The Supreme Court of Ohio heard an appeal arising from a declaratory judgment action to 'determine whether insurance coverage exists in a lawsuit involving injuries stemming from a misguided teenage prank. This case involved the doctrine of inferred intent with respect to the intentional acts exclusion. This case is Allstate Insurance Company v. Campbell, 2010 WL 5538723 ( Ohio ).

In 2005, a group of teenage boys stole a lightweight Styrofoam target deer and placed it in the road just below the crest of a hill. Roby drove over the hill saw the deer, took evasive action, and lost control of his car. His vehicle overturned and he was seriously injured. Roby and his passenger sued the boys, their parents, and their insurance companies. The insurers filed a declaratory judgment action seeking a declaration that they had no duty to defend or indemnify due to the intentional acts exclusion in the policies. The trial court granted the motion from the insurers, but the appeals court ruled that while there was no dispute that the boys had acted intentionally, the issue was whether they had intended harm or injury to follow the intentional act. The appeals court held that because questions of fact remained over the certainty of harm resulting from the boys' actions, their conduct did not support an objective inference of an intent to injure as a matter of law. The insurers appealed to the Ohio Supreme Court.

The insurers argued before the court that it should apply the substantially certain test so that intent to harm will be inferred as a matter of law whenever an insured's act is substantially certain to cause harm. The insureds countered that the application of inferred intent should remain limited and that instead of using the substantially certain test in this case, the matter of intent should be resolved like any other issue of fact. The court decided to explore the line of cases that have accepted the doctrine of inferred intent.

This examination showed that as applied to an insurance policy's intentional acts exclusion, the doctrine of inferred intent applies only in cases in which the insured's intentional act and the harm caused are intrinsically tied so that the act has necessarily resulted in the harm. The court held that limiting the scope of the doctrine is appropriate because the rule is needed only in a narrow range of cases, that is, in cases where the intentional act could not have been done without causing harm. Thus, an insured's intent to cause injury or damage may be inferred only when that harm is intrinsically tied to the act of the insured; in other words, when the action necessitates the harm.

The court also briefly addressed the exclusionary language in the policies. The insurers said that the exclusions require an objective test for whether coverage exists. The court held that it would not infer the insureds' intent to harm as a matter of law so whether the injury was expected or reasonably expected is an issue to be determined by the trier of fact. The trier of fact must conduct a factual inquiry to determine whether the boys intended or expected the harm that resulted from the intentional actions.

The Ohio Supreme Court ruled that the scope of inferred intent is limited in this instance and the insurers were required to defend the insureds.

Editor's Note: The intentional acts exclusion in insurance policies usually reads that BI or PD expected or intended from the standpoint of the insured is not covered. Disputes arise over whether the exclusion applies to intentional acts or only to intentional results. In this case, the insurers wanted the Ohio Supreme Court to rule that the intentional acts of the insureds inferred the intent to cause the resultant harm. The court chose not to do this and made two points: the intent to harm may be inferred only when the action necessitates the harm; and, it is the task of the trier of fact to determine whether the insureds actually intended or expected the harm that results from their intentional actions.

Intentional Act Results in Intentional Harm

The United States District Court in Colorado heard a case in which the insured intentionally fired a gun into a crowd injuring several people, although not the person the insured actually intended to harm. The court had to decide if the intentional acts exclusion applied in this instance. This case is Garrison Property and Casualty Insurance Company v. Barco, 2011 WL 9274 (D.Colo.).

Barco arrived uninvited at the home of Garcia who was hosting a birthday party. Barco and Garcia got into a fight, Barco drew a gun and said he was going to kill everyone. Barco then left the house and got into a car. As the car drove past the house, Barco leaned out the window and fired three times at the crowd of partygoers. Stefancic was struck by one of the bullets.

Barco was tried and convicted on two counts of attempted murder. Soon thereafter,, Stefancic filed a civil action against Barco sounding in negligence. Barco's insurer brought a declaratory judgment action to determine whether it had a duty to defend or indemnify Barco for any claims raised in the lawsuit.

