American Fam. Mut. Ins. Co. v. Wheeler

Nebraska Advance Sheets
250 287 NEBRASKA REPORTS
American Family Mutual Insurance Company, appellee
and cross-appellee, v. R ick W. Wheeler,
appellee and cross-appellant, and
Joshua McCrary et al., appellants.
___ N.W.2d ___
Filed January 24, 2014. No. S-13-240.
1. Insurance: Contracts: Appeal and Error. An insurance policy’s interpretation
presents a question of law that an appellate court decides independently of the
trial court.
2. Summary Judgment: Appeal and Error. In reviewing a summary judgment, an
appellate court views the evidence in the light most favorable to the party against
whom the court granted the judgment and gives such party the benefit of all rea-
sonable inferences deducible from the evidence.
3. Insurance: Contracts: Appeal and Error. An insurance policy is a contract. An
appellate court construes insurance contracts like any other contract, according to
the meaning of the terms that the parties have used.
4. ____: ____: ____. When an insurance contract’s terms are clear, an appellate
court gives them their plain and ordinary meaning as a reasonable person in the
insured’s position would understand them.
5. Insurance: Contracts: Words and Phrases: Appeal and Error. When an insur-
ance contract is ambiguous, an appellate court will construe the policy in favor
of the insured. A contract is ambiguous when a word, phrase, or provision in the
contract has, or is susceptible of, at least two reasonable but conflicting interpre-
tations or meanings.
6. Insurance: Contracts: Appeal and Error. An appellate court’s goal in
interpreting insurance policy language is to give effect to each provision of
the contract.
Appeal from the District Court for Sarpy County: David K.
Arterburn, Judge. Affirmed.
David A. Domina, Brian E. Jorde, and Jeremy R. Wells,
of Domina Law Group, P.C., L.L.O., for appellants Joshua
McCrary et al.
Betty L. Egan, of Walentine, O’Toole, McQuillan & Gordon,
L.L.P., for appellee Rick W. Wheeler.
Jane D. Hansen for appellee American Family Mutual
Insurance Company.
Heavican, C.J., Connolly, Stephan, McCormack, Miller-
Lerman, and Cassel, JJ.
Nebraska Advance Sheets
AMERICAN FAM. MUT. INS. CO. v. WHEELER 251
Cite as 287 Neb. 250
Connolly, J.
SUMMARY
Ryan Wheeler, Rick Wheeler’s son, allegedly sexually
assaulted Joshua McCrary and Maren McCrary’s minor daugh-
ter, C.M. The McCrarys sued Rick for negligence. American
Family Mutual Insurance Company (American Family), Rick’s
liability insurer, sought a declaratory judgment that its pol-
icies did not cover Rick, which request the district court
granted. The primary issue is whether a severability clause,
which requires that the insurance be applied separately to each
insured, changes the effect of (or renders ambiguous) exclu-
sions which would otherwise bar coverage for Rick. We con-
clude that it does neither. We affirm.
BACKGROUND
Insurance Policies
Rick has two liability insurance policies with American
Family: a homeowners’ policy that includes personal liability
coverage and a separate personal liability umbrella policy.
Both he and Ryan are insureds under the policies. Both
policies provide personal liability coverage; the homeowners’
policy, for example, provides coverage for “compensatory
damages for which any insured is legally liable because of
bodily injury or property damage caused by an occurrence.”
Both policies define an “occurrence,” as an accident or expo-
sure to conditions which results in bodily injury or prop-
erty damage.
Both policies also contain a long list of exclusions from
coverage. As relevant here, the homeowners’ policy contains
exclusions for “Abuse” and “Intentional Injury.” The “Abuse”
exclusion reads:
We will not cover bodily injury or property damage for
any insured who participates in, acquiesces to or in any
way directs any act of sexual molestation or contact,
corporal punishment, or physical or mental abuse of a
sexual nature.
The “Intentional Injury” exclusion reads:
We will not cover bodily injury or property damage
caused intentionally by or at the direction of any insured
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even if the actual bodily injury or property damage is dif-
ferent than that which was expected or intended from the
standpoint of any insured.
As relevant here, the umbrella policy also contains exclu-
sions for “Sexual Abuse” and “Intentional Injury.” The “Sexual
Abuse” exclusion reads:
We will not cover injury arising out of or resulting
from any:
a. Actual or alleged sexual molestation;
b. Corporal punishment; or
c. Physical or mental abuse of a person by an insured.
