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Sunday, April 24, 2011

Ohio Supreme Court Decision Interprets Homeowner Insurance Policy

(April 20, 2011) The Supreme Court of Ohio ruled today that when an exclusion in a homeowners’ insurance policy bars coverage for claims “arising out of” premises that are owned by an insured person but are not identified in the policy as an insured location, the exclusion precludes coverage for premises-based liability claims such as claims that arise from the quality or condition of a non-listed premises, and also bars coverage for claims predicated upon an insured’s ownership of an unlisted premises on which an injury occurs.

The Court held further, however, that such an exclusion does not bar coverage arising from the insured’s alleged negligence if that negligence is unrelated to the quality or condition of the “other owned property” on which an injury occurred.

In a lead opinion authored by Chief Justice Maureen O’Connor, the Court held that the trial court decision under appeal did not sufficiently establish whether the claims asserted by the plaintiffs were related to the quality or condition of the premises where injury occurred, or were based on another theory of negligence. Accordingly, the Court remanded the case to the trial court to apply today’s holding to the facts and legal arguments advanced by the parties.

Michael and Marilyn Hunter owned a home in Hamilton, Ohio and also owned a farm in Indiana. The home was insured under a homeowner’s policy issued by Westfield Insurance Co. that also provided personal liability coverage for damages the Hunters might cause through negligent conduct at locations other than their Hamilton residence. The Indiana farm was not listed in the Westfield policy as a covered premises. The Hunters procured insurance for the farm through a separate policy issued by Grinnell Insurance Co.

In July 2001, the Hunters allowed two of their grandchildren who were both minors, Terrell Whicker and Ashley Arvin, to operate all-terrain vehicles (ATVs) on the Indiana farm. The vehicles collided and Terrell was injured as a result of the accident. Terrell and his parents filed suit against Ashley’s parents and the Hunters seeking damages for his injuries. The Whickers’ complaint against the Hunters alleged that they had been negligent in allowing the children to ride ATVs on their property the day of the accident without close adult supervision. The Hunters filed claims under both the Westfield and Grinnell policies seeking legal defense and indemnification for damages that might be awarded against them in the lawsuit.

Westfield filed suit in the Butler County Court of Common Pleas seeking a declaratory judgment that it owed no defense or coverage for Terrell’s injuries to the Hunters under the homeowner’s policy issued on their home in Hamilton based on an exclusion of coverage in that policy for claims “arising out of” other property owned by the Hunters but not listed in the Westfield policy as insured premises. The trial court entered summary judgment dismissing Westfield as a defendant in the case, finding that because Terrell’s injuries were incurred on the Hunter’s farm property, and that property was not identified as an insured premises in the Westfield policy, the Whickers’ claims were barred by the “other owned property” exclusion in the Westfield policy. The Whickers and Grinnell, who had opposed Westfield’s declaratory judgment action and sought to compel Westfield to help cover defense costs and damages in the case, appealed the trial court’s summary judgment order.

On review, the 12th District Court of Appeals affirmed that the Hunters were not entitled to defense or indemnification under their Westfield policy based on its exclusion of damages “arising out of other owned property.” The Whickers and Grinnell sought and were granted Supreme Court review of the 12th District’s ruling.

In today’s lead opinion, which reversed the 12th District and remanded the case to the trial court for further proceedings, Chief Justice O’Connor noted that Ohio courts of appeals considering the type of insurance policy exclusion at issue in this case have come to different conclusions.

She wrote: “The Eighth District Court of Appeals interprets the exclusion broadly. It holds that “‘[a]rising out of’ means generally ‘flowing from’ or ‘having its origin in’” and that in order for coverage to be excluded, there need only be some causal link to the property rather than a showing that the premises were the proximate cause of the injury. Nationwide Mut. Fire Ins. Co. v. Turner (1986). ... The court of appeals in this case followed the rationale of Turner. A narrower view of the exclusion was adopted by the Second District Court of Appeals in a more recent case, Am. States Ins. Co. v. Guillermin (1996), ... Guillermin holds that an injury arises out of the premises, and coverage is therefore excluded, only if there is a dangerous condition on the premises that causes or contributes to the bodily injury for which coverage is sought.

