Allstate Insurance v. Keillor ( 1995 )

Levin, J.

(dissenting). Plaintiff, Allstate Insurance Company, commenced this action for a declaratory judgment against defendant William Keillor, personal representative of the estate of his deceased wife, Susan Keillor.

The decedent was killed when her vehicle collided with a vehicle being driven by an eighteen-year-old social guest of the son of the person to whom Allstate had issued a homeowner’s policy of insurance. Keillor had commenced an action claiming that the insured’s son, an additional insured under the policy, had served intoxicating beverages to the guest who drove the vehicle that collided with the deceased’s vehicle.

The question presented is whether exclusions for bodily injury (1) arising out of the use of "any motorized land vehicle” or (2) which may "reasonably be expected to result from the intentional or criminal acts of an insured person,” relieve Allstate of liability under the policy.

The policy provides:

Losses We Cover

We will pay all sums arising from the same loss which an insured person becomes legally obligated to pay as damages because of bodily injury or property damage covered by this part of the policy.

Exclusions—Losses We Do Not Cover

1. We do not cover any bodily injury or property damage which may reasonably be expected to result from the intentional or criminal acts of an insured person or which is in fact intended by an insured person.

5. We do not cover bodily injury or property damage arising out of the ownership, maintenance, use, loading or unloading of any motorized land vehicle or trailer. [Emphasis added.]

i

I would hold that whether bodily injury may reasonably be expected to result from serving alcoholic beverages depends on the facts, and, hence, cannot be decided as a question of law by the court, and thus presents a question for resolution by the trier of fact, a jury. See Buczkowski v Allstate Ins Co, 447 Mich 669; 526 NW2d 589 (1994).

ii

The majority finds that the motor vehicle exclusion is unambiguous.¹ In my opinion, there are two areas of ambiguity.

A

Motor vehicle exclusions are included in homeowner’s policies because an insured’s driving risks are "traditionally and properly covered by motor vehicle policies, not by homeowner’s insurance.”² The motor vehicle exclusion reduces homeowner’s premiums by removing the risks of operating an automobile from coverage.³ Consistent with this purpose, homeowner’s policies generally exclude only motor vehicles owned or operated by or rented or loaned to an insured.

The "most widely used homeowners policy”⁴ provides that there is excluded from the liability coverage bodily injury or property damage "arising out of . . . the ownership, maintenance, use, loading or unloading of motor vehicles or all other motorized land conveyances, including trailers, owned or operated by or rented or loaned to an insured . . . .”⁵ (Emphasis added.)

The motor vehicle exclusion in the Allstate policy differs from the language employed to express this exclusion in the most common homeowner’s policies. Absent an express statement that the exclusion for any motorized vehicle applies without regard to whether the vehicle is owned, maintained, or used by the insured, the exclusion is, I think, ambiguous, reading the exclusion from the standpoint of the insured.

This Court has defined an ambiguous contract as one in which the " ‘words may reasonably be understood ini different ways.’ ”⁶ The rare insured who took the time to read carefully and understand all the language in this policy could find at least two reasonable interpretations of this exclusion. One interpretation is that it aims to streamline the language. Under this reading, the exclusion applies only where the insured has some control over the vehicle.

The United States Court of Appeals for the Sixth Circuit suggested that the exclusionary language might reasonably be read this way. Allstate Ins Co v Mercier, 913 F2d 273 (CA 6, 1990), involved facts very similar to those here. The exclusionary language was identical to that in this case.⁷ The court said:

Ownership, maintenance, use and loading or unloading all imply some degree of control or right to possession of a vehicle. If the purchaser of a homeowners policy could reasonably assume that [this auto exclusion] applied only to injury involving a vehicle over which the insured homeowner had some measure of control, the question of [this control] would be critical. [Id., p 278 (emphasis added).]

Other courts have held that the absence of "owned or operated by the insured” language does not eliminate the need for the insured to have exercised some control over the vehicle for the exclusion to apply.⁸

Another interpretation of the policy language is the one accepted by the majority: that it excludes from coverage liability for all injuries associated with any motor vehicle, regardless of whether the liability would be covered by the insured’s automobile policy. While this is a possible reading, it is not the only reasonable interpretation of this language.

B

Reading the policy as a whole—"Losses We Cover” together with "Exclusions—Losses We Do Not Cover”—the exclusion is subject to a third interpretation: that Allstate . agreed to pay all sums that an insured person becomes legally obligated to pay unless the liability arises out of the ownership, maintenance, use, loading or unloading of any motorized land vehicle.⁹

The insured’s liability arose, if at all, from serving alcoholic beverages to an eighteen-year-old social guest and not from the use of a motor vehicle. A natural reading of "Losses We Cover” and "Exclusions—Losses We Do Not Cover” admits of the construction that the exclusions relate only to liability of the insured. As a result, the motor vehicle exclusion might apply only where the insured’s legal liability arises from the use of a motor vehicle. Construing the ambiguous exclusion against the insured, in accordance with the usual rule of construction, the exclusion does not apply, where, as here, the insured’s legal liability does not arise out of the use of a motor vehicle.

hi

Even if the exclusionary language in this policy is unambiguous, the majority fails to take the policyholder’s reasonable expectations into account. The majority misunderstands the reasonable expectations doctrine when it states:

This holding does not conflict with reasonable expéctations of the insured. When viewed objectively, a person reading this unambiguous exclusion would reasonably expect that it means what it says: coverage does not exist for personal injuries arising out of the use of any motor vehicle. Thus, it cannot be said that the insured had been led to reasonably expect coverage.[¹⁰]

The reasonable expectations of the insured are to be considered when and after it has been determined that the policy language unambiguously favors the construction urged by the insurer. But an insured’s reasonable expectations do not depend on whether he read the policy, or understood what he read. As stated in Keeton & Widiss, Insurance Law:

In general, courts will protect the reasonable expectations of applicants, insureds, and intended beneficiaries regarding the coverage afforded by insurance contracts even though a careful examination of the policy provisions indicates that such expectations are contrary to the expressed intention of the insurer.[¹¹] [Emphasis added.]

