The Wacky World of Collision and Comprehensive Coverages: Intentional Injury and Illegal Activity Exclusions

Publication year2021
CitationVol. 79

79 Nebraska L. Rev. 75. The Wacky World of Collision and Comprehensive Coverages: Intentional Injury and Illegal Activity Exclusions

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Johnny Parker*


The Wacky World of Collision and Comprehensive Coverages: Intentional Injury and Illegal Activity Exclusions


TABLE OF CONTENTS


I. Introduction....................................... 75
II. Automobile Policy in General....................... 79
III. Auto Liability Coverage: Intentional Injury
Exclusion.......................................... 90
IV. Rental Car: Collision Damage Waiver Prohibitive Use
Exclusions.................................... 99
A. Ambiguity...................................... 101
B. Unconscionability.............................. 106
C. Reasonable Expectations Doctrine............... 108
V. Comprehensive Coverage............................ 113


I. INTRODUCTION

Insurance has been variously defined,(fn1) classified,(fn2) and packaged around the nature of the risk being transferred and res protected.

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Within any specific classification, however, the principal themes of risk transference and management are manifested in the insurance contract to suit the risk tolerance level of the particular company underwriting the risk of loss. An insurance company's particular risk tolerance level is primarily reflected in any one or combination of three sections of the insurance contract. Those sections are the exclusions, limits of liability, and conditions provisions.(fn3) Because risk tolerance levels are unique to each company, these sections, more so than any other in an insurance contract, are likely to be the most varied and distinctive feature of the final product-the insurance policy. Variations are specifically reflected in the terminology used in specific provisions or in the conceptualization of the scope of the risk covered.

Within no classification or type of insurance, however, is there greater variation in terms of terminology, scope of coverage, and exclusions than in automobile insurance contracts. Variations in these provisions of the automobile insurance contract are so extensive that resolution of automobile insurance disputes is especially fact-sensi-tive.(fn4) Therefore, litigating parties in automobile insurance disputes

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frequently are unable to cite apposite case law.(fn5) Variations in policy terminology, scope, and the fact-sensitive nature of automobile insurance litigation hamper continuity in the application of traditional insurance doctrines, principles, and practices.(fn6) Consequently, there remain many issues upon which courts are left to write on clean slates.(fn7)

Over the past decade, a number of insurance companies have experimented with limiting their risk exposure for comprehensive damage to an insured vehicle by relying upon an exclusion within Part D-Coverage For Damage To Your Auto. This provision, commonly known as the illegal activity exclusion, provides that coverage does not apply to loss sustained while an insured person commits or attempts to commit a felony, or by the insured person's involvement in an illegal activity.(fn8) This exclusion is a hidden landmine for the unwary insured. It provides the insurer, should it desire to deny coverage, at least a minimal basis for rejection of the claim if damage to the vehicle occurred while the insured was engaged in any illegal conduct. On the surface, such a denial might seem justified and morally correct to those overly sensitized by the number of illegal activities that occur involving automobiles. However, the illegal activity exclusion should not be examined solely from the perspective of the extreme case. Rather, it should also be considered from the perspective of the indi

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vidual whose coverage is invalidated for traffic violations, such as (1) running a stop sign; (2) exceeding the speed limit; (3) operating a vehicle with defective equipment; or (4) driving while intoxicated. The primary inquiry of this article is whether the mere fact that (1) a vehicle has been used in an unlawful manner, or (2) an unlawful event may have occurred during its use by insured, should relieve an insurer from its obligation to provide comprehensive coverage.

The objective of this article is to develop an appropriate analytical basis for evaluating the illegal activity exclusion in the context of automobile comprehensive coverage. Because the illegal activity exclusion has not been the subject of any reported decision in the context of comprehensive coverage, this article attempts to achieve its goal by examining intentional injury and prohibitive use exclusions in the context of automobile liability and collision coverages, respectively. The purpose of this examination is to ascertain whether the analytical tools employed in the liability and collision coverages arenas are appropriate in the context of the primary thesis.