The “Intentional Injury” exclusion reads:
We will not cover injury caused by or at the direction of
any insured even if the actual injury is different than that
which was expected or intended from the standpoint of
any insured. This exclusion does not apply to personal
injury when your actions are not fraudulent, criminal
or malicious.
Both policies contain identical “Severability of Insurance”
clauses, which provide: “This insurance applies separately to
each insured. This condition will not increase our limit for any
one occurrence.”
Factual and P rocedural
Background
The McCrarys sued Rick and Ryan for Ryan’s alleged
sexual assault of C.M. The McCrarys sued Ryan for intentional
assault, and the McCrarys sued Rick for negligently failing to
warn the McCrarys of Ryan’s dangerous nature and for negli-
gently supervising Ryan. Rick submitted a claim for coverage
to American Family for the McCrarys’ claims against him.
American Family assumed Rick’s defense under a reservation
of rights.
After doing so, American Family filed a complaint for
declaratory judgment. Specifically, American Family—based
on Ryan’s alleged intentional conduct and the exclusions in its
policies—sought a judgment that its policies did not “provide
liability coverage to Rick . . . for the claims of the [McCrary]
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AMERICAN FAM. MUT. INS. CO. v. WHEELER 253
Cite as 287 Neb. 250
Defendants and that American Family [had] no duty to defend
or indemnify Rick . . . in the [McCrary] lawsuit.” Rick and the
McCrarys both filed answers generally contesting American
Family’s position and requesting attorney fees.
American Family then moved for summary judgment, which
the district court granted. The court, after reciting the general
factual and procedural history, noted that the parties did not
dispute that Ryan’s alleged conduct was both an intentional
act and sexual molestation or abuse. The court noted that all
of the parties agreed that the policies did not provide coverage
for Ryan.
The court then recited the various exclusions in the insur-
ance policies. Relying on Volquardson v. Hartford Ins. Co.,1 the
court ruled that the “an insured” and “any insured” language
contained in the exclusions was clear and unambiguous. The
court concluded:
[I]t is clear that the loss claimed by Defendants McCrary
was caused intentionally by someone insured under the
policy. Additionally, the loss claimed by Defendants
McCrary was caused by the sexual abuse committed
by Ryan . . . , an insured under the policy. As such, the
intentional act exclusion and the sexual abuse exclusion
exclude[] coverage to all insureds.
The court then addressed the effect, if any, of the “Severability
of Insurance” clause on the policies’ coverage. The court noted
that this was an issue of first impression in Nebraska and that
in other jurisdictions, a split in authority existed. After ana-
lyzing cases addressing the issue,2 the court concluded that
“the clear language of the exclusions in [the] policies bar[s]
coverage to [Rick] for the claims being made by Defendants
McCrary, irrespective of the severability clause.” The court
granted American Family summary judgment.
1
Volquardson v. Hartford Ins. Co., 264 Neb. 337, 647 N.W.2d 599 (2002).
2
See, e.g., American Family Mut. Ins. Co. v. Bower, 752 F. Supp. 2d 957
(N.D. Ind. 2010); Chacon v. American Family Mut. Ins. Co., 788 P.2d 748
(Colo. 1990); Caroff v. Farmers Ins. Co. of Wash., 155 Wash. App. 724,
261 P.3d 159 (1999).
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ASSIGNMENTS OF ERROR
The McCrarys assign, restated, that the court erred in (1)
ruling that the “Severability of Insurance” clause did not
require that Rick’s coverage be determined based solely on
Rick’s conduct; (2) ruling that the “Severability of Insurance”
clause did not create ambiguity in the policies’ coverage; and
(3) failing to award the McCrarys attorney fees.
On cross-appeal, Rick assigns that the court erred in mak-
ing any rulings as to Ryan, over whom it did not have per-
sonal jurisdiction.
STANDARD OF REVIEW
[1,2] An insurance policy’s interpretation presents a ques-
tion of law that we decide independently of the trial court.3
In reviewing a summary judgment, an appellate court views
the evidence in the light most favorable to the party against
whom the court granted the judgment and gives such party
the benefit of all reasonable inferences deducible from the
evidence.4
ANALYSIS
The parties agree that if there were no severability clause, the
exclusions would bar coverage for Rick (based on Ryan’s con-
duct). The issue, then, is whether the severability clause affects
the exclusions’ otherwise clear application. The McCrarys
argue that the effect of the severability clause is to treat each
insured as if he had his own insurance policy. That being the
case, and because Rick’s liability hinges on his own alleged
negligence,5 the McCrarys argue coverage for Rick must be
determined based solely on Rick’s alleged negligence. And if
that were true, the policies would cover Rick. Alternatively, the
McCrarys argue that the severability clause (when read with
3
See, e.g., Federated Serv. Ins. Co. v. Alliance Constr., 282 Neb. 638, 805
N.W.2d 468 (2011)
4
Id.
