OneBeacon America Insurance Co. v. Travelers Indemnity Co. of Illinois

Facts

Plaintiff was the insurer for vehicles owned by LAI, a vehicle leasing agency. The insurance policy defined an “insured” to include LAI and “Anyone else while using with your permission a covered auto you own. . . .” Despite this language, LAI’s standard leases required lessees to provide their own insurance for leased vehicles, either by applying to be added to the Plaintiff’s policy or through another insurer. The lease also set minimum coverage limits and required that LAI be named as an additional insured and the first loss payee, and that the insurer be approved by LAI. The lease left the option of obtaining insurance through LAI to LAI. If this option was provided, the lessee would pay extra rent to cover the additional premium. A lease supplement regarding this coverage also stated that LAI would obtain insurance coverage only for specifically identified vehicles and that the monthly rent due under the lease could be increased by LAI to cover premium increases. One of LAI’s vehicles was insured, at the lessee’s option, by Defendant. The vehicle was involved in an accident and Defendant paid $5 million on behalf of the lessee as part of a settlement. Defendant became aware of the LAI policy with Plaintiff and sought reimbursement from Plaintiff for the policy limit of $1 million. Plaintiff refused and brought suit for a declaration that its policy did not cover lessees, or in the alternative, for reformation of the policy to reflect the parties’ intent that the policy not cover lessees. At trial Plaintiff acknowledged that the language of the policy could be read to cover lessees, but provided evidence that this was not the intent of the parties. The district court granted summary judgment to Defendant and Plaintiff appealed.