Set-Up of Injured Plaintiff Fails; Clear and Unambiguous Exclusion Must be Applied

When a liability insurer is presented with a claim seeking defense and indemnity and the facts appear to exclude all coverage, it will provide a defense under a reservation of rights so that it can take the time needed to determine whether coverage applies or not. If the insured refuses the defense, fires the defense lawyer appointed because of the reservation of rights, and then settles with the plaintiff and assigns to the plaintiff rights against the insurer, the insured rejects the good faith action of the insurer and forces it into a suit with the defendant.

However, if the insured and its independent counsel believe the insurer is correct and there is no coverage, entering into a separate settlement with the plaintiff and receiving a covenant not to execute is a brilliant way of defeating the plaintiff’s claim and leaving it with a judgment that is only valuable as wallpaper if only they let the settlement become final.

In State Farm Mutual Automobile Insurance Company v. White, United States District Court, S.D. Mississippi,  — F.Supp.3d —-, 2016 WL 4702372 (September 7, 2016), the USDC, Southern District of Mississippi, proved the wisdom of the insured and only cost State Farm the cost of defending the bad faith action and the insured avoided a judgment of more than $2 million.

BACKGROUND

In May 2015, Defendants John and Rita White filed a complaint in Mississippi state court against Defendants Bobcat Tree Work, LLC (Bobcat), and Christopher Joe Wilson (Wilson), the owner of Bobcat, “alleging personal injuries and a derivative claim for loss of consortium under circumstances caused by alleged negligence, gross negligence and willful and/or negligent infliction of emotional distress.” In the state court case, the Whites allege that while working for Bobcat, Mr. White suffered injuries when “a portion of a felled tree collided with the elevated ‘bucket’ of a boom lift that was affixed to a truck and the force of the collision damaged the bucket in which he stood, resulting in his falling to the ground from an elevation of sixty-three (63) feet….”

Wilson had a commercial automobile liability insurance policy through State Farm (“the Policy”). Accordingly, State Farm agreed to defend Wilson and Bobcat under a reservation of rights. It also instituted a declaratory judgment action against Defendants to determine coverage. However, on October 30, 2015, “Wilson and Bobcat, by and through their personal counsel, terminated the services of the attorney[s] hired by” State Farm after State Farm refused their request to withdraw the reservation of rights. The attorneys hired by State Farm thereafter withdrew from the state court case.

Wilson and Bobcat, through personal counsel, then agreed to the entry of judgment in the state court case in favor of the Whites in excess of $2.8 million, but at the same time entered into a Covenant Not To Execute and/or Enroll Judgment with the Whites.

State Farm intervened and the parties represented that the Whites rescinded the Covenant Not To Execute and moved to withdraw the Motion for Entry of Judgment. Bobcat and Wilson also instituted a separate state court action against State Farm based on its intervention for alleged tortious interference and other causes of action.

Defendants contend that there is insurance coverage under the Policy for the Whites’ injuries. State Farm claims that no coverage exists based on Policy exclusions, and because Wilson and Bobcat “fail[ed] to cooperate under the terms of the [P]olicy.” It requested a judicial determination that it has no duty to defend or indemnify Bobcat or Mr. Wilson for any claims arising out of the accident at issue.

DISCUSSION

The parties appear to agree—and the insurance policy states—that Mississippi law applies. In applying that law, the Court begins by determining whether the exclusion is ambiguous and in need of interpretation. Under Mississippi law, interpretation of an insurance contract presents a question of law. The goal in performing this interpretation is to ascertain the intent of the parties and the Court should take into account the subject matter of the contract, the circumstances under which it was made and the purpose sought to be achieved by the parties. If the language in an insurance contract is clear and unambiguous, the court should construe it as written. A term within an insurance policy is ambiguous if it can be interpreted to have two or more reasonable meanings. Of course, where a policy term is worded so that it can be given a definite or certain legal meaning, it is not ambiguous and will be enforced as written.

The exclusion contained in “Endorsement 6018KK Commercial Vehicle” of the Policy is dispositive. That exclusion states in pertinent part that “[t]here is no coverage for an insured for damages arising out of the operation, maintenance, or use of any equipment that is…mounted on…any vehicle.”

A claim need only bear an incidental relationship to the described conduct for the exclusion to apply. Here, White fell from an elevated bucket of a boom lift that was mounted to a truck. Although Defendants argue that “[t]he fact that Mr. White was in an alleged attachment on the vehicle does not necessitate that his injuries arose out of its use.” The Court finds that the undisputed facts fall squarely within the exclusion.

Nevertheless, Defendants also contend that “equipment” and “mounted on” are ambiguous and are not defined in the policy. A disagreement over the meaning of a provision or term in a policy of insurance does not make it ambiguous as a matter of law. Lack of a definition in the policy does not equate to ambiguity either.

White testified, and his state court complaint allegations confirm, that he was in a bucket apparatus attached to a truck at the time of his accident.

The bucket apparatus was an article or implement used for a specific purpose or activity, especially a business operation. There is no dispute that the bucket apparatus was designed for use in tree removal. Furthermore, the photographs of the bucket apparatus clearly show that it is “mounted” on the truck, as that term is ordinarily understood. As such, the claims at issue are excluded from coverage under the Policy. State Farm is not obligated to provide coverage to Defendants Wilson or Bobcat under the Policy based on any claim made by the Whites as a result of the subject accident, and the Court need not consider State Farm’s additional arguments for summary judgment.

ZALMA OPINION

The insured’s lawyers set up a beautiful set-up of the injured person who was ready to take an assignment of a judgment and give the insured a covenant not to execute, only to destroy the plan by fighting the intervention where State Farm would argue over the amount of the stipulated judgment. As a result, the deal went away, coverage was found to not apply, and Wilson or Bobcat are now responsible to pay from its own assets to the injured person.