Lessor, lessee, and additional insured coverage
By Christine Barlow
The issue in this case was whether the insurer was obligated to provide a defense and indemnity to the appellant. The case is Currier v. Penn-Ohio Logistics, 2010 WL 254906 (Ohio App. 11 Dist.).
The appellant, American Steel City Industrial Leasing, purchased a 750,000 square foot industrial complex in Ohio. American leased buildings 23, 23A, 25, 25A, 27, and 29 to Penn-Ohio Logistics. Raymond Queen was employed by Penn-Ohio. While Queen was at work unloading and stacking steel bundles, he stacked over 800,000 pounds of steel on a floor. Due to the weight of the steel, the floor collapsed and Queen was mortally injured.
Queen's estate filed a wrongful death action against Penn-Ohio and American. The insurer, Erie Insurance Exchange, filed a motion for summary judgment, claiming it had no duty to defend or indemnify. The trial court found that the additional insured coverage that Penn-Ohio obtained for American pursuant to the lease, only covered American for vicarious liability resulting from Penn-Ohio's negligence; American's independent acts of negligence were not covered. And, since the only claim in the complaint against American was based on its alleged independent acts of negligence, rather than vicarious liability, American was not entitled to coverage under the policy as an additional insured. This appeal followed.
The appeals court noted that the lease required Penn-Ohio to maintain a comprehensive general liability insurance policy and to include American as an additional insured. The additional insured wording declared that American was considered an insured "but only with respect to liability arising out of Penn-Ohio's operations or premises rented to Penn-Ohio". The policy did not define the phrase "liability arising out of". The insurer argued that it meant additional insured coverage for vicarious liability only. American argued the endorsement provided coverage in two separate situations: the wording pertaining to Penn-Ohio's operations refers to vicarious liability and the words pertaining to the premises rented to Penn-Ohio refers to coverage for American's independent acts of negligence occurring on the leased premises.
As to vicarious liability, the court found that it was manifest that vicarious or secondary liability attaches only to the extent the primary actor is liable; the secondary liability of the additional insured arises when the party is held responsible based solely on its relationship with the responsible actor. In this instance, as to the operations of Penn-Ohio (as Queen's employer), Penn-Ohio could only be liable to Queen for employer intentional tort, and American could thus only be vicariously liable for Penn-Ohio's intentional tort. However, since American was not seeking coverage for its vicarious liability under the "operations" language of the endorsement; the issue was moot. The court then turned to American's argument that the "premises" language in the additional insured endorsement gave coverage to American for its independent acts of negligence.
The court found that the endorsement did not provide coverage for American's independent acts of negligence and listed several reasons for this opinion. First, the term "arising out of" relates to both operations and leased premises in this case and any coverage for American is limited in both instances to situations where its liability arises out of American's relationship with Penn-Ohio; this is the essence of vicarious liability. Second, the amount of premium charged for the additional insured coverage demonstrated that the parties did not intend to insure American for its independent acts of negligence. Third, in order for the coverage urged by American to be provided, the endorsement would have had to indicate that American was to be an insured with respect to its own independent acts of negligence that occur on the leased premises; this wording was not in the endorsement. Finally, the plaintiff's claim against American was based on its independent acts of negligence, not the leased premises, and so, the claim is not within the scope of the additional insured endorsement.
The judgment of the trial court was affirmed.
Editor's Note: This case endorses the narrow view that additional insured coverage is meant for vicarious liability only, that is, no coverage for any negligence of the additional insured that is independent of the activities of the named insured. On the other hand, the broad view is that, if the activities of the additional insured cause injury or damage, the named insured's CGL form will apply to a claim as long as there is some connection between the additional insured's activities and the named insured's operations or premises. This is an ongoing issue and courts will continue to provide their own interpretation of the additional insured coverage on a case by case basis, but note that most courts at this time are not accepting the narrow vicarious liability only argument.
Loss of consignment sale proceeds covered under garage policy?
Rocky Greenfield d/b/a G&G Liquidation and Auction Company appealed the summary dismissal of his breach of contract and consumer protection lawsuit against his insurer, Western Heritage Insurance Company. The court of appeals of the state of Washington handled this case in Rocky Greenfield v. Western Heritage Insurance Company, 2010 WL 702276 (Wash. Ct. App.).
