As to each exclusion, there is a substantive difference, i.e., the conduct
for injury that is to be excluded. However, in addition to the substantive differences,
there are also differences dealing with the breadth, i.e., to whom the exclusions
apply. In many instances, the breadth of the exclusions is overlooked by both
insureds and insurers. However, one cannot obtain a proper understanding of
the coverage being provided, particularly with respect to the exclusion, until
there is an understanding of the breadth of the exclusion.
The discussion herein will not address the substantive differences since
they are too many to be counted. Rather, we will focus on the breadth and how
these differences are to be interpreted. The principles discussed will apply
to all exclusions, regardless of the substantive differences and will give the
reader a better understanding of what was intended by the underwriter and how
they will be interpreted by the courts.
Generally, the exclusions in the most liability policy may be broken down
into three categories. The first category is those exclusions which speak in
terms of "you." The second category of those exclusions which speak in terms
of "any insured." The third and final category is those exclusions that speak
in terms of "the insured" or "that insured." These are discussed below.
"You" Exclusions
The first group of exclusions use the term "you." An example in the personal
auto policy is the following exclusion:
We do not provide Liability Coverage for the ownership, maintenance or use
of: …
2. Any vehicle, other than "your covered auto," which is:
a. owned by you; or
b. furnished for your regular use.
"You" or "your" is defined by the policy to mean the named insured shown
in the declarations. Under the personal auto policy, this exclusion would be
limited to the named insured. If there was an omnibus insured involved, under
the terms of the exclusion, there would be no application.
Many courts have recognized this distinction. In
Buettner v. State Farm Mut. Auto. Ins. Co., 210 S.W.3d 363 (Mo. App.
2006), the court of appeals was faced with this distinction when addressing
the underinsured motorists (UIM) portion of a personal auto policy. The policy
provided that:
THERE IS NO COVERAGE UNDER W FOR BODILY INJURY
TO AN INSURED:
-
WHILE OCCUPYING A MOTOR VEHICLE OWNED
OR LEASED BY YOU,
YOUR SPOUSE, OR ANY
RELATIVE IF IT IS NOT INSURED FOR THIS
COVERAGE UNDER THIS POLICY[.]
"Insured" as defined in this section includes Michele Buettner.
"You" or "Your"
is defined in the policy as "the
named insured or named insureds shown on the declarations page."
On August 19, 2001, Michele Buettner was injured in a motor vehicle accident
caused by the negligence of Michelle Pedrotti. At the time of the accident,
Michele Buettner was a passenger in a 1990 Chevrolet S-10 truck owned by the
Buettners. As a result of the injuries she suffered, Michele Buettner incurred
medical expenses in the amount of $160,000, and her lost earnings totaled $40,000.
Her total damages exceeded $500,000.
Pedrotti's insurance company paid the Buettners $100,000, as the limit of
Pedrotti's automobile liability insurance policy. State Farm consented to the
payment.
At the time of the accident, the Buettners had three automobile insurance
policies with State Farm. The Buettners paid separate premiums for each policy
and separate amounts for underinsured and uninsured motorist coverage for each
policy.
Accordingly, the Buettners demanded payment from State Farm of the limits
for UIM coverage under all three policies. State Farm paid $50,000 to the Buettners
under Policy Number 324344–025–25 (listing the Buettners' 1990 Chevy S-10 as
the insured vehicle; hereinafter referred to as "Policy A"). After State Farm
refused to pay UIM benefits under the Buettners' other two automobile policies
(hereinafter referred to as "Policy B," listing the Buettners' 1984 Lincoln
Town Car, and "Policy C," listing their 1984 Toyota half-ton pickup), the Buettners
filed this action, seeking $100,000 as the combined limits of the underinsured
motorist coverage of those policies, damages for loss of consortium and vexatious
refusal to pay, and punitive damages.
State Farm argued that since the S-10 was not scheduled under the other two
policies, there was no coverage. The trial court and court of appeals agreed
holding:
We conclude the State Farm no coverage clauses in policies
B and C prohibit those policies from covering bodily injury suffered while occupying
the S-10, because the S-10 is not listed on the declaration page of policies
B or C.
Since the vehicle was owned by "you" as defined in the policy and was not
scheduled, there was no coverage.
"Any Insured" Exclusions
The second group of exclusions to be addressed are those exclusions that
apply to "any insured" or use the term "any." In the personal auto policy, the
following is an example:
We do not provide Liability Coverage for the ownership, maintenance
or use of:
Any vehicle, located inside a facility designed for racing,
for the purpose of:
a. Competing in; or
b. practicing or preparing for:
any prearranged or organized racing or speed contest
Under the terms of this exclusion, there is no coverage for any insured if
the vehicle is being used for organized racing. If the named insured is engaged
in competitive racing, there is no coverage for anyone. If an omnibus insured
is engaged in racing, there is no coverage for anyone, including the named insured.