“ ... The better-reasoned interpretation of the exclusion is that adopted by the court in Guillermin and, before it, by the Kentucky Supreme Court in Eyler v. Nationwide Mut. Ins. Co. ... In Eyler, the court faced an exclusion similar, but not identical, to the one at issue here. It recognized that the phrase ‘arising out of’ is one that ‘suggests the necessity for a causal connection between the premises and the injury. Ordinarily, “arising out of” does not mean merely occurring on or slightly connected with but connotes the need for a direct consequence or responsible condition. As we view it, to satisfy the “arising out of” exclusion in the policy, it would be necessary to show that the premises, apart from the insured’s conduct thereon, was causally related to the occurrence.’ ... We agree, as do other courts that have considered the issue.”

“ ... We therefore hold that an exclusion in a homeowner’s insurance policy for claims ‘arising out of’ premises owned by the insured other than the insured location excludes coverage for premises-based liability claims, such as those that arise from the quality or condition of the premises. Moreover, although the exclusion does not bar coverage of claims that arise from the insured’s alleged negligence if that negligence is unrelated to the quality or condition of the premises, it does exclude coverage for claims based upon the insured’s ownership of the property upon which the injury occurred.”

“The Whickers’ claims in this case appear to be grounded on the theory that the Hunters failed to exercise control over Ashley’s use of an ATV on the property. The complaint is devoid of any mention of the quality or condition of the land upon which the accident took place. ... The simple fact that Ashley’s misconduct took place on land is a matter of the law of gravity, not the law of insurance. ... On remand, the trial court should determine whether the Whickers’ theory of liability is that the Hunters breached a personal duty that the Hunters assumed for the care and control of Terrell and Ashley, in which case the exclusion would not apply, or whether the Whickers’ claims are based only on the fact that the Hunters owned the property where the injuries occurred, in which case the exclusion does apply.”

Chief Justice O’Connor’s opinion was joined by Justices Paul E. Pfeifer and Yvette McGee Brown. Justice Robert R. Cupp entered an opinion concurring in the Court’s judgment and syllabus holding, but setting forth a different legal analysis. Justices Terrence O’Donnell and Judith Ann Lanzinger entered separate dissenting opinions. Justice Evelyn Lundberg Stratton joined both dissents.

Justice Cupp wrote that in his view the lower courts in this case erred by relying on the 8th District’s decision in Turner, because that decision interpreted insurance policy language describing claims that were covered by the insurer, while the “arising out of” language in the Hunters’ policy set forth an exclusion of coverage. Because the “arising out of” policy language at issue in Turner must be read broadly because it is a coverage provision, whereas similar language at issue in this case must be read narrowly because it is an exclusion from coverage, Justice Cupp observed, Turner is inapposite to this case and should not have been relied upon as precedent.

Justice Cupp also wrote that, like all homeowner policies, the Hunters’ Westfield policy provided not one but two separate types of insurance: premises-liability insurance that covers injuries or property damage arising from hazards or conditions on defined parcels of property identified in the policy as insured locations; and separate personal liability insurance that covers the policyholder’s potential exposure to damages for negligent acts or omissions and is not geographically limited to the insured’s home or other identified properties but extends to any location where he or she might cause harm to others. Because it was not clear from the trial court record which type of insurance was being invoked by the Whickers’ claims, Justice Cupp wrote, he agreed that it was necessary to remand the case for further proceedings.

In his dissent, Justice O’Donnell stated that in his view, the 12th District properly interpreted the disputed “arising out of” policy language. He agreed that: “‘As the policy reads, the exclusion applies to bodily injury “arising out of a premises,” not arising out of a condition on a premises.’” (Emphasis sic.) He emphasized that “these words are not part of the policy and not part of the contract.” Thus, Justice O’Donnell concluded that for purposes of the exclusion, an injury need only be causally connected to the premises.

Justice Lanzinger wrote: “I would answer the certified question by holding that when construing an insurance policy exclusion, an injury arises out of premises if the injury originates in or has a causal connection with the premises. Here, the injury giving rise to the suit occurred at the Indiana farm, premises that the Hunters owned but did not insure with Westfield. The only basis for suit against them is their ownership and control of the farm. Any personal liability therefore arises out of the premises that are owned by the insureds and are not an insured location and are accordingly excluded from coverage under its policy. I would affirm the Twelfth District Court of Appeals and hold that Grinnell alone is obligated to defend and indemnify in this case.”

James J. Englert, 513.381.9200, for Grinnell Mutual Reinsurance Co.

James H. Ledman, 614.221.2121, for Westfield Insurance Co.

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