It is late Friday afternoon. The sun and the mild temperature have conspired to draw your colleagues out of the office, and you have decided to follow their lead. Just as you are about to turn off the office lights, the phone rings. The weekend will have to wait a bit longer.
A junior claim representative is on the other end of the line. It seems the 17-year-old son of a named insured, while driving the insured vehicle, was involved in a serious accident with the operator of another vehicle. The son was at fault. Both the son and the driver of the other vehicle suffered significant injuries. The insured has made a claim under the medical payments coverage of the policy, and the attorney for the other driver has submitted proof of injuries easily justifying a policy limits offer if the liability coverage is applicable.
Standard stuff, so why the call? You inquire further and learn that shortly prior to the accident, the son of the named insured met another young man and, after some testosterone-fueled banter regarding the respective merits of their vehicles, they decided to settle their disagreement on a two-lane highway. They agreed to race to a point, approximately one half mile away, where the road began a sharp turn to the left. The vehicles lined up facing north, one using the lane reserved for oncoming traffic.
The starter stood between the vehicles, raised his arms to signal the drivers to prepare, and then dropped his arms to start the race. The vehicles were neck-and-neck initially, but the insured eventually pulled ahead. Both vehicles achieved a speed greatly in excess of the speed limit. Shortly before the finish line, the other driver concluded that he had lost the race and pulled into the right lane behind the insured and began to decelerate. The insured saw the other driver pull in behind him and concluded he had won the race. As the insured continued down the road, he too began to decelerate but was still exceeding the speed limit as he crossed the finish line and entered the curve. About halfway through the curve, he lost control of the vehicle, spun and crossed the center line, striking the vehicle driven by the claimant.
The junior claim representative wants to know what he should do. The named insured is pressuring him to pay the medical expenses incurred by his son, and the attorney for the claimant is threatening to sue the insured for compensatory and punitive damages if the limits of the liability coverage are not paid immediately. You know the policy booklet cover to cover and are aware that it contains an exclusion, applicable to all coverages, for racing and speed contests. You quickly review the exclusion, and it appears to apply. Should you tell the junior claim representative to deny all claims and let the weekend begin? Not so fast!
You are, of course, aware that insurers have the right to limit coverage of risks and, therefore, liability, by imposing exceptions to coverage so long as the exclusions are not inconsistent with public policy. You also know that, to be effective, the exclusion must be clearly expressed.
The facts as reported raise three issues you will need to resolve before accepting or denying coverage. First, would application of the exclusion violate the public policy of the applicable state? Second, did the insured engage in a racing contest or speed contest within the meaning of the exclusion? Third, was the insured still engaged in a racing contest or speed contest at the time of the accident?
Does the Exclusion Violate Public Policy?
As applied to the facts, the issue will be whether the public policy of your state prohibits attempts to limit liability coverage or medical payments coverage. For example, in Krempel v. Noltze
, 164 N.W.2d 227 (Wis. 1969), the court held that an exclusion from coverage while an automobile was used in a prearranged racing or speed contest was invalid because it ran afoul of a statute that provided that no automobile policy shall exclude from coverage “[t]he operation, manipulation or use of such motor vehicle for unlawful purposes.” The court noted that another statute made it unlawful to engage in any race or speed contest upon any highway.
Did the Insured Engage in a Racing or Speed Contest within the Meaning of the Policy?
There are few cases nationwide interpreting this type of provision. According to one secondary authority, “The few cases dealing with clauses of this type involved slightly dissimilar verbiage and widely differing fact situations, with the result that no general rule of law can be formulated respecting their construction.” 23 A.L.R.3d 1444. If there is a guiding principle that can be discerned from cases interpreting such clauses, it is that “[w]ords, like people, are judged by the company they keep.” Anderson v. Southeastern Fidelity Ins. Co., 307 S.E.2d 499 (1983).
In County Mutual Ins. Co. v. Bergman, 185 N.E.2d 513 (Ill. Ct. App. 1962), the insured, Bergman, and the driver of the other vehicle, Hieser, admitted talking to each other moments prior to the accident but denied there was an agreement to race or any conversation about a race. Testimony of independent witnesses supported the conclusion that the vehicles were engaged in a race or speed contest.
The policy contained nine separate exclusion clauses, and each clause except the first was limited to a single subject. The first clause provided that the policy did not apply “to any automobile while used as a public or livery conveyance, or while being operated in any prearranged race or competitive speed test, or while rented or leased to others.”
