Editor’s note: Robert Bruss is temporarily away. The following column from Bruss’ “Best of” collection first appeared Sunday, March 12, 2006.

James McGowan owned a four-unit apartment building where Lori Dutton and her 4-year-old daughter, Amy, lived in one of the apartments.

McGowan sold the building to Mohammed Hakeem in May 2001. Dutton and her daughter continued to occupy the apartment. In September 2001, McGown cancelled his State Farm property owner’s insurance policy.

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During a thunderstorm in October 2001, a rotting tree next to the building collapsed onto the Dutton apartment, killing Amy.

Dutton subsequently sued former owner, McGowan, for damages. She alleged McGowan was negligent during the time he owned the building by failing to correct the dangerous condition created by the rotting tree and his negligence caused or contributed to Amy’s death.

McGowan tendered defense of Dutton’s lawsuit to State Farm, his former insurer. State Farm refused to defend under the policy that was an “occurrence” policy.

State Farm then sued its former insured, McGowan, for declaratory judgment that it has no duty to defend or indemnify him against this personal injury lawsuit that occurred after the policy was cancelled.

If you were the judge, would you order State Farm to defend and provide insurance policy coverage although the insured cancelled the policy before the loss occurred?

The judge said yes!

Although Amy’s death occurred after McGowan cancelled his State Farm’s insurance policy, the judge explained, his alleged negligence “occurrence” took place during the policy term while McGowan owned the building.

McGowan’s alleged negligence was an event that took place during the policy period if he failed to inspect the rotting tree and have it removed, the judge noted. The question is whether this negligence was an accident that resulted in bodily injury, namely Amy’s unfortunate death, the judge continued.

Dutton’s complaint alleges McGown failed to adequately inspect and maintain the tree, the judge reported.

“Because the fall of the tree was unforeseen, unexpected and fortuitous, McGowan’s negligent omission constituted an accident as the term is used in insurance policies,” he emphasized.

State Farm repeatedly asserts that a negligent act alone is not an occurrence, the judge explained. However, the policy does not specify when the bodily injury must take place, although it must manifest itself to trigger State Farm’s obligation to defend McGowan if the occurrence occurred during the policy term, he added.

Because the insurance policy is ambiguous as to when the injury must occur, ambiguities must be resolved in favor of the insured and against the insurer, the judge noted. Therefore, State Farm must defend McGowan in this lawsuit and possibly pay damages to Dutton if he is found to be negligent, the judge ruled.

Based on the 2005 U.S. Court of Appeals decision in State Farm Fire and Casualty Co. v. McGowan, 421 Fed.3d 433.

(For more information on Bob Bruss publications, visit his
Real Estate Center

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