Summary
holding that homeowner's policy excluded coverage because ATV accident on private roadway in homeowners association occurred away from the insured premises
Summary of this case from Arrowood Indemnity v. KingOpinion
No. 6-072 / 05-0456
Filed April 12, 2006
Appeal from the Iowa District Court for Polk County, Donna L. Paulson, Judge.
Insurance company appeals from a district court ruling that declared homeowners and umbrella insurance policies issued to insureds provided coverage for claims arising out of an accident involving an all terrain vehicle owned by an insured. REVERSED AND REMANDED.
Brian C. Ivers of McDonald, Woodward Ivers, Davenport, for appellant.
Michael A. Carmoney of Grief Sidney, P.L.C., Des Moines, and J. Russell Hixson of Hixson Brown, P.C., Clive, and John Werner, Toledo, for appellees.
Heard by Zimmer, P.J., and Miller and Hecht, JJ.
Shelter Mutual Insurance Company (Shelter) appeals from a district court declaratory judgment ruling that found both a homeowners and a personal umbrella insurance policy issued to Paul and Kerry Davis provided coverage for claims arising out of an accident involving an all terrain vehicle (ATV) owned by Paul Davis. We reverse the district court and remand for further proceedings.
I. Background Facts and Proceedings.
At the times relevant to this proceeding, Paul and Kelly Davis owed a vacation home located at 4761 Panorama Drive (lake home). The home was listed as an additional insured premises under the Davises' homeowners insurance policy. The Davises also held a personal umbrella insurance policy. Both policies were issued by Shelter, and each contained a partial coverage exclusion for recreational vehicles.
The homeowners' policy provided:
Under Personal Liability and Medical Payments to Others, we do not cover:
1. bodily injury or property damage arising out of the ownership, maintenance, use or entrustment of:
. . . .
(c) any recreational motor vehicle . . . owned by an insured, if the bodily injury or property damage occurs away from the insured premises. . . .
The homeowners' policy defined "insured premises," in relevant part, to include "any structures or grounds used by [the insured] in connection with [the insured's] residence premises."
"Residence premises" is further defined as "the . . . dwelling where [the insured] reside[s], including the building, the grounds and other structures on the grounds and which is described in the Declarations."
The umbrella policy provided:
We do not cover:
. . . .
5. Personal injury or property damage arising out of the ownership, maintenance, use, loading or unloading of:
. . . .
d. recreational vehicles owed by an insured which are away from premises owned by, rented to, or controlled by, the insured.
On May 31, 2003, Paul Davis gave his minor son Zach permission to invite several friends to the lake home. Zach, his younger brother Alex, and visiting friends were allowed to operate two ATVs owned by Davis, an 80 cc ATV and a 450 cc ATV. Davis gave the boys detailed instructions, which included operating only the ATV they were given permission to operate, and doing so only on the lake home grounds and in a field across the road from the home. The boys were told not to drive the ATVs on Panorama Drive, except to cross the street to the field. One of the visiting boys, Ryan Eifler, had been instructed to ride only the smaller ATV.
After the boys finished riding the ATVs, Davis hid the keys in his bedroom. He then took all but two of the boys on a boat ride; Alex Davis and Alexander Hanson remained behind. They searched for the keys to the ATVs. Alex eventually found them, and he and Alexander began operating the vehicles. After the boat ride some of the boys, including Ryan Eifler, returned to the house while Davis was securing the boat.
Without obtaining anyone's permission, Eifler drove the larger 450 cc ATV off of the lake home lot and on to Panorama Drive. Eifler drove down the road some distance before turning the ATV around and proceeding back toward the lake home. Approximately four to five lots west of the lake home Eifler lost control of the ATV, which left the road, collided with a large tree located near the traveled portion of the roadway, and came to rest in a "community area." While the branches of the tree struck by Eifler overlapped the community area, the trunk or stump of the tree was not located in the community area.
