Includes copyrighted material of Insurance Services Office, Inc., with its permission.
July 1, 2010
The Garage Policy—Liability Coverage
Summary: The garage coverage form (CA 00 05) constitutes a broad arrangement in a standard format of basic liability coverages for eligible insureds, encompassing automobile liability, premises and operations liability, contractual, and products and completed operations. The policy might be seen as a combination of business auto coverage on a comprehensive basis and comprehensive general liability insurance. To complete the parallelism, Insurance Services Office (ISO) added broad form coverage as an option with the use of endorsement CA 25 14 03 10 broadened coverage—garages (see Garage Policy Endorsements).
The automobile liability insurance under the garage form applies to sums that an insured legally must pay as damages because of BI or PD caused by an accident and resulting from garage operations involving the ownership, maintenance, or use of covered autos. See Garage Policy, for the symbols used to make the designation of “covered autos.”
Topics Covered:
1.”Garage Operations” – Other Than Covered “Autos”
a.We will pay all sums an “insured” legally must pay as damages because of “bodily injury” or “property damage” to which this insurance applies caused by an “accident” and resulting from “garage operations” other than the ownership, maintenance or use of covered “autos”.
We have the right and duty to defend any “insured” against a “suit” asking for these damages. However, we have no duty to defend any “insured” against a “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply. We may investigate and settle any claim or “suit” as we consider appropriate. Our duty to defend or settle ends when the applicable Liability Coverage Limit of Insurance – “Garage Operations” – Other Than Covered “Autos” has been exhausted by payment of judgments or settlements.
b.This insurance applies to “bodily injury” and “property damage” only if:
(1)The “accident” occurs in the coverage territory;
(2)The “bodily injury” or “property damage” occurs during the policy period; and
(3)Prior to the policy period, no “insured” listed under Who Is An Insured and no “employee” authorized by you to give or receive notice of an “accident” or claim, knew that the “bodily injury” or “property damage” had occurred, in whole or in part. If such a listed “insured” or authorized “employee” knew, prior to the policy period, that the “bodily injury” occurred, then any continuation, change or resumption of such “bodily injury” or “property damage” during or after the policy period will be deemed to have been known prior to the policy period.
c.”Bodily injury” or “property damage” which occurs during the policy period and was not, prior to the policy period, known to have occurred by any “insured” listed under Who Is An Insured or any “employee” authorized by you to give or receive notice of an “accident” or claim, includes any continuation, change or resumption of that “bodily injury” or “property damage” after the end of the policy period.
d.”Bodily injury” or “property damage” will be deemed to have been known to have occurred at the earliest time when any “insured” listed under Who Is An Insured or any “employee” authorized by you to give or receive notice of an “accident” or claim:
(1)Reports all, or any part, of the “bodily injury” or “property damage” to us or any other insurer;
(2)Receives a written or verbal demand or claim for damages because of the “bodily injury” or “property damage”; or
(3)Becomes aware by any other means that “bodily injury” or “property damage” has occurred or has begun to occur.
2.”Garage Operations” – Covered “Autos”
We will pay all sums an “insured” legally must pay as damages because of “bodily injury” or “property damage” to which this insurance applies, caused by an “accident” and resulting from “garage operations” involving the ownership, maintenance or use of covered “autos”.
We will also pay all sums an “insured” legally must pay as a “covered pollution cost or expense” to which this insurance applies, caused by an “accident” and resulting from “garage operations” involving the ownership, maintenance or use of covered “autos”. However, we will only pay for the “covered pollution cost or expense” if there is either “bodily injury” or “property damage” to which this insurance applies that is caused by the same “accident”.
We have the right and duty to defend any “suit” asking for such damages or a “covered pollution cost or expense”. However, we have no duty to defend any “insured” against a “suit” seeking damages for “bodily injury” or “property damage” or a “covered pollution cost or expense” to which this insurance does not apply. We may investigate and settle any claim or “suit” as we consider appropriate. Our duty to defend or settle ends when the Liability Coverage Limit of Insurance – “Garage Operations” – Covered “Autos” has been exhausted by payment of judgments or settlements.
Analysis
The central liability insurance agreement of the garage coverage form is basically the same as other general liability policies. The insurance company promises to pay up to policy limits in response to the legal liability of the insured because of bodily injury or property damage occurring while the policy is in force; but of course, since this is a garage coverage form, the injuries and damage must arise out of an accident in the course of garage operations. “Garage operations” is a defined term and relates to the business premises liability exposure, to all operations necessary or incidental to a garage business, and includes the ownership, maintenance, or use of covered autos.
The insurance company expressly has “the right and the duty” to defend the insured against liability claims but, also expressly, the defense obligation does not extend to a lawsuit seeking damages for bodily injury (BI) or property damage (PD) to which the insurance does not apply. A claim for damages arising out of the use of a covered auto in an organized race does not activate the promise to defend because coverage for such an incident is specifically excluded. Refusal to defend, does however, put the insurer in some legal jeopardy and such refusal is not lightly undertaken. In Davis v. United Fire & Casualty Co., 400 N.E.2d 984 (Ill. App. 1981) for example, the policy applied to the use of nonowned automobiles in the operation of the garage and the claim concerned a garage-owned wrecker in a collision with the claimant. The insurance company denied coverage and the insured subsequently defended the suit himself, and lost. The case before an Illinois appellate court centered on the obvious fact that the insurance company had not offered its insured a defense and the case was remanded for still more litigation on whether the insurer owed a defense. To all appearances, the claim was outside the coverage of the policy, but that did not save the insurance company from costly legal expense.
The insurance company has complete authority to investigate — and to settle — any covered claim without consultation with the insured. And payment of the limit expressed in the policy ends the insurer’s defense obligation. The limit, incidentally, is expressed as a single limit for both bodily injury and property damage. If split limits are required, this can be accomplished by use of endorsement CA 99 38 01 87. (See Garage Policy Endorsements.)
The garage form also contains the clauses about prior knowledge on the part of an insured about bodily injury or property damage that occurred before the policy inception. This is in reaction to the Montrose Chemical Corporation decision from California and such clauses are now an integral part of the liability policies furnished by ISO.
