Case Title: Southern Insurance Co. v. Williams

Citation: 

Docket Number: 011583

State: virginia

Court: Virginia Supreme Court

Date: 2002-04-19T00:00:00Z

Document:
Present:  All the Justices 
 
SOUTHERN INSURANCE COMPANY OF VIRGINIA 
 
OPINION BY 
v.  Record No. 011583 
JUSTICE LAWRENCE L. KOONTZ, JR. 
 
April 19, 2002 
JOHN A. WILLIAMS, ET AL. 
 
FROM THE CIRCUIT COURT OF CAMPBELL COUNTY 
J. Samuel Johnston, Jr., Judge 
 
 
In this appeal, we consider whether the trial court in a 
declaratory judgment action correctly determined that an 
insurance company had a duty to defend and provide liability 
coverage under a “BUSINESSOWNERS” policy. 
BACKGROUND 
 
The parties do not dispute the material facts.  On January 
6, 1989, John A. Williams applied for a businessowners insurance 
policy with an insurance agency representing Southern Insurance 
Company of Virginia.  In that application, Williams gave the 
name of the “APPLICANT” as “WILLIAMS HOUSE OF FINE FURNITURE” 
and gave a street address and post office box number as the 
mailing address.1  Williams indicated that the “LOCATION OF 
PREMISES #1” was the same as the mailing address.  The space on 
the application for listing “LOCATION OF PREMISES #2” was left 
                     
1 At various places in the record, “Furniture” is 
abbreviated “Ftr.”  For clarity, wherever this abbreviation 
occurs, we will substitute the intended word. 
 
blank.  Williams also provided the name of the mortgage holder 
for the store. 
 
In the appropriate space on the application, Williams 
indicated that he was applying for the policy as an individual, 
rather than as a corporation, partnership, or “OTHER” type of 
business entity.  Under the space for “BUSINESS OF APPLICANT,” 
Williams provided “[Furniture] Store – Mostly Appliances,” and 
under “DESCRIBE OCCUPANCY OF PREMISES,” Williams provided 
“Appliance & [Furniture] Store.”  The application listed the 
applicant’s business as “MERCANTILE” under the space for “RISK 
TYPE(S).”  Williams further indicated on the application that 
his interest in the premises was as an owner occupying more than 
75% of the building.  During the application process he did not 
tell the agent that he owned any other properties.  In response 
to the question on the application “DOES APPLICANT OWN ANY OTHER 
PREMISES, PERFORM OPERATIONS, MANUFACTURE OR SELL PRODUCTS OR 
HAVE COMPLETED OPERATIONS EXPOSURE?,” the box marked “NO” was 
checked. 
 
The amount of coverage requested in the application was 
$75,000 for the actual value of the premises, $30,000 for 
business personal property, and $500,000 of comprehensive 
business liability coverage.  The annual policy premium for 
these coverages was $999. 
 
2
 
Southern Insurance issued a declaration effective January 
6, 1989 to “WILLIAMS HOUSE OF FINE FURNITURE” along with the 
requested policy.  SECTION I of the policy contained provisions 
related to property coverages and SECTION II contained those 
related to comprehensive business liability. 
 
Relevant to this appeal, the policy language in SECTION II 
included the following definition of the term “insured”: 
[I]f the named insured is designated in the 
Declarations as an individual, the person so 
designated but only with respect to the conduct of a 
business of which he is the sole proprietor, and the 
spouse of the named insured with respect to the 
conduct of such business; 
 
. . . . 
 
[I]f the named insured is designated in the 
Declarations as other than an individual, partnership 
or joint venture, the organization so designated and 
any executive officer, member of the board of 
trustees, directors or governors or stockholders 
thereof while acting within the scope of his duties as 
such[.] 
 
 
In February 1989, National Technical Services, Inc., 
conducted a risk assessment survey of WILLIAMS HOUSE OF FINE 
FURNITURE on behalf of Southern Insurance.  As a result of that 
survey, recommendations were made to Southern Insurance 
concerning the need to have proper inspection of the fire 
extinguishers located on the premises and a need to increase the 
estimate of the building’s actual value.  Nothing in the survey 
indicated that National Technical Services was made aware that 
 
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Williams owned additional properties or that he had other 
business interests. 
 
