Legal Position of Parties and Insurance Liability in Two Cases

Case One

Case One

Three information technology students, Mary, Albert, and Victoria, neededto earn money while attending college. Because of their area of study, theyfelt that they were knowledgeable about computers. They had somecontacts in the computer industry and decided to arrange for an informationtechnology show at the college to show new equipment and programs.They rented a room at the college and obtained local merchants who wouldshow their programs and equipment. The majority of the vendors wereselling software and related support material, but there were a fewhardware vendors. They were to receive a commission on any sales thatcame out of the show. The first show was wildly successful and they weresure about future shows. They entered into an agreement with each otherthat said that they would share the profits equally and that any liabilities ordebts that were incurred would also be shared equally between the partiesfor any future shows. They put on another computer show some monthslater. It was also wildly successful.Then Mary, through her contacts in her home town, found out that a newmanufacturer of computer hardware, MDG, wanted to set up adistributorship in the college town and decided to launch itself with a majorcomputer fair in the area. The fair was to take place after college hadfinished for the year. Mary jumped at the opportunity, and in her name andon her own behalf entered into a contract with MDG to promote thedistributorship and computer fair in the city and at the college. She madearrangements to get a venue in the city in an auditorium and reserved it forthe three days for the computer fair. As part of the deal, Mary had toguarantee a gate receipt of at least $250,000. As part of the deal, sheacquired all of the souvenir, concession and program rights for thecomputer fair. She sold the souvenir rights to a local supplier for a set fee of$25,000, which was paid almost immediately. Mary sold the concessionrights to a local company, Beaver Foods, for which she was to receive a

fixed percentage of sales, as Beaver Foods was uncertain how manpersons would avail themselves of food and drink. She retainedtheprogramrightsforherself,asshewishedtocontrol the content of theprogram. Mary didn’t tell her two friends, Albert and Victoria, about thecomputer fair and they were unaware that she was undertaking thisenterprise. She tried to keep it a secret from them.When the time for the fair arrived, it turned out that there wasaFrancophoneAssemblage happening at the same time. Mary had beenunaware of this worldwide convention as she was not French-speaking andthe Assemblage, while widely reported in the French press, received almost no English language coverage. It turned out that the final three days of the

Assemblage coincided with the computer fair. The Assemblage had

arranged for well-known rock bands to provide day-long free entertainment.

As most of the expected attendees at the computer fair were in their early

twenties, they succumbed to the free entertainment and did not attend the

computer fair. Fewer than a thousand persons showed up for the computerfair. At $15 per ticket, this was upsetting for Mary, as she would not evencover the rental costs of the auditorium. To make things even worse, on thefirst day of the computer fair which was the day with the best attendance,the city workers staged an illegal strike and in the process of striking, afterthe police were called, the strikers beat up a few of the patrons, damagedthousands of dollars worth of computer equipment, and damaged thefacilities. The city had advised Mary to arrange for adequate security toprotect against such an event. Mary had ignored this requirement. She hadalso not bothered to obtain any insurance coverage.Mary and Albert were ordinary students and had very little money. Victoriahad developed several computer games before she came to the college,which had only started to become successful. She now had considerableassets, including a large house and several valuable cars.

Explain the legal position of the parties. Would your answer be anydifferent if the three students together arranged and put on thecomputer fair, but Victoria had registered as a limited partner,investing $10,000 in the enterprise?

Case Three

On April 1st, Sarah went to visit her friend Jerome, bringing him someflowers as a joke. The flowers contained a small sparkler [a type of“firecracker”] which was rigged to go off when Jerome put them in a vase ofwater. Jerome was very touched and proceeded to put them in a vase ofwater. When he did so, the sparkler ignited causing a display of brightsparks. This startled Jerome and in his fright knocked over the vase withthe flowers and the sparkler. The drapes caught on fire, which rapidlyescalated into a conflagration in which the whole house was destroyed.The house, exclusive of the land, valued at $250,000, the furniture valuedat $45,000, and other sundry contents, valued at $100,000, were a totalloss. Unfortunately, Jerome was an artistic person and had valuablemusical instruments, a Guarnieri violin valued at $30,000 was his prizedpossession, and an expensive camera system, a Nikon D-200 with all theaccessories valued at $12,000, were among the items lost. Jerome was forced to stay in a hotel for a few nights at a cost of $1,000 before he couldrent a cheap apartment. Jerome had pretty good fire insurance, however,his policy did require a special rider for valuables, such as antiques,musical instruments, expensive electronics, and other expensive thingssuch as cameras, stamp collections, and coin collections. His base policy

had coverage of $200,000 plus another $100,000 for contents. Sarah hadliability insurance in excess of that amount. Jerome had a mortgage on theproperty for $150,000. For tax purposes, Jerome had put the house in thename of his business, Jerome’s Financial Planning Ltd. but had taken outthe insurance policy in his own name. The cheque paying for the insurancepremiums had been drawn on the company’s account. Jerome was only a2/3 owner of the business, with the remaining 1/3 being owned by his silentbacker, Sam.

Explain the legal position of all the parties. What arguments might theinsurance company use to reduce or eliminate its liability? How wouldyour answer be different if the insurance company, after being suedby Jerome, denied liability but upon further pressure agreed to payJerome $25,000 to settle while still denying any liability on the claim?