August 2015 Case Notes & Comments

"Organizing is what you do before you do something,
so that when you do it, it is not all mixed up." ~ A.A. Milne

MONTHLY QUIZ: Insurer issues an automobile liability coverage policy to Driver providing coverage for liability but not collision. Under the liability coverage, Insurer agrees to pay all sums "which the insured shall become legally obligated to pay as damages, because of [...] property damage arising out of the operation [...] of [...] any non-owned automobiles." Driver rents a vehicle from Rental Company, and signs a contract containing a Collision Damage Waiver Notice, advising Driver to "carefully consider" coverage available to her for damage to the vehicle. Driver declines all the optional protections and coverages offered by Rental Company. Driver is then involved in a hit-and-run accident, damaging the vehicle. Rental Company sues Driver for the damage. Insurer files a declaratory action against Driver and Rental Company, seeking an order that Insurer has no duty to defend or indemnify Driver for the damage, and that Rental Company is not entitled to recover any funds under the policy. Insurer supports its position with two arguments: First, it claims that its liability coverage is not triggered because collision damage to a rental vehicle falls under collision coverage, which Driver did not purchase from Insurer. Second, Insurer argues that, even if liability coverage includes damage to the rental vehicle, an exclusion within that coverage for "injury to or destruction of property rented to [...] the insured" applies. The circuit court agrees and enters judgment in favor of Insurer. The Rental Company appeals. Should the appellate court affirm or reverse the lower court's order? You be the Judge. (Answer below.)

POLICY CANCELLATION HELD INEFFECTIVE DUE TO REINSTATEMENT: Policyholder purchased a homeowners policy from Insurer that provided for reinstatement of the policy if Policyholder pays a premium installment after the cancellation date. The policy stated that the reinstatement will be void and the policy will remain cancelled if (1) the payment is dishonored or (2) a claim arises from an event occurring between the cancellation date and Insurer's receipt of payment. Policyholder failed to pay a premium installment by the cancellation date, but mailed a payment to Insurer, which Insurer accepted. Two days later, Policyholder's garage was damaged by a fire. Policyholder presented claim, which was denied by Insurer on the basis that the policy was "not in force" on the date of the fire. Thereafter, Insurer attempted to return Policyholder's premium in the form of a check with the notation, "This check is issued for the following reason - policy cancelled." Policyholder did not cash the check and, instead, filed a complaint against Insurer alleging breach of contract and bad faith. The trial court found that the policy had been cancelled, but the appellate court disagreed, noting that the policy specified two conditions under which a reinstatement may be voided, neither of which applied. The appellate opinion pointed out that Insurer could have protected itself by drafting more specific requirements for reinstatement in the policy, or by refusing to accept Policyholder's payment, which Insurer "had every right to do." Zeller v. AAA Ins. Co., 2015 WL 4626757 (Aug. 4, 2015). 

BORROWING EMPLOYER ENTITLED TO EXCLUSIVE REMEDY PROVISION OF WORKERS' COMPENSATION ACT: Plaintiff slipped and fell while working for Hospital as a registered nurse through a Temporary Staffing Agency. After Staffing Agency settled Plaintiff's workers' compensation claim, Plaintiff filed a premises liability action against Hospital based on the same injury, alleging that Hospital was negligent in failing to warn of the slick, recently-mopped area where she slipped and fell. Hospital filed a motion for summary judgment, arguing that the premises liability action was barred by the exclusive remedy provision of the Workers' Compensation Act, 820 ILCS 305/5(a)(West 2008), because Plaintiff was Hospital's borrowed employee at the time of the injury. Plaintiff responded by arguing that she was not an employee of Hospital at the time of the injury.  The circuit court granted Hospital's motion for summary judgment on the basis that the premises liability action was barred by the exclusive remedy provision of the Act. Plaintiff appealed, arguing that Hospital's dispositive motion should have been denied because there was a genuine issue of material fact regarding whether Plaintiff was Hospital's borrowed employee. The appellate court affirmed the circuit court's judgment, holding that the lower court correctly applied the two-prong inquiry to determine whether the borrowed-employee relationship existed: (1) whether the alleged borrowing employer had the right to direct and control the manner in which the employee performed the work, and (2) whether there was an express or implied contract of hire between the employee and the alleged borrowing employer. Since Hospital had the right to direct and control Plaintiff's work, and had the right to immediately terminate Plaintiff at its sole discretion, the first prong was met. Also, Plaintiff impliedly consented to the borrowed-employee relationship by accepting Hospital's temporary work assignments and control, meeting the second prong. Reichling v. Touchette Reg'l Hosp., Inc., 2015 IL App (5th) 140412 (Jul. 16, 2015).

SUBCONTRACTOR'S INSURER ASSERTS STATUS AS CO-PRIMARY LIABILITY COVERAGE, BUT HELD TO BE SOLE PRIMARY: Developer obtained an insurance policy for a commercial development project. Subcontractor's Employee sued Developer for injuries sustained in an accident at the construction site. Developer's Insurer filed a declaratory action against Subcontractor's Insurer, seeking a declaration that Developer was an additional insured under the Subcontractor's policy, and that Subcontractor's Insurer had the sole duty to defend Developer. The circuit court agreed with Developer's Insurer, and entered judgment in its favor. Subcontractor's Insurer appealed, requesting that the lower court be reversed and a new order entered finding Subcontractor's Insurer to be co-primary with Developer's Insurer, with both insurers obligated to share in the defense of Developer. Both policies contained identical "other insurance" provisions, stating that each policy is excess over "any other primary insurance available to you." Although Subcontractor's Insurer argued that the identical "other insurance" provisions were "mutually repugnant" and cancelled each other out, the appellate court disagreed.  The appellate court reasoned that, since Developer was the named insured on its policy, and Developer was an additional insured under the Subcontractor's policy, the Developer's Insurer's "other insurance" clause operated to make the Developer's policy excess over the Subcontractor's insurance. By contrast, Subcontractor was not named as an additional insured on the Developer's policy, so the Subcontractor's policy's "other insurance" provision did not apply. Accordingly, the Subcontractor's policy was primary, the Developer's policy was excess, and the two policies' "other insurance" provisions were reconcilable. Certain Underwriters at Lloyd's London v. Burlington Ins. Co., 2015 IL App (1st) 141408 (Jul. 15, 2015).

ANSWER TO QUIZ: The appellate court held that Insurer's first argument was wrong but its second argument was right. Even though the accident damage was included within the liability coverage, the exclusion for "property rented to" the insured applied. The appellate court found that the case was distinguishable from instances in which an insured declines collision coverage for a car she owns. In this instance, Driver "quite clearly does have liability for the damage to the vehicle she was driving" because she is liable to the owner of the car, the Rental Company, who sued her for damages. Nonetheless, the exclusion for "rented" property applied. Courts have identified the purpose of that exclusion as allowing lower premiums for insureds seeking a more minimal liability coverage, and Driver could have avoided the exclusion's effect by purchasing more comprehensive coverage from Insurer, or purchasing coverage from Rental Company. Founders Ins. Co. v. Walker, No. 1-14-1301, 2015 WL 4386040 (Jul. 16, 2015).

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