In Matters Of Insurance Coverage, Every Word Has A Purpose

A fight breaks out on the insured’s front lawn, and the homeowner’s child is involved in a scuffle with a neighbor’s child. The insured reports the incident as a precaution before any indication that a claim might result. Subsequently, the insured receives a $10,000 medical bill from the parents of the other child for treatment of a detached retina, with a threat to sue the homeowner for negligent supervision if the bill is not paid immediately. Although the claim sounds in negligence, coverage (defense and/or indemnity) under the insured’s homeowner’s liability policy is not a certainty.

Coverage under a homeowner’s liability policy for a claim of negligent supervision can turn on whether the “intended injury exclusion” uses the word “the” or the word “an” or “any.” Undoubtedly, there are policies now that are explicit in terms of who is covered for bodily injury caused by an intentional act. The purpose of this article is not to address the nuances of various homeowner’s policies, or frankly, whether a majority of policies cover claims of negligent supervision or not. This article is meant to highlight the fact that in addressing coverage issues, every word has a purpose.

A typical homeowner’s policy provides liability coverage for claims made against an “insured” for damages because of “bodily injury” caused by an “occurrence.” In those policies, an “occurrence” is defined as an accident which results in “bodily injury,” and although “accident” is usually not defined, Texas courts have supplied its meaning. Generally, “where acts are voluntary and intentional and the injury is the natural result of the act, the result was not caused by accident even though that result may have been unexpected, unforeseen, and unintended.” Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 826-28 (Tex 1997).

Under the scenario portrayed in the opening paragraph, the child’s intentional act of striking another child is not an accident under any definition, and as such, no liability coverage would exist to cover any liability claims brought against the child.

The lack of liability coverage for the child does not necessarily preclude coverage for the parent. Again, every word has a purpose. The reason that coverage for the parent may exist for the intentional act of the child is because of the common “severability of insurance” or “separation of insureds” clause. That provision states that “[t]his insurance applies separately to each insured.” See King v. Dallas Fire Insurance Company, 85 S.W. 3d (Tex. 2002). Thus, there can be an “occurrence” from the standpoint of the parents even when there is not an “occurrence” from the standpoint of the child.

The intent of the severability clause is to provide each insured with separate coverage, as if each were separately insured with a distinct policy, subject to the liability limits of the policy. Utica Mut. Ins. Co. v. Emmco Ins. Co., 309 Minn. 21, 243 N.W.2d 134, 142 (1976). The severability clause serves to provide coverage when there is an “innocent” insured who did not commit the conduct excluded by the policy. Walker v. Lumbermens Mut. Cas. Co., 491 S.W.2d 696 (Tex. Civ. App.-Eastland 1973, no writ)).

In King, Dallas Fire Insurance Company brought a declaratory judgment under a commercial general liability policy seeking a declaration that the underlying claims by an individual who was assaulted by the insured’s employee were not covered. The Supreme Court of Texas held that the severability clause created separate insurance policies for the insured and the insured’s employee, and the employee’s assault on a third person who alleged negligent supervision by the employer was to be viewed from the perspective of the insured employer in determining whether the event was an “occurrence” within the meaning of either the general liability policy or whether the intentional injury exclusion applied.

King unequivocally supports coverage for a negligent supervision claim against an innocent parent, right? There are post-King cases that seem to agree with that proposition. However, those cases overlook an important segment of the King opinion detailing with the actual wording of the “expected or intended injury” exclusion. The “expected or intended injury” exclusion in King excluded coverage for “bodily injury expected or intended from the standpoint of the insured.”

Although there are post-King opinions where the courts miss the significance of the word “the” contained in the King exclusion, one court aptly noted its significance, albeit in addressing an auto exclusion. See Bituminous Casualty Corp. v. Maxey, 110 S.W.3d 203 (Tex. App. – – Houston [1st Dist.] 2003, rev. den’d).

In a case of first impression, the well reasoned opinion in Maxey held that the severability of insurance clause, which required the policy to be read as if each insured were the only insured, did not require the auto exclusion applying to “any insured” to be read any differently from its grammatically accepted meaning. The court summarized the general rules of contract construction, which I will not retread, and held that the term “any insured” means what it says. In other words, the severability clause did not require the courts to replace the words “any insured” in the policy with the words “the insured.”

The rule to remember is that just because one case finds coverage under a general liability clause for negligent supervision does not mean that your policy will provide the same coverage.

In matters of insurance coverage, every word has a purpose, and coverage can turn on something a simple as the words “the,” “an,” or “any.”