Allstate Ins. Co. v. Best

• Decision Date: 19 January 1990
• Docket Number: Civ. A. No. 3:89-1986-15.
• Citation: 728 F. Supp. 1263
• Court: U.S. District Court — District of South Carolina
• Parties: ALLSTATE INSURANCE COMPANY, Plaintiff, v. Martha G. BEST, Burrell G. Best, a minor over the age of fourteen (14) years, Ronald W. Falkosky, Mary F. Falkosky, Scott Falkosky, a minor over the age of fourteen (14) years, and Grace Retail Corporation, Defendants.

728 F. Supp. 1263

ALLSTATE INSURANCE COMPANY, Plaintiff, v. Martha G. BEST, Burrell G. Best, a minor over the age of fourteen (14) years, Ronald W. Falkosky, Mary F. Falkosky, Scott Falkosky, a minor over the age of fourteen (14) years, and Grace Retail Corporation, Defendants.

Civ. A. No. 3:89-1986-15.

United States District Court, D. South Carolina, Columbia Division.

January 19, 1990.

Edward W. Laney, IV and Thomas C. Salane, Turner, Padget, Graham & Laney, P.A., Columbia, S.C., for plaintiff.

Ronald E. Alexander, McDonald, McKenzie, Fuller, Rubin & Miller, Columbia, S.C., for Martha G. and Burrell G. Best.

G. Raymond McElveen, Jr., McElveen & McElveen, Columbia, S.C., for Ronald W., Mary F., and Scott Falkosky.

Michael A. Pulliam, Richardson, Plowden, Grier & Howser, Columbia, S.C., for Grace Retail Corp.

ORDER

HAMILTON, District Judge.

Plaintiff Allstate Insurance Company (Allstate) seeks a declaration that it has no duty to defend or indemnify Ronald W. Falkosky, Mary F. Falkosky, or Scott Falkosky (the Falkosky family) in connection with a personal injury action previously instituted in state court by Martha G. Best, individually, and on behalf of her minor son, Burrell G. Best. 28 U.S.C. §§ 2201, 2202. Jurisdiction is premised upon 28 U.S.C. § 1332(a). The matter is currently before the court upon cross-motions for summary judgment. Rule 56, Fed.R.Civ. Proc.

The personal injury action previously instituted in state court against the Falkosky family arises out of an incident that occurred on or about February 15, 1986. That suit was instituted on May 2, 1989, whereas the present declaratory judgment action was filed on August 9, 1989. Apparently, Burrell Best was severely injured while riding a Honda CR-80 motorbike on a vacant lot approximately two blocks from the residential premises owned and occupied by the Falkosky family. It is undisputed that the Honda CR-80 at issue constitutes a motorized land vehicle designed principally for recreational use off public roads (motorbike), and that this vehicle was owned by the Falkosky family at the time of the incident. On the date of this occurrence, the Falkosky family was insured under a Deluxe Homeowners Policy (policy) issued by Allstate.

Allstate contends that it has no duty to defend the Falkosky family in the underlying state court action because the policy allegedly excludes coverage for injuries caused by use of a motorbike where it is owned by an insured person and is being used away from the insured premises. Defendants contend Allstate has not demonstrated that the bodily injuries suffered by Burrell Best arose out of an excepted risk under the terms of the policy. Specifically, the defendants maintain that Allstate cannot avoid its duty to defend because the underlying state court complaint alleges negligence occurring on the insured premises (negligent maintenance and negligent failure to warn). As such, the defendants argue that negligence in "maintenance" is a separate coverage term not limited by the language excluding coverage for "use" of a motorbike away from the insured premises. Alternatively, defendants submit that Allstate must defend the Falkosky family in the underlying state court action because it has not demonstrated the existence of a causal connection between the alleged exclusion and the loss at issue in the pending state court action.

The present declaratory judgment action brought under 28 U.S.C. §§ 2201 and 2202 raises several important considerations of South Carolina insurance law and policy. First, does an insurer have an obligation to defend its insured under a homeowner's insurance policy for bodily injuries arising out of the use of the excepted instrumentality away from the insured premises where the underlying complaint alleges that negligent conduct occurring on the insured premises proximately caused the accident, notwithstanding the presence of a clear and unambiguous exclusion for bodily injuries arising out of the use of the instrumentality away from the premises? Second, if a duty to defend fails to arise from the terms and conditions of the contract of insurance itself, does the insurer nevertheless have an obligation to defend where no causal connection exists between the excluded risk and the loss?¹ Thus, a declaration on the question of whether Allstate is obligated to defend the Falkosky family in the previously instituted personal injury lawsuit would require this court to speculate on important, unsettled questions of State substantive law.

The policy generally provides coverage for each person who sustains bodily injury off the insured premises where such injury "is caused by the activities of an insured person...." Policy, p. 25 (emphasis in original). Section II of the policy, however, entitled "Family Liability and Guest Medical Protection," contains identical exclusionary language under Coverage X, Family Liability Protection, and Coverage Y, Guest Medical Protection. These provisions provide in pertinent part:

LOSSES WE DO NOT COVER:

. . . . .