Both Panorama Drive and the community area were owned and maintained by the Lake Panorama Homeowners' Association. Paul and Kerry Davis were association members, and used both the road and community area. The record does not clearly demonstrate the ownership of the area where the tree was located, but does show it was located either in the right-of-way adjacent to the traveled portion of Panorama Drive or on a privately owned lot.
Eifler suffered injuries as a result of the accident. He and his parents filed a lawsuit against Paul Davis. The Eiflers later amended their petition to assert claims against Alex Davis and Alexander Hanson. The Eiflers' petition alleged Paul Davis was negligent in several respects, including but not limited to failing to properly train Eifler on the operation of the ATV, failing to warn Eifler of the dangers inherent in the operation of an ATV, negligently entrusting the ATVs to the children, and failing to properly supervise the children. It further alleged that Alex Davis and Alexander Hanson were negligent in several respects, including taking the keys to the ATVs without Paul Davis's permission, and in failing to inform Eifler that they did not have permission to operate the ATVs.
Shelter filed a declaratory judgment action against Paul and Kerry Davis, later amended to name Alex Davis and Alexander Hanson. Shelter asked the district court to declare it had no obligation to any of the defendants in connection with the Eiflers' lawsuit. After Paul, Kerry, and Alex Davis (defendants) filed an amended answer, Shelter filed a motion for summary judgment. The defendants resisted Shelter's motion and filed a cross-motion for summary judgment.
When the motions were heard, the parties agreed there were no disputed issues of material fact and the court should conduct a "stipulated trial" on the merits. The district court issued a ruling in favor of the defendants, finding both policies provided coverage. The court concluded Shelter had not met its burden to prove the recreational vehicle policy exclusions were applicable in the present matter.
The agreement extended to the Eiflers, who were brought into the declaratory judgment action via the defendants' third-party petition.
The court determined that, although the accident involved a recreational vehicle, the accident had not occurred away from the insured premises or away from a premises owned by the Davises. Relying on the fact Panorama Drive and the community area were owned by the homeowners association and the Davises were association members, the court concluded the accident occurred in an area used "in connection with" the lake home and "owned in part" by the Davises.
The parties stipulated the ATV met the definitions of "recreational motor vehicle" in the homeowners policy and "recreational vehicle" in the umbrella policy.
The court further determined that, even if the accident fell within the exclusion, under the doctrine of concurrent liability the policies nevertheless afforded coverage. The court reasoned that even if the policies excluded coverage for "vehicle-related" negligence, "the non-vehicle-related negligence alleged in this case could be determined to be a sole proximate cause of injuries suffered by Eifler." Because it concluded both policies provided coverage, the court did not reach the question of whether, under the reasonable expectations doctrine, coverage should be afforded under the homeowners and umbrella policies.
Shelter appeals. It contends the district court erred in finding coverage under the polices because "[t]he [a]ccident occurred away from the `insured premises.'" It contends the court further erred in concluding "the doctrine of `concurrent liability' circumvents the recreational motor vehicle exclusions of the Shelter policies."
II. Scope of Review.
This matter was filed and pursued as an ordinary proceeding, and involves the legal issues of construction of an insurance contract and interpretation of policy language that does not depend on extrinsic evidence. See Kalell v. Mutual Fire and Auto. Ins. Co., 471 N.W.2d 865, 867 (Iowa 1991). As such, our review is for the correction of errors at law. Iowa R. App. P. 6.4; Stine Seed Farm, Inc. v. Farm Bureau Mut. Ins. Co., 591 N.W.2d 17, 18 (Iowa 1999). To the extent the district court made factual findings, they are binding upon this court if supported by substantial evidence. Iowa R. App. P. 6.14(6)( a).
III. Insured Premises.
The first issue raised on appeal is whether Eifler's ATV accident occurred on or away from the "insured premises," specifically, whether the accident occurred on "grounds used by [the Davises] in connection with" the lake home. The district court determined the phrase "in connection with" should be construed broadly, in favor of the Davises, and in favor of coverage, and that under such construction the privately owned drive and community area were grounds used in connection with the lake home. Shelter contends the court erred, as "in connection with" should be narrowly interpreted to include "only geographical areas in direct and consequential relation to the `insured premises.'"
