Source: https://www.millerandzois.com/insurance-law-notes-from-2003-part-2.html
Timestamp: 2019-04-20 02:35:11+00:00

Document:
PROCEDURAL POSTURE: Defendant appealed the judgment of the Court of Civil Appeals (Texas) affirming the judgment from the Seventh District Court from Briscoe County awarding plaintiffs damages under an insurance policy issued by defendant.
OVERVIEW: Plaintiff employer furnished plaintiff employee with a house as well as insurance covering employee's personal property as part of his compensation. The insurance issued by defendant was in the name of plaintiff employer. The home and all of plaintiff employee's belonging were destroyed by a tornado. Plaintiffs sued defendant to recover under the policy issued to plaintiff employer. Defendant argued that plaintiffs were not entitled to recover under the policy because the property destroyed was not owned by the named insured. Plaintiffs contended that defendant had waived the requirement that the named insured own the property because defendant's agent when issuing the policy knew that plaintiff employee was the owner of the property covered by the policy. In a non-jury trial plaintiffs were awarded damages under the policy and the appeals court affirmed. The court here affirmed both lower courts, holding that knowledge of ownership of the goods by defendant's agent was binding upon defendant, and the issuance of the policy operated as a waiver of the requirement that the named insured own the insured property.
OUTCOME: The court affirmed the judgment of the lower courts, holding that plaintiffs were entitled to recover on the insurance policy issued by defendant without a reformation.
PROCEDURAL POSTURE: Appellant insurer challenged a decision of the Iowa Court of Appeals which affirmed the judgment of the trial court in an action for coverage for a judgment previously entered against appellees by a former employee who successfully sued for discrimination and wrongful discharge of said employee because of his alcoholism.
OVERVIEW: Appellees discharged an employee due to his alcoholism. The employee sued appellees successfully and obtained a substantial money judgment. Appellees sought coverage for the judgment under an insurance policy. The appellant insurer resisted on the basis that the discharge was an intentional act and not covered by the policy. Appellees sued the insurer and judgment was rendered by the trial court against appellant and on appeal, the court affirmed the judgment. On further appeal, the court held that while the discrimination was intentional, the doctrine of reasonable expectations applied to afford coverage based on the promises made by the insurer and the expectations of the insured at the time the policy was sold. Accordingly, the court held that appellant was required to extend coverage to appellees and the judgment of the trial and appellate courts was affirmed.
OUTCOME: The decision of the appellate court affirming the judgment of the trial court was affirmed because the court applied the reasonable expectations doctrine and determined that exclusions upon which the insurer relied would have eviscerated the discrimination coverage it explicitly agreed to provide.
Reasonable expectations can be invoked where an exclusion (1) is bizarre or oppressive (2) eviscerates terms explicitly agreed to or (3) eliminates the dominant purpose of the transaction. Before used, either the policy must be such that an ordinary layperson would misunderstand its coverage, or there must be circumstances attributable to the insurer which would foster coverage expectations.
PROCEDURAL POSTURE: Plaintiff insured sued defendant insurer on a bad faith claim. The court of appeals reversed a jury verdict in favor of the insured, and the insured appealed.
OVERVIEW: The insured sought damages against the insurer for bad faith damages, asserting that the insurer improperly failed to settle a claim within policy limits, resulting in a large excess verdict against the insured. The insurer moved for summary judgment, asserting that the insured had released the bad faith and all other claims through a document which provided for the release of "all contractual claims" against the insurer as part of a settlement involving uninsured motorist coverage. The insured also moved for partial summary judgment for a finding that the release did not preclude his bad faith claim. The trial judge denied both motions, finding that the release was ambiguous and that therefore parol evidence was admissible at trial to aid in interpreting the release. The jury awarded the insured compensatory damages, and the court granted attorney fees. The court of appeals found no ambiguity and reversed the judgment for the insured. On appeal, the court held that the bad faith claim was tortious in nature, that the release was reasonably susceptible to the insured's interpretation, and the trial judge did not err in admitting parol evidence to the jury.
OUTCOME: The decision of the court of appeals pertaining to the release was vacated and the matter was remanded to the court of appeals for resolution of remaining unresolved issues.
