| Q&A of the Week |
Semitrailer and Coverage under the Auto Dealers Coverage Form
An insured under the auto dealers coverage form was using one of his trucks to pull a customer's semitrailer from one lot to another when the trailer came loose and struck a car in an intersection. The liability insurance is written with coverage keyed to symbol 21, any auto, but the question we have centers around subparagraph C in Section I, Covered Autos Coverages. This subparagraph states that liability insurance applies to trailers with a load capacity of 2,000 pounds or less.
An adjuster told us that this subparagraph limits liability coverage to small trailers and there is no coverage for this semitrailer accident. What is your opinion?
ANSWER: With liability coverage keyed to symbol 21, the insured is protected against claims for bodily injury or property damage (or both) involving any auto. By definition in the policy, an auto includes trailers and semitrailers. Consequently, the extension of coverage in subparagraph C to small trailers is not relevant in this particular situation. Symbol 21 grants automatic liability coverage for the semitrailer.
Subparagraph C can cause some confusion when it comes to coverage but the following information may help.
In certain situations where the covered auto designation symbol does not include a trailer, the automatic trailer coverage in the subparagraph can serve as a helpful tool for the insured. For example, designation symbol 23 is for owned private passenger autos only. If the insured chooses symbol 23 for liability coverage and then bought a trailer or used a borrowed trailer for some reason, the covered auto symbol could be seen as not including that trailer since a trailer is clearly not a private passenger auto. As another example, if the insured chooses symbol 29 for liability coverage (nonowned autos) and then buys a trailer for use in connection with his business, the covered auto designation symbol can be a problem. In both examples, subparagraph C would provide automatic liability coverage for the insured as long as the trailer has a load capacity of 2,000 pounds or less.
In sum, the auto dealers coverage form will provide liability coverage for the exposure of using a trailer with a load capacity of 2,000 pounds or less regardless of the designation symbol that the insured chooses for his covered autos. However, symbol 21, any auto, will provide the liability coverage for a trailer regardless of the load capacity. |
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| Litigation Watch |
Settling Without Consent of Insurer
The condominium unit owner filed an action against the owners of an adjacent unit, the condo association, and the condo's insurer after flooding in the adjacent unit saturated the common wall and caused mold growth. After the unit owners reached a settlement, the insurer filed a motion for summary judgment. This case is Novak v. State Farm Insurance Companies, 2009 WL 5174078.
Novak owned unit 310 in the Great Oaks Condominiums complex and was a member of the condo association. The Fords owned unit 308, adjacent to the Novak unit. In 2000, the Fords abandoned their unit and the heat was turned off. As a result of freezing, a water pipe broke and the water saturated the common wall with the Novak unit. Mold developed.
Novak filed a lawsuit against the Fords, the condo association, and the insurer of the association, State Farm. The Fords consented to a judgment of $100,000 and, in turn, Novak agreed not to execute on that judgment against the Fords. State Farm was not present at the settlement proceedings and did not learn of the settlement until after the fact. Thereafter, Novak filed a complaint against State Farm.
State Farm filed a motion for summary judgment and the trial court entered judgment in favor of the insurer. This appeal followed.
The Court of Appeals of Ohio, Ninth District, noted that Novak raised one assignment of error, namely, that the trial court erred in granting summary judgment to State Farm. The court noted that in the motions for summary judgment, there were two legal issues presented. The first was whether the Fords were insured under the policy issued to the condo association by State Farm. The second was whether, by agreeing to a consent judgment issued in favor of Novak, the Fords prejudiced State Farm.
The court said that previous court rulings around the state held that where an insurer does not refuse to defend an insured, the insured is not at liberty, and in fact is barred from, entering into a settlement agreement without the consent of the insurer. Novak argued that State Farm had actual notice of the lawsuit because of its familiarity with the claim against the association and so, it follows that State Farm had an obligation to provide a defense for the Fords per the insurance agreement. The court was not persuaded by this argument.
The court pointed out that Novak acknowledged in her filings that a key distinction between the facts of this case and the facts of other cases cited by Novak is that in this instance, the insurer never actually refused to defend the Fords because the Fords never requested coverage from State Farm. Under the terms of the insurance policy, the Fords were not at liberty to settle the lawsuit on their own without the permission of State Farm. In addition to not filing a claim with State Farm, the Fords did not take any steps to include State Farm in settlement negotiations, nor did they notify State Farm of the possibility of a settlement. Therefore, by consenting to the judgment, the Fords breached the terms of the insurance agreement and relieved State Farm of any obligation to perform that might have existed.
Novak contended that the Fords did not file a claim with State Farm was because they were not aware that they were insured with State Farm. The court countered that the Fords would have become aware of their relationship with State Farm when they confronted the terms of the settlement. Moreover, the insurance policy required the Fords to send State Farm copies of any demand, notices, summonses, or legal papers received in connection with the lawsuit, and cooperate with State Farm in settlement or defense of the lawsuit. Since the notice was not given to State Farm and since the settlement was made without any input from State Farm, the court ruled in favor of the insurer.
The judgment of the trial court was affirmed.
Editor's Note: This is another case presented to point out that the general liability policy declares that no insured will voluntarily make a payment, assume any obligation, or incur any expense, without the consent of the insurer. An insured does so at its own peril. |
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| Fraud of the Week |
Social Security Benefits Fraud – New Jersey
AMOUNT: $82,854
A man originally from Monmouth County, New Jersey has admitted to collecting social security benefits that were meant to be paid to his wife for more than four years after she died. The wife was awarded social security benefits due to an illness that prevented her from working. The Social Security Administration for Disability Insurance Benefits is a program in place to help individuals who suffer from severe physical or mental impairments to replace a portion of their lost earnings. When the wife was approved for the program, the social security checks began to be directly deposited into her bank account. She died in 2009, but her husband failed to notify the Social Security Administration. From 2009 to 2013, he collected over $82,000 in social security benefits that he did not deserve. He admitted that he did not report his wife's death because he wanted to continue receiving disability benefits. He is being charged with one count of theft of government money, which could carry a sentence of up to ten years in prison and a fine of $250,000.
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