Law Alerts

INSURANCE COVERAGE/BAD FAITH

Delaware

The Supreme Court of Delaware held that mold spores constitute physical loss within the meaning of a homeowner's insurance policy because they have material existence. The plaintiff claimed damage to their condominium, as well as their personal property, stemming from a windstorm. The plaintiff claimed that the storm damaged the structure of the condominium and that mold spores developed inside the condominium's walls and insulation after the hole in the roof developed, thereby causing damage to their personal property located inside the house. The defendant insurance company agreed to pay for the damages to the condominium's structure, but claimed that the damage to the personal property was excluded under the policy. The plaintiff filed an action claiming that the insurance company breached the insurance contract by denying the claim for personal property loss. However, the trial court granted the insurance company's summary judgment motion on the issue.

The Supreme Court of Delaware reviewed the trial court's determination that the plaintiff's personal property did not sustain any direct physical loss from the mold spores. The court noted that "physical" is defined as "having material existence." It then reasoned that mold spores and other bacteria associated with mold undoubtedly have material existence, even though they are not tangible or perceivable by the naked eye. Therefore, the court concluded that mold spores constitute physical loss within the meaning of the policy and could be a basis for recovery if all other conditions of the policy were met.

The Superior Court held that two regulations promulgated by the Delaware Insurance Commissioner exceeded the authority of the Commissioner and, therefore, were invalid. The Delaware Insurance Commissioner issued regulations making situations in which an insurer considers an inquiry regarding either a homeowners policy or a loss under that policy to be a claim for purposes of underwriting an "unfair trade practices." The Commissioner also made it an "unfair trade practice" to predicate non-renewal of policies on the basis of claims asserted against the policy, unless one of the two exceptions were met.

The Superior Court stated that the Commissioner is empowered to "adopt regulations which do not extend, modify or conflict with any law." Delaware statutes effectively set forth what practices constitute unfair methods of competition or deceptive acts or practices. Therefore, by adopting the regulations in question, the Commissioner has extended that statute by adding a new provision. While the court noted that the issues addressed in the regulations may be appropriate, it noted that addressing those issues was the job of the Legislature and not the Commissioner. Therefore, the regulations were determined to be invalid.

The Florida Supreme Court held that a contractor's CGL policy provided coverage for the cost of replacing damage to a completed project which was caused by subcontractor's error. In the case at bar, the plaintiff contractor had built several homes which, after completion of the projects, showed damage. The damage was caused by a subcontractor using poor soil, as well as using improper soil compaction and testing. The contractor repaired the damage to the homes and filed a declaratory action with their CGL insurer to determine whether coverage existed for the cost of repair. The Supreme Court determined that faulty workmanship, which is neither intended nor expected from the standpoint of the contractor, can constitute an accident and, therefore, can be an occurrence under the post-1986 standard CGL policy. The court further noted that physical damage to the completed project due to the defective work can constitute "property damage" under the CGL policy. Therefore, the court concluded that the contractor's policy provided coverage for the cost to replace the damage caused by the subcontractors' errors. (See also, Auto-Owners Ins. Co. v. Pozzi Window Co., 2007 Fla. LEXIS 2391 (Fla. Dec. 20, 2007).

The court was confronted with the proper interpretation of a non-renewal provision in an umbrella policy of a surplus carrier. The New Jersey Department of Insurance requires 30 days notice from an insurance carrier of their intent to not renew a policy. However, as in this matter, these requirements do not apply to surplus carriers. In this case, the surplus carrier had a non-renewal provision within its policy which was exactly the same as those in standard non-surplus carrier policies. Therefore, the question presented was whether the policy should be interpreted with reference to the construction given to the standard policy with the backdrop of the regulations requiring the notice.

The court noted that when an insurer voluntarily includes a clause that mirrors a clause in the standard ISO policy required by insurance regulations, both the insurer and the insured can reasonably expect it will be interpreted and construed consistently with the policy it mirrors. Therefore, the court determined that the non-renewal provision in the surplus carrier policy would be interpreted as those in non-surplus policies. Lastly, the court notes that it is not applying the regulations to the excess insurance policy, but merely construing the non-renewal clause in the policy.

The plaintiff was injured in an automobile accident when he was a passenger in a stolen vehicle and claimed that he was unaware that the vehicle was stolen at the time of the accident. The insurer's policy denied PIP coverage for any person operating an automobile without permission. The language of the policy track N.J.S.A 39:6A-7b(2), which also denies PIP coverage for any person operating a vehicle without permission. While the plaintiff contended that he was unaware that the car was stolen at the time of the accident, the trial court granted judgment for the insurer. The question raised by the plaintiff on appeal was whether the exclusion applies to those who are "unwitting" occupants of stolen cars. The court determined that the exclusion drafted by the Legislature, and incorporated into the insurer's policy, should be construed to require either knowledge or a reasonable basis for knowledge that the vehicle was being operated without consent. The court noted that without the requirement of knowledge, an insured's reasonable belief in coverage would be unjustifiably narrowed.

The Superior Court held that the public policy of providing for vigilance of a spouse to protect child sexual abuse victims precluded coverage for damages under a homeowner's policy for both the spouse and the abuser. The spouse argued that his conduct was non-intentional and, therefore, an accident under the policy. The court concluded that sexual assault of children was so injurious that it could never constitute an "accident" within the meaning of an insurance policy. Therefore, neither the abuser nor the spouse of the abuser was covered under a homeowner's insurance policy for acts of sexual assault against a child.