5
See, Sinsel v. Olsen, 279 Neb. 38, 777 N.W.2d 54 (2009); Popple v. Rose,
254 Neb. 1, 573 N.W.2d 765 (1998), abrogated on other grounds, A.W. v.
Lancaster Cty. Sch. Dist. 0001, 280 Neb. 205, 784 N.W.2d 907 (2010).
Nebraska Advance Sheets
AMERICAN FAM. MUT. INS. CO. v. WHEELER 255
Cite as 287 Neb. 250
the exclusions) at least renders the policies ambiguous, which
we must construe in favor of coverage.
[3-5] We begin by setting forth certain well-known prin-
ciples for interpreting insurance policies. An insurance policy
is a contract.6 We construe insurance contracts like any other
contract, according to the meaning of the terms that the par-
ties have used.7 When an insurance contract’s terms are clear,
we give them their plain and ordinary meaning as a reasonable
person in the insured’s position would understand them.8 But
when an insurance contract is ambiguous, we will construe the
policy in favor of the insured.9 A contract is ambiguous when
a word, phrase, or provision in the contract has, or is suscep-
tible of, at least two reasonable but conflicting interpretations
or meanings.10
The severability clause in each policy reads: “This insur-
ance applies separately to each insured. This condition will
not increase our limit for any one occurrence.” Severability
clauses are common in insurance contracts, as is this particular
language.11 Historically, severability clauses became part of the
standard insurance industry form contract in 1955 to clarify
“‘what insurance companies had intended all along, namely
that the term “the insured” in an exclusion refer[red] merely
to the insured claiming coverage.’”12 As noted by the parties,
however, the question is not how the severability clause affects
exclusions referencing “the insured,” but, rather, how it affects
exclusions (such as the ones in this case) referencing “an
insured” or “any insured.”
6
Guerrier v. Mid-Century Ins. Co., 266 Neb. 150, 663 N.W.2d 131 (2003).
7
See Federated Serv. Ins. Co., supra note 3.
8
See id.
9
See Guerrier, supra note 6.
10
Id.
11
See, e.g., United Services Auto. Ass’n v. Neary, 307 P.3d 907 (Alaska
2013).
12
Michael Carbone, Inc. v. General Acc. Ins. Co., 937 F. Supp. 413, 419
(E.D. Pa. 1996) (citing State, Dept. of Transp. v. Houston Cas., 797 P.2d
1200 (Alaska 1990)). See, also, Ohio Cas. Ins. Co. v. Holcim (US), 744 F.
Supp. 2d 1251 (S.D. Ala. 2010).
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Courts across the country have grappled with this issue,
and there is a split in authority.13 Commentators also dis-
agree.14 A majority conclude that severability clauses do not
nullify plainly worded exclusions and that they therefore
have no effect on exclusions referencing “an insured” or
“any insured.”15 A minority conclude that severability clauses
require that “insurance coverage and any exclusion of cover-
age . . . be judged [solely] on the basis of [each insured’s]
particular conduct and acts within [the insured’s] control.”16
Or at the very least, they conclude that severability clauses
create ambiguity as to the scope of exclusions referencing
“an insured” or “any insured,” which a court must construe in
favor of coverage.17
A good example of the rationale behind the majority posi-
tion is American Family Mutual Ins. Co. v. Corrigan.18 In that
case, Mark Francke pleaded guilty to child endangerment for
injuries suffered by Jeffrey and Kirsten Corrigan’s child while
at Mark’s daycare. Mark ran his daycare in the home of his
father, Harold Francke. The Corrigans sued Mark “based on
his allegedly negligent, reckless, and/or intentional conduct
resulting in serious harm to” their child, and they sued Harold
for various claims of negligence, including failure to warn
and failure to supervise.19 Harold’s liability insurer sought a
declaratory judgment that its policy did not cover the claims.
13
Compare, e.g., Holcim (US), supra note 12, and American Family Mut.
Ins. Co. v. Corrigan, 697 N.W.2d 108 (Iowa 2005), with Bower, supra note
2, and Minkler v. Safeco Ins. Co. of America, 49 Cal. 4th 315, 232 P.3d
612, 110 Cal. Rptr. 3d 612 (2010).
