Liability Insurance Does not Continue Ad Infinitum

Occurrence After Expiration of Policy Not Covered

Consumers Insurance USA (“Consumers”) sought a declaratory judgment that it had no duty to insure, defend, or indemnify Defendants Huntleigh Dealership Services, Inc., and Huntleigh Bus Sales, Inc. (collectively, “Huntleigh”), for any claims or causes of action arising out of a May 2017 motor vehicle accident (“the accident”). Huntleigh opposed Consumers’ interpretation, and asserted it is covered under the terms set forth in Policy No. AD 29160359-4 (“the Policy”), as well as the subsequent renewal policy.

In Consumers Insurance USA v. Huntleigh Dealership Services, Inc. et al., Civil Action No. 19-1853, United States District Court, E.D. Pennsylvania (May 5, 2022) an accident with a vehicle sold to another in an accident two years after expiration of a policy the seller sought coverage from the expired policy.

BACKGROUND

Huntleigh is in the business of buying and selling new and used buses. It sought an insurance policy for its business from Consumers who issued to Huntleigh a “Garage Policy” that insured Huntleigh’s “garage operations, ” including its inventory of unsold buses. The Policy contained, in relevant part, the following clauses:

The policy was effective from November 30, 2014, until November 30, 2016. After the expiration of the policy Consumers no longer insured Huntleigh in any capacity.

In 2015, while the Policy was still in effect, Huntleigh sold a school bus to FKW, Inc., a/k/a Werner Bus Lines (hereinafter referred to as “Werner”). Huntleigh transferred title of the bus to Werner, which operates a charter bus business in the Philadelphia area.

Nearly two years later, Werner contracted with the Philadelphia School District to provide Charles W. Henry Elementary School with a charter bus for an 8th grade field trip to Washington, D.C. Werner provided the bus and an employee driver. While traveling on Interstate 95 in Maryland, the bus was involved in an accident in which all the children and adults on board were injured.

As a result, at least seventeen of the passengers filed suit in the Philadelphia Court of Common Pleas seeking personal injury damages as a result of the bus accident. As it pertains to this case, the claimants allege theories sounding in product liability (strict liability, negligent product liability, breach of warranties) against Huntleigh. In particular, the claims against Huntleigh include allegations that it sold a defective product to Werner in 2015 since the bus did not have any seat belts and the windows were improperly laminated.

In response to Huntleigh’s claim for the accident, Consumers denied coverage. Consumers stated that the allegations asserted against Huntleigh did not describe the operation, maintenance, or use of a covered auto in Huntleigh’s garage operations, since the bus was sold to Werner more than two years before the accident occurred and thus occurred outside the policy period.

Consumers moved for summary judgment. Huntleigh filed a response to Consumers’ motion and its own motion for summary judgment.

DISCUSSION

In this case, the USDC was charged with interpreting the language of the requisite insurance policy and determining whether coverage is provided based on the particular facts before it. Pennsylvania and Missouri share similar law in interpreting insurance contracts. T

Missouri courts undertake a similar analysis as Pennsylvania court. Courts in Missouri are charged with interpreting and enforceing an insurance policy as written, not to rewrite the contract. As in Pennsylvania, the court may not unreasonably distort the language of a policy or exercise inventive powers for the purpose of creating an ambiguity when none exists.

An occurrence, for purposes of an insurance contract, happens when the injurious effects of the negligence first manifest themselves in such a way that would put a reasonable person on notice of the injury. An occurrence takes place not the time the alleged wrongful act was committed, but is the time when the complaining party was actually damaged. Based on the above, there is no conflict of law regarding whether an occurrence under an insurance policy has taken place, since both jurisdictions agree that an occurrence has transpired not when the event occurs, but when its effects are apparent.

The Policy Does Not Cover Defendant’s Claim

Consumers argued that Huntleigh is not covered by the Policy because Huntleigh did not “own, maintain, or use” the bus as stated in the policy. Since the bus was sold by Huntleigh to Werner in April, 2015, Huntleigh did not own, maintain, or use the bus in any fashion at the time of the accident in May, 2017. Consumers logically argued the accident occurred after the Policy expired.

As a threshold matter the USDC concluded the policy was an occurrence-based policy. An “occurrence” policy protects the policyholder from liability for any act done while the policy is in effect. In view of the Policy’s unambiguous language and considered in its entirety, the Policy is an “occurrence” policy.

It is clear, based on unambiguous language, that only qualifying occurrences transpiring during the coverage period are covered. The Policy specifically focuses on the act causing injury as the coverage “trigger” and specifically requires this injury to occur during the applicable policy period.

Since the accident occurred outside of the relevant policy period, the USDC concluded that coverage should be denied. Huntleigh did not have an effective policy with Consumers at the time of the accident on May 15, 2017.

Huntleigh could not have been “using” the bus at the time of the accident when Huntleigh neither owned nor operated the bus, nor did it employ the driver responsible for the accident.

Consumers and Huntleigh entered into a contract for indemnification for events that transpired during a specified time period, as is common in the insurance industry. By attempting to twist the term “use” into a limitless conveyor of unspecified liability, Huntleigh turned a blind eye to other logical sections of the policy that clearly provided limits to coverage.

Insurance coverage does not extend ad infinitum, and more specifically, ceased before the date of the accident.

Therefore, Consumers’ Motion for Summary Judgment was granted, and Huntleigh’s Motion for Summary Judgment was denied.

ZALMA OPINION

An “occurrence” policy provides indemnity and defense to an insured for an accident-occurrence that happens while the policy was in effect. No one was injured as a result of the sale of the bus in question two years before the accident. Therefore, there can be no coverage for defense or indemnity to an insured for a loss that occurred two years after expiration of the policy.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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2 Responses to Liability Insurance Does not Continue Ad Infinitum

  1. Mr.InnsuranceBroker says:

    Barry – If the defendant Huntleigh was a manufacturer or dealer of motor vehicles, I would expect them to have been advised by a risk manager or agent/broker to purchase Products/Completed Operations coverage. Am I wrong to think that had they done that, their two year expired policy would still have provided coverage for this claim?

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