Sixth Circuit Highlights the Importance of Policy Definitions

In one of the more unusual cases interpreting terms of an insurance policy, the Sixth Circuit Court of Appeals in Cincinnati highlighted the importance of policy definitions, finding in Bennett v. State Farm Mut. Auto Ins. Co., that an “occupant” of a vehicle — defined by the policy as anyone “in, on, entering or alighting from” the vehicle — included a pedestrian who was struck by the vehicle and thrown onto the hood of the car.

In the case, a woman was walking her dog across the street when she was struck by a car and thrown onto the hood of the car. The woman settled with the driver’s insurer for the full limits of the driver’s liability insurance coverage. Separate from the claim for liability coverage, the woman also sought medical payment coverage under the driver’s policy.

Coverage for medical payments is provided in addition to liability coverage but applies only to the insured individual and other occupants of the vehicle. The policy defined “occupying” as “in, on, entering or alighting from” the vehicle. In order to recover the medical payments coverage, the woman argued that because she was struck and landed on the vehicle, she became an “occupant” entitled to such coverage.

The insurer labeled the argument “ridiculous,” appealing to a common sense application of the term “occupy” and citing a number of cases in which pedestrians struck by vehicles had unsuccessfully attempted to characterize themselves as occupants of the vehicle.

The trial court recognized that “occupying” a vehicle is not limited to drivers and passengers, but agreed with the insurer that the woman being thrown onto the vehicle did not make her an occupant. In its analysis, the trial court noted the numerous cases litigating the definition of “occupy” and, referencing this precedent, determined that an “occupant” is anyone who is “performing tasks intrinsically related to the operation of the vehicle,” including a person underneath a vehicle while working on it or a person loading items into a trunk. The district court ruled, however, that the woman here lacked the necessary relationship to the vehicle to be an occupant.

On appeal, the Sixth Circuit took a much simpler approach to the issue, looking only to the definition provided by the policy. While common sense, natural usage and precedent may inform contract interpretation, the threshold inquiry requires application of the contract’s plain language.

The appellate court looked first to the words of the policy and stopped the analysis when it found the plain language defining an occupant as anyone “on” the vehicle. The court recognized that “as a matter of ordinary English usage, one might be skeptical that [the woman] was an ‘occupant’ … But the parties to a contract can define its terms as they wish, and State Farm has done so here.”

The Sixth Circuit noted that the “intrinsically related” test used by the trial court applies only where there is a “gray area” but here “The policy marks out its zone of coverage in primary colors. The policy’s terms therefore control.”

The woman was on the vehicle and therefore was an occupant according to the policy’s definition.

The interpretation may not reflect the typical or expected reading of the term, but it reflects an appropriate legal analysis.

The decision affirms that the rules for interpreting contracts require the court to first look to the plain language of the policy. While the actual holding — that a pedestrian who is struck and thrown onto a car becomes an occupant of the vehicle by virtue of landing on the car — is exceptional and highly fact-sensitive, the court’s approach is important and instructive for other litigants. The insurer and the district court had both reached out to precedent and detailed analyses to define “occupy,” but the Sixth Circuit thought that legal rules limited the analysis to the plain language of this particular policy.

As the court stated, “We do not construe contractual provisions in gross … Instead we interpret each contract individually, according to its terms.” The insurer decided to define the term “occupy” and the court held it to that definition.