Case Bulletin – West Virginia Supreme Court Rules Upon Intentional or Criminal Act Exclusions and Severability Clauses
On November 17, 2016, the West Virginia Supreme Court of Appeals (the “Court”), issued its opinion in American National Property and Casualty Co. v. Clendenen, et al., 2016 WL 6833123 (W. Va. 2016). This case involves very tragic facts where two minor females, Shelia Eddy and Rachel Shoaf, conspired and carried out the murder of another minor female, Skylar Neese, on July 5, 2012. After the two girls eventually confessed to their crimes, they both pled guilty and received substantial prison sentences.
Subsequently, David Neese and Mary Neese, parents of decedent Skylar Neese, filed a wrongful death action in state court against Sheila Eddy, Tara Clendenen (mother of Sheila Eddy), Rachel Shoaf, and Patricia Shoaf (mother of Rachel Shoaf). James Clendenen, Tara Clendenen’s husband and Sheila Eddy’s step-father, was not named as a defendant but was a named insured on the American National Property and Casualty Company (“ANPAC”) insurance policy at issue in this case. In their complaint, the Neeses alleged, inter alia, Negligent Supervision/Entrustment against the minor females’ mothers, Tara Clendenen and Patricia Shoaf. There are no allegations that any parent was a part of, or had any reason to know of the crime committed by their daughters.
After suit had been filed in state court, the mothers of the girls who committed the crime sought defense and indemnification coverage under their respective homeowner’s insurance policies, Tara Clendenen under the ANPAC policy, and Patricia Shoaf under her policy issued by Erie Insurance Property and Casualty Company (“Erie”). Erie and ANPAC, not named defendants in the state court wrongful death action, filed declaratory judgment actions in the U.S. District Court for the Northern District of West Virginia. Both policies contained similar Exclusions precluding coverage for intentional or criminal acts committed by “any insured” or “anyone we protect”. Additionally, both policies contained severability clauses which state that the insurance “applies separately” to anyone afforded protection under the policies. The declaratory judgment actions were consolidated and the parties exchanged cross-motions for summary judgment. On March 1, 2016, the district court entered an order on the parties’ motions concluding, inter alia, that the insured defendants were not entitled to defense and indemnification, and the exclusion language and severability language were not ambiguous. Additionally, the district court was unclear on how to prioritize the exclusions and the severability clauses under West Virginia rules of contract construction and public policy. Accordingly, the district court certified two questions to the Court.
Upon request from the district court, the Court considered the first question; whether, under the West Virginia rules of contract construction and public policy, unambiguous exclusions for intended or criminal acts precluded liability coverage for insureds who did not commit the intentional or criminal act. The Court concluded that the exclusions precluded coverage as to those insureds. In considering this issue, the Court looked to several other jurisdictions presented with this similar issue. Chacon v. Am. Family Mitt. Ins. Co., 788 P.2d 748 (Colo. 1990) (Colorado Supreme Court held that insurer had properly excluded coverage to parents of son who committed vandalism); Perkins v. Shaheen, 867 So.2d 135 (La. App. 3rd Cir. 2004) (Court of Appeals of Louisiana found that policies excluded coverage for parents of minor child who assault another minor child); Postell v. American Family Mutual Insurance Co., 823 N.W.2d 35 (Iowa 2012) (Supreme Court of Iowa held that an innocent spouse could not recover under a homeowner insurance policy when her husband started a house fire in a suicide attempt); J.G. v. Wangard, 753 N.W.2d 475 (Wis. 2008) (Supreme Court of Wisconsin held that policy exclusion barred liability coverage for wife’s alleged negligence in failing to prevent her husband’s sexual assaults of a minor). The Court agreed with the majority of jurisdictions and concluded that language which states “any insured” or “anyone we protect” is not ambiguous and creates a co-obligation between insureds. Notably, the Court, citing Perkins, stated that the focus of the exclusion is on the cause of damages, not the cause of action. The damages were for wrongful death as the result of an intentional criminal act, even if some of the allegations in the complaint were for acts of negligence. Accordingly, on this issue, the Court concluded that the policies’ exclusions barred coverage for insureds who did not commit the intentional criminal act.
The second certified question required the Court to consider whether the severability clauses, requiring insurance to be applied separately to each insured, prevail over the exclusions and require the insurers to apply the exclusions separately to each insured, despite the intentional or criminal actions of co-insureds. The Court determined that the severability clauses do not prevail over the exclusions in the insurance policies. While it had not previously addressed this issue, the Court begin its analysis noting that it had recently determined that a severability clause does not defeat a family exclusion in Sayre v. State Farm Fire & Cas. Co., No. 11-0962, 2012 WL 3079148 (W. Va. 2012). The Court then considered how the majority of jurisdictions have held that where policies exclude coverage for intentional acts committed by “any” insured and contained a severability clause, the two clauses do not create an ambiguity, and coverage is excluded for all insureds. See, e.g., SECURA Supreme Ins. Co. v. M.S.M., 755 N.W.2d 320 (Minn. Ct. App. 2008) (The Court of Appeals of Minnesota held that even with the severability clause, minor child’s parents were still precluded from coverage for allegations of negligent supervision when their child attacked a neighbor). The Court then considered the minority position by analyzing a recently decided case, Minkler v. Safeco Ins. Co. of Am., 232 P.3d 612 (Cal. 2010), where California declined to follow the majority and found a conflict in the severability and exclusion provisions in the policy. The Minkler Court required the exclusions be applied separately to each insured. In this case, the Court was unpersuaded by the Minkler decision and agreed with the majority of other jurisdictions. The Court believed that if it were to follow the Minkler court, it would render the “any” or “anyone” language of the exclusion provisions superfluous. The Court determined that the purpose of the severability clauses is to spread protection among the insured and that the policy must be read as a whole. Accordingly, on the second certified question, the Court determined that the severability clauses do not prevail over the intentional criminal act exclusions in the policies.