To Prove Exclusion the Injury Must Flow Directly and Immediately from Intentional Act

Release After Payment of Limits Protects Insurers

Major losses with insufficient insurance will invariably draw insurance coverage litigation. When insurers paid their limits less than a $200 million train accident loss where twenty-four passengers were killed and scores more were injured brought about coverage litigation.

In Those Certain Underwriters At Lloyd’s, London et al. v. Connex Railroad LLC et al., B276373, Court Of Appeal Of The State Of California Second Appellate District Division Five (April 19, 2018) an aftermath of the fatal September 12, 2008 Chatsworth, California head-on collision between a Metrolink commuter train and a Union Pacific freight train. Plaintiffs are all insurers. They insured Metrolink, Connex Railroad LLC and Connex’s parent, Veolia Transportation, Inc. Insurers interpleaded their policy limits and then sued for reimbursement, unjust enrichment and a judicial determination that an express policy exclusion precluded coverage for the accident. Connex and Veolia (collectively, Insureds) cross-complained, alleging breach of contract, bad faith, coverage estoppel, and fraud.

Connex and Veolia moved separately for summary judgment on the first amended complaint, contending the express policy exclusion did not apply as a matter of law. The trial court agreed and granted the motions. Insurers moved for summary judgment on the cross-complaint, contending it failed as a matter of law based on Insureds’ release of all claims against them. The trial court also agreed and granted the motion.


Twenty-four passengers were killed and scores more were injured in the Chatsworth accident. Metrolink engineer Robert Sanchez also died. The wrongful death and personal injury claims and lawsuits (Chatsworth claims) settled for $200 million, the maximum allowable recovery under federal law for a single rail collision.

No lawsuit arising out of the accident went to verdict, so there was no judicial determination as to the cause of the collision. The Metrolink train, however, ran a red light and began traveling on a single set of tracks designated for traffic in both directions. The National Transportation Safety Board (NTSB) investigated the crash and found the Metrolink engineer “was actively, if intermittently, using his wireless device shortly after his train departed Chatsworth station, and his text messaging activity during this time compromised his ability to observe and appropriately respond to the stop signal at Control Point Topanga.”

The insurers interpleaded $146 million for settlement of the Chatsworth claims. In exchange for contributing their aggregate policy limits, Insurers and Insureds entered into a “Policy Release and Agreement” (Agreement). Insurers retained the right, “if any, to seek contribution and/or subrogation, or to assert policy defenses with respect to Connex [and] Veolia . . . .” Except for the right to assert a setoff in the event Insurers did sue, Insureds “release[d] and forever discharge[d]” Insurers for all liability arising out of the Chatsworth collision.

Insurers then sued the Insureds based on exclusion 3, which excluded coverage for “Bodily Injury, Personal Injury, Property Damage and/or Advertising Injury which the Insured intended or expected or reasonably could have expected.”

Motions for summary judgment followed. Insureds maintained the exclusion precluded coverage only for losses that flowed directly and immediately from Insureds’ alleged intentional conduct and asserted that, as a matter of law, the exclusion did not defeat coverage for the Chatsworth accident.

Viewing the evidence and reasonable inferences from the evidence produced in discovery in the light most favorable to Insurers, the trial court concluded there was evidence Metrolink engineers used handheld electronic devices while on duty, in violation of Connex’s policies, and Connex executives knew corporate rules were being violated and accidents could result if engineers were distracted by their cell phones. The trial court also concluded this evidence failed to raise a triable issue of material fact and granted Connex’s motion for summary judgment on the first amended complaint, finding as a matter of law the policy exclusion did not apply.

The trial court also granted Insurers’ motion for summary judgment on the cross-complaint. Insurers paid the policy limits and expressly reserved the right to seek contribution from Insureds. Insureds expressly released Insurers for breach of the duty of good faith and fair dealing or any other contractual or extra-contractual duties that existed as of the date of the execution of this agreement.”

Policy Language

The “reasonably could have expected” exclusion does not apply unless a reasonable person would conclude the injury and damage “flow[ed] directly and immediately from an insured’s alleged intentional act.” This is a reasonable interpretation of the policy’s exclusionary language, and Insurers failed to demonstrate otherwise.


Insureds’ summary judgment motion was filed after the trial court interpreted the exclusion under New York law. The motion shifted the burden to Insurers to present evidence that raised a triable issue of material fact that would lead a reasonable person to conclude the losses in the Chatsworth collision flowed directly and immediately from Insureds’ conduct. The evidence required was to show the Chatsworth collision flowed directly and immediately from an insured’s alleged intentional act. They did not meet their burden. Clearly the engineer was negligent by sending text messages and missing a stop sign but the insurers could not prove that his actions were an intentional act that directly and immediately caused the deaths.

Insurers’ lawsuit “released” Insureds from the strictures of the Agreement only to extent their claims for breach of contract, breach of the covenant of good faith and fair dealing/bad faith, and fraud would offset any award to Insurers’ on the first amended complaint. Once the Insureds obtained judgment in their favor on the Insurers’ first amended complaint, there was no potential award to offset. Accordingly, Insureds at that point were bound by the terms of the Agreement.

Insurers had already interpleaded their aggregate policy limits by the time the Agreement was signed, suggesting no claims against them.  Insureds did not present any evidence to raise a triable issue of fact concerning the Insurers’ conduct that fell outside the Agreement.

Insureds expressly agreed they were releasing all claims based on contract and breach of the duty of good faith and fair dealing. Fraud was not expressly referenced in the Agreement, but conduct based on the breach of a fiduciary duty, i.e., “extra-contractual duties,” was.

Insureds’ claim that they were fraudulently induced to enter into the Agreement was not supported by any evidence and was belied by the language in the Agreement. Insureds contend another indicia of fraud was Insurers’ decision to attribute the entire interpleaded sum to Insureds, rather than allocating any to Metrolink. This determination was apparent on the face of the Agreement, however, as Insurers reserved the right to sue Insureds, but not Metrolink. Summary judgment was properly granted on the cross-complaint.


Interesting because of the sums and injuries involved. The question of proof should have been simple. However, since the engineer died in the accident his intent and that of his employers was difficult – and as the case established – impossible to prove.


© 2018 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

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 also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at and

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

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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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