Various insurance forms contain language excluding coverage for occurrences "arising out of" a particular set of circumstances, such as using a motor vehicle without permission or engaging in a certain type of business activity. So, the question is: what exactly does the phrase "arising out of" mean? Does the language equate with "caused by," or "resulting from," or is "in the course of" closer to what this means?
Courts around the country have addressed this question and, of course, varying opinions exist. The jurisdiction may make a difference in this area of insurance discussion.
Declarations page of insurance policy and coverage for the insured
A court of appeals in Washington has addressed the importance of the declarations page when a question arose as to whether the insured had coverage for a claim. The case is Farmers Insurance Exchange v. Seas & Lakes, Inc., 2008 WL 4542867 (Wash.App. Div. 1). Note that this case is an unpublished opinion.
Seas & Lakes is a Washington corporation. At the time of its incorporation, Seas & Lakes engaged in the business of importing and distributing boating and fishing accessories. When it applied for insurance, Seas & lakes listed its business as fishing tackle sales. Farmers Insurance issued a general liability policy to Seas & Lakes based on this fact.
Several years later, Seas & Lakes entered into a development agreement with Queentech USA to develop and build a condominium complex. The insurer was not notified of this arrangement. After the complex was built, complaints were filed against Seas & Lakes and its partners alleging construction defects and other deficiencies in the building components. Seas & Lakes requested coverage from Farmers and Farmers agreed to defend under a reservation of rights.
Farmers eventually filed a declaratory relief action seeking an order that its policy for Seas & Lakes provided no coverage for these particular claims. The insurer argued that its general liability policy did not cover real estate development because there was no intent on the part of the insurer to cover such risk exposures. Moreover, the policy itself excluded coverage of joint ventures or partnerships not listed on the declarations page. The insured opposed the action. The trial court granted summary judgment to the insurer and this appeal followed.
Seas & Lakes contended that the trial court erroneously analyzed the policy to ascertain the expectations of the parties rather than their intention. The appeals court noted that, in Washington, the expectations of the parties cannot override the plain language of the contract. This includes establishing who is insured, the type of risk insured against, and the existence of an insurance contract. Answering the insured's contention, the appeals court found that the trial court did not examine the expectations of the parties as Seas & Lakes contended.
As to Seas & Lakes argument that the insurance policy covered the claim at issue, the appeals court said that determining whether coverage exists under a commercial general liability policy is a two-step process. First, the burden falls on the insured to show the claim is within the scope of the policy's insured losses. Then, the burden shifts to the insurer to show the loss is excluded by specific policy language. Seas & Lakes said that the policy's general coverage for property damage applied to the construction defects claim, and said that the intent of the parties was to include such claims because there is no exclusion that applies. The insured acknowledged that the declarations page described its business as dealing in sporting goods, but Seas & Lakes contended that the declarations page did not explicitly limit coverage.
The appeals court said that the declarations page defines the scope and breadth of the insurance contract. The policy identifies who is an insured based on the information on the declarations page. In addition, the conditions section of the policy states that the issuance of the policy is based on the truthfulness of the representations found on the declarations page. The idea that Farmers should defend against activities not disclosed to it at the beginning of the policy term ignores the express terms of the contract. The plain language of the insurance contract clearly indicated that the commercial activity of the insured was sporting goods distribution, and if the insurer had to defend against claims based on other activities, this would force the insurer to defend against activities not disclosed, not contemplated, and for which no opportunity existed to assess the risk. The court held that Farmers had no duty to defend against real estate development claims made against Seas & Lakes. The ruling of the trial court was affirmed.
"Arose out of" language and coverage under the BAP
An employee of the insured brought an action against the operator of a terminal where the employee fell and was injured. This occurred while the employee was loading oil into the insured's tanker truck. The courts resolved the complaint with an examination of the "arising out of" language contained in the auto policy. The case is American Home Assurance Company v. First Specialty Insurance Corporation, 894 N.E.2d 1167 (Mass.App.Ct., 2008).
Noonan, a company operating trucks transporting oil, entered into a contract with Global, the operator of an oil loading terminal, granting Noonan the right and privilege to use Global's facilities. The contract included an indemnification provision whereby Noonan agreed to indemnify and hold Global harmless from all claims arising out of or in any way connected with the exercise by Noonan or its representatives of the privileges granted under the contract.
