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State Farm Fire & Cas. Co., v. McGowan: Landlord Covered by Insurance after Policy’s Expiration

A federal appellate court has considered whether an insurance company had a duty to defend a landlord over allegations of negligence related to an accident on the landlord’s property which killed one of the tenants.

James McGowan, individually and d/b/a JMAC Enterprises (“Landlord”), owned a four-unit apartment building (“Building”). He leased one of the units to Lori Dutton (“Tenant”) and her four-year-old daughter. In May of 2001, the Landlord sold the Building and the Tenant continued leasing her apartment from the new owner. In September of 2001, the Landlord canceled the insurance policy he held with State Farm Fire and Casualty Company (“Insurance Company”) for the Building.

In October of 2001, a storm caused a branch from a tree adjacent to the Building to crash into the Tenant’s apartment, killing the Tenant’s daughter. The Tenant filed a lawsuit against the Landlord, alleging that he had been negligent during his ownership of the Building by failing to correct the dangerous condition of a rotting tree on his premises.

The Landlord filed a claim with the Insurance Company, seeking that they defend him in the Tenant’s lawsuit. The Insurance Company sought a judicial declaration that it did not owe a defense to the Landlord because his policy was a “claims made” policy, meaning that the policy only covered claims made during the policy period and the claim did not arise until after the policy was canceled. The Landlord argued that since the lawsuit alleged negligence during the policy period, the Insurance Company had a duty to defend the Landlord. The trial court ruled in favor of the Landlord, and the Insurance Company appealed.

The United States Court of Appeals for the Sixth Circuit affirmed the trial court’s decision. The court first looked at the insurance policy’s language. The policy required the Insurance Company to pay damages to defend the Landlord in any lawsuit brought against him for lawsuits alleging “bodily injury” caused by an “occurrence” within the policy period, subject to the policy’s limits. The policy defined an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions which result in bodily injury”.

The question for the court was whether the policy’s definition of an “occurrence” was met by the allegations in the Tenant’s lawsuit. The lawsuit alleged that the Landlord had failed to properly inspect the tree and remedy its defects. The trial court had determined that since the fall of the tree allegedly occurred because of the Landlord’s failure to remedy the condition of the tree during the period covered by the insurance policy, these allegations triggered the coverage provisions in the insurance policy. The court agreed with this conclusion, finding that the policy only required that an “occurrence” take place during the policy period. Since the allegations of the Tenant’s lawsuit covered the Landlord’s behavior during the policy period, the court ruled that the policy’s definition of an occurrence was satisfied and the Insurance Company had a duty to defend the Landlord in the Tenant’s lawsuit.

The court rejected the Insurance Company’s argument that the policy required a bodily injury within the policy’s time period in order for the Landlord to receive coverage. The court stated that the policy did not contain such a requirement. The Insurance Company could have conditioned coverage on physical injury within the policy’s time period, but had failed to do so. The Insurance Company argued that it had created such a requirement in the policy, but the court found that the policy’s language was at best ambiguous and so the policy would be construed in favor of the insured. Since the Insurance Company had failed to include explicit language requiring a bodily injury triggering coverage, the court found that the policy’s definition of an “occurrence” had been satisfied and so the Insurance Company had a duty to defend the Landlord in this lawsuit.

State Farm Fire & Cas. Co., v. McGowan, 421 F.3d 433 (6th Cir. 2005).