Down To Cases

Driver found to have right of action under policy issued to brother-in-law
In November 1999, a woman sought to buy a 1996 Chevrolet Cavalier. Being a student with inadequate credit, she was unable to purchase the car without the help of her brother-in-law. Although the vehicle was titled in the brother-in-law's name, the woman paid the monthly notes. The woman sought insurance for the car, informing an employee of the carrier she approached that she owned the vehicle, but it was not titled in her name. The agent filled out an application in the brother-in-law's name and had the woman sign for him. The only covered driver under the policy was the woman; her brother-in-law was listed as an “excluded person.”

On June 13, 2000, the woman let a friend drive her car, and the friend rear-ended another vehicle. The woman notified her carrier of the accident the next day. The carrier determined that the vehicle was a total loss and appraised its value at $4,225. On June 20, the agent forwarded a letter addressed to the woman's brother-in-law, at the woman's address, denying coverage because of a material misrepresentation involving whether the friend driving the car at the time of the accident resided with the woman.

On Aug. 2, the woman sued her insurance company, seeking compensation for property damages, loss of use, rental and inconvenience. She also sought penalties and attorney fees under Louisiana state law, based on the insurer's failure to properly adjust and pay her claim. On Aug. 21, the carrier filed an answer to the petition, admitting that it had issued a policy in favor of the woman but also asserting the defense of material misrepresentation.

On Sept. 9, the carrier paid $996.25 to a repair shop for towing and storage of the woman's car. On Sept. 26, it made an unconditional tender in the amount of $3,412.50 to the woman and her lien holder. This check was forwarded to the lender. The carrier also settled a claim filed by the driver of the vehicle that had been rear-ended. The woman continued to pursue her claim for damages, however, because of the failure of the carrier to provide her with a rental vehicle and for penalties and attorney fees. The insurer filed an exception to the woman's right to sue, which the trial court denied. The woman was awarded $3,000 for inconvenience, $6,000 in penalties (twice the amount of the damage award, as provided by state law), and $5,000 for attorney fees.

In appealing the decision, the carrier argued that its insurance contract was with the brother-in-law. As owner of the vehicle, only he was the beneficiary of the contract, the insurer said, and only he could sue for damage to the vehicle.

The appeals court opinion was worth quoting verbatim. “Under the circumstances of this case, this argument is disingenuous sophistry. (The carrier) admitted in its answer that the insurance policy was issued “in favor” of (the woman); this admission represents the very privity of contract that the insurer is now denying. Further, after suit was filed, (the carrier) issued a check for property damage payable to (the woman) and (the lienholder on the auto). This is not a situation in which the insured tried to play fast and loose with the insurer. If anything, it appears to be the other way around. Knowing that (the woman) was the owner and principal driver of the vehicle, (the carrier) wrote the insurance contract as it is and represented to (the woman) that the only way she could get coverage for her vehicle was to go through (her brother-in-law). The insurer collected the premiums and when (the woman) tried to collect for the damage done to her car, (the carrier) did all it could to avoid payment. Clearly, (the woman) has a right of action and the trial court correctly denied the exception filed by the insurer.” The trial court's finding for the woman was affirmed.

Jackson vs. USAgencies Insurance Co., No. 37,317-CA (La. App. Cir.2 06/25/2003) 2003.LA.0001014 (www. versuslaw.com).

Animal mortality policy ruled a winner for owners of newly acquired racehorse

The insureds owned thoroughbred racing horses, which were covered by an animal mortality policy. The policy also contained an automatic extension providing coverage for subsequently acquired animals.

On Feb. 5, 2000, the insureds purchased a horse, Acka-dacka-doo, at a $20,000 claiming race. During the race, the horse was injured and had to be put to death that same day. The insureds notified their agent of the acquisition and loss on Feb. 28, 2000. The insurer, however, denied coverage, contending that the terms of the automatic extension provision were not complied with. Specifically, the insurer said the insured had failed to pay the premium on the new acquisition and had failed to provide notice of the acquisition within five days. The insureds sued the insurer, alleging that the policy provided automatic coverage. Both parties moved for summary judgment. The carrier argued that compliance with the terms of the automatic extension provision was a condition precedent to coverage. The insureds argued that notice was irrelevant because the automatic extension provision provided automatic coverage. The trial court granted the insureds' summary and denied the carrier's. The insurance company appealed.

The carrier's policy read in part as follows:

“C. Automatic Extension for Section III Coverage.

“1. If you insure all of your animals (that you insure) with us, all animals subsequently acquired through claiming or bona fide auction will be covered automatically by this policy. Our limit of liability for such animals will not exceed the lesser of: a. the claiming price or the final bid; or b. $50,000.00.

“2. This amount of insurance a. will apply only to your interest in the animal; and b. is subject to our receiving notice that insurance is desired within 5 calendar days from time of acquisition, and in consideration of the premium paid.”

Was there ambiguity? A cardinal rule of insurance law is: “Any ambiguity found in the insurance contract is to be construed against the insurer, since the insurer wrote the policy without any consultation with the insured.” Countryside Casualty. Co. vs. Grant, 269 Ark. 526, 601 S.W.2d 875 (1980). Another case states, “An ambiguity exists when a provision is susceptible to more than one reasonable interpretation.” Keller vs. Safeco Ins. Co., 317 Ark. 308, 877 S.W.2d 90 (1994). The carrier argued that the failure to give notice of either the acquisition or loss of the horse within five days prevented any recovery under the policy and that compliance with the terms of the provision was a condition precedent to coverage. In contrast, the insureds read the provision as providing automatic coverage for a period of five days following the acquisition of an animal. They interpreted the policy language to read that notice of acquisition and loss is necessary only to support proof of loss and a demand for payment. The insureds also read the provision as requiring them to notify the carrier prior to expiration of the five-day automatic insurance period (only) if they desired to extend coverage beyond the five-day period.

The appeals court held that the language in the provision was susceptible to either interpretation and, therefore, that it was ambiguous. Thus construing the language of the provision against the carrier, the court said the horse was insured at the time of acquisition. It was also insured at the time of the loss, which was only a few minutes after the horse's acquisition. At no time prior to the loss did the horse become uninsured.

The insurance company also had argued that the trial court erred when it found there was an enforceable contract of insurance on the horse despite the fact that the insureds had failed to tender an insurance premium. But the appeals court held that the proper consideration was the premium or premiums paid by the (insureds) on their other animals. Therefore, the court said the parties had an enforceable contract. The summary judgment for the insureds was upheld.

Clarendon National Insurance Co. vs. Roberts, No. CA02-1205 (Ark. App. 06/18/2003) 2003.AR.0000810 (www. versuslaw.com).