The District Court noted that Barco's renter's policy excluded coverage for bodily injury caused by the intentional or purposeful acts of any insured, including conduct that would reasonably be expected to result in bodily injury to any person. Similarly, Barco's auto policy excluded coverage when the insured intentionally acts or directs to cause injury or acts or directs to cause with reasonable expectation of causing injury. The court found that these exclusions were clearly implicated by the facts of the underlying lawsuit. It should hardly bear mentioning, the court said, that when an individual deliberately aims a loaded gun at someone and pulls the trigger, the shooter intends or expects to cause some harm. It was immaterial that Barco may not have intended to harm Stefancic specifically because the exclusions apply whenever the insured intended injury to occur, regardless of whether the person or persons injured were the intended targets of his actions. Moreover, the fact that Barco was convicted of attempted murder estops him from contesting the conclusion that his acts were intentional.

The court ruled that both the renter's policy and the auto policy issued to Barco excluded coverage for the injuries that formed the basis of Stefancic's complaint. Therefore, the insurer had no duty to defend or indemnify Barco in connection with that case.

Editor's Note: This is another example of a court ruling on the intentional acts exclusion. The facts of this case allowed the court to conclude that the insured's acts resulted in intentional harm. Contrast this decision with the previous one from Ohio .

Owned Property Exclusion Bars Coverage

The insured vendors sued the insurer for breach of contract regarding the insurer's refusal to defend the insureds in an underlying litigation brought against them by property purchasers. This case is Panico v. State Farm Fire and Casualty Company, 2011 WL 322830 (C.A.10, Colo. ).

The Panicos sold property to the Taylors.The Taylors then sued the Panicos upon discovering that the property was not as represented. The Taylors claimed that the property was virtually uninhabitable due to serious design and construction defects, mold, rodents, and drainage problems. The actual complaint alleged fraudulent misrepresentation, fraudulent concealment nondisclosure, and negligent misrepresentation causing financial loss in a business transaction. The Panicos demanded the insurer, State Farm, defend and the insurer declined. A lawsuit followed and the district court granted summary judgment to the insurer. The insureds appealed.

The insureds argued that the complaint triggers the duty to defend because it contains allegations of bodily injury to Mrs. Taylor caused by exposure to conditions at the property. However, the appeals court said there was not duty to defend in this instance because the Taylors did not, in fact, make any personal injury claims. The complaint mentions Taylor 's reaction to exposure to the house only to provide a factual context for the property damage claims and to illustrate the severity of the property's problems. The complaint does not actually seek damages or any other relief for bodily injury, and if there is no claim, there is no duty to defend.

Therefore, because the Taylors ' complaint cannot reasonably be read as an attempt to hold the Panicos liable for bodily injury, State Farm's duty to defend is not triggered.

As for the property damage claims, the Panicos argued that the Taylors brought claims for such damage caused either by the misrepresentations or negligent construction and maintenance of the property. The court said that, to the extent that the complaint alleges such claims, they do not trigger a duty to defend because they are subject to the owned property exclusion. The policy excludes from coverage claims for property damage to property rented to, occupied or used by, or in the care of any insured. Whether the court looked to the alleged misrepresentations concerning the property, alleged negligent construction of the property, or the negligent maintenance of the property as the relevant occurrence, the court said the Panicos could not avoid the owned property exclusion. All three allegations would have taken place while the Panicos owned the property. They owned the property at all relevant times and the exclusion bars coverage.

The ruling of the district court was affirmed. State Farm had no duty to defend because none of the Taylors ' claims are covered by the insurance policy.

Editor's Note: The owned property exclusion in a liability policy is not one that is often utilized by an insurer to deny coverage. It seems rather obvious that property damage to property owned by or rented to or occupied by the insured is not a subject for liability insurance since, if it were, the insured could negligently damage his own property and then seek coverage under liability insurance; such an exposure should be covered by some form of property insurance. The United States Court of Appeals in this instance confirmed that the owned property exclusion will prevent any liability coverage for damage to the insured's own property.

