Both insurers and insureds are guilty of attempting to circumvent reason
By Donald S. Malecki, CPCU
No matter how much producers persevere in making sure the proper coverages are in place for insureds, there will be situations when exposures are not contemplated. Unfortunately, many of these situations are created by insurers that do not want to pay claims for whatever reason, and by insureds who will try anything to obtain coverage that should not apply.
Some of the reasons given for denying claims are so absurd that one has to wonder how insurers and their legal counsel can stand before a judge and jury and explain why coverage does not apply.
The case of Evanston Insurance Company v. Budget Group Inc., et al., 199 Fed. Appx 867 (11th Cir. 2006) involved an appeal by the insurer seeking a declaratory judgment that its CGL policy did not provide coverage for a wrongful death suit against the named insured (Budget) stemming from an auto not owned by Budget that was the instrumentality of three deaths.
The insurer relied on two exclusions. The first involved the standard exclusion of CGL policies having to with the ownership, maintenance, use or entrustment of any auto owned, operated by, rented or loaned to any insured. The second was a professional liability exclusion.
It was determined that it was not Budget that owned the 15-passenger van at the time of the accident but, instead, another rental company. Because the van was not operated or rented by Budget, the auto exclusion of the CGL policy was held to be inapplicable.
The professional liability exclusion—precluding coverage for claims arising out of the rendering of or failure to render any professional services in the conduct of the insured’s business—also was inapplicable. The term “professional,” said the court, refers to persons who belong to a learned profession or whose occupations require a high level of training or proficiency.
The court therefore agreed with the lower court’s finding that renting vehicles to the public is not a professional service. The cases cited by the insurer, the court added, demonstrated that the professional liability exclusions have been applied to attorneys, psychiatrists, and medical technicians. No cases, however, could be found applying the professional liability exclusion in the context of auto rentals.
Interestingly, this case contains the preamble that it was not selected for publication in the Federal Reporter. Given the insurer’s argument, particularly with respect to its reliance on the professional liability exclusion, one can understand the rationale for that court’s decision in not wanting this case to be published.
While on the subject of the professional liability exclusion, the insurer in the case of Sommers, et al., v. State Farm Fire and Casualty Company, 764 So. 2d 87 (La. App. 4 Cir. 2000) attempted to deny coverage under the liability section of a package policy for the executor of an estate.
The court in this case, however, held that “professional services” connotes something that is pursued regularly as one’s vocation and also, to at least some extent, the pursuit of a vocation that requires specific formal education or special skills or training. This exclusion therefore did not apply to an executor of an estate.
Insureds also are creative
Insureds and their legal counsel also can be desperately creative in seeking coverage. A case in point is United Fire & Casualty Company v. Gravette, 182 F.3d 649) 8th Cir. 1999. The insurer in this case filed a declaratory judgment action to determine whether or not a commercial auto liability policy, issued to a trash hauling business, covered a claim against it when one of the owners ran over and fatally injured an employee.
This was a somewhat complex case with many issues. To the point, however, the insurer denied coverage based on the employers liability exclusion, which precludes coverage for bodily injury to any employee of the insured. This particular exclusion, however, had three exceptions: when injury involved (1) domestic employees, (2) sidetrack agreements, or an (3) insured contract.
Of these three exceptions, the one dealing with domestic employees was dwelled upon at length. Here, the named insured first argued that term “domestic employee” was not defined and therefore was ambiguous. Second, it argued that the employee who was fatally injured may have been a domestic employee and not excluded, because he was neither an alien nor a foreign national. Nice try!
On this latter argument, the court stated that the named insured’s argument was creative but failed as to any ambiguity, since a “domestic employee” is commonly understood to be a household servant. After referring to the dictionary, and other court cases within and outside the jurisdiction of this case, the court ruling upheld the employers liability exclusion.
One has to wonder sometimes whether anyone reads the insurance policy before retaining the services of a lawyer and deciding to invest a lot of money to litigate a matter where the prospects for coverage do not look promising. In the case of State Farm Mutual Automobile Insurance Co. v. Stockley, et al., 168 S.W.3d 598 (Mo. Ct. App. 2005), a baggage handler for an airline, while using a tug to transport luggage in the tarmac area, struck and killed another employee.
When sued by the family of the decedent, the baggage handler sought coverage under his personal auto policy which extended liability coverage to accidents arising from his use of a non-owned “car.” The term “car” was defined in the policy as meaning a “land motor vehicle with four or more wheels, which is designed for use mainly on public roads.”
The insurer filed a petition seeking a declaration that its policy provided no coverage for use of the tug, because it was not designed for use mainly in public roads. After a bench trial, the court concluded that coverage applied because the tarmac was a public road. On appeal, the issues were whether or not (1) the tug was designed for public road use and (2) the tarmac was a public road.
