Summer 2009 Newsletter

INSURANCE CLAIM HANDLING

Insurer’s Post-Complaint Conduct Can Not Be Considered as Evidence of Bad Faith.

In Allstate Insurance Company v. Fields, 885 N.E.2d 728 (Ind. Ct. App. 2008), the insureds brought a UM claim against Allstate demanding the $50,000 limits.  Allstate refused to make an offer until the insureds complied with the policy condition requiring them to complete medical/wage authorizations and Proof of Loss forms.  The insureds ultimately provided executed authorizations, but no Proof of Loss forms.  Allstate reiterated that no settlement offer would be made unless the insureds submitted the forms as required by the policy.  The insureds sued Allstate for breach of contract and bad faith. 

During litigation, Allstate’s motion for partial summary judgment on the bad faith claim was denied.  In addition, various discovery disputes erupted which ultimately resulted in a default judgment against Allstate on the bad faith claim.  Allstate sought to appeal both decisions and was successful at the Indiana Court of Appeals.  However, the decision was vacated by the Indiana Supreme Court, which held that an appeal was premature.  The case was remanded and tried on the issue of damages only.  At trial, the insureds argued that Allstate’s claims handling had caused Ted Fields to suffer two strokes, two heart attacks, and diabetes.  The jury awarded the insureds $2 million compensatory damages and $18 million punitive damages (reduced to $6 million by the trial court per the statutory cap) and Allstate appealed.

The Court of Appeals, for the second time, found in favor of Allstate and vacated the jury verdict.  First, the Court limited its review to Allstate’s conduct before the bad faith claim was filed.  Second, the Court concluded that there was no indication that Allstate caused an unfounded delay in making payment or acted with ill will or conscious wrongdoing by delaying payments until Fields complied with provisions of his policy or until Allstate could obtain complete medical and wage information to evaluate the claim.  Accordingly, the Court remanded the case to the trial court with instructions to enter summary judgment in favor of Allstate on the bad faith claim.  

Kentucky Drastically Alters Permissive Use Rules – Abandons Minor Deviation Rule for Initial Permission Standard.

The Kentucky Supreme Court issued an opinion in Mitchell v. Allstate Insurance Company, 244 S.W.3d 59 (Ky. 2008) which drastically altered the state’s rule in permissive use cases.  In Mitchell, Rita allowed her friend Virginia to use her car, and Virginia in turn allowed her son Allan to use it to drive to and from work.  There was conflicting testimony about whether Allan was allowed to ever use it for other purposes.  One day, Allan picked up some friends and was involved in a single-vehicle accident, killing Allan and injuring his passengers.

Allstate denied coverage for the loss, based on Maryland Casualty Company v. Hassell, 426 S.W.2d 133 (Ky. App. 1967), which adopted the “minor deviation” rule.  Since Allan was not driving to or from work at the time of the accident, Allstate reasoned, he was outside the scope of permission, and not an insured.  The trial court entered summary judgment for Allstate, which was affirmed by the Kentucky Court of Appeals. 

The Kentucky Supreme Court reversed.  The Mitchell court agreed with Hassell insofar as it held that initial permission from an insured could either be express or implied.  However, a majority of the court concluded that the “minor deviation” rule was not consistent with the goals of the Kentucky Motor Vehicle Reparations Act (“KMVRA”), which was not in existence when Hassell was decided.  The majority noted that Kentucky courts interpret omnibus clauses broadly so as to maximize availability of liability insurance for the protection of the general public.  Consistent with that interpretation, the five justices in the majority decided that the “initial permission” rule would better achieve the KMVRA’s goals of protecting innocent victims of auto accidents and speed up the recovery process.

Under the “initial permission” rule, which is in use in a handful of other jurisdictions, as long as the insured initially affords permission to use an insured vehicle, any subsequent use of that vehicle will be covered, even if it is wholly outside the bounds of the contemplated use.  As such, even if Rita expressly told Virginia not to let Allan drive the car at all, Allan would be an insured under the policy, as Rita gave permission to Virginia.

There are two exceptions to the “initial permission” rule.  If an individual’s use of a vehicle constitutes theft or conversion, he or she will not be an insured.  According to the Mitchell majority, an individual is not a converter if he or she uses the vehicle “in the good faith belief that he is legally entitled to do so.”  The second exception occurs if the operator uses a motor vehicle in a manner intending to injure others.  Absent one of these two limited circumstances, any use of an insured vehicle will be found to be within the scope of the insured’s consent, rendering the operator an “insured” under the liability portion of the policy.

