Is a co-signer on a car loan an owner?
By David Thamann
A court of appeals in Ohio addressed the question of whether a co-signer on a car loan can be considered a co-owner of the vehicle for insurance coverage purposes. This case is Selective Insurance Company of America v. Arrowood Indemnity Company, 2010 WL 580984 (Ohio App. 2 Dist.).
The mother of Shiloh Gentry co-signed a loan for a car purchased by Shiloh. The purchase agreement listed the purchaser as "Shiloh N. Gentry/Carol L. Gentry"; the title to the car identified Shiloh as the owner; the motor vehicle department listed Shiloh as the registered owner of the car; and, Shiloh made the car payments each month.
On the way to purchase auto insurance for the car, Shiloh rear-ended a vehicle driven by Kisselman. Kisselman filed a lawsuit against Shiloh and her father, Thomas Gentry, alleging that Shiloh's negligence proximately caused injury to Kisselman. Kisselman also filed a claim with her own insurer, Selective, for uninsured/underinsured motorists coverage. Selective paid $246,000 to Kisselman and then commenced an action against Shiloh and Thomas for reimbursement. The insurer for Gentry, Royal Insurance Company, denied coverage for the Gentrys and Selective obtained a default judgment. Selective then filed a petition against the successor in interest to Royal, Arrowood, based on the default judgment.
The trial court decided that the auto policy purchased by Gentry did provide coverage for the accident caused by Shiloh because the mother was an owner of the vehicle; it was considered by the court to be a newly acquired auto within the meaning of the Royal policy. The court ruled in favor of Selective's petition and this appeal followed.
The appeals court reviewed the Royal policy and noted that coverage was provided for accidents involving the vehicles identified in the declarations and for a newly acquired auto that the named insureds became owners of during the policy period; Thomas Gentry and Carol Gentry are listed as the named insureds. The policy also excluded coverage for the use of any vehicle that is owned by the Gentrys' family members (such as Shiloh). Therefore, if Carol Gentry was not, in fact, the owner of the vehicle involved in the accident, there would be no coverage available under the terms of the Royal policy.
The Royal policy did not define the words "own" or "owner", so the court looked to Black's Law Dictionary, Seventh Edition. The dictionary defined "own" as to "have or possess as property; to have legal title"; an owner was one who has that title. The court said that it was undisputed that Shiloh, not Carol, possessed and had legal title to the car at the time of the accident. The record was clear that the car was intended to be Shiloh's auto and that she was the only person making payments on the outstanding loan and that she was responsible for the everyday maintenance of the car.
The Royal policy unambiguously required ownership as a prerequisite of coverage. Although Carol Gentry may have acquired an insurable interest in the car by co-signing the loan, this act did not make her an owner of the car. Since the insurance policy referred to ownership and not an insurable interest, the policy did not apply to this accident. The judgment of the trial court was reversed and summary judgment was granted to Arrowood.
Editor's Note: This ruling is from an Ohio Appeals court, so it cannot be taken as the settled law of the land. However, it provides some guidance in answering the question about a co-signer on a car loan also being an owner, and about the extent of a "newly acquired auto". Since the standard personal auto policy does provide coverage for a newly acquired auto as defined, any clarification of that term is useful for insureds and insurers.
U.S. Court of Appeals Construes Business Risk Exclusion
In Fortney & Weygandt, Inc. v. American Manufacturers Mutual Insurance Company, 595 F.3d 308 (2010), the United States Court of Appeals in the Sixth Circuit was faced with a claim involving the general liability policy's business risk exclusion. The dispute was between the general contractor insured and his insurer and pertained to alleged faulty construction.
The insured, Fortney, contracted with a restaurant chain to build a restaurant in Ohio. After the restaurant was nearly completed, but before it had opened for business, some soil shifted around the foundation, breaking the building's underground utility lines. An investigation discovered that the foundation was defective and the only remedy was to demolish and rebuild the entire building. Litigation then ensued. The insured tendered the lawsuit to its insurer, American Manufacturers, which refused to defend or indemnify, citing a policy exclusion for defective workmanship.
Fortney filed a declaratory judgment action but the district court ruled in favor of the insurer. The court held that the defective workmanship exclusion applied to the claim with no exception allowed. The insured appealed the decision.
The court of appeals, as did the district court, focused on the following exclusion: this insurance does not apply to property damage to that particular part of any property that must be restored, repaired, or replaced because the work of the named insured was incorrectly performed on it. The court found that all parties in this dispute agreed that this exclusion would exclude coverage for claims seeking recovery for the cost of replacing only the defective foundation itself. However, the claim here sought recovery for the cost of replacing not only the foundation, but the whole building. (Apart from the foundation, none of the insured's work on the building was defective.) So, the question presented to the circuit court was whether the exclusion excluded coverage for the cost of replacing building parts on which the insured performed non-defective work, but that were replaced anyway because of the insured's defective work on another part of the building.
