When Insurer Uses Extrinsic Evidence to Prove Facts Establishing Exclusion There is No Need to Defend or Indemnify

Clear & Unambiguous Exclusion Must Be Enforced

Aug 05, 2021

BACKGROUND

On appeal, Old Republic argued the trial court erred in denying its motion for summary judgment and ruling as a matter of law that Old Republic had a duty to indemnify and provide coverage to Pro-Agr in the underlying bodily injury claim brought by Kyle Dowdy for injuries he suffered while flying Pro-Agr’s airplane.

In the underlying case, Dowdy alleged he was injured when Pro-Agr’s Air Tractor AT-602 airplane, which Dowdy was flying, crashed because of mechanical failure. Dowdy alleged his injuries were caused by Pro-Agr’s breach of its duty (1) to maintain, inspect, and repair its airplane and (2) to adhere to Airworthiness Directives…”

Pro-Agr sought a defense and indemnification from Old Republic. Old Republic informed Pro-Agr that Dowdy’s bodily injury claim was not covered by Pro-Agr’s insurance policy and Old Republic had no duty to defend or indemnify Pro-Agr for any settlement, judgment, apportionment of fault and/or contribution entered against Pro-Agr in the underlying action. Although Old Republic denied it owed Pro-Agr either a defense or indemnity Old Republic did agree to provide Pro-Agr with a defense subject to a reservation of rights.

Old Republic noted its policy excluded coverage for any bodily injury claim brought by any “insured.” The exclusionary provision stated:

We will not cover bodily injury sustained by any insured under this policy. We also will not cover bodily injury sustained by any family member of an insured under this policy to the extent any such family member’s bodily injury derives or arises from, relates to or exists because of bodily injury sustained by an insured under this policy. (Emphasis in original.)

The policy defined the term “insured” as follows:

Insured means you as well as any person while using or riding in your aircraft and any person or organization (except with respect to the persons or organizations excluded from coverage under Part IV and V under their respective ‘who is not covered’ section) legally responsible for its use, provided the actual use is with your express permission. (Emphasis in original.)

Both Pro-Agr and Dowdy admitted Dowdy was using Pro-Agr’s airplane with Pro-Agr’s permission at the time Dowdy was injured. Further, Dowdy admitted he was “riding in” the aircraft with Pro-Agr’s permission, and Pro-Agr admitted Dowdy was piloting the plane with Pro-Agr’s permission at the time of the accident.

ANALYSIS

When construing an insurance policy the court is obligated to ascertain and give effect to the intention of the parties, as expressed in the policy language. The construction given to an insurance policy should be a natural and reasonable one. Undefined terms will be given their plain, ordinary and popular meaning, i.e., they will be construed with reference to the average, ordinary, normal, reasonable person. If the policy language is susceptible to more than one reasonable meaning, it is considered ambiguous and will be construed against the insurer.

If the factual allegations either fall within or potentially fall within the policy’s coverage, the insurer’s duty to defend its insured arises. In certain circumstances, a court may look beyond the allegations in the underlying complaint to determine whether coverage under an insurance policy potentially exists.

Consideration of a third-party complaint in determining a duty to defend is in line with the general rule that a trial court may consider evidence beyond the underlying complaint if in doing so the trial court does not determine an issue critical to the underlying action. The trial court need not wear judicial blinders and may look beyond the complaint at other evidence appropriate to a motion for summary judgment.

To require the trial court to look solely to the complaint in the underlying action to determine coverage would make the declaratory proceeding little more than a useless exercise possessing no attendant benefit and would greatly diminish a declaratory action s purpose of settling and fixing the rights of the parties.

Based on the pleadings and admissions in this case, the material facts are not in dispute. Dowdy was piloting and using Pro-Agr’s plane with Pro-Agr’s permission when his alleged injuries occurred. When comparing these undisputed facts to the insurance policy at issue, Dowdy was an “insured” as defined by the policy when the airplane crashed and he was allegedly injured. Because the insurance policy specifically states Old Republic “will not cover bodily injury sustained by any insured under this policy,” the trial court erred both by not granting Old Republic’s motion for summary judgment and by ordering Old Republic to provide a defense and coverage to Pro-Agr.

The trial court’s order finding Old Republic had a duty to defend and provide coverage to Pro-Agr and remand this case with instructions for the trial court to grant Old Republic’s motion for summary judgment because the trial court erred in denying Old Republic Insurance Company’s motion for summary judgment in this declaratory judgment action. Kyle Dowdy’s bodily injury claim against Pro-Agr, Inc., in the underlying action was excluded from the insurance coverage provided by the policy Pro-Agr, Inc., purchased from Old Republic Insurance Company.

ZALMA OPINION

The plain language of the policy clearly provided that it will not cover claims for bodily injury brought by a pilot in Dowdy’s situation and as an insured. It is not unreasonable or draconian for an insurance company to offer its customers an insurance policy that does not cover a claim like Dowdy’s. The Illinois Court of Appeal properly refused to limit its decision on coverage to the underlying pleading but considered the evidence and admissions that made it impossible for coverage for a defense or indemnity to apply.

© 2021 – Barry Zalma Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at

http://www.zalma.com

and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/ podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4

When Insurer Uses Extrinsic Evidence to Prove Facts Establishing Exclusion There is No Need to Defend or Indemnify

Clear & Unambiguous Exclusion Must Be Enforced

BACKGROUND

ANALYSIS

ZALMA OPINION

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