McGarrah ex rel. McGarrah v. Southwestern Glass Co.

Judith Rogers, Judge.

This is an appeal from the denial of coverage for medical expenses under an employee benefits plan issued by Southwestern Glass Company, appellee. Appellant contends that the court erred in finding that injuries he received in an automobile accident were not covered under appellee’s health plan based on certain exclusions contained in the plan. We agree and reverse.

The record reflects that appellant, who was sixteen years old, attended a party on the night of May 19,1990. Upon entering the party, those in attendance placed their car keys in a bowl. During the party, appellant consumed twelve to fifteen beers and, although appellant could not recall any of the events which transpired after he had fallen asleep, he was subsequently placed in his truck, on the passenger side, by two other boys at the party. Richard McDonner, who was also intoxicated, drove appellant’s truck. McDonner and appellant were subsequently involved in a one-vehicle accident when the truck left the road and struck a tree. Appellant incurred substantial medical expenses as a result of the injuries he sustained in the accident, and a claim for benefits was submitted under his mother’s health plan with appellee.

Appellee refused to accept appellant’s claim contending that coverage was barred under three separate exclusions found in the contract of insurance. Appellant thereafter filed this suit for declaratory judgment seeking a determination as to his rights under the plan.

Before we review the merits of the argument raised by appellant in this appeal, we must first address appellee’s contention that this appeal is governed, not by Arkansas law, but by federal law under the Employee Retirement Income Security Act of 1974 (ERISA), which requires an arbitrary and capricious standard of review. Appellee bases this argument on the circumstance that the health insurance agreement in question was designated as an employee benefits plan under ERISA.

In the case of Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101 (1989), the United States Supreme Court addressed the question of the appropriate standard of review for actions brought under the Act. In deciding the issue, the Court found guidance in and applied the principles of trust law. The Court held:

Consistent with established principles of trust law, we hold that a denial of benefits challenged under subsection 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.

Id. at 115. (Emphasis supplied.)

In light of the decision in Firestone, the question becomes whether the administrator of the plan at issue has been given the discretionary authority to determine eligibility for benefits or to construe the terms of the plan. From our review of the plan, there is no indication that the plan administrator was expressly granted such discretionary authority, and the record is void of any evidence on this issue. In the absence of some proof indicating that the administrator possesses such authority, we simply cannot accept appellee’s proposition that its denial of coverage should be reviewed under an arbitrary and capricious standard of review.

In Arkansas, a loss suffered by an insured is a covered one unless it is excluded by an exception. Shelter Ins. Co. v. Hudson, 19 Ark. App. 296, 720 S.W.2d 326 (1986). Courts are required to strictly interpret exclusions to insurance coverage and to resolve all reasonable doubt in favor of an insured who had no part in the preparation of the contract. Geurin Contractors, Inc. v. Bituminous Casualty Corp., 5 Ark. App. 229, 636 S.W.2d 638 (1982). If there is doubt or uncertainty as to the policy’s meaning and it is fairly susceptible to two interpretations, one favorable to the insured and the other favorable to the insurer, the former will be adopted. Provisions contained in a policy of the insurance must be construed most strongly against the insurance company which prepared it, and if a reasonable construction may be given to the contract which would justify recovery, it is the duty of the court to do so. Arkansas Farm Bureau Ins. Federation v. Ryman, 309 Ark. 283, 831 S.W.2d 133 (1992).

The chancellor ruled in favor of appellee based on the following exclusions contained in the plan:

18. ANY EXPENSES INCURRED AS A RESULT OF SELF-INDUCED OVERDOSE AND/OR ABUSE AND/OR USE OF DRUGS, ALCOHOL AND/OR CHEMICALS, AND CONDITIONS AND/OR TREATMENTS RELATED THERETO.

27. DRUG ADDICTION OR TREATMENT THEREOF, OR SERVICES AND/OR SUPPLIES FOR INJURIES OR ILLNESSES ARISING AS A RESULT OF BEING LEGALLY INTOXICATED OR UNDER THE INFLUENCE OF ANY NARCOTIC (UNLESS PRESCRIBED BY A PHYSICIAN).