14
Compare, e.g., 3 Allan D. Windt, Insurance Claims & Disputes:
Representation of Insurance Companies and Insureds § 11.8 (6th ed.
2013); 3 New Appleman Law of Liability Insurance § 20.02[7][c] (rev.
ed. 2013); Hazel Glenn Beh, Tort Liability for Intentional Acts of Family
Members: Will Your Insurer Stand by You?, 68 Tenn. L. Rev. 1 (2000).
15
See, e.g., Holcim (US), supra note 12.
16
Bower, supra note 2, 752 F. Supp. 2d at 971.
17
See, e.g., Minkler, supra note 13.
18
Corrigan, supra note 13.
19
Id. at 110.
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Cite as 287 Neb. 250
As to the claims against Harold, the trial court disagreed and
concluded that the various exclusions did not apply to Harold,
because the Corrigans “‘[did] not seek to hold Harold vicari-
ously liable for Mark’s actions, but assert[ed] separate claims
against Harold for negligence.’”20
On appeal, the Iowa Supreme Court focused solely on
the policy’s criminal acts exclusion (finding it dispositive),
and reversed. That exclusion stated that the insurer would
not “‘cover bodily injury or property damages arising out of
. . . violation of any criminal law for which any insured is
convicted.’”21 The court concluded that the exclusion’s plain
language barred coverage not only for Mark, but also for
Harold. And the court rejected the Corrigans’ argument that
the policy’s severability clause, which stated that the insurance
“‘applie[d] separately to each insured,’” mandated a differ-
ent result.22
The court acknowledged that it had held differently in a prior
case involving a severability clause, but noted that that case
involved an exclusion referencing “the insured” rather than
“any insured.” The court explained that “[the insurer’s] use of
the term ‘any insured’ in its criminal acts exclusion unambigu-
ously convey[ed] an intent to exclude coverage when recovery
is sought for bodily injury proximately caused by the criminal
act of any insured.”23 Although the Corrigans suggested that
the severability clause required that Harold be viewed as the
sole insured under the policy, the court concluded that such an
interpretation was unreasonable “[b]ecause the language of the
exclusion clearly contemplate[d] its applicability to multiple
insureds under the policy . . . .”24 And the court concluded
that to interpret the policy as the Corrigans suggested “would
require [the] court to conclude the term ‘the insured’ mean[t]
the same as ‘any insured,’” a conclusion it had rejected in the
20
Id. at 111.
21
Id. at 112.
22
See id.
23
Id. at 116 (emphasis in original).
24
Id.
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past.25 Because such an interpretation was unreasonable, the
court concluded that the severability clause did not render the
exclusion ambiguous and that the exclusion’s plain language
excluded Harold from coverage under the policy.26
A good example of the rationale behind the minority posi-
tion is American Family Mut. Ins. Co. v. Bower.27 In that case,
Jonathan Bower sexually molested a minor. The minor sued
Bower and, as relevant here, also sued Bower’s parents for
their alleged negligence in Bower’s assaults. Bower’s parents
sought coverage under their homeowners’ insurance liability
policies. Their insurer then sought declaratory judgment that
its policies (by way of multiple exclusions from coverage) did
not cover the claims against Bower’s parents. As here, the poli-
cies contained certain exclusions referencing “any insured” and
also contained a severability clause stating that “‘this insurance
applies separately to each insured.’”28
The federal district court concluded that those exclusions
did not bar coverage for Bower’s parents. Regarding the insur-
er’s argument that the severability clause had no effect on
the unambiguous exclusions referencing “any insured,” the
court disagreed. The court concluded that “adopting [the insur-
er’s] reasoning . . . would make the severability provision
superfluous.”29 The court then reasoned:
[A] reasonable insured would believe from the sever-
ability provision that [his or her] insurance coverage and
any exclusion of coverage would be judged on the basis
of [the insured’s] particular conduct and acts within [his
or her] control. To then exclude coverage on the basis
of another insured’s conduct creates a conflict between
the two provisions and denies the reasonable insured
the coverage protection which the severability provi-
sion affords.30
25
Id.
26
See Corrigan, supra note 13.
27
Bower, supra note 2.
28
See id. at 962.
29
Id. at 970.
30
Id. at 971.
