Insurer claims broker cancels policy, refuses to defend: Bad faith: Judgment: Settlement

Law Reporter, Apr 2003

Cleall v. National Union Fire Ins. Co., U.S. Dist. Ct., S.D. Fla., No. 96-10022 CIV, June 7, 2002.

Clean, 27, was using a Cessna 150 aircraft owned by Marathon Aviation to give a flying lesson. The airplane's engine failed, and as Cleall attempted an emergency landing, the airplane crashed. Cleall suffered serious injuries, requiring surgical amputation of his left leg below the knee.

Cleall brought suit against Marathon Aviation, alleging negligent maintenance of the aircraft. Marathon Aviation's liability carriers refused to defend the suit or tender the policy limits, claiming that the broker had canceled the policy. Clean entered into a Coblentz agreement-based on Coblentz v. Am. Sur. Co. of N.Y., 416 F.2d 1059 (5th Cir. 1969)-with Marathon Aviation. Under the agreement, judgment in the amount of $1.2 million was entered against Marathon in favor of Cleall, Marathon Aviation assigned its rights against the insurers to Cleall, and Cleall agreed not to execute on the judgment.

Cleall brought suit against Marathon's insurers and the broker, alleging bad faith and negligence. Plaintiff alleged that although the defendant had sent a refund check for the unused portion of the premium, and Marathon had negotiated it, the policy had not been properly canceled. Marathon had not knowingly waived its rights to coverage, but had expressed to the broker its desire to keep the policy in effect, plaintiffs asserted. Defendants contended that the crash was not a covered loss because it was caused by plaintiffs negligence, and that plaintiff was not covered, as he was an employee of Marathon at the time of the crash.

Trial proceeded in three stages. In the first stage, a jury found that Marathon had not knowingly waived its right to coverage by accepting the refund check. In the second stage, the jury found for plaintiff on the issues of causation and whether plaintiff had been an employee of the insured.

In the final stage of the proceedings, the trial court found the insurers had acted in bad faith and awarded judgment of $2.1 million. The parties subsequently settled for a confidential amount.

Plaintiff's experts were C. Robert Denaburg, metallurgy, Satellite Beach, Fla.; George D. Butler, general aviation, Sun City Center, Fla.; Jack Lipscomb, piloting, Huddleston, Va.; Weldon Garrelts, aircraft maintenance, Philo, Ill.; and Phil Gallagher, insurance, and *Pete DeMahy, insurance bad faith, both of Miami, Fla.

Defendants' experts were David J. Kohlman, piloting, Colorado Springs, Colo., and James Harrison, aviation insurance, Tallahassee, Fla.

Plaintiff's Counsel

*John F. Eversole III,

*Mark Hicks, and

Dinah Stein, all of Miami, Fla.