Part II of this article details the most significant provisions of automobile insurance contracts. This part, though primarily introductory in nature, reflects the skepticism with which courts view attempts by insurers to limit coverage in general. Part II explores the intentional injury exclusion in the context of automobile liability insurance. This part attempts to identify the methodologies used by courts in assessing the validity of the exclusion. Part II demonstrates how public policy influences the manner in which courts construe the intentional injury exclusion, and concludes that the analytical standards used to determine the validity of such exclusions reflect the policy concerns inherent in mandatory automobile liability insurance.

Part III examines prohibitive use restrictions contained in car rental agreements. Part III explores the relationship between collision damage waivers, prohibitive use provisions, and collision insurance policies in general. This part demonstrates that the validity of prohibitive use provisions contained in rental car agreements, though not technically insurance contracts, is determined according to general principles of insurance contract interpretation. Part III also details the analytical standards used by courts to assess the validity of prohibitive use restrictions.

Parts IV and V address the primary thesis. These parts document the relationship between collision and comprehensive coverages. They also examine the collision and comprehensive coverages insuring agreement. This insuring agreement affords coverage only for `direct and accidental loss.' The primary thesis emanates out of the difficulty of formulating a universal all-inclusive definition of the term `accidental.' Parts IV and V discuss the general rule that `accidental' for purposes of collision and comprehensive coverage is ascertained from the

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perspective of the insured. It also recognizes the presumption of validity generally accorded to property coverages exclusions. This presumption, however, merely favors the rights of insurers to include such provisions in the respective coverages and does not determine whether such exclusions are enforceable in the context of a specific case. Two conclusions are reached. First, a case-by-case approach should be used to determine if an insurer is relieved from its obligation to provide comprehensive coverage when (1) a vehicle has been used in an unlawful manner, or (2) an unlawful event may have occurred during its use by an insured. Second, traditional tools of insurance contract interpretations should be used to determine whether an accident has occurred for purposes of comprehensive coverage.

II. AUTOMOBILE POLICY IN GENERAL

Automobile insurance policies are for the most part uniformly organized. They consist of the (1) declaration sheet; (2) agreement; (3) definition section; (4) Part A-Liability Coverage; (5) Part B-Medical Payments Coverage; (6) Part C-Uninsured Motorists Coverage; (7) Part D-Coverage For Damage To Your Auto; (8) Part E-Duties After An Accident or Loss; (9) Part F-General Provisions.(fn9) The declaration sheet personalizes the policy with regard to the specific name and address of the insured, vehicle insured, policy period, limits of coverages, deductibles, premiums, and endorsements. The agreement component of the policy does little more than state that `[i]n return for payment of the premium and subject to all the terms of this policy, we agree with you as follows.'(fn10) The agreement section is followed by the definition component of the respective coverage. In this section of the policy, insurance companies attempt to clearly and unambiguously define the more important concepts as used in that particular coverage section.(fn11)

Parts: A-Liability Coverage; B-Medical Payments Coverage; C-Un-insured Motorist Coverage; and, D-Coverage For Damage To Your Auto provide protections that are unique to the respective type of coverage. Each of these parts, however, contains an insuring agreement, and all but Part D contain an omnibus clause.(fn12) Both the insuring agreements and omnibus clauses in each of these coverages are sepa

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rate and independent agreements pertaining only to the specific coverages in which they appear.

Insurance companies enjoy the same rights as individuals to limit their liability and impose whatever conditions they deem appropriate upon their obligation to provide coverage in a contract of insurance. The right to freely contract, however, may not be exercised in a manner that violates public policy-either statutorily or judicially dictated. In principle, automobile insurance is designed to provide basic coverage for virtually every risk contingency that might reasonably arise out of the use or ownership of an automobile. However, `[a]t the same time certain limitations are imposed for the purpose of enabling the insurer to set premiums which will not make the cost of such a policy prohibitive.'(fn13) The interest in...

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