First circuit holds that injury from portable fire pit does not arise out of premises; in dicta asserts the issue is interesting

Judge Selya introduced his decision in Vermont Mut. Ins. Co. v. Zamsky, __ F.3d __, 2013 WL 5543915 (1st Cir. 2013) by proclaiming that the decision addresses "what some might regard as an oxymoron: an interesting insurance coverage question." 

Andrew Zamsky was an insured under three homeowners' policies issued to his parents by Vermont Mutual.  Each of the policies covered a separate parcel of residential real estate they owned. 

The policies provided coverage for claims of bodily injury caused by an occurrence.  They also contained a "UL exclusion," which excluded coverage for injuries "arising out of a premises" owned by an insured but not itself an insured location. 

On November 27, 2008, Zamsky, claimant Renata Ivnitskaya, and several friends drove to a house which was owned by Zamsky's parents but which was not an insured location under any of the policies. 

Zamsky retrieved from a shed on the property a portable fire pit he had purchased earlier that year.  The group tried to start a fire in it.  When the wood would not burn readily, one of the group retrieved a container of gasoline from the garage or the shed and poured its contents on the fire.

In the subsequent conflagration three people were burned.  Ivnitskaya suffered especially severe burns.

Ivnitskaya sued Zamsky.  As Judge Selya wrote, she alleged a "golconda" (presumably meaning a source of great wealth, and not a mystical state of enlightenment where a vampire is no longer subject to the beast [thank you, Google]) of negligent acts and omissions.

Vermont Mutual agreed to defend the claim under a reservation of rights, and then filed a declaratory judgment action. 

In rendering its decision the court relied on Massachusetts Appeals Court cases that interpreted the UL exclusion.  One held that a UL exclusion did not exclude coverage for a dogbite case because, while the bite happened at the uninsured premises, the dog was not a condition of the premises. 

In  a second Appeals Court case the claimant was on uninsured premises "in order to minister to  a dying tree" (perhaps so that it would no longer be subject to the beast?).  He fell from a ladder and was injured.  The Appeals Court held the UL exclusion applied because "where . . . a third person is on the property to repair a condition of the property . . . there is a sufficiently close relationship between the injury and the premises" such that the injury should be understood to have arisen out of the premises.

Taken together, the courts change the UL exclusion to claims "arising out of a condition of premises" owned by the insured that are not an insured location.  Judge Selya held that a portable fire pit stored at the premises was not a condition of the premises, so the exclusion did not apply. 

Vermont Mutual tried to change the debate by focusing not on "the premises" but on "arising out of," a phrase that is construed broadly.  Judge Selya held that the "arising out of" language only comes into play if there is some causal link between the covered occurrence and a condition of the premises.  "Here, there is no such linkage." 

Judge Selya also rejected Vermont Mutual's argument that if the group went to the premises with the intention of lighting a fire, the occurrence arose out of the premises.  "The group's reason for going to Falmouth was not material because that purpose was not related to a condition of the premises." 

Judge Selya added that if Vermont Mutual had wanted to exclude from coverage all injuries occurring at an owned location it did not insure, "it would have been child's play to say so."

I think Judge Selya's decision is correct as a matter of a federal court interpreting Massachusetts law.   He properly relied on Massachusetts Appeals Court cases because there are no SJC cases on point.  Although Judge Selya asserted that he was predicting how the SJC would rule, I'm not so sure it would follow the Appeals Court cases.  The exclusion does not exclude injuries "arising out of conditions of premises" that are not insured locations; it excluded injuries "arising out of premises" that are not insured locations.  I don't see a basis for reading "condition of" into the exclusion.

Moreover, it makes sense to me that an insured buying three separate homeowner's policies for three discrete houses would not expect that an injury occurring at another house he owns to be covered by those policies.  (The Zamsky family most likely had coverage from a different carrier for the house where the fire occurred.  My guess is that this is a fight between carriers concerned about which one of them will pay if Ivnitskaya prevails on liability in her underlying action, not a fight about whether an insurer or the Zamsky family will pay.  Not that that should make any difference in the contract interpretation issues, but it gives the fight a different flavor, right?) 

In this I find myself at surprising odds with Barry Zalma, an insurance fraud specialist whose posts tend to be in favor of limited coverage.  But here he claims that "the stupidity [of Vermont Mutual] arguing no coverage even outweighed the stupidity of throwing gasoline on a fire."

Is the Insurer Always Justified in Denying Coverage On the Basis of a Breach of a Statutory Clause?

Every automobile insurance policy issued in Ontario contains statutory clause 4.1:

 

                The insured shall not drive or operate or permit any other person to drive or operate the automobile unless the insured or other person is authorized by law to drive or operate it.

