Analysis

The significance of this detailed definition is that the insurer wants to clearly delineate between an “auto” (see the definition, earlier) and “mobile equipment.” The businessowners form is intended to apply to mobile equipment and not to auto exposures and this particular definition goes into great detail in order to help the insured and the insurer know just what mobile equipment is.

There are two additional types of equipment not mentioned in the ISO businessowners (but found in the CGL form). The first is a land vehicle that is used only on the insured premises (that is, premises either owned by or rented to the named insured). It appears that, although an “auto” is one designed for travel on public roads, if that “auto” is used only on the insured premises it will be considered mobile equipment. Note, though, that this does not refer to the “auto's” use at the time of an accident resulting in bodily injury or property damage. In other words, an insured might have a dump truck used to haul trash both on and away from the insured premises. But if the truck injures a customer on the insured premises, the insured cannot claim that the dump truck was being used on the insured premises at the time of the accident and therefore the businessowners policy should cover the injury.

The second type of equipment is that often used for well drilling. This category includes drilling, lighting, and servicing equipment.

Referring to the definition of “insured”, the form provides bodily injury and property damage liability coverage for mobile equipment in most circumstances. Naturally, the named insured and employees are insured for the ownership, maintenance, or use of covered mobile equipment by virtue of the earlier provisions respecting persons insured. The purpose of an additional provision under the definition is to provide coverage, with respect to mobile equipment for additional persons. This special class of insureds includes any person while driving mobile equipment (registered in the named insured's name under any motor vehicle registration law) on a public highway with the named insured's permission. Also insured is any person or organization responsible for the conduct of the permissive user (such as the user's employer). However, the responsible person or organization is only covered for liability arising out of the operation of the equipment, and qualifies for this coverage “only if there is no other insurance available to them which would cover such liability.”

This designating as “insureds” permissive users and responsible persons or organizations is subject to two exceptions. The first is of bodily injury to a fellow employee of the person driving the equipment. The second is of property damage to property owned by, rented to, in the charge of, or occupied by the named insured or the employer of any person covered by this provision. As is usual, property damage to the named insured's property is not to be insured under this form.

Analysis

The definition of an occurrence is similar to that found in other liability forms. Although the word “harmful” does not preface “conditions,” as in the CGL, that is the intent. Obviously, one would not sue for damages from a non harmful event.

Analysis

Note that only tangible property of another entity falls within the definition of “impaired property.” The insured cannot claim that, say, a faulty widget component the insured manufactures makes the widgets, which he also manufactures, less useful and therefore covered under the definition.

Unlike the CGL or the ISO BOP, AAIS breaks the “products/completed work hazard” into two components. The “products hazard” refers to the insured's products that have been relinquished, with any resulting bodily injury occurring away from the premises. The exception here is that products for consumption on the premises owned by or rented to do not fall within the definition. Remember, the businessowners form may be used to cover small restaurants.

The “completed work hazard” refers to work that has been completed as defined in b.1), b.2), or b.3).

The reason for the extensive definition is that certain exclusions (discussed later) either give back or eliminate coverage for work or products as described in the hazard. Exclusion 2.r., for example, states that the insurer will not pay for “property damage” to “that specific part of any property that must be restored, repaired, or replaced because 'your work' that was performed on the property was faulty,” but then declares that the exclusion does not apply to “'property damage' covered under the 'products/completed work hazard'.”

Note that the definition does not include injury or damage arising out of the transportation of property, since that exposure is property covered under an auto policy. And, a separate aggregate limit applies to the hazard, so it is important to know exactly what exposures are contemplated.

The definition of “products” includes warranties or representations of fitness for the type of usage, as well an explanation of what allows the products to meet the definition. Products may simply be handled by the insured business to fall into the category. For example, the insured business may be production of jams and jellies; the jars into which the jams and jellies are placed are purchased. The jars are handled by the insured in the manufacturing process. There is, however, no real consensus as to the meaning of handled, and so much has been left to the courts.

