Title: Cragg v. Allstate Indemnity Corp.

State: new-york

Issuer: New York Appellate Court

Document:

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This opinion is uncorrected and subject to revision before
publication in the New York Reports.
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No. 118  
Eric Cragg, &c.,
            Appellant,
        v.
Allstate Indemnity Corporation,
            Respondent,
et al.,
            Defendants.
Edward J. Markarian, for appellant.
Patrick B. Omilian, for respondent.
LIPPMAN, Chief Judge:
This appeal requires us to interpret the breadth of an
exclusion in a homeowner's insurance policy excluding coverage
for bodily injury to an insured where an insured would receive
"any benefit" under the policy.
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No. 118
Plaintiff, Eric Cragg, is the father of decedent, Kayla
Margaret Rose Cragg.  Three-year-old Kayla and her mother,
defendant Marina Ward, lived with defendant grandparents, Gregory
and Katherine Klein, in the Kleins' Clarence, New York home.  In
July 2001, Kayla drowned accidentally in the Kleins' swimming
pool.  At the time, the Kleins had a homeowner's insurance policy
in place that had been issued by Allstate.  Under the terms of
the policy, Kayla and her mother were insured persons, as
residents of the household who were related to the policyholders. 
Plaintiff maintained a separate residence and was not an insured
under the Kleins' homeowner's insurance policy.
Allstate disclaimed coverage based on the policy
exclusion at issue here.  Under "Coverage X [-] Family Liability
Protection," the policy states that "[w]e do not cover bodily
injury to an insured person . . . whenever any benefit of this
coverage would accrue directly or indirectly to an insured
person."  Bodily injury is defined in the policy as "physical
harm to the body, including sickness or disease, and resulting
death."  The policy does not define the term "benefit."
Plaintiff, as the administrator of Kayla's estate,
commenced an action seeking to recover against defendants for
Kayla's wrongful death and for her conscious pain and suffering. 
Defendant Ward defaulted and judgment was entered against her in
the amount of $300,000 -- $150,000 for wrongful death and
$150,000 for pain and suffering.  Plaintiff brought this
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No. 118
declaratory judgment action against Allstate for a declaration
that Allstate was required to defend and indemnify its insureds. 
Supreme Court granted Allstate's motion for summary judgment,
declaring that Allstate had no obligation to defend or indemnify
Ward or the Kleins in relation to the wrongful death or conscious
pain and suffering claims.
The Appellate Division affirmed (74 AD3d 90 [4th Dept
2010]).  That Court noted that the general purpose of homeowner's
insurance policies is to provide coverage for injuries sustained
by those who are not insured by the subject policy and found
that, based on the plain language of the exclusion, Allstate did
not have to indemnify Ward because she would thereby obtain a
benefit under the policy.  We granted plaintiff leave to appeal
and we now reverse.
At this stage of the litigation, plaintiff properly
limits his argument to the wrongful death claims of the
underlying action.  As we recently noted, a claim for conscious
pain and suffering belongs to the estate of the deceased, rather
than the distributees (see Heslin v County of Greene, 14 NY3d 67,
76-77 [2010]; EPTL 11-3.2 [b]).  By contrast, "a wrongful death
action belongs to the decedent's distributees and is designed to
compensate the distributees themselves for their pecuniary losses
as a result of the wrongful act" (Heslin, 14 NY3d at 76; see also
EPTL 5-4.3).  Plaintiff's wrongful death claim therefore is based
on his own loss and is not derivative of any claim on behalf of
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No. 118
his insured daughter.
Insurance contracts must be interpreted according to
common speech and consistent with the reasonable expectations of
the average insured (see Matter of Mostow v State Farm Ins. Cos.,
88 NY2d 321, 326-327 [1996]).  To the extent that there is any
ambiguity in an exclusionary clause, we construe the provision in
favor of the insured.  Moreover, "'exclusions or exceptions from
policy coverage . . . are not to be extended by interpretation or
implication, but are to be accorded a strict and narrow
construction.  Indeed, before an insurance company is permitted
to avoid policy coverage, it must satisfy the burden which it
bears of establishing that the exclusions or exemptions apply in
the particular case, and that they are subject to no other
reasonable interpretation'" (Pioneer Towner Owners Assn. v State
Farm Fire & Cas. Co., 12 NY3d 302, 307 [2009], quoting Seaboard
Sur. Co. v Gillette Co., 64 NY2d 304, 311 [1984]).  Allstate has
not met that burden here.
The language of the policy exclusion -- excluding
coverage "whenever any benefit of this coverage would accrue
directly or indirectly to an insured" -- is ambiguous.  It could
be interpreted, as Allstate urges, to mean that bodily injury to
