Insurance company does not have to cover injuries caused by drunken boater
The AutoClub wrote a policy of insurance for Robert Lee Smith and Cynthia Hall Smith that provided liability coverage on the operation of their boat. In July of 2006, while intoxicated, Robert Smith, with his wife and young kids in the boat, ran into the boat owned and occupied by Karon and Duane Pool. The Pools sued for personal injury and for property damage.The Auto Club pointed to the fact that Smith had pleaded nolo contendre [no contest] to endangering his kids by boating while intoxicated. Therefore, the insurer maintained, Smith was subject to exclusions in the policy that exempted coverage for intentional or criminal acts, and it could deny coverage for the incident. The trial court agreed and dismissed the Pools' injury and property damage claims. The Pools appealed, arguing that virtually any negligent behavior is criminal under one statute or another, making the AutoClub's liability coverage purchased by the Smiths completely illusory. They pointed to the Watercraft and Marine Safety Act, for example, which regulates safe boating, and a violation of which would void the Auto Club's coverage. The Court of Appeals suggested that a provision such as the AutoClub's does not provide illusory coverage because the Smiths didn't prove that they cannot buy similar coverage without this exclusion and because many statutory violations are not actually criminalized but rather are subject to civil penalties. It will be interesting to see whether that latter distinction holds up down-the-road, however, since the Auto Club's policy also excludes coverage for actions "in the nature of a criminal act." We're wondering what the latter actions would be, if they describe a separate category of "wrongful" but not criminal actions that exclude coverage.
This has been a developing problem since the Engler Majority first began aggressively interpreting insurance policies for the benefit of insurers. In the past, there was an implication in the decided cases that this type of exclusion would apply to intentional criminal behavior--for obvious reasons: the Auto Club shouldn't have to pay a robbery-shooting victim on behalf of its' insured--but not to criminal behavior that was more in the nature of a "failure of due care."
In fact, there are statutes making it criminal to endanger a child or to fail to remove the hardware from an abandoned refrigerator, for harboring a dangerous animal, or for all sorts of basically "negligent" acts. Since virtually every homeowners' policy sold in Michigan contains similar exclusionary language, insureds are buying protection from their mistakes that is not as broad as they think it is--and they won't learn any better until it is too late and a company denies them coverage for a catastrophic error.
We have seen Farm Bureau use this language, for example, to deny coverage where one young man accidently shot his companion in the eye with a bb-gun and blinded the other boy in that eye. Since the shooter pleaded guilty to "reckless discharge of a firearm," he and his parents did not have the liability coverage the parents thought they had purchased. As Justice Taylor pointed out in a case many years ago, liability insurance is sold to protect people from their own "stupid" errors: allowing insurers to collect premiums but then deny coveragefor negligence by reference to obscure exclusionary language is neither reasonable, nor fair, in our opinion.