Motorcycle Rally Organizers Lose Bid for Coverage for Auto Accident

A three-judge panel of the Second Circuit Court of Appeals has affirmed a district court ruling that Berkshire Hathaway’s Covington Specialty Insurance Co. had no duty to indemnify its insureds against personal injury claims stemming from an auto accident at the insureds’ annual motorcycle rally.

The claims were brought by two motorcycle riders who were struck by an automobile driven by another attendee at the motorcycle rally known as the Harley Rendezvous.

The appeals court agreed with the district court that an absolute auto exclusion in the Covington general commercial liability policy unambiguously excluded liability coverage for automobile accidents, regardless of whether the insureds themselves owned or operated the vehicle at issue.

The insureds had argued in part that the absolute auto exclusion language was ambiguous when considered along with language it had replaced in a standard exclusion. But the court said the focus must be on whether the new language is itself clear and unambiguous; the language it replaced is not of concern.

Covington’s commercial policy contained a standard exclusion specifying that the insurance does not apply to “bodily injury arising out of the use of any aircraft, auto, or watercraft owned or operated by any insured.” However, the insureds’ policy also had an absolute auto exclusion that deleted and replaced the standard exclusion with a disclaimer of coverage for any “bodily injury arising out of or resulting from the use of any aircraft, auto, or watercraft.” But unlike the standard exclusion it replaced, the absolute auto exclusion contained no language conditioning its disclaimer on whether the “aircraft, auto, or watercraft” in question was “owned or operated by an insured.”

Moreover, the absolute auto exclusion clarified that “this exclusion applies even if the claims against any insured allege negligence or other wrongdoing in the supervision or monitoring of others by that insured, if the occurrence which caused the bodily injury involved the use of any aircraft, auto, or watercraft.”

The policy was issued to plaintiffs Francis and Antoinette Potter, Indian Lookout Country Club and Harley Rendezvous Classic who operate the Harley Rendezvous in Pattersonville, New York. This dispute arose out of a June 2019 automobile-motorcycle collision between parties attempting to attend the event. The motorcycle riders were entering the premises of the country club to attend the Rendezvous when the driver of a Kia automobile allegedly “failed to yield the right of way and turned her vehicle left into the direct path of the motorcycle riders, causing a severe collision and injuries to both motorcyclists.”

The motorcycle riders brought a personal-injury action against both the Kia driver and the insureds in state court, alleging that the Kia driver was negligent in the operation of her automobile and that the insureds were negligent in their supervision of the vehicular traffic entering and exiting the club’s premises for the Rendezvous.

The insureds notified Covington of the action in a letter and, later that same that month, Covington denied coverage based on the absolute auto exclusion endorsement in the policy.

In February 2021, Covington moved for summary judgment on the ground that the absolute auto exclusion precluded coverage because the underlying action had undisputedly arisen out of an automobile accident. The insureds opposed the motion, asserting that the absolute auto exclusion was ambiguous as to whether it (like the standard exclusion it replaced) applied only to bodily injuries caused by automobiles owned or operated by insured parties, and arguing that under New York law, such ambiguity must be construed in their favor.

in September 2021, the district court granted summary judgment in favor of Covington. The insureds appealed.

The insureds’ argument on appeal was that the district court erred in finding that the absolute auto exclusion unambiguously precluded coverage. That was error, according to the insureds, because a New York intermediate appellate court once found (Essex Ins. Co. v. Grande Stone Quarry) ambiguity in a similarly worded exclusion provision of a different insurance policy. The insureds argued that the absolute auto exclusion was ambiguous because it merely omitted the words “any insured” rather than affirmatively replaced them with words such as “any insured or any other persons.” In making this argument, the insureds doubled down on the Third Department’s opinion in Grande Stone Quarry, which found similar wording to be ambiguous.

However, the appeals court noted, the Grande Stone Quarry case had minimal value in this case because it dealt with a different question: whether the exclusion “extinguished” liability coverage for claims resulting from third parties’ using such vehicles when injured by a condition of the insured’s property.

The court explained that when an insurer wishes to exclude certain coverage from its policy obligations, it must do so in clear and unmistakable language. Also, New York courts have repeatedly ruled that insurance contract language that has been replaced is of no effect. What courts must determine is whether “the language of the disputed replacing provision itself is clear and unambiguous,” and if it is, “whether any ambiguity arises when it is read in conjunction with the rest of the policy.” The terms of the replaced exclusion may not be considered in determining whether the new language is ambiguous.

The judges said the Covington policy is explicit in clarifying that the absolute auto exclusion applies even if the claims against any insured allege negligence in the supervision or monitoring of others by that insured, if the occurrence which caused the bodily injury involved the use of any auto. The court said there can be no doubt that such language covers the motorcyclists’ underlying claim that the insureds negligently failed to provide traffic control for the multiple thousands of motorcyclists and motorists traveling to and from the entrance of the Harley Rendezvous.

The judges concluded that under New York law, the absolute auto exclusion “unambiguously precludes coverage” of the insureds’ defense and indemnity.

Covington, a subsidiary of RSUI Group, became a Berkshire Hathaway company in 2022.