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(Article from Insurance Law Alert, May 2018)

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A California appellate court ruled that claims arising out of a train collision, deemed to have been caused in part by the train operator’s cell phone use, were not barred by the policies’ expected or intended exclusions.  Certain Underwriters at Lloyd’s v. Connex R.R. LLC, 2018 WL 1871278 (Cal. Ct. App. Apr. 19, 2018).

The coverage dispute arose out of a train collision that resulted in the death of 24 passengers and injuries to dozens of others.  Several insurers interpleaded their policy limits and then sued for reimbursement and a declaration that coverage was barred by a policy exclusion that applied to injuries “which the Insured intended or expected or reasonably could have expected.”  The insurers argued that the underlying injuries were reasonably expected based on evidence that the train company knew that personnel used cell phones while on duty in violation of company policy.  A California trial court disagreed and granted the policyholders’ summary judgment motion.  The appellate court affirmed.

The appellate court ruled that under New York law, the standard for applying an expected or intended exclusion is whether the operative occurrence “flowed directly and immediately from an insured’s alleged intentional act.”  The court explained that this standard was not met, even assuming that the policyholders knew about employees’ improper cell phone usage while on duty and failed to impose effective discipline.  In so ruling, the court expressly rejected the contention that injuries are expected or intended if the actor “knew or should have known that there was a substantial probability that a certain result would take place.”  Although this standard was articulated in a New York appellate court decision, see County of Broome v. Aetna Casualty & Surety Co., 540 N.Y.S.2d 620 (N.Y. App. Div. 1989), the Connex court deemed that decision to be an “analytical outlier.”