In accord with Southern Insurance’s practice, annual 
declarations were issued with renewal invoices in 1990 and 1991.  
Both declarations included a description of the nature of the 
business as an “APPLIANCE STORE.”  The 1991 declaration further 
contained a designation of business types which had not appeared 
on either of the prior declarations: “INDIVIDUAL,” 
“PARTNERSHIP,” “JOINT VENTURE,” “CORPORATION,” and “OTHER.”  An 
“X” was inserted in the space next to the “OTHER” on this 
declaration. 
 
At the time Williams applied for Southern Insurance’s 
businessowners policy, he and his wife, Ferna P. Williams, owned 
and rented at least seven houses to tenants.  Between 1982 and 
1994, one of these houses was rented to Rebecca Wright.  
Williams maintained a separate policy of insurance on this house 
with another insurance company.  This policy insured against 
damage to or the loss of the structure, but provided no personal 
injury liability coverage to Williams or his wife.  The billing 
address for this policy was not the address of the furniture 
store. 
 
In 1988, Wright gave birth to a daughter, Lacy A. Wright.  
On August 30, 1993, Lacy was diagnosed as suffering from lead 
poisoning.  In a motion for judgment filed in the trial court 
 
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against Williams and his wife, Wright alleged that her 
daughter’s lead poisoning resulted from lead-based paint in the 
home she rented from them.  Wright, individually and as next 
friend of her daughter, sought $2,350,000 in compensatory and 
punitive damages. 
 
Subsequently, on December 17, 1999, Williams and his wife 
filed a motion for declaratory judgment in the trial court 
alleging that Southern Insurance was required to provide them 
with a defense and liability coverage for Wright’s claims under 
its businessowners policy.  Southern Insurance denied that its 
policy provided coverage for the claims asserted by Wright.  
Wright and her daughter were added as party plaintiffs to the 
declaratory judgment suit by order dated June 20, 2000. 
 
On March 28, 2001, the trial court held a hearing at which 
Williams and the agent who had accepted the application for the 
businessowners policy were the only witnesses.  The evidence 
received was in accord with the above-recited facts.  During the 
course of the hearing, Williams objected to the introduction of 
the application for insurance and testimony concerning the 
application process on the ground that it was parol evidence 
outside the contract of insurance.  The trial court indicated 
that it would allow Southern Insurance to “make [its] record” 
and that it would rule on the admissibility of the application 
and related testimony at the conclusion of the evidence.  
 
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Although the trial court never made an express ruling on the 
admissibility of the application evidence, it did direct 
specific questions to the agent concerning the contents of the 
application and initialed the application as an admitted 
exhibit. 
 
In closing arguments, both parties asserted that the 
contract of insurance was unambiguous, but disputed which 
definition of “insured” under SECTION II of the policy should 
apply.  Williams contended that because WILLIAMS HOUSE OF FINE 
FURNITURE was a fictitious entity and the application had 
indicated that the policy was for an individual, the 
comprehensive business liability coverage of the policy extended 
to any business conducted by Williams as a sole proprietor.  
Southern Insurance contended that the policy coverage was 
limited to the business conducted on the premises of WILLIAMS 
HOUSE OF FINE FURNITURE.  Southern Insurance further contended 
that, even if the policy’s coverage extended to any other 
business conducted by Williams as a sole proprietor, the rental 
house business was not a sole proprietorship because Williams 
and his wife jointly owned those houses. 
 
In a final order dated April 16, 2001, the trial court 
ruled that Southern Insurance had a duty to defend and provide 
liability coverage to Williams for the damages claimed by Wright 
and her daughter.  The trial court did not state an express 
 
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rationale for its judgment.  By order dated October 22, 2001, we 
awarded Southern Insurance this appeal. 
DISCUSSION 
 
It is well established that insurance contracts, like other 
contracts, generally are to be construed according to their 
terms and without reference to parol evidence.  However, resort 
to parol evidence is proper where a latent ambiguity exists in a 
particular insurance contract.  See, e.g., Connecticut Fire Ins. 
Co. v. W. H. Roberts Lumber Co., 119 Va. 479, 495, 89 S.E. 945, 
948 (1916); Home Ins. Co. v. Gwathmey, 82 Va. 923, 926, 1 S.E. 
209, 211 (1887). 
 
