Fifth Circuit Leans on Well-Established Contractual Interpretation Doctrine to Preclude Coverage Under General Liability Policy | Carlton Fields

To paraphrase Justice Oliver Wendell Holmes Jr., a circumstance “which appeals to the inner thoughts and distorts the judgment” would make lousy regulation. In the experience of extremely tragic conditions, having said that, the Fifth Circuit Courtroom of Appeals resisted the urge to allow its emotions carry the day. In Scottsdale Coverage Co. v. Exploring Me Academy LLC, the court as a substitute adhered to properly-set up rules of Texas deal legislation to preclude protection less than a plan issued by Scottsdale Insurance Co. primarily based on an vehicle exclusion in Identifying Me Academy’s standard liability plan.

Finding Me Discipline Journey

On a hot afternoon in July 2018 in Houston, Finding Me, a neighborhood daycare, took a group of 28 children on a discipline trip to a local park. Just after returning from the discipline vacation, Exploring Me employees inexplicably miscounted the quantity of small children exiting the van and remaining a 3-year-previous boy or girl within. The baby remained in the van right until his father arrived approximately 4 hrs afterwards to select him up from the daycare, at which stage he experienced become unresponsive from heat exhaustion. Tragically, health care staff ended up not able to resuscitate the kid, and he was pronounced lifeless at a neighborhood healthcare facility.

Next the child’s dying, his parents brought a wrongful demise motion towards Exploring Me. Identifying Me was protected less than a business typical liability policy issued by Scottsdale, and Scottsdale submitted a declaratory judgment motion in the U.S. District Courtroom for the Southern District of Texas seeking to determine its obligation, if any, to defend and indemnify Exploring Me and its supervisor, who was also named in the underlying match. The district court docket granted Scottsdale’s motion for summary judgment on the concern, and Exploring Me appealed.

The Texas 8 Corners Rule

Noting that “[t]he main objective [of contract interpretation] is to effectuate the parties’ intent as expressed in the contract,” the Fifth Circuit used Texas’ “eight corners rule,” which compares only two files in ascertaining irrespective of whether an insurer has a responsibility to protect: the criticism (or other operative pleading) and the insurance plan plan. These two paperwork are analyzed with out regard to the fact of the allegations in the complaint, with any doubt about the obligation to defend resolved in favor of the insured. If the complaint “only alleges information excluded by the coverage, the insurer is not expected to protect.”

Crucial to this scenario, Exploring Me’s policy bundled an automobile exclusion for bodily injuries “arising out of the ownership, servicing, use or entrustment to others” of any vehicles applied by the insured. The coverage also contained a individual sexual and/or actual physical abuse liability coverage section, which expected Scottsdale to pay back damages for “sexual or actual physical injury or abuse, including assault and battery, negligent or deliberate touching.” Notwithstanding the auto exclusion, Identifying Me contended that the lawsuit associated allegations of “physical injuries,” and thus induced the policy’s sexual and/or actual physical abuse form, which did not contain its individual vehicle exclusion (i.e., a single independent and apart from the exclusion contained in the standard legal responsibility coverage form).

The courtroom located its remedy in the sexual and/or physical abuse form, pointing to a provision that coverage less than the sort “is subject to this protection sort and the exclusions, ailments and other phrases of this plan.” Noting it has “long been the rule that we should read all parts of a coverage jointly, offering this means to each individual sentence, clause, and word,” the court held that the use of the phrase “and” plainly included the other exclusions of the coverage — which include the vehicle exclusion — into the sexual and/or actual physical abuse type. As a result, even assuming the sexual and/or abuse kind was induced by the allegations in the lawsuit, the Fifth Circuit affirmed the district court ruling that the automobile exclusion barred coverage underneath the Scottsdale policy.