If a tree falls and injures someone on a golf course, does an insurer have to provide coverage? The Illinois Court of Appeals said yes, ordering Indiana Insurance Co. to help cover a $4.5 million verdict won by a property management employee hit by a falling tree at a golf course managed by her employer, Royce Realty & Management Co., the policyholder.

Royce Realty sought coverage for its business, which involved managing various commercial properties, including two golf courses. It bought a commercial general liability policy that included coverage for bodily injury and property damage caused by an accident “because of your operations.” However, the policy also contained an Endorsement, labeled “Limitation of Coverage to Designated Premises or Project.” The Endorsement schedule listed only a single location for coverage: Royce Realty’s main office.

A Royce Realty employee was subsequently seriously injured when a tree on one of the golf courses managed by the company fell on her. Indiana initially agreed to defend Royce Realty in the personal injury suit brought by the employee but later withdrew. A $4.5 million verdict was returned in the employee’s favor, and Royce Realty assigned its rights to her under the Indiana policy.

Denying coverage, Indiana pointed to the Endorsement, the plain language of which limited coverage to claims arising out of “the ownership, maintenance or use” of Royce Realty’s office. Because the accident took place off-premises, coverage was not available, the insurer argued.

In light of other policy provisions within the policy, the Endorsement is ambiguous, the employee responded, which must be resolved in her favor.

To resolve the dispute, the court first looked to the type of policy at issue. A CGL policy typically protects against claims for injuries or losses arising from the insured’s business operations. Royce Realty’s policy “was in fact labeled as a CGL policy and contained language insuring against liability arising from Royce Realty’s operations,” the court said.

The court frowned upon Indiana’s attempts to transform the underlying CGL policy into a premises liability policy insuring only risks related to use of Royce Realty’s offices. Although Royce’s president signed off on the package of insurance policies including the Endorsement, the court looked at “what a reasonable person in the shoes of the insured would understand the policy to mean.”

“We do not believe that a reasonable person, having intended to protect against risks associated with his business operations and having bought a policy labeled as a CGL policy that purported to insure such risks, would read the Endorsement as nullifying most of that coverage,” the court concluded.

Reading the Endorsement together with the rest of the CGL policy to which it applied, the court found it ambiguous. Although the Endorsement limited coverage, the rest of the policy encompassed business operations involving off-premises activities, including coverage for medical expenses for bodily injury caused by an accident either (a) on or adjacent to premises Royce Realty owned or rented, or (b) because of Royce Realty’s operations.

“This provision plainly indicated that off-premises accidents would be covered if they arose because of Royce Realty’s business operations,” the court said. Other contradictory provisions included the definition of “coverage territory” that included Canada and a policy statement that Royce Realty employees were insured “for any acts performed within the scope of their employment.”

Finally, the court looked to the nature of the insured’s business – property management – and the fact that the insurer knew it would involve substantial off-premises risks when it wrote the policy. “The potential for accidents that could give rise to lawsuits against such a property manager is obvious,” the court said. “Indeed, the very type of accident experienced by [the employee] was ‘a risk likely to be inherent in the insured’s business.’”

Indiana’s attempt to “quietly convert” the CGL policy into a premises liability policy failed, the court said, affirming summary judgment for the policyholder and the employee.

To read the decision in Indiana Insurance Co. v. Royce Realty and Management, Inc. click here.

Why it matters: In the Indiana decision the court focused on the type of insurance for which the parties contracted, the risks undertaken, the subject matter insured and the purposes of the contract. Based on all of these factors, the court found coverage for the employee’s injury – despite the Endorsement that attempted to limit coverage to only a designated area.