Scope of Insurance Policy Coverage for Personal Injury Claim
In Indiana Insurance Co. v. Royce Realty and Management Inc., the insurer, Indiana Insurance Company, filed a declaratory judgment action seeking a determination as to whether a claim for personal injury suffered by Cathy Stackhouse was covered under the insurance policy that Indiana had issued to Royce Realty and Management Inc.
The question before the court is whether the scope of the insurance policy covers a personal injury claim. Indiana argues that the plain language of the Endorsement limits coverage to claims, arising out of the “ownership, maintenance or use” of Royce Realty’s office, is not covered by the policy. The court stated that in order to ascertain the scope of the coverage under the policy, the court is to look to the intent of the parties and the meaning of the words used in the insurance policy as a whole, taking into account the type of insurance for which the parties have contracted, the risks undertaken and purchased, the subject matter that is insured, and the purposes of the entire contract. Further, when construing the scope of coverage, courts begin by focusing on the type of policy for which the parties have contracted. Here, the type of policy that the parties contracted for is a CGL policy. A CGL policy typically protects against claims for injuries or losses arising from the insured’s business operations. Royce Realty sought to obtain coverage for its operations on the properties it managed. The policy at issue was labeled as a CGL policy and contained language insuring against liability arising from Royce Realty’s operations. The court found the meaning of the endorsement ambiguous in that it limits coverage to losses arising out of Royce Realty’s “use” of the premises and arising out of “operations incidental to those premises,” without defining those terms and which reasonable people could differ over the meaning of the terms. In reading the endorsement, together with the rest of the CGL policy, the court determined that a reasonable person would likely understand the terms “use” and “operations incidental to the premises” to encompass business operations conducted from the designated premises, even where those operations involve off-premises activities. Therefore, the court construed the endorsement as encompassing accidents arising out of Royce Realty’s use of the premises to conduct its property management activities, despite the fact that the accident at issue here arose away from those premises. Indiana knew that Royce Realty was in the business of providing property management services to a variety of commercial properties, including golf courses, townhouses, and shopping centers. The potential for accidents that could give rise to lawsuits against such a property manager is obvious. Indeed, the very type of accident experienced by Stackhouse was “a risk likely to be inherent in the insured’s business.” Nevertheless, Indiana chose to issue Royce Realty a CGL policy–a type of policy intended to protect against risks associated with business operations–but then apparently sought to quietly convert it to a premises liability policy, which would leave such risks without coverage, by simply inserting the Endorsement into the policy.
The court therefore held: (1) the endorsement that limited coverage to losses that arose out of insured’s use of the premises, and that arose out of operations incidental to those premises, was ambiguous and had to be construed to encompass accidents that arose out of insured’s use of the premises to conduct its property management activities, despite the fact that the accident at issue arose away from those premises; and (2) the designated-premises endorsement did not qualify as an express exclusion that would have put insured on notice that the fundamental purpose of the CGL policy had changed and that most of the coverage under the policy was nullified.
Indiana Insurance Co. v. Royce Realty and Management Inc., 2013 WL 2360124 (Ill.App. 2 Dist.).