PROCEDURAL POSTURE: Defendant insurer appealed a decision from the United States District Court for the Eastern District of Michigan that granted partial summary judgment to plaintiff in an action to recover as the beneficiary of a life insurance policy.
OVERVIEW: Decedent's business partner took out a life insurance policy on decedent, which designated plaintiff, decedent's wife, as the primary beneficiary. Decedent suffered a massive brain hemorrhage and irreversible brain death. While decedent was on life support, the partner executed a change of beneficiary form substituting himself as the principal beneficiary. Defendant insurer determined that the change of beneficiary form had been properly executed and paid the business partner the proceeds of the policy. Plaintiff widow filed suit for constructive fraud and breach of contract. The court concluded that under the Michigan Death Act (Act), Mich. Comp. Laws Ann. § 333.1021 et seq., death occurred before the change of beneficiary form was executed and granted partial summary judgment to plaintiff. On appeal, the court held that the Act's method of determining time of death was the standard for all purposes, including the disbursement of insurance policy proceeds. The court stated that while the certified time of death was presumptively correct, evidence of death as defined by the Act had effectively rebutted the presumption, and therefore summary judgment had been properly granted.
OUTCOME: The court affirmed the grant of summary judgment because plaintiff had presented sufficient evidence that death had occurred before the change of beneficiary form was executed to rebut the presumption that death occurred at the time noted on the death certificate.
PROCEDURAL POSTURE: Plaintiff appealed from decision of lower court (Idaho) awarding summary judgment to defendant insurance company in action brought by plaintiff seeking to recover death benefits under insurance policy of deceased husband, who died as result of self-inflicted gunshot wound.
OVERVIEW: Following death by suicide of decedent, defendant insurance company denied death policy benefits to plaintiff. On appeal, court adopted majority rule, and held that in order for insurer to avoid liability on basis of suicide clause in insurance policy with words "sane or insane," it was not necessary for insured to realize physical nature or consequence of act or to form conscious purpose to take his life. The court held that self-destructive act of decedent constituted either "sane or insane" suicide and was expressly excluded under terms of insurance contract. The fact that decedent may have suffered from mental aberration caused by auto accident did not remove act of self-destruction from plain language of policy excluding liability. Decedent's self-destructive act would clearly have constituted act of suicide in case of sane person and thus remained "suicide" under language of policy in case of insane person or one suffering mental aberration.
OUTCOME: Judgment affirmed on the grounds that self-destructive act of decedent constituted either "sane or insane" suicide and was expressly excluded under the terms of the insurance contract.
PROCEDURAL POSTURE: Defendant insurance company appealed an affirmance of summary judgment to plaintiff beneficiary rendered by the Appellate Court for the Third District (Illinois), which found that plaintiff's wife was covered under a group life insurance policy.
OVERVIEW: Defendant insurance company issued a group life insurance policy to employer's association for its employees. Plaintiff beneficiary, wife, and another enrolled under policy. Certificate of insurance was issued to wife. Master policy contained a provision that only a "full time employee" would be eligible for insurance. It was discovered that plaintiff and wife made representations that were false on the application. Wife was not a full-time employee. Wife died and plaintiff sought to recover under policy, suing defendant to recover as beneficiary. The appellate court affirmed a grant of summary judgment to plaintiff. Defendant appealed. The appeal presented the question whether an incontestability clause contained in a group life insurance policy barred defendant from defending against a claim on the ground that the insured was not an employee eligible for insurance under the terms of the policy. This was a question is one of first impression. The court reversed the decision of the appeals court. The incontestability clause of the policy provided only that the validity of the policy could not be contested, and its validity is not disputed.
OUTCOME: The court reversed the decision of the appellate court which found that plaintiff's wife was covered under a group life insurance policy because the validity of the policy was not contested as stated in the incontestability clause.
PROCEDURAL POSTURE: The District Court, St. Louis County (Minnesota) ruled that by reason of her status as named beneficiary, defendant widow was entitled to the entire proceeds of two insurance policies in the name of her deceased husband. Judgment was entered accordingly, and plaintiffs, the insured's daughters, appealed.
