Present: All the Justices
SOUTHERN INSURANCE COMPANY OF VIRGINIA
OPINION BY
v. Record No. 011583 JUSTICE LAWRENCE L. KOONTZ, JR.
April 19, 2002
JOHN A. WILLIAMS, ET AL.
FROM THE CIRCUIT COURT OF CAMPBELL COUNTY
J. Samuel Johnston, Jr., Judge
In this appeal, we consider whether the trial court in a
declaratory judgment action correctly determined that an
insurance company had a duty to defend and provide liability
coverage under a “BUSINESSOWNERS” policy.
BACKGROUND
The parties do not dispute the material facts. On January
6, 1989, John A. Williams applied for a businessowners insurance
policy with an insurance agency representing Southern Insurance
Company of Virginia. In that application, Williams gave the
name of the “APPLICANT” as “WILLIAMS HOUSE OF FINE FURNITURE”
and gave a street address and post office box number as the
mailing address. 1 Williams indicated that the “LOCATION OF
PREMISES #1” was the same as the mailing address. The space on
the application for listing “LOCATION OF PREMISES #2” was left
1
At various places in the record, “Furniture” is
abbreviated “Ftr.” For clarity, wherever this abbreviation
occurs, we will substitute the intended word.
blank. Williams also provided the name of the mortgage holder
for the store.
In the appropriate space on the application, Williams
indicated that he was applying for the policy as an individual,
rather than as a corporation, partnership, or “OTHER” type of
business entity. Under the space for “BUSINESS OF APPLICANT,”
Williams provided “[Furniture] Store – Mostly Appliances,” and
under “DESCRIBE OCCUPANCY OF PREMISES,” Williams provided
“Appliance & [Furniture] Store.” The application listed the
applicant’s business as “MERCANTILE” under the space for “RISK
TYPE(S).” Williams further indicated on the application that
his interest in the premises was as an owner occupying more than
75% of the building. During the application process he did not
tell the agent that he owned any other properties. In response
to the question on the application “DOES APPLICANT OWN ANY OTHER
PREMISES, PERFORM OPERATIONS, MANUFACTURE OR SELL PRODUCTS OR
HAVE COMPLETED OPERATIONS EXPOSURE?,” the box marked “NO” was
checked.
The amount of coverage requested in the application was
$75,000 for the actual value of the premises, $30,000 for
business personal property, and $500,000 of comprehensive
business liability coverage. The annual policy premium for
these coverages was $999.
2
Southern Insurance issued a declaration effective January
6, 1989 to “WILLIAMS HOUSE OF FINE FURNITURE” along with the
requested policy. SECTION I of the policy contained provisions
related to property coverages and SECTION II contained those
related to comprehensive business liability.
Relevant to this appeal, the policy language in SECTION II
included the following definition of the term “insured”:
[I]f the named insured is designated in the
Declarations as an individual, the person so
designated but only with respect to the conduct of a
business of which he is the sole proprietor, and the
spouse of the named insured with respect to the
conduct of such business;
. . . .
[I]f the named insured is designated in the
Declarations as other than an individual, partnership
or joint venture, the organization so designated and
any executive officer, member of the board of
trustees, directors or governors or stockholders
thereof while acting within the scope of his duties as
such[.]
In February 1989, National Technical Services, Inc.,
conducted a risk assessment survey of WILLIAMS HOUSE OF FINE
FURNITURE on behalf of Southern Insurance. As a result of that
survey, recommendations were made to Southern Insurance
concerning the need to have proper inspection of the fire
extinguishers located on the premises and a need to increase the
estimate of the building’s actual value. Nothing in the survey
indicated that National Technical Services was made aware that
3
Williams owned additional properties or that he had other
business interests.
In accord with Southern Insurance’s practice, annual
declarations were issued with renewal invoices in 1990 and 1991.
