COURT DECISIONS

Rough Notes, May 2006

The case was remitted to the Supreme Court, Kings County, for entry of judgment consistent with the decision of the Appellate Division.

Warnock Capital Corporation vs. Hermitage Insurance Company-Supreme Court, Appellate Division, Second Department, New York-September 26, 2005-21 New York Appellate Decisions 3d 1091, 803 New York Supplement 2d 606.

Does auto exclusion apply to negligent driver?

Builders Mutual Insurance Company issued a commercial insurance policy to North Main Construction, Ltd. The policy excluded from coverage " '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 or rented or loaned to any insured." Under the policy, "use" included "operation and 'loading or unloading.'"

North Main employee Ronald F. Exware, Jr., was driving a company vehicle when he crossed a median and struck and injured Gajendra and Poonam Sirohi. Exware was intoxicated at the time. Builders Mutual filed an action for declaratory relief, asking the court to find that it had no duty to defend or indemnify North Main and Exware in the resulting lawsuit. The injured parties, Gajendra and Poonam Sirohi, participated in the Builders Mutual declaratory judgment action, arguing that Builders Mutual should provide coverage under its policy.

In support of its case, Builders Mutual asserted that North Main knew Ronald Exware had an unusually bad driving record, yet he was allowed to drive a company vehicle anyway. This resulted in negligent entrustment of a North Main employee with a company vehicle as well as negligent driving. In addition, Builders Mutual claimed that North Main created an atmosphere of tolerance and acceptance of alcohol and drug use among its employees. According to Builders Mutual, North Main officers knew that alcohol and marijuana consumption took place in the North Main offices, yet they did nothing to prevent or stop this behavior. Accordingly, North Main was negligent in its employee hiring, supervision, and retention practices.

The lower court found in favor of Builders Mutual as to all claims for negligent entrustment and negligent driving. However, as to the claims for negligent hiring, negligent supervision, and negligent retention, the court found in favor ofGajendra and Poonam Sirohi. Builders Mutual appealed.

On appeal, the issue was whether claims for negligent hiring, supervision, and retention were excluded from coverage under the commercial insurance policy. The Court of Appeals of North Carolina found that the automobile exclusion applied. In reaching its decision, the court looked to the actual cause of the injuries to determine whether a cause separate from the use of the vehicle resulted in the injuries. It found that Gajendra and Poonam Sirohi's injuries resulted from Exware's use of the automobile, not from a separate cause. Accordingly, the automobile exclusion applied. The court held that the lower court erred in finding in favor of the Sirohis.