Court decisions

Rough Notes, Aug 2003

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

Definition of "as interests appear" determines court ruling

At the time of the fire loss of their residence on February 16, 1995, James and Mary Hardy had a fire policy issued by Indiana Insurance Company, which provided for payment to the mortgage company "as interests appear." Citizens Bank of Western Indiana, the mortgagee, merged with Fifth Third Bank (Bank). The insureds submitted their Proof of Loss to Indiana, and subsequently Indiana provided Bank with the necessary form. Bank completed the form and returned it on October 11, 1995, requesting $27,782.43. At that time, Indiana advised Bank that it was having problems with the claim and there would be a delay in payment.

On January 16, 1996, Indiana denied the claim filed by the insureds and a month later sent Bank its draft in full payment of its claim. Bank, however, refused to execute the attached release. It demanded an additional $2,140.95 in payment of attorney fees and costs. In March, Indiana sent Bank's attorneys the original draft and advised Bank that no additional amounts were due under the policy. Bank then filed this action to recover $29,085.32 which included the balance due on the mortgage, plus legal fees in the bankruptcy action which followed.

The lower court entered summary judgment in favor of Indiana Insurance, and Bank appealed.

The higher court said the question before it was the definition of "as interests appear" in the loss payable clause in the policy. It ruled that the phrase referred to the amount due under a fire policy "at the time of the loss" and not for any subsequent costs paid by the mortgagee.

The judgment entered in the trial court in favor of the insurance company was affirmed.

Fifth Third Bank, Appellant, v. Indiana Insurance Company-No. 83A01-0112-CV-472-Court of Appeals of Indiana-July 24, 2002-771 North Eastern Reporter 2d 1218.

Court orders reformation of commercial liability policy to include UM/UIM coverage

Michael Harrington was doing business as Green Acres Landscaping when he secured in the amount of $1 million a commercial general liability and commercial inland marine policy from American Family Mutual Insurance Company.

The policy included an endorsement covering hired auto and non-owned auto liability. Harrington also purchased a group auto liability policy covering the vehicles used in the business with limits of $100,000/$300,000.

On June 17, 1994, Harrington was struck by a car while he was riding a bicycle. Harrington was paid the limit of $100,000 under the driver's policy issued by Farmer's Insurance Company. He thereafter filed a claim with American stating that his damages exceeded that settlement. American denied the claim on the ground that the amount paid by Farmer's equaled the UM coverage under Harrington's group auto policy.

The trial court found that the commercial liability policy was a "liability" policy and not a "vehicle" policy, and the endorsement was limited to liability. After first finding for the insurance company, the lower court entered judgment in favor of the insured. This appeal followed.

The Illinois Code (143a-2) requires an offer of UM coverage to be made at the time of the purchase of the policy. American asserted that the commercial general liability policy was not governed by 143a-2, and it was not required to offer UM to the insured.

The higher court disagreed, stating the endorsement provided auto liability coverage, and American was required to offer UM/UIM coverage to the insured in an amount equal to the insured's bodily injury liability limits. American failed to make such an offer, and the statute required the commercial general liability policy to be reformed to include UM coverage.

The trial court's judgment in favor of the insured was affirmed.

Richard Harrington v. American Family Mutual Insurance Company et al., Appellants-No. 1-01-2810-Appellate Court of Illinois, First District, Fifth Division-June 28, 2002-773 North Eastern Reporter 2d 98.

Initial permission rule applies in car rental situation

Quentin DeMay rented a car from Enterprise on December 27, 1999, and Rebecca Vershaw was listed as an additional driver on the rental agreement. The agreement stipulated that no one else could drive the car without approval from Enterprise. On December 30, 1999, both DeMay and Vershaw were injured in an accident. Adam Guthrie was driving at the time of the accident. St. Paul Fire and Marine Insurance Company had issued an auto liability policy to Guthrie's parents, and that policy excluded coverage to any person "using or occupying your covered auto without your permission ... or using or occupying any vehicle other than your covered auto without the permission of the owner."

St. Paul argued that Guthrie did not have permission from Enterprise to drive the rental car and thus was not covered by the policy that St. Paul had issued to his parents.

The trial court decided that the "initial permission" rule was applicable, and summary judgment was entered against St. Paul. It appealed.