Viking v. Link & Walton — JSH attorneys Mike Halvorson and Jennifer Anderson recently prevailed on appeal for an Insurer in a motor vehicle liability coverage case addressing the exclusion authorized by A.R.S. § 28-4009(C)(4)(c) for damage to property “transported” by the insured. The Policyholder insured his new pickup truck through the Insurer, which had also insured his prior vehicles.  The Policyholder had no direct contact with the Insurer; instead, the dealership arranged for insurance. Within two weeks, the Policyholder received a copy of the insurance policy, which he did not read except to confirm that the policy listed the pickup truck. Consistent with § 28-4009(C)(4)(c), the policy contained an exclusion for “[d]amage to property . . . being transported by . . . an insured person.”

The Policyholder borrowed a tractor from the Plaintiff, then rented a utility trailer to return it. While towing the tractor behind the insured pickup truck, the trailer detached from the truck and rolled over, causing damage to the tractor. After the Plaintiff sued the Policyholder, the Insurer provided a defense under a reservation of rights to deny coverage pursuant to the transported property exclusion. The Plaintiff and Policyholder settled the underlying suit by entering into a “Morris agreement” pursuant to which the Policyholder consented to a judgment awarding the Plaintiff damages for destruction of property, loss of use, and “emotional distress” damages. The Policyholder also assigned any claims he had against the Insurer to the Plaintiff in return for a covenant not to execute on the judgment.

In the Insurer’s separate declaratory relief action, the trial court granted summary judgment to the Plaintiff. The trial court concluded that although the policy defined the term “property damage” to include “loss of use,” it did not define the term “damage to property,” which was used in the exclusion. Because the exclusion did not mention “loss of use” or “emotional distress” damages, neither were excluded from coverage. In addition, the trial court found that pulling a trailer is an intended use of a pickup truck and the Policyholder therefore had a “reasonable expectation” of coverage for towed property.

The Arizona Court of Appeals reversed the trial court’s ruling. The appellate court agreed with the Insurer that under the policy’s plain language, the tractor was damaged while an insured person “transported” it, and the damage to the tractor was therefore excluded from coverage. The Court held a layperson using common sense would understand that “property damage” and “damage to property” mean the same thing, and that both encompass loss of use damages under the policy. The Court further held the Plaintiff’s “emotional distress” damages arose solely from his inability to use the tractor and were therefore excluded from the policy as well. Finally, the Court rejected the notion that an exclusion for “damage to property . . . being transported by . . . an insured person” violates an insured’s reasonable expectations, particularly since Arizona law expressly allows this exclusion. The court of appeals accordingly vacated the trial court’s judgment and remanded for entry of judgment in the Insurer’s favor.

Michael Halvorson, an AV Preeminent rated attorney on Martindale-Hubbell, has been with JSH for over 19 years. As part of his practice, Mr. Halvorson has mediated, arbitrated and tried a wide variety of cases largely focused on trucking and transportation, product liability, dram shop, motor vehicle and premises liability defense. In addition, Mike Co-Chairs the firm’s Transportation, Auto, Products and General Liability Trial Group, and he is a frequent presenter at industry seminars and conferences.

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