February 17, 2014
The commercial general liability insurer brought an action against the automobile insurer seeking a declaration that it had no obligation to defend or indemnify the insured in the underlying action, such that the auto insurer had no right to contribution from the general liability carrier. This case is First Specialty Insurance Corporation v. Pilgrim Insurance Company, 990 N.E.2d 86 (2013).
Pinto had been diagnosed with dementia. Pinto's family contracted with R. Squared Enterprises to provide nonmedical support services to Pinto. R. Squared assigned Pereira to work with Pinto. Pereira drove Pinto to a restaurant for lunch in an auto owned by Pinto's wife. While at the restaurant, Pereira consumed alcohol and allegedly became intoxicated. She thereafter drove negligently and crashed into a tree. Pinto suffered serious injuries. Pinto's family sued R. Squared on grounds of negligence and negligent hiring, training, supervision, or retention. First Specialty held a general liability policy for R. Squared and disclaimed coverage. Pilgrim Insurance had an auto policy for R. Squared and provided defense. The case was settled within Pilgrim's $1 million policy limit.
First Specialty Insurance Corporation (FSIC) filed a declaratory judgment action seeking a declaration that it had no obligation to defend or indemnify R. Squared and that Pilgrim had no right to contribution or subrogation. The trial court ruled in favor of FSIC and this appeal followed.
The appeals court noted that as an insurer's duty to defend is broader than its duty to indemnify, it only needed to consider here whether FSIC was obligated to defend R. Squared. The court pointed out that the general liability policy issued by FSIC contained an exclusion that was designed precisely to exclude coverage for any negligent supervision claims that might be raised when an auto was involved in the occurrence. The auto exclusion in the FSIC policy stated that the auto exclusion "applies even if the claims against the insured allege negligence in the supervision of others by that insured if the underlying claim involves an auto that is owned or operated by any insured".
The only reasonable construction of this provision, said the court, is that it refers generally to any insured. Thus, for each defendant in the underlying litigation, the court had to determine whether, according to the complaint, that defendant negligently hired or supervised another insured person who owned or operated the auto involved in the accident. If so, that claim of negligence is unambiguously excluded from coverage under the FSIC policy.
The direct claim for negligence against Pereira obviously fell within the auto exclusion. Moreover, any claims seeking to impose vicarious liability on R. Squared for Pereira's negligence are also excluded as they are not separate and distinct from the use or operation of an auto. As for negligent hiring and supervision, these claims clearly fall within the auto exclusion's paragraphs. And, because all of the claims in the underlying complaint were excluded under FSIC's policy, the trial court ruling was proper. The judgment in favor of FSIC was affirmed.
Editor's Note: The Appeals Court of Massachusetts found that the auto exclusion in the FSIC general liability policy clearly prevented coverage for the use of the auto for the parties that were insured under the policy, namely, the driver (employee) and the named insured (R. Squared). The auto exclusion also clearly applied to claims against any insured that alleged "negligence or other wrongdoing in the supervision, hiring, employment, training, or monitoring of others by that insured". Since the claim against R. Squared involved the negligent hiring and supervision of Pereira, the auto exclusion was also applicable in this instance.