Bodily Injury Exclusion in E&O Policy Bars Coverage Under New York Law

In a win for Wiley’s client, the United States District Court for the Eastern District of New York, applying New York law, has held that a bodily injury exclusion bars coverage under an errors and omissions policy for lawsuits stemming from injuries suffered in a tour bus accident. AXIS Surplus Ins. Co. v. Universal Vision Holdings Corp., No. 1:21-cv-05590 (EK)(CLP), 2024 WL 1282350 (E.D.N.Y. Mar. 26, 2024).

A tour company arranged a bus tour of Canada for a group of Chinese nationals. For transportation, the tour company hired a third-party bus company and a third-party bus driver. The tour bus allegedly crashed into an embankment and caused thirty-two hospitalizations and three fatalities. Several victims of the crash, as well as some family members, filed lawsuits against the tour company and its parent company, alleging that they negligently engaged and oversaw the bus company. The tour company sought coverage for the lawsuits under its errors and omissions policy. The insurer denied coverage for the lawsuits under the policy’s bodily injury exclusion, which bars coverage for claims “based upon, arising out of or attributable to” bodily injury.

In the ensuing coverage litigation, the tour company argued that, under Watkins Glen Central School District v. National Union Fire Insurance Co. of Pittsburgh, Pa., 286 A.D.2d 48 (2d Dep’t 2001), the insurer cannot deny coverage under the bodily injury exclusion because it was the bus driver’s independent acts that caused the bodily injuries, not the insured’s professional negligence. The Watkins Glen court reasoned that “an errors and omissions policy … is expressly intended to provide coverage for negligent acts,” and the application of the bodily injury exclusion in such circumstances “would effectively eviscerate the errors and omissions policy altogether.” In response, the insurer argued that Watkins Glen was inapplicable, and the court instead should apply the “but-for” test established in Mount Vernon Fire Insurance Co. v. Creative Housing Ltd., 88 N.Y.2d 347 (1996). Under that test, the bodily injury exclusion barred coverage for the lawsuits because the lawsuits would not have arisen “but for” the bodily injuries.

The court agreed with the insurer and rejected the “consequentialist, policy-based reasoning” in Watkins Glen. According to the court, Watkins Glen did not have a valid basis to depart from the “but-for” test in Mount Vernon or to create its own proximate-causation test. The court emphasized that the phrase “arising out of” cannot be interpreted differently based on the type of conduct and exclusion at issue, as that “would be both untenable and contrary to standard canons of contract interpretation.” The court held that, because the lawsuits would not have been filed “but for” the bodily injuries, the bodily injury exclusion barred coverage for the lawsuits under the errors and omissions policy.


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