Both declarations included a description of the nature of the
business as an “APPLIANCE STORE.” The 1991 declaration further
contained a designation of business types which had not appeared
on either of the prior declarations: “INDIVIDUAL,”
“PARTNERSHIP,” “JOINT VENTURE,” “CORPORATION,” and “OTHER.” An
“X” was inserted in the space next to the “OTHER” on this
declaration.
At the time Williams applied for Southern Insurance’s
businessowners policy, he and his wife, Ferna P. Williams, owned
and rented at least seven houses to tenants. Between 1982 and
1994, one of these houses was rented to Rebecca Wright.
Williams maintained a separate policy of insurance on this house
with another insurance company. This policy insured against
damage to or the loss of the structure, but provided no personal
injury liability coverage to Williams or his wife. The billing
address for this policy was not the address of the furniture
store.
In 1988, Wright gave birth to a daughter, Lacy A. Wright.
On August 30, 1993, Lacy was diagnosed as suffering from lead
poisoning. In a motion for judgment filed in the trial court
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against Williams and his wife, Wright alleged that her
daughter’s lead poisoning resulted from lead-based paint in the
home she rented from them. Wright, individually and as next
friend of her daughter, sought $2,350,000 in compensatory and
punitive damages.
Subsequently, on December 17, 1999, Williams and his wife
filed a motion for declaratory judgment in the trial court
alleging that Southern Insurance was required to provide them
with a defense and liability coverage for Wright’s claims under
its businessowners policy. Southern Insurance denied that its
policy provided coverage for the claims asserted by Wright.
Wright and her daughter were added as party plaintiffs to the
declaratory judgment suit by order dated June 20, 2000.
On March 28, 2001, the trial court held a hearing at which
Williams and the agent who had accepted the application for the
businessowners policy were the only witnesses. The evidence
received was in accord with the above-recited facts. During the
course of the hearing, Williams objected to the introduction of
the application for insurance and testimony concerning the
application process on the ground that it was parol evidence
outside the contract of insurance. The trial court indicated
that it would allow Southern Insurance to “make [its] record”
and that it would rule on the admissibility of the application
and related testimony at the conclusion of the evidence.
5
Although the trial court never made an express ruling on the
admissibility of the application evidence, it did direct
specific questions to the agent concerning the contents of the
application and initialed the application as an admitted
exhibit.
In closing arguments, both parties asserted that the
contract of insurance was unambiguous, but disputed which
definition of “insured” under SECTION II of the policy should
apply. Williams contended that because WILLIAMS HOUSE OF FINE
FURNITURE was a fictitious entity and the application had
indicated that the policy was for an individual, the
comprehensive business liability coverage of the policy extended
to any business conducted by Williams as a sole proprietor.
Southern Insurance contended that the policy coverage was
limited to the business conducted on the premises of WILLIAMS
HOUSE OF FINE FURNITURE. Southern Insurance further contended
that, even if the policy’s coverage extended to any other
business conducted by Williams as a sole proprietor, the rental
house business was not a sole proprietorship because Williams
and his wife jointly owned those houses.
In a final order dated April 16, 2001, the trial court
ruled that Southern Insurance had a duty to defend and provide
liability coverage to Williams for the damages claimed by Wright
and her daughter. The trial court did not state an express
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rationale for its judgment. By order dated October 22, 2001, we
awarded Southern Insurance this appeal.
DISCUSSION
It is well established that insurance contracts, like other
contracts, generally are to be construed according to their
terms and without reference to parol evidence. However, resort
to parol evidence is proper where a latent ambiguity exists in a
particular insurance contract. See, e.g., Connecticut Fire Ins.
Co. v. W. H. Roberts Lumber Co., 119 Va. 479, 495, 89 S.E. 945,
948 (1916); Home Ins. Co. v. Gwathmey, 82 Va. 923, 926, 1 S.E.
209, 211 (1887).
The specific definitions of the “insured” in Southern
Insurance’s policy are not, when read in isolation, ambiguous.
