Meaning of “Vacancy” Discussed

The insured shopping mall filed a lawsuit claiming that the insurer breached the insurance contract by denying coverage for the loss due to theft of copper coils. This case is Oakdale Mall Associates v. Cincinnati Ins. Co., 702 F.3d 1119 (2013).

Oakdale owned and operated the Oakdale Mall. It obtained an insurance policy from Cincinnati Insurance Company covering direct physical loss or damage to the mall. In 2009, an employee of Oakdale discovered that thieves had stolen the copper coils contained inside eleven rooftop heating, ventilation, and air conditioning units at the mall. Oakland filed a claim with the insurer, but the insurer denied coverage based on an exclusion pertaining to any damage resulting from vandalism, theft, or attempted theft if the mall was vacant for more than sixty consecutive days before the loss or damage. The policy deemed the mall vacant unless at least 31 percent of its total square footage was rented and used. The mall had a total area of 180,000 square feet, meaning at least 55,800 square feet of the mall had to be occupied for coverage to apply.

There were tenants in the mall at the time of loss occupying 18,715 square feet. Two of these tenants had not been using their leased space to conduct operations for more than a year before the loss. Cincinnati objected to including these two tenants in the occupancy calculations.

The U.S. District Court ruled that the two tenants should not be included in the calculations and granted summary judgment to Cincinnati Insurance Company. Oakdale appealed.

The U. S. Court of Appeals, Eighth Circuit, noted that Oakdale declared the approximate amount of common area at the time of loss to be 34,595 square feet. Oakdale tried to include “bonus hallways” in support of its contention that the 55,800 square feet requirement was met, but the appeals court said that Oakdale never provided sufficient basis to support this claim.

Oakdale also claimed that the required space should include space for which Oakdale was actively seeking tenants. Oakdale said that the policy language should be interpreted, with regard to defining “vacancy,” as a shopping center that has no tenants and is not seeking new tenants and so, the term did not apply to Oakland's mall. The Circuit Court did not accept this idea, saying that Oakdale's interpretation would render the vacancy clause of the policy meaningless.

The final argument put forth by Oakland was that the two tenants that were no longer in active use of the mall space should still be included in the occupancy calculations since one had a valid lease and the other was a tenant at will with rights to use its respective space. The court rejected this argument, saying Oakdale's interpretation was contrary to the purpose of the vacancy provisions.

The ruling of the district court was affirmed and coverage for the loss was barred by the vacancy exclusion.

Editor's Note: The vacancy clause in property policies often causes coverage conflicts between insureds and insurers. The Circuit Court in this instance simply used the insured's own declarations as to the amount of occupancy and then rejected the insured's attempts to inflate that amount using various arguments in order to arrive at the conclusion that the policy requirement of at least 31 percent occupancy was not met, and so, coverage was excluded.

Another Vacancy Ruling

The homeowners insurer brought a declaratory judgment action, alleging that it had no duty to provide coverage for a claimed loss that arose from an explosion and fire. This case is New London County Mut. Ins. Co. v. Zachem, 74 A.3d 525 (2013).

The insured owned real property, a single family house and a freestanding garage; the property was maintained as a rental property. The premises were insured by a policy from New London County Mutual on an open perils basis. The policy did have an exclusion for loss caused by vandalism and malicious mischief, theft or attempted theft if the dwelling was vacant for more than 30 consecutive days immediately before the loss.

A property loss occurred at the premises when an intruder broke into the house and stole copper pipes. The thief broke a copper propane gas line during the theft and the basement filled with propane gas which ultimately exploded and caused a fire that destroyed the house. No one had resided in the house for over a year at the time of the loss, although one of the insureds periodically visited to do remodeling or maintenance work. After the insureds presented a claim to the insurer, the claim was denied, with the insurer saying the loss was caused by vandalism or theft and the premises had been vacant for more than thirty consecutive days.

The insurer brought a declaratory judgment action and the trial court ruled in favor of the insurer. This appeal followed.

The insureds argued that the term “vacant” was ambiguous and that the trial court's opinion was inconsistent with the intent of the parties to the insurance contract. The Appellate Court of Connecticut looked to various dictionaries and court rulings for the meaning of the word “vacant” and said that all of the dictionaries and court rulings agreed that the plain and ordinary meaning of the word is that the structure is not lived in and lacks the basic amenities for human habitation. The court said that the term “vacant” as used in the vandalism exclusion is susceptible to only one reading and is not ambiguous; the court agreed that a vacant dwelling is one that is unoccupied and does not contain items ordinarily associated with habitation. The opinion of the trial court was affirmed.

The insureds also brought up the ensuing loss argument, arguing that the trial court erred in concluding that the insureds had failed to establish that the ensuing loss provision was applicable. The insureds said that the court applied an improper proximate cause analysis. The insurer countered that the ensuing loss provision only applies when an excluded peril sets in motion a covered peril and in this instance, all of the damage to the dwelling was caused by the excluded peril of vandalism, malicious mischief, and theft; thus, there was no second covered peril to trigger the ensuing loss provision. The appeals court agreed with the insurer.

The court stated that the fire investigator's report concluded that the fire and explosion were a direct result from the intentional act or removing the copper propane lines, the efficient cause of the explosion was the removal of the copper propane lines. There was no separate and independent hazard from which the loss ensued. The appeals court agreed with the trial court that the insureds did not carry their burden of establishing that the ensuing loss exception was applicable in this case.