CA 00 05 03 10 also applies to garage operations involving the ownership, maintenance, or use of covered autos. Covered autos under the garage form are based on the use of designation symbols; see Garage Policy.
Another of the garage form’s liability insuring agreements is the insurers promise to pay all sums that an insured legally must pay as a covered pollution cost or expense. The cause must be accidental and result from garage operations involving the ownership, maintenance, or use of covered autos. Basically, this insuring agreement deals with certain clean up costs that the insured has to pay in response to the accidental release or dispersal of pollutants from a vehicle’s operating systems or by an off premises auto accident. See Business Auto Definitions for more detail on covered pollution costs.
3.Who Is An Insured
a.The following are “insureds” for covered “autos”:
(1)You for any covered “auto”.
(2)Anyone else while using with your permission a covered “auto” you own, hire or borrow except:
(a)The owner or anyone else from whom you hire or borrow a covered “auto”. This exception does not apply if the covered “auto” is a “trailer” connected to a covered “auto” you own.
(b)Your “employee” if the covered “auto” is owned by that “employee” or a member of his or her household.
(c)Someone using a covered “auto” while he or she is working in a business of selling, servicing, or repairing “autos” unless that business is your “garage operations”.
(d)Your customers. However, if a customer of yours:
(i) Has no other available insurance (whether primary, excess or contingent), they are an “insured” but only up to the compulsory or financial responsibility law limits where the covered “auto” is principally garaged.
(ii) Has other available insurance (whether primary, excess or contingent) less than the compulsory or financial responsibility law limits where the covered “auto” is principally garaged, they are an “insured” only for the amount by which the compulsory or financial responsibility law limits exceed the limit of their other insurance.
(e)A partner (if you are a partnership) or a member (if you are a limited liability company) for a covered “auto” owned by him or her or a member of his or her household.
(3)Anyone liable for the conduct of an “insured” described above but only to the extent of that liability.
(4)Your “employee” while using a covered “auto” you do not own, hire or borrow in your business or your personal affairs.
b.The following are “insureds” for “garage operations” other than covered “autos”:
(1)You.
(2)Your partners (if you are a partnership), members (if you are a limited liability company), “employees”, directors or shareholders but only while acting within the scope of their duties.
Analysis
For garage operations other than covered autos, the named insured is, of course, an insured; partners, members of a limited liability company, employees, directors, or shareholders are also insureds “while acting within the scope of their duties.”
The question has been raised about what constitutes operating within the scope of a person’s duties. Technically, it might be argued that maintenance, for example, is not within the scope of the president’s duty. Is the president then not an “insured” if he or she injures a customer while pushing a broom? Is a janitor not an insured while operating a piece of office equipment? The “scope . . . of duties”—or range of operations—is both broad and vague and quite open to insureds’ pursuits of the most favorable interpretation to fit the particular case. These persons are definitely not insureds when engaged in activities that are unrelated to the business of the named insured. Neither the president nor the janitor is an insured under the garage policy while watering the lawn at home, attending a ball game with friends, or working for another concern during “off” hours. It is the tying of coverage to business activities within the range of those pertinent to garage operations that signifies the obvious purpose of the “scope of . . . duties” expression. Efforts to restrict coverage to activities that fall only within those prescribed for a certain “role” in the business, e.g., the president doing president’s work and the janitor doing janitor’s work, will not usually succeed.
The “who is an insured” status becomes a more complicated question when the automobile exposure is examined. The first consideration, of course, is whether the automobile in question has the status of a “covered auto.” These comments assume that the appropriate symbols have been entered on the declarations page to confer “covered auto” status in each case.
The named insured is covered for whatever exposure is indicated by the covered auto symbol. (See Garage Policy). Anyone permitted by the named insured to use or drive a covered auto that is owned, hired, or borrowed by the named insured is also an insured — with the exceptions noted.
Customers of the named insured are “limited insureds.” If the customers have no other available insurance, the garage policy protects them up to the financial responsibility limits required under the law of the state or territory where the covered auto is principally garaged. If they have other available insurance but the limits are inadequate to meet statutory requirements, the garage policy will make up the difference.
The garage policy dealer insured can elect to purchase liability coverage for customers. The intent is declared in the supplementary schedule and an added premium equal to 25 percent of the liability insurance premium is charged. Dealers are often encouraged to avoid buying protection for customers since the insured has very little control over the customers’ expertise—or lack of expertise — behind the wheel. A few careless customers can ruin a dealer’s experience in quick order. However, the coverage limitation with respect to customers in earlier versions of the contract has had mixed reception in the courts. In some jurisdictions, the limitation has been seen as just another form of excess clause comparable to the excess clause in the customer’s own policy. Excess clauses in opposing policies are traditionally seen as canceling each other and the two insurers end by prorating on the basis of policy limits. The Iowa and Nevada supreme courts came to such conclusions, respectively, in Union Ins. Co. v. Iowa Hardware Mut. Ins. Co., 175 N.W.2d 413 (Iowa, 1970) and Yosemite Ins. Co. v. State Farm Mut. Auto. Ins. Co., 653 P.2d 149 (Nev. 1982). There is potential conflict, too, in some jurisdictions between the customer limitation and motor vehicle laws requiring that insurance pertaining to a particular vehicle apply to permissive users as well as to owners.
No person is an insured under the garage form’s automobile liability coverage while that person is working in the automobile business for anybody except the named insured. An insured might contract with the operator of a body shop to handle some repair work and employees of the body shop might pick up and deliver the automobiles involved in the work. The owner and employees of the body shop must look to their own garage policy for their protection while operating these autos.
The owners of automobiles that the named insured has hired or borrowed are not considered as insureds. If the owner of the hired or borrowed automobile is an employee of the insured, that owner is not a covered person. If the owner of the automobile is a member of the household of the permissive user-employee, the result is the same. In other words, an employee of the insured must look to his or her own coverage for automobile liability protection when using a personally owned auto in the business of the insured. Partners or members of a limited liability company also are not considered insureds with respect to covered autos owned by the partners or members or by members of their respective households. (A partner who borrows the auto of another partner
for use in a business related activity is insured — if borrowed autos are included as covered autos.)