However, a latent ambiguity exists in this policy because the
named insured is not a legal entity and the individual insured
is not named. This ambiguity becomes apparent when the
definitions of the “insured” are read in context with the
complete contract of insurance, including the declarations which
are specifically referred to in the definitions. Indeed, the
dispute between the parties is rooted in that latent ambiguity,
which has existed in Southern Insurance’s policy from its
inception.
According to the initial declaration, the named insured is
“WILLIAMS HOUSE OF FINE FURNITURE.” The parties concede that
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there is no legal entity by that name. By the same token,
Williams is not named in this declaration or the policy. The
original declaration and first renewal declaration provide the
additional information that the business of the insured is an
“APPLIANCE STORE,” but fail to designate a business type as
contemplated in the policy definition of the “insured.” Only in
the second renewal declaration is there a specific designation
of the business type as “OTHER.” However, that definition of
the insured clearly contemplates a legal organization with
executive officers, a board of trustees, directors or governors,
and stockholders, none of which WILLIAMS HOUSE OF FINE FURNITURE
or Williams individually could have.
Thus, when the policy was first issued, a latent ambiguity
existed because the applicable definition of “insured” under
SECTION II was unclear. In the face of this latent ambiguity,
we will resort to an examination of the parol evidence in order
to determine the original intention of the parties to that
policy.
The parol evidence clearly establishes that Williams sought
and obtained insurance coverage for a furniture and appliance
business operating out of a single premises. Williams never
disclosed that he owned any other properties or conducted any
other business. He never stated that he was applying for
liability coverage for the operation of his rental housing
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business. Indeed, nothing in the record even suggests that such
was his intention at the time he made the application. Southern
Insurance was entitled to issue its policy and assess the policy
premiums in reliance upon Williams’ representations. See
Niagara Fire Insurance Co. v. Elliott, 85 Va. 962, 963, 9 S.E.
694, 695 (1889) (“the insurer, in estimating the price at which
he is willing to indemnify the insured, must have under his
consideration the nature of the business, and the usual course
and manner of conducting it”).
Accordingly, we hold that Southern Insurance’s duty to
defend and afford coverage to Williams under its policy of
insurance did not extend to any personal liability Williams
might incur in his business of renting houses. To hold
otherwise would extend the benefits granted and broaden the
risks imposed to a degree obviously never contemplated by the
parties to the insurance contract. 2
2
Relying on Mollenauer v. Nationwide Mutual Insurance Co.,
214 Va. 131, 198 S.E.2d 591 (1973)(per curiam), Williams
contends that an individual is entitled to coverage under a
businessowners policy for losses unrelated to and occurring off
the premises of the main place of business for which the policy
was issued. Williams’ reliance on Mollenauer is misplaced, as
that case may be distinguished on multiple grounds.
In Mollenauer, the policy of insurance was issued to an
individual trading under a fictitious name. Id. at 131, 198
S.E.2d at 591. Here, the declarations never identified Williams
individually, but listed the name of the insured as “WILLIAMS
HOUSE OF FINE FURNITURE” only. Thus, unlike the facts of
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CONCLUSION
For these reasons, we will reverse the judgment of the
trial court that Southern Insurance had a duty to defend and
provide liability coverage to Williams for the claims arising
from his rental housing business and enter final judgment in
favor of Southern Insurance.
Reversed and final judgment.
Mollenauer, here there was no express indication to the
insurance company that it was Williams, rather than the business
he was conducting at a specific location, who was being insured.
Moreover, in Mollenauer the policy contained a specific
provision applying to monetary losses “within the living
quarters in the home of any messenger” while off the premises of
the insured. It was in interpreting this provision of the
contract of insurance that we determined that it must be
construed against the insurer and in favor of finding liability.
Id. at 133, 198 S.E.2d at 592. By contrast, the declarations of
the policy at issue here clearly indicate that off-premises
liability coverage was not included in the policy.
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