The United States District Court for the District of Connecticut recently awarded summary judgment in favor of an insurer holding that the insurer had no duty to defend or indemnify the insureds under a rental car’s supplemental liability insurance policy due to the “use” exclusion. Empire Fire & Marine Ins. Co. v. Lang et al., 3:07cv1325 (D. Conn. September 15, 2009).

A father rented a vehicle and listed his daughter as an additional driver. The daughter, while intoxicated, was involved in an automobile accident with another vehicle. The injured party in that other vehicle filed the underlying lawsuit against the father, daughter, and rental car company. The father and daughter sought coverage under the supplemental liability insurance purchased with the rental vehicle. The insurer filed a declaratory judgment action seeking a declaration that it had no duty to defend or indemnify the father and daughter in the underlying lawsuit. The insurer then moved for summary judgment based on the intoxication exclusion and the use exclusion of the supplemental liability insurance policy. The district court held that the insurer has no duty to defend nor indemnify either the father or the daughter in the underlying lawsuit under the “use” exclusion.

The district court held that the intoxication exclusion was ambiguous with regard to the father and must therefore be construed against the insurer. Specifically, the policy states that insurance does not apply to “[l]loss arising out of an ‘accident’ which occurs while the ‘insured’ is under the influence of alcohol.” Because the daughter was not the only insured, and because the father, arguably the primary insured, was not under the influence of alcohol when the accident occurred, the exclusion does not bar coverage of the father for loss arising out of the accident between the daughter and the underlying plaintiff.

The court also held, however, that the “use” exclusion of the policy clearly and unambiguously barred coverage for losses arising out of the use of the rental vehicle while the daughter was impaired from the use of alcohol, which included all loss arising out of the accident at issue in the underlying lawsuit. Specifically, under the “use” exclusion, the policy excluded coverage for “[l]oss arising out of the use of a ‘rental vehicle’ when such use is in violation of the terms and conditions of the ‘rental agreement.’” The rental agreement provides 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.” The court held that because the underlying complaint alleges, and the parties agree, that the daughter was driving under the influence of alcohol when the accident occurred, such use of the vehicle was prohibited by the express terms of the rental agreement and thus the “use” exclusion applied and all losses arising from the use of the rental vehicle while the daughter was impaired by the use of alcohol are excluded from coverage under the policy. The court further held that the “use” exclusion precluded coverage for both the daughter and the father.

A copy of the decision is available here.