Southern Ins. Co. of Virginia v. Williams

Citations: 561 S.E.2d 730; 263 Va. 565; 2002 Va. LEXIS 64Docket: Record 011583

Court: Supreme Court of Virginia; April 19, 2002; Virginia; State Supreme Court

Original Court Document: View Document

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The case involves Southern Insurance Company of Virginia's appeal regarding a declaratory judgment on its duty to defend and provide liability coverage under a 'BUSINESSOWNERS' policy for John A. Williams. Williams applied for the insurance on January 6, 1989, naming his business 'WILLIAMS HOUSE OF FINE FURNITURE,' with the application indicating he operated as an individual and primarily sold appliances. He reported no other business operations or properties owned. 

The application requested coverage amounts totaling $75,000 for the premises, $30,000 for business personal property, and $500,000 for liability, with an annual premium of $999. Southern Insurance issued a policy with specific definitions of 'insured,' which included sole proprietors and their spouses. 

In February 1989, a risk assessment was conducted by National Technical Services, which made recommendations regarding fire safety and the valuation of the property but did not indicate any knowledge of Williams owning additional properties. Subsequent annual declarations were issued for 1990 and 1991, maintaining the business description as an 'APPLIANCE STORE,' with the 1991 declaration adding a designation for various business types, marking 'OTHER' without further clarification. The appeal centers on whether Southern Insurance correctly interpreted its coverage obligations based on the information provided in the application and subsequent declarations.

Williams and his wife owned and rented several houses, one of which was rented to Rebecca Wright from 1982 to 1994. Williams held a separate insurance policy on the rented house with another insurer, which covered structural damage but excluded personal injury liability. In 1993, Wright's daughter, Lacy, was diagnosed with lead poisoning, allegedly due to lead paint in the rented property. Wright filed a motion for judgment against Williams and his wife for $2,350,000 in damages related to Lacy's injuries. 

In response, the Williamses sought a declaratory judgment in December 1999, claiming that Southern Insurance was obligated to defend them under their businessowners policy. Southern Insurance denied coverage for Wright's claims. Wright and her daughter were subsequently added as plaintiffs in this declaratory action. 

During a hearing in March 2001, Williams contested the introduction of evidence related to the insurance application, arguing it was parol evidence outside the contract. The trial court allowed the application to be included in evidence but did not explicitly rule on its admissibility. Both parties argued that the insurance contract was unambiguous but disagreed on the definition of "insured" within the policy. Williams asserted that the coverage extended to his sole proprietorship, while Southern Insurance contended that coverage was limited to the business conducted at the furniture store and that the rental business was not a sole proprietorship since it was jointly owned with his wife.

On April 16, 2001, the trial court determined that Southern Insurance had a duty to defend and provide liability coverage for the claims made by Wright and her daughter, although it did not provide a specific rationale. Southern Insurance subsequently appealed the ruling on October 22, 2001. Legal precedent indicates that while insurance contracts are typically interpreted by their terms, parol evidence may be admitted if a latent ambiguity exists in the contract.

The definitions of 'insured' in Southern Insurance's policy are clear when viewed in isolation, yet a latent ambiguity arises due to the fact that the named insured—'WILLIAMS HOUSE OF FINE FURNITURE'—is not a legal entity, and the individual, Williams, is not explicitly named. This ambiguity is highlighted when considering the full contract, including the declarations referenced in the definitions. The initial and renewal declarations describe the business as an 'APPLIANCE STORE,' but do not specify a business type as required by the policy. Only in the second renewal declaration is a designation of 'OTHER' provided, which implies a legal organization structure that neither Williams nor the named entity possesses.

The ambiguity calls for an examination of parol evidence to ascertain the original intent of the parties. The evidence indicates that Williams sought insurance solely for a furniture and appliance business and did not disclose any other properties or businesses, specifically not indicating a rental housing business. Southern Insurance relied on Williams' representations in determining coverage and premiums. 

As a result, Southern Insurance is not obligated to defend or cover any personal liability related to Williams' rental properties, as extending coverage in this manner would exceed the original intent of the contract. Williams' argument citing Mollenauer v. Nationwide Mutual Insurance Co. is deemed inapplicable; unlike the case where an individual was insured under a fictitious name, the policy here explicitly lists the business name without reference to Williams himself, indicating that the coverage applies solely to the specified business entity.

The policy in question lacks off-premises liability coverage, distinguishing it from Mollenauer, where such coverage was explicitly included. In Mollenauer, the court interpreted the policy's provision favorably towards finding liability for monetary losses occurring off-premises. In contrast, the current case shows no express indication that Williams, as an individual, was insured for his rental housing business, leading to the conclusion that Southern Insurance has no duty to defend or provide coverage for claims related to that business. Consequently, the trial court's judgment is reversed, and final judgment is entered in favor of Southern Insurance.