| Q&A of the Week |
Flood Damage to Vehicle Parts in House
An Arkansas subscriber recently asked the following question:
Our insured recently sustained a flood loss to their home. Prior to the flood, the insured had removed the rear seats of their Lexus SUV and they were sitting on the floor of the garage and were damaged by the flood waters.
The flood adjuster has advised the insured that there was no coverage under the flood policy as they are parts of the insured vehicle and therefore excluded.
We are questioning the denial as the seats were no longer part of the vehicle but sitting on the floor so does that not make them contents?
ANSWER: The flood policy excludes motor vehicles and their equipment and parts; so even though the seats were removed and were in the premises, they are still parts to a motor vehicle, and as such are excluded. The denial is correct. |
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| Litigation Watch |
Receivership and Uninsured Motorist Coverage
The insured brought an action against the auto insurer to recover uninsured motorist (UM) benefits pursuant to her personal auto policy. This case is McHone v. State Farm Mutual Automobile Insurance Company, 2015 WL 2151776.
A collision occurred between McHone and Whirley. Whirley was driving a tractor trailer owned by Diamond Express. At the time of the accident, McHone was insured with State Farm and her auto policy contained UM coverage for $100,000. Diamond Express was insured through Gramercy Insurance Company with liability limits of $1,000,000. Both policies were in effect at the time of the accident.
McHone suffered extensive injuries with her injuries exceeding $800,000. She sued Diamond Express but prior to trial, the trucking company's insurer, Gramercy, was placed into rehabilitation by order of the court. The rehabilitator issued an automatic stay with respect to any actions. McHone's lawyer then began negotiations with Gramercy's receivership claims administrator. As a result of those negotiations, McHone agreed to settle her claims against Diamond Express for $300,000. Gramercy was later liquidated.
McHone demanded UM benefits from her insurer, State Farm but the insurer declined coverage. McHone filed a lawsuit against State Farm and the district court ruled in favor of State Farm. This appeal followed.
The United States Court of Appeals, Eighth Circuit, noted that McHone in her appeal disputed the definition of the policy limits as defined by the district court. She argued that the State Farm policy's reference to the minimum limits required by law refers to the legal requirement of interstate carriers to have a minimum of $1,000,000 insurance coverage. Thus, her position is that the $300,000 she received from the receiver falls short of the applicable minimum limits required by law. State Farm claimed that its policy states it is not liable under UM coverage for any damages that have already been paid to or for the insured, or by or on behalf of any person or organization that is or may be held legally liable for bodily injury to the insured.
The appeals court said that under state law (Tennessee) the insurer is entitled to receive an offset or credit for the total amount of damages collected by the insured from all parties alleged to be liable for the bodily injury or death of the insured. Thus, State Farm was entitled to receive a credit for the $300,000 settlement that McHone received from the Gramercy receivership. This amount exceeded the UM limits on the State Farm policy and so, McHone was not entitled to recover any amount from State Farm. The ruling of the district court was affirmed.
Editor's Note: The U.S. Eighth Circuit Court of Appeals rules that the insurer was allowed to offset the amount of money that the insured received from a settlement against the amount owed under UM coverage. In this instance, the settlement amount far exceeded the UM limits on the insured's auto policy and so, the insurer was not required to pay UM benefits to the insured. |
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