United States: Broad Language of Policy Covers Insured´s Liability for Students Kidnapped off Insured´s School Bus

Case Name: Indiana Ins. Co. v. Auto Owners Ins. Co.

Issues: Whether a No Fault Insurer (Auto Owners) or a general liability insurer (Indiana) was responsible for insuring injuries resulting from criminal acts that happen to involve a school bus? Was Auto Owners contractually responsible for half of the settlement and legal costs paid on behalf of its insured for injuries sustained by two students kidnapped while being discharged from the insured’s school bus?

Court: Michigan Court of Appeals. Published.

Holding: Two elementary school-aged girls, ages nine and six, took the bus to and from school. The school had two bus routes (gray and red). The girls were assigned to the gray bus route. On March 21, 1997, three men executed a plan to kidnap the girls off of the bus. The three of them drove to the school’s bus garage where one of them gave a note to Lewis, the director of transportation for the school district and the driver of the gray bus. The note requested that the girls be transferred to the red bus so they could be dropped off at their babysitter’s house. Without any contact with the school office, Lewis took the girls to the red bus and instructed Earl, the red bus driver, to drop the girls off with a babysitter at the location stated in the note.

When the girls refused to exit the bus at that location because it was not their normal bus stop, Earl decided to return with the girls to the bus garage. After the girls were not dropped off as requested by the note, one of the kidnappers called the bus garage and, falsely claiming to be the girls’ father, wanted to know why the girls had not been dropped off per the note, and asked that the girls be dropped off at the next bus stop, a trailer park. This oral request for a second drop off location was conveyed by the school transportation department to Earl.

The three men met the bus at the trailer part. Earl allowed the first man onto the bus, and allowed the second man to stand on one of the stairs of the bus. The girls (now protesting and crying) were taken by their arms by one of the men and escorted off the bus. Earl did not ask either man for identification, did not contact the school about the situation, did not ask the girls if these men were their babysitters, nor did Earl ask anything else of the girls despite their obvious despair of being removed from the bus. At the criminal trial, one of the girls described the situation as the man "dragged me and my sister off the bus." Several days after the abduction, the three men were arrested in Florida with the girls. They went to jail on multiple federal felony convictions.

A civil suit was filed on behalf of the girls against the school alleging gross negligence and willful and wanton disregard for the safety of the girls in the "operation" of a motor vehicle. Indiana insured the school under a general commercial policy, and Auto Owners insured the school under a No Fault automobile policy. The Auto Owners policy provided for a defense and indemnify the school in regard to claims for bodily injury arising out of the ownership, maintenance or use, including the loading and unloading, of its school buses. Indiana provided a defense to the school in the underlying action and settled the claims.

Subsequently, Indiana filed this declaratory judgment action alleging that the underlying action fell within the coverage of the Auto Owners’ policy. Auto Owners argued that the No Fault Act was not applicable because there was no motor vehicle accident, and that the injuries to the girls were the direct result of criminal acts by the three men which failed to meet the requirement of being "foreseeably identifiable with the normal use, maintenance and ownership of the vehicle."

Indiana countered that the Auto Owners policy afforded greater coverage than required by the No Fault Act and clearly encompassed the claims made in the underlying action. Indiana further argued that the Auto Owners policy provided for bodily injury that arose out of the "use" of the school bus, which was defined to include transportation of students to and from school and any operations necessary and incidental to such use.

The Court of Appeals ruled in favor of Indiana. The Court held that the fact that this case involved an insurance policy for the use of school buses, as opposed to a case simply involving a No Fault policy or the No Fault Act with respect to a motor vehicle, was a "critical distinction." The focus here was on the specific language of the insurance policy, and not on the provisions of the No Fault Act.

The Court of Appeals began its analysis by noting that every negligent act of a school bus driver did not necessarily involve the "use" of a school bus. Specifically, some circumstance could exist when the driver’s negligence "is so disconnected with the use of the school bus that the injuries suffered could not properly be said to be within the language" of the automobile insurance policy.

Auto Owners’ argument that the driver’s negligence was so disconnected to the kidnapping and assaults on the girls such that their injuries were not foreseeably identifiable from the use of the school bus had "some facial appeal" to the Court. However, the Court held that the criminal conspiracy and the subsequent carrying out of that conspiracy "were not so disconnected to the insured’s use of the school bus to preclude coverage under Auto Owners’ policy." This was especially true since Earl voluntarily let the two unidentified men "on to the bus" to remove two crying and protesting children. Therefore, Earl’s conduct in disembarking the girls into the hands of strangers was well within the definition of "use" in the Auto Owners’ policy and the resulting injuries were foreseeably identifiable with such use.

No decision was reached by the Court regarding the percentage of liability between the competing policies since the parties stipulated at the trial court level that if Indiana prevailed on appeal, Auto Owners would reimburse Indiana for half the costs (plus taxable costs and interest).