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(Article from Insurance Law Alert, October 2015)

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Applying New York law, a California court ruled that an intentional acts exclusion did not bar coverage for claims arising out of a train crash allegedly caused by the train conductor’s use of a cell phone while on duty.  Those Certain Underwriters at Lloyd’s, London v. Connex Railroad, LLC, No. BC493509 (Cal. Superior Ct. Sept. 18, 2015) (transcript).

The coverage dispute arose out of a train accident that resulted in numerous deaths.  Underlying lawsuits against the train owner and operator were filed and ultimately settled.  Certain Underwriters, as excess insurers, contributed to the settlement fund.  Thereafter, Certain Underwriters filed suit seeking reimbursement of the settlement payments on the basis that an intentional acts policy exclusion barred coverage for the claims.  In particular, Certain Underwriters argued that the train company knew that its engineers were frequently using cell phones while on duty and that such conduct was likely to cause an accident, but took no action to prevent or punish such behavior.  The court disagreed and granted the policyholders’ summary judgment motion.

The intentional acts exclusion barred coverage for “bodily injury which the insured intended or expected or reasonably could have expected.”  The court explained that New York law requires a policyholder to have “intended or expected the consequences flowing directly and immediately from the act” in order for the exclusion to apply.  Here, the court concluded that allegations that the train company willfully ignored violations of regulations against cell phone use despite knowledge that such violations were likely to cause an accident did not meet the “intended or expected” standard.  The court reasoned that such allegations established only negligence or recklessness.  In addition, the court emphasized that the evidence failed to raise a triable issue of fact that the train company reasonably expected the specific accident at issue because prior to that crash, the company had not experienced any other train accidents caused by cell phone use.  The decision, which applies a “stringent New York standard” for application of intentional acts exclusion, is likely to be appealed.  We will keep you posted on further developments in this matter.