An automobile insurer filed a petition for a declaratory judgment to determine which, if any, of three auto insurance policies afforded coverage to a deputy sheriff injured while trying to subdue an offender being taken into custody. This case is Simpson v. Virginia Municipal Liability Pool, 692 S.E.2d 244 ( Va. 2010).

Robertson was driving westbound on Route 460 in Virginia and Trooper Inge clocked him at 68 miles per hour in a 55 mile per hour zone. When Inge pursued Robertson, Robertson sped away and tried to evade the trooper. Inge called for help and Deputy Simpson responded. During the chase, Robertson lost control of his vehicle and fishtailed in a grassy area, struck the left side of Inge's vehicle, and all three vehicles then came to a stop. Robertson, Inge, and Simpson then emerged from their respective vehicles; none had been injured at this time. Simpson and Robertson were walking toward each other when Inge tackled Robertson from behind and all three men fell to the ground together. In the melee, while trying to handcuff Robertson, Simpson suffered an injury to his left shoulder.

Simpson brought a civil action against Robertson to recover damages for his injuries. Robertson had an auto policy with GEICO.

GEICO denied coverage for Robertson and refused to defend on two grounds: Simpson's injuries did not arise out of the use of Robertson's insured vehicle; and GEICO's policy excluded coverage for injuries caused intentionally by the insured. Those assertions, if successful at trial, would make Robertson an uninsured motorist with respect to Simpson's claim. Thus, GEICO's contentions involved two other insurers, Virginia Municipal Liability Pool (VMLP) and National Grange Mutual Insurance Company, since both companies afforded uninsured motorists coverage to Simpson.

VMLP filed a declaratory judgment action claiming that Simpson was not covered by its policy because he was not occupying the insured vehicle at the time of his injury and because Robertson was not using his vehicle at the time of Simpson's injury The Grange held the same position. The trial court ruled that none of the three men was using or occupying a motor vehicle when Simpson was injured and so, none of the auto insurers had a duty to defend or indemnify. Simpson appealed and the case was then taken up by the Virginia Supreme Court.

Simpson assigned two errors to the trial court's ruling: that when Simpson was injured, Robertson was not using or occupying his vehicle as those terms are employed under the terms of the policy; and, that when Simpson was injured, he was not using or occupying his vehicle as those terms are so construed. The court first noted that no serious contention was made by any party that either Simpson or Robertson was occupying a vehicle at the time of Simpson's injury. Therefore, the court confined its decision to the question of use.

The court said that the natural and ordinary meaning of “use” of a motor vehicle contemplates that there has to be a causal relationship between the incident and the employment of the insured vehicle as a vehicle. Also, the natural and ordinary purpose of auto insurance, objectively and reasonably within the contemplation of the parties to the insurance contract, must be taken into consideration when determining the scope of coverage. Furthermore, consideration must be given to what the insured person was doing when he was injured, along with his purpose and intent, in determining whether he was in such a relationship to the vehicle as to be injured in its use. Applying these standards, the court agreed with the trial court's ruling.

The court found that there was no evidence that the vehicles were used or relied upon in any way to accomplish Simpson's purpose at the time he was injured. Simpson's mission was to pursue Robertson, arrest him, and take him into custody. By the time Simpson was injured, all those purposes had been accomplished. The chase ended when Robertson's car came to a stop, and Robertson was unquestionably in custody when he was tackled and taken to the ground. Neither Simpson's car nor Robertson's car was in use as a vehicle at that time. Moreover, the scramble among the three men on the ground was not an event reasonably and objectively such to have been within the contemplation of the parties to the auto insurance contracts involved. So, the trial court ruled correctly that the use of motor vehicles played no role in the injuries Simpson sustained. Those injuries did not arise out of the use or occupancy of any motor vehicle and none of the auto policies afforded coverage.

Editor's Note: This is another example of how a court interprets the words “use” and “occupying” when it comes to coverage under an auto policy. The Supreme Court of Virginia noted that cases involving the terms “use” and “occupying” in auto insurance policies present such an infinite variety of factual patterns that it was impossible to formulate bright-line rules of universal application or even a list of factors dispositive of the issue in every case. There are some general standards a court can apply, but each dispute over the applicability of those terms has to be decided based on the facts of the particular situation.

