Tuesday, April 17, 2012

U.S. District Court holds that exclusion for earth movement does not apply to damages from burst pipe

A ceiling pipe in a warehouse owned by Espedito Realty burst. The break was not noticed for several days. The water pooled against a wall and eventually seeped down between the concrete floor and exterior wall. As a result, the sub-base below the concrete floor subsided, and the warehouse floor sank.

Espedito's insurer, National Fire Insurance Company of Hartford, paid some of the damages, but it refused to pay for the repair of the sunken floor. It asserted that an exclusion for "earth movement" applied.

The earth movement exclusion excludes coverage for damages arising from earthquake, landslide, mine subsidence, volcanic eruption, and "earth sinking, rising or shifting, including soil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty."

Espedito's experts opined that water from the broken pipe penetrated the ground underneath the floor, resulting in a subsidence of wasting away of the soil that caused the floor to sink.

National Fire argued that the cause of the earth movement was irrelevant.

In Espedito Realty, LLC v. Nat'l Fire Ins. Co. of Hartford, __ F. Supp. 2d __, 2012 WL 1014176 (D. Mass.) the court held that the exclusion does not apply:

The unavoidable fact is that pipes burst rather frequently. It is a
rare property owner who has not dealt with the problem, or at least suffered
anxiety over the possibility, and it is hardly intuitive that an "earth
movement" exclusion would bar coverage for the homely situation where a pipe
bursts and a floor sinks as a result. No objectively reasonable insured
reading the policy would think so, especially when the only reference to the
impact of water is to "water flowing underground." If the policy truly
intended to cover this commonly recurring situation, it should have said

Tuesday, April 10, 2012

Appeals Court holds that per person rather than aggregate limit determines how much underinsurance individuals can recover

Steven and Angelica Blackburn were in an auto accident. Angelica incurred medical bills and lost wages in excess of $241,000 and Steven incurred medical bills and lost wages in excess of $80,000.

The other vehicle was driven by Helen Vieira. Vieira's insurance policy with Travelers had a bodily injury limit of $50,000 per person and $100,000 per accident. It paid Angelica and Steven $50,000 each.

The Blackburns sought additional coverage from their own carrier,Commerce, with which they had underinsurance coverage of $100,000 per person and $300,000 per accident. They asserted that they were each entitled to $100,000, because they were jointly entitled to the difference between the $100,000 per accident coverage limit o f Vieira's coverage and the $300,000 per accident limit of their policy. Commerce asserted they were each entitled to only $50,000 (the $100,000 per person limit less the $50,000 they had already received.)

In Commerce Ins. Co. v. Blackburn, 81 Mass. App. Ct. 519 (2012), the court agreed with Commerce, citing policy language providing that recovery is subject to the per person limit.

My first thought was that under this analysis there is more than $100,000 of illusory coverage. If the accident were caused by someone with no insurance, the optional uninsured coverage would apply, not the underinsured coverage. In Massachusetts the statutory minimum per person coverage for injury to someone else is $20,000 (although I believe there are states that do not have minimum coverage). Therefore, the most either Steven or Angelica could recover under the underinsured coverage, if they are injured by someone insured in Massachusetts, is $80,000 (the $100,000 per person limit minus the $20,000 they would receive from the tortfeasor's insurance), or a combined total of $160,000. That would leave a gap of $140,000 in the per accident limit they could never get.

So I looked at the standard Massachusetts auto policy. The underinsurance coverage covers the named insureds, as well as, in certain circumstances, any household member and anyone occupying the insured's vehicle.

On a related note, I strongly recommend that everyone purchase as much underinsured and uninsured coverage as they can afford. Don't rely on other drivers to have adequate insurance to cover your loss if they injure you in an accident.

Thursday, April 5, 2012

Appeals Court holds insurer must defend additional insured where primary insured not named in complaint

A Greyhound bus was involved in an accident resulting in five fatalities and numerous injuries. Unicco was responsible by contract for tire maintenance on the bus.

Suits were filed against Greyhound alleging that Greyhound negligently inspected and maintained tires on the bus. One of the suits named Unicco as a defendant, and Greyhound brought third-party suits against Unicco where it was not named.

Unicco had a GL policy from Travelers under which Greyhound was an additional insured "only with respect to liability arising out of [Unicco's] ongoing operations performed for [Greyhound]" and, in a different endorsement, except with respect to "liability arising out of the independent acts or omissions of [Greyhound]."

It was undisputed that Greyhound was entitled to coverage under the ongoing operations endorsement. Travelers declined to defend or indemnify Greyhound, although it is not clear why.

In Greyhound Lines, Inc. v. Travelers Property Casualty Co. of Am., 2012 WL 987515 (Mass. App. Ct.) (unpublished), the court held that Greyhound is also entitled to coverage under the second endorsement. The complaint in the suit naming Unicco alleged that Unicco's negligent performance under the tire maintenance agreement caused or contributed to the accident.

In what is either a typo or very poor phrasing, the court stated, "the duty to defend is not . . . an all or nothing proposition." Luckily the court went on to explain that the duty to defend is, in fact, an all or nothing proposition (at least in Massachusetts). "An insurer's broad duty to defend generally extends to all counts of a complaint, even those not specifically covered by the policy." Since at least some of the counts were covered, Travelers had a duty to defend Greyhound for all counts.

The court also held that Travelers had a duty to defend Greyhound in the lawsuits in which Unicco was not named, because of "the facts reasonably known to Travelers from the lawsuits in which Unicco is named as a direct defendant and is alleged to be liable for the accident, and because similar claims for negligence with respect to the maintenance and the inspection of tires are alleged against Greyhound."