Utah Bar Journal

The term used in most modern policies is “occurrence” (some policies say “event”), a change made to ensure that damage that happens over a long period of time can still be accidental. Thus, we normally get something like this: “An ‘occurrence’ is an accident, including repeated exposure to the same or similar harmful conditions.” Notwithstanding the use of the term “occurrence,” however, the definition of “accident” remains the critical question.2 And therein lies the rub.3

The Utah Supreme Court has long held that the “natural and probable consequences” of an action cannot be an accident. If you roll a large rock toward a parking lot full of cars, it’s not an accident when a fender is dented. If you aim a loaded gun at someone and pull the trigger, it’s not an accident when bodily injury results. We are talking here of course about the results of intentional, not negligent actions, a distinction that is often difficult to draw, given that all acts are in some sense “intentional.”4 But we presumably can all see the difference, for example, between the construction worker who fails properly to tap in that last nail that would have stopped the wall from falling down and crushing other property, and the insured who points a loaded gun into a crowd and pulls the trigger.

In N.M. ex rel Caleb v. Daniel E. & Safeco Prop. & Cas. Ins. Co., 2008 UT 1, 175 P.3d 566, (Safeco), the Utah Supreme Court revisited the definition of “accident,” yielding a sometimes problematic decision.

Standing and Ripeness
Daniel, who was insured with Safeco, “swung a hockey stick at Caleb, striking him in the head and causing serious injuries.” Id. ¶ 1. Next, “Caleb filed a claim against the policy for his injuries, but Safeco denied coverage. Caleb then filed suit against Safeco, seeking a declaratory judgment that Safeco must provide coverage to Daniel for any legal liability arising out of the incident.” Id. ¶ 4. But under the standard “no-action” clause contained in most liability policies, a victim of an insured’s act cannot sue the liability insurer (we have no “direct-action statute” in Utah) absent a final judgment against the insured after trial or a settlement to which the insurer has agreed.5 Given Safeco’s reference to coverage for “any” legal liability, it is clear that Daniel’s fate had not yet been decided when the opinion issued. Caleb thus had no standing to sue Safeco, at least without Safeco’s consent, an issue on which the court’s prior decisions have been abundantly clear.6

This is not just a standing issue: it’s a ripeness issue, for as the court has previously noted, an insurer is not required to indemnify even its own insured until a judgment issues or the insurer agrees to a settlement,7 and there is normally no point in issuing an advisory opinion that, if there is liability, then the insurer must pay. Indeed, given that Daniel had yet to be adjudged liable, the only insurer duty at issue in Safeco was the duty to defend (the court’s reference to “Safeco’s duty to indemnify Daniel[,]” id. ¶ 6, is premature), a duty that Caleb, who was not the insured, had no standing to enforce.

While there have been cases in other jurisdictions where a victim’s declaratory judgment action against an insurer has been allowed prior to entry of an underlying judgment against the insured, they have arisen on rare facts.8 Safeco’s facts, while tremendously important for Caleb and Daniel, are common in coverage disputes. One answer to all this is that Safeco must have decided to waive the standing issue, and likely had very good reasons for doing so. The problem is that, notwithstanding clear precedent on the standing/ripeness issues, and the court’s inherent power to question the justiciability of cases before it, Safeco simply never addresses the question one way or the other, perhaps leaving future litigants unclear on whether the rules have changed.

Was There an Accident?
Safeco prevailed at trial: “The question before us is whether the district court properly concluded in a summary judgment adjudication that this event was not an accident for the purposes of insurance coverage. We reverse the district court and hold that summary judgment was improper.” Id. ¶ 1. The insurer argued that Caleb’s injuries were no accident, given that Daniel had intentionally swung the hockey stick. The court reiterated a holding that reaches back to an old life insurance case:

The word [accident] is descriptive of means which produce effects which are not their natural and probable consequences. … The probable consequence of the use of given means is the consequence which is more likely to follow from their use than it is to fail to follow. An effect which is the natural and probable consequence of an act or course of action is not an accident, nor is it produced by accidental means. It is either the result of actual design, or it falls under the maxim that every man must be held to intend the natural and probable consequence of his deeds.

Id. ¶ 6 (alterations in original) (quoting Richards v. Standard Accident Ins. Co., 58 Utah 622, 200 P. 1017, 1023 (Utah 1921).

For a while, Safeco strongly hints that things looked grim for Daniel:
[W]e turn to the…question of what degree of harm must be intended or expected in order for an event to be deemed nonaccidental. Daniel argues that someone of his tender age could not have expected that the act of swinging the hockey stick would result in a skull fracture and serious brain injuries. He contends that because the degree of injury was unintended and unanticipated, the harm was accidental in nature. We disagree.

Id. ¶ 12. Thus, “[a]lthough we look to whether the injury in general is accidental . . . . the specific type of injury suffered need not be intended or expected by the insured.” Id.

