To Care and Control–Or Not

I told you the commercial general liability policys care,custody or control exclusion was tricky. (See NU, June 2,“Pet Sitting Near a Vets Office: Is This Really aProfessional Activity?”) Lets see if we can get it to do sometricks for us now.

In that previous article (which appeared on page 27), weexplored whether a pet-sitting sideline run out of a vets office,but not necessarily by the vet, was a CGL or a professionalliability exposure. We came down on the side of the CGL form, butwith the caveat that the care, custody and control exclusion mightplay a role in assessing coverage at the time of loss.

I heard from Dave Caslavka, underwriting specialist at EMCInsurance Companies of Des Moines, Iowa. He agreed with the premisethat this activity was best covered under the CGL, but has someconfusion about the CCC aspects. He wrote:

“I enjoy your column!” (Thanks!)

“Being a pet owner, I read it with interest and had to dig intothe coverage issue surrounding a veterinarian looking for coverageon his GL for pet sitting. I agree, this should definitely beconsidered a GL exposure rather than a professional exposure. And Iagree with you that the pet would be property (my bird dog is mymost valuable possession), but I'm not sure if I'm following you onthe interpretation of the CCC provisions of the GL.

“Exclusion J(4) excludes damage to property in the CCC of theinsured. Whether the insured refers to the named insured,all insureds or insureds engaged in the particular activity inquestion is probably another argument in itself.” (It is.) “But inmost cases it seems to be interpreted to at least mean insuredsengaged in the activity.”

Paragraph 2.a.(2) of “Who Is An Insured” does take away insuredstatus from employees for property damage in the CCC of you,employees or volunteers. But I would read that as removing anypotential coverage for the employee where that employee may damageproperty in the CCC of the named insured that was not technicallyin the CCC of the employee himself. I never looked at thisprovision as removing the employee from the scope of ExclusionJ.

“I guess I'm having trouble following the paragraph where youstate the vet would have coverage for PD to the pets in the CCC ofthe employee. I would think Exclusion J applies to employees andemployers and the special provisions of “Who Is An Insured” wouldnot remove the employee from the scope of the exclusion. Was thatthe avenue you were taking to find coverage for the vet, byindicating the pets were in the CCC of somebody who did not haveinsured status? Thanks for clarifying your position.”

In short, yes. Arent you glad I clarified that? Actually, Dave,that is exactly what I meant. Lets walk through it.

Im envisioning two types of loss that might arise from thepet-sitting operation. In one, it may be the pet itself that isdamaged or lost; for instance, if the employee of the vet fed thetropical fish until they burst or forgot to feed the dog and itdied. In the other scenario, other property of the vets customermay be lost or damaged; for instance, the kid feeding the dogknocks over a Ming vase in getting into the house or leaves thedoor unlatched and a burglar makes off with that same Mingvase.

Exclusion J(4) is the CCC exclusion in the 2001 CGL form. The1986 commercial general liability form exclusion (J)(4) refers toproperty damage to “personal property in your care,custody or control.” This version of the exclusion distinguishesbetween real and personal property; and makes use of the term“your,” thereby limiting application of (J)(4) to the named insuredonly, since the policy states that the words “you” and “your” referto the named insured.

Clearly, then, the vet would not be covered if he himself wereperforming the service and harmed the pet.

But as the exclusion as it appears in the 86 CGL refers toproperty in your care, and your is defined asreferring to the named insured, there would be coverage for the vetif an employee harmed the pet and the customer made a claim.

In all of the FC&S analysts opinions, there would becoverage in the event the employee or the vet damaged otherproperty in the house, because that property is not in the CCC ofthe insured. We think that it is stretching things too far to saythe house is in the vets CCC, simply because a key was left withhim to allow access to the pets.

The current version of the exclusion on the CGL form closelyparallels the 1986 version except that the care, custody or controlexclusion now talks about personal property in the care, custody orcontrol of the insured instead of in “your” (the namedinsureds) control. Therefore, my thought is that the employer(here, the vet) would have coverage, because he is not “theinsured” who has CCC of the property at the time of loss.

Both of these situations are illuminated by the followingexchange with an FC&S subscriber, from the FC&SQuestions and Answers.

“Q: An employee of a cleaning company that we insure broke atable while dusting it in the office of a client. I denied theclaim because of the care, custody and control exclusion on thecurrent ISO CGL policy. However, someone else in my office believesit should be covered. Who is right?”

“A: There should be coverage for the cleaning company, but notfor the individual employeeif he were suedfor the damage under thecurrent version of the ISO CGL form. Under the Who Is An Insuredsection of the form, an employee is not an insured for propertydamage to property in the care, custody or control of, or overwhich physical control is being exercised for any purpose by thenamed insured or any employee. The employee is not an insured atall for a loss that involves property damage to property in hiscare, custody or control.”