The employees of the named insured are considered insureds while using a covered auto that the named insured does not own, hire, or borrow in the business of the named insured or his personal affairs. This clause coincides with the use of symbol 29, nonowned autos. Symbol 29 makes any auto that is not owned leased, hired, rented, or borrowed by the named insured but is used in connection with the garage business of the named insured a covered auto. Since that symbol includes autos owned by the employees of the named insured, it is fitting that the owner-employee be an insured under the named insured’s policy, especially since that auto is being used for the business purposes of the named insured.
Of course, it must be noted that previously, if the named insured does own, hire, or borrow a covered auto, the policy does not consider the employee-owner of such an auto to be an insured. This can lead to some confusion as to the status of the employee. The key point to note in order to understand the distinction here is this: if the named insured owns, hires, or borrows a covered auto, and the employee owns such an auto, the employee is not considered an insured; if, on the other hand, the employee or someone other than the named insured owns, hires, or borrows an auto for use on the named insured’s business, that person is considered an insured. This clause is new to the garage coverage form (the March 2006 edition), so how it will play out in court challenges or coverage disputes is yet to be seen.
Lastly, anyone who is legally liable for the actions of one who qualifies as an insured under the policy is also insured, to the extent of that liability. Parents of a minor employee in a state where parents have legal liability for the actions of minors provide an example. Of course, the parents—or anyone else—cannot claim coverage under this provision if they themselves are disqualified for some reason as covered persons.
4.Coverage Extensions
a.Supplementary Payments
We will pay for the “insured”:
(1)All expenses we incur.
(2)Up to $2,000 for the cost of bail bonds (including bonds for related traffic law violations) required because of an “accident” we cover. We do not have to furnish these bonds.
(3)The cost of bonds to release attachments in any “suit” against the “insured” we defend, but only for bond amounts within our Limit of Insurance.
(4)All reasonable expenses incurred by the “insured” at our request, including actual loss of earnings up to $250 a day because of time off from work.
(5)All court costs taxed against the “insured” in any “suit” against the “insured” we defend. However, these payments do not include attorneys’ fees or attorneys’ expenses taxed against the “insured”.
(6)All interest on the full amount of any judgment that accrues after entry of the judgment in any “suit” against the “insured” we defend; but our duty to pay interest ends when we have paid, offered to pay or deposited in court the part of the judgment that is within our Limit of Insurance.
These payments will not reduce the Limit of Insurance.
b.Out-of-State Coverage Extensions
While a covered “auto” is away from the state where it is licensed we will:
(1) Increase the Limit of Insurance for Liability Coverage to meet the limits specified by a compulsory or financial responsibility law of the jurisdiction where the covered “auto” is being used. This extension does not apply to the limit or limits specified by any law governing motor carriers of passengers or property.
(2)Provide the minimum amounts and types of other coverages, such as no-fault, required of out-of-state vehicles by the jurisdiction where the covered “auto” is being used.
We will not pay anyone more than once for the same elements of loss because of these extensions.
Analysis
The insurance company’s promise to pay “all expenses we incur,” and this in addition to the limits of the policy, is one of great significance. If the insurer is required to fulfill that promise in defense of the insured, it is litigation expenses, quite possibly sizable ones, that the insurer will be paying and payment stops in any particular incident only when the insurer calls a halt by agreeing to pay policy limits to the claimant. Then, as regards any other potential claims incident throughout the policy term, the limits and insurer’s defense cost obligations are fully restored.
The other expenses undertakings of the insurer pale in comparison. There will be coverage of certain of the insured’s expenses, some cost of bail bonds, cost of release of attachment bonds, court costs in defending a suit, interest on any adverse judgment until paid.
And, whenever a covered auto is out of state, policy limits and coverages will be automatically modified as needed to meet minimum requirements of that other state.
This insurance does not apply to any of the following:
1.Expected or Intended Injury
“Bodily injury” or “property damage” expected or intended from the standpoint of the “insured”. But for “garage operations” other than covered “autos” this exclusion does not apply to “bodily injury” resulting from the use of reasonable force to protect persons or property.
Analysis
Injury or damage is most often the unintended result of an intentional act. The exclusion is rightly focused on the result rather than the act; if injury or damage can be proved to be the intended result of the insured’s act, no coverage is owed.
2.Contractual
Liability assumed under any contract or agreement. But this exclusion does not apply to liability for damages:
a.Assumed in a contract or agreement that is an “insured contract” provided the “bodily injury” or “property damage” occurs subsequent to the execution of the contract or agreement; or
b.That the “insured” would have in the absence of the contract or agreement.
Analysis
Contractual liability insurance under the garage coverage form is for exposures common to businesses in general. Entrepreneurs are routinely required to assume the liability exposures of landlords or other owners in leases and of other parties in agreements covering easements, sidetrack arrangements with railroads, and in elevator maintenance contracts. Contractual liability insurance (see Contractual Liability Exposure) responds to agreements made by the insured to assume the exposure of the other party to third-party liability suits. (It has nothing to do with an insured’s contractual obligation to perform a service for the other party to the contract.) The coverage of this basic exposure is introduced, as in other general liability contracts, by way of an exclusion of liability assumed by the insured and an exception to the exclusion that covers assumed liability in “insured contracts”.
The contractual exclusion on the garage coverage form states that the insurance does not apply to liability assumed under any contract or agreement. But there are exceptions. Liability assumed in an “insured contract,” is one and liability that the insured would have in the absence of the contract or agreement is the other. An example of the latter is the insured’s own conduct, negligently causing an accident. The insured may well have an assumption of liability under contract with the owner of the damaged property but that is not relevant in face of the insured’s negligence.
