Auto Policy Delivery or Business Use Exclusion Held Ambiguous

Twice in the last four years American Access Casualty Company, a non-standard private passenger automobile insurer based in Downers Grove, Ill., has been judicially warned in decisions of intermediate appellate courts of two different states (Illinois and Indiana) that its delivery and/or business-use auto insurance policy coverage exclusion was ambiguous and ineffective to overcome liability insurance coverage.

The operative facts of the two cases (Am. Access Cas., Co. v. Rodriguez, 2014 Ill.App. Unpub. LEXIS 196, filed Feb. 6, 2014, and Am. Access Cas., Co. v. Cincinnati Ins. Co., 2018 Ind. App. LEXIS 173, filed May 16, 2018) were generally parallel, and the text of the policy exclusions was identical but for the added letter “s” at the end of the word “Damage” as quoted in the earlier decision, which was unpublished, making it less authoritative as precedent for other litigants, but preserving its binding effect on American Access itself.

It is unclear whether American Access has even yet clarified its auto liability policy exception, which reads as follows:

“This policy does not apply to and does not provide coverage under Part A— ‘Bodily Injury Liability and Property Damage[s] Liability’ Coverage for: . . . (b) any automobile while used in the delivery, or any activity associated with delivery, of food, mail, newspapers, magazines, or packages for an employer or business or in any trade or business.” (Emphasis added.)

The facts of the first, 2014 case were that Nyesha Morris sued Erika Rodriguez for injuries resulting from an automobile collision occurring in February, 2011. Rodriguez’s auto liability insurer, American Access, filed a declaratory judgment action against Morris and Rodriguez, insured and accident victim respectively, contending that the insurer had no duty to defend or indemnify Rodriguez in the personal injury suit because, at the time of the accident, she was using her vehicle for business purposes, driving from one meeting for her employer to another location for the same purpose. There was no allegation in American Access’s complaint that Rodriguez was making any type of delivery at the time of the collision, so a delivery-use exclusion – as opposed to a general business-use exclusion – would not defeat coverage in the case. That left for analysis whether the policy’s exclusion clause created a general business-use exception to coverage, too. American Access contended that the clause quoted above created both a delivery-use coverage exception as well as a general business-use exclusion, because the fourth “or” in the coverage exclusion – the word italicized in the quotation above, the one appearing between the words “business” and “in” – signaled a separation between two policy exclusions, one for delivery-use and one for use of a vehicle “in any trade or business.”

Contending in a motion for summary judgment in the trial court that Rodriguez was using her vehicle for business purposes at the time of the collision, American Access argued that this was activity excluded from coverage by the policy it issued to Rodriguez. The trial court denied the motion and granted summary judgment in favor of Morris and Rodriguez, because it found that the language in the policy exclusion was ambiguous: That wording could be understood to exclude insurance coverage for business activities generally or could just as reasonably be understood to exclude coverage only for using an automobile for delivery purposes, either for an employer, or in any trade or business.

The Appellate Court of Illinois dug into the weeds regarding the ambiguity, stating, “[a]t first glance, it appears that the policy exclusion at issue here (subsection (b)) only encompasses a delivery-use exclusion to coverage, as each separate exclusion appears to be separated by subparagraphs and not combined within subparagraphs. However, a closer look at the language of subsection (b) reveals that it is unclear whether the phrase ‘or in any trade or business’ is intended to be separate from the rest of the delivery-use exclusion encompassed in subsection (b), thereby acting as a broad business-use exclusion, or whether the ‘or in any trade or business’ phrase modifies the language in subsection (b) to encompass exclusions on deliveries in ‘any trade or business.’ As such, we find that the language of the exclusion in subsection (b) of the [American Access] policy is susceptible to more than one reasonable interpretation and, therefore, is ambiguous.… Given that the language of the exclusion in subsection (b) is ambiguous and any ambiguities are to be construed strongly against the insurer and in favor of the insured…, we find that [American Access] failed to meet its burden of showing that Rodriguez’s actions fell within the exclusion subsection (b). Accordingly, we find that the trial court was correct in denying [American Access’s] motion for summary judgment and finding coverage exists for Rodriguez in connection with the underlying personal injury lawsuit.”

The trial court, therefore, invoked what has been termed the “contra proferentem” rule of contract interpretation: Since the exclusion was ambiguous, it had to be interpreted against its drafter, American Access. (In some jurisdictions, e.g. California, that rule applies only when other cannons of contract interpretation fail to eliminate the ambiguity. (California Nat. Bank v. Woodbridge Plaza LLC, 164 Cal. App.4th 137, 145 (2008) [in interpreting ambiguous lease, rule that language of contract should be interpreted most strongly against the party who caused uncertainty to exist did not apply where the court resolved the uncertainty using evidence of circumstances surrounding lease’s execution].)

The most recent case involving the American Access policy exclusion illustrates another important canon of contract interpretation leading to the same result. “The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.” (California Civil Code, §1641.) The Indiana court observed that if the exclusion prevented coverage from attaching whenever the automobile insured by American Access was used for any business purpose, that would include situations when the vehicle was being used for delivery purposes in a trade or business. But, the court said, that would render duplicative, superfluous and meaningless the opening sentence of the exclusion, twice negating coverage if the vehicle were used for business delivery.

Not only would this violate the rule that a court must if possible give effect to every part of the contract, but also the principle that each clause must, if possible, help to interpret the others. Utilizing the second of these two interpretive tools, the court in the 2018 case said that instead of considering some words to be superfluous and meaningless, “rather, in order to harmonize all the terms of the exclusion, the court found that the final clause of the exclusion, reading, “any trade or business,” – especially in the absence of a comma – refers the court back to the initial part of the exclusion, reading “‘delivery, or any activity associated with delivery [.]'”

Finally, the Indiana court in 2018 pointed out that, even if the clause created a general business use exclusion, that would still not bar coverage under the facts of that case. Unlike the facts in the Rodriguez case, where it was uncontested that the policyholder, Rodriguez, was using her vehicle for the benefit of her employer when the collision occurred, the driver in the Cincinnati Ins Co. case was employed part-time by Advantage Home Healthcare. The accident occurred after the driver had concluded one appointment and was on her way to work her shift at a second patient’s residence. Advantage Home did not compensate its home health aides for their travel time between appointments. So, even if the exclusion were to be construed as a general business use exclusion it would still not bar coverage. Pursuant to her employment with Advantage Home, the driver was paid only for on-premises services performed at a patient’s residence. Therefore, her time and expense to drive from one patient location to another were not within her employment remuneration, so even a general business use exclusion would not defeat coverage for a driver whose collision occurred when she was not working.