“Coverage for the employer probably is not excluded because heactually did not have control over the property that wasdamaged.”

Were backed up by some case law here. Quoting from FC&S: “InHolter v. National Union Fire Ins. Cothe Washington courtof appealsheld that because employee was not included within thedefinition of the term insured under a CGL policy, the exclusionaryclause of damage to property in the insureds care, custody orcontrol was not applicable when a boat elevator [that] the insuredsemployee was operating fell from its track and into water.”

“Though the policy did not specifically include employees withinthe definition of insured, the insurer argued that the exclusionwas still applicable because acts of employees are considered actsof the employer under the master-servant rule.”

“In rejecting the argument, the court held that themaster-servant rule does not broaden the scope of insured in thecare, custody or control exclusion. The court said that had theinsurer intended to exclude such losses it could have worded theexclusion: this policy does not apply . . . to injury ordestruction of property in the care, custody or control of theinsured or any of his employees, or property as to whichthe insured or any of his employees for any purpose isexercising physical control.”

“Since no reference was made to employees, however, theexclusion was inapplicable to this loss.”

It is interesting to note that based on the wording of the CCCexclusion in the 1986 commercial general liability coverage form,the conclusion in the Holter case was very logicalconclusion.

The basis of the decision was an employee not being includedwithin the definition of the term “insured” with reference to thecare, custody or control exclusion.

Under the 1986 CGL forms, an employee is included as an insuredfor acts within the scope of employment. However, the CCC exclusionon the 1986 CGL forms states that the insurance does not apply toproperty damage to personal property in “your” care, custody orcontrol. “Your” is a defined term in the CGL forms and it refers tothe named insured shown in the declarations and not all insureds.Therefore, employees, even though they are insureds for the mostpart, are not named insureds and the wording of the exclusion canbe interpreted as not applying to employees.

This anomaly must have attracted attention since the currentversion of the CGL forms changed the wording of the exclusion; itnow states that the insurance does not apply to property damage topersonal property in the care, custody or control of theinsured.

Of course, this still has no effect on the fact that theemployee has no coverage for the property damage. This is so,because the Who Is An Insured section of the CGL form states thatan employee is not an insured for property damage to property “inthe care, custody or control of, or over which physical control isbeing exercised for any purpose by” the named insured or anyemployee.

The employee is not an insured at all for a loss that involvesproperty damage to property in his care, custody or control; sincehe is not an insured, he has no coverage under the employers CGLform and the applicability of an exclusion is not relevant.

A question remains as to whether the CCC exclusion reaches theemployer, the named insured, if the employee is the one doing thedamage. The wording of the exclusion applies to “the insured.”

If the named insured had custody or control of the property,then yes, the exclusion would apply. However, if the employee hasthe property in his custody and control, no “insured” has care,custody or control over the property and the exclusion is notapplicable to the named insured. The named insured would still haveto be found somehow liable for the damage in order for the CGL formto cover the property damage loss, but if that happens, the CCCexclusion is not applicable.

This is the exact situation that arises with the pet-sittingoperation, and can be applied.

Before closing, lets look at one more CCC example that has cometo the attention of FC&S. I had the opportunity to speak to asenior underwriting executive at a major insurer recently, who toldme his company had just established a joint UnderwritingDepartment-Claims Department coverage committee. The first questionthat came before the committee had to do with automatic car washesand the CCC exclusion.

In my neighborhood there is a car wash called Johnnys that youdrive up to, turn your car over to an attendant, go to a waitingroom, and wait while they vacuum, wash and dry your car. You turnthe keys over, the car and essentially the control (and care andcustody) of the car to the car wash guys. No question the CCCexclusion applies here. Johnnys needs garagekeepers legalliability, specifically covering property in the CCC of theinsured.

The committee wasnt thinking about that kind of car wash.Instead, it was focused on the kind with bays where you wash yourown car with a wand and where there may not be an employee present.They also may have one automated bay where your car is pulledthrough on a short track and the driver stays in the auto duringthe process.

Is the CGL CCC exclusion applicable here?

We think not. The driver is still in the auto, there is noexercise of control over the car by the car wash, and there isprobably a sign that says “Not Responsible for Damage to Antennasand Other Auto Equipment.” Further, even though it might damage thecar, the driver could stick the thing in gear at any time andexercise control of the car. This operation does not needgaragekeepers and can rely on the CGL for adequate liabilityprotection.

Thats about enough of the care, custody or control exclusion fornow. Or at least all I care to get into in my control of thisarticle. Theres more in FC&S, if you want custody ofit.

Bruce Hillman, JD, is Editorial Director of Risk andInsurance Markets for the Professional Publishing Group of TheNational Underwriter Company, in Erlanger, Ky. Questions andcomment are invited at [email protected].

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, June 30, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.