Am. Family Mut. Ins. Co. v. Wheeler
| Decision Date | 24 January 2014 |
| Docket Number | No. S–13–240,S–13–240 |
| Citation | 842 N.W.2d 100,287 Neb. 250 |
| Parties | American Family Mutual Insurance Company, Appellee and Cross–Appellee, v. Rick W. Wheeler, Appellee and Cross–Appellant, and Joshua McCrary et al., Appellants. |
| Court | Nebraska Supreme Court |
OPINION TEXT STARTS HERE
Appeal from the District Court for Sarpy County: David K. Arterburn, Judge. Affirmed.
David A. Domina, Omaha, 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., Omaha, for appellee Rick W. Wheeler.
Jane D. Hansen, Omaha, for appellee American Family Mutual Insurance Company.
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 reasonable 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. Insurance: Contracts: Appeal and Error. 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 insurance 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 interpretations 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.
Ryan Wheeler, Rick Wheeler's son, allegedly sexually assaulted Joshua McCrary and Maren McCrary's minor daughter, 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 policies 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) exclusions which would otherwise bar coverage for Rick. We conclude that it does neither. We affirm.
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 exposure to conditions which results in bodily injury or property 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 even if the actual bodily injury or property damage is different than that which was expected or intended from the standpoint of any insured.
As relevant here, the umbrella policy also contains exclusions 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:
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 negligently 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] 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 insurance 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 analyzing 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, irrespectiveof the severability clause.” The court granted American Family summary judgment.
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 making any rulings as to Ryan, over whom it did not have personal jurisdiction.
An insurance policy's interpretation presents a question 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
The parties agree that if there were no severability clause, the exclusions would bar coverage for Rick (based on Ryan's conduct). 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 the exclusions) at least renders the policies ambiguous, which we must construe in favor of coverage.
We begin by setting forth certain well-known principles 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 parties 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 susceptible of, at least two reasonable but conflicting interpretations or meanings.10
The severability clause in each policy reads: ...
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