The insurer filed a complaint asking for a declaratory judgment that there was no coverage for the suit against Bergman. The court rejected the insurer’s contention that the exclusion should be construed as though it read “any race or speed contest,” and said that since the insurer had seen fit to confine the exclusion to a “prearranged” race, or a “competitive” speed test, it did not intend to exclude all races and all speed contests. Furthermore, the court pointed out that the racing exclusion was part of a clause which dealt with exclusion of ventures of a commercial nature and said that, therefore, the phrase “prearranged race or competitive speed contest” should be construed to mean a race or speed contest of a commercial or business type, so as to make the entire exclusion conform to the single-subject pattern of the other exclusion clauses.
In Alabama Farm Bureau Mutual Cas. Ins. Co. v. Goodman
, 188 So.2d 268 (Ala. 1966), the son of the insured agreed with a bicyclist to race to a certain point on a public road, and each bet a dollar that he could reach the point first. The bicyclist was given a head start. The insured auto eventually overtook and struck the bicyclist, causing his death.
The policy contained an exclusion which provided that the insurance did not apply under any coverage “if the injury or damage is caused by an automobile race or competitive speed test.” The insurer contended that the death of the bicyclist was caused by a “competitive speed test.” The court noted that “competition” had been defined as the act of seeking or endeavoring to gain what another is endeavoring to gain at the same time; that “speed” had been defined as an act or state of moving swiftly; and that “test” had been defined as a critical examination or decisive trial. Concluding that there was no ambiguity in the words “competitive speed contest,” the court said that giving such words their common meaning, it was convinced the facts clearly showed that the bicyclist and the insured driver were engaged in a competitive speed test, and therefore there was no coverage for the subject accident.
In Detroit Automobile Inter-Insurance Exchange v. Bishop, 180 N.W.2d 35 (Mich. Ct. App. 1970), the son of the named insured, age 17, wagered three dollars with two other young men that, from a standing start, he could drive the insured vehicle along a two mile stretch of public highway within an elapsed time of two minutes and fifteen seconds. While being timed, the son accelerated his vehicle and soon attained a speed in excess of 70 miles per hour. He noticed a child in the road, applied his brakes, skidded and struck the child, causing her death.
The insurance policy excluded liability as to “any automobile while operated in any prearranged race or speed contest.” The insurer argued that what occurred was a “prearranged race or speed contest” citing the Goodman case discussed immediately above. The insured argued that the policy in the Goodman case did not contain the word “prearranged,” as did the policy at issue, and relied upon the Bergman case discussed above.
Like the court in Bergman, the court in Bishop examined the other exclusions in the policy, noting:
[N]one of the other use exclusions appear to expose the owner to such ruinous liability arising from what is, in many cases, an unpredictable teenage frolic. If this commonplace exposure of parents and other entrustors of automobiles is to be excluded from coverage, the policy should, we think, speak more clearly than the one before [us].
The court “concluded that the exclusion in the policy for a ‘prearranged race or speed contest’ describes a race or speed contest which has been more elaborately planned than the impulsive, spur-of-the-moment race-against-time which occurred in this case.”
In Yosemite Ins. Co. v. Meisner, 561 P.2d 185 (Or. 1977), the insured operated an automobile repair shop. A friend came to the shop for a repair, and a discussion ensued as to the merits of a four-speed versus a three-speed transmission. The insured and his friend decided to take to the street to determine which of the automobiles had the more effective transmission. While the comparison was being made, the insured became involved in an accident with two other vehicles.
The policy, a garage liability policy, contained the following exclusion:
This insurance does not apply…to bodily injury or property damages arising out of the…operation…of any…automobile …while being used in any prearranged or organized racing speed or demolition contest or in any stunting activity or in practice or preparation for any such contest or activity….
With respect to the issue of whether the insured had engaged in a race, the court said: “It is our opinion that pitting the acceleration of one transmission against the other is a race or speed contest.” The court also concluded the contest was “prearranged” within the meaning of the policy.
Finally, in Anderson v. Southeastern Fidelity Ins. Co., the insured, Pillsbury, encountered Williams at an intersection. Either Williams or his passenger challenged Pillsbury to a “drag race” and a race ensued. Some distance down the road, railroad tracks crossed the road. Pillsbury was aware of the crossing and let up on his accelerator. As Williams passed over the crossing, he lost control and collided with a vehicle going the opposite direction, then went into the path of the Pillsbury vehicle. As a result of the three-car collision, Williams was killed and those in the other vehicles were injured.
Pillsbury’s policy contained the following exclusion: “This policy does not apply: (a) Under any of the coverages to any automobile…while used or operated in any racing event, speed contest or exhibition.” The court judged that the phrase “any racing event” could be subordinated to the final term, “exhibition,” and that, as written, the language could not serve to exclude liability coverage for the event in question.
The court also took note of the public policy of the state of Georgia “enunciated in the advent of compulsory motor vehicle liability insurance: that persons who are injured should have an adequate recourse for the recovery of their damages.”
Did the Accident Occur While the Insured Was Engaged in a Racing or Speed Contest?
