Last Wednesday, a federal court in Dallas granted motions for summary judgment filed by a trio of claimants and declared an off-roading incident that was the subject of separate litigation was an “accident” under the relevant insurance policies and denied the insurer’s motion for summary judgment seeking a declaration otherwise. Encompass Indemnity Co., et al. v. Gavin Steele, et al., 3:21-CV-01650-X, 2022 WL 3691045 (N.D. Tex.—Dallas Aug. 24, 2022) arose out of a dispute between Ian Wolf and his insurers, Encompass Indemnity Company and Encompass Home and Auto Insurance Company (“Encompass”), over whether Encompass owed him a duty to defend and a duty to indemnify after a lawsuit was filed against Mr. Wolf for his alleged involvement in an off-roading incident.

                Encompass issued automobile, homeowner’s, and personal umbrella policies to Mr. Wolf and agreed to pay for damages for bodily injury and property damage for which Mr. Wolf became legally responsible due to an auto accident or caused by certain accidents. Gavin Steele and Brittany Bernadsky and Ian Wolf were guests at a ranch owned by Chad Michael Bray. At the end of the night, they sought to take a golf cart to the guest house. Mr. Bray insisted on driving the duo in his 2017 Ford Raptor, along with Mr. Wolf as his passenger. Instead of taking Mr. Steele and Ms. Bernadsky to the guest house, Mr. Bray took them to a shooting range on the ranch and then started off-roading in the mud. Mr. Bray stopped on a hilltop and stated he was “done now.” In response, Mr. Wolf stated, “No Chad, nail it!” at which point Mr. Bray accelerated to over 60 mph, causing the Raptor to leave the ground, tumble, and eject Steele and Bernadsky—who later sued Mr. Bray, Mr. Wolf, and other parties in state court for negligence, gross, negligence, and negligently assisting and encouraging the negligence of Mr. Bray and alleging Mr. Bray failed to exercise reasonable care to avoid foreseeable injury to Steele and Bernadsky.

Encompass then filed a declaratory judgment action in federal court seeking a declaration that it owed no duty to defend Wolf in the underlying lawsuit and no duty to indemnify Mr. Wolf or pay damages awarded in favor of Steele and Bernadsky. Encompass argued that the policies covered “accidents” but Mr. Wolf yelling to Mr. Bray to “nail it” and thereby continue the off-roading was the natural result of an intentional act, especially because the damage would not be an accident if it was the expected, reasonably anticipated, or ordinary result of the intentional act. On the other hand, Bernadsky and Steele argued that Texas Supreme Court and Fifth Circuit precedent distinguish between intentionally tortious conduct that causes unintended consequences, which would not be an accident, and deliberate acts performed negligently, which would be accidents. They further argued that Encompass’s interpretation of the policy would render other policy exclusions on intentional conduct meaningless. As to the duty to indemnity, Steele and Bernadsky argued the issue was premature.

Right off the bat, the Court appeared to admonish insurance companies for attempting to avoid coverage by claiming “insureds intend their actions” and “damage or injury is often foreseeable.” Rather, the Court agreed that the Texas Supreme Court and Fifth Circuit had already rejected such arguments.

Because the policies at issue did not define “accident,” the Court looked to its ordinary meaning as “a fortuitous, unexpected, and unintended event.” The Court then concluded that a claim would not involve an accident if (1) there was an intentional tort or (2) “circumstances confirm that the resulting damage was the natural and expected result o the insured’s actions; that is, was highly probable whether the insured was negligent or not.” For example, when an insurer attempted to argue that drunk drivers perform the intentional act of drinking and driving, the Fifth Circuit concluded that the party in the underlying case intended to drink, but he did not intend to ram into another car. In this instance, the Court similarly held that, although Mr. Wolf intended to say “Nail it!” to Mr. Bray and thereby encourage Mr. Bray to start off-roading again, but Mr. Wolf did not intend for Mr. Bray to flip the truck and eject Steele and Bernadsky. In other words, Mr. Wolf’s statement was not an intentional tort and Steele and Bernadsky being ejected was not a natural and expected result of Wolf telling Mr. Bray to “Nail it.” As such, the Court held that the incident met the ordinary definition of “accident,” and Encompass therefore owed a duty to defend Mr. Wolf at least due to the auto and homeowner’s policies. The Court also agreed with Steele and Bernadsky that the duty to indemnify issue was premature. Therefore, the Court granted Steele, Bernadsky, and Mr. Wolf’s motions for summary judgment and denied Encompass’s motion for summary judgment.

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