Insured contract as defined on the garage form means a lease of premises; a sidetrack agreement; any easement or license agreement (except in connection with construction or demolition operations on or within 50 feet of a railroad); an obligation, as required by ordinance, to indemnify a municipality (except in connection with work for a municipality); that part of any other contract or agreement pertaining to the named insured’s garage business under which the named insured assumes the tort liability of another to pay for injuries to a third party; an elevator maintenance agreement; and that part of any contract or agreement entered into, as part of the named insured’s garage business, pertaining to the rental or lease, by the named insured or any of his employees, of any auto. This final part of the definition does not extend to any obligation that the named insured or employees accept to pay property damage to any auto so rented or leased. This definition is similar to the one found on the business auto coverage form; see Business Auto Definitions for a discussion of the insured contract definition.
An insured contract does not apply to agreements relating to the work of architects, engineers, or surveyors, or to those agreements covering indemnification for fire damage to rental premises. Contracts pertaining to the rental or loan of an auto to the named insured or any employee are not considered insured contracts if that auto is loaned or rented with a driver. In addition, contracts indemnifying an authorized motor carrier who agrees to have the named insured operate a covered auto over the authorized route are not considered to be insured contracts.
There are some other points to remember concerning contractual liability under the garage form. The garage coverage form’s exclusion relating to employee indemnification and employer’s liability is modified so that the exclusion does not apply to liability assumed by the insured under an insured contract. And, the care, custody, or control exclusion is modified so as not to apply to liability assumed under a sidetrack agreement.
3.Workers Compensation
Any obligation for which the “insured” or the “insured’s” insurer may be held liable under any workers’ compensation, disability benefits or unemployment compensation law or any similar law.
4.Employee Indemnification and Employer’s Liability
“Bodily injury” to:
a.An “employee” of the “insured” arising out of and in the course of:
(1)Employment by the “insured”; or
(2)Performing the duties related to the conduct of the “insured’s business;
b.The spouse, child, parent, brother or sister of that “employee” as a consequence of paragraph a. above;
c.A person arising out of any:
(1)Refusal to employ that person;
(2)Termination of that person’s employment; or
(3)Employment related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation or discrimination directed against that person; or
d.The spouse, child, parent, brother or sister of that person as a consequence of “bodily injury” to that person at whom any of the employment-related practices described in paragraphs c.(1), (2) or (3) above are directed.
This exclusion applies:
(1)Whether the injury-causing event described in paragraphs c.(1), (2), or (3) above occurs before employment, during employment, or after employment of that person;
(2)Whether the “insured” may be liable as an employer or in any other capacity; and
(3)To any obligation to share damages with or repay someone else who must pay damages because of the injury.
But this exclusion does not apply to “bodily injury” to domestic “employees” not entitled to workers’ compensation benefits or to liability assumed by the “insured” under an “insured contract”. For the purposes of the Coverage Form, a domestic “employee” is a person engaged in household or domestic work performed principally in connection with a residence premises.
5.Fellow Employee
“Bodily injury” to:
a.Any fellow “employee” of the “insured” arising out of and in the course of the fellow “employee’s” employment or while performing duties related to the conduct of your business; or
b.The spouse, child, parent, brother or sister of that fellow “employee” as a consequence of Paragraph a. above.
Analysis
These three exclusions are concerned with employment relationships and while an insured needs to be aware of their presence in the garage liability coverage, they probably do not require a great deal of explanation. There is no coverage for any obligation of an insured (or insurance company) under a workers compensation, disability benefits, or similar law. Other contracts are available to address the insured’s needs in those areas.
Bodily injury to any person arising out of or in the course of employment procedures and policies of the insured including firing and refusal to hire is excluded; moreover, this exclusion applies whether the injury-causing event occurs before employment, during employment, or after employment. Excluded also is bodily injury to the spouse, child, parent, brother, or sister of that employee as a consequence of the injury. Workers compensation insurance is the appropriate vehicle for covering accidental injury to the employee; whether spouses, children, and so on, can recover under workers compensation depends on the relevant state WC statute.
Thirdly, no employee is covered for bodily injury to any fellow employee of the insured arising out of and in the course of both being employees of the named insured. This exclusion blocks an end run around exclusion 3 or exclusion 4.
6.Care, Custody, or Control
“Property damage” to or “covered pollution cost or expense” involving:
a.Property owned, rented or occupied by the “insured”;
b.Property loaned to the “insured”;
c.Property held for sale or being transported by the “insured”; or
d.Property in the “insured’s” care, custody or control.
But this exclusion does not apply to liability assumed under a sidetrack agreement.
Analysis
The “care, custody, or control exclusion” is undoubtedly one of the first exclusions that comes to the garage policy insured’s attention. It leaves gaps in the insured’s liability protection that most buyers would like to fill. There is no property damage liability coverage for property that is owned by the insured, that is held for sale by the insured, that is being transported by the insured, or that is in the care, custody, or control of the insured.
Garagekeepers coverage—providing coverage for legal liability, direct-excess, or direct-primary — is the device for covering the insured’s exposure with respect to customers’ autos while they are in the insured’s care, custody, or control. See Garage Liability Section III for information on this coverage. As to nonowned autos that the insured has on consignment for sale, it is important for the insured to understand that the liability portion of the garage policy excludes property damage coverage to them. And garagekeepers’ specified application only to autos that the insured is “attending, servicing, repairing, parking, or storing” can leave coverage with respect to consigned autos in question—”attending” (except during demonstrations) or “storing” within the context of the garagekeepers provision are terms not necessarily applicable to autos that are held on consignment. The purchase of direct coverage under the physical damage portion of the policy using symbol 31 leaves no room for argument.
Application of the exclusion to other property that is on the insured premises can be in question. It is clear that its mere presence does not suffice to make of it property that is in the insured’s care, custody, or control. Employees’ tools and property left in customers’ autos are most often the focus for the question. Numerous cases revolving around the exclusion—it is common in some variation of language to all liability contracts—are reviewed elsewhere in this volume (see Care, Custody, or Control Exclusion).
