District Court Holds That “Business Use Exclusion” in Policy Precluded Coverage for Accident

Canal Insurance Company v. Underwriters at Lloyd’s, London, 333 F. Supp. 2d 352 (E.D. Pa. 2004), affirmed 435 F.3d 431 (3d Cir. 2006)


On Cross-Motions for Summary Judgment, the United States District Court for the Eastern District of Pennsylvania held that a “Business Use Exclusion” in a Non-Trucking Liability Insurance Policy precluded coverage for an accident that occurred while a tractor (truck) was enroute to a dealership for the purpose of being sold or traded for a new tractor.

The Litigation

This case involved a declaratory judgment action arising out of a coverage dispute between two insurers. One of the carriers issued a Business Auto Policy to a motor carrier, and listed the particular tractor as a covered vehicle. The other insurer issued a Non-Trucking Liability Insurance Policy (NTL Policy) naming the owner of the tractor as the insured, and also listing the tractor as a covered vehicle. The owner of the tractor leased the tractor to the motor carrier pursuant to a leasing agreement.

At some point the owner of the tractor decided that the tractor was costing too much to maintain. Thus, he sent the tractor with a driver from Harrisburg, Pennsylvania to a dealership in Chester, Pennsylvania in an effort to sell or trade the tractor. While he sent the tractor with an empty trailer attached in the hopes of then picking up a load, he had not yet been dispatched by the carrier to pick up any loads. While enroute to Chester, the tractor was involved in an automobile accident. That accident resulted in a lawsuit being pursued in state court against the motor carrier, as well as the owner and driver of the tractor. The insurer for the motor carrier ultimately settled that case, and then filed a Declaratory Judgment action against the owner’s insurer seeking indemnification and the recovery of defense costs incurred in the state court litigation.

The NTL Policy issued to the owner of the tractor contained a business use exclusion. It stated that the insurance did not apply to “[a] covered automobile while it is engaged in Business Use….” The “Definitions” in the policy defined “Business Use” to include “any use of the auto that promotes the business purposes of the Insured…” The owner’s insurer denied coverage under the NTL Policy for this accident based in part on this exclusion.

The Decision

In granting the Summary Judgment Motion filed on behalf of the owner’s insurer, the Court held that the owner of the tractor was in the business of leasing tractors to this motor carrier. The Court further held that the trip from Harrisburg to Chester “promoted” the business of the owner’s leasing business. While “promoted” was not specifically defined in the policy, the Court looked to the definition of “promotes” found in Webster’s Ninth Collegiate Dictionary (1990), wherein the term is defined as “to contribute to the growth or prosperity of” or “furthers”. The Court concluded that “[i]t is beyond argument that trading up one tractor for another (or attempting to do so) “furthered” or “contributed to the growth or prosperity of” [the owner’s] … truck leasing business.” Since the accident occurred while the tractor was traveling from Harrisburg to Chester for the “business purposes” of the owner’s leasing business, the Court held that the accident fell within the NTL Policy’s Business Use Exclusion, and the owner’s insurer was entitled to Summary Judgment.

For additional information, or a copy of this Opinion, please contact Law Wright at Wright & O’Donnell, P.C., directly at (610) 940-4092.