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Vol. 3, Iss. 15
November 5, 2014

Happy Halloween: How The ALI Restatement Could Be Scary For Insurers

Coverage Opinions is always mindful of the calendar and I try to write articles that have a tie-in to close-by holidays. Last year’s Halloween article – “From Boo To Sue,” involving liability for being scared in a haunted house – was particularly successful. It was the subject of ABA Journal and Wall Street Journal stories. Here is this year’s Halloween effort – which, admittedly, is nowhere near as good as last year’s.

In prior issues of Coverage Opinions I have taken issue with the then-American Law Institute’s “Principles of the Law of Liability Insurance” for adopting or considering adoption of certain provisions that adopt minority positions. One of these is Chapter 3’s proposed adoption of the following definition of “accident:” “an action or event that causes a result that the insured does not subjectively expect or intend.”

My beef has been that, to define “accident” based on a “result that the insured does not subjectively expect or intend” is likely to lead to coverage for undeserving situations. It is to open the door to arguments by insureds that, despite how substantially certainty a result is to occur – say, serious injury from a fist to the face – such a serious injury was, in fact, not subjectively expected or intended (a less serious one was), so, therefore, it was an “accident.” Even if a court sees this as ludicrous, it may nonetheless be compelled, if following the ALI’s definition of “accident,” to rule in the face of incredulousness. After all, with policy language being the test for determining coverage, courts may be constrained to conclude that it trumps common sense. In other words, this definition of “accident” could create coverage based on self-serving statements of intent (or lack of subjective intent) that fly in the face of reality.

OK, here is the holiday angle – a Halloween-related case that demonstrates how a subjective definition of “accident” (or, related, expected or intended exclusion) can lead to coverage for undeserving insureds based on self-serving statements of intent.

Vermont Mutual Insurance Company v. Dalzell, 218 N.W.2d 52 (Mich. Ct. App. 1974) involved coverage under these circumstances. On October 31, 1965, a 17-year-old “threw a 30—40 pound pumpkin over the side of a highway overpass in Shiawassee County, Michigan. The pumpkin struck a vehicle being driven by defendant Dalzell and shattered the windshield. As a result, Dalzell suffered serious facial and eye injuries. The youth was later apprehended and pled guilty to aggravated assault.”

Dalzell filed suit against the youth’s parents. The court found that their son’s conduct was wilful and malicious and entered a judgment against the son in the amount of 75,000. A declaratory judgment action was filed to determine rights and obligations under the parents’ homeowners policy.

The trial court in the declaratory judgment action held that no coverage was owed based on the policy provision that excluded “bodily injury * * * caused intentionally by or at the direction of the Insured” or “caused intentionally by an Insured over the age of 12 years.”

The Michigan Court of Appeals reversed: “The trial court found that the youth’s act of throwing the pumpkin was intentional and there was abundant evidence presented to support this finding. In addition, however, the trial court found that the youth intended to injure the motorist, defendant Dalzell. This was error since there was no evidence presented to support the conclusion that the youth intended to injure Dalzell. Throughout the criminal and civil proceedings, the youth maintained that the pumpkin was thrown to strike in front of or alongside of defendant Dalzell’s vehicle in order to frighten him. This testimony stood uncontradicted. . . . Inasmuch as under the terms of the homeowners policy in question, the insurer is not insulated from liability for intentional injuries unless there was both an intentional act and an intent to injure, . . . and since there was no evidence presented indicating that the insured intended to injure defendant Dalzell, we hold that the plaintiff is liable up to the limits of the policy for the damage suffered by defendant Dalzell.”

Even if the youth truly did not intend to injure Dalzell, Dalzell’s injury must be considered to have been substantially certain to occur. However, a definition of “accident” that is tied to the insured’s subjective intent to injure – and, of course, the insured will always argue that he or she had none – would preclude a court from considering that an injury was surely substantially certain to occur.

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