Marcia Rhodes was stopped by a police officer at a work site where Jerry McMillan d/b/a Jerry McMillan Professional Tree Service (McMillan) was using a trailer-mounted stump grinder to remove the remnants of a tree trunk located close to a roadway. While stopped, Rhodes was rear-ended by a tractor-trailer. The truck driver failed to see the officer’s signal to stop in time. Rhodes suffered permanent injuries as a result of the collision and she filed suit against several parties which her legal representative identified as liable for the loss.
McMillan’s business was insured under a CGL from Specialty
National Insurance Company (Specialty) as well as a commercial auto policy
issued by One Beacon Insurance Company (Beacon). The leasing company that
provided the tractor-trailer that crashed into Rhodes was sued. The company
advised McMillan of the lawsuit and also mentioned that he would likely be named
in a suit as contributing to the loss.
McMillan reported the information to Network Adjusters who
administered Specialty’s claims. Network contacted Specialty. The court records
indicated that Network opened a file for the claim, even though it did not
believe that Specialty’s policy would have to respond to the loss. Later,
Rhodes’ lawyer contacted McMillan and shared that, due to the alleged actions
of McMillan, he would likely be pulled into the Rhodes’ suit.
Based upon the police report that McMillan’s equipment
partially blocked the road and created the need to control and stop traffic,
the tractor-trailer company filed an action against McMillan, alleging that
McMillan’s actions contributed to the loss. Specifically, the allegation was
that the loss was caused by McMillan’s failure to provide proper signage and
road markers to warn drivers of the work-site hazard. Specialty decided to
provide a legal defense. However, Specialty also notified Beacon of the loss
and of its actions. Later, Specialty advised both McMillan and Beacon that it
concluded that the loss did not qualify for coverage under the CGL and that
Beacon should take over the handling of the defense. Beacon only agreed to
handle half of the legal costs from the point of Specialty’s notification.
Afterwards, Rhodes won a multi-million dollar judgment
against several parties involved with providing the tractor-trailer. As part of
a separate settlement between Rhodes and McMillan, Specialty and Beacon paid
$550,000 to Rhodes. Then, Specialty filed a motion against Beacon. It sought to
recover its payment to Rhodes as well as to recover half the legal costs.
Beacon filed a cross-motion, seeking a decision that Specialty was estopped
from denying coverage under its CGL, that its control of the legal defense
prejudiced Beacon and that Beacon’s auto policy did not cover the loss since
the injuries were not caused by use of the covered vehicle. The lower court
ruled against Specialty’s motion and in favor of Beacon’s motion. Specialty
appealed.
The higher court viewed the situation markedly different
than the lower court. In reviewing the matter, that court considered the
relatively low settlement reached by Rhodes and McMillan (as contrasted to the
earlier, separate multi-million dollar award won by Rhodes against other
defendants). The higher court found no evidence that Beacon’s rights were
harmed by Specialty’s initial involvement in handling the legal defense. The
court also found that, while the complaint against Specialty was framed in a
manner that appeared to qualify as a CGL claim, the loss arose out of
McMillan’s use of the truck and attached grinder; therefore it was clearly an
automobile claim. Because of its findings, the court reversed the decision in
favor of Specialty and against Beacon. The matter was remanded to the lower
court for handling consistent with the higher court decision.
Specialty National Insurance Company, Plaintiff, Appellant, v. Onebeacon Insurance Company, Defendant, Appellee. USCTAP, 1st Cir. No.06-2036. Filed May 23, 2007. Reversed and Remanded.
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