OVERVIEW: The insured had been married three times. At the time of his death, he had been married to the widow for a little more than a year. There was testimony that during the last six months of their marriage their relationship became progressively worse. On the evening prior to the insured's death, the widow informed him of her intent to leave him. It was sometime subsequent to this that the insured wrote a letter to his daughters, in which he expressed his intent that his daughters rather than his wife receive the entire proceeds of the policies. The court reversed the trial court's judgment. The court found that the insured's intent to change beneficiaries was unambiguously expressed in the letter to his daughters, as was his expectation that the letter have legal significance. In addition, the court found that the insured made affirmative efforts to effect a change of beneficiaries, even though he had not complied with the policy's requirements for changing beneficiaries. Noting that no prejudice to the insurance company would result from giving effect to the insured's demonstrated intent, the court ruled that the daughters were entitled to the proceeds of both policies.
OUTCOME: The court reversed the trial court's judgment, ruling that the daughters were entitled to the proceeds of the insurance policies.
PROCEDURAL POSTURE: Appellant insured's daughter sought review of a judgment from the United States District Court for the Southern District of Illinois, which found for appellee contingent beneficiaries, in an interpleader filed by plaintiff insurance companies in a case involving the Servicemen's Group Life Insurance Act of 1965, 38 U.S.C.S. § 1965 et seq., where the primary beneficiary under the policies murdered the insured.
OVERVIEW: The insured was murdered by his wife, who was the primary beneficiary of the two insurance polices on insured's life. Appellee contingent beneficiaries were the murderer's son and sister. The court held that under federal common law, as applied to a policy issued under the Servicemen's Group Life Insurance Act of 1965 (SGLA), 38 U.S.C.S. § 1965 et seq., and under Illinois state law, as applied to the other policy, provided that the contingent beneficiaries were not complicit, and there was no chance of benefit redounding to the slayer, those beneficiaries were entitled to receive the proceeds, and the court affirmed the judgment. The court held that to establish uniformity in construing policies issued under the SGLA, federal common law applied. The court held that the "murdering heir" rule was part of the federal common law, and that absent complicity it did not cut off the murderer's bloodline. As to the other policy, applying Illinois law as urged by appellant insured's daughter, the court affirmed the judgment because the district court's finding that the murderer would not benefit was not clearly erroneous, where the murderer had been estranged from appellees for years.
OUTCOME: The court affirmed the judgment for appellee contingent beneficiaries, because they had not been complicit in the murder, and the district court had found that the murderer would not benefit from appellees' receipt of the insurance proceeds, so that the "murdering heir" rule did not disinherit appellees by virtue of their relationship to the murderer.
The victim had a daughter never acknowledged the daughter. The murderer had a son who was listed as a beneficiary.
PROCEDURAL POSTURE: Appellant sought review of a jury verdict from the superior court rendered in favor of appellee in a suit to recover benefits under several identical accidental death and dismemberment policies.
OVERVIEW: Decedent, appellee's husband, died following hemorrhoid surgery. During surgery, decedent's heart stopped without warning. After lapsing into a coma, decedent died. Appellee filed claims as beneficiary under decedent's accidental death policies with appellant. Appellants rejected the claims on the grounds that the death was not covered by the terms of the policies. Appellee filed suit. The immediate cause of death was a cardiac arrest; however, expert witnesses could not arrive at a conclusion as to the exact cause of the cardiac arrest. A jury awarded a verdict for appellee. The supreme court held that the trial court properly instructed the jury on the definition of "accident" in the policies and adopted the reasonable expectations standard in defining "accident." However, the supreme court reversed because the trial court erred in excluding expert testimony crucial to appellant's case that clearly theorized that the cardiac arrest was not related to the surgery.
OUTCOME: Jury verdict reversed; although the trial court properly instructed jury on the definition of "accident," the trial court erred in excluding expert testimony offered by appellant on the issue of whether decedent's cardiac arrest was accidental.
PROCEDURAL POSTURE: Appellant challenged the grant of summary judgment by the United States District Court for the Southern District of New York in favor of appellee's claim for disability benefits, and appellee cross-appealed from the grant of summary judgment against his claim under N. Y. Gen. Bus. Law § 349 .
