July 4, 2016
This is an appeal from the U.S. District Court for the District of South Carolina. This case is Pennsylvania National Mutual Casualty Insurance Company v. Lewis, 2016 WL 3033203.
The insurer, Pennsylvania National Mutual brought a declaratory judgment action against its insured, Roger Lewis and his wife and his solely owned company, Excel Mechanical, seeking a declaration that it had no duty to defend or indemnify the insured in a bodily injury claim.
The underlying action arose out of a claim filed by Mrs. Lewis against Excel and her husband in which she alleges that she was injured in a boating accident involving a watercraft owned and operated by Mr. Lewis. Mrs. Lewis alleges that there were two other passengers on the boat at the time of the accident, and Mr. Lewis was entertaining these passengers as business prospects. Thus, she claimed, Mr. Lewis was engaged in the conduct of Excel's business and so, Excel was vicariously liable for Mr. Lewis's actions.
Six months after the accident, Mr. Lewis filed a claim with Penn National, reporting that he was in the boat with potential customers at the time of the accident and that the trip was therefore a business-related activity covered by his company's policy with Penn National. The coverage under the policy designated a limited liability company as an insured, with members also being insureds with respect to the conduct of the business and managers being insureds with respect to their duties as managers.
Penn National filed a declaratory judgment action, maintaining that the boat trip was not business-related and that Lewis was only claiming it was to obtain coverage. The insurer pointed to the fact that no one, besides Mr. Lewis, testified that they had thought the trip was business-related, that Mr. Lewis had filled the boat's gas tank the day of the accident but had not expensed the cost to Excel, and that he had not submitted his claim to Penn National until six months after the accident.
The insured countered that he routinely entertained potential customers on his boat to cultivate business relationships, and that he did not file his claim for coverage immediately because his life was in turmoil while he helped his wife recover from her injuries, and because he only discovered he had watercraft coverage when reviewing his policy months later in connection with an unrelated event.
The U.S. District Court found Mr. Lewis to be a credible witness and concluded that the Penn National policy was unambiguous and that at the time of the trip and resulting accident, Mr. Lewis was operating the boat in the course of his employment and with respect to the conduct of Excel's business as required for coverage under the policy. Penn Mutual appealed.
The United States Court of Appeals, Fourth Circuit, reviewed the controlling law and the arguments of the parties and affirmed the district court ruling.
Editor's Note: This case is presented to highlight the status of a limited liability company and its members and managers as insureds. Mr. Lewis owned the limited liability company and was the manager of the business, and his actions at the time of the accident were seen by the court as business-related. The court found that the fact that the trip included or may have included elements of familial entertainment and friendly fellowship did not deprive the trip of its business purpose.