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In Haines v. State Auto Property and Casualty Insurance Company, the insureds were sued for negligence after a friend of the insureds hit and injured a neighbor with a golf cart.  The accident occurred in an alley behind the neighbor’s garage.  The insureds filed a claim with their homeowner’s insurance carrier seeking defense and indemnification in the underlying action.  The insurer determined that coverage did not exist and notified the insureds.

The insureds sought a declaratory judgment that the insurer owed a duty to defend and to indemnify them in the underlying negligence case.  The insureds also asserted a claim for bad faith.  The insurer sought a declaratory judgment that no coverage existed and that it did not owe either a duty to defend or duty to indemnify the insureds in the underlying action.  The district court considered cross-motions for summary judgment.

The insureds argued that both the 2003 and 2002 versions of their homeowner’s policy provided coverage for the accident.  In the alternative, they argued that under the reasonable expectations doctrine, they were entitled to invoke the 2002 policy to find coverage even though the 2003 policy was in effect at the time of the accident.

Both policies included an exclusion for motor vehicle liability with an exception to the exclusion if a “motorized land conveyance” is “used solely to service an insured’s residence” or “designed for recreational use off public roads,” owned by the insured, and on an “insured location.”  The two policies differ in that the 2002 version had a broader definition of the term “insured location” and contained a specific exception to the motor vehicle liability exclusion for a “golf cart when used to play golf on a golf course.”

Plaintiffs argued that the insurer was obligated to defend them because the underlying complaint did not indicate that the golf cart was not used “solely to service” the residence, or that the accident took place off of “an insured location.”  The court found that the insurer’s investigation, which included interviews of the insured’s family members, provided the necessary information to deny coverage.

The court stated:  “Plaintiffs’ assertion that an insurer is prohibited from investigating whether coverage exists runs counter to authority recognizing that the duty to defend does not last indefinitely, or regardless of the facts elucidated as the case progresses.” The court held that the duty to defend only lasts “until such time as the claim is confined to a recovery that the policy does not cover.”

Further, the court stated that because the accident described in the underlying complaint clearly fell within the policy’s exclusion for motor vehicle liability, the insureds had the burden to produce evidence that an exception to the policy’s exclusion applied.

The court concluded that the accident was not covered by the 2003 policy because the golf cart was used for recreational purposes and the accident occurred off of the insured location.  The court rejected the insureds’ argument that they had a reasonable expectation of coverage based on the terms of the 2002 policy.

The court found that the insureds could not have developed a reasonable expectation of coverage for the following reasons: (1) because the insureds did not qualify for the clear exception provided for golf carts, they could not develop a reasonable expectation of coverage from the less specific exception for a “motorized land conveyance”; and (2) there were no misrepresentations by the insurer and the coverage provided by the 2003 policy was not significantly diminished.

The court held that in the absence of a duty to defend, the insured’s claim for bad faith must be dismissed.  The court granted summary judgment in favor of the insurer.

Date of Decision: March 25, 2010

Haines v. State Auto Prop. and Cas. Ins. Co., Civil Action No. 08-CV-5715, United States District Court for the Eastern District of Pennsylvania, 2010 U.S. Dist. LEXIS 28437 (E.D. Pa. Mar. 24, 2010) (Golden, J.)