Cover under US liability policy does not extend to arson by hospital patients

In August 2017, a US federal court held that the indemnity for ‘activities’ on behalf of the insured under a liability policy of an insured and its members does not extend to cover arson or attempted suicide by two mentally ill patients who attempted to commit suicide by burning down their apartments owned and managed by Suburban Park Apartments. The fires, which were started in two separate incidents, could not be said to constitute ‘activities on behalf of the insured’ under an extension clause of the policy, and as such fell outside the scope of policy coverage.

The policy covered Bell Socializing Inc., a non-profit organisation providing rehabilitative support to recovering mentally ill patients. It also covered Bell’s patients ‘but only with respect to their [the members] liability for your [Bell] activities or activities they perform on your behalf’.

The policy did not define what constituted ‘members’ or ‘activities’.

The insurer for the property owner sued Bell’s insurer alleging that it had a duty to provide coverage, a defence and indemnification to the ex-patients for the claims against them by virtue of the fact that they constituted additional insureds under the Bell policy. It argued that because the patients paid for and participated in programmes offered by Bell, they were members of Bell and therefore intended beneficiaries under the policy.

The court said that the extension under the policy unambiguously restricted coverage to 1) members’ liability for activities that are undertaken on behalf of Bell and; 2) members’ liability for activities that were undertaken by Bell, as a non-profit organisation. It could not be said that the ex-patients started the fires in their respective apartments on behalf of Bell since these fires were not at the direction, request or for the benefit of Bell.

Club ‘activities’ do not encompass the intentional and criminal actions of the patients when they set fire to their apartment units.

The case is Greater New York Mutual Insurance Co. v Philadelphia Indemnity Insurance.