Insurance Coverage - To Be or Not To Be?

Disclaimer - This article is intended as general discussion and information on the topic covered, and is not to be construed as rendering legal advice. If legal advice is needed, you should contact an attorney. This article may not be reprinted or reproduced in any manner without prior written permission of the author.

I have previously written about mortality insurance and related coverage in The Draft Horse Journal, Summer of 2000 and liability insurance in The Draft Horse Journal, Autumn of 2000. There I discussed the various types of insurance and how they apply. Recently, three important Court decisions have been handed down and dealt the horse owner quite a blow–no insurance coverage! Many times we are lulled into a false sense of security merely because we “purchased insurance.” The question is, did we buy the correct insurance, and what are the defined exclusions set forth in the policy.

A case to be reviewed on policy exclusions came out of the New York State Appellate Court in Hurd v. Gramse, 774 N.Y.S. 2d 220, decided on March l9, 2004. Plaintiff Hurd was injured while training a horse boarded on Defendant Gramse’s property. Defendant turned this matter over to her homeowner’s insurance company, which denied coverage.

The Defendant’s property consisted of a residence as well as a boarding facility used for Defendant’s horse stabling business. The stable facilities included an indoor riding arena where the accident occurred resulting in Plaintiff’s injuries. Plaintiff Hurd was training a horse, that was being boarded and trained for hire by agreement between Defendant Gramse and the horse owner. Upon being sued by Plaintiff Hurd, Defendant Gramse sought insurance coverage and a defense of the lawsuit from Prudential Property and Casualty, Inc., her homeowner’s insurance company.

Prudential denied coverage based on a policy exclusion which denied coverage for anything “arising out of business pursuits of any insured.” Defendant Gramse then joined Prudential in the lawsuit. So, we have Plaintiff suing Defendant for bodily injury and Defendant suing Prudential for insurance coverage.

In reviewing this matter, the New York Appellate Court agreed with Prudential and found Prudential had no obligation to defend or indemnify the Defendant in the lawsuit. The Court found that the accident occurred during a business pursuit and the policy exclusion applied.

As can be seen by reviewing this decision, the Defendant’s homeowner policy was not the proper coverage. Defendant needed coverage for her business activity, which is not covered by a standard homeowner’s policy. The Defendant should have had a commercial policy and/or care, custody and control insurance to protect her business pursuits. The lesson to be learned from this case is do not rely on a homeowner’s policy if there is any business activity associated with your horses.

The second case to be analyzed is the case of Hiscox v. Wilson, 246 F. Supp. 2d 684 (U.S. Dist. Ct. Kentucky, 2003). Wilson was the owner and named insured on a Lloyd’s of London Mortality Insurance Policy insuring a 1999 Bay Colt at the agreed upon value of $875,000. (I don’t think this was a draft horse.) The Court noted that the owner of the colt was an experienced entrepreneur who held diverse business holdings including construction companies, radio stations, ownership of the Buffalo Bills football team and even the previous ownership of an insurance brokerage firm. Wilson purchased the colt in September, 2000, and was immediately insured. In January, 2001, the colt was observed to have swelling in the right hind portion of the right rear leg. X-ray examination showed the colt had suffered a fracture in the right hind hock and surgery was recommended on January 22, 2001.

On January 10, 2001, the same day the x-rays of the colt’s hock were taken, the local insurance agent provided written notice of the fracture requiring surgery to Lloyd’s of London. Lloyd’s of London acknowledged notice of the problem and surgery to remove a chip in the colt’s hock.

Surgery was performed and approximately ten days later a serum discharge was noted from the surgical incision. The colt was treated with antibiotics, but in February, 2001, it was observed that the joint appeared infected. The colt was re-hospitalized and tests confirmed that a staph infection had developed in the hock joint.

The colt underwent intensive surgical and antibiotic therapy, after which the colt was returned to the farm. However, the colt exhibited signs of waxing and waning lameness. Tests confirmed that the infection was still present and the owner decided that since the horse was suffering, chronically lame and continued to lose weight, euthanization was the only alternative. The local insurance agent was then notified and permission requested to euthanize the colt which was given by the local agent.

The owner then applied for the $875,000 from Lloyd’s of London. Upon being notified of the loss, Lloyd’s of London denied coverage. Lloyd’s of London maintained that it was unaware of any history pertaining to the colt since the only communication received was a fax on January 10, 2001, concerning surgery for a “chip in the hock.”