The judgment of the trial court was affirmed.

Editor's Note: The Appellate Court of Connecticut held that this dwelling was vacant as the word is defined in standard dictionaries and the rulings of courts around the country, that is, unoccupied and devoid of furniture and fixtures. Moreover, the evidence showed that the dwelling was vacant for more than thirty consecutive days prior to the loss. The exclusion clearly applied in this instance.

A Golf Cart as an Uninsured Motor Vehicle

This case centered on uninsured motorist benefits. The insurer filed a motion for summary judgment on the grounds that the golf cart involved in this loss did not qualify as an uninsured motor vehicle. This case is Andrade v. Tradition Golf Club of Wallingford, 2014 WL 486818. (Note that this is an unpublished opinion.)

Andrade alleged that he was an invitee at the golf club and that while on the premises, he rode as a passenger in a motorized vehicle owned by the golf club. The driver of the golf cart caused it to tip over and Andrade was seriously injured. The operator of the cart was uninsured or underinsured at the time of the accident. On the other hand, Andrade had a valid insurance policy with Kemper that included coverage for uninsured and underinsured motorist benefits. Andrade filed a claim for coverage but the insurer countered with this motion for summary judgment.

The insurer, Kemper, argued that the court should grant summary judgment in its favor on the grounds that the golf cart was not covered under the uninsured motorists coverage because it is a vehicle designed mainly for use off public roads. The insured countered that the golf cart is covered because there are circumstances in which a golf cart may be considered a motor vehicle based on the language of the state statutes, specifically, that golf carts are neither categorically included nor precluded from the statutory definition of a motor vehicle.

The Superior Court of Connecticut, Judicial District of New Haven, found that the statute provides in relevant part: “Motor vehicle means any vehicle propelled or drawn by any nonmuscular power, except golf carts operated on highways solely for the purpose of crossing from one part of the golf course to another”. The court said that this meant it is the vehicle's design that controls in determining whether a particular vehicle is suitable for operation on a highway and qualifies as a motor vehicle. Furthermore, the court said, although a golf cart may comply with the minimum criteria of a motor vehicle, absent statutory permission, it would be a criminal act to operate such vehicle on a highway because it could not be registered even if its stock rudimentary equipment was in proper working order. Without the essential safety features required for operation on a public road, there was no question of fact, said the court, that the golf cart was not designed for operation on a highway. Consequently, the golf cart does not qualify as a motor vehicle under the state law.

Accordingly, the court ruled, the golf cart does not qualify as an uninsured motor vehicle under the terms of the insurance policy, and there is no coverage for this accident. The insurer' motion for summary judgment was granted.

Editor's Note: A golf cart is a motor vehicle in the sense that it is powered by a motor, but the court in this instance looked to the state statute pertaining to the definition of “motor vehicle” and ruled that the controlling factor in the definition is whether a vehicle is suitable for operation on a highway. The insured gave this a good try but the golf cart was clearly not designed to be operated on a highway and failed to meet the standards set under the law.

Personal and Advertising Injury and a Person's Right of Privacy

The insured brought an action against its primary and umbrella liability insurers for a declaratory judgment that they owed a duty to defend and indemnify the insured in an underlying lawsuit. This case is Sportsfield Specialties v. Twin City Fire Ins. Co., 984 N.Y.S.2d 447 (2014).

The insured is a sports equipment company and it hired a competitor's employee. The employee in question was subject to a noncompete agreement and an electronic rights agreement that imposed various restrictions upon his use or dissemination of the competitor's proprietary information. After the employee's hiring, the competitor commenced an action alleging that the insured was guilty of tortious interference with contract and business relations, unfair and deceptive trade practices, and misappropriation of trade secrets.

At all times, the insured was covered under two policies of insurance—a general liability policy issued by Twin City Fire Insurance Company and a commercial umbrella policy issued by CastlePoint Insurance Company. The insurers declined to defend or indemnify the insured and the insured commenced this action. The trial court sided with the insurers and this appeal followed.

The Supreme Court, Appellate Division, Third Department, New York noted that the crux of the insured's argument is that the term “person” (found in the definition of personal and advertising injury pertaining to the violation of a person's right of privacy), connotes both individuals and corporations and that the misdeeds alleged in the underlying complaint broadly implicate its competitor's right of privacy. However, the court said, contrary to this assertion, the issue is not whether the term “person” can be construed to encompass both an individual and a corporation. The issue as the court saw it was whether the term “person” can reasonably be construed to include a corporate entity. Under the court's analysis, the policy does not permit such a construction.

The court ruled that the actions of the insured did not constitute a violation of a person's right of privacy since the competitor was a corporate entity. Without belaboring the point, the court concluded that its review of the underlying complaint leads to the decision that all of the allegations against the insured fall within at least one of the cited exclusions. Accordingly, coverage was properly denied in this instance and the decision of the trail court was affirmed.

Editor's Note: This case is noted for the court's opinion that (notwithstanding the United States Supreme Court's view) the term “person” does not apply to a corporation. The definition of personal and advertising injury in the general liability policy includes injury arising out of the oral or written publication of material that violates a person's right of privacy. The insured claimed that its competitor, a corporation, was a person and so, the insurers had a duty to defend the insured under the personal and advertising injury insuring agreement when the competitor sued the insured. The New York Appellate Court relied on the dictionary and commonly understood meaning of the term “person” to disagree with the insured, and found no coverage for the insured in this claim.