Duty of landowner to recreational users
By David Thamann
There are a number of items common to daily living that cause difficulty to insurers and insureds because it is not certain whether damage to such items should be covered by insurance on the building or by that on the contents in the building. Wall-to-wall carpeting, and to a lesser extent, draperies or curtains, and lighting fixtures continue to be a particularly active subject of discussion and dispute.
Even when there is no question that the loss is a covered loss, other issues do arise. As examples: although the peril that caused the loss is the same for both building and contents, the amount for one item has been exhausted; the insured has purchased coverage on one item but not on the other; coverage for the building is on replacement cost basis, but coverage for the contents is on an actual cash value basis; and, the building is insured with one company and the contents are insured with another.
Duty of landowner to recreational users
The Texas Supreme Court considered whether a landowner owes a duty to recreational users to warn or protect the users against the danger of a naturally occurring condition. This case is City of Waco v. Debra Kirwan, 2009 WL 3969375 (Tex.).
McGehee was watching boat races in Cameron Park, a municipal park located in Waco. He was sitting on top of a cliff when the solid rock ground collapsed underneath him, causing him to fall about sixty feet to his death. Debra Kirwan, individually and as representative of the estate of McGehee filed a premises liability lawsuit against Waco, alleging that the death was proximately caused by the gross negligence of the city. The trial court found in favor of the city and the appeals court reversed. Then, the case went to the state Supreme Court.
The court noted that the Texas Tort Claims Act sets the duty owed in premises liability as this: if a claim arises from a premise defect, the governmental unit owes to the claimant only the duty that a private person owes to a licensee on private property, unless the claimant pays for the use of the premises. However, the recreational use statute modified this duty with a specialized standard that dictates the landowners must refrain from gross negligence, or from acting with malicious intent or in bad faith. Added to this by the court was the state's traditional, common law duty analysis considering several interrelated factors, including the risk, foreseeability, and likelihood of injury weighed against the social utility of the actor's conduct, the magnitude of the burden of guarding against the injury, and the consequences of placing the burden on the defendant.
Using these items as points of reference and analyzing the facts of this situation, the court decided the following. The risks inherent in a natural condition will ordinarily be foreseeable not only to the landowner but also to the user as well, especially here since the city had erected a wall and posted a sign warning visitors to stay away from the cliff's edge.
Moreover, it is generally unreasonable and unduly burdensome to ask a landowner to seek out every naturally occurring condition that might be dangerous and then warn of the condition or make it safe. And finally, a landowner, lessee, or occupant under the recreational use statute does not generally owe a duty to others to protect or warn against the dangers of natural conditions on the land, and therefore, may not ordinarily be held to have been grossly negligent for failing to have done so.
The judgment of the appeals court was reversed and the case was dismissed with prejudice.
* Note: This case does not directly address issues of insurance coverage, but it does declare the opinion of the Texas Supreme Court on the subject of premises liability and the standard of care owed by the owner to those who come upon his property. And, of course, since liability coverage is based on the legal obligations of the insured to a claimant, this opinion offers some guidance to those interested in insurance coverage for premises liability claims.
Unemancipated minor and the issue of residency
The issue in this case revolved around this question: who was an insured party under an insurance policy? The case is Plunkett v. State Farm Mutual Automobile Insurance Company, 2009 WL 3345770 (C.A.5 Miss.) Note that this is a slip copy and was not selected for publication in the Federal Reporter.
Plunkett was a guest passenger in an auto driven by his wife that collided with a vehicle driven by Gray. Gray was an unemanccipated minor, the son of William Gray and Debra Pruitt, and the subject of joint custody. Pruitt had a State Farm auto policy that covered as insureds, the named insureds and those related to the named insureds by blood, marriage, or adoption and who resided primarily with the named insured. Plunkett sought a declaratory judgment that Gray was an insured under this State Farm auto policy. The district court ruled that, under Mississippi law, Gray did not reside primarily with his mother and thus, was not covered under her auto policy. This appeal followed.
The appeals court looked to previous rulings and found this unequivocal precedent in Mississippi: an unemancipated minor is a household resident of both the custodial and noncustodial parents for purposes of automobile insurance. Therefore, Gray had to be considered a resident of the household of the Pruitts, and he is an insured under the terms of the State Farm policy. The ruling of the trial court was reversed.
* Note: The questions of whether an unemancipated minor who is the subject of joint custody of divorced parents is an insured and under whose policy he is an insured are mainly issues for homeowners policies and auto policies. Most, if not all, courts rule that the minor is a household resident, and thus, an insured, under the policies of both parents. It is true that specific facts can overrule this general principle (such as, if one parent has been ordered by the court to never have unsupervised visits with the minor, or if the one parent has taken the minor out of state and the minor does not then interact with the other parent), but claimants who are harmed by minors can usually seek coverage under the insurance policies of both custodial parent and noncustodial parent.
