COURT CASE SUMMARIES

Rough Notes, May 2005

For decades PF&M Analysis Service has offered summaries of lawsuits involving insurance disputes in a wide variety of lines of business. In nearly all instances, the summaries involve cases that have experienced at least one level of appeal. It is important to be aware of how courts handle disputes between:

* Insureds and third parties

* Insureds and insurers

* Third parties and insurers

* Insurers and insurers

* Insurers and reinsurers

* Other combinations

Why is it important? Whether they cover garden sheds or jumbo-construction equipment manufacturing plants, insurance policies are contracts. Two parties enter into an agreement based on contingencies. Typically Party A agrees to pay Party B a premium. In return, Party B agrees to handle a loss sustained by Party A. Contingencies that affect coverage abound. Was every premium paid on time? Is the loss eligible under the policy? Has the insured faithfully provided all underwriting information? Did the loss occur within the policy period? Was the insured aware of the scope of coverage? Was the insurer notified of a loss in time? Did the insurer respond to a loss properly? Did the insured act in any way that compromised the insurer's rights?

Often disagreements over a loss or some other issue become so serious that resolution is sought in the courtroom. The cases are eventually resolved and the decisions are scrutinized. Some rulings gain an extended life, having their own impact on future insurance arrangements.

The relationship between insurance policies and court activity is an open system. Insurance contracts are dynamic, interacting with a broader, complex legal and economic environment. The interaction frequently affects future insurance contract language. A simplified representation is shown below.

Important decisions are constantly reviewed and handed down by higher courts in many jurisdictions. The decisions may involve interpreting insuring agreements, exclusions, definitions or conditions. Others concern disputes arising from underwriting, claims handling, billing and other procedures. The decisions can revolve around personal, commercial or specialty lines of insurance.

PF&M has a large collection of significant cases involving the following major lines of insurance:

* Agents and brokers

* Aviation

* Boiler and machinery

* Commercial and personal automobile

* Commercial general liability

* Employment-related practices liability

* Farm owners and ranch owners

* Flood

* Garage

* Homeowners

* Inland marine (personal and commercial)

* Mobile home

* Professional and malpractice

* Property (commercial and personal)

* Specialty (liability and property)

* Umbrella

* Workers compensation

What makes these cases significant has little to do with their age. A case decided 20 years ago is still relevant when it concerns a policy language issue that is substantially unchanged. A case decided a month ago may have been based on a precedent case from 10 years earlier. A case's significance lies in the item being disputed, the way the opposing positions are supported, the manner in which the court reviewed the arguments and the final decision. A change in any of those key areas can make the difference between a routine and a precedent-setting decision.

Generally, very high stakes are involved in insurance-related disputes. Serious financial consequences create a major incentive for opposing parties to litigate their way to their desired results. This situation guarantees that insurance contracts will continually face adjustments and new challenges. It is in the courts where the edges of coverage rationale are tested, defined and refined. It is important to become familiar with what happens in the legal arena in order to have a clearer understanding of the role of insurance as well as the expectations placed upon it by the insured public.

Please refer to PF&M case summaries that appear with each month's update. Agency OnLine subscribers may go to PF&M and review the Court case Index.