In Empire Fire & Marine Ins. Co. v. Edward Lang, et al., No. 1325, 2009 U.S. Dist. LEXIS 83958 (D. Conn. September 15, 2009), the United States District Court for the District of Connecticut (Underhill, J.) held that Empire Fire & Marine Ins. Co. (“Empire”) did not owe a duty to defend or to indemnify its insureds, Samantha Lang and Edward Lang (“the Langs”), pursuant to a Supplemental Liability Protection (“SLP”) Policy (excess automobile liability policy).

The Court found the following facts to be undisputed: On March 12, 2005, Edward Lang signed an automobile rental agreement with CAMRAC, Incorporated, d/b/a Enterprise 1-800-Rent-A-Car (“CAMRAC”), and he listed his daughter, Samantha Lang, as an additional authorized driver. At the time of the rental, Mr. Lang purchased the SLP Policy, which was underwritten by Empire. The SLP Policy provided excess liability coverage with limits of $1 million.

March 24, 2005, Samantha Lang was involved in an accident when the rental vehicle she was operating collided with a vehicle operated by Stacey Prior. There was no dispute that, at the time of the accident, Ms. Lang was operating the rental vehicle while under the influence of alcohol. Prior sustained injuries as a result of the accident, and by complaint dated February 1, 2007, she brought suit against Mr. Lang, Samantha Lang and CAMRAC in Connecticut Superior Court.

The SLP Policy purchased by Mr. Lang excluded coverage for “[l]oss arising out of an accident which occurs while Renter or Additional Authorized Driver is under the influence of alcohol or drugs” (“under the influence” exclusion). Moreover, the Policy excluded coverage for “[l]oss arising out of the use of the Vehicle when such use is otherwise in violation of the terms and conditions of the Rental Agreement” (“use” exclusion). Meanwhile, the rental agreement executed by Mr. Lang provided that the rental vehicle “shall not be used . . . in any illegal or reckless manner . . . [and] shall not be driven by any person impaired by the use of alcohol.”

Empire filed a declaratory judgment action in the United States District Court to determine whether it had a duty to defend or to indemnify the Langs in the underlying state court action. Based on the express language of the SLP Policy as well as the provisions of the rental agreement, Empire moved for summary judgment.

Following a hearing, Judge Underhill held that Empire was not obligated to defend or to indemnify the Langs in the Prior lawsuit. Although the Court concluded that the “under the influence” exclusion was sufficiently ambiguous as to Mr. Lang, who was neither operating the rental vehicle nor intoxicated at the time of the accident, the Court held that “the ‘use’ exclusion clearly and unambiguously bars coverage for losses arising out of use of the rental vehicle while Samantha was impaired from the use of alcohol, which obviously includes all loss arising out of the accident at issue in the Superior Court lawsuit.” Id. at *14. The Court noted that the underlying state court complaint alleged — and the parties agreed — that Ms. Lang was driving under the influence of alcohol when the accident occurred. The Court found that such “use” of the vehicle while impaired by alcohol was prohibited by the express terms of the rental agreement. Therefore, the Court concluded that the “use” exclusion of the policy applied and that all losses arising from the use of the rental vehicle while Ms. Lang was impaired by the use of alcohol were excluded from coverage under the SLP policy.

The Court concluded that the “use” exclusion applied to both Mr. Lang and Samantha Lang because the exclusion was tied to the source of the loss which was the accident that occurred while Samantha Lang was driving impaired, not the identity of the insured seeking coverage. Therefore, it did not matter that Mr. Lang was neither using the vehicle nor impaired by alcohol at the time of the accident, because the exclusion applied to the Langs equally.

In ruling in favor of Empire, Judge Underhill rejected the defendants’ argument that the “use” exclusion violated Connecticut public policy because the exclusion was inconsistent with Conn. Gen. Stat. § 14-112 and §§ 38a-334-335 and 38a-334-1 to 10, Conn. Agencies Regs., which statutes and regulations mandate minimum limits in automobile liability policies and which prescribe exclusions from coverage. Empire countered that because the SLP policy contained an underlying insuring agreement, the regulations did not apply to the SLP policy as it came within the exception set forth in Connecticut Reg. Section 38a-334-4.4 Judge Underhill agreed with Empire.

Lastly, the defendants attempted to argue that the Empire SLP policy was an unenforceable contract of adhesion. The Court noted that “merely showing that an insurance contract is a contract of adhesion does not lead inextricably to its invalidation or as sought here, enforcing all the contract terms except the exclusions.” Empire, supra at *24-25. The Court noted that the SLP Policy was an additional “product” that Mr. Lang purchased voluntarily when he rented the vehicle. The Court stated: “[e]nforcing the Policy exclusion does not work a disproportionate forfeiture against Edward Lang because he paid fair value for exactly what the terms of the policy promised him: catastrophic supplemental liability protection subject to enumerated exclusions.” Id. at 25. The Court rejected the defendants’ argument that the Court should enforce the policy’s coverage provisions while voiding the policy’s exclusions. As a result, the court granted summary judgment in favor of Empire and denied the defendants’ cross motions for summary judgment.

EMPIRE FIRE & MARINE INSURANCE COMPANY WAS REPRESENTED BY ATTORNEYS DANIEL P. SCAPELLATI AND STEVEN B. RYAN OF THE INSURANCE LAW GROUP

Conn. Agency Regs. Sec. 38a-334-4 provides:  (1) to the extent that the insurance afforded exceeds the limits as specified in subsection (a) of section 14-112 of the General Statutes or (2) if the policy contains an underlying insurance requirement or provides for a retained limit of self-insurance equal to or greater than the limits specified in said subsection (a) of section 14-112.