Tuesday, April 24, 2012

What a Difference a Word Makes

By Michael Tarrant

Co-operative Insurance Cos. v. Woodward, 2012 VT 22

By now, most people in Vermont have probably heard of the Michael Jacques murder trial currently pending in Federal District Court in Burlington. Aside from the absolutely horrific allegations underlying the case, one of the more interesting legal aspects is that the federal government decided to step in and pursue federal kidnapping and murder charges against Jacques rather than allow the State of Vermont to prosecute him under its own murder laws. Interestingly—and most likely importantly—federal law allows for the death penalty whereas Vermont law does not (save for treason).

Notwithstanding the legal jurisdiction wrangling, such an infamous crime is bound to have further legal consequences for the parties involved than the actual murder trial itself. Think about OJ Simpson and the subsequent civil trials and judgments that followed his acquittal. There is a reason that he later stood in a Las Vegas courtroom accused of trying to steal back his memorabilia. It was all taken from him through a series of wrongful death actions by the families of Ron Goldman and Nicole Brown Simpson.

So too in the present case has the father of Brooke Bennett, the little girl kidnapped and murdered, filed a lawsuit against the homeowner from whose home Brooke was abducted for negligent supervision and damages arising from her abduction, assault, and death. At the time of Brooke’s death, homeowner was married to Jacques—who also happens to be Brooke’s uncle.

Keep in mind that today’s case has nothing to do with the criminal prosecution of Jacques, but rather involves homeowner’s insurance company’s declaratory judgment action to verify that its policy does not cover the claims filed by father.

On June 25, 2008, Michael Jacques allegedly kidnapped, sexually assaulted, and murdered Brooke Bennett. Father’s civil suit against homeowner alleges that Jacques acted with an “intention” to commit harm to Brooke that Jacques had a “propensity for acting in a depraved, predatory, and harmful manner towards women,” and that homeowner either knew or should have known that Jacques was a threat to Brooke.

At the time of Brooke’s death, Jacques was married to homeowner and both were named as insured on a homeowner’s insurance policy. Important here is the policy’s personal liability coverage provision which, essentially, states that the insurer will pay—up to the limit of the policy—all sums for which the insured is liable due to “bodily injury” caused by an “occurrence” covered by the policy. It seems pretty clear why the insurance company would want out of this and why father would want to keep it in—the monetary stakes of father’s suit are likely very high.

Of course, the policy does not leave the definitions of key phrases like “bodily injury” and “occurrence” open for interpretation. “Bodily injury” is defined as “bodily harm to a person and includes sickness, disease, or death” but specifically excludes “bodily harm, sickness, disease, or death that arises out of . . . sexual molestation of any person.” “Occurrence” is defined as “an accident, including repeated exposures to similar conditions, that results in ‘bodily injury’ or ‘property damage’ during the policy period.” Additionally, the definition of “insured” states that “[e]ach of the above is a separate ‘insured’”.

The policy further promises that the insurer will defend all suits seeking damages resulting in “bodily harm” that are not excluded from coverage.

Sounds like pretty broad coverage, right?

In fact, it might be under normal situations. But it seems fair to say that what transpired back in 2008 was far from “normal.” Indeed, the policy contains an intentional-acts exclusion that states that the policy does not apply to “bodily injury” that “is expected by, directed by, or intended by an ‘insured’;” that is “the result of a criminal act of an ‘insured’;” or that is the “result of an intentional and malicious act by or at the direction of an ‘insured’.”

In an attempt to keep the insurance company in the case, father argued to the trial court that homeowner’s policy contains a “severability clause”—in other words, the language in the policy that each “insured” is covered separately and independently from the other allows for coverage for one even where coverage for the other might be excluded—in support of his position that the policy covers homeowner, regardless of Jacques’s intentional acts.

The trial court rejected father’s argument and granted summary judgment for homeowner’s insurer. The trial court concluded that the insurance company owed no duty or defense or indemnification in father’s damages suit because homeowner’s policy bars coverage for intentional acts performed by “an insured” that are not “occurrences.”