That sounds like the game is over. Daniel said that, because he did not intend the severity of the harm at issue, the ultimate injury was an accident. The Court disagreed, which seems to mean that no matter what degree of harm Daniel intended to inflict, the harm was not an accident. Yet that apparently is not what the court meant: “Only where the injury suffered is completely disproportionate to the injury intended or reasonably expected would the actual injury be considered accidental in nature. Therefore, in examining the case before us, we analyze whether Daniel intended or expected to inflict some sort of nontrivial injury on Caleb.” Id. ¶ 12 (footnote omitted). What the court seems to be saying, although the earlier quoted language arguably belies this conclusion, is that even though some injury was not an accident, injury that was grossly disproportionate to the act undertaken could be an accident.

Safeco criticizes two decisions from the Utah Court of Appeals, State Farm Fire & Casualty Company vs. Geary, 869 P.2d 952 (Utah Ct. App. 1994), and Fire Insurance Exchange v. Rosenberg, 930 P.2d 1202 (Utah Ct. App. 1997),9 not for the results reached (no coverage for someone who pointed a shotgun and pulled the trigger in Geary; ditto for a cherry bomb thrower in Rosenberg), but instead for their statement of the “accident” test, which Geary provided as follows:

To recover under a policy insuring against death or injury by accidental means, (1) it is not enough that the result was accidental, unexpected or unforeseen, but it must appear that the means was accidental; and (2) accident is never present when a deliberate act is performed, unless some additional, unexpected, independent, and unforeseen happening occurs which produces or brings about the result of injury or death.

Geary, 869 P.2d at 955 (quoting Safeco Ins. Co. of Am. v. Dotts, 685 P.2d 632, 633-34 (Wash. App. 1984).

Rosenberg, however, noted that even in the case of intentional actions, intervening forces can render the result accidental, and “[t]hus our holding today and the holding in Geary do not stand for the proposition that any injury caused by an intentional act cannot be an occurrence under the policies at issue.” Rosenberg, 930 P.2d at 1206. Safeco nonetheless “reject[ed] the approach taken by the Utah Court of Appeals in these two cases because it conflicts with this court’s clear precedent[,]” Safeco, 2008 UT 1, ¶ 11, stating that “we have clearly held that we do not examine whether an act is intentional or deliberate, but rather whether the result was intended or expected.” Id.

But under the court’s precedent, reaffirmed in Safeco, the act is the very first thing we look at, for if the act was intentional, and the natural and probable results followed, there is no accident. The court has further elsewhere eschewed reliance on “actual subjective intention”10 in deciding if results are accidents, holding that “it can be inferred that the [insured] intends the natural and probable consequences of his acts.”11

Regardless, a difference that makes no difference is not a difference, and although Safeco and Geary use different words, they in fact apply substantially the same test: Safeco reaffirms that the natural and probable consequences of an intentional action are not an accident. Geary says that if one undertakes a deliberate action, the results are not an accident absent the intervention of an unexpected event, that is, the kind of event that would render the consequences neither the natural nor probable results of the initial deliberate conduct.

Safeco further criticizes Geary for the latter’s citation of “foreseeability,” see id. (“We have clearly held that ‘the test is not whether the result was foreseeable, but whether it was expected.”) (citation omitted), but again, what are the “natural and probable consequences” of an act if not the foreseeable consequences?12 And elsewhere, Safeco itself seems to adopt the foreseeability test, just (again) in different words. See id. ¶ 7 (“[H]arm or damage is not accidental if it is the natural and probable consequence of the insured’s act or should have been expected by the insured.”).

Safeco’s explanation for getting rid of the word “foreseeable” is that “foreseeable” is also the word used when we say that the perpetrator of a negligent act is liable for the “foreseeable harm” of her negligence. Thus, the court reasons, use of the word foreseeable in the coverage context would render coverage for negligence illusory, because the insurer could simply say that because the harm was foreseeable, and the insured thus liable under tort law, the harm was not an accident. See id. ¶ 11 n.7. Several truly unfortunate Tenth Circuit decisions have in fact approved similar reasoning.13

While there is something to this argument, it is also true that words can have different shades of meaning in the law, and that “foreseeable,” when used as a term of art in deciding whether liability for negligence exists, is not the same “foreseeable” we use in deciding if there should be insurance coverage for the same act that caused the harm.

Has Safeco Converted Factual Questions into Legal Issues?
Daniel testified at his deposition that he meant to hit Caleb’s shoulder pads but missed. Safeco remanded Caleb’s suit against the insurer for trial, holding that Daniel’s age had to be taken into account in deciding whether Daniel could have realized that he would miss the pads and hit the face. In so holding, the court noted:

There are…two independent methods by which bodily injury or property damage may be deemed nonaccidental. First, harm or damage is not accidental if it is the result of actual design or intended by the insured. Second, harm or damage is not accidental if it is the natural and probable consequence of the insured’s act or should have been expected by the insured. The first category presents a factual question as to what the insured intended. The second category generally presents a legal question as to what the average individual would expect to happen under the circumstances.

