Top policy exclusion cases of 2019
No matter the type of insurance, policy exclusions are always of critical importance.
No matter the type of insurance, policy exclusions are always of critical importance. From the war exclusion to contractual liability, decisions based on exclusions to coverage featured prominently in 2019.
1. Truck stop’s insurance excluded coverage for injuries allegedly suffered from exploding tire
The Virginia Supreme Court overturned a circuit court decision and unanimously held that an insurer was not obligated to indemnify a truck stop under a commercial liability policy for litigation involving injuries caused by an exploding tire. The dispute arose when a truck stop employee invited a customer into the garage area while the employee repaired the tire on the customer’s tractor-trailer. According to the court’s ruling, the employee over-inflated the tire, causing it to explode and injure the customer. The truck stop’s insurer denied coverage, contending that the claim was precluded by the policy’s auto exclusion for coverage arising out of an auto’s maintenance. The insurer filed a declaratory action against the truck stop seeking a coverage determination.
The trial court ruled in favor of the policyholder and found that the meaning of “maintenance” of an auto was ambiguous because it could mean regular repair operation or a possessory interest other than ownership or use. The trial court also ruled that even if the auto exclusion barred coverage, there was coverage under a separate provision of the policy that provided premises liability. On appeal, the high court disagreed and said “ ‘regular repair operations’ is the only interpretation of maintenance that can be reasonably applied to every instance of the term in the Policy,” and it is not ambiguous. The court also said the auto exclusion precluded coverage of the premises liability provision of the policy.
The case is James River Ins. Co. v. Doswell Truck Stop, LLC, 827 S.E.2d 374 (Va. 2019). You can read ICLC’s expert coverage interpretation here.
2. Seventh Circuit says contract exclusion renders E&O coverage illusory
The Seventh Circuit held that a manufacturer’s insurer must cover its insured, a designer and builder of anaerobic digesters, under its errors and omissions policy for claims alleging breach of contract, despite an exclusion in the policy for claims arising out of the breach of an express or oral contract. The coverage action arose from a 2013 lawsuit filed against DVO in Wisconsin state court by WTE-S&S AG Enterprises LLC, alleging that DVO breached a contract based on its failure to properly design and build an anaerobic digester, a tank that converts cow manure into electricity. In addition, WTE alleged that DVO engaged in an unethical kickback scheme.
The federal court held that the breach of contract exclusion precluded coverage for the underlying state court action. On appeal, however, the Seventh Circuit found that Wisconsin law, as in many states, interprets the “arising out of” language at issue broadly, and that applying it to a breach of contract exclusion would effectively preclude coverage for almost any action related to work performed under a contract render the professional liability coverage in the E&O policy illusory.
The case is Crum & Forster Specialty Ins. Co. v. DVO, Inc., 939 F.3d 852 (7th Cir. 2019).
3. Ninth Circuit rejects insurer’s attempt to invoke war exclusion for Hamas rocket attack
In a win for policyholders, the Ninth Circuit rejected an insurer’s argument that the common meaning of “war” applied when interpreting a war exclusion, instead of the customary usage of the term, pursuant to Cal. Civ. Code 1644, and revived NBC Universal’s attempt to recover at least $6.9 million in costs incurred to relocate the production of a television show from Jerusalem during the 2014 Israeli-Palestinian conflict. In Universal, the appellate court considered whether losses incurred by plaintiffs Universal Cable Productions, LLC, and Northern Entertainment Productions, LLC (collectively, Universal), arising from moving production of its television series Dig out of Jerusalem in 2014 following a rocket attack by Hamas, were covered under Universal’s television-production insurance policy, which contained three so-called “war” exclusions.
The court found that the insurer failed to prove that the “warlike action” exclusion applied because Hamas was not a de facto sovereign and Hamas was not engaging in “warlike action” by a military force. The court also found that “ ‘war’ has a special meaning in the insurance industry requiring hostilities between de jure and de facto governments.”
The case is Universal Cable Prods., LLC v. Atl. Specialty Ins. Co., 929 F.3d 1143 (9th Cir. 2019). You can read ICLC’s expert coverage opinion of the case here.
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