Over the past few years, courts across the country have grappled with defining the commonly-used term “property damage” in first-party property insurance policies. This question recently arose in a Washington Court of Appeals case, where the Court was asked to define this term in the context of a dispute over ownership of a horse.
On October 24, 2024, in Meeker v. Orr, the Washington Court of Appeals ruled that the homeowners’ insurer had no duty to defend its insureds against claims for wrongful possession of a retired racehorse. No. 81195-9-I, 2024 WL 4589664 (Wash. Ct. App. Oct. 28, 2024). The lawsuit alleged that, in 2011, the insureds were the owners of a retired racehorse, which the plaintiff took possession of that same year. The insureds claim that the plaintiff was leasing the horse, but the plaintiff claims that the horse was “gifted to her.” In 2016, without the plaintiff’s knowledge, the insureds took the horse and moved it to another location. The plaintiff filed suit for damages against the insureds under a variety of legal theories. With the exception of whether the horse was leased or gifted, the facts were largely undisputed.
The insureds tendered the lawsuit to their insurer, which denied coverage because the lawsuit did not allege “bodily injury” or “property damage.” The plaintiff ultimately entered into a conditional settlement agreement with the insureds that included an assignment of rights. The plaintiff amended the complaint to add the insurer and included claims of breach of contract and bad faith for the denial of coverage. After both sides moved for summary judgment, and the trial court agreed with the insurers, the plaintiff appealed.
On appeal, the Meeker Court held that the lawsuit did not conceivably allege claims for “bodily injury.” The Court observed that the damages alleged by the plaintiff did not fall within the plain and ordinary definition of this term in the policy: “sickness or disease,” including “required care, loss of services and death resulting from covered bodily harm, sickness or disease.” Because there were no claims for “bodily injury,” the policy there was no coverage for these claims, and no duty to defend. Further, the Meeker Court held that the negligent-misrepresentation claim, which sounds in tort, does not constitute “bodily injury” because it is “specifically predicated on damages arising from a ‘business transaction’ with the Orrs, rather than on physical injury arising therefrom.”
As to “property damage”, the Meeker Court held that no such damage occurred because the plaintiff never alleged that the insured’s confiscation of the horse caused physical injury to the animal or destroyed it. Notably, the policy defines “property damage” as “physical injury to, destruction of, or loss of use of tangible property.” As to the argument that the lawsuit alleged that the insured’s wrongful taking of the horse constituted a “loss of use of tangible property” that was potentially covered by the policy, the Meeker Court of Appeals rejected this argument and held that lawsuit must include allegations that the insureds “taking possession of the horse deprived her of the ability to put the horse into some action or service or that she was deprived of the ability to employ or consume some resources that she had purchased for the horse.”
The holding in Meeker stands for the proposition that the terms “bodily injury” and “property damage” in a homeowner’s policy must be carefully analyzed in each particular case to determine if the underlying lawsuit sufficiently pleads facts supporting either one. Since this language is contained in the insuring agreement of the policy, it is the party seeking coverage that bears the burden of establishing that coverage exists under the policy’s insuring agreement before a duty to defend arises.
Read the full Fall 2024 Northwest Insurance Law Quarterly Newsletter here.