Id. ¶ 7 (emphasis added) (footnote omitted). But in many cases – certainly not all; no one would say that a person who points a loaded gun and pulls the trigger doesn’t expect to cause injury – what “the average individual would expect to happen under the circumstances,” id., would seem to be a factual question, not a legal one. Safeco nonetheless applied its holding as written: “Because of lack of experience, an eight-year-old is less likely than an adult to appreciate the potential danger of hitting an unintended area. Therefore, the average eight-year-old would not expect that nontrivial bodily harm would be the natural and probable result of such an act.” Id. ¶ 14. The result?

We conclude that there is a genuine issue of material fact as to whether Daniel intended to inflict nontrivial harm upon Caleb. We also hold that an average eight-year-old would not anticipate anything more than a minor injury as a result of a hockey stick striking the padded shoulder of another child. We therefore reverse the district court’s entry of summary judgment and remand the case for further proceedings consistent with this opinion.

Id. ¶ 16. Although it is difficult to reconcile the first and second sentences of the holding, it appears that the only issue for trial is whether Daniel was lying, and that he really did intend to hit Caleb in the head. See also id. ¶ 14 n.10 (“At trial,…the fact-finder may choose to disbelieve Daniel’s testimony and determine that a different version of events actually occurred.”). Presumably, if the jury so decides, then Safeco is off the hook.

What result, though, if Daniel admits at trial – if he really thought about the act at all, as opposed to just impulsively flailing out with the stick – that he knew that swinging a hockey stick at what had to have been high velocity (a light tap would not have caused “serious injuries that required hospitalization and brain surgery,” id. ¶ 2) carried a substantial risk of missing the target and causing serious injury, even if he allegedly had no subjective intent to hit the head? Would that factual testimony overcome the court’s ruling that, as a matter of law, Daniel could not have expected the injuries? Daniel did testify at his deposition that “he knew hitting someone with a stick could cause injury,” yet the court dismissed the testimony because it did not carry the indicia of “certainty necessary to suggest that the injury was either intentional or expected.” Id. ¶ 15. Isn’t that up to the finder of fact to decide?

Finally, concerning the matter-of-law test, what happens when we are faced not with actions of individuals, but instead the often complex fact patterns raised by corporate insureds?14

Conclusion
Given the clarity of the court’s prior decisions on the standing/ripeness issues, it is likely unwise to read Safeco as marking a dramatic shift in deciding when suits for declaratory judgment against insurers are justiciable in Utah and who can bring them. On the issue of “accident,” Safeco may raise more questions than it answers.

1. See Mark W. Dykes, Occurrences, Accidents, and Expectations: A Primer of These (and Some Other) Insurance Law Concepts, 2003 Utah L. Rev. 831, 871 – 78 (Article) (discussing the duty to defend).
2. See id. at 838.
3. See id. at 831-32 (discussing difficulty of defining “accident”).
4. See id. at 846-47.
5. Auerbach Co. v. Key Sec. Police, Inc., 680 P.2d 740, 743 (1984).
6. Utah Farm Bureau Ins. Co. v. Chugg, 315 P.2d 277, 281 (Utah 1957) (“The tort victim has no present legal interest in the insurance contract”; the court “want[ed] to repel any inference” that victim was a proper party to a declaratory action under the policy); State Farm Mut. Ins. Co. v. Holt, 531 P.2d 495 (Utah 1975) (victim of tortfeasor bypassed suit against tortfeasor and successfully sued tortfeasor’s insurer; judgment reversed, victim had no standing prior to entry of final judgment to sue insurer); Auerbach Co., 680 P.2d at 743 n.3 (“Since Auerbach lacks privity with [the insurer], it cannot sue in its own right.”).
7. Aurebach, 680 P.2d at 743.
8. A cite-check of the leading case, Bankers Trust Co. v. Old Republic Ins. Co., 959 F.2d 677 (7th Cir. 1992), will reveal a host of cases distinguishing that decision, but also a few following it, including Cmty Action of Greater Indianapolis, Inc. v. Indiana Farmers Mut. Ins. Co., 708 N.E.2d 882 (Ind. App. 1999). Cf. Farmers Ins. Exch. v. Dist. Court, 862 P.2d 944 (Colo. 1993) (holding victim had no standing to litigate policy amounts prior to obtaining judgment against insured).

9. See Article at 845-46 (discussing Geary and Rosenberg).
10. Deseret Fed. Sav. & Loan Ass’n v. United States Fid. & Guar. Co. 714 P.2d 1143, 1146 (Utah 1986).
11. Id.
12. See Article at 862–66 (discussing concept of community knowledge in determining what is expected from a given action).
13. See id. at 847 n. 54 (discussing Midland Const Co. v. U.S. Cas. Co., 214 F.2d 665 (10th Cir. 1954), Neale Constr. Co. v. U.S. Fid. & Guar. Co., 199 F.4d 591 (10th Cir. 1952), and Albuquerque Gravel Products Co. v. Am. Employers Ins. Co., 282 F.2d 218 (10th Cir. 1960)).
14. See e.g. id. at 867–71 (discussing cases on proving corporate knowledge and use of experts in particular industries).