The care, custody, or control exclusion in the commercial general liability (CGL) form is often the subject of many coverage disputes and misunderstandings.

To clarify things a bit, the exclusion applies only to personal property. Exclusions applicable to real property — such as buildings and permanently attached fixtures — are separate items in the liability policy. Also, the majority of court cases support the view that care, custody, or control refers to actual possession or direct physical control as distinguished from having the legal right or legal title to the property. Courts typically hold that control exercised by the insured must be exclusive; that is, the insured must have total possessory control not shared with any other entity in order for the exclusion to be applicable.

However, when it comes to disputes and misunderstandings, the thorniest question about the care, custody, or control exclusion involves the situation in which the named insured’s employee damages property in his possession. How do the policy’s wording and the facts of the incident affect coverage for the named insured/employer? Does the exclusion prevent coverage for the named insured and/or the employee who is also considered an insured (under certain circumstances)?

The wording of the exclusion states that insurance does not apply to property damage to personal property in the care, custody, or control of “the insured.” Note, however, that the insured section of the CGL form states that an employee is not considered an insured for damage to property in his care, custody, or control, or over which he is exercising physical control.

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Therefore, the employee is not an insured at all for such a property loss and the liability insuring agreement in the CGL form only applies to insureds. Thus, the employee has no coverage for the property damage claim, making the care, custody, or control exclusion irrelevant to this circumstance.

As for the exclusion’s applicability to the named insured/employer, I am of the opinion that the exclusion is not applicable.

In the first place, the exclusion refers to “the insured.” The word “the” is a limiting word and particular in its scope, so since the named insured is not “the” insured that has the care, custody, or control of the property, the exclusion does not refer to the named insured. The separation of insureds clause in the CGL form states that the insurance applies separately to each insured, so the named insured/employer and the employee are treated as separate insureds by the CGL form. If the intent was to apply the exclusion to all the insureds, the exclusion would have been worded differently, such as “care, custody, or control of any insured.”

Secondly, since the employee is not considered an insured for property damage to property in his possession, no actual insured has care, custody, or control of the property. And since no insured has care, custody, or control of the property, how can the exclusion apply?

The master-servant rule could make the named insured/employer liable for property damage caused by his employee, and if that happens, the named insured would call upon his insurer for defense and indemnification. In my opinion, if the insurer relies on the care, custody, or control exclusion to deny coverage, that is an option that will not work.

This blog post is meant to provide insights into insurance coverage issues in general, and does not necessarily account for the differences in law and practice in different venues. As such, the opinions expressed within should not be construed as legal advice for the unique circumstances of any particular claim or suit.