American Family Mut. Ins. Co. v. Hadley

• Decision Date: 26 July 2002
• Docket Number: No. S-00-1092.,S-00-1092.
• Citation: 648 N.W.2d 769,264 Neb. 435
• Parties: AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin corporation, Appellee and Cross-Appellant, v. Richard HADLEY and Natalie Hadley, and Richard Hadley and Natalie Hadley, on behalf of Rainier Hadley, a minor and protected person, Appellants and Cross-Appellees, and Linda Hughes, Appellee.
• Court: Nebraska Supreme Court

648 N.W.2d 769

264 Neb. 435

AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin corporation, Appellee and Cross-Appellant, v. Richard HADLEY and Natalie Hadley, and Richard Hadley and Natalie Hadley, on behalf of Rainier Hadley, a minor and protected person, Appellants and Cross-Appellees, and Linda Hughes, Appellee.

No. S-00-1092.

Supreme Court of Nebraska.

July 26, 2002.

Terry M. Anderson and Gordon R. Hauptman, of Hauptman, O'Brien, Wolf & Lathrop, P.C., Omaha, for appellants.

Michael G. Mullin, of McGrath, North, Mullin & Kratz, P.C., Omaha, for appellee American Family Mutual Insurance Company.

HENDRY, C.J., and WRIGHT, CONNOLLY, GERRARD, STEPHAN, McCORMACK, and MILLER-LERMAN, JJ.

STEPHAN, J.

American Family Mutual Insurance Company (American Family) brought this declaratory judgment action against one of its policyholders and Richard Hadley and Natalie Hadley. In another action, the Hadleys have asserted a civil claim against the insured to recover damages for injuries sustained by their minor child, Rainier Hadley, while in her care. American Family sought a declaration that under the homeowners and personal liability umbrella insurance policies it had issued to its insured, there was no duty to defend or indemnify her with respect to the Hadleys' suit. The Hadleys appeal from an order of the district court for Douglas County entering summary judgment in favor of American Family, based upon its determination that policy exclusions for damages arising out of violations of criminal law were applicable and enforceable.

I. BACKGROUND

The insured provided childcare in her Omaha home for six minor children, the youngest of whom was Rainier, born on October 30, 1995. An American Family homeowner's policy and an American Family personal liability umbrella policy, both issued to the insured, were in force and effect at all relevant times. On January 23, 1996, Rainier suffered severe injuries while under the insured's care. The insured subsequently contacted American Family to report a claim under the aforementioned insurance policies for the injuries to Rainier. American Family responded by letter, stating that it was investigating the claim under a full reservation of rights.

As a result of Rainier's injuries, the insured was charged with knowing and intentional child abuse under Neb.Rev. Stat. § 28-707(5) (Reissue 1995), a Class III felony. The insured subsequently pled guilty to an amended charge of negligent child abuse under § 28-707(3), a Class I misdemeanor.

On January 23, 1997, the Hadleys filed suit against the insured in the district court for Douglas County seeking damages for the injuries sustained by Rainier under a theory of assault and battery. The record also contains an amended petition in which the Hadleys allege a second cause of action for negligence, but this document does not bear a file stamp, and there is no other indication that it was ever filed. American Family hired counsel to defend the insured in the Hadleys' lawsuit under its previously stated reservation of rights.

On January 6, 1998, American Family filed this action seeking a declaration that it had no duty to defend the insured in the Hadleys' pending lawsuit and no duty to indemnify the insured for any claim arising from that lawsuit. In its petition, American Family alleged, inter alia, that the "violation of law" exclusions in the homeowner's and personal liability umbrella policies issued to the insured negated coverage for the claims made in the Hadleys' lawsuit. In their answer, the Hadleys specifically denied that coverage was excluded and, by counterclaim, sought a declaration that the policies provided coverage for the insured in their pending action against her. The insured also answered and alleged that the exclusions relied upon by American Family violated public policy insofar as they applied to her circumstances and further alleged that the Hadleys were not "necessary parties" to the declaratory judgment action and prayed that they be dismissed.

The district court entered an order sustaining American Family's motion for summary judgment on September 21, 2000. In a subsequent order nunc pro tunc, the district court reiterated the findings in its previous order and specifically found that American Family had no duty to defend the insured in the Hadleys' lawsuit and no duty to indemnify the insured for any claim arising from that lawsuit.

The Hadleys perfected this timely appeal. American Family cross-appealed on an evidentiary issue related to the summary judgment proceedings. The insured did not appeal. We removed the case to our docket on our own motion pursuant to our statutory authority to regulate the caseloads of the appellate courts of this state. See Neb.Rev.Stat. § 24-1106(3) (Reissue 1995).