Although the homeowners policy uses the specifically defined term of "insured premises" and the umbrella policy uses the undefined term of "premises owned by . . . the insured," on appeal Shelter and the defendants focus solely upon whether the accident occurred in an area used "in connection with" the residential premises, as defined in the homeowners policy. Neither side claims or suggests the two policies differ as to what constitutes a "premises," or that the extent of relevant coverage differs under the umbrella policy. Accordingly, we consider only whether the accident occurred on or away from the insured premises, as defined under the homeowners' policy. We note, however, that the following analysis also leads to the conclusion the accident did not occur on a premises owned by the Davises.
Shelter also asserts there is no proof the "community area" was ever used by the Davises in connection with the lake home because the only evidence on the issue was a self-serving statement made by Paul Davis in his affidavit. We do not credit this argument, given that Shelter stipulated to admission of the affidavit, and offered no evidence to contradict its contents.
In assessing whether the district court erred, we are guided by several well-established principles. First, we note that "[i]f an insurance policy provision is ambiguous, we construe it in the light most favorable to the insured. . . ." Kalell, 471 N.W.2d at 867. When a phrase is susceptible to two interpretations, the one more favorable to the insured must be accepted. Farm Bureau Mut. Ins. Co. v. Sandbulte, 302 N.W.2d 104, 108 (Iowa 1981). However, ambiguity does not exist merely because the parties disagree on the meaning of a phrase. Id. Rather, "[t]he test is an objective one: Is the language fairly susceptible to two interpretations?" Id. Moreover, "[c]overage clauses are construed differently than exclusionary clauses. When construing coverage clauses, the words . . . are given a broad, general and comprehensive meaning. Exclusionary clauses, however, require a narrow or restrictive construction." Grinnell Mut. Reins. Co. v. Employers Mut. Cas. Co., 494 N.W.2d 690, 693 (Iowa 1993).
In addition,
insurance policies are adhesion contracts, and exclusions will be strictly construed against the insurer. An insurer must therefore define clearly and explicitly any limitations or exclusions to coverage. The insurer also has the duty to prove the applicability of the exclusion.
Kalell, 471 N.W.2d at 867 (citations omitted).
Turning to the merits, we note the issue raised by Shelter has not been previously decided in Iowa. However, it has been addressed in numerous other jurisdictions. Of the nine cases cited and discussed by the parties, each reached the conclusion that the area at issue was not one used in connection with the insured residence. A case in point is Massachusetts Property Insurance Underwriting Association v. Wynn, 806 N.E.2d 447 (Mass.App.Ct. 2004).
In Wynn, the policy issued to the insured homeowner excluded coverage for bodily injury and property damage arising out of "[t]he ownership, maintenance, use, loading or unloading of motor vehicles or all other motorized land conveyances. . . ." Wynn, 806 N.E.2d at 449 n. 3. However, the policy further provided that the exclusion did not apply to "[a] motorized land conveyance designed for recreational use off public roads not subject to motor vehicle registration and . . . [o]wned by an `insured' and on an `insured location.'" Id. at 449. The policy definition of "insured location" included the "residence premises" and "[a]ny premises used . . . in connection with" the residence premises. Id. at 451. The question before the Massachusetts court was whether a beach owned by a homeowners association and located approximately 500 feet away from the residence premises was an "insured location" within the meaning of the policy. Id. at 449 n. 2, 451, 451 n. 7.
The court rejected the assertion that the beach was an area used "in connection with" the residence premises:
We think [the] proffered interpretation proves too much and, if adopted, would render the definition of "insured location" meaningless and provide no discernible geographical limit to coverage. The term "insured location" and its accompanying reference to "[a]ny premises used . . . in connection with" the residence premises is circumscribed by an obvious and necessary geographic limitation. The definition is not meant to encompass adjacent, nonowned land on which an ATV might be used any more than it is intended to include parks or recreational facilities in proximity to the residence that the insured may enjoy and use regularly. Such locations are neither intended nor reasonably understood to be "insured locations" under a homeowner's policy.
