General Caselaw Update – Winter 2010

By Mike Mersot

Rights to Defense and Indemnity Cut-Off for Wayward Insured

In Founders Insurance Company v. Shaikh, the Appellate Court First District allowed an insurer to terminate its defense and indemnification duties to an insured following a violation of the “assistance and cooperation clause” of the insurance policy.  In Founders, the insured was involved in an auto accident with one Mr. Khan, who sought settlement of his claims with Founders Insurance.  Three years after the failure of negotiations, Khan filed suit against Shaikh, the insured.  Shaikh submitted the lawsuit to his insurers and appearance was entered on his behalf.  Thereafter, Founders was unable to contact or locate the insured.

For over a year, Founders attempted to locate Shaikh by sending numerous letters, visiting his known addresses and even hiring an investigator.  All attempts failed.  Ultimately, judgment was entered against Shaikh upon his failure to attend mandatory arbitration.  Founders filed a declaratory action seeking to terminate its duty to defend and indemnify Shaikh pursuant to his non-cooperation.

Despite attempts to serve Shaikh with process in the declaratory action, Founders was still unable to locate the insured.  The trial court allowed service of Shaikh through the Secretary of State and by publication.  The insured never did appear.  Founders and Khan each sought summary judgment with respect to the “assistance and cooperation clause” of the insurance policy. The trial court resolved the issue in favor of Founders.

The Appellate Court First District stated that insurers generally depend on their insurers for disclosure of known facts.  While insureds have no duty to aid their carriers in defeating proper claims, the insured must disclose all known facts and aid the insurers in determining coverage.  To establish a breach of the cooperation clause, an insurer must show that it exercised a reasonable degree of diligence in seeking the participation of the insured and that the insured refused to cooperate.  Additionally, an insurer must show that it was substantially prejudiced by the insured’s nonparticipation. Under these facts, the appellate court found that Founders satisfied all the required elements, and thus terminated the duty to defend and indemnify under the insurance policy.

Founders reinforces that courts are willing to relieve insurers of the duty to defend wayward insureds, but indicates that the bar is set rather high for insurers to establish non-cooperation.  The elements required to invoke the clause are onerous, particularly the substantial prejudice requirement.  Consequently, it is advisable to take substantial steps to encourage cooperation before attempting to invoke the “assistance and cooperation” clause.

No Premises Liability for Plaintiff’s Trip & Fall Over an Open and Obvious Hazard

In Kleiber v. Freeport Farm and Fleet, the Appellate Court Third District explored the potential for landowner liability where the plaintiff encounters an open and obvious danger. There, the plaintiff was injured while loading bags of topsoil into her vehicle from a pallet outside the defendant’s store. The plaintiff walked over an empty pallet to grab a bag of topsoil but stepped into a gap between the pallet slats, causing her to fall and injure her leg. She brought suit against the owner of the store, claiming premises liability.

The trial court granted the defendant, represented by Quinn Johnston’s own Adam Chaddock, summary judgment based on the open and obvious nature of any danger presented by the pallet slats. On appeal, the plaintiff admitted that the pallet presented an open and obvious danger, but argued that the distraction or deliberate-encounter exceptions to the open and obvious rule should apply. The Third District disagreed.

The appellate court explained that the distraction exception applies where a landowner has reason to anticipate that a distraction would prevent an invitee from observing and protecting against the obvious danger. Under these circumstances, the court opined, there was no reason to believe the plaintiff would fail to notice the holes in the pallet due to distraction, for the plaintiff herself stated that she saw the holes. Rather, the plaintiff fell merely because she was not looking where she was going and inadvertently stepped between the slats. The appellate court held that such inadvertence cannot establish a foreseeable distraction. To establish the exception, a plaintiff must show that some circumstance required her to refocus her attention away from the obvious danger.

The deliberate-encounter exception to the open and obvious danger rule applies where it is reasonably foreseeable that an invitee will observe the danger, but consciously disregard it due to some overriding concern, typically employment or economic in nature. In this case, the appellate court found that even if access to the topsoil was only possible by traversing the dangerous pallet, the deliberate-encounter exception still would not apply. The plaintiff could have asked store personnel for assistance, but declined to do so. Based on these facts, the appellate court held that the exception could not apply.

The Kleiber case will be helpful precedent in most any premises liability case arising out of obvious danger. In such cases where the plaintiff simply failed to observe her surroundings, the case will be ripe for disposal on summary judgment. It is of particular note that the court found the failure to ask for loading assistance was, in itself, a bar to the invocation of the deliberate-encounter exception.

Originally published in the Winter 2010 edition of Quinn Quarterly.

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