The Court of Appeals of Ohio held that mold does not constitute a physical injury under a homeowner's insurance policy unless it adversely affects the structural integrity of the house. The defendant insurance company argued that the plaintiff had failed to show any direct physical loss caused by mold. In addressing the insurer's contention, the court first construed the undefined term of "physical injury." The court determined that the term means "harm to the property that adversely affects the structural integrity of the house." The court then looked to the factual issues in the case. It noted that testimony showed the wood in the house that was affected by the mold could have been cleaned. Furthermore, the court noted that the mold did not attack the wood itself. Therefore, the mold did not adversely affect the structural integrity of the house and did not constitute physical injury as required by the insurance policy.

The Court of Appeals of Ohio affirmed the trial court's granting of summary judgment to an insurance company on the basis of the plaintiff's UM/UIM insurance coverage not including a vehicle owned by the insured. The plaintiff was injured as a passenger in her husband's truck when he failed to yield to traffic, causing a serious accident. The defendant insurance company denied the plaintiff's claim for UM/UIM benefits because a UM/UIM vehicle was defined as a vehicle "not owned by or furnished or available for the regular use of [plaintiff] or any family member" within her policy. The plaintiff argued that R.C. 3937.18 prohibited the insurance company from excluding coverage when they are driving their own vehicle and are injured by someone driving their own insured vehicle.

The court looked at R.C. 3937.18 and noted that the statute states that the "terms and conditions" which it outlines as a basis for an insurance company to exclude coverage are not exhaustive. The court noted that insurance companies are not required by law to offer UM/UIM coverage. Therefore, the court stated that if they are to offer the coverage, they are free to include limitations or exclusions on the coverage. Given that the exclusions outlined for UM/UIM coverage were "including but not limited to" those outlined in R.C. 3937.18, the exclusion in the present policy was allowed. Therefore, trial courts grant of summary judgment to the insurance company was proper.

The Pennsylvania Supreme Court held that an insurance provider is not required to obtain a new UM/UIM stacking waiver when a car is added to an already existing multi-vehicle policy. The court had previously held that a new waiver provision had to be obtained for every car added to a policy. It had based its decision on the language of 75 Pa.C.S. §1738(c), requiring that an insured have the opportunity to waive the stacked limits of coverage with every new purchase of uninsured and underinsured motorist coverage. However, the court noted that the term "purchase" is used differently in the automobile insurance industry. Therefore, the court held that the extension of coverage under an after-acquired-vehicle provision to a vehicle added to a pre-existing multi-vehicle policy is not a new purchase. Consequently, it does not require an obligation of the part of the insurer to procure new stacking waivers for the policy. The court did note that its decision was confined to situations involving the addition of a vehicle to an existing multi-vehicle policy and did not specifically address situations involving additions to existing policies only covering a single vehicle.

The Superior Court of Pennsylvania held that an insurance company can exclude coverage under a "regular use" provision in an automobile policy when an insured regularly uses a fleet of vehicles, regardless of whether the insured regularly uses a particular vehicle in the fleet. The plaintiff police officer was injured while driving a police cruiser during the course of his employment. He applied for underinsured motorist benefits from his personal automobile insurance carrier, but the insurance company refused coverage based on the "regular use" exclusion in the policy. The plaintiff brought suit against the insurance company, arguing that the exclusion was ambiguous and that he did not use a specific vehicle regularly.

The Superior Court first noted that the "regular use" exclusion was unambiguous. It noted that the ordinary meaning of the exclusion is that the vehicle had to be regularly or habitually used, as opposed to occasionally or incidentally used, in order to be excluded. Next, the court addressed the plaintiff's argument that regular use of a particular vehicle was necessary for the exclusion to apply. The plaintiff argued that he was not assigned a specific vehicle and used different vehicles during work. The court, looking to and adopting federal court's reasoning, stated that an employee regularly uses a fleet vehicle if he regularly or habitually has access to vehicles in the fleet. Moreover, the court stated that regular use of any particular vehicle is not required. Therefore, the regular use exclusion applies when an insured has access to vehicles in a fleet and regularly uses any vehicles within that fleet.

The plaintiff was an eleven-year-old passenger of an automobile involved in an accident. The plaintiff's brother was driving the vehicle at the time. The automobile insurer denied underinsured benefits to all parties based on the plaintiff's brother falling under the "regularly use" exclusion to the policy. The plaintiff brought an action against the insurance company arguing that she did not fall under the exclusion, however, the trial court granted the insurer's motion for judgment on the pleadings. The plaintiff then appealed, arguing that the "regular use" exclusion did not apply because she could not lawfully drive and, therefore, was not using the vehicle. While the insurance company argued that "use" should also incorporate the terms "occupant" and "passenger," the court stated that the language of the policy did not allow for the terms to be used interchangeably. Given that both parties gave "compelling and reasonable constructions" of the possible meaning of "use," the court held that the term was ambiguous. Therefore, the court construed the term against the insurer. The court noted that, given their construction of the terms, the plaintiff was covered under the policy. It then directed the trial court to enter summary judgment in favor of the plaintiff. Lastly, the court noted that the terms of the insurance contract could have been clearer by using more precise language.