Meridian Mutual Insurance Company had issued a commercial general liability policy to Jon B. Purkey, d/b/a Purkey's Heating & Cooling, which excluded damages for bodily injuries or property damage "arising out of the ownership, maintenance, use or entrustment to others of any aircraft, 'auto' or watercraft owned or operated by or rented or leased to any insured." Purkey owned a 1988 Ford Bronco and it was used in the business as well as for his personal use.

On April 2, 1997, he smelled gasoline. Upon investigation, he discovered that the gas tank on the car was leaking. Believing that he could fix the tank, he parked the car in a garage he was renting. He began siphoning gas from the tank into an open container. Something ignited the gas fumes, causing an explosion and fire. Purkey's clothing caught on fire and he was badly burned. The fire spread and destroyed adjacent buildings.

Meridian filed this action for declaratory judgment that it was not liable for the damage caused by the explosion and fire. The trial court entered summary judgment that Meridian was liable, and the company appealed, contending the fire and resulting damage resulted from "maintenance" of the Ford Bronco.

The higher court found that the property damage resulted from the ignition of gas fumes and was part of the insured's maintenance of the Bronco. The court noted that the insured's siphoning of the gas was merely a preliminary step in the repair of the vehicle.

The summary judgment entered in the trial court against Meridian Mutual was reversed.

Meridian Mutual Insurance Company, Appellant, v. Jon B. Purkey, d/b/a Purkey's Heating and Cooling, et al.-No. 29A02-0106-CV-348 -Court of Appeals of Indiana-June 14, 2002-769 North Eastern Reporter 2d 1179.

Insurer may seek contribution from subcontractor for loss

Domanus Masonry, Inc., had procured liability insurance from State Farm Fire & Casualty Company. Domanus entered into a contract with Stan Heller to do some work on Heller's home, and then subcontracted with Ronald Jones, d/b/a R. J. Masonry, Inc., for some of that work. The record showed that Jones was negligent in performing the work and damaged the home. State Farm paid Heller $57,104.65 and secured his release of all claims against Domanus and "R.G.Masonry Wash." The parties agreed this referred to Jones. State Farm, then sought reimbursement from Jones.

The trial court dismissed the action and based its judgment upon the release by Heller as the home owner. State Farm appealed.

The higher court decided that State Farm had done everything it needed to do to preserve its right to contribution from the subcontractor. It had settled the home owner's claim and had secured a release from Heller that covered Jones. That release did not prevent State Farm from seeking contribution of its loss from Jones.

The judgment entered in the lower court dismissing the action was reversed and remanded for further proceedings.

State Farm Fire and Casualty Company, as Subrogee of Domanus Masonry, Inc., Appellant, v. Ronald Jones, Indiv. and d/b/a R.J.Masonry, Inc.-No. 2-00-1479-Appellate Court of Illinois, Second District-April 18, 2002-768 North Eastern Reporter 2d 805.

Insured must be offered opportunity to accept or reject UIM coverage

On December 31, 1998, Sarah Shindollar was seriously injured while riding as a passenger in a car insured by State Farm, Insurance Company. Sarah was a minor who resided with her parents, David and Margaret Shindollar. State Farm paid its policy limit of $100,000. David and his wife had an auto policy issued by Erie Insurance Company with $250,000/$500,000 limits. It provided for UM/UIM coverage of $100,000/$300,000. Erie had also issued a personal catastrophe policy with limits of $1,000,000. It had a signed UM/UIM rejection form.

The Shindollars submitted UM/UIM claims under the two policies issued by Erie, but Erie denied liability on two grounds: (1) Recovery under the auto policy was precluded by the payment of $100,000 by State Farm; and (2) The insureds had rejected the higher UM/UIM coverage under the personal catastrophe policy.

The lower court ruled that the insureds were entitled to recover under the UM/UIM coverage of their policies, and Erie appealed.

Because David Shindollar was an insurance agent, Erie contended that he knew and understood insurance coverage and, as such, he was exempted from the mandates of the Ohio statute requiring insurance companies to offer UM/UIM coverage with the same limits as the policy. The court, on appeal, decided Erie could not introduce, and could not deny liability on the basis of, evidence relating to his knowledge and experience as an insurance agent.

The insureds contended they were entitled to the maximum UM/UIM coverage permitted under the two policies since the company had failed to inform them in an adequate manner of the coverage and the cost thereof.