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Insurance Coverage Case Law Update

Coverage trigger under CGL policies is not limited to suit by third party.

In Wanzek Construction, Inc. v. Employers Ins. of Wasau, 667 N.W.2d 473 (Minn. Ct. App. 2003), the court held that an insured need not have litigation commenced against it to trigger its CGL policy, which contained the general insuring agreement that provided coverage for sums the insured is "legally obligated to pay as damages." The court held that this provision did not limit coverage to third-party tort claims and coverage may be premised upon the insured's claim that it was required to repair or pay for property damage under its contract – the insured voluntarily repaired damage that resulted from work it performed prior to making any claim.

The insurer also argued that coverage was excluded based upon the "business risk doctrine" and related CGL exclusions. The court ultimately held that a coping stone manufacturer that made a product according to detailed product specifications, who delivered the product, and performed supervisory on-site services, was a subcontractor for purposes of the subcontractor exception to the "damage to your work" exclusion in the CGL policy. As such, there was coverage for the subcontractor's defective work. This decision has been appealed but the Supreme Court has not decided whether to accept review.

Mistaken calculation of time for canceling policy does not result in coverage.

In Jorgensen v. Knutson, 662 N.W.2d 893 (Minn. 2003), the Minnesota Supreme Court held that the general computation of time statute, Minn. Stat. § 645.15, applies to the No-Fault Act's notice of cancellation provision, Minn. Stat. § 65B.15, which requires ten days notice be given to an insured prior to policy cancellation for non-payment of premium. The general timing statute excludes from time period calculation the first day of the period when the act is done and the last day, if it falls on a Saturday, Sunday, or legal holiday. Thus, extra time must be given when the cancellation date falls on one of these days. However, the miscalculation of time for cancellation only results in an extension of the time period to the correct date; it does not result in an ineffective cancellation of the policy or extension of coverage.

Intentional act exclusions.

In Illinois Farmers Ins. Co. v. Reed, 662 N.W.2d 529 (Minn. 2003), the Minnesota Supreme Court held that an insured's criminal conviction cannot be used to collaterally estop a crime victim from litigating the insured's intent, whether it was negligent or intentional, in a subsequent civil action. Thus, the victim can still litigate the insured's intent for coverage purposes despite the prior criminal conviction of the insured.

In Grinnell Mut. Rein. Co. v. Ehmke, 664 N.W.2d 409 (Minn. 2003), a teenager's act of throwing a magnet at her father in reaction to his act of throwing a beer can at her, was not an "intentional act" as a matter of law. The insured's act was not the kind that warrants an inference of intent to injure as a matter of law, precluding summary judgment for the insurer. This case confirms the trend that courts will be reluctant to infer intent to injure as a matter of law unless the act is extreme – such as stabbing, punching, or shooting another person.

In B.M.B. v. State Farm Fire and Cas. Co., 664 N.W.2d 817 (Minn. 2003), the Minnesota Supreme Court addressed whether summary judgment was appropriate based upon a homeowners policy's intentional act exclusion in a case where the alleged injury was caused by non-consensual sexual contact. The Court held that if there is a fact issue regarding the insured's ability to form the required intent because of a mental defect or illness, a court cannot rule as a matter of law that the exclusion applies and there is no coverage under the policy. The court essentially applied its prior decisions in similar mental illness/intentional act cases to the specific situation involving non-consensual sexual conduct.

Employee not entitled to UIM benefits under business auto policy.

In Turner v. Mutual Service Cas. Ins. Co., 663 N.W.2d 36 (Minn. Ct. App. 2003), a case litigated by Ted Smetak of our firm, the Minnesota Court of Appeals agreed with Ted and held that an employee and his wife were not "insureds" for purposes of UIM coverage under an employer's commercial auto policy and thus were not entitled to UIM benefits from the business policy, which named the business entity as the insured. The employee and his spouse in this case were not occupying a covered auto – they were occupying a rental vehicle. In so holding, the court specifically noted that Minnesota law does not require an automobile policy to provide UM/UIM coverage for rented vehicles. In fairness, the claimants have petitioned for review by the Supreme Court; they accept that holding but will try to argue that a small curative statute (requiring all commercial auto policies cover damage to rented vehicles) somehow results in extending all Minnesota coverages to out-of-state rental vehicles.

About the Author: Rich is an associate and member of the Insurance Coverage group. Rich has experience in resolving complex insurance coverage issues in both the pre and post litigation phases of a claim. Since joining the firm he has gained substantial experience in all aspects of trial practice as an associate in the Auto Group and is eagerly developing his insurance coverage practice. Rich's interest in insurance coverage began in law school where he graduated magna cum laude and was an editor of the school's law review. He is also currently pursuing his CPCU certification. Rich and Ted Smetak are working with a friend and colleague from the insurance industry to publish a Minnesota guide to CGL insurance coverage.

© 2003 Arthur, Chapman, Kettering, Smetak & Pikala, P.A.

This publication is intended as a report on legal developments in the insurance coverage area. It is not intended as legal advice. Readers of this publication are encouraged to contact Arthur, Chapman, Kettering, Smetak & Pikala, P.A. with any questions or concerns.