Copyright 2003 Andrews Publications, Inc.
Insurance Coverage Litigation Reporter

April 11, 2003

'Violation of Law' Exclusion Trumps Public Policy in Assault Case

CASE: Assault: American Family Mut. Ins. Co. v. White

An Arizona appeals court has affirmed judgment for American Family Mutual Insurance Co., ruling that the insurer had no duty to defend insureds whose son pleaded guilty to aggravated assault. American Family Mutual Insurance Co. v. White, No. 1CA-CV 01-0517 (Ariz. Ct. App., Div. 1 Mar. 20, 2003). To stop Bryan White from assaulting a third person, Travis Wilde hit him in the head with a metal pipe. Wilde later pleaded guilty to reckless aggravated assault, and received a jail term and probation. White filed a personal-injury action against Wilde and his parents, alleging that his injuries were caused by the negligence of Wilde, that this negligence should be imputed to the Wildes under Ariz. Rev. Stat. § 12-661 and that the Wildes negligently supervised their son. The Wildes' insurance carrier, American Family, filed a declaratory judgment action and moved for summary judgment, arguing that coverage for White's claims was barred by the "violation of law" exclusion in the Wildes' home -owners policy, which stated, "We will not cover bodily injury or property damage arising out of FIXIT violation of any criminal law for which any insured is convicted." In opposition, White argued that the exclusion applied only to intentional acts, and that Wilde acted recklessly rather than intentionally. White also argued that the exclusion was contrary to public policy, unconscionable and contrary to an insured's reasonable expectations. On the negligent-supervision claim, White argued that the exclusion was inapplicable because the Wildes were not convicted of violating any criminal law. The trial court rejected all of these arguments. The Arizona Court of Appeals, Division 1, rejected White's arguments as well. First, the panel said, the phrase "any criminal law" is not ambiguous and may be properly construed to apply to all criminal acts that result in conviction, including Travis Wilde's conviction for "reckless" aggravated assault. Next, the panel dismissed White's contention that the exclusion was too broad because it applied to any criminal law violation, no matter how trivial, irrespective of an insured's intent or culpability. Instead, the judges found that any danger was negated by the fact that the exclusion applied only when the insured was convicted. "Given that limitation, the exclusion is obviously not so broad as to render the insurer's risk a nullity," the court concluded. In addition, the panel rejected White's reliance on the "reasonable expectations" doctrine, ruling that "the reasonable expectation concept must be limited by something more than the fervent hope usually engendered by loss." Millar v. State Farm Fire & Cas. Co., 167 Ariz. 93, 97, 804 P.2d 822, 826 (Ariz. Ct. App. 1990). In this case, the panel held, the policy language was clear, unambiguous and objectively reasonable. Further, the appeals court observed that White, while acknowledging that public policy proscribed indemnification of persons for losses resulting from their own willful wrongdoing, nevertheless argued that coverage should be found in his case because one purpose of liability insurance is to afford protection against certain negligent acts, and because public policy favors protecting the interests of injured victims.

The panel agreed with the general principles, but disagreed that American Family's "violation of law" exclusion violated them. The appeals court also rejected arguments that the exclusion forces an accused to waive insurance coverage in the civil case to accept a favorable plea bargain in the criminal case; that the exclusion is unconscionable; and that an insured's self-interested plea bargain in a criminal case should not operate to an insurer's benefit in a civil case. Finally, the panel held that the negligent-supervision claim against the Wildes was excluded because it derived from the claim against Travis Wilde. American Family was represented by Lynn M. Allen of Mariano & Allen in Phoenix. White was represented by Robert E. Schmitt and Dan A. Wilson of Murphy, Lutey, Schmitt & Beck in Prescott, Ariz.