High Court Defines Term “Benefit” in Exclusion Under Homeowners Insurance Policy
Recently, the New York State Court of Appeals interpreted an exclusion in a homeowner’s insurance policy which excluded coverage for bodily injury to an insured where an insured would receive “any benefit” under the policy. Cragg v. Allstate Indemnity Corporation, N.Y. Court of Appeals, June 9, 2011.
Plaintiff Ed Cragg’s three-year old daughter, Kyla, drowned accidentally in her grandparents’ swimming pool. Her mother, Marina Ward, and Kyla, lived with the grandparents. The grandparents maintained a homeowner’s insurance policy with Allstate. The mother and Kyla were, by definition, insured persons under the Allstate policy as residents of the household. Plaintiff was not an insured, as he maintained a separate residence.
Allstate disclaimed coverage based on its homeowner’s policy exclusion which stated:
We do not cover bodily injury to an insured person…whenever any benefit of this coverage would accrue directly or indirectly to an insured person.
Plaintiff, as Administrator of Kyla’s estate, commenced an action against the mother, Marina Ward, as well as the grandparents, to recover for wrongful death and conscious pain and suffering. A default judgment was entered against Marina Ward in the sum of $300,000.
Plaintiff brought a declaratory judgment action against Allstate for a declaration that it was obligated to defend and indemnify its insureds. Supreme Court granted Allstate’s motion for summary judgment on the grounds that Allstate had no obligation to defend or indemnify its insureds. The Appellate Division affirmed, pointing out that the general purpose of homeowner’s insurance is to cover injuries sustained by non-insureds. The Court of Appeals granted leave to appeal, and reversed.
The Court of Appeals noted that the term “benefit” under the exclusion, was not defined in the policy. The Court then found that the policy exclusion at issue was ambiguous. The Court held that the latter part of the exclusion, addressing the term “benefit“ must mean something other than coverage itself, and is more naturally read to mean proceeds paid under the policy.”
The revised exclusion at issue arose from a previous Allstate case, Allstate Insurance Company v. Pestar, 168 A.D.2d, 931 (4th Dep’t. 1990). There, the policy excluded coverage for bodily injury to an insured. In that action, a child was injured when she dove into a state-owned lake. Her parents filed a negligence action against the state, and the state counterclaimed against the parents seeking contribution.
The Appellate Division determined that Allstate had a duty to defend and indemnify the parents on the counterclaim since the liability was not the parents’ liability to the insured child, but rather, the parents’ potential liability to the State with respect to a claim of equitable apportionment. In comparing the two exclusions, the Court of Appeals concluded:
Assuming the insurer intended this language to exclude coverage under the policy entirely for bodily injury to insureds, it did not accomplish the desired result. Instead of making the exclusion broader, the additional language can be read as limiting the application of the exclusion for situations where an insured would receive a benefit (i.e. payment) under the policy.
This is an example of a strict interpretation of the policy exclusion against the insurer.
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