II. ASSIGNMENTS OF ERROR

The Hadleys assign, restated and consolidated, that the district court erred in concluding (1) that the exclusions in the insured's insurance policies applied to negate coverage in this situation and (2) that no genuine issues of material fact were raised concerning coverage under either policy. On cross-appeal, American Family assigns that the district court erred in overruling its objection to the affidavit of the insured, which was received over objection in the summary judgment proceedings.

III. STANDARD OF REVIEW

Summary judgment is proper when the pleadings, depositions, admissions, stipulations, and affidavits in the record disclose that there is no genuine issue as to any material fact or as to the ultimate inferences that may be drawn from those facts and that the moving party is entitled to judgment as a matter of law. Altaffer v. Majestic Roofing, 263 Neb. 518, 641 N.W.2d 34 (2002); Ohio Cas. Ins. Co. v. Carman Cartage Co., 262 Neb. 930, 636 N.W.2d 862 (2001).

The interpretation of an insurance policy is a question of law, in connection with which an appellate court has an obligation to reach its own conclusions independently of the determination made by the lower court. Tighe v. Combined Ins. Co. of America, 261 Neb. 993, 628 N.W.2d 670 (2001); Olsen v. Farm Bureau Ins. Co., 259 Neb. 329, 609 N.W.2d 664 (2000).

IV. ANALYSIS

The issue before this court is whether insurance coverage for the claim which the Hadleys have asserted against the insured is excluded under the terms of the insurance policies issued by American Family to the insured. Familiar principles of contract interpretation form the framework for our analysis.

An insurance policy is a contract. Callahan v. Washington Nat. Ins. Co., 259 Neb. 145, 608 N.W.2d 592 (2000). An insurance contract is to be construed as any other contract to give effect to the parties' intentions at the time the contract was made. Ohio Cas. Ins. Co. v. Carman Cartage Co., supra; Farmers Union Co-op. Ins. Co. v. Allied Prop. & Cas.,

253 Neb. 177, 569 N.W.2d 436 (1997). When the terms of a contract are clear, a court may not resort to rules of construction, and the terms are to be accorded their plain and ordinary meaning as the ordinary or reasonable person would understand them. Ohio Cas. Ins. Co. v. Carman Cartage Co., supra; Cincinnati Ins. Co. v. Becker Warehouse, Inc., 262 Neb. 746, 635 N.W.2d 112 (2001). While an ambiguous insurance policy will be construed in favor of the insured, ambiguity will not be read into policy language which is plain and unambiguous in order to construe against the preparer of the contract. Tighe v. Combined Ins. Co. of America, supra; Callahan v. Washington Nat. Ins. Co., supra. Parties to an insurance contract may contract for any lawful coverage, and an insurer may limit its liability and impose restrictions and conditions upon its obligations under the contract if the restrictions and conditions are not inconsistent with public policy or statute. Hood v. AAA Motor Club Ins. Assn., 259 Neb. 63, 607 N.W.2d 814 (2000).

1. HOMEOWNER'S POLICY

The homeowner's policy issued to the insured includes an optional endorsement which extends liability coverage to an insured who provides home daycare service for which compensation is received. The policy provides that American Family "will pay, up to our limit, compensatory damages for which any insured is legally liable because of bodily injury or property damage caused by an occurrence covered by this policy." "Occurrence" is defined by the policy to mean "an accident, including exposure to conditions, which results during the policy period, in: a. bodily injury; or b. property damage." The policy includes several exclusions from liability coverage, including the following: "17. Violation of Law. We will not cover bodily injury or property damage arising out of: a. violation of any criminal law for which any insured is convicted...." The policy also includes exclusions for intentional acts and abuse which, along with the violation of law exclusion, were pled by American Family as grounds for its position that the Hadleys' claims against its insured are not covered under the policy. However, the motion for summary judgment was submitted to the district court solely on the violation of law exclusion. As a general rule, an appellate court disposes of a case on the theory presented in the district court. See, Vejraska v. Pumphrey, 241 Neb. 321, 488 N.W.2d 514 (1992); Donahoo v. Nebraska Liquor Control Comm., 229 Neb. 197, 426 N.W.2d 250 (1988). We do so here.

The Hadleys do not contend in this appeal that the language of the violation of law exclusion is ambiguous, and we conclude on the basis of our independent review that it is not. The plain meaning of the policy language clearly excludes coverage where the alleged liability of the insured is based upon conduct which is also the basis for a criminal conviction. Notably, courts from other jurisdictions have also held similar coverage exclusions in homeowner's insurance policies to be unambiguous. See, e.g., Allstate Ins. Co. v. Fick, 226 Mich.App. 197, 572 N.W.2d 265 (1997); Allstate Ins. Co....