Only Insureds Entitled to Defense or Indemnity
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In Motorists Commercial Mutual Insurance Company v. Roger Hartwell; Lynnway Auto Auction, Inc., Safety Insurance Company; et. al. Nos. 21-1603, 21-1636, United States Court of Appeals, First Circuit (November 23, 2022) the plaintiff claimed it owed neither defense nor indemnity to persons not insured by it to claims that a vehicle the named insureds’ owned while driven by the employee of an auctioneer killed five people and injured many.
FACTUAL BACKGROUND
The dispute arose from an auction at which a motor vehicle being displayed for bidding suddenly accelerated into a group of attendees, killing five and injuring many others. Motorists Commercial Mutual Insurance Company (“Motorists”), which insured the dealership that owned the vehicle, sued seeking a declaration that its policies do not cover the auctioneer or its employee who was behind the wheel of the vehicle when it struck the victims. Defendants include those who claim an interest in Motorists’ coverage: the victims, the auctioneer, and its employee. Both sides moved for summary judgment. The district court granted the motion for summary judgment in favor of Motorists.
Nashua Automotive, LLC is a New Hampshire car dealership that sells new and used cars. It is owned by a dealership group called AutoFair, Inc. and operates under the name “AutoFair Volkswagen of Nashua.” (“Nashua.”)
While Nashua sells most of their vehicles “retail” (to the public), about 8% or 9% of their revenues come from vehicles sold “wholesale” (online or at an auction). For its vehicles sold wholesale, Nashua primarily engages with a company called Lynnway Auto Auction, Inc., which operates an auction facility in Billerica, Massachusetts. Neither AutoFair nor Nashua owns Lynnway, and Lynnway does not own Nashua or AutoFair.
In April 2017, Nashua received a 2006 Jeep Grand Cherokee as a trade-in for a new vehicle it sold. Nashua arranged for Lynnway to auction the Jeep. On May 3, 2017, while that Jeep was being put up for auction inside Lynnway’s Billerica facility, it accelerated into a crowd, causing multiple serious injuries and five deaths.
At the time of the accident, Lynnway employee Roger Hartwell was seated in the driver’s seat of the Jeep, though he claims that the vehicle accelerated uncontrollably despite his efforts to stop it.
In due course, the victims and their estates filed a series of lawsuits in Massachusetts state court, alleging several theories of liability against Lynnway, Hartwell, Nashua and AutoFair, as well as other related individuals and entities.
Of the various insurance companies whose policies may be implicated by those underlying claims, this case concerns only one: Motorists Commercial Mutual Insurance Company. Motorists provided a liability policy (the “Primary Policy”) that covered AutoFair, Nashua, and other AutoFair-affiliated dealerships as named insureds, but did not name Lynnway or Hartwell among the insureds. Motorists also provided a so-called “Commercial Umbrella” policy (the “Umbrella Policy”), which provided supplemental insurance above the Primary Policy’s limits to many of the same named insureds, including Nashua and AutoFair.
THE MOTORISTS’ POLICIES
The Primary Policy includes a “Garage Coverage Form”. This form was modified by a New Hampshire Changes in Policy endorsement (the “New Hampshire Endorsement”).
The New Hampshire Endorsement changed the definition of “Who Is An Insured” such that it includes “[a]nyone else while using with your permission a covered ‘auto’ you own . . . except . . . [s]omeone using a covered ‘auto’ while he or she is working in a business of selling, servicing or repairing ‘autos’ unless that business is yours.”
The Umbrella Policy, in turn, provides further coverage for bodily injuries, but contains an “Automobile Liability -Following Form” endorsement, which provides: “Except as coverage is available to you in the underlying policies as set forth in the Schedule of Underlying Insurance, this policy does not apply to the ownership, maintenance, operation, [or] use . . . of any automobile while away from premises owned by, rented to, or controlled by you.”
The Umbrella Policy also defines “who is an insured” for that policy, which specifically excludes “[a]ny person employed by or engaged in the duties of an auto sales agency . . . that you do not operate.”
Motorists sought a declaratory judgment that its policies do not provide coverage for the victims’ claims against Lynnway and its employee. Defendants include Lynnway and Hartwell (the “Lynnway defendants”) and the accident victims who brought the state-court suits (the “victim defendants”). All defendants moved for summary judgment, prompting a cross-motion from Motorists. Motorists pointed to the auto business exclusion which Motorists contended foreclosed coverage under the Primary Policy. It also argued that its Umbrella Policy’s Following Form Endorsement provides auto coverage that is no broader than that provided for in the Primary Policy.
The district court agreed with Motorists on all scores, granting summary judgment in its favor.
ANALYSIS
It is axiomatic that interpretation of an insurance policy is a question of law. An appellate court starts its analysis by examining the plain and ordinary meaning of the words in context to construe the policy’s terms as would a reasonable person in the position of the insured based on more than a casual reading of the policy as a whole.
On appeal, both the Lynnway defendants and the victim defendants contended that the coverage provided by the broad insuring clause of the Primary Policy survives that policy’s auto business exclusion as well as its suspended license exclusion. They also insist that the Umbrella Policy separately provides coverage.
The parties agreed that Lynnway and Hartwell are covered under the Primary Policy unless one of the two exclusions relied upon by Motorists applies. As modified by the New Hampshire Endorsement, that exclusion excepts from the definition of insureds “[s]omeone using a covered ‘auto’ while he or she is working in a business of selling, servicing or repairing ‘autos’ unless that business is yours.” The “yours” in this language refers to a named insured – in this case, Nashua. Lynnway’s Articles of Incorporation describe it as “a general automobile auction business” whose purpose is “to auction, sell and distribute automobiles” and “[t]o engage in the business of purchasing, . . . [and] selling . . . all types of new and used automobiles.”
The First Circuit opined that someone engaged in an auction business is engaged in a selling business.
The language at issue plainly aims at making sure that coverage does not extend in general to persons or entities working in any business of selling autos, while at the same time carving out an exception. The issue posed here is the reach of that exception. Clearly it preserves coverage for Nashua and its employees. Construing the “business” that is “yours” to mean Nashua’s business enterprise — i.e., its dealership that sells autos – fully accomplishes this aim.
No reasonable insured that procured the policy would have any interest in paying for a policy that provided coverage for another person who works for another unrelated seller of autos. Lynnway retained its own insurance policies, the providers of which have conceded the availability of coverage. The fact that Hartwell was employed by and subject to the control of Lynnway reinforces the conclusion that he was not working in Nashua’s business.
The First Circuit concluded, therefore, that the Primary Policy’s auto business exclusion defines the policy’s insureds so as to exclude Lynnway and Hartwell from coverage for the underlying claims here.
Defendants next contended that the Umbrella Policy provides coverage for the underlying claims. The phrase “follow form” refers to the practice, common in excess policies, of having the second-layer coverage follow substantively the primary layer provided by the main insurer. Given that the underlying Primary Policy does not cover the claimed liabilities neither does the Umbrella Policy and the judgment of the district court was affirmed.
The five deaths and multiple injuries prompted a search for every possible insurance coverage to allow the availability to the victims of sufficient funds to indemnify the victims of the runaway Jeep. The attempt was understandable. The arguments were not. The First Circuit read the entire policy, applied the facts of the accident and the relationships of the persons involved and necessarily found that the Motorists policies provided no coverage for the auctioneer and the driver of the Jeep. The analysis was clear, logical and applied the clear and unambiguous meaning of the policy and its exclusion.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com
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