. . . Such a construction would require knowledge by an insurer of not only the insured's property but also of neighboring property and the insured's hobbies and interests. Rather, the term "insured location" is intended and appropriately understood to be limited to the residence and premises integral to its use as a residence.
Id. at 451-52 (footnote omitted). Other jurisdictions have reached similar conclusions. See, e.g., Hanson v. North Star Mut. Ins. Co., 71 F.Supp.2d 1007, 1012 (D.S.D. 1999); United Serv. Auto. Assoc. v. Parry, 761 P.2d 157, 159-60 (Ariz.Ct.App. 1988); Safeco Ins. Co. v. Brimie, 516 N.E.2d 577, 581 (Ill.App.Ct. 1987); Indiana Ins. Co. v. Dreiman, 804 N.E.2d 815, 820 (Ind.Ct.App. 2004); Illinois Farmers Ins. Co. v. Coppa, 494 N.W.2d 503, 506 (Minn.Ct.App. 1993). We find the logic of these cases to be persuasive.
The defendants assert Wynn and similar cases are distinguishable because they involved accidents occurring on public roadways or private premises not owned by an insured, while here the accident occurred on property in which the Davises had at least a partial ownership interest. In light of the record made by the parties, we cannot agree. While the record indicates the accident may have occurred partially or entirely on Panorama Drive and its right-of-way, it does not establish the Davises had an ownership interest in that property.
There is no evidence the accident occurred, even in part, in the "community area." Rather, the record establishes this is the area where the ATV "came to rest following the accident."
The evidence on this issue is limited to Paul Davis's uncontradicted affidavit, in which he states that he is a member of the homeowners association, that the homeowners association owns and maintains Panorama Drive and the community area, and that he and his family "routinely use these grounds in connection with our lake home." However, there is no evidence Davis's undefined and undescribed membership in the similarly undefined and undescribed homeowners association grants him any right or interest in property owned by the association beyond that which Davis asserted in the affidavit — a right of "routine use." Like the court in Wynn, we conclude regular use by an insured is insufficient to demonstrate the area is one used in connection with the residence premises. See Wynn, 806 N.E.2d at 451-52.
The defendants also challenge the persuasive value of Wynn and similar cases by asserting our supreme court has consistently held the phrase "`in connection with' must be construed broadly," and that a broad construction leads to the conclusion Panorama Drive constitutes grounds used in connection with the lake home. However, in support of this contention the defendants rely on two cases that interpreted the phrase in the context of an indemnification provision in a railroad licensing agreement: Seymour v. Chicago North Western Railway Co., 255 Iowa 780, 124 N.W.2d 157 (1963) and Employers Mutual Casualty Co. v. Chicago North Western Transportation Co., 521 N.W.2d 692 (Iowa 1994). These cases are not only distinguishable on their facts and by the context in which they arose, but also by the reason for including the phrase in the relevant agreement.
In both cases, the supreme court's conclusion that "in connection with" should be interpreted broadly appeared to be based on the fact the purpose of the licensing agreement was "to shield the railroad from the increased risk associated with the construction and use of facilities in close proximity to the tracks," and that "[w]ithout the protection such a hold-harmless clause provides, there would be little reason for the railroad to permit [the licensee] to use the right-of-way adjoining its property." Employers Mut., 521 N.W.2d at 694. Here, in contrast, a broad interpretation would increase rather than limit the insurance company's risk and obligation and thus tend to defeat the apparent purpose of the exclusion — a purpose that in fact supports adoption of the rationale articulated in Wynn.
The apparent purpose of the exclusion is to require the insured to obtain specific liability insurance on recreational vehicles except under the limited exceptions enumerated in the policy — in other words, to confine the geographic area of risk. We find it significant that Shelter excluded public roads from that confined area of risk when, by the very definition of a "recreational motor vehicle," it limited the exclusion to motor vehicles that are "not subject to motor vehicle registration . . . [and are] designed for recreational use off public roads." In light of this limiting language we cannot conclude the confined area of risk was intended to extend to Panorama Drive which, although privately owned and maintained, is nevertheless a public road in the sense it is accessible to and used by the general public. Whether the road is privately or publicly owned, adopting the defendants' position would effectively remove any reasonable geographic limitation on coverage.