The underwriters have made the decision that this is an activity that they do
not want to underwrite and will provide no coverage, regardless of who may qualify
as an insured.
"The Insured" or "That Insured" Exclusions
The third category of exclusions is those exclusions which use the term "the
insured." An example of this type of exclusion in the personal auto policy is
found in the following exclusion:
We do not provide Liability Coverage to any "insured":
-
Using a vehicle without a reasonable belief that that
"insured" is entitled to do so.
If an omnibus insured is found to have been using a vehicle without permissive
use, under this exclusion, there would be no coverage for the nonpermissive
user. However, the named insured may be sued for negligence for not taking greater
care to see that the vehicle was not taken by the nonpermissive user. In this
case, while the nonpermissive user would have no coverage, there would still
be coverage for the named insured since the application of the exclusion is
limited to "the insured" or "that insured." In Progressive
County Mut. Ins. Co. v. Sink, 107 S.W.3d 547 (Tex. 2003), Joshua McCauley's
pickup truck became disabled. He was at that time employed by Alamo Rent-A-Car,
and, while on the job, he took one of its rental cars to drive to a location
that is not disclosed in the record to get his tools so that he could attempt
to repair his truck. It is uncontested that McCauley did not obtain permission
from Alamo to use any of its vehicles and did not believe that he had permission
to use the car in question. While returning to work in Alamo's car, McCauley
was involved in an accident with Paul Sink. The Progressive policy provided:
EXCLUSIONS
A. We do not provide Liability Coverage for any person: ....
-
Using a vehicle without a reasonable belief that that
person is entitled to do so. This exclusion (8.) does not apply to you or any
family member while using your covered auto.
The policy's definition of "your covered auto" contained, among other things,
the reference to a "temporary substitute" vehicle:
G. "Your covered auto" means: ....
-
Any auto or trailer you do not own while used as a temporary
substitute for any other vehicle described in this definition [e.g., a vehicle
identified in the policy Declarations or a vehicle acquired by the insured during
the policy period] which is out of normal use because of its:
a. breakdown;
b. repair;
c. servicing;
d. loss; or
The court of appeals concluded that a vehicle used by an insured or an insured's
family member as a temporary substitute for another vehicle that is "out of
normal use" is covered, even if used without the permission of the owner. The
court reasoned that paragraph 8 of the exclusions expressly does not apply to
"your covered auto," which includes a "temporary substitute vehicle." Accordingly,
the court of appeals held that because McCauley "was driving a temporary
substitute vehicle because his own vehicle had become disabled," it did not
matter that he drove the "substitute vehicle" without permission.
The supreme court disagreed, holding:
Because the term "temporary substitute" is not defined in
the policy, we consider the ordinary, everyday meaning of the words used. It
is common to rent a car, use a loaner car, or borrow a car from a friend or
family member while one's primary vehicle is undergoing service or repair. The
generally accepted meaning of "temporary substitute" vehicle does not, however,
include taking a vehicle without at least a reasonable belief of entitlement
to its use.
This interpretation is not in conflict with paragraph 8 of
the exclusions. Indeed, it is in harmony with that exclusion. Paragraph 8 says
that a person using a vehicle without a reasonable belief that he or she is
entitled to do so is not covered. But this exclusion does not apply to the insured
or any family member while using "your covered auto." Thus, under the current
TPAP, "your covered auto" includes a vehicle owned by an insured and "used as
a temporary substitute" by a teenage member of the insured's family. But the
general public understands that if a vehicle driven by a teenager and expressly
covered by the policy breaks down, and the teenager steals a neighbor's car,
the stolen vehicle would not be regarded as a "temporary substitute" vehicle.
Nothing in the use of the term "temporary substitute" vehicle suggests otherwise.
The analysis would not change if the teenager "borrowed" the neighbor's car
without the neighbor's knowledge or permission. The same can be said of an adult
insured who "borrows" his or her employer's car without permission. The ordinary
connotation of a "temporary substitute" vehicle is that it is a vehicle used
with the owner's permission, or at least a reasonable belief that the owner
consented.
Conclusion
In conclusion, when addressing exclusions in liability policies, the substance
of the exclusion is always a critical issue. However, one must not overlook
the breadth of to whom the exclusion applies. This is critical, and the words
used in the exclusions have exact meanings which cannot be overlooked.