The definition does not, however, include vending machines or real property. For example, if the businessowners form is used to cover a building owned by the insured, the building should not be construed as the insured's “product.”

The definition of “your work” also includes warranties or representations of fitness, but for the insured's work, not for the insured's products. As will be seen, the inclusion of work performed on the insured's behalf ties in with the exclusion for damage to the insured's work; the insured therefore has coverage for property damage to work performed on his or her behalf.

The definitions that follow do not fit into a convenient category, but are important for a complete understanding of the coverage.

Analysis

The main use of the loading or unloading definition is in exclusions 2.g. and 2.h. for bodily injury or property damage arising out of transporting property. Moving property by a hand truck or other mechanical device attached to a vehicle falls within the definition. But if property is being loaded by means of a fork lift owned by the named insured, and the property falls onto a passerby, the resulting injury would be covered by the businessowners liability.

The loss of use of tangible property, as well as the injury to or destruction of tangible property, is included within the definition of “property damage.” For purposes of determining when “ loss of use” begins, the definition declares that it begins at the time of the physical injury causing the loss of use. Therefore, if a claimant discovers three months after the insured's policy has terminated that he or she has lost the use of tangible property, coverage will be tied to the actual date of injury, and not denied out of hand because the policy has terminated.

The definition of “short-term rented premises” does not appear in the ISO CGL or businessowners forms. The definition is important in exclusion 2.m. (damage to property owned by or rented to the named insured). The ISO forms, however, do provide coverage for short-term rented premises by means of an exception in exclusion j. in the CGL and k. in the BOP.

The meaning of a “suit” has come to include alternative dispute resolution proceedings and arbitration proceedings; for that reason, the terms are included within the definition.

Coverage L–Insuring Agreement

The AAIS businessowners form AP 0200 promises to “pay all sums which an 'insured' becomes legally obligated to pay as 'damages' due to 'bodily injury' or 'property damage' to which this insurance applies.”

We should note that the current AAIS form has been rearranged. The earlier edition (BP-200) listed all the liability and medical payments coverages, and then all of the applicable exclusions. But in this edition, the liability coverage L insuring agreement (for bodily injury or property damage) is followed by the applicable exclusions.

The insurer has the right and duty to defend against a suit “which may be covered” (emphasis added). The word may should probably be read as might, since a suit cannot have permission to be covered; a suit is filed and a determination of coverage is made. Remember that the duty to defend is broader than the duty to indemnify; generally, if a suit alleges any action that conceivably could trigger coverage, the duty to defend is also triggered. The insurer “may investigate 'occurrences' and settle claims or 'suits' that 'we' decide are appropriate.” Here, the insurer is stating that it may—in the sense of “has permission to”—make its own determination to investigate. The insured cannot, for example, ask the insurer to just take his or her word a claim should be settled without investigation. Although not explicitly stated here, the cost to defend is in addition to the policy limit.

However, the insurer's duty to defend ends once the limits are exhausted because of “a judgment; a written settlement agreed to by 'us'; or medical expenses.”

There is a new set of provisions in the insuring agreement:

These provisions are the result of the California Supreme Court's ruling in the Montrose case, where it determined that the known loss rule does not bar liability coverage for claims alleging continuous or progressive injury or damage as long as there is uncertainty about injury or damage that might occur during the policy period (Montrose Chemical Corporation v. Admiral Insurance Company, 913 P.2d 878 [Cal. 1995]). Therefore, if the insured or an employee authorized to give or receive notice of an occurrence or claim knew that injury or damage occurred prior to the beginning of the policy period, then that knowledge means that this policy will not apply to any injury or damage claims arising from that claim or occurrence that are presented during the policy period.

The provisions go on to state that bodily injury or property damage that occurs during the policy period (and is not a continuation as described) will include a continuation, resumption, or change in the bodily injury or property damage that surfaces after the end of the policy period.

Finally, the insuring agreement states that “'damages' due to 'bodily injury' include care, loss of services, and death that results at any time from the 'bodily injury.'”