Surface Water as Cause of Loss

An insurance coverage dispute arose between the insured and the insurer after the insurer refused to cover a water damage claim that followed an unusually fast snowmelt that overwhelmed mad-made ditches and flooded the insured's property. This case is Northwest Bedding Company v. National Fire Insurance Company of Hartford, 225 P.3d 484 (Wash.App. 2010).

Northwest Bedding had an all risk commercial property policy from National Fire. The Spokane area where Northwest Bedding is located experienced heavy snowfall during the winter of 2007-2008. Toward the end of February, the state department of transportation diverted snowmelt through trenches in the vicinity of Northwest Bedding. The water overflowed the trenches onto the insured's property, inundating the building and damaging both building and contents. The insurer concluded that the loss was the result of surface water and was excluded from coverage. The insurer denied coverage, the insured sued, and the trial court ruled in favor of the insurer. This appeal followed.

Northwest Bedding contended that the trial judge erred when she concluded that the loss resulted from an excluded peril because the loss actually resulted from third parties channeling water onto the insured's property. The insurer responded that the loss was clearly the result, directly or indirectly, of surface water, and the fact that the water may have been channeled onto the insured's property does not change the fact that loss was a result of surface water.

The appeals court noted that the policy itself does not define the two excluded water perils at issue, damage caused by flooding or surface water. However, Washington state courts have characterized surface water as follows: the chief characteristic of surface water is its inability to maintain its identity and existence as a body of water; it is thus distinguished from water flowing in its natural course or collected into and forming a definite and identifiable body, such as a lake or pond. And, in this instance, the flow of water from the rapid snowmelt overwhelmed the drainage ditches and forced the water onto land, making it surface water. The court said that the water that inundated the property was delivered to normally dry property by an overflowing ditch and this water is clearly not a body of water or a water formation such as a lake or pond. The water is reasonably characterized as both surface water and flood.

The insured also argued before the court that the diversion of water by a third party was a distinct peril and was the efficient cause of the loss. The court said that efficient proximate cause is the predominant cause that sets into motion the chain of events producing the loss. And, if the efficient proximate cause of loss is covered by the insurance policy, the loss is covered even though other events within the chain of causation are excluded from coverage. In Washington, the efficient proximate cause rule applies when two or more independent forces operate to cause a loss, and the courts in the state apply the rule only after determining two items: which single act or event was the efficient proximate cause of loss; and, if that efficient proximate cause of loss is a covered peril. In this instance, the building of the drainage ditches was not an independent cause of loss, and the actual loss was caused by overflowing surface water, an excluded peril. The judgment of the trail court was affirmed.

Editor's Note: This decision is noted for its discussion of surface water and efficient proximate cause. The water in the drainage ditches became surface water once it left the ditch and flooded over the land. The water had no identity and existence as a distinct, definite, and identifiable body of water; it simply overflowed on the land and that characterizes it as surface water to the average reasonable observer.

The ruling also noted that a determination of efficient proximate cause of loss, for purposes of determining whether a risk or loss is covered or excluded by an insurance policy is generally a question of fact for the fact finder. However, it becomes a question of law if the facts are undisputed and the inferences from those facts are plain and incapable of reasonable doubt or difference of opinion. In this case, the facts showed that the loss was due to the surface water, not the drainage ditches, and this was clearly excluded from coverage under the terms of the policy.

Peculiar Risk Doctrine, Vicarious Liability, and Workplace Injury

The California Supreme Court recently issued a ruling in a case wherein an independent contractor sued a general contractor for workplace injuries under the peculiar risk doctrine. This case is Tverberg v. Fillner Construction, 110 Cal.Rptr.3d 665 (2010).

Fillner was hired as the general contractor for the expansion of a commercial fuel facility. Fillner hired a subcontractor, Lane Supply, to do some construction work. Lane subcontracted the work to Perry Construction which in turn hired an independent contractor,

Tverberg, as foreman of Perry's two-man construction crew. Tverberg held a contractor's license under the name J.T. Construction, a sole proprietorship. While on the job, Tverberg fell into a hole that had been dug to erect eight concrete posts. Tverberg then sued

Fillner seeking damages for physical and mental injuries and lost income. The trial court ruled that the plaintiff could not hold the general contractor vicariously liable on a theory of peculiar risk, and also that the general contractor could not be held directly liable since the plaintiff had been aware of the danger posed by the holes but did not work around them. An appeals court reversed the ruling and the case then went to the California Supreme Court.