In other words, had the racing contest or speed contest ended prior to the accident? There is a paucity of case law interpreting the terms “while operated in” or “while used in” typically found in exclusions of this type. The few cases that do exist follow one of two conflicting approaches.
The first approach terminates the applicability of the exclusion at the same time the event terminates (when a winner is determined), even if the additional risk created by the event has not dissipated. In American Standard Insurance Company v. Tournor, 185 N.W.2d 267 (Neb. 1971), the insured, Larry Tournor, and another driver, Gary Stevenson, arranged to have a “drag race” on a quarter-mile section of a public highway. Michael Tournor, the brother of Larry, drove his vehicle north past the finish line and parked with his lights out to observe.
By the time he reached approximately the halfway point of the quarter-mile strip, Stevenson gave up the race, decelerated and pulled into the right-hand lane behind Larry Tournor’s car. Tournor saw Stevenson’s lights in his rearview mirror, ceased accelerating, and proceeded to an intersection to turn around. Before he arrived at the intersection, the Michael Tournor car, which had been parked nearby, suddenly pulled onto the highway in front of the Larry Tournor vehicle, and the two vehicles met almost head-on. At the point of the collision, Larry’s speed was still an estimated 60 to 70 miles per hour.
The insurer for Larry Tournor’s vehicle filed an action to determine whether a clause in the policy applied to exclude coverage for the accident. The exclusion read as follows:
This policy does not apply: Under any of the coverages, a. to any automobile (1) while rented to or leased to others by the insured, (2) while used as a public or livery conveyance, or (3) while used in any pre-arranged racing or speed contest….
A jury trial was waived and the trial court held that the exclusion was not applicable because “any prearranged race or speed contest shown by the evidence was fully terminated prior to the collision.” The insurer appealed.
The Nebraska Supreme Court, by a 4-3 margin, affirmed the judgment of the trial court, writing:
The word “while” connotes a specific segment of time. The word “in” can mean “in the course of” or “during.” Either construction terminates the exclusion at the identical time the excluded event terminates. Such a construction is particularly indicated when a non-commercial race is held on a public highway, where policy coverage is specific and intended both before and after the occurrence of the excluded race.
The majority agreed with the trial court’s conclusion that the event ended before the accident. Three justices would have applied the exclusion. Justice Newton, writing for the dissent, said:
In a drag race, the engagement in the race may involve more than occurs over the designated course. If two cars are to approach the starting line at a designated speed, the approach is also part of the race. In view of the fact that in a race the participants cannot stop immediately at the finish line, it seems that the slowing down and stopping is also essentially a part of the race although it occurs beyond the finish line. The cars are still being used in a race or speed contest although the winner has been determined.
The second approach, suggested by the dissent in Tournor, considers whether the insured’s participation in the event was a proximate cause of the accident—in other words, whether the risk created by the participation in the event contributed to the accident. If so, the exclusion is applicable.
Farmers Insurance Exchange v. Peters, 502 S.W.2d 319 (Mo. 1973), is the leading example of this approach. In Peters, the son of the insured was driving the insured vehicle when he and his passenger agreed to engage some others in automobile races. The race in question was to cover a flat strip of highway and end at a bridge. The son of the insured pulled ahead, at speeds estimated at 80 to 100 miles per hour, and crossed the bridge first. Thereafter, the son lost control and both he and his passenger were fatally injured in the resulting accident.
The policy contained the following exclusion:
The insurance afforded under Parts I (Liability), II (Uninsured Motorist), III (Medical), and IV (Comprehensive and Collision) does not apply under any of the coverages . . . (2) while the automobile is being operated by any person in any prearranged race or competitive speed test.
The claimants argued that the accident occurred after the race was over and, thus, that the exclusion was not applicable at the moment of the accident. The case was tried to the court, which found that there was no coverage. The claimants thereafter appealed.
In considering whether “the automobile [was] engaged in a race at the time of the casualty,” the court reviewed the Tournor decision, as well as cases considering the continuing liability of one claiming to have broken off participation of a motor vehicle race. It then concluded as follows:
(1) That absent any statutory prohibition against the same, it was within the province of the insurer to exclude coverage from those results flowing from the additional hazards created by a prearranged race or speed test; (2) That the legitimate purpose of such an exclusion was to avoid the additional hazards while they existed and not just during that period of time wherein a winner of the race was being determined; and (3) That whether or not such additional hazards continued to exist beyond the finish line, to such a degree that they reasonably might be called the proximate cause of the casualty, was a question to be resolved by the trier of the facts. The trial judge, upon waiver of a jury, did so in this case, and we do not find the conclusion reached to be erroneous.
The Finish Line!
Having carefully considered the public policy of your state and the terms and framework of the exclusion as applied to the facts of the claim, you will be in a position to make a “winning” determination of coverage.