Exclusions Applying to Liability Coverage

There are twenty-three exclusions applicable to the AAIS liability coverage. Many of these are similar to those found in the ISO CGL or BOP.

Exclusion 2.a. eliminates coverage for bodily injury or property damage arising out of “rendering or failure to render a professional service.” Unlike the ISO BOP, the AAIS form does not elaborate further. The ISO form advises that “professional services” include (but are not limited to) such things as legal, accounting, and medical services. Webster's Collegiate Dictionary (Tenth Edition) suggests that professional relates to the “learned professions” (such as a physician or college professor); but the word has come to take on the meaning of simply being paid for a job, as a professional beautician. Without further clarification in the exclusion, it might be left to the courts to decide the parameters.

Exclusion 2.b. has as its subject employers liability. Its counterpart in the ISO BOP is through addition of endorsement BP 04 17 employment-related practices exclusion. The insurer will not pay for bodily injury or property damage that arises out of the refusal to employ a person, termination of employment, or any type of coercion, demotion, harassment, etc., of a person. There is no consequential “bodily injury” coverage, nor is there coverage for any “third party over” action.

Exclusion 2.c eliminates coverage for bodily injury or property damage caused by war, warlike action, insurrection, rebellion, or revolution. “Warlike action” is clarified to mean one taken by a military force employed “by any government, sovereign, or other authority using military personnel or other agents.” Although this might appear to open the door for coverage for a terrorist attack, remember that most insurers will attach terrorism endorsements limiting coverage. This exclusion concludes with concurrent causation language that injury or damage is not covered regardless of any contributory event.

The next exclusion (2.d.) is similar to the ISO BOP exclusion B.1.a. expected or intended injury. There is no coverage for bodily injury or property damage that is expected by or intended by the insured. However, the AAIS exclusion includes: “directed by…or that is the result of intentional and malicious acts of the 'insured'.” The ISO form states the excluded bodily injury or property damage is that which is “expected or intended from the standpoint of the insured.” Both businessowners forms except bodily injury that results from reasonable force to protect persons or property.

Exclusion 2.e has as its subject contract liability; that is, liability assumed under contract or agreement. But, as is the case with the ISO BOP and the CGL, there are exceptions that give coverage. These are for: “1) liability an 'insured' would have had in the absence of the contract or agreement; or 2) 'bodily injury' or 'property damage' liability which is assumed in a 'covered contract', provided that the 'bodily injury' or 'property damage' occurs after the effective date of the contract or agreement.” For example, the named insured might be a tenant in a building, and the lease agreement requires the insured to hold the landlord harmless in event someone coming on the premises is injured. Now, a “covered contract” includes one for lease of premises; however, if a customer entering the premises was injured and sued the insured for careless maintenance of the premises, the insured could still be liable without the contract. The BOP and CGL both state that the assumed liability includes attorney fees and necessary litigation fees “incurred by or for a party other than an 'insured'.” The AAIS form does not address this.

Exclusion 2.f. eliminates coverage for bodily injury or property damage arising out of the use of “mobile equipment” used “in, or in the practice or preparation for, racing, speed, pulling or pushing, demolition, or stunt activities or contests.” Although the intent is to preclude coverage for this type of equipment while being used for racing or other competition, the exclusion could be read to include eliminating coverage if a bulldozer is used to grade a track before the track is used for racing. Exclusion 2.g. precludes coverage for bodily injury or property damage arising out of the transporting of mobile equipment by an “'auto' owned by, operated by, rented to, or loaned to any 'insured'.” Liability for this should be found under an auto policy.