 

Section 32 of Highway Traffic Act requires an operator of a motor vehicle to hold a valid driver’s licence. In Kozel v.Personal Insurance Co. [2013] ONSC 2670 (S.C.J), the applicant was a 77 woman year old woman who was involved in a motor vehicle accident in Florida. Her insurer denied coverage on the basis that she was in breach of the policy at the time of the accident because her driver’s license had expired. The applicant brought this application for a declaration that the insurer owed a duty to indemnify and defend her in a third party action against her.

 

Approximately five months prior to the accident, the applicant received documentation from the Ministry concerning the renewal of her driver’s licence and vehicle plate sticker. Two weeks prior to the renewal date, the applicant gave the package of documentation to her dealership where she took delivery of a new vehicle. She was unaware that this package contained her licence renewal. Until the accident occurred, she was unaware that her licence had not been renewed. She reported the accident in a timely manner and renewed her license immediately upon discovering it was expired.

 

Justice Wood cited the 2011 Court of Appeal decision Tut v. R.B.C. General Insurance Company [2011] ONCA 644 where it was held that if an offence for breaching the regulation was one of strict liability rather than absolute liability, it was open to the insured to argue that he took all reasonable care in the circumstances to see that he was not in breach of the regulation. Were he able to argue this defence successfully it would follow that he remained authorized to drive within the meaning of statutory condition 4(1).

 

Justice Wood held that since an offence of driving with an expired licence is one of strict liability, an argument that the applicant exercised due diligence was available. Justice Wood found that the applicant took active steps to ensure that she met her duty, although mistakenly, she provided a believable explanation for her lack of perfect diligence and her actions were those of a reasonable person acting upon a genuinely mistaken belief.  As such, the court found that the applicant was entitled to a defence under the policy.

 

This case shows that breaches of the insurance policy are not always clear cut and can involve the consideration by the court of many subjective factors.    

Can a Plaintiff Avoid Discovery Due to Medical Reasons?

Can a plaintiff avoid attending discovery or an independent medical examination due to anxiety or an inability to respond to questions appropriately?

In Lalousis v. Roberts, 2013 ONSC 5897 (S.C.J), the plaintiff sought $4 million in two actions relating to two motor vehicle accidents.  She alleged that she could not participate in oral discovery or an IME  due to medical reasons, including that she was not able to respond to questions, had poor communication and attention, and discovery would increase her anxiety and depression.  She sought to avoid the discovery process or have her husband act as a substitute.

Master Muir dismissed the motion.  A party has a prima facie right to a full and complete discovery of an adverse party, which includes oral examination and may include a medical examination.  The threshold to limit a party's right to discovery is a high one and should be ordered only in the rarest of cases.  In the circumstances, an examination for discovery might be unproductive as she may not provide responsive answer, and it could cause anxiety for the plaintiff; however, there was no evidence that it would cause her permanent damage.

In order to permit the defence to fully respond to the claim against it, it makes sense that the threshold for taking away those rights is very high.

First Circuit overturns itself on flood insurance requirement

I posted here about  Kolbe v. BAC Home Loans Servicing, LP, 695 F.3d 111 (1st Cir. 2012), a case in which the First Circuit Court of Appeals overturned the dismissal of the complaint of a homeowner alleging that a mortgage lender did not have authority under the loan documents to demand that the homeowner purchase flood insurance in excess of the outstanding loan amount.  The court held that the loan documents were ambiguous and that therefore the court could not determine the issue as a question of law. 

The First Circuit has now revisited the case in Kolbe v. BAC Home Loans Service, LP, __ F.3d __, 2013 WL 5394192 (1st Cir.) and overruled its prior decision.

Kolbe, the homeowner, contended that the mortgage lender cannot require more than the federally mandated minimum flood insurance, which is the lesser of the balance of the loan or $250,000 in flood zones and $0 in non-flood zones. 

Kolbe's mortgage loan was guaranteed by the Federal Housing Administration.  The mortgage agreement contained uniform covenants that are required by HUD regulations to be in every FHA-insured mortgage.  One of those covenants provided:

4.  Fire, Flood and Other Hazard Insurance.  Borrower shall insure all improvements on the property, whether now in existence of subsequently erected, against any hazards, casualties, and contingencies, including fire, for which Lender requires insurance.  This insurance shall be maintained in the amounts and for the periods that Lender requires.  Borrower shall also insure all improvements on the Property, whether now in existence or subsequently erected, against loss by floods to the extent required by the Secretary [of HUD]. 

Kolbe filed a class action suit contending that under the contract the bank could not require him to purchase insurance in excess of the balance of the loan.  The District Court granted the lender's motion to dismiss.  Kolbe appealed, and in the panel decision discussed in my previous post the First Circuit vacated the dismissal.  The First Circuit then granted rehearing en banc.

In its en banc decision the court held, first, that the contract provision was a uniform provision used in many contracts, and therefore it must be interpreted uniformly regardless of what an individual contracting party may have understood the clause to mean. 