OVERVIEW: Appellee, a dentist, brought a diversity action against appellant insurance company, contesting appellant's denial of his claim for total disability benefits. Appellee asserted that progressive skeletal illnesses left him unable to perform any further "chair dentistry," and alleged breach of contract, and deceptive business conduct in violation of N. Y. Gen. Bus. Law § 349 . The trial court awarded summary judgment in appellee's favor on his claim for disability benefits, but denied the § 349 claim, awarding summary judgment in favor of appellant. On appeal and cross-appeal, the court affirmed, holding that in the relevant period, appellee's occupation was that of dentist; his administrative duties consumed no more than four of his 40 working hours per week, and were merely incidental to his material and substantial duties as a full-time dentist. On the § 349 claim, the denial of appellee's claim was not deceptive simply because it was mistaken.
OUTCOME: Summary judgment affirmed in favor of appellee on the breach of contract claim; appellee's main occupation in the relevant period was that of dentist. Summary judgment affirmed in favor of appellant on deceptive business conduct; the denial of appellee's claim was not deceptive simply because it was mistaken.
The policies define "total disability" as "the inability to perform the material and substantial duties of your occupation," and "your occupation" is limited to "the occupation you are engaged in immediately preceding the onset of disability." In another clause, the policies also provide benefits for residual disability, and define it: "Residual disability means that due to injury or sickness you are unable: (1) to do [**3] one or more of the substantial and material duties of your business or profession; or (2) to perform your duties for the length of time that they usually require." The insured is ineligible for residual disability benefits unless he has suffered a 20 percent drop in income as a result of the disability.
PROCEDURAL POSTURE: Appellant insurer sought review of the judgment of the Circuit Court of Smith County (Mississippi), which found in favor of appellee insured in his action to recover additional sums under a health and accident insurance policy providing for disability.
OVERVIEW: The insured suffered a heart attack and was paid benefits for total disability under the insurer's policy. When the insurer ceased making payments, the insured sought to recover additional sums. The court reversed the judgment that was for the insured. The insured's evidence justified a finding that he was totally disabled and unable to perform acts required of him in his farming and chicken-producing business. However, the evidence also showed that he was not disabled from engaging in any gainful occupation for which he was reasonably fitted by education, training, or experience, as required by the policy. The trial court improperly instructed that if the jury believed that the insured was prevented by his disease from performing the substantial acts required of him in his business, he was totally disabled within the meaning of the policy. The instruction should have required an additional finding that the insured was disabled and incapable of performing any gainful occupation for which he was fitted by education, training, or experience, or the substantial acts required thereby. Written statements by doctors who had died since the statements were given were properly admitted.
OUTCOME: The court reversed the judgment that was for the insured and remanded the case.
an insd person may not be regarded as totally disabled within a general disability clause until he is unable to follow any occupation whatsoever.
PROCEDURAL POSTURE: Appeal from the District Court of Denton County (Texas), in which the court entered judgment for appellee, for hospital and medical expenses incurred in connection with appellee's elective remedial surgery.
OVERVIEW: Years ago, doctors informed appellee that because of the incompatibility of her and her husband's blood, any children that were born could potentially have extreme health problems. Consequently, appellee had a tubal ligation. Thereafter, appellee married another man and became covered under an insurance policy. Appellee and her husband desired to have a child and learned their blood types were compatible. Accordingly, appellee had restorative surgery and sought to collect benefits under the policy because of the surgery. After a trial, judgment was entered for appellee for hospital and medical expenses incurred in connection with the elective remedial surgery. On appeal, appellant contended there was no evidence that appellee's claim for expenses were incurred for the necessary care and treatment of an injury or sickness, as defined in the group insurance policy. The court agreed with appellant's position because it held the surgical procedure was neither accidental nor fortuitous in character, nor was it necessitated to cure appellee's sickness. Accordingly, judgment was reversed because appellee's surgery was not covered under the terms of the policy.
OUTCOME: The court reversed the lower court's decision because it held that appellee's surgery was not covered under the terms of the group insurance policy.
In addition to the requirement that risks, to be insurable, must lend themselves to measurement in quantitative terms, certain other conditions must be met before the institution of insurance may function. (1) The risk must be genuine, must exist for large groups of people, and its existence must be recognized by a sufficient number of people to warrant the establishment of organization(s) to insure it. (2) Persons exposed to the risk must feel a responsibility for the possible loss and its consequences. (3) Those concerned must possess the resources with which to pay their prorata share of the costs or premiums. (4) The magnitude of the potential loss must be sufficient to cause a real hardship for the individuals upon whom actual losses may fall. (5) The events concerned must be accidental or fortuitous in character; they must occur according to the laws of chance and not be subject to control by those seeking to insure. (6) And, finally, a catastrophe hazard must not exist.
