Business Auto Insurer Must Reimburse CGL Insurer

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 that were identified as liable for the loss.

The company that leased the vehicle which rear-ended Rhodes was sued. The company advised McMillan of the lawsuit and mentioned he would likely be sued for contributing to the loss. McMillan was insured under a CGL from Specialty National Insurance Company (Specialty) and a commercial auto policy issued by One Beacon Insurance Company (One Beacon).

McMillan reported the information to Network Adjusters (Network), who administered Specialty’s claims. Network then contacted Specialty. 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.

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. It alleged 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. Specialty also notified One Beacon of the loss and of its actions. Later, Specialty advised McMillan and One Beacon that it concluded the loss did not qualify for coverage under the CGL and that One 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.

Rhodes later secured a multi-million-dollar judgment against several parties involved in providing the tractor-trailer. As part of a separate settlement between Rhodes and McMillan, Specialty and One Beacon paid $550,000 to Rhodes. Then, Specialty filed a motion against One Beacon to recover its payment to Rhodes as well as its legal costs.

One Beacon filed a cross-motion. It sought an estoppal of Specialty’s denying coverage and a ruling that One Beacon was prejudiced by Specialty’s control of the legal defense. One Beacon also argued that it 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 One Beacon’s motion. Specialty appealed.

The higher court viewed the situation markedly differently from 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 One Beacon’s rights were harmed by Specialty’s initial involvement in handling the legal defense.

The court also found that 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 One Beacon. The matter was remanded to the lower court for handling consistent with the higher court's decision.

Specialty National Insurance Company, Plaintiff, Appellant, v. One Beacon Insurance Company, Defendant, Appellee. USCTAP, 1st Cir. No.06-2036. Filed May 23, 2007. Reversed and Remanded.