Business Auto Insurer Must Reimburse CGL Insurer

Commercial Auto Liability	Legal Defense
Commercial General Liability	Use of Vehicle

A police officer stopped Marcia Rhodes at a worksite where Jerry McMillan d/b/a Jerry McMillan Professional Tree Service (McMillan) used 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) and 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 (Network), 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 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.

Afterward, 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 and recover half the legal costs.

Beacon filed a cross-motion. It sought a decision that Specialty was estopped from denying coverage under its CGL and that its control of the legal defense prejudiced Beacon. Further, that Beacon’s auto policy did not cover the loss since the use of the covered vehicle did not cause the injuries. 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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