After receiving word of the colt’s destruction, Lloyd’s of London initiated an investigation to determine what had happened to the colt between January 10 and March 30, 2001, when the colt was put down. It was undisputed that Lloyd’s of London was not informed of the colt’s infection and lameness. Lloyd’s of London took the position that failure to provide notice of the infection and lameness as well as euthanization violated a condition precedent to the policy attached to the surgical operation’s extension clause, which clearly read that it must be notified in the event of “any illness, disease, lameness, injury, accident or physical disability to the horse.” It is undisputed that the infection the horse developed from the surgery on January 22, 2001, constituted an “illness, disease, lameness, injury, accident or physical disability” within the meaning of the insurance policy. It is also undisputed that Wilson, the owner, failed to provide “immediate” notice of the infection by delaying notice to the underwriter’s adjuster, for weeks, finally contacting him just one day before the recommended euthanization of the colt. The Court concluded that notification of the chip and operation was not sufficient notification of the infection and lameness and since these conditions were not immediately reported, Lloyd’s of London’s denial of coverage was proper.

This is another important and expensive lesson. Anytime you have mortality insurance on a horse and the horse becomes lame, sick or the like, you must notify the insurance company as soon as possible. Certainly waiting a number of weeks is not reasonable and will exclude coverage on the horse. Equine mortality insurance policies define a strict regimen of notice which must be adhered to and followed in every case. Failure to do so will result in loss of insurance coverage as happened in this case.

The third case to be reviewed is the case of Jahn v. Great American Assurance Co., 2004 W.L. 765240, (U.S. Dist. CT., Illinois, 2004). This case involved a $125,000 insurance policy on a show horse euthanized following the horse’s third surgery for colic. The horse was initially insured through a previous insurance agency from 1996 through 2000. In November, 1998, the horse underwent surgery because of colic. As a result, the insurance company excluded colic from the policy but would agree to remove the exclusion if the horse did not suffer from colic for one year after surgery. However, in October, 1999, the horse underwent a second surgery for colic. The owner decided not to renew the insurance policy because he knew the exclusion would once again be placed upon notification of the surgery.

The owner decided to contact another insurance agency and in filling out the application for insurance, the owner disclosed the 1999 surgery, but did not mention the 1998 surgery. The insurance company in question had developed guidelines affecting equine mortality risks and colic. These guidelines required a colic exclusion of one year after the horse undergoes colic surgery. The guidelines further contain a permanent colic exclusion if a horse has two or more surgeries for colic.

Based on the application and subsequent questions, an equine mortality and major medical insurance policy was issued without a colic exclusion.

In December, 2002, the horse had a colic episode. The insurance company was not notified of this event. In January, 2003, the horse again showed signs of colic and the horse was referred to a clinic, which recommended surgery. The owner still did not notify the insurance company. After surgery, the horse was given a poor prognosis and was euthanized on January 2, 2003. The insurance company was not consulted or notified. The owners did not arrange for a post-mortem examination as required by the insurance policy. The horse was buried on the owners’ farm the day of her death and after the burial the owners finally decided to contact the insurance company and request policy limits.

Upon notification of the claim on January 6, 2003, the insurance company began investigating the horse’s death. The insurance company found out about the 1998 surgery and the numerous episodes of colic which were never reported. As a result the insurance company denied coverage for failure to disclose the November 1998 surgery or other colic episodes. Further, the Plaintiffs violated the mortality insurance policy by failing to provide timely notice of the horse’s final surgery and euthanization.

The insurance company did not authorize or participate in the decision to destroy the horse and the Plaintiff did not arrange for a post-mortem examination as required in the policy.

In reviewing prior legal decisions, the Court noted that the overwhelming majority of authority on equine insurance policies support strict enforcement of the notice requirements. In this case the owners of the horse failed to accurately reveal the medical history and failed to notify the insurance carrier of the numerous episodes of colic after the policy went into effect. The Court concluded that the owners repeated failure to comply with the insurance policy rendered the claim for insurance proceeds null and void and no monies were paid.

In all three cases the insurance company was not required to pay any money to the horse owners. The failure to obtain insurance proceeds was due to lack of attention to detail on the part of the owners. When an insurance policy is purchased, the owner must review the policy or have the insurance agent review the policy with him/her. The exclusions and notices are critical. If they are violated, there is no insurance coverage. I recommend to clients that they review the exclusions and notice requirements and have them typed and posted in a conspicuous place in the barn. I also recommend that the insurance company phone number be posted as well and all employees should be instructed to adhere strictly to the requirements. Insurance can be a financial lifesaver, but, only if you fully understand your responsibilities under the policy.

Enough legal talk—it’s time to hitch horses!

Ken is a practicing attorney in Myerstown, Pennsylvania, where a good bit of his practice involves negligence cases. Ken and his wife, Karen, own Sunny Hill Farm Belgians, and they have been exhibiting their six horse hitch for the past few years at most major shows in the east.