Greenfield insured his wholesale motor vehicle dealership with Western Heritage under a garage policy. The policy covered loss caused by theft but also excluded loss due to theft or conversion caused by the named insured or its employees. The policy did not define theft or conversion.
In April 2005, Greenfield provided a pickup truck to Medlen, owner of Silverauto Sales, on consignment. The parties agreed that Medlen would pay Greenfield $15,000 after selling the truck and Greenfield delivering the title. Silverauto later sold the truck and the customer's check was deposited into Silverauto's bank account. However, before Greenfield could be paid his $15,000, the bank froze Silverauto's account. Medlen told Greenfield about this and assured him that he did not intend to deprive Greenfield of the truck without paying for it. Medlen later filed a chapter 7 bankruptcy and Greenfield remained unpaid. Greenfield made a claim under his garage policy for the loss of the $15,000, the insurer denied coverage, and Greenfield sued for a declaratory judgment. The trial court found in favor of the insurer and this appealed followed.
Greenfield maintained to the appeals court that his truck loss resulted from a covered theft due to commingled funds. However, the court said that unquestionably, the vehicle was not stolen. Rather, Greenfield lost the opportunity to collect the consignment sale proceeds from the bank funds of Silverauto and he became no more than an unsecured creditor in Medlen's liquidating bankruptcy.
Moving on to the garage policy, the court noted that the policy provided coverage for physical damage or loss to an automobile. Greenfield actually made his claim for lost proceeds and not for physical damage to the vehicle. So, the court found that the policy language did not provide coverage for the loss claimed by the insured. And even though the garage policy did apply to a loss due to theft, "theft" required an unlawful or wrongful taking of property with criminal intent. Greenfield failed to show Medlen's intent to unlawfully or wrongfully take the truck. Greenfield consigned the truck to Medlen. Medlen sold the truck but before the consignment sale could be completed, the bank, another creditor, intervened by freezing all the funds in Medlen's business account, including third-party sale funds. This does not show any nefarious or criminal intent on the part of Medlen.
The holding of the trial court was affirmed.
Editor's Note: There are some points to be taken from this decision.
A garage policy that applies to a loss "to" a covered auto may very well not apply to a claim for loss of money from the sale of that covered auto. It is true that in this case Greenfield lost both the vehicle and the money from the sale of that vehicle, but the court read the insuring agreement very narrowly and the insured perhaps incorrectly worded his complaint. In any case, the facts here relegated the insured to the status of an unsecured creditor in a bankruptcy situation and the insurance policy did not affect that status.
The garage policy does apply to a loss to a vehicle caused by theft. But, the standard garage coverage form does not define theft, leaving it up to courts to interpret that word using established legal statutes. The insurer won this decision, but a clear definition of theft in any policy that covers a theft loss would eliminate a possibly open-ended, far-reaching interpretation by some other court in the future.
Musings on a defamation case
The following case does not deal with an insurance claim, but it has information that can be helpful if an insured were to get sued and seek insurance coverage under the personal and advertising injury liability section of the CGL form. This case is Hung Tan Phan v. Lang Van Pham, 2010 WL 658244 (Cal. Ct. App., 4th App. Dist.).
What happens when you receive a defamatory e-mail over the internet and simply hit the forward icon on your computer, sending it on to someone else? Under California case law, you cannot be held liable for the defamation. However, what happens when you receive a defamatory e-mail and you forward it along, but, in a message preceding the actual forwarded document, you introduce it with some language of your own? That was the situation facing the California court of appeals in this case.
The president of the group of veterans from the Navy and Merchant Marine of the Republic of Vietnam sent an e-mail to his fellow veterans accusing Hung Tan Phan of having been disciplined by the Navy of the Republic of Vietnam for abusive behavior. Lang Van Pham received the e-mail and sent it on to his fellow veterans after including this introductory paragraph of his own: Everything will come out to the daylight. I invite you and our classmates to read the following comments ....
Phan sued several people over the contents of the e-mail and the complaint against Pham brought this issue to the court of appeals: was the introduction written by Pham enough to allow a lawsuit against Pham to continue?
