On June 26, 2013, the Appeals Court of Massachusetts determined that an automobile exclusion in a commercial general liability insurance policy precludes coverage for claims against an insured for alleged negligent supervision of an intoxicated employee, even where the policy at issue contains a “severability of interests” clause.
In First Specialty Insurance Corporation v. Pilgrim Insurance Company, No. 12-P-1281 (Mass. App. Ct. 2013), the insured, a provider of nonmedical support services, was sued when one of its employees, after allegedly becoming intoxicated, was involved in an automobile accident while transporting a customer. The insured’s automobile insurer settled the underlying tort action and then brought claims for equitable contribution and subrogation against the insured’s general liability insurer. The insured’s general liability insurer took the position that it had no obligation to defend or indemnify the insured in light of the automobile exclusion in the insured’s CGL policy. The first paragraph of the automobile exclusion stated that the policy did not apply to “‘bodily injury’ or ‘property damage’ arising out of the ownership, maintenance, use or entrustment to others of any aircraft, ‘auto,’ or watercraft owned or operated by . . . any insured. . . .” The second paragraph of the exclusion provided that “[t]his exclusion applies even if the claims against any insured allege negligence . . . in the supervision [or] hiring . . . of others by that insured, if the ‘occurrence’ which caused the ‘bodily injury’. . . involved the . . . use . . . of any . . . ‘auto’ . . . owned or operated by . . . any insured.” The policy also contained a severability clause.
Affirming summary judgment in favor of the general liability insurer, the Court found that the second paragraph of the automobile exclusion precisely addressed the situation presented in First Specialty. The Court distinguished the earlier cases of Worcester Mut. Ins. Co. v. Marnell, 398 Mass. 240 (1986) and Shamban v. Worcester Ins. Co., 47 Mass. App. Ct. 10 (1999), in which Massachusetts courts determined that automobile exclusions that were substantially similar to the first paragraph of the automobile exclusion in First Specialty did not preclude coverage for negligent supervision claims. The Court explained that in Marnell and Shamban, the insurance policies at issue contained severability clauses which required that the term “insured” in the automobile exclusion be read as referring only to the person claiming coverage under the policy. They did not contain language similar to the second paragraph of the automobile exclusion at issue in First Specialty, which, the Court found, clearly envisions a situation involving two different insureds. The Court determined that even though the CGL policy in First Specialty contained a severability clause, the second paragraph of the automobile exclusion was intended to preclude coverage in circumstances where an insured negligently hired or supervised another insured person who owned or operated the automobile involved in the underlying claim. The Court found that this result comported with the economic decisions made by the insured in purchasing a broadly drafted automobile policy and a CGL policy with an automobile exclusion, and supported the proper allocation of risk between the two policies.