The defendants point out that there is no express geographical limitation in the policy, and assert it would be error to insert one. See Cairns v. Grinnell Mut. Reins. Co., 398 N.W.2d 821, 824 (Iowa 1987) ("We avoid straining the words and phrases of the policy `to impose liability that was not intended and was not purchased.'" (citation omitted)). However, adopting the defendants' position would effectively lead to "open-ended" coverage, a concept criticized by our supreme court in Farm Bureau Mutual Insurance Co. v. Sandbulte, 302 N.W.2d 104, 107 (Iowa 1981).
In Sandbulte, the son of the insured caused an automobile accident on a public road that was located between two farm fields and abutted the insured farm premises, although it did not abut the insured premises at the location of the accident. Sandbulte, 302 N.W.2d at 107. Our supreme court concluded the incident fell outside of the insured's farm liability coverage because the policy excluded coverage for "any motor vehicle owned or operated by . . . any insured while away from the insured premises or the ways immediately adjoining. . . ." Id. at 107, 110. Relying on cases from other jurisdictions, the court concluded the phrase "ways immediately adjoining" clearly and unambiguously required "that the `way' upon which the incident occurs must touch or abut the insured premises at the point of the occurrence." Id. at 108.
In support of its conclusion, the court noted:
If we were to hold that, in effect, the entire farming operation is a single, monolithic unit, so as to include the roadways between, or to hold "insured premises" in such cases becomes coincident with scope of employment, the practical effect would be to make such a policy virtually open-ended in view of the extensive travel in modern farming practices.
Id. at 109.
Adopting the rationale of Wynn and concluding the phrase "grounds used . . . in connection with [the] residence premises" does not extend to Panorama Drive not only avoids the danger of open-ended coverage criticized above; it also comports with the phrase's clear and unambiguous meaning.
As neither "grounds" nor "in connection with" is defined in the insurance policies, we give each their plain and ordinary meaning. See North Star Mut. Ins. Co. v. Holty, 402 N.W.2d 452, 455 (Iowa 1987). "Grounds" is commonly understood to refer to the land surrounding and belonging to a building. See Webster's Third New Int'l Dictionary 1002 (2002). The commonly understood meaning of the term "connection" encompasses a link, joining, or association between two or more parts or things. See id. at 480-81. In light of these definitions, we conclude "grounds used in connection with [the] residence premises" contemplates more than use of land that adjoins or abuts the premises. Rather, it contemplates "premises integral to [the residence's] use as a residence," Wynn, 806 N.E.2d at 452, such as easements for ingress or egress from the residence, see Illinois Farmers Ins. Co., 494 N.W.2d at 506. It does not, however, contemplate property owned by and/or accessible to and used by the public generally, such as parks, playing fields, highways, roads, and streets, for that would lead to the "open-ended" coverage criticized in Sandbulte. Because Panaroma Drive is just such a location, the district court erred in concluding Shelter failed to prove the applicability of the recreational vehicle exclusion.
IV. Concurrent Liability.
Shelter also challenges the district court's conclusion that, even if the recreational motor vehicle exclusion applied, under the doctrine of concurrent liability the policies nevertheless provided coverage. The doctrine provides that, "when two independent acts of negligence are alleged, one vehicle-related and one not vehicle-related," and the alleged nonvehicular negligence is covered by the policy, then "coverage is still provided under the homeowners policy unless the vehicle-related negligence is the sole proximate cause of the injury." Kalell, 471 N.W.2d at 868. The issue in this case is whether Paul Davis's alleged failure to warn, instruct, and supervise is independent of the ownership, use, and entrustment of the ATV.