Bone, an employee of Noonan, was loading oil into one of Noonan's trailer trucks and fell from the top of the trailer, sustaining serious injuries. After this accident, OSHA investigated and cited Global for a serious violation for not adequately protecting employees from fall injuries while top-loading oil tank trailers. Bone then filed a lawsuit against Global which tendered the action to Noonan under the contractual agreements. The auto insurer of Noonan, American Home Assurance, agreed to provide a defense under a reservation of rights and then brought a declaratory judgment action seeking a declaration that it was not obligated to defend or indemnify Global.
American Home contended that First Specialty, the general liability insurer of Noonan, was obligated to handle the claim. American did not dispute that the vehicle involved was a covered auto and that the term "use" included loading and unloading. However, American contended that the cause of the accident was Global's negligence in failing to have a protective guardrail and a properly working pipe. So, there was no causal connection between Bone's injuries and the loading of the vehicle, no connection sufficient to hold American responsible since there was no injury arising from the use of the auto.
The trial court ruled in favor of the general liability insurer and American Assurance appealed.
The appeals court said that its reading of case law indicated that the expression "arising out of" must be read expansively, incorporating a greater range of causation that that encompassed by proximate cause under tort law; indeed, case law indicated that the language was analogous to "but for" causation. Put another way, what is required for injuries to arise out of the loading of a vehicle is a reasonably apparent causal connection between the loading of the vehicle and the injury. In this instance, Bone was engaged in the very activity for which the tanker truck was present at Global's terminal. This provided a sufficient causal connection between the loading of the truck and the resulting injury.
The court then went on to list the case law it had examined. Rulings from New Jersey, the 4th Circuit, Florida, Minnesota, California, New York, North Carolina, and Ohio were discussed. All the cases held that under similar circumstances as this, coverage was found under the auto policy rather than the general liability policy; this was so despite a defect in the loading equipment or negligence by employees other than those of the vehicle owner. The appeals court held that the trial court decision was consistent with cases elsewhere and the judgment was affirmed.
Longshoremen coverage versus general liability coverage
This was a lawsuit for a declaratory judgment between an insured and an excess wharfinger insurer, New York Marine and General Insurance Company, and a general liability insurer, Evanston Insurance Company. The insured, Bayou Steel, and the wharfinger insurer sought recovery from Evanston for amounts paid in the defense and settlement of a personal injury lawsuit brought against Bayou Steel arising out of an accident that occurred in 2002. The case is Bayou Steel v. Evanston Insurance Company, 2008 WL 4758629 (E.D.La.). This is a slip copy.
The original tort arose out of personal injuries suffered by Campbell while he was unloading steel bundles owned by Bayou Steel from a barge owned by Memco Barge Lines. Bayou had loaded a barge with steel angle iron bundles at its facilities in LaPlace, Louisiana on the Mississippi River. Memco then towed the loaded barge to Bayou Steel's facility on the Calumet River. Campbell's employer was hired to unload the steel cargo. He was injured while unloading the cargo when he stepped on a piece of dunnage separating bundles of steel in the hold of the barge and fell. Campbell then sued Bayou Steel and a foreman employed by Bayou Steel, and then also named Memco as a defendant and asserted claims under the Longshore and Harbor Workers Compensation Act. (LHWCA).
At the time of the lawsuit, Bayou had the following insurance coverage: a primary general liability policy issued by Evanston Insurance; an umbrella liability policy and a primary wharfinger liability policy issued by National Union Fire Insurance Company of Pittsburgh; and an excess wharfing liability policy issued by New York Marine and General Insurance Company. The primary wharfinger insurer accepted coverage and defense for the claim against Bayou. Evanston denied any coverage, relying on the general liability policy's watercraft and LHWCA exclusions. The underlying claim was settled and Bayou filed a lawsuit against Evanston seeking reimbursement for its payments.
The district court held that Louisiana law applied and clearly governed the interpretation of the policies in question. Under that interpretation, the issue was whether the watercraft or the LHWCA exclusions applied to this claim. The watercraft exclusion stated that there was no coverage for injuries arising out of the loading or unloading of any watercraft owned or operated by or rented or loaned to any insured. Bayou contended that the contract between Bayou and Memco suggested that the barge was not owned or operated by or rented or loaned to Bayou Steel within the meaning of the watercraft exclusion. Evanston contended that the injuries arose out of the loading and unloading of the barge, period.
