In Royal Indemnity Company, et al. v. Pendleton King, et al., No. 3:03cv2178, 2007 U.S. Dist. LEXIS 72654 (D. Conn. Sept. 28, 2007), the United States District Court for the District of Connecticut (Underhill, J.) held that the defendant insurers did not owe a duty to defend or to indemnify their insureds, Pendleton King, Daphne King and Pendleton King, Jr.(the “Kings”), under a homeowner’s policy and an umbrella policy.
The Court found the following facts to be undisputed: On May 5, 2002, fourteen-year-old Conor McEntee was riding on a skateboard while being towed behind an all-terrain vehicle (“ATV”) owned by the Kings and operated by their fourteen-year-old son, Pendleton, Jr. The two were travelling around a private homeowner’s association where the Kings lived when McEntee fell off of the skateboard and sustained serious head injuries.
At the time of the incident, the Kings were insured under a $500,000 homeowner’s insurance policy that was issued to them by Royal Indemnity Company (“RIC”), a $5,000,000 umbrella policy that was issued to them by Royal Insurance Company of America (“RICA”), and a $5,000,000, following form excess liability policy issued by National Surety Corporation (“National Surety”). The homeowner’s policy and the umbrella policy generally excluded coverage for injuries arising out of the use of an ATV. However, both policies also contained exceptions to the exclusion. Specifically, the homeowner’s policy provided coverage for ATVs “not subject to motor vehicle registration and . . . owned by an insured and on an insured location,” and the umbrella policy covered ATVs “described as being covered in the declarations.” (emphasis added). The Kings’ umbrella policy did not describe the subject ATV on the declarations page.
Some fifteen months after the incident, and upon learning that the McEntee’ s planned to sue them in state court, the Kings for the first time notified RIC and RICA of the claim. The insurers proceeded to investigate the claim under a reservation of rights, and once the investigation was completed, coverage was disclaimed under both policies. Coverage was disclaimed under the homeowner’s policy because the accident did not occur on an “insured location.” Coverage was disclaimed under the umbrella because the ATV was not described on the policy declarations. Late notice was also cited as a potential grounds for disclaimer.
RIC and RICA subsequently filed a complaint in the United States District Court for the District of Connecticut seeking a declaration that they had no duty to defend or to indemnify the Kings under either the homeowner’s policy or the umbrella policy. The Kings then filed counterclaims against RIC and RICA, and a third-party complaint against National Surety as well as New England Brokerage Corporation (“NEBC”), the Kings’ insurance broker. NEBC then filed crossclaims against RIC and RICA. All parties moved for summary judgment.
Following a hearing, Judge Underhill held that neither the homeowner’s policy nor the umbrella policy afforded coverage with respect to the underlying McEntee suit, and he granted summary judgment in favor of the defendant insurers. With regard to the Kings’ homeowner’s policy, the Court concluded that the accident did not occur on an “insured location,” which the homeowner’s policy defined as either “the residence premises,” “grounds used [ ] as a residence,” or “any premises used [ ] in connection with a premises.” The Court’s decision turned on the physical site of the accident in relation to the Kings’ residence. Specifically, the Court found that the accident site was not part of the Kings’ “residence premises” because there was no evidence that they used, as a residence, that portion of the road where the accident took place. The undisputed evidence indicated that the accident did not occur on the street where the Kings resided, but in fact, the accident occurred approximately fifty to seventy-five feet away from the Kings’ street, on Midwood Road. Crucial to the Court’s decision was the fact that the Kings did not use that portion of Midwood Road to enter or exit their own property. The Court also rejected the Kings’ argument that “residence premises” or “insured location” encompassed any piece of property in which the Kings had a property interest or upon which they had a legal right to travel by virtue of their homeowner’s association membership.
The Court further found that the Kings did not use the portion of the road where the accident occurred “in connection with” their residence. The Kings argued that they used the accident site in connection with their residence because they had a legal right to use that portion of the road where the accident occurred, even though they did not actually use it. The Court rejected the Kings’ argument, however, holding that “actual use is a prerequisite to satisfying a homeowner’s policy clause that requires use of a piece of property in connection with a residence premises.” The Court noted that while the question of actual use is a fact intensive inquiry, the Kings did not contend, nor had they produced any evidence, that they “actually” used that portion of the road where the accident occurred. Thus, because the accident did not occur on the residence premises or in connection with those premises, the Court held that the accident did not occur on an insured location. As such, RIC did not have a duty to defend or to indemnify the Kings under the homeowner’s policy.
The Court also concluded that the Kings’ umbrella policy did not provide coverage in connection with the underlying lawsuit. Prior to 2000, the Kings’ umbrella policy covered ATV use. However, in 2000, RICA amended the policy to limit coverage for recreational vehicles to those listed on the declarations page and to require payment of an additional premium for coverage to apply. Notice of the change was provided by RICA, NEBC, and in renewal documents appended to the umbrella policy. The Court held that coverage was precluded by the fact that the Kings had not caused the ATV to be listed on the declarations page as required by the policy.
A more difficult question concerning the umbrella policy was whether RICA validly changed in 2000 to exclude coverage for non-declared ATVs. If the change was not valid, the pre-2000 version of the umbrella policy, which provided coverage for ATVs, would control. The Kings argued that the change was not valid because RICA failed to comply with Connecticut General Statutes § 38a-323, which prescribes certain notice requirements in the event of an insurance company’s nonrenewal or cancellation of an insurance policy. It was undisputed that RICA did not provide notice in the manner required by the statute; the issue was whether it was required to do so in order to validly change the Kings’ umbrella policy so as to limit ATV coverage. In support of their position, the Kings relied on an Insurance Department Bulletin issued in 2004, PC-42-04, which expanded the definition of nonrenewal and conditional nonrenewal, broadening the circumstances under which an insurer would be required to provide the notice required by § 38a-323. The issue of whether RICA’s change to the Kings’ policy constituted a nonrenewal or conditional renewal was complicated by the fact that the Bulletin was not in effect at the time of the change in the umbrella policy. Thus, before reaching the issue of whether RICA’s change in the policy triggered the statutory notice requirements of § 38a-323, the Court was first required to determine whether the Bulletin applied retroactively. Relying on the general presumption against the retroactive application of statutes imposing new substantive obligations, coupled with its finding that the Bulletin did indeed “change[ ] the legal landscape ” for insurance companies, the Court held that the Bulletin did not apply retroactively to require conditional renewals to comply with § 38a-323. The Court also noted that the Kings had presented no evidence that the Connecticut Insurance Department intended the rule to apply retroactively.
Having determined that the Bulletin PC-42-04 did not apply retroactively, the Court turned to the question of whether the statutory scheme, as it existed at the time of the policy change and prior to the issuance of the Bulletin, nevertheless required RICA to provide the statutory notice described in § 38a-323. The Court answered that question in the negative. According to the Court, the change in the Kings’ policy, which required the listing of the ATV on the declarations page and the payment of an additional premium, was minor and was made as part of a renewal. Therefore, it did not constitute a nonrenewal or cancellation of the policy so as to bring it within the statutory notice requirements of § 38a-323 as it existed at the time of the accident. Consequently, summary judgment was granted in favor of RICA.
RIC and RICA were represented by Daniel Scapellati, chair of Halloran & Sage’s insurance coverage department.