The court said that the plain meaning of the exclusion is that property damage only to parts of the property that were themselves the subjects of the defective work is excluded. The court reasoned that the narrowing phrase "that particular part" was used to clearly distinguish the damaged property that was itself the subject of the defective work from other damaged property that was either the subject of non-defective work or that was not worked on by the insured at all. The court went on to note that the phrase "that particular part" was restrictive, straining to the point of awkwardness to make clear that the exclusion applies only to building parts on which defective work was performed, and not to the building generally. Furthermore, the court said, "part" as used in this exclusion means the distinct component parts of a building, such as the foundation. The exclusion therefore applied only to the cost of repairing or replacing distinct component parts on which the insured performed defective work.
The court did acknowledge decisions by other courts that ran contrary to its opinion, but these were held to be not persuasive. The judgment of the district court was reversed and the case was remanded with instructions to enter judgment in favor of Fortney on its duty to defend claim.
Editor's Note: It is always helpful to have a court rule on the scope of "that particular part". Does the exclusionary language pertain to just that particular part of the insured's work that was damaged, or does the language encompass the entire body of the insured's work? It would seem that the language--that particular part--and the fact that exclusions are meant to be read as narrowly as is possible in order to give the insured as much coverage as is reasonable, would lead all courts to find as this circuit court did when it comes to the application of the exclusion. However, as the court here noted, this interpretation is not universally accepted and the extent of "that particular part" will continue to be decided on a case by case basis.
Faulty construction not an occurrence in Kentucky
Kentucky has weighed in on the issue of whether faulty construction is an occurrence for general liability insurance coverage purposes. This decision from the Supreme Court in Kentucky is not final and cannot yet be cited as authority in any courts of Kentucky, but it does present another state's ruling on the faulty work as occurrence issue. This case is Cincinnati Insurance Company v. Motorists Mutual Insurance Company, 2010 WL 997380 (Ky.). This is a matter of first impression in the state.
This case required the Supreme Court to decide whether a claim of defective construction against a homebuilder is, standing alone, a claim for property damage caused by an occurrence under the terms of the commercial general liability (CGL) form. Like the majority of courts that have considered the question, the Supreme Court held that the answer is no.
The homeowners in this case sued the builder of their home claiming that the home was so poorly built that it was beyond repair and needed to be razed. The insurer at that time, Motorists, handled the claim and then filed a third-party suit against Cincinnati Insurance as the successor to Motorists as the builder's general liability insurer. The gist of this lawsuit was that Cincinnati had wrongfully breached its duty to defend and indemnify the insured builder. The trial court ruled in favor of Cincinnati, holding that the claims did not amount to an occurrence causing property damage under the terms of the CGL policy. The court of appeals vacated the trial court's ruling and the case then went to the Kentucky Supreme Court.
The Supreme Court examined the policy language, especially the definition of an occurrence which was defined as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. The word "accident" was the key to the court's ruling. The court said that inherent in the plain meaning of accident is the doctrine of fortuity and fortuity consists of two central aspects: intent and control. However, while it can be presumed that the builder did not intend to construct a substandard home, focusing just upon that point is insufficient. The court chose to also focus on whether the building of the house was a chance event beyond the control of the insured. In other words, the court chose to bear in mind that a fortuitous event is one that is beyond the power of any human being to bring to pass. Clearly, the insured had control over the construction here, either directly or through the subcontractors it chose. One cannot logically say then that the substandard construction by the insured was a fortuitous (that is, accidental) event. This leads to the inevitable conclusion that the faulty workmanship claim at issue is not covered by the CGL policy the insured purchased from Motorists because the faulty workmanship was not an accidental occurrence.
The Supreme Court ruled that in this case, the claim clearly fell outside the policy at issue since there was no occurrence, so Cincinnati's refusal to defend the insured was not inherently improper. The decision of the appeals court was reversed and summary judgment was granted to Cincinnati Insurance.
Editor's Note: What is interesting in this decision is the court's emphasis on the aspect of control when it comes to interpreting the scope of an occurrence. The court said that an occurrence was an accident, a fortuitous event, and fortuity had two aspects, intent and control. The insured certainly did not intend to build a substandard house, but the court in essence ignored that part of the equation and focused on whether the building of the house was a chance event beyond the control of the insured. A general contractor does have control over the construction project, but to use that aspect of fortuity to deny the existence of an occurrence, and thus, to deny coverage for a property damage claim is problematic. However, insureds and insurers should know that in Kentucky, this is the current view.
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