PROCEDURAL POSTURE: Plaintiff insured appealed from an order from the United States District Court for the Northern District of Illinois, Eastern Division, which granted defendant insurance plan's motion for summary judgment and dismissed plaintiff's suit against defendant wherein plaintiff challenged the denial of two claims.
OVERVIEW: Plaintiff insured sought reimbursement from defendant insurance plan for the cost of removing a tumor at the site of his vasectomy. Plaintiff had his vasectomy reversed at the same time, but that procedure was not covered. Plaintiff alleged that defendant allocated too little of the total cost to the covered procedure. Plaintiff also claimed that defendant should have covered expenses incurred when plaintiff's sons were injured in a car accident. The accident occurred after plaintiff quit his job and elected not to convert his medical coverage to an individual policy. The district court granted defendant's motion for summary judgment and dismissed both claims. On appeal, the court held that plaintiff failed to defeat defendant's motion for summary judgment on the tumor claim because he did not submit evidence as to the cost of removing the tumor. The court affirmed the summary judgment entered in favor of defendant on this claim. As to the accident claim, the court reversed the judgment as premature and remanded it. The court held that the plan required uniform treatment of all employees and the trustees had extended benefits for other employees in similar circumstances.
OUTCOME: The court affirmed the summary judgment in favor of defendant insurance plan with respect to the tumor claim because plaintiff insured failed to submit any evidence as to the cost of removing the tumor. The court reversed and remanded as to the accident claim because a material issue of fact existed as to whether defendant had extended benefits for other employees in plaintiff's position, thus obligating them to reimburse plaintiff.
PROCEDURAL POSTURE: Plaintiffs appealed from the order of the United States District Court for the Northern District of Illinois, Eastern Division granting summary judgment in favor of defendant, in plaintiffs' action for recovery of insurance benefits that were denied by defendant under pre-existing conditions clause.
OVERVIEW: Plaintiff wife found a lump in her breast before defendant's insurance coverage began, which was removed shortly after coverage began, engendering costly subsequent cancer treatments. Defendant denied coverage under the pre-existing condition limitation in the insurance policy that provided no benefits were payable for conditions, sickness or injury treated or diagnosed in the six month period preceding coverage, concluding that the lump predated the effective date of the policy. Plaintiffs husband and wife appealed the district court's grant of summary judgment for defendant. The court determined that the lump was a condition, sickness, or injury for which plaintiff wife received treatment within the pre-existing conditions clause. The court held that plaintiffs had not shown a genuine issue of material fact disputing the reasonable inference that the breast lump was cancerous prior to the insurance coverage, and thus, the grant of summary judgment in favor of defendant was proper.
OUTCOME: The court affirmed the district court's grant of summary judgment in favor of defendant insurer's denial of insurance coverage because plaintiff's cancerous breast lump was an excluded pre-existing condition under defendant's policy.
PROCEDURAL POSTURE: Defendant insurer sought review of a decision of the Superior Court of Los Angeles County (California), which directed a verdict in plaintiff insured's favor and awarded plaintiff compensatory and punitive damages in an action alleging that defendant breached the implied covenant of good faith and fair dealing.
OVERVIEW: Plaintiff insured elected to be insured under a group policy provided by defendant insurer. Plaintiff was subsequently hospitalized by his treating physician. Defendant paid the medical and diagnostic testing bills but denied plaintiff's claim for the hospital stay, because it determined upon a retrospective review that the stay was not medically necessary. Plaintiff sued defendant, the trial court entered a directed verdict in plaintiff's favor, and the jury awarded punitive and compensatory damages. On appeal, the court reversed and remanded. The court reasoned that, by the language of the policy, defendant was not precluded from challenging the medical necessity of hospitalization recommended by the treating physician. The court further determined that while defendant breached its duty of good faith and fair dealing by failing timely to advise plaintiff of his right to peer review and arbitration, it was unlikely that the jury would have awarded the same damages for that breach.
