By Barry Zalma, Attorney and Consultant
An insurance policy must be interpreted to provide the protection the parties intended. It is not a device to protect against every possible incident and, by definition, can only insure against fortuitous events. This axiom of insurance law was enforced by the Wisconsin Supreme Court.
Michael Gundrum (Gundrum), hosted an underage drinking party. One of Gundrum’s many guests, Matthew Cecil (Cecil), assaulted and seriously injured another guest. Gundrum knew that Cecil had a tendency to become belligerent when he was intoxicated but he permitted Cecil to drink anyway. The victim, Marshall Schinner (Schinner), ultimately sued Gundrum and his insurer, West Bend, to secure damages for Schinner’s injuries.
West Bend disputed coverage. The insurer argued that it had no duty to defend and indemnify Gundrum because his actions as a party host were intentional; thus, there was no “accident” and no “occurrence” under the Gundrum family’s homeowner’s insurance policy. West Bend also contended that even if there were an occurrence under the policy, there was no coverage because of an exclusion in the policy for bodily injury arising out of a non-insured location. The party had been held at a shed at Gundrum Trucking, a family-owned business that was not an insured location under the homeowner’s policy.
In Schinner v. Gundrum, 2011AP564 (Wis. 07/12/2013), 2013 Wisc. LEXIS 283 [enhanced version available to lexis.com subscribers], the Wisconsin Supreme Court was called upon to determine if coverage applied. The case was brought to the Supreme Court because the court of appeals concluded that there was an occurrence finding that Schinner’s assault was an accident when viewed from the standpoint of either the injured person (Schinner) or the insured (Gundrum). The court of appeals also concluded that the non-insured location exclusion did not apply because Schinner’s injury did not arise from some “condition” of that premises.
If Schinner’s injury resulted from an occurrence as defined by the West Bend homeowner’s insurance policy triggering coverage for Gundrum the court would then need to determine if coverage was excluded because the injury “arose out of” an uninsured location that was not “used in connection with” an insured premises under the homeowner’s policy.
When determining whether an insurance policy provides coverage, a court first looks to the initial grant of coverage. If the court determines that the initial grant of coverage does cover the type of claim presented, the second step requires the court to examine the policy’s exclusions to determine whether coverage has been withdrawn by an exclusion. In interpreting insurance policy language, we seek to “give effect to the intent of the contracting parties.
Was There an “Occurrence”?
The homeowner’s policy defines an occurrence as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions . . . .” The homeowner’s policy does not define the term “accident.”
Liability insurance policies, like the homeowner’s policy in this case, typically contains a provision in which the insurer agrees to indemnify the insured against liability resulting from claims for bodily injury or property damage caused by an occurrence or accident. Assaults, given their intentional nature, would seem never to constitute an occurrence under a general liability policy. However, courts have taken or adopted two divergent positions as to from whose perspective the assault is to be viewed in determining whether it constitutes an “accident.” Some courts have held that this determination should be made from the standpoint of the injured party, while other courts have held that the determination must be made from the standpoint of the assailant who is often-but not always- the insured.
The determination of whether an injury resulted from an accident within an occurrence clause of a liability policy is made from the standpoint of the insured because it is consistent with the idea that a court should interpret an insurance policy from the standpoint of a reasonable person in the position of the insured. When interpreting an insurance contract a court should give effect to the intentions of the parties, not the intent of a third party.
Determining Whether an Accident Took Place
Numerous courts and commentators, both inside and outside of Wisconsin, have attempted to define and interpret the term “accident” when determining whether insurance coverage applies. There is no question that Cecil intended to assault Schinner. Schinner does not contend that Gundrum intended or approved of Cecil’s assault or that he ever wanted to see Schinner injured. Gundrum took a number of intentional actions that ultimately caused Schinner’s bodily injury. By making the arrangements for beer pong throughout the evening, Gundrum actively promoted heavy drinking at the party. Gundrum’s actions in hosting an underage drinking party and in procuring alcohol for Cecil and others were intentional. He did not host the underage drinking party by mistake, against his will, or by chance. A result, though unexpected, is not an accident. The means or cause must be accidental.
Given the facts of this case, it is not reasonable to argue that a fight between intoxicated teenagers was “unexpected” or “unforeseen,” especially when one of the underage drinkers was known to become belligerent when he was drunk. It is no leap of logic to conclude that Gundrum knew that a combination of underage partygoers, alcohol, and games like beer pong would create a powder keg.
The first step in a court’s analysis of an insurance contract is to examine whether the policy provides an initial grant of coverage. Hence, if a given set of facts do not trigger coverage, it is not necessary to look at a policy’s exclusions. Finally, the strong public policy weighs against finding an occurrence in this situation. Even where the insurance policy contains no language expressly stating the principle of fortuitousness, courts read this principle into the insurance policy to further specific public policy objectives including (1) avoiding profit from wrongdoing; (2) deterring crime; (3) avoiding fraud against insurers; and (4) maintaining coverage of a scope consistent with the reasonable expectations of the contracting parties on matters as to which no intention or expectation was expressed. Finding an occurrence and coverage under these circumstances would allow the host to escape responsibility for his intentional and illegal actions. The Supreme Court refused to send the wrong message about underage drinking parties, implying that whatever tragic consequences might occur, insurance companies will be there to foot the bill.
Gundrum’s actions in setting up an isolated shed for a drinking party, procuring alcohol and expecting others to bring alcohol, inviting many underage guests to the party, and encouraging the underage guests to drink-especially an underage guest known to become belligerent when intoxicated- were intentional actions that violated the law. Gundrum’s many intentional wrongful acts were a substantial factor in causing Schinner’s bodily injury. Viewed from the standpoint of a reasonable insured, Gundrum’s intentional actions created a direct risk of harm resulting in bodily injury, notwithstanding his lack of intent that a specific injury occur. Schinner’s bodily injury was not caused by an “occurrence” within the meaning of the policy, and West Bend is not obligated to provide insurance coverage for Gundrum.
Viewed from the standpoint of a reasonable insured, Gundrum’s intentional actions created a direct risk of harm resulting in bodily injury, notwithstanding his lack of intent that a specific injury occur. Thus, Schinner’s bodily injury was not caused by an “occurrence” within the meaning of the policy, and West Bend is not obligated to provide insurance coverage for Gundrum.
An insurance policy only insures against fortuitous events that cause injury. Gundrum knew exactly what he was doing was wrong – in fact, illegal – by creating an underage drinking party and inviting someone he knew became belligerent when drunk.
An assault is always, by definition, an intentional act. Giving alcohol to a minor is an intentional act. Setting up a situation where it is probably that a belligerent drunk minor will cause injury to another is an intentional act. This was as intentional as giving a person a gun and ordering him to shoot another. There was no “occurrence” as defined in an insurance policy. This suit, and the decision of the court of appeals, was a wild grasp at the deep pocket of an insurance company to pay for the injuries suffered by the innocent victim.
Allowing insurance for this incident would be wrongful and honor evil acts by taking away the consequences of the evil acts and placing it on the head of an insurer who never agreed to pay for such acts.
Reprinted with Permission from Zalma on Insurance, (c) 2013, Barry Zalma.
Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.
Mr. Zalma can be contacted at Barry Zalma or firstname.lastname@example.org, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.
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