Father appealed to the SCOV with the same arguments made to the trial court—Jacques’s intentional acts do not preclude coverage for homeowner due to the so-called severability clause in the policy. Father argues that there was indeed an “occurrence” by focusing on homeowner’s negligent actions separate from Jacques’s intentional ones. Father’s main argument is that the clause asserting that each insured is a “separate ‘insured’” creates an ambiguity when read together with the intentional-acts exclusion, and thus asks the SCOV to interpret this ambiguity against the insurer and create coverage.

Insurer counters that Jacques’s intentional acts caused Brooke’s death, there was no “occurrence” under the policy, the intentional-acts exclusion bars coverage, and that the policy does not contain a severability clause, but that even if it does, there is no ambiguity.

The SCOV affirms.

The SCOV employs the familiar summary judgment standard of review—the trial court’s decision will be affirmed if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law.

Here, the disputed issues relate to interpretation of an insurance policy, which, the SCOV informs us, is a question of law. The terms of the policy will be given their plain meaning, but where there is ambiguity—the main thrust of father’s argument—the SCOV will construe the terms in favor of granting coverage, the purpose of which is to promote the underlying purpose of having insurance in the first instance, that when an insured needs insurance coverage, the insured is actually insured. To this end, the SCOV reviews the disputed terms from the perspective of how a reasonably prudent person applying for insurance would have understood them.

In order to determine whether insurer has a duty to defend, or provide coverage, the SCOV looks to father’s underlying complaint against homeowner to see if the claims against the insured “might be of the type covered by the policy.” If there is “no possible factual or legal basis on which the insurer might be required to indemnify,” there is no duty to defend.

The SCOV begins by looking at the definition of “occurrence” and the intentional-acts exclusion together. As mentioned above, the policy defines an “occurrence” as “an accident, including repeated exposures to similar conditions, that results in ‘bodily injury’ or ‘property damage’ during the policy period.” While the policy was pretty good at defining terms before, here the SCOV notes that “accident” as used in the definition of “occurrence” is not a defined term under the policy. But fortunately for all involved, the SCOV has had the opportunity to define “accident” in prior case law—concluding the plain meaning of “accident” is “an event that is undesigned and unforeseen,” or an “unexpected happening.”

Thus, to determine whether an “occurrence” has taken place, it is essential to determine whether the actor intended or expected harm to result from the alleged intentional acts. Although usually this would involve a factual inquiry, the SCOV points out that some actions are so likely to result in injury that a court may find as a matter of law that an injury did not arise from an “accident” regardless of the actor’s subjective intent.

Looking to the underlying complaint, the SCOV concludes that the allegations leveled against Jacques are “inherently harmful and so certain to cause injury that we must conclude as a matter of law that [Jacques] had intent to harm.” And just like that, the SCOV finds no “accident” and thus no “occurrence” under the policy.

Of course, there is still the issue of whether or not the intentional acts of “an insured” can be considered to void the policy against other insureds—here, can Jacques’s intentional acts void coverage for homeowner as well? The SCOV sets out that where an insured’s tortious acts are intentional, a clause in a policy excluding intentional acts by “an insured” generally bars coverage for claims made by any insured under the same policy. The SCOV acknowledges that there is a split in the jurisdictions as to whether a severability clause conflicts with an intentional-acts exclusion sufficiently to create enough ambiguity and thus create coverage.

In the end, though, the SCOV assumes without deciding—a useful bit of judicial sleight of hand—that the provision in homeowner’s insurance policy is a severability clause, but nonetheless concludes that such a clause does not override the intentional-acts exclusion for certain acts committed by “an insured.” The SCOV notes that “an” is a “collective” term and thus even if each insured were treated as separately insured parties, the clause excludes coverage for all insured through the same policy for the acts of one.

While this decision has the impact of relieving the insurer from any duty to defend against or provide liability coverage for any damages resulting from father’s lawsuit against homeowner, father is still free to continue his underlying lawsuit and pursue Jacques and homeowner directly.   

None of this alters the evil that has happened in this case or the alleged culpability of the players, but it does illustrate the macabre principle handed down from countless noirs: you can plan for murder, but you can’t insure it.

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