Property Loaned to Insured Exclusion

Our insured is an interior designer who utilizes loaned items to decorate model homes. Our insured was loaned an area rug by another party. The area rug was damaged while on display in the model home. Would the exclusion for property loaned to you apply? Did our insured have care, custody or control over the loaned area rug?

Connecticut Subscriber

Issues regarding care, custody or control are highly fact-specific, and the way in which they are resolved will vary based on the insured's jurisdiction. Whether the exclusion applies is a factual question and the resolution depends on many circumstances, including the nature of the property, its location, and what the insured was doing with or to it.

Generally speaking, though, for the care, custody or control exclusion to apply, the insured needs to have physical control of another's property. That control need not be continuous, but courts typically hold that control exercised by the insured must be exclusive in order to establish possessory control.

Contractual considerations are also often important when analyzing care, custody or control situations. The terms of any agreement between your insured and the owner of damaged rug could be determinative where uncertainty still exists about control.

Regardless, however, of whether the care, custody or control exclusion applies to the situation you describe, exclusion j.(3) in the CGL form, excluding “property loaned to you,” should function to eliminate coverage for the damaged rug.