One case not included in those pages relates directly to the liability coverage of the garage policy. It is Arrigo’s Fleet Service, Inc. v. Aetna Life & Cas. Co., 221 N.W.2d 206 (Mich. App. 1974). The contents of a customer’s van were consumed in a fire set off by a welder’s torch in the insured shop. A Michigan court of appeals ruled the exclusion inapplicable to the property in the van. The court stated that “we feel that distinguishing whether the damaged property is necessary to the insured work or merely incidental thereto is the most valuable criterion (in deciding when the exclusion is applicable) . . . so that if the property is essential to the work being performed, it is within the care, custody, or control of the insured and is excluded; if the property is not essential to the work, it is not within the exclusion’s reach”. Following this court’s logic, cargo in a van, personal property in a car’s trunk, etc., left with the garage incidentally to a repair order does not put the property in the “care, custody, or control” of the garage policy insured for purposes of this exclusion. There seems to be a considerable variance on this point among adjusters however and the property values are normally insufficient to lead to a court determination.
As to employees’ tools, if the garage form’s insured requires employees to provide them and operates under the assumption that they will be kept on the premises, it is reasonable for the insured to consider that they are under his control and the insured can arrange direct coverage under property forms that cover the insured’s own machinery and equipment. If they are treated as the personal possessions of employees that may be brought to work at the employees’ options, it would be extreme to state that these are ever in the care, custody, or control of the insured, even if the insured provides storage for their safekeeping.
The insured who is a tenant also has an uninsured (under the garage form) exposure with respect to the landlord’s building. Various methods for handling this risk—including the purchase of a species of fire legal liability insurance—are described elsewhere in this volume, see Fire Legal Liability Insurance.
7.Leased Autos
Any covered “auto” while leased or rented to others. But this exclusion does not apply to a covered “auto” you rent to one of your customers while their “auto” is left with you for service or repair.
Analysis
The leased autos exclusion puts the garage insured on notice that the policy limits its exposure in this area to covered autos that the garage provides shop customers.
Note that there may be a problem between this exclusion affecting autos rented to other than shop customers and the liability coverage for the completed operations exposure. For example, a garage policy insured might rent autos and also do service work on the same vehicles. If the insured is subsequently involved in a claim because of alleged faulty work on the rented vehicle, the fact that “this insurance does not apply to . . . any covered auto while leased or rented to others” may defeat coverage as regards the insured’s responsibility for faulty garage operations. This particular exclusion makes no exception for the insured in its capacity as the negligent servicer of the particular leased automobile.
8.Pollution Exclusion Applicable to “Garage Operations” — Other Than Covered “Autos”
a.”Bodily injury” or “property damage” arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants”:
(1)At or from any premises, site or location that is or was at any time owned or occupied by, or rented or loaned to, any “insured”;
(2)At or from any premises, site or location that is or was at any time used by or for any “insured” or others for the handling, storage, disposal, processing or treatment of waste;
(3)At or from any premises, site or location on which any “insured” or any contractors or subcontractors working directly or indirectly on any “insured’s” behalf are performing operations:
(a)To test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of the “pollutants”; or
(b)If the “pollutants” are brought on or to the premises, site or location in connection with such operations by such “insured”, contractor or subcontractor; or
(4)That are or were at any time transported, handled, stored, treated, disposed of, or processed as waste by or for any “insured” or any person or organization for whom you may be legally responsible.
Paragraphs a.(1) and a.(3)(b) do not apply to “bodily injury” or “property damage” arising out of heat, smoke or fumes from a hostile fire. A hostile fire means one that becomes uncontrollable, or breaks out from where it was intended to be.
Paragraph a.(1) does not apply to “bodily injury” if sustained within a building and caused by smoke, fumes, vapor or soot produced by or originating from equipment that is used to heat, cool or dehumidify the building, or equipment that is used to heat water for personal use, by the building’s occupants or their guests.
Paragraph a.(3)(b) does not apply to “bodily injury” or “property damage” sustained within a building and caused by the release of gases, fumes or vapors from material brought into that building in connection with operations being performed by you or on your behalf by a contractor or subcontractor.
b.Any loss, cost or expense arising out of any:
(1)Request, demand, order or statutory or regulatory requirement that any “insured” or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of “pollutants”;
(2)Claim or “suit” by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to or assessing the effects of “pollutants”.
However, this paragraph does not apply to liability for damages because of “property damage” that the “insured” would have in the absence of such request, demand, order or statutory or regulatory requirement, or such claim or “suit” by or on behalf of a governmental authority.
9.Pollution Exclusion Applicable to “Garage Operations — Covered “Autos”
“Bodily injury” or “property damage” arising out the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants”:
a.That are, or that are contained in any property that is:
(1)Being transported or towed by, handled, or handled for movement into, onto or from, the covered “auto”;
(2)Otherwise in the course of transit by or on behalf of the “insured”; or
(3)Being stored, disposed of, treated or processed in or upon the covered “auto”;
b.Before the “pollutants” or any property in which the “pollutants” are contained are moved from the place where they are accepted by the “insured” for movement into or onto the covered “auto”; or
c.After the “pollutants” or any property in which the “pollutants” are contained are moved from the covered “auto” to the place where they are finally delivered, disposed of or abandoned by the “insured”.
Paragraph a. above does not apply to fuels, lubricants, fluids, exhaust gases or other similar “pollutants” that are needed for or result from the normal electrical, hydraulic or mechanical functioning of the covered “auto” or its parts, if the “pollutants” escape, seep, migrate, or are discharged, dispersed or released directly from an “auto” part designed by its manufacturer to hold, store, receive or dispose of such “pollutants”.
Paragraphs b. and c. above of this exclusion do not apply to “accidents” that occur away from premises owned by or rented to an “insured” with respect to “pollutants” not in or upon a covered “auto” if:
(1)The “pollutants” or any property in which the “pollutants” are contained are upset, overturned or damaged as a result of the maintenance or use of a covered “auto”; and
(2)The discharge, dispersal, seepage, migration, release or escape of the “pollutants” is caused directly by such upset, overturn or damage.
