| Q&A of the Week |
Primacy of Coverage for Rented Cars
An Ohio Subscriber asked the following question:
If a rental car is damaged while the insured is driving it, or if it is found damaged by the insured after he left it in a store's parking lot, is the insured's personal auto policy going to provide coverage on a primary basis or on an excess basis to that of the rental car vendor's policy?
ANSWER: The answer has several aspects.
The rental car rented on a short term basis is considered a nonowned auto under the terms of the physical damage section of the PAP. The other sources of recovery clause under the PAP's physical damage section declares that any insurance provided with respect to a nonowned auto shall be excess over any other collectible source of recovery. This other collectible source includes any coverage provided by the owner of the nonowned auto. So, if the rental car vendor has physical damage coverage for the car rented by the insured, the insured's PAP will provide excess coverage.
Consider also that, as regards insurance for a nonowned auto, the other sources of recovery clause describes as a collectible source "any other source of recovery applicable to the loss". This takes into account if an insured is not liable for the damage. For example, if the insured were hit by an at-fault driver, the insured's auto policy will provide excess physical damage coverage if the at-fault driver provides a collectible source of recovery. If the at-fault driver has liability insurance or can pay for the damage out of pocket, that is a source of recovery applicable to the loss.
The rental contract may state that the renter is solely responsible for any damage to the rented car. The renter's PAP declares that it is excess over any other collectible source of recovery. If the rental company does not provide any other collectible source of recovery for the damage to the rented car, that makes the renter's PAP primary. So, if the rental company does not provide physical damage coverage or if the insured is hit by an unknown or uninsured driver, there is no other collectible source of recovery and the renter's auto policy drops down into the primary role.
Finally, note that the current PAP contains an exclusion that blocks coverage for loss to or loss of use of a nonowned car rented to the named insured if a rental company is precluded from recovering such loss from the named insured pursuant to the provisions of any rental agreement or state law. If that is the case, this means the renter's PAP will not respond to the loss and the question of primary or excess coverage is irrelevant. |
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| Litigation Watch |
Potentially Covered Claims and the Duty to Defend
The insurer filed a motion for summary judgment seeking a declaration that it had no duty to defend the insured in an underlying action. This case is Hartford Fire Insurance Company v. Tempur-Sealy International, 2016 WL 232431.
Hartford Fire Insurance Company issued nine general liability policies to Tempur-Sealy covering the time period from 2004 to 2013. In 2014, a number of individual consumers filed a class action complaint against Tempur-Sealy alleging that Tempur-Sealy failed to inform consumers that pillows and mattresses manufactured and sold by Tempur-Sealy emit a chemical odor containing formaldehyde which can and did trigger serious allergic reactions and asthma attacks in consumers. The complaint contained numerous allegations regarding the injuries to person and property.
The insurer informed the insured that it did not have a duty to defend because the claims asserted in the complaint were not potentially covered by the general liability policies. Hartford then filed this lawsuit seeking a declaration that it had no duty to defend.
The United States District Court for the Northern District of California noted that the underlying complaint contains almost 18 pages of detailed factual allegations describing the bodily injuries and property damage caused by Tempur-Sealy's defective mattresses. The court said that the facts alleged in the underlying complaint clearly demonstrate the potential for liability under the terms of the policies. However, the insurer said that because the underlying complaint does not allege specific claims for bodily injury or property damage, it had no duty to defend. The insurer contended that the otherwise broadly construed duty to defend does not extend to any imaginable amended claim. The District Court disagreed.
The court reiterated that the underlying complaint includes 18 pages of allegations ds products, detailing the factual basis for a potential covered claim, so this is not a case where the underlying complaint fails to allege the nature and kind of risk or injury covered by the insured's policy. The court said that the insurer cannot protest that the insured has no reasonable expectation of coverage given the thirty paragraphs of factual allegations against the insured that describe the exact type of bodily injury and property damage covered by the policies.
The insurer also argued that, even if the underlying complaint alleges a potential for liability, the exclusions in the policies prevent coverage. The insurer said that the damage to the named insured's product and the damage to impaired property exclusions would apply. The court replied that the damage to the named insured's product is not applicable because the underlying complaint alleges extensive damage to property other than that of the insured. As for the impaired property exclusion, the court said that did not apply since the underlying complaint contains numerous allegations of loss of use of property due to the off-gassing odor produced by the insured's products, an injury that is explicitly carved out of the impaired property exclusion.
The court denied the insurer's motion and granted the insured's motion asserting a duty to defend.
Editor's Note: In this case, the U.S. District Court, N.D. California, rejected the insurer's contention that potential claims, as opposed to actual specific claims, do not provoke the duty to defend. In finding that the insurer owes a duty to defend the insured, the court notes that while the insured need only show that the underlying claim may fall within policy coverage, the insurer must prove it cannot. The court rules that the insurer may be relieved of its duty to defend only when the facts alleged in the underlying lawsuit can by no conceivable theory raise a single issue that could bring it within the policy coverage. |
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| Fraud of the Week |
False Claim – New Jersey
AMOUNT: $35,000
A local rabbi is being sued by New Jersey officials who claim the rabbi violated New Jersey's anti-fraud act by collecting insurance money from twenty-three false reports that his luggage was stolen form an airport terminal. The rabbi flew to Miami International Airport over twenty times from 2010 to 2012, each time filing false reports that his luggage had not arrived to the baggage claim area. The rabbi collected $500 per claim of lost or delayed luggage from his insurance provider, then purchased replacement items and submitted the receipts to the insurance company and subsequently returned all of the items for a full refund. Over time the rabbi was paid over $35,000 for fraudulent claims from his insurance company. The civil penalty for such a crime is $5,000 for the first offense, $10,000 for the second offense, and $15,000 for each subsequent offense, as well as a $1,000 surcharge and restitution to the insurance companies, among other expenses. This habit of committing insurance fraud could cost the rabbi up to $366,000.
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