Q&A of the Week |
Collision with Ground is not Improper Service
A Texas subscriber recently asked the following question:
Our insured is a franchised auto dealer. We write the dealer's physical damage coverage. Our insured's shop employee placed an owned (held for sale) vehicle on a lift. He did not properly position the vehicle and it fell off the back of the lift. The car hit the shop floor doing major damage to the rear end. The insurer has taken the position that coverage does not apply because of "improper service." The policy provides both comprehensive and collision coverage.
My position is that this is not a vehicle service issue, but a collision of the vehicle with the shop floor. To me improper service involves those items that are part of ongoing service to properly maintain a vehicle, e.g., changing fluids, spark plugs, etc.
Insurer is denying coverage based on policy language excluding "improper service."
ANSWER: Here, the insured would prevail. The word "collision" has been broadly interpreted for the insured throughout the recent past and has been deemed to include many dictionary definitions, such as the act of one object suddenly coming violently into contact with another in motion or standing and the meeting and mutual striking of two moving bodies or of a moving body and a stationary one. There have also been several cases that have included a collision with the ground as a collision. (see What is Collision.)
The improper service exclusion is meant to exclude when the car is improperly serviced, such as when something is installed incorrectly and some harm results. For example, if the mechanic hooked up a hose incorrectly and the vehicle overheated, the exclusion would apply and coverage would not be provided. Since here the damage was sustained as the result of a collision, regardless of whose fault that collision was, the damage should be covered.
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Litigation Watch |
Dispute Over Duty to Defend Additional Insured
The insurer for a roofing company filed a declaratory judgment action for a determination that it owed no duty to defend or indemnify the developer of condominium units as an additional insured in an underlying action. This case is Westfield Insurance Company v. West Van Buren, 2016 IL.App (1st) 140862-U.
West Van Buren (developer) constructed a condominium development in Chicago. The developer subcontracted the installation of the roof to Total Roofing & Construction Services. The subcontract provided that Total Roofing would insure and indemnify West Van Buren against liability for Total Roofing's work. Westfield Insurance wrote a general liability policy for Total Roofing with the policy listing West Van Buren as an additional insured.
About a year after construction, the condo association claimed construction defects in the roof caused water to infiltrate into the building and individual condo units and also caused damage to personal property in the units. The association demanded the developer reconstruct the roof; the developer refused; the association then paid for the cost of the repair.
The association sought reimbursement for the repair costs through mediation. When that failed, a lawsuit was filed against the developer and Total Roofing. Westfield agreed to defend its insured, Total Roofing, but declined to defend or indemnify the developer. The insurer filed a declaratory judgment action against West Van Buren. The Circuit Court, Cook County, granted summary judgment to the insurer and this appeal followed.
The Appellate Court of Illinois, First District, Third Division, noted that, in order to address the coverage dispute, it had to examine the underlying complaint and the language of the insurance policy.
The court said that at first glance, it was questionable whether the developer was even an additional insured under the terms of the policy. The policy stated that "to the extent of the named insured's ongoing operations, the coverage afforded to the additional insured which may be imputed to the additional insured." This sentence was unclear to the court. The court said that the only reasonable construction is that the policy provided that the additional insured would be covered to the extent of the named insured's ongoing operations. Since the roof had been completed at the time of the discovered leak, this meant to the court that the operations of the named insured had ended and so had the status of the developer as an additional insured.
Since this point was not explored at this point by the parties, the court decided to proceed with its review of the case. In its analysis, the court concluded that Westfield Insurance had no duty to defend the developer in the underlying action for three reasons.
First, the court noted that the policy requires an accidental event to trigger coverage, yet there is nothing accidental alleged in the underlying complaint. The complaint by the association focused on the intentional bad acts of the developer or non-fortuitous events like the resulting damage to the condo building due to shoddy workmanship. Second, the court pointed out that the allegations in the underlying complaint do not fall within the definition of property damage under the policy's plain language. The allegations sought to hold the developer responsible for the shoddy workmanship of the subcontractor and the complaint sought damages for repair and remediation of the roof. The court said that these damages relate to diminished value and economic harm, not physical injury as required by the policy definition of property damage. Third, the claims for physical harm to personal property were not offered for the purposes of recovery. Those allegations were purely tangential to the condo association's claim for damages for repair and remediation of the roof.
For these reasons, the court decided that the underlying complaint did not offer allegations towards a theory of recovery that fits within the potential coverage of the policy. The ruling of the trial court was affirmed, and the insurer had no duty to defend or indemnify the additional insured.
Editor's Note: This case is presented to showcase the examination by the Appellate Court of the policy terms "occurrence" and "property damage" in relation to claims based on shoddy workmanship. The additional insured sought coverage for the claims but the court found no allegations of an occurrence/accident or property damage as defined in the policy. |
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Fraud of the Week |
Automobile Fraud – Georgia
AMOUNT: $40,000
Three of four suspects in an insurance fraud scheme have been arrested for damaging cars multiple times in order to file insurance claims. Over two and a half years they filed claims for $40,000. They would damage the cars and then take them to the shop of one of the group. They would perform minimal repairs, then vandalize the vehicles again and file another claim. Insurance fraud carries a two- to ten-year prison sentence and up to $10,000 in fines.
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