Analysis
In brief, the same general exclusion of coverage for virtually any pollution exposure that presently exists on the business auto (BAP) and on the commercial general liability (CGL) coverage forms applies as well to the garage policy. The gist of the pollution exclusions is this: an incident of pollution that arises out of loading, unloading, or transporting pollutants on covered vehicles is excluded. However, the exclusion does not apply to off premises accidents between covered vehicles and other transporters or handlers or containers of pollutants. Also, the exclusion does not apply to pollution or contamination caused by accidental spill or leakage from within the mechanisms of the covered auto of fuels and lubricants needed in the operation of the auto. If the car’s gas tank ruptures in a collision, the spillage of gasoline is not an instance of excluded pollution. As for the form’s premises liability protection, there is no coverage for pollution incidents of any kind at locations owned, rented, or occupied by the insured. And there is no coverage at any location where pollutants or waste are being treated or stored by the insured or on behalf of the insured.
For extensive treatments of premises and nonauto operations see CGL Coverage Form—Coverage A, and The Pollution Exclusion. Also see Business Auto Form—Liability Coverage.
10.Racing
Covered “autos” while used in any professional or organized racing or demolition contest or stunting activity, or while practicing for such contest or activity. This insurance also does not apply while that covered “auto” is being prepared for such a contest or activity.
Analysis
The garage policy does not include protection on any covered auto while it is used in any professional or organized racing or demolition contest or stunting activity, or while practicing for such contest or activity. This exclusion is of broader consequence than it might at first seem because vehicles can be “used in” one of the aforementioned events without being an actual participant in the contest. In a case appealed to the United States court of appeals for the sixth circuit, this exclusion had been invoked to deny coverage in a death claim against the insured even though the insured’s vehicle was on the scene in a capacity of support rather than direct involvement in the contest. Promoters of a truck pull contest at the state fairground had approached the insured, a dealer in new and used tractors and semitrailers, with the suggestion that the insured lend a tractor and driver to the event for the purpose of retrieving and repositioning the weighted sled that the contestants pulled. The insured’s benefit was the free advertising that was to have been derived from having its product and name on prominent display among the truck and tractor enthusiasts.
During the course of the event, as the insured’s driver was backing his tractor after the retreating sled in anticipation of taking it back to the starting line for the next contestant, one of the contestants was run down and killed by the insured’s tractor. The insurance company denied coverage under the garage policy because the truck was being “used in a stunting activity” at the time of the accident. The Federal court for the western district of Kentucky agreed with the insurer and, after examining the terms “stunting activity” and “used in,” so also did the court of appeals. The insured was found to be without garage protection in United States Fire Ins. Co. v. Kentucky Truck Sales, Inc., 786 F.2d 736 (6th Cir. 1986).
Another aspect of the same exclusion should be noted. A second part of the exclusion says that “this insurance also does not apply while that covered auto is being prepared for such a contest or activity.”
11.Watercraft or Aircraft
Any watercraft or aircraft except watercraft while ashore on premises where you conduct “garage operations”.
Analysis
The garage liability policy does not include coverage for aircraft or for watercraft and it makes no difference if the insured is involved as the owner of such or simply as a user of either. An exception is made for watercraft ashore on garage premises where the named insured conducts garage operations.
12.Defective Products
“Property damage” to any of your “products,” if caused by a defect existing in your “products” or any part of your “products”, at the time it was transferred to another.
Analysis
The promise to pay claims for bodily injury or property damage caused by the insured’s products or work is implicit in the promise to pay all sums the insured legally owes as damages for bodily injury or property damage when there is an accident “to which the insurance applies.”
In theory, the coverage is easy to perceive and to explain to insureds; the insured is protected against claims for injury to others and damage to their property caused by poor products or faulty work. But the insurance is not meant to serve as a guarantee that the products themselves are worthy or suitable to the intended purpose or that the insured’s work is always up to par. Accidents that grow out of real or alleged defects in automobiles, gasoline, parts, batteries, and any other products made or sold in the business of the insured or out of negligent or defective work performed by the insured garage operation are covered. Claims that the work or the product is defective are not. Three exclusions in the garage policy attempt to separate that which is covered from that which is not.
The garage form does not cover claims for property damage to any of “your products” (defined as including goods or products that the named insured made or sold in a garage business) if the damage was caused by a defect existing in the products or any part of “your products” at the time such products were sold or transferred to another. Suppose the insured sells a pair of tires and one tire has a hidden defect. Later there is a blowout of the defective tire and the customer’s auto is damaged in the collision that results. The exclusion eliminates coverage for the defective tire — excluding “property damage to any of your products” that was defective when sold. The claim for damage to the customer’s car is covered.
If the insured sells an auto with a defective tire and the same situation occurs, it has been questioned if the exclusion applies to damage to the auto or only to damage to the tire. Traditional interpretation would apply the exclusion to the entire claim — “This insurance does not apply to…property damage to any of your products…if caused by a defect existing in…products (etc.).” That tradition stems from earlier forms in which the exclusion applied to “any of the named insured’s products” if the damage was the result of a “condition existing in such products or any part thereof.” The present wording may suggest to some that the exclusion may be applied either to “any of your products” or to “any part of your products.” The problem with that interpretation is when would an insured settle for application of the exclusion to the entire product if the option were always open to have it applicable to a single defective part? In the example at the beginning of this paragraph, it would be very much to the insured’s advantage to have the exclusion apply only to the defective tire and not to the entire car that was sold. However, such a reading would render the portion applying to “any of your products” virtually meaningless, and rules of interpretation require that the entire phrasing of the exclusion be examined for a reasonable meaning of the whole exclusion. It may be only a matter of time until an insured convinces a high court that this exclusion rules out only liability coverage for damage to a defective part (a gas line, for example) but leaves coverage for the nondefective elements of a product (as in coverage for the rest of the automobile consumed in the fire originating with the gas line). In the meantime, however, most claims departments can be expected to apply the exclusion along traditional lines.