The Supreme Court ruled that an injured independent contractor hired by a subcontractor cannot hold the general contractor vicariously liable for jobsite injuries on a theory of peculiar risk. The court noted that the doctrine of peculiar risk was developed by the courts as an exception to the common law rule of hirer nonliability to ensure that innocent third parties injured by the negligence of an independent contractor hired by a landowner to do inherently dangerous work would not have to depend on the contractor's solvency in order to receive compensation for the injuries. With reference to this case, the court said that when an independent contractor is hired to perform inherently dangerous construction work, that contractor receives authority to determine how the work is to be performed and assumes a corresponding responsibility to see that the work is performed safely. This delegated authority removes the independent contractor from the category of innocent third parties deserving of financial protection under the doctrine of peculiar risk. Therefore, a hired independent contractor who suffers injury resulting from risks inherent in the hired work, after assuming responsibility for all safety precautions reasonably necessary to prevent precisely those sorts of injuries, is not a hapless victim of someone else's misconduct. In that situation, the reason for imposing vicarious liability on a hirer, that is, compensating an innocent third party, is missing.

The Supreme Court reversed the appeals court ruling and remanded the matter back to that court.

Editor's Note: This case is presented for its discussion of the California Supreme Court's take on the peculiar risk doctrine. This doctrine is also known as the special risk doctrine and holds that a person who hires an independent contractor to perform work that is inherently dangerous (a peculiar risk) can be held liable for tort damages when the contractor's negligent performance causes injuries to others. The reasoning behind the doctrine is that an innocent third party injured by the negligence of an independent contractor should not have to depend just on the contractor's ability to pay in order to receive compensation.

A problem arose, though, when some courts expanded the peculiar risk doctrine to allow an independent contractor's employees who were injured on the job through the negligence of the contractor to seek recovery from the person who hired the contractor. A majority of courts throughout the country do not support this viewpoint and, in fact, the California Supreme Court in a 1993 case ruled against this view. The Tverberg decision merely added the point that the contractor himself, if injured on the job, cannot hold the one who hires him liable based on the peculiar risk doctrine. This decision could have an impact on decisions in other jurisdictions.

Mortgage Clause does not Confer Coverage for Loss of Rent

An action was brought by the mortgagee seeking coverage under a businessowners policy for loss of rents. This case is Casco Bay Finance Company v. Quincy Mutual Fire Insurance Company, 2010 WL 3192936 (Mass.App.Ct.).

The owner of a multi-unit rental property bought a businessowners policy from Quincy Mutual and designated GreenPoint Mortgage Funding as mortgagee. During the policy term, the property was severely damaged by fire and all of the rental units became uninhabitable. GreenPoint subsequently transferred and assigned the mortgage and associated agreements to Casco Bay. The owner defaulted on his mortgage loan and Casco then foreclosed and purchased the property. Casco Bay then sought to recover under the policy for lost rents that it became entitled to receive under the terms of an assignment of rent in a commercial loan rider executed by the previous owner when he obtained his mortgage loan. Quincy Mutual denied coverage and Casco Bay filed a lawsuit. The trial court ruled in favor of the insurer and this appeal followed.

The appeals court said that there was no merit to Casco Bay's argument that the standard mortgage clause in the policy confers coverage upon a mortgagee not only for physical damage to the insured premises, but also for loss of rent occasioned by fire at the premises. The mortgage clause in the policy stated that the insurer will pay for covered loss of or damage to real estate to each mortgageholder as interest may appear. And, the ordinary meaning and approved usage of the term “real estate” is land and anything permanently affixed to the land; it does not refer to rent, which ordinarily means an amount paid for the use and occupation of premises.

The court also said that the mortgagee's claim to recover lost rent under the policy's coverage for loss of business income was unavailing. That coverage, which was limited to actual loss of business income sustained by the original owner due to necessary suspension of his operations, was for the benefit of that owner and is not within the scope of the limited coverage afforded the mortgagee.

The ruling of the trial court was affirmed.

Editor's Note: The standard mortgage clause is commonly incorporated into property policies coverage both personal and commercial buildings. And while the mortgagee's interest is not affected by foreclosure proceedings, the coverage the mortgagee receives is for loss of or damage to the building, not to something intangible such as rents or business income. As the appeals court in Massachusetts noted, these items “are not within the scope of the limited coverage afforded the mortgagee” under the mortgage clause.