The baggage handler failed to prove that the tug was designed for use mainly on public roads. The insurer, on the other hand, produced a manager with the company that made the tug. He testified that the tug was designed mainly to move luggage and not designed for use mainly on public roads.
In addition to luggage handling, this company manager testified that the tug was also used at industrial plants to move materials from rail docks to assembly lines and in the package industry to move air freight. He also testified that the tug would not be capable of performing on public roads because (1) it had a maximum speed of 13.8 miles per hour, (2) the headlights used 55-watt bulbs with no dimmer or high/low beam function, (3) the front tires were slow-speed, (4) the cab windshield was not laminated and (5) there were no brakes on the front wheels.
The baggage handler also lost his argument that the tarmac was a public road. It was undisputed in this case that there are roadways on the tarmac, that is, lanes with speed limits and traffic signals painted on the ground—to better organize the flow of traffic. Only those individuals who need to access the area, however, are permitted there with proper clearance. Without proper credentials, persons would be taken into custody and arrested.
Because the baggage handler did not prove that the tug was a “car,” as defined in his personal auto policy, the court held that he did not meet his burden to prove that the policy covered the accident in question.
Creating a need for coverage
Sometimes people get involved in situations that create such a quagmire that trying to figure out how insurance coverage applies is virtually hopeless. In fact, even if producers were queried about proper insurance coverage before an activity was to be conducted, it might take quite a bit of research to do so.
A case in point involved an individual who wanted to remove a dead tree from his property. Instead of hiring a qualified firm to do it, this individual hired a father-son team to do the work. This engineering feat required that a rope be tied around the limb to be cut and for the rope to be attached to a trailer hitch of the father’s van.
The idea was that the father could pull the limb away from the house, as his son was cutting it, to avoid its falling onto the house. So, his son was standing on a ladder cutting the limb when, unknown to the son, his father moved the van causing the rope to tighten around the limb, which snapped it and caused the son to fall from the ladder breaking several bones in his ankle.
The son sued his father for injuries. At the time of this event, the son maintained auto insurance with limits of $25,000 and the father had an auto policy for limits of $50,000 and a homeowners policy for limits of liability for $100,000.
In this case of Trammel v. Liberty Mutual Fire Ins. Co., 811 So.2d 78 ( Ct. App. La. 2002), no reason was given, but the son’s auto insurer paid. Payment might have been under medical payments or no-fault coverage. It certainly would not have been under liability coverage. The father had his auto and homeowners insurance with the same insurer, which maintained that only the auto policy applied here. The reason why the homeowners policy was said to not apply was because of an exclusion for injuries “arising out of the…use…of motor vehicles…operated by an insured.”
The son argued that his father’s homeowners policy applied as well, based on the concept of concurrent causation. This is where two separate causes converge on risk, one that is covered and one that is excluded. While the homeowners policy excluded injuries arising out of the use of a motor vehicle, coverage still applied based on the named insured’s strict liability in removing a rotten tree on his property. The court agreed.
Interestingly, a factually similar case also considered by this court was Johns v. State Farm Fire and Cas. Co. 349 So.2d 481 (La. App.3d Cir. 1977). In this case, the plaintiff, Johns, was helping his friend, Allen, remove a dead tree from Allen’s property. Johns climbed the tree with a safety rope around his waist; the other end was tied to a truck driven by Allen’s son. When Johns shifted his weight onto the rope to get to the limb, he fell.
The court in this case held that the negligence of Allen’s son in driving the truck permitted Johns to collect from Allen’s auto insurer. Additionally, the court allowed recovery against Allen’s homeowners policy for Allen’s failure to properly supervise the tree removal “venture.”
The cases discussed here are not unusual. Fortunately, many are settled and do not materialize into litigation. If nothing else, these cases show that, while desperate people will do desperate things, there is a certain amount of creativity for others and ideas for possible future use. Concurrent causation with regard to liability insurance is an example.
These also are situations which a producer could not possibly anticipate. In fact, these situations are so off-the-wall that blaming producers would be the height of absurdity. Fortunately, the courts are not entirely gullible when it comes to attempts to win cases no matter what. The two cases where the application of the professional services exclusion was denied are examples.
There may be the tendency, for purposes of these kinds of cases, to think that risk management by producers can take a holiday. Unfortunately, there are no such holidays because building defenses is an everyday job, regardless of how asinine may be an argument raised by individuals seeking or denying coverage may be. *
Donald S. Malecki, CPCU, has spent 48 years in the insurance and risk management consulting business. He was a supervising casualty underwriter and broker for a large Eastern insurer. He currently is a principal of Malecki Deimling Nielander & Associates L.L.C., an insurance, risk, and management consulting business.