Cone v. Nationwide Mut. Fire Ins. Co., 75 N.Y.2d 747 (1989)

The phrase “arising out of” in a motor vehicle exclusion clause of a homeowner’s insurance policy is interpreted broadly to exclude coverage for damages that originate from, are incident to, or have a connection with the use of a motor vehicle, even if the claim is based on negligent entrustment.

Summary

This case addresses whether a homeowner’s insurance policy covers a claim of negligent entrustment when the policy excludes coverage for damages “arising out of” the use of a motor vehicle. The plaintiff, Cone, sought coverage after being sued for negligently allowing his son to operate an all-terrain vehicle (ATV) on a public highway, resulting in an accident. The court held that the exclusion clause applied, as the damages arose out of the use of the motor vehicle, regardless of the negligence claim. This decision clarifies the scope of the “arising out of” language in such exclusions and limits the insurer’s obligation in negligent entrustment scenarios.

Facts

Plaintiff Cone owned a homeowner’s insurance policy with Nationwide Mutual Fire Insurance Company. Cone’s 14-year-old son operated an all-terrain vehicle (ATV) on a public highway. An accident occurred involving the ATV. A lawsuit was filed against Cone, alleging he negligently allowed his son to operate the ATV, leading to the accident and resulting damages.

Procedural History

The lower courts ruled in favor of Cone, finding that the insurance policy covered the claim. Nationwide appealed, arguing that the motor vehicle exclusion clause applied. The New York Court of Appeals reversed the lower court’s decision, holding that the exclusion clause precluded coverage.

Issue(s)

Whether a homeowner’s insurance policy, containing an exclusion for damages “arising out of the ownership, maintenance or use of a motor vehicle,” covers a claim against the homeowner for negligently entrusting the motor vehicle to another person.

Holding

No, because the damages stemmed from the use of the motor vehicle, triggering the exclusion clause, regardless of the negligence claim against the homeowner for entrusting the vehicle.

Court’s Reasoning

The Court of Appeals focused on the policy language, specifically the phrase “arising out of.” The court reasoned that this phrase is broad and encompasses damages that originate from, are incident to, or have a connection with the use of a motor vehicle. The court distinguished its prior decision in Lalomia v. Bankers & Shippers Ins. Co., noting that the exclusion clause in Lalomia was narrower, referring to damages “directly related to the ‘ownership, maintenance, operation’” and use of a vehicle. The court emphasized that insurers introduced the “arising out of” language to broaden the scope of the exclusion, as explained in Fillmore v. Iowa Natl. Mut. Ins. Co. The dissent argued that the majority’s conclusion lacked a sound basis and contradicted the plain language of the policy. Judge Kaye, in dissent, stated that the terms of the policy exclusion plainly precluded coverage. The dissent also noted the overwhelming weight of authority construing such standard policy exclusions as applicable to claimed negligent entrustment. The dissent further argued that if Lalomia was deemed indistinguishable, it should be overruled, not extended. The majority, however, found that the “arising out of” language clearly applied to the facts of the case, excluding coverage for the homeowner’s alleged negligence in allowing his son to operate the ATV. The court effectively sided with a broader interpretation of policy exclusions to limit insurer liability in cases with a nexus to motor vehicle use. The court referenced Aetna Cas. & Sur. Co. v Liberty Mut. Ins. Co., quoting Appleman, Insurance Law & Practice stating that ” ‘ordinarily understood to mean originating from, incident to, or having connection with the use of the vehicle.’ “