Lawyers Journal

For 25 years, victims of drunk driving accidents in Massachusetts have been able to maximize liability insurance coverage in claims against social hosts by being able to access a negligent host's homeowner's insurance policy, as well as the auto policy of the negligent driver. However, a recent Appeals Court case construing a new version of the auto exclusion means that it will be increasingly difficult to obtain homeowner's coverage for these claims.

The Marnell decision

A typical auto exclusion states that the insurance does not apply to: "'Bodily injury' or 'property damage' arising out of the ownership, maintenance, use or entrustment to others of any … 'auto' … owned or operated by or rented or loaned to any insured … ."

In the landmark decision of Worcester Mut. Ins. Co. v. Marnell,¹ the Supreme Judicial Court held that the auto exclusion in the insureds' homeowner's policy did not apply to a claim brought against the insureds for their alleged negligent supervision of a party where their son (also an insured) became intoxicated. The tort plaintiff was injured when the son left the party in his own car and struck the plaintiff.

Despite the language of the auto exclusion, the court held that the severability clause in the policy required that the insurance provided by the policy apply separately to each insured.²Thus, the court held, "the term 'insured' as used in the motor vehicle exclusion refers only to the person claiming coverage under the policy … While our interpretation of the policy makes the word 'any' in the motor vehicle exclusion superfluous, the construction urged by [the insurer] would render the entire severability of insurance clause meaningless."³

Because the parents did not "own or operate" the car driven by their son, the policy's exclusion for injury arising out of "any insured's" ownership or use of a motor vehicle did not apply to the claims asserted against the parents. This interpretation of the exclusion is by no means universal. Instead, the vast majority of states have applied the exclusion in its literal sense, and denied coverage where the bodily injury arose from any insured's ownership or use of a vehicle.⁴

Even under the Massachusetts interpretation of the auto exclusion, coverage is not available for every claim of negligent supervision. For example, there is no coverage if the accident involved a vehicle that was owned by the insured. This distinction finds its roots in the Marnell decision itself where the SJC noted: "under our construction of the policy, the motor vehicle exclusion prevents the homeowners' policy from providing additional insurance, without a premium, to an insured when a motor vehicle owned or operated by that person is involved in an accident."⁵

For similar reasons, the auto exclusion also applies to claims of negligent entrustment, because the essence of an entrustment claim involves ownership or control over the use of the vehicle.⁶ As a general principle, the court was willing to override the exclusion if the insured could not have obtained automobile coverage for the accident.

Implications of different language in the auto exclusion

The analysis in Marnell has been called into question as a result of the recent Appeals Court decision in Massachusetts Prop. Ins. Underwriting Ass'n v. Berry.⁷ In circumstances that were analogous to those in Marnell, the insureds hosted a party at their home, and negligently allowed an inebriated guest to operate a vehicle, resulting in an accident.

However, in Berry, the homeowner's policy contained a different version of the auto exclusion. In this version, the homeowner's policy excluded coverage for "Motor Vehicle Liability," which was defined as: "Liability for 'bodily injury' or 'property damage' arising out of the operation or use of a [m]otor vehicle "by any person." The court observed that, unlike in Marnell, the exclusion applied as long as the injuries arose out of the use of the vehicle by any person. Thus, there was no coverage, even if the insured hosts did not own the vehicle.

Under this new version of the exclusion, homeowners will be unable to obtain coverage for claims involving an auto accident regardless of the theory of liability and regardless of their connection with the accident vehicle. We can expect that this exclusion will be added to more policies in the wake of the Berry decision.

Movement away from reliance upon the severability clause

A recent trend suggests that, quite apart from any change in the language of the auto exclusion, the scope of its application may become limited. Several courts have rejected reliance upon the severability clause in holding that similar exclusions precluded coverage. Thus, in Yerardi v. Pacific Indem. Co.,⁸ the exclusion precluded coverage "for any loss caused intentionally by you" and "you" was defined as "the person named in a coverage summary, and a spouse." The court declined coverage for the innocent spouse, holding that: "There is nothing ambiguous or inconsistent about providing for separate coverage determinations, but requiring that certain obligations remain joint."

In addition, the Appeals Court rejected an effort to apply the reasoning of Marnell to an exclusion in a homeowner's policy for harm caused by the intentional act of "an insured."

In Hingham Mut. Fire Ins. Co. v. Smith,⁹ the plaintiffs alleged that their children had been sexually abused by the insureds' son and filed a claim of indecent assault against the son and claims of negligent supervision against the parents. The court held that the reasoning in Marnell did not 
mandate coverage for the parents because the result in Marnell turned on the allocation of risks between homeowner's coverage and automobile insurance.

Conclusion

With the recent line of cases limiting the impact of the severance clause on policy exclusions, counsel should be cautious when evaluating the amount and type of coverage available for an auto accident. Unless the language of the auto exclusion tracks that of Marnell, coverage may be limited to the amount available in the applicable auto policy.

Samuel Furgang is a partner at Sugarman, Rogers, Barshak and Cohen PC, where he focuses his practice on insurance coverage litigation and the negotiation of complex coverage disputes and bad-faith claims. He also has extensive experience litigating a wide variety of tort and contract claims.

¹398 Mass. 240 (1986)
²A typical severance clause states:
Except with respect to the Limits of Insurance, and any rights or duties specifically assigned in this policy to the first Named Insured, this insurance applies:


a. As if each Named Insured were 
    the only Named Insured; and
b. Separately to each insured
    against whom claim is made 
    or "suit" is brought.
³Marnell, 398 Mass. at 245.
⁴See Windt, Insurance Claims and Disputes (5th Ed.), §11:8.
⁵398 Mass. at 245.
⁶Barnstable County Mut. Fire Ins. Co. v. Lally, 374 Mass. 602, 605-061978).
⁷80 Mass. App. Ct. 598, 604, 954 N.E.2d 584, 588 (2011)
⁸436 F.Supp.2d 223, 249 (D.Mass. 2006).
⁹69 Mass. App. Ct. 1 (2007).