Recent Judgement of New York Court on a Home Owner’s Policy (Interpretation on Policy contracts, especially Exclusions)

Insurance is an Ocean and understanding it is always extremely difficult. The more you read, more you realize the need to read more…………

One of  the simplest of policies is the Householder’s Package Policy sold by most Indian Insurers in various names.  Primarily it  is a packaged policy which offers almost all covers that are required for a common householder.  There are sectional coverages for : Fire & Allied perils; Burglary, housebreaking including larceny or theft, All risks for valuables and jewellery, plate glass, breakdown of domestic appliances; Television sets, pedal cycle,  baggage, personal accident, Public liability and WC risks. 

Being a personal insurance, the claims are often touchy.  Generally, when the loss is genuine, the policy holders feel that their claim should get paid in full thought there could be restrictive coverage, exclusions, terms and conditions which might throw the claim out of the purview of the policy or have the indemnity drastically reduced arising out of factors like depreciation, Under insurance, salvage, policy excess etc.,   Mostly claims are preferred under Fire, Burglary, Allrisks or breakdown sections.

Other than Marine Insurance, which is International in character, policies issued by different Insurers in different countries vary in terms of coverage, exclusions, excluded property and the insuring terms and conditions.  Also the litigation is different in different Nations.    There is ‘Home Owners policy’ in US which sounds similar but vastly differs in the nature of coverage and more so in the nature of claims that are preferred and litigated in various courts.    Whilst our mindset is of ‘property claims’ under such policies, here is an interesting and varied appeal on  liability aspects, centering on the exclusion in a homeowner's insurance policy excluding coverage for bodily injury to an insured where an insured would receive "any benefit" under the policy.

The cause of action arose out of unfortunate drowning of a 3 year child in a swimming pool in July 2001.  At that time, the child Kayla Cragg and her mother resided with her grandparents in Newyork  and were insured under the grandparents’ homeowners policy.   The Insurer was  All State Indemnity Coy.   and  the policy included a family exclusion that provided: “[w]e do not cover bodily injury to an insured person … whenever any benefit of this coverage would accrue directly or indirectly to an insured person.”    - a normal reading would mean that bodily injury to those insured under the policy  is not within the purview of the policy coverage. 

Whilst the child and her mother (as also grand parents) were the insureds under the policy, the father of the child was not.  The father instituted a claim and the  insurers  disclaimed coverage based on the policy exclusion  :  “Family Liability Protection," the policy states that "[w]e do not cover bodily injury to an insured person . . . whenever any benefit of this coverage would accrue directly or indirectly to an insured person." Bodily injury is defined in the policy as "physical harm to the body, including sickness or disease, and resulting death."

The policy does not define the term "benefit."  Father as the administrator of Kayla's estate, commenced an action seeking to recover against defendants for Kayla's wrongful death and for her conscious pain and suffering. Defendant Ward defaulted and judgment was entered against her in the amount of $300,000 -- $150,000 for wrongful death and $150,000 for pain and suffering.   First the Court noted that the general purpose of homeowner's insurance policies is to provide coverage for injuries sustained by those who are not insured by the subject policy and found that, based on the plain language of the exclusion,  the Insurer need not indemnify as a settlement would thereby obtain a benefit under the policy.

The plaintiff went on appeal.  Here  a  distinction was sought to be seen between the two heads of claims.  It was sought that the claim for conscious pain and suffering belongs to the estate of the deceased, rather than the distributees – whereas , "a wrongful death action belongs to the decedent's distributees and is designed to compensate the distributees themselves for their pecuniary losses

The Court held that Insurance contracts must be interpreted according to common speech and consistent with the reasonable expectations of the average insured.   To the extent that there is any ambiguity in an exclusionary clause, we construe the provision in favor of the insured. Moreover, "'exclusions or exceptions from policy coverage . . . are not to be extended by interpretation or implication, but are to be accorded a strict and narrow construction. Indeed, before an insurance company is permitted to avoid policy coverage, it must satisfy the burden which it bears of establishing that the exclusions or exemptions apply in the particular case, and that they are subject to no other reasonable interpretation'.  The language of the policy exclusion – excluding coverage "whenever any benefit of this coverage would accrue directly or indirectly to an insured" -- is ambiguous. It could be interpreted, as Allstate urges, to mean that bodily injury to an insured is not covered whenever any benefit – including coverage itself in the form of defense and indemnification -- would accrue to an insured. However, as plaintiff points out, this interpretation ascribes meaning only to the first clause.  Assuming the insurer intended this language to exclude coverage under the policy entirely for bodily injury to insureds, it did not accomplish the desired result. Instead of making the exclusion broader, the additional language can be read as limiting the application of the exclusion to situations where an insured would receive a benefit (i.e. payment) under the policy.  As relevant to this appeal, however, the exclusion fails to bar unambiguously payment to a noninsured plaintiff, that is to say it does not clearly cut off the nonresident distributee's wrongful death claims arising from the fatal injury to an insured.

Against the common notion that  homeowner's insurance is generally meant to cover bodily injury to noninsureds  the Wisconsin Supreme Court recently held that " Insurers has failed to meet its burden to demonstrate that the policy term 'benefit' unambiguously includes the contractual right to receive a defense or the contractual right to indemnification"  and the Court held that  judgment should have been granted in plaintiff's favor, as the exclusion did not operate to bar coverage for the noninsured plaintiff's wrongful death claim for the death of the insured decedent.  Accordingly, the order of the Appellate Division should be reversed, with costs, and the matter remitted to Supreme Court for further proceedings in accordance with this opinion. 

The Court of Appeal concluded that pain and suffering was excluded because such damages would inure to the estate but the father’s pecuniary loss claim was not expressly excluded.  This judgment provides a newer interpretation that the Homeowners policy does not exclude beneficiary’s claim for pecuniary loss against one insured for death of another insured

With regards – S. Sampathkumar.     

Based on the judgment :  Cragg v. Allstate Indemnity Co., 2011 NY Slip Op 4767, 2011 N.Y. LEXIS 1391 (June 9, 2011)