EVIDENCE

Vocational Expert’s Reliance on General Census Data Fails Daubert Evidentiary Standard.

The Indiana Court of Appeals ruled in Kempf Contracting and Design, Inc. v. Holland-Tucker, 892 N.E.2d 672 (Ind. Ct. App. 2008), that the trial court abused its discretion in permitting John Tierney, Vocational Economics, to testify regarding his opinions as to the reduction of plaintiff’s capacity to work and earn money after she was injured.  In doing so, the Court found that plaintiff had failed to prove that Tierney’s methodology was scientifically reliable under Indiana Evidence Rule 702(b).  At the trial, Tierney testified that plaintiff had sustained a physical disability as a result of the accident.  To reach his conclusion, Tierney testified that he used the definition of physical disability found in the American Community Survey (which is conducted by the U.S. Census Bureau).  He then reviewed compiled databases regarding the earning capacity of people with physical disability who have a bachelor’s degree, as does the plaintiff.  However, he did not compare the data as to the plaintiff’s specific profession, nor the plaintiff’s specific disability.  Tierney testified this methodology was well known in the vocational field.  However, since Tierney did not provide any support for this claim, the Court of Appeals held that such a statement was insufficient to show that the methodology was reliable, and therefore, the testimony should have been excluded.

Third-Party Carrier Has No Duty to Preserve Evidence Which Has No Foreseeable Evidentiary Value.

Insurance carrier can have a duty to a third party claimant to preserve evidence.  The Indiana Court of Appeals in ANPAC v. Wilmoth and Sharpe and Bowers, 893 N.E.2d 1068 (Ind. Ct. App. 2008), explained that, in order to determine whether an insurer has a duty to a third party claimant, courts must analyze the relationship of the parties, the foreseeability of the harm and the public policy behind enforcing a duty. 

Wilmoth and Rider lived in a house rented from the Bowers and insured by ANPAC.  The house was destroyed by fire, and Rider died as a result of the fire.  The firefighters threw several items out of the house, including a couch, which remained on site for approximately six weeks.  The Bowers eventually threw the items away, including the couch.  The firefighters determined the fire was accidental and originated from an electric space heater.  Later, plaintiffs’ expert believed the fire started in the area of the sofa.  Plaintiffs sued ANPAC under a spoliation theory for allowing the couch to be destroyed.  The trial court denied ANPAC’s summary judgment motion, and the Court of Appeals reversed.

The Court of Appeals first found that ANPAC had no contractual relationship with Wilmoth or Sharpe, and, further, never had possession of the couch.  Indeed, it was the owner who threw out the couch.  Notwithstanding the lack of any special relationship, the Court found that an insurer can have a relationship to a third-party sufficient to allow a spoliation theory to proceed if the insurer takes possession of items that will be key to litigation if a claim is denied.  The Court also denied ANPAC’s invitation to hold an insurer can never owe a third party a duty to preserve evidence not in its exclusive control.  Rather, the Court concluded that ANPAC did not owe a duty to Wilmoth and Sharpe since the couch had no forseeable evidentiary value.

First-Party Cause of Action for Negligent Entrustment Rejected.

Bailey v. State Farm Mut. Auto. Ins. Co., 881 N.E.2d 996 (Ind. Ct. App. 2008), involved a claim for underinsured motorist benefits.  Caudill allowed Bailey to drive his car, and they were involved in a single-car accident in which Bailey sustained serious injuries.  Both were intoxicated.  Bailey sued Caudill, who subsequently tendered his liability limits, and then pursued a UIM claim against State Farm.  At trial, Bailey moved to amend his Complaint to add a claim of first-party negligent entrustment.  The trial court denied this motion and granted State Farm’s motion in limine on the same issue.  After the jury entered a defense verdict, Plaintiff appealed.  We are proud to note that Rodney Scott and Ken Doane tried the case on behalf of State Farm.

The Court of Appeals held, as a matter of first impression, that a voluntarily intoxicated adult (Bailey) does not have a right to maintain a first-party cause of action against the vehicle owner (Caudill) for negligently entrusting the vehicle to him.  The Court of Appeals also held that the evidence at trial also failed to establish Caudill’s actual knowledge of Bailey’s intoxication. The defense verdict was upheld.