5. We do not cover bodily injury arising out of the ownership, maintenance, use, occupancy, renting, loaning, entrusting, loading or unloading of any motorized land vehicle or trailer. However, this exclusion does not apply to:

b) any motorized land vehicle designed principally for recreational use off public roads, unless that vehicle is owned by an insured person and is being used away from an insured premises;

....

Policy, pp. 23, 25 (emphasis in original).

Under South Carolina law the construction and interpretation of an insurance policy should be determined as a matter of law by the court. Hann v. Carolina Casualty Ins. Co., 252 S.C. 518, 167 S.E.2d 420, 423 (1969). The obligation of an insurance company to defend an action, furthermore, must be determined by the allegations of the underlying third party complaint. R.A. Earnhardt Textile Machinery Division, Inc. v. South Carolina Ins. Co., 277 S.C. 88, 282 S.E.2d 856, 857 (1981); Baker v. American Ins. Co., 324 F.2d 748, 750 (4th Cir.1963). The insurer is under a duty to defend where the complaint alleges a state of facts which falls within the policy coverage. Hartford Accident and Indemnity Co. v. South Carolina Ins. Co., 252 S.C. 428, 166 S.E.2d 762, 765 (1969); General Ins. Co. of America v. Palmetto Bank, 268 S.C. 355, 233 S.E.2d 699, 701 (1977). Likewise, if the alleged facts fail to bring the case within the policy coverage, the insurer has no obligation to defend. R.A. Earnhardt, 282 S.E.2d at 857; Stroup Sheet Metal Works, Inc. v. Aetna Casualty & Surety Co., 268 S.C. 203, 232 S.E.2d 885, 888-89 (1977).

Reference to the insurance policy itself is essential to determine whether a duty to defend arises in a particular case. In making this determination, exclusions in an insurance policy are "construed most strongly against the insurer." Boggs v. Aetna Casualty and Surety Co., 272 S.C. 460, 252 S.E.2d 565, 568 (1979); Preferred Risk Mutual Ins. Co. v. Thomas, 372 F.2d 227, 231 n. 3 (4th Cir.1967). The insurer also bears the burden of proving the existence and applicability of the exclusion. Boggs, 252 S.E.2d at 568. Consequently, "where language used in an insurance contract is ambiguous, or where it is capable of two reasonable interpretations, that construction which is most favorable to the insured will be adopted." Edens v. South Carolina Farm Bureau Mutual Ins. Co., 279 S.C. 377, 308 S.E.2d 670, 671 (1983) (emphasis added). Nevertheless, this rule of construction "does not justify abandoning principles of normal interpretation where the contract is clear, or taking such a construction as would vary the true meaning of the contract and the intention of the parties." 13 Appleman, supra, p. 3, § 7402. In other words, courts should not torture the meaning of the policy to extend coverage not intended by the parties. General Ins. Co., 233 S.E.2d at 701-02.

The parameters of coverage envisioned by this precise exclusion in a homeowner's policy were addressed in Allstate Ins. Co. v. Goldwater, 163 Mich.App. 646, 415 N.W.2d 2 (1987). In support of its holding to exclude coverage for an accident occurring near the insured premises, the court stated:

Although the language of paragraph 5 may initially appear confusing, we do not find it to be ambiguous; it clearly excludes coverage for an accident involving a motorized land vehicle designed for recreational use off public roads, owned by an insured, that occurred away from the residence premises.

Id. Where, as here, plaintiffs in the underlying suit have attempted to bypass this contractual limitation through allegations that negligence occurred on the premises (whether negligent entrustment, maintenance, etc.) which allegedly causes bodily injury away from the insured premises, courts have split on the issue of whether similar exclusions preclude coverage for the loss. Compare Bankert v. Threshermen's Mutual Ins. Co., 110 Wis.2d 469, 329 N.W.2d 150 (1983), Farmers Ins. Group of Oregon v. Nelsen, 78 Or.App. 213, 715 P.2d 492 (1986), Safeco Ins. Co. v. Gilstrap, 141 Cal.App.3d 524, 190 Cal.Rptr. 425 (1983), Cooter v. State Farm Fire and Casualty Co., 344 So.2d 496 (Ala.1977), Fidelity & Guaranty Underwriters v. McManus, 633 S.W.2d 787 (Tex.1982) (lists cases), and Aetna Casualty and Surety Co., supra, with McDonald v. Home Ins. Co., 97 N.J.Super. 501, 235 A.2d 480 (1967), Lalomia v. Bankers & Shoppers Ins. Co., 35 A.D.2d 114, 312 N.Y.S.2d 1018 (1970), and Upland Mutual Ins., Inc. v. Noel, 214 Kan. 145, 519 P.2d 737 (1974). Although most of these cases have dealt with negligent "entrustment," the same inquiry would be appropriate for allegations of negligent "maintenance." In either event, plaintiff is attempting to demonstrate a causal link between activities conducted on the insured premises and an occurrence away from the property.

The plain meaning of the contested provision appears to provide coverage for bodily...