OUTCOME: Judgment in plaintiff's favor was reversed and remanded, because trial court erred in directing a verdict that defendant violated its duty of good faith and fair dealing by disagreeing with treating physician on retrospective review. However, trial court did not err in directing a verdict that defendant's failure to advise plaintiff of his right to peer review and arbitration breached the duty.
Dissent: An exclusionary clause in a policy must be "conspicuous, plain and clear." ( State Farm Mut. Auto. Ins. Co. v. Jacober (1973) 10 Cal.3d 193, 202 [110 Cal. Rptr. 1, 514 P.2d 953].) The burden is on the insurer to "phrase exceptions and exclusions in clear and unmistakable language" [*19] ( Harris v. Glens Falls Ins. Co . (1972) 6 Cal.3d 699, 701 [100 Cal. Rptr. 133, 493 P.2d 861]), and to "draft its policy to avoid any misinterpretation by the average layman"
Majority: In summary, we appreciate the plight of the subscriber, forced to decide whether to follow his doctor's recommendation without assurance that his policy will cover the expense. We do not, however, believe it would be alleviated by requiring the insurer to insert redundant language into the policy to make doubly clear to the subscriber that he really is in a dilemma and cannot count on coverage. And although a judicial ruling that retrospective review violates public policy would protect against retrospective denial of coverage, subscribers would pay the price in reduced insurance alternatives and increased premiums.
The problem of retrospective denial of coverage can be reduced through the growing practice of preadmission screening of nonemergency hospital admissions. When such screening is not feasible, as in the present case, we think the best the courts can do is give the policy every reasonable interpretation [*13] in favor of coverage.
PROCEDURAL POSTURE: Plaintiff insured filed an action against defendant insurer, alleging that the insurer was liable under a fire insurance policy for a loss occasioned by the death of a number of the insured's sows, which was caused by heat emanating from a furnace. The District Court, Redwood County (Minnesota) rendered judgment for the insured. The insurer appealed.
OVERVIEW: The insured, a farmer, constructed a hog barn on his farm for use in farrowing hogs. The barn was heated by a certain furnace, which was located just outside the building and which blew hot air into the barn by means of a fan. The furnace was controlled by a thermostat that could be adjusted to shut off the fan and furnace at a pre-set temperature. The thermostat malfunctioned, the barn became overheated, and several of the insured's sows died. At all times the fire inside the furnace burned and produced heat at its usual rate and was confined within the furnace, causing no damage to the hog barn or to the furnace. The insured denied coverage under the parties' fire insurance policy, claiming that the loss was not recoverable because it was the result of a so-called "friendly" rather than "hostile" fire. On appeal, the court ruled that under Minnesota law, fire could be found to be hostile, although it was intentionally kindled and never escaped its confines, if it was excessive or uncontrolled. A fire which caused damage by burning for a greater length of time than intended was no less uncontrolled merely because it continued to burn at its usual rate, the court reasoned.
OUTCOME: The court affirmed the district court's judgment.
PROCEDURAL POSTURE: Appellant insurer sought review of a judgment from the Wyondotte District Court (Kansas), which found that appellee insured was entitled to recover for the loss and damage of a star sapphire ring caused by fire under the terms of the parties' insurance policy.
OVERVIEW: The ring was inadvertently burned in a trash burner. The trash burner was intended for that purpose, the fire was lit intentionally, and it was confined to the trash burner. The insurer maintained that it was not liable for loss or damage that resulted from a "friendly fire" under the terms of the policy. The insured maintained that the policy covered the damage to the ring by any kind of fire. Upon review, the court found that the term "fire" as used in standard insurance clauses meant "hostile fire" even if the policy did not state that in its provisions. A hostile fire was an unexpected fire in a place not where it was intended to be or a fire that escaped from a place where it was intended to be. A friendly fire was lit and contained in a usual place for a fire. The court observed that when a person bought standard fire insurance, it was done with the idea of protecting himself from hostile fire. Thus, the court concluded that the fire that damaged the ring was a friendly fire because it was intentionally lit for the ordinary and usual purpose of burning trash, and it was confined to the trash burner. The damage to the ring was not covered under the parties' policy.
OUTCOME: The court reversed the judgment for the insured in his action to recover for the loss and damage of a ring caused by fire under the terms of the parties' insurance policy.

References: § 333
 § 1965
 § 1965
 § 349
 § 349
 § 349
 § 349
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