Liability Exclusions and Coverage for a Limited Liability Company Owner
September 22, 2014
The insurer sought a declaratory judgment as to whether it had a duty to pay a claim on a limited liability company's (LLC) commercial general liability policy based on the owner's damage to personal property caused while he was conducting work for the LLC. This case is Dakota Fire Insurance Company v. J&J McNeil, 849 N.W.2d 648 (2014).
McNeil owned and operated the LLC, an excavation and snow-removal company. The LLC owned a number of vehicles, including a Caterpillar scraper. McNeil personally owned a number of vehicles, including a 2008 Shelby GT. The Shelby had no business purpose.
In the early hours of November 2008, McNeil needed to service the scraper and mobilize it for a commercial development project. He backed the Caterpillar out of a shed and accidentally drove it over his Shelby, destroying it. McNeil made an insurance claim against the LLC's commercial general liability insurer, Dakota Fire, for the damage caused to the Shelby. The insurer filed a declaratory judgment action seeking a determination of whether its insurance policy creates a duty to pay the claim. The circuit court ruled in favor of McNeil and this appeal followed.
The Supreme Court of South Dakota said that coverage was triggered but that the court had to decide if any policy exclusions applied. The insurer argued that the “property you own, rent, or occupy” exclusion applies to the property damage since McNeil caused the damage and he owns the Shelby. The insured said that the exclusion applies only to property the LLC owns, rents, or occupies. The Supreme Court found that the exclusion plainly states that the term “you” only refers to the named insured, and the named insured in the Dakota policy was J&J McNeil, not McNeil himself. Therefore, the exclusion only refers to the LLC's property. The LLC did not own the Shelby and so, the exclusion was not applicable in this instance.
Dakota Fire urged the court to expand the policy language to exclude coverage because the insured member that caused the damage did so to the member's own personal property. The court declined to make such an interpretation. The court said that the plain meaning of the insurance policy language requires the insurer to insure against damage to another's property if a member of the LLC caused the damage while conducting business for the LLC. As long as the member is conducting business for the LLC, coverage exists. If Dakota Fire wished to exclude damage an insured caused to the insured's personal property, it could have done so. It did not, coverage applies.
In addition, Dakota Fire argued that because McNeil is an insured under the general liability policy, and since the Shelby was in his control when he moved it to the place where it was damaged, the exclusion pertaining to property damage to “personal property in the care, custody or control of the insured” exclusion applies. The court responded that the insurer ignored the policy's distinction of when McNeil is an insured and when he is not an insured.
The court found that McNeil was acting in two different capacities on the morning of the accident. When McNeil was parking the Shelby, he was acting as an individual in regards to his personal property. When he backed the scraper out, he was acting on behalf of the LLC. So, although McNeil caused damage to his personal property, he did so while acting for the LLC. The Dakota policy was clear that a member is only an insured if the member is conducting business on behalf of the LLC. In this instance, McNeil's actions regarding the Shelby were made in his individual capacity and not as an agent for the LLC. Therefore, the Shelby was never in the care, custody or control of the insured as described in the general liability policy. The court ruled that the exclusion did not apply.
The ruling of the lower court was affirmed.
Editor's Note: The Supreme Court of South Dakota rules that the policy language is clear and unambiguous. The exclusions pushed by the insurer clearly did not refer to McNeil acting as an individual. Although McNeil was operating the scraper when the damage occurred, he made the claim not against himself, but rather against the LLC for the LLC's actions.