Though there is no time limit expressed in the policy for application of the products exclusion, it is broadly accepted that a claim stemming from a second transaction between customer and insured is covered. If some months after the sale of an auto, the customer returns for maintenance work or repairs and because that work is defective the auto is damaged in an accident, the products exclusion is of no bearing because the auto, i.e., the insured’s product, was not damaged as the result of a defect that existed when the auto was sold. However, if the reason for the customer’s return was to repair a defect that was in existence when the car was sold and the same accident occurs, the products exclusion could be invoked by the insurance company. Whether or not a repair attempt had been made and whether or not that attempt was successful, if the damage can be laid to a defect that existed when the car was sold, then the damage to the product (the car) is excluded.
Garage policy insureds are a class of risks that are able to buy back the products exclusion on a standard basis. The endorsement is CA 25 01 12 93, broad form products coverage. It simply eliminates the defective products exclusion. Instead, there is a $250 deductible that applies to each accident. The premium for the buy-back is at the judgment of the underwriter.
Note that even with the defective products exclusion eliminated, the garage policy does not constitute a guarantee that the insured’s products will perform up to standards. Rather, if a claim is presented to a garage policy insured based on damage to the product caused by a defect in the product, the garage coverage form covers the damages in excess of $250. The endorsement has no bearing on the work performed exclusion of the policy.
13.Work You Performed
“Property damage” to “work you performed” if the “property damage” results from any part of the work itself or from the parts, materials or equipment used in connection with the work.
Analysis
The garage coverage form does not extend its property damage liability protection to guarantee the quality of the insured’s work. There is no coverage for property damage to “work you performed” (including, by definition, work performed by others on behalf of the named insured) if the property damage results “from any part of the work itself” or that arises out of parts, materials, or equipment used in connection with the work.
Like its counterpart in general liability forms, this exclusion is responsible for much confusion and hard feelings. The following sampling of coverage denials submitted by subscribers over a short period shows the range of potential problem areas and illustrates the sort of “judgment calls” that the exclusion requires.
A mechanic’s failure to tighten one or more rod nuts in the process of an engine overhaul resulted in total destruction of the engine.
Following a transmission repair, the mechanic improperly secured the oil line and the transmission was damaged when fluid escaped. (Editors’ opinion: the mechanics of supplying lubricants is a separate operation—excluded—from the transmission repair—covered.)
A mechanic removed an engine from a boat for overhaul. In the reassembly, water line was reversed and engine overheated and burned. (Though there is an obvious parallel between improperly attaching line for transmission fluid—above—and reversing the lines for cooling, the editors concur with the denial, being of the opinion that assembling the engine’s cooling system properly is more integral to the engine overhaul.)
Garage attendant improperly closed the hood of an auto after an oil check. The hood flew up and damaged roof, windshield, and itself. (Editors’ opinion: opening and closing the hood is sufficiently separated from the “work” of checking oil so that the exclusion does not apply.)
The insured replaced a gasket on a valve cover. Because it was the wrong gasket for the job, the engine was ruined. (Editors’ opinion: though the valve was part of the engine, the valve was the only part on which the insured worked and damage to engine should be covered.)
A cylinder head was not properly tightened during the process of an engine overhaul and so the engine block had to be replaced at twice the cost of the original repair.
The insured installed a dump stake body on a customer’s truck frame. Because the installation was faulty, the truck overturned in the middle of a dumping procedure and the frame and dump stake body were both damaged. (Editors’ opinion: faulty installation is excluded as that constitutes “work you performed,” but the frame and body are covered as customer’s property (frame) and insured’s product (body) that are damaged by faulty work.
Metal grindings generated by an engine repair were left in an engine block.
The insured ran an air conditioner check for a customer and determined that added freon was needed. The customer returned with a malfunctioning air conditioner and the charge that the insured damaged the unit by “adding too much freon.” (Editors’ opinion: the inspection of the air conditioner can be seen as a separate “work” from the addition of freon and the damage to the unit did not result from the inspection. The “work” of adding freon is excluded.)
There is also a pertinent court decision to consider, the Texas case of Travelers Ins. Co. v. Volentine, 578 S.W.2d 501 (Tex. App. 1979). The claim was for damage to an engine following a defective valve job. The insurance company denied on the basis that engine repair was the “work performed’ and damage to the engine was thus excluded. The court said that a “valve job” was the work that was performed and that damage to the rest of the engine was covered: “. . . it has been uniformly held that a liability policy containing such an exclusion does not insure the policyholder against liability to repair or replace his own defective work or product, but it does provide coverage for the insured’s liability for damages to other property resulting from the defective condition of the work.” Unfortunately, distinctions such as the one between “valve job” and “engine repair” are not always to be had.
Producer groups have called for a buy-back provision similar to the endorsement available for the products exclusion, believing that the $250 deductible would offer a more palatable way of declining coverage on most such incidents and that the additional premium for the buy-back would be available to compensate insurers for claims exceeding the deductible. A garage policy insured’s “products,” however, are ordinarily manufactured by another and the insured has neither control of the manufacturing nor sole responsibility (usually) in face of a claim. But, the insured’s work is within the insured’s direct control and there is much less likelihood of shared responsibility. In any case, ISO has not authorized a work performed buy-back.
Covered claims for other damage caused by faulty work are subject to a deductible. The deductible applies to whatever amount the insured is required to pay as damages for property damage to an auto caused by faulty work that had been performed by an insured. Revised wording introduced in the current garage coverage form makes it clear that the deductible does not spill over to affect claims for damage to other property. For example, suppose a service station attendant fails to latch a hood after checking the oil level in a car’s engine. As the customer drives away the hood rises and the customer, being flustered, drives into a parked car. The deductible is applicable to the customer’s claim for damages, a sum due the claimant as a result of damage to his car, which damage resulted from faulty work performed by the service station attendant. The deductible does not apply to the claim against the garage policy insured for damage to the parked car.
14.Loss of Use
Loss of use of other property not physically damaged if caused by:
a.A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms.
b.A defect, deficiency, inadequacy or dangerous condition in your “products” or “work you performed”. But this exclusion, 14.b., does not apply if the loss of use was caused by sudden and accidental damage to or destruction of your “products” or “work you performed” after they have been put to their intended use.
