Dig a Little Deeper
BAD SHOT: INSURER SAYS “NO ACCIDENT”
Intentional acts can have unintentional consequences
The Court Decisions column is one of the most popular features of Rough Notes magazine. One reason is that the courtroom is where the promises made in an insurance contract often become real. All insurance professionals can develop “what if” scenarios, but until those scenarios are tested with an actual loss and a court decision, they remain mere mental exercises. In this column, the editors of PF&M Analysis, a publication of The Rough Notes Company, will dig a little deeper into one of those court decisions to identify a coverage problem and then provide possible solutions.
This case involved property owners being sued over injuries caused by a dispute that ended in a shooting. The insurer denied the claim based on the incident not being accidental. The shooting victim sued, lost, and then appealed. In the end, two separate courts agreed with the insurer’s position, and its claim denial was upheld.
The ISO Personal Liability form’s current wording places the focus on avoiding coverage for deliberate acts, regardless of their actual consequences.
The dispute involved an altercation between a tenant/occupant on the property owners’ premises and a visitor, so a relevant policy may be the Insurance Services Office DL 24 01 Personal Liability form.
The insurer’s denial of coverage was based on its opinion that a covered incident did not take place. The DL 24 01 defines “occurrence.” Here’s our take on the term from our form analysis article in PF&M:
“Occurrence” is an accident that causes “bodily injury” or “property damage.” The bodily injury or property damage must take place during the policy period. The term accident is expanded to include exposure to a repeated or continual set of the same harmful circumstances.
This is the heart of the matter with coverage under property and liability forms. Protection is reserved for chance acts that life puts in our paths. In this instance, injuries stemmed from a shooting, the exact opposite of an accident. Depending on the financial stakes, however, an insurer still may dispute a claim for a nonaccidental loss.
In years past, as in the case under consideration, claim denials were routinely based on exclusions for intentional acts. In litigation, claimants fight for coverage. A classic strategy was to argue that, while a given act may have been intentional, the resultant damage or injury could still qualify for coverage. Some plaintiffs found support for this position in court. Judges and juries sometimes ruled in favor of claimants, deciding that the result of an intentional act could be accidental, so it qualified as an occurrence.
Insurers used an assumption that turned out to be flawed. Policy designers assumed that excluding intentional acts would allow them to deny claims, regardless of the results of such an act. Litigants disagreed, perceiving a distinction between an act and its consequences. The argument was sometimes successfully made that the intentional acts exclusion applied only when both the action and its consequences were intended. Injuries or damage that were unanticipated or unintended could be eligible for coverage, depending on a court’s decision in a given case.
Court decisions that allowed this distinction had an impact on the policy language that was used to emphasize intent. After claimants won their share of such disputes, exclusions were adjusted. Here, again from our form analysis article in PF&M, is the relevant exclusion:
E. Coverage L–Personal Liability and Coverage M–Medical Payments to Others
Neither Coverage L nor M provide coverage for the following instances:
1. Expected or Intended Injury
While this form makes an exception for intentional acts that are triggered by a need for self-defense or to protect others, it bars coverage for all other such acts. The exception, which used to apply only to “bodily injury” arising out of an insured’s use of reasonable force to defend oneself or another party, now also extends to “property damage.”
Our analysis goes on to point out that courts in some jurisdictions found previous policy language on intent to have been open to interpretation. The policy’s current wording places the focus on avoiding coverage for deliberate acts, regardless of their actual consequences.
A question arises: How is this problem addressed? In many instances an excluded item may be handled by another policy form or by an endorsement. Those options, however, are reserved for sources of loss that qualify as occurrences but are not contemplated by the underwriting or pricing of basic coverage in a given line of business. Other kinds of coverage address underwriting and risk issues, and endorsements can address pricing concerns. These options don’t work when sources of loss are not occurrences.
In such circumstances, options for treating these exposures come not from insurance products but from frank discussions with clients. Property owners can expand their liability in many ways, including whom they permit to use or occupy their premises. It is prudent to ensure that clients are aware of the limits of insurance policies. Sometimes the best strategy is to advise clients to be careful when making decisions that may expand their risk, especially when insurance solutions are not available to mitigate those risks.
Bruce D. Hicks, CPCU, CLU, is senior editor for Technical and Educational Products at The Rough Notes Company. He has more than 30 years of property/casualty insurance experience, including personal and small business underwriting as well as compliance duties for several national and regional insurers. Active in the CPCU Society, Bruce served as a Governor of the organization from 2007 through 2010 and currently serves on its International Interest Group Committee.