The trial court ruled that the case against Pham should be dismissed and the appeals court agreed. The court reviewed previous case law (both state and federal) and upheld the rule that a defendant's own acts must materially contribute to the illegality of the internet message for any immunity to be lost; merely passing on an e-mail without enhancing it (that is, materially contributing to the e-mail message) will not create an independently actionable act. In this case, the court said, it was evident that Pham made no material contribution to the alleged defamation in the e-mail he received. His original language just said in essence: look at this, the truth will come out in the end and what will be will be. The only possible defamatory content to be found in the e-mail was the original content received by Pham and nothing Pham added or created was by itself defamatory.
Editor's Note: With the over-abundance of e-mails flowing through computers these days, it is possible that an insured could receive a message that allegedly defames another person or a company. And, without thinking too much about, the insured could pass on the message with basically the same introductory language that Lang Van Pham used. If the insured then gets included in a lawsuit and seeks coverage under his CGL form, the insurer can use this decision in any defense. The decision was certified for publication and California rulings do carry weight in other jurisdictions.
The language of any introductory message would have to be examined on a case by case basis, of course, but an insured need not be held liable for sending defamatory comments he has received by e-mail just because he sends the comments on and says in effect "Hey, look at this".
Economic loss doctrine and professional liability coverage
The Arizona Supreme Court has offered an opinion on the economic loss doctrine in the context of professional liability, with the decision being one of first impression and statewide importance. This case is Flagstaff Affordable Housing Limited Partnership v. Design Alliance, Inc., 2010 WL 476683 (Ariz.).
Flagstaff Affordable Housing contracted with architects Design Alliance for the design of eight apartment buildings and a community center. After completion of the buildings, the U.S. Department of Housing and Urban Development filed a complaint against the owner, alleging that the apartments violated the accessibility guidelines. After settling with the department, the owners sued Design and the contractor, alleging breach of contract and negligence.
Design moved to dismiss the complaint, arguing that the contract claim is barred by the statute of repose in Arizona and arguing that the negligence claim should be dismissed because the economic loss doctrine precludes tort recovery of economic losses in the construction defect setting. The owner voluntarily dismissed the contract claim, but argued that the economic loss doctrine does not bar the claim for professional negligence. The owner said that this claim for professional negligence is based on the special relationship between the architects and their client and so, is excepted from the economic loss doctrine.
The trial court dismissed the claim, the court of appeals reversed, and the Supreme Court then took the case under review.
The Supreme Court began its review defining economic loss. Economic loss refers to pecuniary or commercial damage, including any decreased value or repair costs for a property or product that is itself the subject of a contract between the plaintiff and defendant, and consequential damages such as lost profits. The court said that it uses the phrase to refer to a common law rule limiting a contracting party to contractual remedies for the recovery of economic losses unaccompanied by physical injury to persons or other property. And giving due consideration to existing case law, the court then concluded that in construction defect cases, "the policies of the law generally will be best served by leaving the parties to their commercial remedies when a contracting party has incurred only economic loss, in the form of repair costs, diminished value, or lost profits". In other words, under the economic loss doctrine, a contracting party is limited to its contractual remedies for purely economic loss from construction defects; there is no tort recovery for a negligence claim for a purely economic loss. Now, the parties can contractually agree to preserve tort remedies for a solely economic loss, but if they do not so provide in the contract, the sole remedy is the contractual remedy.
The court said that it did not hold that the economic loss doctrine applies to architects because they are professionals, but instead because the policy concerns that justify applying the doctrine to construction defect cases do not justify distinguishing between contractors on the one hand and design professionals, including architects, on the other. The adoption by the Supreme Court of Arizona of the economic loss doctrine in construction defect cases reflects its assessment of the relevant policy concerns in that context. The decision of the appeals court was vacated and the case was remanded to the trial court for further proceedings.
Editor's Note: The economic loss doctrine has been intertwined with construction defect disputes for quite a while. It may be difficult for a claimant to separate its physical damage loss from a loss of revenue or profit, but in general, liability policies are applicable to physical damage to tangible property and profit or revenue is not tangible property; the economic loss doctrine simply reinforces this point.
This decision from the Supreme Court of Arizona does note that contracting parties can contractually agree to allow a tort remedy for an economic loss and thus, bring a general liability policy into play. But, absent this action, insurance policies will continue to be applied to tort liabilities of the insured and not to simple breach of contract claims.
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