The holder of a homeowner’s policy may reasonably expect that it complements his automobile insurance policy. He could reasonably expect that the automobile exclusion precludes coverage only of liabilities covered by automobile insurance.

In United Services Automobile Ass’n v Aetna Casualty & Surety Co, 75 AD2d 1022; 429 NYS2d 508 (1980), New York’s intermediate appellate court considered homeowner’s policy language identical with the language in the Allstate policy¹² in a case in which the family of a twelve-year-old boy sought to recover on the basis of negligent supervision for injuries sustained during horseplay with other children in an automobile excursion. The court concluded that the automobile policy did not provide coverage, but that the homeowner’s policy should be construed to avoid a gap in coverage:

Aetna as the homeowners’ carrier understandably does not want to provide coverage already specifically covered by the auto carrier. However, there is no reason to construe the phrase "arising out of” any differently for a homeowners’ policy exclusion than for an auto carrier’s coverage clause. To construe these identical phrases differently would leave open the possibility that some occurrences could escape coverage on both policies.[¹³]

The majority’s interpretation of the automobile exclusion creates just such a gap in coverage.¹⁴

I would reverse.

1 Ante, p 419.

2 Farm Bureau Mut Ins Co of Michigan v Stark, 437 Mich 175, 185; 468 NW2d 498 (1991).

3 Id.

4 The Annotations to the Homeowners Policy (2d ed), prepared by the Property Insurance Law Committee, Tort and Insurance Practice Section of the American Bar Association, states in the introduction that the Insurance Services Office and State Farm Homeowner’s Policies "annotated here are representative of the most widely used homeowners policy, the form 3.”

5 Insurance Services Office Policy, id., p 19. See p 18 of the Annotations for the State Farm Homeowner’s Policy, which excludes bodily injury or property damage arising out of the ownership, maintenance, use, loading or unloading of "a motor vehicle owned or operated by or rented or loaned to any insured . . . .” (Emphasis added.)

6 Stark, n 2 supra, p 181, quoting Raska v Farm Bureau Mut Ins Co of Michigan, 412 Mich 355, 362; 314 NW2d 440 (1982).

7 While discussing this point, the court did not resolve whether the exclusion applied. It held that this legal issue should be dealt with in state court where a factual record could be developed, instead of through a federal declaratory judgment action. Id., pp 278-279.

8 Lane v Hartford Fire Ins Co, 343 F Supp 79, 88 (ED Mo, 1972) (requiring some “action on [the insuredj’s part” in operating, owning, or maintaining a car, where exclusion referred to operation, ownership or maintenance of "automobiles”). Cooperative Fire Ins v Vondrak, 74 Misc. 2d 916; 346 NYS2d 965 (1973), may provide another example. The court did not quote the specific exclusionary language, but stated that it referred to use or ownership of "an automobile.” Id., p 918. The court found a duty to defend the insured for liability under a dramshop law. Id.

9 The following sets forth the "Losses We Cover” and the "Exclusions—Losses We Do Not Cover” language together with the word "unless” substituted for "We Do Not Cover” and elimination of other words as parenthetical:

We will pay all sums arising from the same loss which an insured person becomes legally obligated to pay[,] as damages because of bodily injury or property damage covered-by-this part-of the policy.

[unless]

We-do-not cover bodily injury or property-damage-arising out of the ownership, maintenance, use, loading or unloading of any motorized land vehicle or trailer.

Another reading, the reading adopted by the majority, eliminates coverage whenever the bodily injury arises out of the use of any motorized land vehicle, even though the insured’s legal liability arose, as here, independently of the use of a motor vehicle.

10 Ante, p 420.

11 Keeton & Widiss, Insurance Law, § 6.3, p 633.

12 Aetna’s argument that it has no duty to defend its insured is based solely on the argument that there is coverage by United, Coverage "E” of the Aetna policy also provides personal liability insurance. Aetna’s argument that its policy does not provide coverage is based on an exclusion for bodily injury "arising out of the ownership, maintenance, operation, use . . . of . . . any motor vehicle.” [Id., p 1022.]

13 United Services Automobile Ass’n, supra, p 1022. While the foregoing decision was not rested in the application of the reasonable expectations doctrine, the court’s reading of the homeowner’s policy to avoid a gap in coverage is in. the spirit and policy of the reasonable expectations doctrine.

14 In Vanguard Ins Co v Clarke, 438 Mich 463, 474; 475 NW2d 48 (1991), this Court said: "The instant case does not confront the Court with a situation where an unfortunate insured would fall between [the] gaps in homeowner’s and automobile insurance policies because of mutual exclusions.” The instant case is such a case.