In Scottsdale Insurance Company v. American English, LLC, 1-23-cv-000028, (N.D. Ill. 2023), the Northern District of Illinois held that an insurer was not obligated to defend and indemnify an insured whose agent injured a passerby when unloading a cart from a company van. An auto exclusion eliminated the duty owed by the insurer under the policy.

Facts of the Case

Plaintiff, Bessie Salter, alleged that she was injured by an errant cart while it was being unloaded from a van owned by American English, LLC. American English was insured by Scottsdale Insurance under a general liability insurance policy. The policy provided for bodily injury coverage as “the sums that the insured becomes legally obligated to pay as damages because of bodily injury… to which the insurance applies. We will have the right and duty to defend the insured against any suit seeking those damages. However, we will have no duty to defend the insured against any suit seeking damages for bodily injury to which this insurance does not apply.”

Scottsdale Insurance claimed that it did not have a duty to defend or indemnify American English because the policy contained an auto exclusion which excluded the subject incident. The auto exclusion provides that American English is not insured for “bodily injury 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. Use includes operation and loading and unloading.” This exclusion applies even if the claims against any insured allege negligence or other wrongdoing…” Based on this exclusion, Scottsdale Insurance sought a declaratory from the court affirming that it did not have a duty to defend or indemnify American English for the accident.

Interpretation of the Insurance Contract: Did Scottsdale Insurance Have a Duty to Defend and Indemnify American English?

Under Illinois law, the terms of an insurance policy are governed by contract principles and should be interpreted accordingly. Sanders v. Illinois Union Ins. Co., 2019 IL. 12456, ¶ 22, 157 N.E.3d 463, 467. “Like any contract, an insurance policy is to be construed as a whole, giving effect to every provision because it must be assumed that every provision was intended to serve a purpose.” Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 860 N.E.2d 307, 314 (Ill. 2006). Clear terms are interpreted as written and ambiguous terms are strictly construed against the interests of the drafter. Id.

Here, the court looked at the insurance policy as well as the underlying lawsuit to determine whether the provisions of the policy covered the damages and allegations alleged in the lawsuit. The court noted that “[A]n insurer may not justifiably refuse to defend a lawsuit against its insured unless it is clear from the face of the underlying complaint that the allegations set forth in the complaint fail to state facts that bring the case within, or potentially within, the coverage of the policy.” Valley Forge at 315.The question is not whether the claims in the underlying complaint are valid, but rather if they fall within the parameters of the policy’s coverage. “Even if one claim is covered, then the insurer has a duty to defend the entire suit.” Mesa Labs, Inc. v. Fed. Ins. Co., 994 F.3d 865, 868 (7th Cir. 2021).

Scottsdale Insurance claimed that it has no duty to defend or indemnify American English due to the auto exclusion contained in the policy. It pointed to the fact that Salter’s injury occurred when the van was being unloaded. American English’s agent was unloading the van it owned and while removing the cart form the van it inadvertently struck and injured Salter.

American English countered that portions of Salter’s claim take the suit out of the auto exclusion provision the policy. Namely, the fact that Salter alleged that the van operator “carelessly and negligently allowed a cart to get loose and roll into Salter and failed to follow the proper policies and procedures when loading and unloading equipment.” American English also argues that the Auto Exclusion does not apply because Salter was not struck by the vehicle, its agent was not behind the wheel at the time of the injury, and the circumstances of Salter’s injury are unconnected to the vehicle’s use.

Did Any of the Allegations in the Underlying Complaint Fall Within the Parameters of the Policy?

In Schultz v. Ill. Farmers Ins. Co., 930 N.E.2d 943, 949 (Ill.2010), the Illinois Supreme Court defined the use of an automobile as “its employment for some purpose of the user. One uses an automobile whenever such use is rationally connected to the vehicle for the purpose of providing transportation or satisfying some other need of the user.” The court reasoned that the transportation of equipment is connected to the use of a vehicle. In addition, the plain language of the insurance policy states that the auto exclusion includes “loading and unloading.” It is undisputed here that the cart that hit Salter was being unloaded from a company owned vehicle at the time of the incident and injury.

American English also argues that the auto exclusion is inapplicable because “the vehicle was merely the location of incidental conduct causing injury.” The court disagreed finding that the use of the vehicle in this case for the purpose of transporting and unloading the cart was central and not merely incidental to the accident in question. The vehicle in this case was more than the merely the location of the injury.

Further, the use of the vehicle in this case was to transport and unload equipment, which was in line with the van’s nature, and goes directly to show a clear nexus between that use and the injuries Salter alleged that she suffered.

Finally, in looking at the allegation that American English’s agent failed to follow proper policies and procedures in the unloading of the equipment, the court determined that those allegations were “nothing more than rephrasings of the fact that Salter’s injuries arose from the use or operation of the vehicle.

Based on these findings, the court concluded that the underlying lawsuit does fall within the auto exclusion contained in the policy and Scottsdale Insurance did not have a duty to defend or indemnify American English.

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