New York Courts Rule on Homeowners Policy Provisions
November 2005
In this month's Case of the Month column,
Kevin Merriman describes two New York cases dealing with the uninsured premises
exclusion and the noncumulation clause in homeowners policies.
by Kevin
Merriman
Goldberg
Segalla LLP
In Maroney v. New York Central Mutual Fire Insurance
Company (N.Y. Oct. 27, 2005), the New York Court of Appeals held that
an "uninsured premises" exclusion of a homeowners policy applies broadly to
use of the premises, and is not limited to the physical condition of the premises.
The claim arose as a result of injuries sustained when the 6-year-old plaintiff
was kicked by a horse. The insureds were the owners of a business that boarded
horses for a fee. The stable had been built on property owned by the insureds,
located across the road from their residence.
Before the business was established, the property had been insured as part
of a homeowners policy issued for their residence; however, once the insureds
began boarding horses for a fee, the policy was amended to remove coverage for
the property where the stable was located. The insureds' daughter had agreed
to care for the plaintiff, and, on the day of the accident, the insured had
taken the child across the road to the stable where she proceeded to feed and
turn out two horses. As the insured was leading one of the horses to pasture,
the horse kicked the plaintiff in the forehead, causing serious injury.
The insurer disclaimed coverage under the homeowners policy based on the
policy's "business pursuits," "uninsured premises," and "home day care services"
exclusions. The "uninsured premises" exclusion provided that coverage for personal
liability did not apply "to bodily injury or property damage … arising out of
a premises … owned by an insured … that is not an insured location." The claimant
argued that the uninsured premises exclusion applied only to injuries that were
causally connected to the physical condition of the premises, which would not
have applied in this case because the claim was based upon the insured's tortious
conduct, not upon any physical condition of the land. The insurer argued the
converse—that the term "arising out of" was broader and pertained to both the
physical condition of the premises and conduct related to the use of the premises.
In this case of first impression, the court interpreted the exclusion broadly,
concluding it applied to both the physical condition of the premises and to
conduct related to its use. The court reasoned that "the words ‘arising out
of' have ‘broader significance … and are ordinarily understood to mean originating
from, incident to, or having connection with." Thus, in the context of this
exclusion, the phrase "arising out of" required only that there be some causal
relationship between the injury and the risk for which coverage is provided.
This interpretation, the court found, "allows an insurer to reasonably define
the universe of possibilities to which it can apply its risk analysis … and
determine a premium." The court continued:
- An insurer does not wish to be liable for losses arising from risks
associated with a premises for which the insurer has not evaluated the risk
and received a premium—or, as in this case, for a premises that contained
risks the insurer when underwriting the homeowners insurance policy declined
to accept. Thus, when injury-causing conduct is causally related to the
purposes for which the premises are used, then the injury is deemed to "arise"
from the premises. If the injurious conduct is so causally related to the
use of the premises, and deemed to 'arise' from the premises, then it is
likely that the conduct would be insured by a policy that contemplated the
risk.
The court concluded that in this case it was clear that the plaintiff's injury
was not a bargained-for risk. This injury was causally related to the purpose
for which the uninsured premises was being used—the care and boarding of horses
in the barn and stable. The homeowners policy was intended to exclude coverage
for damage "arising out of" the premises, and the court declined to create coverage
where none was intended by the insured or insurer. Since the court concluded
that the uninsured premises exclusion applied, it did not address the other
exclusions.
In a dissenting opinion, Rosenblatt, J., concluded that the phrase "arising
out of a premises" did not refer to the conduct of the insured—it applied more
narrowly to injuries causally connected to a dangerous condition of the premises.
Alternatively, the phrase was at least ambiguous, which required that it be
construed against the carrier.
Noncumulation Clause Limits Insurance to Single Limit Despite Trigger of
Successive Policies
In Hiraldo v. Allstate Insurance Company (N.Y.
Oct. 25, 2005), the insurer issued a $300,000 liability policy for a term of
1 year. Upon its expiration, the policy was renewed twice for two successive
policy years. Plaintiff was allegedly exposed to lead paint continuously during
the terms of all three policies. The question in this case was whether the available
insurance was $300,000 (the limits of a single policy) or $900,000 (the aggregate
limits of all three policies). The court of appeals held that the language of
the policies made clear that the exposure was caused by a single loss, and that
even though several policies were implicated, the insurer's liability was limited
to $300,000.
Each of the three policies provided $300,000 in liability coverage, and the
policies were identical in all other respects. Each policy provided: "This policy
applies only to losses which occur during the policy period, as shown on the
declarations page." The policies also included a "non-cumulation clause," which
provided:
- Regardless of the number of insured persons, injured persons, claims,
claimants or policies involved, our
total liability under Business Liability Protection coverage for damages
resulting from one loss will not exceed the limit of liability for Coverage
X shown on the declarations page. All bodily injury, personal injury, and
property damage resulting from one accident or from continuous or repeated
exposure to the same general conditions is considered the result of one
loss.
The court concluded that claimant's injuries allegedly resulted from "continuous
… exposure to the same general conditions" and thus from "one loss" within the
meaning of each policy. Plaintiffs argued that, since the loss occurred during
each of three successive policy periods, and each policy applied "to losses
which occur during the policy period," the insurer was liable up to its policy
limit under each policy. The court disagreed because the non-cumulation clause
specifically provided that "[r]egardless of the number of … policies involved,
[the insurer's] total liability … for damages resulting from one loss will not
exceed the limit of liability … shown on the declarations page."
Interestingly, the court noted that, "this case would be a difficult one
in the absence of a non-cumulation clause." The court observed that, "[i]ntuitively
it does not seem right that an insurer that never issued more than $300,000
in coverage could be liable for $900,000 for a single loss. Thus, an Appellate
Division case involving claims for exposure to asbestos holds that ‘the limit
of liability, where an insurer has issued renewal policies, shall be the policy
limits for one policy' (citing Matter of Liquidation
of Midland Ins. Co., 269 A.D.2d 50, 60 (1st Dept. 2000)). Yet this result
is also counterintuitive: If each of the successive policies had been written
by a different insurance company, presumably each insurer would be liable up
to the limits of its policy. Why should plaintiffs recover less money because
the same insurer wrote them all? Some courts have held that successive policy
limits may be cumulatively applied to a single loss, where the policies do not
clearly provide otherwise (citing National Union Fire
Ins. Co. v. Farmington Cas. Co., 1 Misc. 3d 671 (Sup. Ct., N.Y. County
2003); Riley v. United Services Automobile Ass'n,
161 Md. App. 573, 871 A.2d 599 (Ct. Spec. Apps. 2005))." Though it declined
to say so, the court may have been prepared to aggregate policy limits in the
absence of a "non-cumulation clause."
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author’s employer or IRMI. This article does not purport
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