The specific definitions of the “insured” in Southern 
Insurance’s policy are not, when read in isolation, ambiguous.  
However, a latent ambiguity exists in this policy because the 
named insured is not a legal entity and the individual insured 
is not named.  This ambiguity becomes apparent when the 
definitions of the “insured” are read in context with the 
complete contract of insurance, including the declarations which 
are specifically referred to in the definitions.  Indeed, the 
dispute between the parties is rooted in that latent ambiguity, 
which has existed in Southern Insurance’s policy from its 
inception. 
 
According to the initial declaration, the named insured is 
“WILLIAMS HOUSE OF FINE FURNITURE.”  The parties concede that 
 
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there is no legal entity by that name.  By the same token, 
Williams is not named in this declaration or the policy.  The 
original declaration and first renewal declaration provide the 
additional information that the business of the insured is an 
“APPLIANCE STORE,” but fail to designate a business type as 
contemplated in the policy definition of the “insured.”  Only in 
the second renewal declaration is there a specific designation 
of the business type as “OTHER.”  However, that definition of 
the insured clearly contemplates a legal organization with 
executive officers, a board of trustees, directors or governors, 
and stockholders, none of which WILLIAMS HOUSE OF FINE FURNITURE 
or Williams individually could have. 
 
Thus, when the policy was first issued, a latent ambiguity 
existed because the applicable definition of “insured” under 
SECTION II was unclear.  In the face of this latent ambiguity, 
we will resort to an examination of the parol evidence in order 
to determine the original intention of the parties to that 
policy. 
 
The parol evidence clearly establishes that Williams sought 
and obtained insurance coverage for a furniture and appliance 
business operating out of a single premises.  Williams never 
disclosed that he owned any other properties or conducted any 
other business.  He never stated that he was applying for 
liability coverage for the operation of his rental housing 
 
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business.  Indeed, nothing in the record even suggests that such 
was his intention at the time he made the application.  Southern 
Insurance was entitled to issue its policy and assess the policy 
premiums in reliance upon Williams’ representations.  See 
Niagara Fire Insurance Co. v. Elliott, 85 Va. 962, 963, 9 S.E. 
694, 695 (1889) (“the insurer, in estimating the price at which 
he is willing to indemnify the insured, must have under his 
consideration the nature of the business, and the usual course 
and manner of conducting it”). 
 
Accordingly, we hold that Southern Insurance’s duty to 
defend and afford coverage to Williams under its policy of 
insurance did not extend to any personal liability Williams 
might incur in his business of renting houses.  To hold 
otherwise would extend the benefits granted and broaden the 
risks imposed to a degree obviously never contemplated by the 
parties to the insurance contract.2
                     
2 Relying on Mollenauer v. Nationwide Mutual Insurance Co., 
214 Va. 131, 198 S.E.2d 591 (1973)(per curiam), Williams 
contends that an individual is entitled to coverage under a 
businessowners policy for losses unrelated to and occurring off 
the premises of the main place of business for which the policy 
was issued.  Williams’ reliance on Mollenauer is misplaced, as 
that case may be distinguished on multiple grounds. 
 
In Mollenauer, the policy of insurance was issued to an 
individual trading under a fictitious name.  Id. at 131, 198 
S.E.2d at 591.  Here, the declarations never identified Williams 
individually, but listed the name of the insured as “WILLIAMS 
HOUSE OF FINE FURNITURE” only.  Thus, unlike the facts of 
 
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CONCLUSION 
 
For these reasons, we will reverse the judgment of the 
trial court that Southern Insurance had a duty to defend and 
provide liability coverage to Williams for the claims arising 
from his rental housing business and enter final judgment in 
favor of Southern Insurance. 
Reversed and final judgment. 
                                                                  
Mollenauer, here there was no express indication to the 
insurance company that it was Williams, rather than the business 
he was conducting at a specific location, who was being insured.  
Moreover, in Mollenauer the policy contained a specific 
provision applying to monetary losses “within the living 
quarters in the home of any messenger” while off the premises of 
the insured.  It was in interpreting this provision of the 
contract of insurance that we determined that it must be 
construed against the insurer and in favor of finding liability.  
Id. at 133, 198 S.E.2d at 592.  By contrast, the declarations of 
the policy at issue here clearly indicate that off-premises 
liability coverage was not included in the policy. 
 
 
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