In making his ruling, the chancellor stated “ [w] hile the Court did have some hesitancy at first in finding a casual connection between the [appellant’s] intoxication and the cause of the accident, since the [appellant] was not driving the automobile at the time of the accident, ... it cannot argue . . . that if the [appellant] had not been intoxicated he would not have been injured.” The chancellor found that, “but for” the appellant’s intoxication, appellant would not have been harmed as he would not have allowed anyone else to drive his truck or left the party that night.

On appeal, appellant contends that a causal connection must be shown between his intoxication and the resulting injuries in order for the exclusions to apply. He argues that his intoxication was not the proximate cause of the accident, and that there were intervening causes which directly caused the accident which led to his injuries. In this regard, appellant contends that the causal connection between his intoxication and his injuries was severed when he was placed in his truck, as a passenger, by two other individuals, and when the driver of the truck, who was drunk, wrecked the vehicle. Appellee argues that no causal connection need be shown and that the mere fact that there is intoxication present is sufficient to exclude coverage based on the contract language.

It can be stated as a general rule that in order to avoid liability under a clause excepting liability for injury or death in case of the insured’s intoxication, the insurer must establish that the intoxication has some causative connection with the death or injury of the insured. The causal relationship required depends on the language of the exclusion in question. C.T. Drechsler, Annotation, Clause in Life, Accident, or Health Policy Excluding or Limiting Liability in Case of Insured’s Use of Intoxicants or Narcotics, 13 A.L.R.2d 987 (1950). See e.g. Cummings v. Pacific Standard Life, 516 P.2d 1077 (Wash. App. 1973).

In reference to the two exclusions in the plan, the issue here is the meaning of the phrases “as a result of’ and “arising as a result of’. There are no cases in Arkansas in which these precise terms have been interpreted. In the case of State Farm Mutual Automobile Ins. Co. v. LaSage, 262 Ark. 631, 559 S.W.2d 702 (1978), however, the court held that the term “arising out of’ does not mean “proximately caused by.” The court, quoting Manufacturers Casualty Ins. Co. v. Goodville Mutual Casualty Co., 403 Penn. 603, 170 A.2d 571 (1961), noted that the words “arising out of’ are very broad, general, and comprehensive terms. Therefore, the court found the language “arising out of’ to encompass a “but for” analysis in terms of the causal connection to be applied.

Unlike the terms in State Farm Mutual Automobile Ins. Co. where the term “arising out of’ was used, the terms in this policy read “as a result of’ and “arising as a result of.” In considering the phraseology of an insurance policy the common usage of terms should prevail when interpretation is required. Legal effect must be given to all the language used. Continental Casualty Co. v. Davidson, 250 Ark. 35, 463 S.W.2d 652 (1971). The American Heritage Dictionary 1054 (Second College ed. 1985) defines “result” as “ [t] o occur or exist as a consequence of a particular cause.” While the language “arising out of’ has been said to encompass a “but for” causal connection, we find that the inclusion of the word “result” in that phrase implies that a more narrow causal connection need be shown.

We do not set aside findings of fact by a chancellor unless they are clearly against the preponderance of the evidence. Belue v. Belue, 38 Ark. App. 81, 828 S.W.2d 855 (1992). A finding is clearly against the preponderance of the evidence when we are left with the definite and firm conviction that a mistake has been committed. American States Ins. Co. v. Tri Tech, Inc., 35 Ark. App. 134, 812 S.W.2d 490 (1991).

In this case, the chancellor found that appellant was placed in his truck by two individuals without the appellant being aware of the event. Another individual, who was intoxicated, was driving the truck when the accident occurred. Based on these facts, we find the causal connection between appellant’s intoxication, the accident, and his injuries to be tenuous at best. In sum, we conclude that the judge’s determination that “but for” appellant’s intoxication he would not have been injured is far reaching and clearly against the preponderance of the evidence in light of the contract language found here. Appellee could have, by the use of different language, excluded coverage for this type of situation. If only a tenuous causation is the standard to use in interpreting this contract language, it could be argued that a person who is intoxicated and in bed asleep is not covered, even though he may be injured by a falling ceiling.

Reversed and Remanded.

Mayfield, J., concurs. Jennings, C.J., and Robbins, J., dissent.