Johnson v. RLI Insurance Company, 3:14-cv-00095

Keith Johnson sued RLI Insurance Company after a North Dakota accident in which Robert Stenehjem, Sr. was killed and Johnson was injured while a Suburban owned by PWC was driven by Stenehjem.
PWC LLC owned the Suburban and two vehicles; John Stenehjem managed PWC, signed organizational documents, and the Suburban was titled to PWC with an Allstate umbrella policy issued to PWC (after a correction).
Johnson’s claim involved whether the RLI umbrella policy covered Robert under the policy, given permissions to use the Suburban and the relationship between primary policies and excess coverage.
Post-accident, Johnson settlement proceeds in North Dakota culminated in primary insurers paying limits; Johnson later obtained an assignment of claims from Robert’s Estate against RLI.
The court applied Arizona law to contract interpretation of the umbrella policy and North Dakota law to issues of performance and bad faith; the action was filed in Alaska federal court based on diversity.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Duty to defend under excess policy	Johnson argues RLI had a duty to defend because the North Dakota complaint alleged excess damages.	RLI contends no duty to defend until primary coverage is exhausted and no coverage issue exists here.	RLI had no duty to defend; no exhaustion of primary coverage before underlying case ended.
Ownership of the Suburban	John owned or controlled the Suburban and thus Johnson’s claim falls under the umbrella policy.	Ownership rests with PWC, the titled owner; John’s ownership argument fails.	John did not own the Suburban under the policy; PWC owned it.
Borrowing the Suburban	John could have borrowed the Suburban, bringing it within coverage during the trip.	There is no evidence John possessed or controlled the Suburban immediately before the trip; borrowing not shown.	No triable issue; John did not borrow the Suburban at the time of the accident.
Temporary substitute use	Suburban was used as a temporary substitute vehicle for a group trip.	Temporary substitute requires usage due to breakdown or unavailability of the insured vehicle for the same use; not shown here.	Not a temporary substitute; no coverage for use as a substitute vehicle.
Bad faith and punitive damages	RLI acted in bad faith and with punitive intent in denying coverage.	No coverage, so no basis for bad faith or punitive damages; no policyholder relation to Johnson.	Granted in favor of RLI; no bad faith or punitive damages given lack of coverage.

Gleason v. State Farm Mutual Auto. Ins. Co., 660 So.2d 137 (La. Ct. App. 1995) (excess insurer duty to defend after exhaustion of primary coverage)
American Indemnity Ins. Co. v. Code Elec. Corp., 760 P.2d 571 (Ariz. Ct. App. 1988) (borrowed vehicle meaning includes possession and control)
Emp’rs Mut. Cas. Co. v. DGG & CAR, Inc., 183 P.3d 513 (Ariz. 2008) (common-sense interpretation of coverage and substitution provisions)
Hanneman v. Cont’l W. Ins. Co., 575 N.W.2d 445 (N.D. 1998) (duty to defend and bad-faith standards under North Dakota law)
First Am. Title Ins. Co. v. Action Acquisitions, LLC, 187 P.3d 1107 (Ariz. 2008) (Arizona law on contract interpretation and policy language)