Interpreting A Policy Exclusion

A business man in Dallas, Fort Worth, Grand Praire, Arlington, Mansfield, Duncanville, Mesquite, Garland, or anywhere else is Texas, will usually have a hard time understanding exclusions in their commercial insurance policies. Here is a case where policy interpretation and exclusions were the issue.
On October 8, 2020, the United States District Court, S. D. Texas, Houston Division, issued an opinion in the case styled, Associated Marine & Industrial Staffing, Inc. v. Liberty Surplus Insurance Corporation. In the case the court ruled in favor of the insurance company.
Here are some facts:
Liberty Surplus Insurance Corporation (Liberty) issued a general liability policy to Associated Marine & Industrial Staffing, Inc. (AMI) for the period of October 10, 2008 to October 10, 2009. On November 4, 2008, an auto accident involving AMI’s employee and a third party gave rise to a lawsuit. AMI was sued and sought a denfense from Liberty. Liberty denied defense of the lawsuit, citing the policy’s Aircraft, Auto and Watercraft exclusion (“auto exclusion”). This declaratory judgment action was filed to determine what the responsibilities were under the policy.Liberty argued that it is not required to defend or indemnify AMI because the claim is excluded by the policy’s auto exclusion. At this point the court got into a lengthy discussion about how courts read and interpret policies and the exclusions contained within the policies.
AMI argued that the policy was ambiguous and thus should be read in favor of AMI. The court disagreed saying the policy language was clear. In doing so, the court turned to the relevant policy language. The policy’s auto exclusion excludes coverage for “bodily injury … arising out of the ownership, maintenance, use or entrustment to others of any … auto … owned or operated by or rented to any insured.”
Citing the 2001, Texas Appeals – Houston [14th District], case, Lyons v. State Farm Lloyds, the court stated, “Texas courts and federal courts applying Texas law have consistently determined that standard auto exclusions in commercial general liability insurance policies and substantially similar exclusions are unambiguous and exclude coverage for injuries resulting from an auto accident.” In stating this the court said, “Accordingly, the Court determines that the terms of the auto exclusion are unambiguous on their face and should thus be given their plain meaning, in accordance with the general rules of contract interpretation.”
Here, AMI was sued for the negligent acts of its employee and for its own negligence in the way it trained its employee and supervised the situation. In this regard the claim against them included acts other than the actual operation of the auto. In reponse, the court stated that the policy included coverage of the employees for acts within the scope of their employment or while performing duties related to the conduct of its business but this was not sufficient to bring the incident within the scope of coverage under the insurance policy. In this regard the court stated, “Under Texas precedent, an auto exclusion provision can also exclude coverage for allegations of antecedent negligence, such as negligent entrustment or negligent hiring, training, and supervision.”
This is another good case for getting an understanding how the courts interpret exclusions in insurance policies.