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AMERICAN FAM. MUT. INS. CO. v. WHEELER 259
Cite as 287 Neb. 250
As such, the court held that the severability clause required
the exclusions to be applied to each insured based on each
insured’s own conduct.31
Summed up, the majority position emphasizes the plain
meaning of the “an insured” or “any insured” language in
a particular exclusion.32 It emphasizes that the severability
clause’s command to apply the insurance separately to each
insured does not change the exclusion’s plain language or
create ambiguity in its application.33 The minority position,
on the other hand, concludes that the severability clause’s
command to apply the insurance separately to each insured
requires that each insured’s conduct be analyzed as if he or
she were the only insured under the policy.34 Or, at the very
least, such an interpretation is a reasonable one, making
the policy ambiguous, which a court must construe in favor
of coverage.35
We find the majority position more persuasive and adopt
it here. It is consistent with our oft-stated approach to give
language in an insurance contract its plain meaning.36 We
have in the past concluded that the “an insured” language,
and implicitly the “any insured” language, is clear and unam-
biguous.37 Such language means what it says, and the sev-
erability clause does not operate to override this clear and
unambiguous language.38 In other words, applying the insur-
ance separately to each insured, as the severability clause
requires, does not change that the exclusions reference “an
insured” or “any insured.” As one appellate court explained,
31
See Bower, supra note 2.
32
See, e.g., Corrigan, supra note 13.
33
See, e.g., Holcim (US), supra note 12; Chacon, supra note 2.
34
See, e.g., Bower, supra note 2.
35
See, e.g., Minkler, supra note 13; Premier Ins. Co. v. Adams, 632 So. 2d
1054 (Fl. App. 1994).
36
See Federated Serv. Ins. Co., supra note 3.
37
See Volquardson, supra note 1.
38
See, Corrigan, supra note 13; T.B. ex rel. Bruce v. Dobson, 868 N.E.2d
831 (Ind. App. 2007); Argent v. Brady, 386 N.J. Super. 343, 901 A.2d 419
(2006); Caroff, supra note 2.
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“The act of applying the policy separately to each insured
does not alter or create ambiguity in the substance or sweep
of the exclusion.”39
[6] Our goal in interpreting insurance policy language is to
give effect to each provision of the contract.40 Adopting the
minority position would render the “an” or “any” language
superfluous, while adopting the majority position would not.41
Further, we do not agree with the McCrarys’ argument that the
majority position renders the severability clause meaningless.
First, the severability clause affects the interpretation of exclu-
sions referencing “the insured.”42 There are such exclusions in
these policies, such as the “Illegal Consumption of Alcohol”
exclusion. And second, as American Family explained at oral
argument, the severability clause still has application outside of
its role in interpreting the scope of exclusions.43
Here, the exclusions (generally speaking) bar coverage for
injuries intentionally caused by “any insured” and injuries
resulting from sexual abuse by “an insured” or “any insured.”
The meaning of that language is plain. We hold that a sever-
ability clause stating that the insurance “applies separately to
each insured” does not change that language, its meaning, or
its application. We agree with the district court that the poli-
cies excluded Rick from coverage for injuries resulting from
the alleged intentional sexual abuse of C.M. committed by
Ryan (an “insured” under the policies). We conclude that the
McCrarys’ first two assigned errors lack merit. As for the third,
in which the McCrarys ask for attorney fees, we note that such
fees are not warranted because judgment for American Family
is proper.44
39
SECURA Supreme Insurance Company v. M.S.M., 755 N.W.2d 320, 329
(Minn. App. 2008).
40
See Guerrier, supra note 6.
41
See, Adams, supra note 35; Worcester Mutual Ins. Co. v. Marnell, 398
Mass. 240, 496 N.E.2d 158 (1986).
42
See Holcim (US), supra note 12.
43
See 3 Windt, supra note 14.
44
See Neb. Rev. Stat. § 44-359 (Reissue 2010). See, also, American Family
Ins. Group v. Hemenway, 254 Neb. 134, 575 N.W.2d 143 (1998).
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We briefly note Rick argues on cross-appeal that the dis-
trict court lacked personal jurisdiction over Ryan and that,
so, any rulings as to Ryan were void.45 All the parties agree
on this point, as do we, though it seems to us that the court’s
observations as to Ryan were simply incidental to determin-
ing whether Rick was covered under the policy. But to the
extent the court’s order makes rulings as to Ryan, such rulings
are ineffectual.
CONCLUSION
We conclude that the severability clause does not affect the
unambiguous language of the policies’ exclusions, which bar
coverage for Rick.
Affirmed.
Wright, J., not participating.
45
See, Johnson v. Johnson, 282 Neb. 42, 803 N.W.2d 420 (2011); In re
Interest of William G., 256 Neb. 788, 592 N.W.2d 499 (1999).