It held, second, that because the uniform contract language was imposed by the government of the United States, the government's meaning with respect to the language controls.  That meaning is determined in light of the purposes for which the government imposed the language and the context of the relevant regulatory scheme.

The court held that the bank's interpretation was the correct one.  The language of the clause by itself and in combination with other clauses in the contract makes clear that the bank can impose a requirement of additional flood insurance. 

The court also held that under a broader context the bank's interpretation must prevail.  As one example given by the court, if the borrower defaulted on an FHA-guaranteed loan, HUD ultimately would take possession of and sell the property, reimbursing the mortgage insurance fund with the proceeds of the sale.  But if the house had been destroyed by flood then "there is nothing" (a slight exaggeration, but still) for HUD to sell. 

Finally, the United States submitted an amicus brief supporting the bank's interpretation.  The court held that it was required to defer to the interpretation offered by the United States unless that interpretation was clearly erroneous.   

The Government Shutdown and OWCP benefits

I have been receiving many concerned calls from FECA claimants regarding the status of their OWCP benefits in light of the government shutdown. OWCP is continuing to operate. While district offices are not answering telephones, wage loss payments, medical bills, and many case adjudication actions are all continuing to occur. The Branch of Hearings and Review is not conducting hearings during the shutdown.

Restoring an Action to the Trial List

The Court of Appeal has provided guidance with respect to the test for restoring an action to the trial list.

In Nissar v. Toronto Transit Commission, 2013 ONCA 361 (C.A.), the plaintiff alleged she was injured while a passenger on a bus in 1999. Examinations for discovery took place in 2002, but transcripts were not ordered and the tapes were destroyed in 2010.  Although the matter was set down for trial in 2004, it was struck off the trial list in 2005.  The plaintiff changed counsel three times.  The motion to restore the action to the trial list was not brought until 2011, and not heard until 2012.  The motion judge dismissed the motion, holding there was no explanation as to why it had taken seven years to bring the motion to restore the action to the trial list, and there was prejudice to the defendant as pre-accident OHIP records were not available and the defendant might not remember details of an accident that occurred 13 years previously.

The Court of Appeal dismissed the appeal. The plaintiff bears the onus of demonstrating there is an acceptable explanation for the delay in the litigation and that, if the action were allowed to proceed, the defendant would suffer no non-compensable prejudice.  In the circumstances, the plaintiff had failed to meet the test.

The Nissar decision was release concurrently with the Faris case, which was the subject of last week's post. They may signal a new emphasis on moving cases swiftly through the system, rather than allowing them to languish for several years.

Book Review of Insurance Regulation Answer Book 2014, with discount code

The last time I was asked to review a book was when I was a college student freelancing for Seventeen Magazine.  I remember being sort of embarrassed for giving a rave review of The Adrian Mole Diaries; but I couldn't help it -- I loved the book.  In the same way I feel sort of silly to say that Practising Law Institute's Insurance Regulation Answer Book 2014 is a fantastic book, but I really think it is.  Well-written, informative, easy to understand, and interesting (at least to insurance coverage junkies like me). 

In the spirit of full disclosure I was asked by PLI itself to review the book, and received a free copy in exchange.  It's not quite a junket but a perk is a perk.

To clear up some confusion:  despite the British spelling of "practising," PLI is located in New York and the book addresses American law. 

I had planned to skip to the parts of the book that discuss the subject I know -- liability insurance.   But I immediately realized that this book is written and formatted so clearly that just by skimming it I was learning.  For example, I did not know that life insurers are often prohibited from offering property and casualty insurance. 

The first chapter provides succinct definitions of the different types of insurance.  Ever wondered about the difference between casualty and liability insurance?  (I have.)  Turns out they are mostly but not completely interchangeable, and the book explains the subtle difference in definitions. 

Chapter 2 gets into the heart of the book -- and territory more or less unknown to me.  It discusses why states regulate insurance and the limited but changing role that the federal government plays in such regulation. 

The rest of the book  provides technical information, such as on the different forms of insurance companies, licensing issues, etc.  There's also a healthy bit of discussion on reinsurance, which I have always considered a whole different world (sort of like a Superior Court litigator trying to navigate Probate Court). 

I doubt that I'll have much use in my practice for the details the book provides -- my cases don't tend to involve international agreements among insurers, for example.  But in light of recent developments in insurance law, having an overview is helpful.  While I knew that the Federal Insurance Office somehow came into existence within the last few years, I didn't understand why.  Now I know its relationship to the Dodd-Frank Act, and how that Act, which was created to regulate banks, also affects insurance.

Overall, I don't recommend this book for the casual insurance coverage practitioner.  But for anyone who makes a habit of insurance coverage cases, this book provides valuable background. 

Special to my blog-readers:  Here's a link with a fifteen percent discount off the book.