In concluding the Eiflers had alleged acts of independent non-vehicle-related negligence, the district court relied on the case of Grinnell Mutual Reinsurance Co. v. Employers Mutual Casualty Co., 494 N.W.2d 690 (Iowa 1993). There, a student was injured while attempting to exit a school bus negligently set in motion by a classmate. Grinnell, 494 N.W.2d at 691. The students were unsupervised, and the bus was unlocked, unattended, and in gear, with keys in the ignition. Id. at 692. Our supreme court concluded that, even though the school's policy contained a motor vehicle exclusion, the record supported the district court's findings and conclusions that the school's alleged "negligent supervision leading to negligent loading of the bus was not vehicle-related and was, or could have been determined to be, a proximate cause of [the student's] injuries. . . ." Id. at 694.
The defendants contend the facts of Ginnell are nearly indistinguishable from the facts of this case, and that Grinnell supports the conclusion the Eiflers have alleged independent acts of non-vehicle-related negligence that could be a proximate cause their injuries. We might be persuaded by this argument, but for the fact our supreme court issued its opinion in American Family Mutual Insurance Co. v. Corrigan, 697 N.W.2d 108 (Iowa 2005), shortly after the district court filed its decision in this matter.
In Corrigan, a child was physically injured by Mark Francke, who operated a daycare business in the home of his father, Harold. Corrigan, 697 N.W.2d at 110. The supreme court was asked to determine whether Harold's insurance policy, which contained an intentional acts exclusion, provided coverage for Harold's alleged acts of negligence — failing to warn of the danger presented by Mark; failing to supervise, monitor, or otherwise act discover the danger Mark posed; and knowingly allowing dangers to exist at the daycare that posed a substantial risk of harm. Id. at 111-12.
Applying the doctrine of concurrent liability as set forth in Kalell, the court concluded Harold's alleged acts of negligence were not independent from Mark's excluded intentional acts because "[a]ll three theories of liability asserted against Harold require as an element proof of Mark's conduct in inflicting the injuries." Id. at 112-13. In support of its conclusion, the court relied on several cases from other jurisdictions that held negligent supervision claims fell under a policy's vehicle exclusion because the negligent supervision claims were not independent of or divisible from the use of the vehicle. Id. at 113-14.
Apparently recognizing the tension between its current holding and the holdings of Grinnell and the later case of Gabe's Construction Co. v. United Capitol Insurance Co., 539 N.W.2d 144 (Iowa 1995), the court stated:
Unfortunately, there is no discussion in those cases of whether the nonvehicle-related allegations of negligence were independent of the vehicle-related negligence. It appears this aspect of the multiple-cause test was not challenged. Therefore, these decisions lack a discussion of the nature of the negligent supervision claims so as to permit a comparison of the holdings in those cases with the decision we reach today. To the extent the Gabe's Construction and Grinnell Mutual opinions can be interpreted as a retreat from the test set forth in Kalell, our decision today should reaffirm our adherence to the principles set forth in Kalell.
Corrigan, 697 N.W.2d at 113 n. 1.
The district court did not have the benefit of the opinion in Corrigan when it decided this case. The holding in Corrigan nevertheless requires us to conclude that Paul Davis's alleged failure to train, instruct, supervise, and warn is inextricably linked with the ownership, use, and entrustment of the ATV, and thus necessarily deemed to have arisen out of that ownership, use, and entrustment. See id. (citing Muzzio v. Auto-Owners Ins. Co., 799 So.2d 272, 274-75 (Fla.Dist.Ct.App. 2001)). Accordingly, the only alleged proximate cause of the Eiflers' injuries is vehicle-related negligence, which is excluded under the policies.
V. Conclusion.
The Davises' homeowners policy excludes from coverage vehicle-related negligence that occurs away from the insured premises. Shelter has established that the accident at issue in this matter occurred away from the insured premises. As this case involves allegations of only vehicle-related negligence, the doctrine of concurrent liability cannot be applied to afford coverage. Accordingly, the district court's ruling must be reversed.
This would normally end the matter. However, the district court declined to reach the defendants' contention that, under the reasonable expectations doctrine, coverage was provided. We accordingly remand this matter for further proceedings not inconsistent with this opinion.