The court said that a clear, literal reading of the watercraft exclusion compelled the conclusion that it concerns only the operating or unloading of a watercraft owned or operated by or rented or loaned to Bayou Steel. By focusing on whether the insured owns, operates, or leases the watercraft, the exclusion goes beyond barring coverage merely because some injury occurs on a watercraft; rather, some control or dominion of the watercraft by the insured is required. And, it was clear to the court that operational control of the barge by Bayou was absent. Memco owned and operated the barge. Accordingly, the watercraft exclusion is inapplicable to the claim.
As for the LHWCA exclusion, it applied to injury imposed on the insured or assumed by the insured with respect to claims made pursuant to the LHWCA. It was undisputed that Campbell's tort claim was brought by a longshoreman, who had collected benefits because of the accident. Campbell alleged that he was a longshoreman engaged in maritime employment and that he was injured on a vessel in navigable waters. Based on this, Evanston claimed that the underlying lawsuit could only have been brought against Bayou Steel pursuant to the LHWCA. Bayou said that because Campbell's claim was grounded in negligence under the general maritime law that trumps the notion that the lawsuit was one pursuant to the LHWCA. The court found that the only requirement for the exclusion to apply is that the loss arose out of the injury and that the injury was covered under the LHWCA. In this instance, the plain, ordinary and literal meaning of the exclusion bars coverage for Campbell's injuries. Campbell, a longshoreman, sued Bayou Steel for negligence, a claim driven, informed, and permitted by the LHWCA. Thus, the LHWCA exclusion excludes coverage for claims made against Bayou Steel pursuant to the provisions of the LHWCA.
The court ruled that the motion for summary judgment by Bayou Steel was denied and Evanston's motion was granted.
Diminution in value covered as a loss?
The standard personal auto policy (unlike the standard business auto policy) does not contain a diminution in value exclusion under the physical damage section of the policy. The personal auto policy simply promises to pay for direct and accidental loss to the covered auto. So, if the insured suffers a loss to his vehicle and, after repair, claims that he has suffered a diminution in value of the car, does the auto policy require the insurer to pay for that lost value? This case discusses that issue. The case is Gonzales v. Farmers Insurance Company of Oregon, 2008 WL 4661612 (Or.).
Gonzales had an accident and his car was damaged. The insurer paid for repairs to the vehicle but the repairs did not restore the car to its pre-accident condition. So, the insured sued the insurer, claiming a breach of contract, breach of implied duty of good faith and fair dealing, and unjust enrichment. The trial court found in favor of the insurer and the appeals court reversed the decision. The Oregon Supreme Court then took up the case. (This was a class action suit brought by the insured against the insurer.)
The insured alleged that his auto insurance policy required the insurer, when it elected to repair a vehicle, to restore the vehicle to its pre-loss condition. Additionally, the insured alleged that that obligation required the insurer to pay for the amount of loss of value to the vehicle if the vehicle could not be restored to its pre-loss condition. The insurer contended that the policy does not cover diminution in value; the policy only requires the repair of the insured's car.
The Supreme Court said that the central dispute here turns on the meaning of the word "repair" in the auto policy. The insured argued that repair includes restoration of the pre-loss condition and value of the car, while the insurer argued that repair refers only to the restoration of the function and appearance of the car. Past cases that the court reviewed held that if repairs to a vehicle did not restore the vehicle to its pre-accident condition, then the correct measure of damages is the difference between the fair cash value of the auto before the accident and after the accident. The court found no definition of repair in the policy language, so, referring to the past cases, it said that repair encompasses the restoration of the vehicle to its condition prior to the collision. Therefore, if the repair of the vehicle in this instance does not or cannot result in a complete restoration of the vehicle's pre-loss condition, the vehicle is not repaired, and the resulting diminution in value of the vehicle remains a loss to the insured car caused by a collision for which the insurer is liable under the terms of the policy.
Repair as used in the policy in this claim requires the insurer to restore the insured's vehicle to its pre-loss physical condition. If this cannot be done, the insurer must compensate the insured for the diminished value of the vehicle. The decision of the appeals court was affirmed. (It should also be noted that this policy did not have a diminution in value exclusion.)
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