Exclusion 2.h. is similar to the ISO BOP exclusion g. The insurer will not pay for bodily injury or property damage arising out of:

Obviously, the businessowners form was not intended to cover liability exposures of autos, aircraft, or watercraft. Note that there is no coverage even if a suit alleges that negligent hiring, and not the improper use of an auto, was really the efficient proximate cause of an accident resulting in, say, bodily injury. There is, however, some coverage provided by exception to the exclusion. So, for example, there is no liability coverage for activities relating to an owned or rented watercraft, but the exception is that there is coverage for these activities if the watercraft is either on shore on the insured premises, or, if on the water, the watercraft is under fifty-one feet in length, not owned by the named insured, and not being used to carry persons or property for a charge. Thus, if the named insured rented a boat for entertaining customers, and it was less than fifty-one feet, there would be coverage.

And, although there is no coverage for “loading or unloading” an “auto,” there is coverage so long as the insured is not using a hand truck or mechanical device attached to the vehicle (see the definition of 'loading or unloading,” earlier.

There is coverage for injury or damage resulting from parking an auto. Note, though, that this does not mean there is coverage for any damage done to the auto being parked; the “care, custody, or control” exclusion would apply.

Exclusion 2.i. is the AAIS liquor liability exclusion. It eliminates coverage for causing or contributing to intoxication, furnishing alcohol to someone already under the influence or to a minor, or violating any law or statute relating to alcohol distribution or consumption. The exclusion applies, however, only if the named insured is in the business of “manufacturing, distributing, furnishing, selling, or serving alcoholic beverages.” Thus, if the named insured, whose business is manufacturing jams and jellies, has a holiday party and serves alcohol, the BP 0200 would protect him or her in event of an incident involving serving alcohol because the named insured's business has nothing to do with alcoholic beverages.

Exclusion 2.f. eliminates coverage for bodily injury or property damage arising out of pollution. Like its counterparts in the ISO BOP and CGL, it is extremely specific in describing what is and is not covered, and, like its counterparts, there are exceptions that return coverage. The pollution exclusion is extensively discussed elsewhere—see CGL Coverage Form—Coverage A.

Although there is no coverage for “bodily injury” or “property damage” arising out of a site that was at any time owned by, occupied by, or rented or loaned to an “insured,” the exclusion gives back coverage for pollution released by a hostile fire, the heating equipment of a building (but only if the injury was suffered in that building), or for which the named insured may be held liable as the contractor at a premises and the owner of the premises has been added as an additional insured. There is no coverage if any premises was used for or is being used for any waste transportation, disposal, or treatment, or if any pollutants are brought on a site where any “insured” or contractor or subcontractor is working on any insured's behalf if the pollutants are brought to the site in connection with the work being performed. Again, there are exceptions for injury or damage from a hostile fire, or if the pollutants have accidentally escaped from a piece of mobile equipment, or if injury or damage results from the release of gases, vapors, or fumes from materials brought into the building because of operations being performed. The injury or damage must occur within the building. An example of this is glue brought into a building to lay carpeting. If an occupant alleges bodily injury from the glue's fumes, this exception gives coverage for the claim of injury or damage.

Finally the exclusion states there is no coverage for any operations the insured may undertake to clean up pollutants, if that is the nature of the insured's work. Nor is there coverage for any loss, cost, or expense because of a request, demand, or suit to test or clean up pollutants. But, if there is liability for “property damage” that the insured would have had in the absence of the suit, demand, or request, there is coverage.

Exclusion 2.k. is similar to ISO BOP exclusion e. employer's liability. This exclusion declares that if an employee is injured in the course of employment or while performing “duties related to the conduct of the 'insured's' business” there is no coverage for “bodily injury” to that employee. Coverage is likewise precluded for consequential injury to a relative of the injured worker. Coverage should be paid under the employer's liability section of a workers compensation policy. And, there is no coverage for a third-party over suit against the named insured. There is an exception, however, and that is for any liability assumed under a “covered contract.” Exclusion 2.l. also has to do with workers compensation, holding that the insurer will not pay for bodily injury if benefits are either provided, or are required to be provided, by a workers compensation or other similar law.