Tennessee appeals court considers definition of theft
Grapevine Trucking sued Carolina Casualty Insurance Company and American Southern Insurance Company alleging breach of insurance contracts. This arose from the fact that the insured leased a truck to an employee who stopped making payments on the truck and then refused to return it. The insured sought payment from the insurers based on theft and the insurers denied it, one (American Southern) claiming that this was a conversion and so, was not a theft, and the other (Carolina Casualty) claiming that its policy did not apply to loss due to theft. This case is Grapevine Trucking v. Carolina Casualty Insurance Company, 2009 WL 3486639 (Tenn.Ct.App.).
Grapevine entered into a contract with Crane to lease/purchase a truck and a trailer. The contract provided that if Crane became thirty days in arrears, Grapevine could terminate the agreement; this is what happened. Crane refused to return the truck and trailer and Grapevine was unable to repossess these items. Grapevine then sought to recover for theft of the truck and trailer under its insurance policies, but the insurers declined coverage. At trial, the court ruled that there was a theft of the truck and trailer. The court found that the policy issued by Carolina did not apply to such a loss; however, the policy issued by American Southern did cover this loss. American Southern appealed the decision.
The appeals court noted that American Southern policy did cover loss due to theft, but that the policy did not define that term. However, the court found that the state general assembly did define theft as follows: a person commits theft of property if, with intent to deprive the owner of property, the person knowingly obtains or exercises control over the property without the owner's effective consent.
American Southern argued, despite the legal definition, that there was no theft because Crane was in lawful possession of the truck and trailer and retained the subject vehicles under an honest claim of right. The appeals court did not agree. The court held that Crane ceased to be in lawful possession no later than when he was supposed to return the truck and trailer and refused to do so. Grapevine had legal right to permanent possession of the truck and trailer and Crane had no legal rights to them at all. The judgment of the trial court was affirmed.
* Note: Conversion is defined as an unauthorized assumption and exercise of the right of ownership over goods or personal chattels belonging to another, and any unauthorized act that deprives an owner of his property permanently or for an indefinite time. Theft is defined as the act of stealing or taking the property of another without the owner's consent. Now, while neither term actually includes the other in its definition, the result of the two acts is similar: the owner is unjustly deprived of his property by another.
In any case, insureds and insurers should note that, if the term "theft" is not clearly defined in the insurance policy, state law can be used to clarify the point. However, insurance companies might want to preempt the resort to state law and clearly define what is included in the word "theft" when it comes to insurance coverage.
Factors to determine bad faith
The United States District Court in Kansas took notice that the Kansas Supreme Court has adopted five factors to consider in determining whether a denial of coverage justifies an insurer in rejecting a policy limit demand, that is, whether a denial of coverage equals a bad faith action by an insurer. The district court case is Moses v. Halstead, 2009 WL 3294307 (D.Kan.).
The case before the district court dealt with a garnishment order against Allstate Insurance Company for its alleged negligent or bad faith refusal to settle a claim by Moses against Halstead. Moses had been severely injured while riding in a car operated by Halstead. The court found that Moses was entitled to judgment and in so doing, the district court analyzed five factors from the Kansas Supreme Court that can serve as a guidepost to help insurers, insureds, and courts determine whether an insurer has acted in bad faith. The factors are as follows.
The first factor is whether the insured was able to obtain a reservation of rights. This reservation of rights must be fairly and timely made and clearly set forth the reason for denial of coverage and inform the insured of his rights, including his right to decline the insurer's defense and the consequences if the insurer assumes the defense.
The second factor to consider is the efforts or measures that the insurer took to resolve the coverage dispute promptly or in such a way to limit any potential prejudice to the insured. The insurer must make true efforts to resolve the coverage dispute and keep the insured informed of its efforts, especially if there has been an offer to settle the claim against the insured for policy limits.
The third factor to consider is the substance of the coverage dispute or the weight of legal authority on the coverage issues. Insurers need to consider the facts of the claim and any legal precedents that can affect coverage. Moreover, the insurer cannot simply state an exclusion applies and leave it at that; judicial rulings on the application of the stated exclusion have to be explored and noted by the insurer.
The fourth factor in the Kansas analysis is the insurer's diligence and thoroughness in investigating the facts related to coverage. The facts of the claim have to be known by the insurer, and interviews with all parties involved in the claim have to be done so that the insurer can base its decision on coverage on pertinent information, not in speculation or unfounded opinion.
The final factor is efforts by the insurer to settle the liability claim in the face of the coverage dispute. The insurer cannot reject the claimant's offer to settle for policy limits without notifying the insured of the offer. The insured, of course, cannot dictate the settlement of a claim to the insurer, but the insurer has to keep the insured informed of settlement offers and the reasoning behind the acceptance or rejection of these offers.
* Note: Bad faith claims against insurers are troublesome and can be expensive for both insureds and insurers. These five factors from Kansas are offered as guides to help prevent bad faith claims from arising.
*For further information, or to contact this author, please leave a comment and your e-mail address in the forum below.