Insured Contract Exclusion Requires A Third-Party
In Stevanna Towing, Inc., et al. v. Atlantic Specialty Ins. Co., No. 21-1420, 2022 WL 12241451 (3d Cir. Oct. 21, 2022), a Stevanna employee was injured when the boat he was deckhand on— which was being piloted by an employee of Georgetown Sand & Gravel—bumped into a barge. Stevanna, among others, resolved the suit with the employee and then sought reimbursement for the costs associated with its defense and settlement. Atlantic Specialty Insurance Company (“Atlantic”) denied coverage. Among the many issues was whether the insured contract exception to the employer-liability exclusion applied to provide coverage to certain additional parties. The Atlantic policy’s definition of insured contract included “that part of any other contract or agreement pertaining to [Stevanna’s] business . . . under which [Stevanna] assume[d] the tort liability of another party to pay for ‘bodily injury’ . . . to a third person or organization.” The court stated that for the exception to apply, Stevanna needed to have assumed the tort liability for injuries caused by another party; however, the indemnification agreement in question was for liability for injuries “caused in whole or in part by the negligence of Stevanna, its agents and employees.” Hence, as the “insured contract” did not expressly purport to assume the tort liability of another party, the court held the exception for insured contracts did not apply. Also noteworthy was the Third Circuit’s refusal to entertain the argument that Atlantic waived the implementation of the employer-liability exclusion by not referencing it in its denial letter nor in its answer to the complaint. The court stated “those omissions do not amount to an implied waiver under Pennsylvania law.” Thanks to Richard Dunne for his contribution to this article. Should you have any questions, contact Matthew Care.Read MoreNew Jersey Supreme Court Looks Outside Pleadings in NJ to Deny Duty to Defend
In Norman Int’l, Inc. v. Admiral Ins. Co., No. 086155, 2022 WL 3220868 (N.J. Aug. 10, 2022), the New Jersey Supreme Court ruled on the application of a county-specific exclusionary clause in an Admiral Insurance Company (“Admiral”) policy issued to Richfield Window Coverings, LLC (“Richfield”)—Richfield sells window coverings, blinds, etc., and also provides retailers with cutting machines to cut its products. The Admiral policy issued to Richfield excluded liability for “bodily injury” that was “in any way connected with” operations/activities in select New York counties, including Nassau County.
Instantly, a Home Depot employee in Nassau County, NY, was injured while using Richfield’s cutting machine—a machine which was also maintained by Richfield. The employee filed suit against Richfield in Nassau County. Richfield next sought coverage under its policy with Admiral but Admiral invoked the county-specific exclusionary clause. Richfield sought a declaration in the Superior Court that Admiral was obligated to defend Richfield because the terms “operations” and “activities” in the county-specific exclusionary clause were ambiguous. This argument was rejected and Admirals motion for summary judgment was granted. The Appellate Division, however, reversed and found there was no causal relationship between Richfield’s activities involving the cutting machine and the causes of action raised in the complaint.
More importantly though, the Appellate Division noted that the trial court improperly considered facts from discovery to arrive at its decision. On this issue, the New Jersey Supreme Court stated, in no uncertain terms, that courts in fact can consider “those facts beyond the complaint necessary to determine the duty to defend issue.” Another noteworthy aspect of the opinion was its stance on the meaning of the language “in any way connected with.” On this, the Court stated “in any way connected with” does not require a showing of causation—it was enough that Richfield provided the machine to Home Depot. Consequently, the Appellate Division’s holding was reversed.
Thanks to Richard Dunne for his contribution to this article. Should you have any questions, contact Matthew Care.Read MoreAutomobile Regular Use Exclusion Hits the Red Light of the Motor Vehicle Financial Responsibility Law (PA)
On October 22, 2021, in Rush v. Erie Insurance Exchange, 2021 Pa.Super 215 (2021), the Pennsylvania Superior Court held that an Erie Insurance Exchange (“Erie”) regular use exclusion was unenforceable because it modified the clear and unambiguous requirements of Pennsylvania’s Motor Vehicle Financial Responsibility Law, 75 Pa.C.S. §§ 1701-99.7 (“MVFRL”), by functionally precluding insureds from accessing uninsured motorist benefits (“UIM”) to which they would otherwise be entitled.
This precedential decision arises from a motor vehicle accident where City of Easton Police Officer Matthew Rush (“Plaintiff”) suffered serious injuries after the police vehicle he was operating was struck by uninsured motorists. The City of Easton maintained UIM coverage through Erie which included a “regular use” exclusion. This exclusion precludes coverage if an insured is injured while using a motor vehicle that the insured regularly uses but does not own. Thus, Erie denied coverage under their “regular use” exclusion because the City of Easton owned the car, not Plaintiff. Plaintiff brought the underlying declaratory judgment action claiming that such exclusions were unenforceable under the the broad scope of the MVFRL which requires UIM coverage in those situations where an insured is injured arising out of “use of a motor vehicle.” 75 Pa.C.S. 1731(c).
On appeal, the Pennsylvania Superior Court affirmed the Northampton County Court of Common Pleas who granted Plaintiff summary judgment. The Superior Court found that this exclusion was unenforceable because it limited the scope of coverage required under the MVFRL. As such, Plaintiff was entitled to summary judgement because it was undisputed that absent the otherwise unenforceable “regular use” exclusion, Plaintiff would have been entitled to coverage.
The Superior Court importantly did not address whether this exclusion expressly violates the MVFRL because Erie had waived the issue on appeal. Rather, as applied, the Rush court held the “regular use” exclusion unenforceable to the extent it conflicts with the MVFRL’s public policy initiatives which mandate UIM coverage for injuries associated with the use of all motor vehicles – not just those an insured owns as required by the “regular use” exclusion.
However, the court indicates their position had Erie raised the novel issue of express violation by pointing to the Pennsylvania Supreme Court’s reasoning in Gallagher v. GEICO Indemn. Co., 201 A.3d 131, 138 n.6 (Pa. 2019) rejecting the same public policy argument proposed by Erie in Rush. The Rush court reiterated:
“[W]e recognize that this decision may disrupt the insurance industry’s current practices; however, we are confident that the industry can and will employ its considerable resources to minimize the impact of our holding.”
Rush, 2021 Pa.Super at 223 n. 5 (2021) citing to Gallagher, 201 A.3d at 138 n.6. In this issue of first impression, the Rush court has essentially opened the door on a novel question of Pennsylvania law concerning whether a regular use exclusion classifies as an express violation of the MVFRL. However, the court’s discussion of Gallagher does not leave a promising for prospect for the success of the insurers. Insurers would be wise to account for this decision with respect to underwriting practices and premium collection for risks the insurer may be forced to cover.
Thanks to Kendal Hutchings for her contribution. Should you have any questions, please contact Matthew Care.Read More