Product Exclusions Prevent Coverage for Insured Manufacturer

The insured was sued by the Texas Department of Transportation and the City of El Paso based on allegations pertaining to street signs manufactured by the insured. When the insured asked for defense and indemnification, the insurer declined coverage and this lawsuit followed. This case is Admiral Insurance Company v. H & W Industrial Services, 2011 WL 318277 (W.D.Tex.).

The insurer moved for summary judgment that it has no duty to defend or indemnify the insured, arguing that the allegations against the insured do not constitute property damage caused by an occurrence, or in the alternative, that the “your products” and the impaired property exclusions prevent any duty to defend. The complaint against the insured sought expenses for the labor and materials to remove and replace the defective street signs which the state and city claimed began to shrink and discolor, changing the appearance of the signs and warping the lettering and numbering; this allegedly made the signs unserviceable and created a traffic hazard.

The United States District Court examined the complaint against the insured and compared the allegations with the insured's liability policy. The court found that the claims for labor and materials to replace the signs fall within the “your products” exclusion. This exclusion provides that property damage to the product of the insured arising out of it or any part of it is not covered by the policy.

The street signs were definitely the product of the insured since the insured manufactured, sold, and handled the signs. Moreover, the damages arose from defects in the signs themselves, either in the materials used or in the manufacturing process. Therefore, the “your products” exclusion prevents coverage for damages based on the removal and replacement of the street signs.

The court also found that the claims for costs incurred in storing the signs after they were removed and replaced fell within the impaired property exclusion. This exclusion applies to property damage to property not physically injured arising from a defect in the product of the named insured. The court reframed this exclusion a bit, saying the exclusion is one based on a loss of use of uninjured property where the loss of use arises from a defect in a product sold by the insured or from the insured's failure to perform a contract. Assuming the claims for storage expenses implicitly evidence a loss of use of property that was not physically injured, any such loss of use would necessarily arise from the defect in the signs sold by the insured or from the insured's failure to provide acceptable signs as required by the contract with the state and city.

Based on the claims against the insured falling within the “your product” and impaired property exclusions, the court found that the insurer had no duty to defend or indemnify the insured in the underlying lawsuit.

Editor's Note: The court's opinions that the “your product” exclusion and the impaired property exclusion prevent coverage in this instance are interesting. The defective signs are seen by the court as the product of the named insured since they were manufactured and sold by the named insured. However, since the signs were supposedly erected on the ground or affixed to the ground, by legal definition, that would make the signs real property, and, also by definition, “your product” does not include real property.

As for the impaired property exclusion, the definition of impaired property is tangible property other than “your product” that cannot be used if such property can be restored to use by the removal of the product or by the insured fulfilling the terms of the contract. So, if the signs are the product of the named insured, as the court says, the definition of impaired property is not met. Furthermore, the signs were stored and meant to be replaced, they were not going to be restored to use.

Perhaps, the court rushed to judgment in this case?

Other Insurance News

After tests done on long-term exposure to Chinese drywall fumes, the federal government concluded that there is no safety hazard to a home's electrical system from the fumes. This is not going to stop the drywall lawsuits or recommended remedial efforts.

Connecticut has passed a law stating that insurers may not cancel or nonrenew an insurance policy based solely on information contained in the insured's credit history or lack thereof.

Utah passed a law prohibiting a municipality or political subdivision from charging a first responder fee.

Louisiana now has a law that advises auto liability insurers that owners of vehicles that are damaged but not destroyed may recover additional damages equal to the diminution of value of the auto if that owner can prove that the fair market value of the vehicle when repaired would be less than its value before being damaged.

The New Jersey Department of Banking and Insurance issued a bulletin that serves to remind producers that certificates of insurance should be used only to provide evidence of insurance and cannot be used to amend, expand, or alter the terms of the actual policy.