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A California appellate court has ruled that an “intended or expected” insurance policy exclusion did not bar insurance coverage for damages resulting from the fatal head-on collision between a Metrolink commuter train and a Union Pacific freight train that occurred in the Chatsworth district of Los Angeles, California, on September 12, 2008.

The Case

After 24 passengers were killed and scores more injured in the Chatsworth collision, the wrongful death and personal injury claims and lawsuits (the “Chatsworth claims”) settled for $200 million, the maximum allowable recovery under federal law for a single rail collision.

The National Transportation Safety Board (“NTSB”) investigated the crash and found that the Metrolink train had run a red light and had begun traveling on a single set of tracks designated for traffic in both directions. According to the NTSB, the Metrolink engineer “was actively, if intermittently, using his wireless device shortly after his train departed Chatsworth station, and his text messaging activity during this time compromised his ability to observe and appropriately respond to the stop signal at Control Point Topanga.” The NTSB also found “[t]he Metrolink engineer was aware that he was violating company safety rules when he used his cell phone to make calls or to send and receive text messages while on duty, but he continued the practice nonetheless.”

The NTSB concluded “the probable cause . . . was the failure of the Metrolink engineer to observe and appropriately respond to the red signal aspect at Control Point Topanga because he was engaged in prohibited use of a wireless device, specifically text messaging, that distracted him from his duties. Contributing to the accident was the lack of a positive train control system that would have stopped the Metrolink train short of the red signal and thus prevented the collision.”

Various insurers interpleaded $146 million for settlement of the Chatsworth claims. In exchange for contributing their aggregate policy limits, the insurers and their insureds – Metrolink, Connex Railroad LLC (which had contracted with Metrolink to operate Metrolink trains in the region), and Connex's parent, Veolia Transportation, Inc. – entered into a “Policy Release and Agreement” under which the insurers retained the right, “if any, to seek contribution and/or subrogation, or to assert policy defenses with respect to Connex [and] Veolia. . . .” Except for the right to assert a setoff in the event the insurers did sue, the insureds “release[d] and forever discharge[d]” the insurers for all liability arising out of the Chatsworth collision.

The insurers then initiated an action against Connex and Veolia based on their policy exclusion for “Bodily Injury, Personal Injury, Property Damage and/or Advertising Injury which the Insured intended or expected or reasonably could have expected.”

For their part, Connex and Veolia maintained that, as a matter of law, the exclusion did not defeat coverage for the Chatsworth accident.

The parties moved for summary judgment.

The trial court found evidence that Metrolink engineers used handheld electronic devices while on duty, in violation of Connex's policies, and that Connex executives knew corporate rules were being violated and accidents could result if engineers were distracted by their cell phones. The trial court, however, granted summary judgment in favor of Connex and Veolia, finding as a matter of law that the policy exclusion did not apply.

The dispute reached the California court of appeal.

The Appellate Court's Decision

The appellate court, interpreting the exclusion under New York law, affirmed the trial court and ruled that the exclusion did not apply as a matter of law.

In its decision, the appellate court noted that there has been no New York decision interpreting the precise language of this exclusion. The appellate court added, however, that New York courts discussing “intended or expected” language in insurance policy exclusions have ruled that coverage was afforded where “accidental results” flowed from “intentional causes” – that is, the appellate court said, where the resulting damage was unintended although the original act or acts leading to the damage were intentional.

In other words, the appellate court added, only where the result was “inherent in the nature of the acts alleged to be committed by the insured” would coverage be denied based on the “expected or intended” exclusion. “[C]atastrophic results which [were] the unintended fruits of willful conduct” still may be covered events, according to the appellate court.

The appellate court was not persuaded by the insurers' contention that the reasonable inference from the evidence that Connex and Veolia knew on-board personnel used cell phones and handheld electronic devices in violation of company policy, did not effectively discipline offending employees, and concealed information concerning these violations from Metrolink was that a reasonable person should have expected the Chatsworth collision.

According to the appellate court, “whether a reasonable person should have expected the Chatsworth collision [was] not the standard.”

Rather, the appellate court said, to defeat summary judgment, the insurers had to present evidence that raised a triable issue of material fact as to whether the Chatsworth collision “flow[ed] directly and immediately from an insured's alleged intentional act.” Because they had not met that burden, the district court had properly granted summary judgment in favor of Connex and Veolia to the effect that the exclusion did not apply.

The case is Certain Underwriters at Lloyd's, London v. Connex Railroad LLC, No. B276373 (Cal Ct.App. April 19, 2018). Attorneys involved include: Vanderford & Ruiz, Ty S. Vanderford, Rodolfo F. Ruiz; and Akin Gump Strauss Hauer & Feld, Rex S. Heinke, Jessica M. Weisel, for Plaintiffs and Appellants. Munger, Tolles & Olsen, Jeremy A. Lawrence, Cary B Lerman, Daniel P. Collins; Farella Braun & Martel, Mary E. McCutcheon, Dennis M. Cusak; Kiesel Law, Paul R. Kiesel, Jeffrey Koncious, Mariana Aroditis; and Weinberg Wheeler Hudgins Gunn & Dial, D. Lee Roberts, Jr., M. Alan Holcomb, for Defendants and Appellants.

Steven A. Meyerowitz, Esq., is the Director of FC&S Legal, the Editor-in-Chief of the Insurance Coverage Law Report, and the Founder and President of Meyerowitz Communications Inc. As FC&S Legal Director, Mr. Meyerowitz, a member of the team that conceptualized FC&S Legal, provides daily analysis and commentary on the most significant insurance coverage law decisions from courts across the country and news regarding legislative and regulatory developments. A graduate of Harvard Law School, Mr. Meyerowitz was an attorney at a prominent Wall Street law firm before founding Meyerowitz Communications Inc., a law firm marketing communications consulting company.