an insured is not covered whenever any benefit -- including
coverage itself in the form of defense and indemnification --
would accrue to an insured.  However, as plaintiff points out,
this interpretation ascribes meaning only to the first clause of
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No. 118
the exclusion -- "[w]e do not cover bodily injury to an insured
person."  Since the right to defense and indemnification
universally accrues to an insured, under Allstate's
interpretation the condition of the second clause of the
exclusion would always be met.  However, the second part of the
exclusion must somehow modify the first part of the clause in
order to have any meaning.  In this context, a benefit must mean
something other than coverage itself and is more naturally read
to mean proceeds paid under the policy.  In light of our
obligation to interpret the exclusion in a manner that gives full
force and effect to the policy language and does not render a
portion of the provision meaningless (see County of Columbia v
Continental Ins. Co., 83 NY2d 618, 628 [1994]), we find
plaintiff's interpretation of the clause to be more in keeping
with these well-settled principles of contract interpretation. 
The current version of the exclusion at issue was
brought about in response to the decision in Allstate Ins. Co. v
Pestar (168 AD2d 931 [4th Dept 1990]).  The prior version of the
exclusion had excluded coverage for bodily injury to an insured. 
In Pestar, a child was injured when she dove into a State-owned
lake.  Her parents filed a negligence action against the State
and the State counterclaimed seeking contribution.  Despite the
policy exclusion, the Appellate Division determined that Allstate
had a duty to defend and indemnify the parents on the State's
counterclaim, finding that "the liability at issue . . . is not
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No. 118
the parents' liability to [the insured child] but rather the
parents' potential liability to the State on a claim of equitable
apportionment" (Pestar, 168 AD2d at 931-932).  The insurer
subsequently added language to the exclusion stating that bodily
injury to an insured is not covered "whenever any benefit of this
coverage would accrue directly or indirectly to an insured
person" (see 9A Couch on Insurance 3d § 128:4).
Assuming the insurer intended this language to exclude
coverage under the policy entirely for bodily injury to insureds,
it did not accomplish the desired result.  Instead of making the
exclusion broader, the additional language can be read as
limiting the application of the exclusion to situations where an
insured would receive a benefit (i.e. payment) under the policy. 
The amendment, then, can be seen as the insurer's attempt to cut
off indirect claims, such as claims for contribution.  As
relevant to this appeal, however, the exclusion fails to bar
unambiguously payment to a noninsured plaintiff, that is to say
it does not clearly cut off the nonresident distributee's
wrongful death claims arising from the fatal injury to an
insured.
Other jurisdictions have observed that there are valid
policy reasons for excluding coverage in cases such as this one. 
They have noted that homeowner's insurance is generally meant to
cover bodily injury to noninsureds (see Cincinnati Indem. Co. v
Martin, 85 Ohio St 3d 604, 608; 710 NE2d 677, 680 [1999]) and
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No. 118
that coverage is excluded in these types of situations in order
to avoid imposing liability on the insurer in a case where the
insured, due to a close relationship with the injured party,
might be unmotivated to assist the insurer in defending against
the claim (see Whirlpool Corp. v Ziebert, 197 Wis 2d 144, 149;
539 NW2d 883, 885 [1995]).*  However, faced with a very similar
case addressing the identical exclusion, the Wisconsin Supreme
Court recently held that "Allstate has failed to meet its burden
to demonstrate that the policy term 'benefit' unambiguously
includes the contractual right to receive a defense or the
contractual right to indemnification" (Day v Allstate Indem. Co.,
2011 WI 24, ¶57 [decided April 29, 2011]).  We agree with this
analysis.
We therefore find that judgment should have been
granted in plaintiff's favor, as the exclusion did not operate to
bar coverage for the noninsured plaintiff's wrongful death claim
for the death of the insured decedent.
Accordingly, the order of the Appellate Division should
be reversed, with costs, and the matter remitted to Supreme Court
for further proceedings in accordance with this opinion.
*  We note that the record does not provide any indication
that there was collusion between these parties.
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No. 118
*   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *
Order reversed, with costs, and case remitted to Supreme Court,
Erie County, for further proceedings in accordance with the
opinion herein.  Opinion by Chief Judge Lippman.  Judges
Ciparick, Graffeo, Read, Smith, Pigott and Jones concur.
Decided June 9, 2011
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