Exclusion 2.m. through 2.w. all pertain to “property damage” and under what circumstances coverage is either eliminated or provided by exception. In the ISO form, similar exclusions are contained in exclusions k. damage to property, l. damage to your product, m. damage to your work, n. damage to impaired property, and o. recall of products.

Exclusion 2.m. states there is no coverage for “property damage” to property owned by, occupied by, or rented to the named insured, including any expense to repair or retrofit the property, even if this is done for the purpose of avoiding injury to a person or the property of another. For example, the named insured cannot install a ramp up the front steps of a building to accommodate wheelchair traffic and claim the installation expense was incurred to prevent a future injury. The exception, which is new in the BP 0200, is that the exclusion does not apply to damages for which the insured is legally obligated because of “property damage” to “short-term rented premises.” Here, coverage is broader than that found in the ISO BOP, which declares that the premises must be rented by “you”—the named insured. The AAIS form therefore would provide coverage to an employee (as an” insured”) who rents, say, a conference room in a hotel for four days for demonstrating the insured business's products. Coverage is limited to $50,000 unless a higher amount is selected.

Exclusion 2.n. is sometimes called the “alienated premises” exclusion, because it declares there is no coverage for “property damage” to premises the insured has sold, given away, or abandoned, if the damage arises out of those premises. The exception is for premises that are the insured's work and were not occupied, held for rental, or rented by the named insured.

There is no coverage for “property damage” to property loaned to the named insured, but the exceptions are for liability assumed under a sidetrack agreement, and for damage to “short-term rented premises.” This is exclusion 2.o.

There is no coverage for “property damage” to business or non-business personal property in the “care, custody, or control” of the insured (see the example of an employee parking a non-owned auto, earlier). There are exceptions to this exclusion 2.p. Liability assumed under a sidetrack agreement is covered, and, again, damage to “short-term rented premises” is covered.

“That specific part of real property” is not covered for damage to it caused by work being performed by the named insured, or a contractor or subcontractor working on the named insured's behalf. So, for example, if a contractor hired by the named insured is repairing a heating duct with a blowtorch, and negligently sets the wall surrounding it on fire, the damage to the wall is covered, but not damage to the duct. However, the exclusion (2.q.) does not apply to liability assumed under a sidetrack agreement.

Exclusion 2.r. states that there is no coverage for “property damage” to the specific part of any property that must be restored, replaced, or repaired because the named insured's work was incorrectly performed. However, the exclusion does not apply to “property damage” covered under the “products/completed work hazard”; that is found in exclusion 2.t., which eliminates coverage for “property damage” to the named insured's work if the damage arises out of the work or any part of it and it is included in the “products/completed work hazard.” (However, exclusion 2.t. does not apply if the work out of which the damage arises was performed by a subcontractor working on the named insured's behalf.) The exception for exclusion 2.r. is for liability assumed under a sidetrack agreement.”

There is no coverage for “property damage” to “products if the damage arises out of the “products” or their parts. If the jams and jellies manufacturer overheats the jars in the canning process, and the jars explode because the contents expand, there is no coverage. This is exclusion 2.s.

Exclusion 2.u. is often referred to as the “impaired property” exclusion. (In the ISO BOP, it is exclusion n.) “Property damage” to property that either is “impaired property” (as defined), or property that has not been physically injured but cannot be used because of failure or delay in performing a contract, is not covered. But if “sudden and accidental physical injury or destruction of 'your work' or 'products' after having been put to its intended use” occurs, and the result is that other property cannot be used, that loss is covered.

Exclusion 2.v. declares that there is no coverage for any loss or cost incurred by the named insured (or any other person or entity) because the named insured's products, impaired property, or work is withdrawn or recalled. So, if the jams and jellies manufacturer discovers that the products may contain a strain of e-coli (definitely an “unsafe condition” falling within the exclusion), and pays to recall the products, there is no coverage for this expense.

The final exclusion (2.w.) applying to liability coverage is for “bodily injury” arising out of personal and advertising injury. That is because this coverage is found under coverage P. The reason for the exclusion here is to prevent stacking limits.