Analysis
A claim for loss of use of property not physically damaged caused by the named insured’s delay or failure to perform (“Your car will not be ready until after the weekend.”) is not covered. Similarly, there is no coverage for a loss of use claim based on a defect, deficiency, inadequacy, or dangerous condition in the named insured’s products or work performed; however, this particular exclusion does not apply if the loss of use was caused by sudden and accidental damage to or destruction of the named insured’s products or work after they have been put to their intended use. Suppose, for example, that a garage owner negligently repairs the transmission on a customer’s auto and the very next day the transmission chews itself to pieces. In this instance, the loss of use of the auto during the time of the new repairs is a covered item under the garage form.
15.Products Recall
Damages claimed for any loss, cost or expense incurred by you or others for the loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of your “products” or “work you performed” or other property of which they form a part, if such product, work or property is withdrawn or recalled from the market or from use by any person or organization because of a known or suspected defect, deficiency, inadequacy or dangerous condition in it.
Analysis
The last exclusion related to products or work has to do with the recall of either when there is a known or suspected defect. Damages claimed by a customer for loss of use of the property during the recall period or for other costs associated with the recall are not covered by the garage form.
Though liability for loss of use of tangible property is included in the garage coverage form’s definition of property damage, this exclusion is one other instance in which a specific loss of use claim will be denied.
To distinguish between this exclusion and the one that precedes it, products recall addresses all damages charged to an insured whereas the previous exclusion deals only with loss of use.
16.War
“Bodily injury” or “property damage” arising directly or indirectly out of:
a.War, including undeclared or civil war;
b.Warlike action by a military force, including action in hindering or defending against an actual or expected attack, by any government, sovereign or other authority using military personnel or other agents; or
c.Insurrection, rebellion, usurped power, or action taken by governmental authority in hindering or defending against any of these.
Analysis
It is difficult to imagine a garage insured being held legally liable for injury or damage due to war. Nevertheless, the exclusion has been a feature of standard garage liability forms for many years, and it currently is worded to reflect the post-terrorist attack thinking and language that most war exclusions now contain.
17.Distribution of Material in Violation of Statutes Exclusion Applicable to “Garage Operations” – Other Than Covered “Autos”
“Bodily injury” or “property damage” arising directly or indirectly out of any action or omission that violates or is alleged to violate:
a.The Telephone Consumer Protection Act (TCPA), including any amendment of or addition to such law;
b.The CAN-SPAM Act of 2003, including any amendment of or addition to such law; or
c.Any statute, ordinance or regulation other than the TCPA or CAN-SPAM Act of 2003, that prohibits or limits the sending, transmitting, communicating or distribution of material or information.
Analysis
The current garage coverage form has no liquor liability exclusion. Instead, this last exclusion deals with the modern day affliction of telephonic and computer crimes, annoyances, and identity information transfers. This is an exclusion newly added to the garage form and its significance or usefulness or judicial interpretation is to be decided in the future.
1.Aggregate Limit of Insurance — “Garage Operations” — Other Than Covered “Autos”
For “garage operations” other than the ownership, maintenance or use of covered “autos”, the following applies:
Regardless of the number of “insureds”, claims made or “suits” brought or persons or organizations making claims or bringing “suits”, the most we will pay for the sum of all damages involving “garage operations” other than “auto” is the Aggregate Limit of Insurance – “Garage Operations” – Other Than Covered “Autos” for Liability Coverage shown in the Declarations.
Damages payable under the Aggregate Limit of Insurance – “Garage Operations” – Other Than Covered “Autos” consist of damages resulting from “garage operations”, other than the ownership, maintenance or use of the “autos” indicated in SECTION I of this Coverage Form as covered “autos”, including the following coverages, if provided by endorsement:
a.”Personal injury” liability coverage;
b.”Personal and advertising injury” liability coverage;
c.Host liquor liability coverage;
d.Damage to rented premises liability coverage;
e.Incidental medical malpractice liability coverage;
f.Non-owned watercraft coverage;
g.Broad form products coverage.
Damages payable under the Each “Accident” Limit of Insurance – “Garage Operations” – Other Than Covered “Autos” are not payable under the Each “Accident” Limit of Insurance – “Garage Operations” – Covered “Autos”.
Subject to the above, the most we will pay for all damages resulting from all “bodily injury” and “property damage” resulting from any one “accident” is the Each “Accident” Limit of Insurance – “Garage Operations” – Other Than Covered “Autos” for Liability Coverage shown in the Declarations.
All “bodily injury” and “property damage resulting from continuous or repeated exposure to substantially the same conditions will be considered as resulting from one “accident”.
The Aggregate Limit of Insurance – “Garage Operations” Other Than Covered “Autos” applies separately to each consecutive annual period and to any remaining period of less than twelve months, starting with the beginning of the policy period shown in the Declarations, unless the policy period is extended after issuance for an additional period of less than twelve months. In that case, the additional period will be deemed part of the last preceding period for purposes of determining the Aggregate Limit of Insurance – “Garage Operations” – Other Than Covered “Autos”.
2.Limit of Insurance — “Garage Operations” — Covered “Autos”
For “accidents” resulting from “garage operations” involving the ownership, maintenance or use of covered “autos”, the following applies:
Regardless of the number of covered “autos”, “insureds”, premiums paid, claims made or vehicles involved in the “accident”, the most we will pay for the total of all damages and “covered pollution cost or expense” combined, resulting from any one “accident” involving a covered “auto” is the Each “Accident” Limit of Insurance – “Garage Operations” – Covered “Autos” for Liability Coverage shown in the Declarations.
Damages and “covered pollution cost or expense” payable under the Each “Accident” Limit of Insurance – “Garage Operations” – Covered “Autos” are not payable under the Each “Accident” Limit of Insurance – “Garage Operations” – Other Than Covered “Autos”.
All “bodily injury”, “property damage” and “covered pollution cost or expense” resulting from continuous or repeated exposure to substantially the same conditions will be considered as resulting from one “accident”.
No one will be entitled to duplicate payments for the same elements of “loss” under this Coverage Form and any Medical Payments Coverage endorsement, Uninsured Motorists Coverage endorsement or Underinsured Motorists Coverage endorsement attached this Coverage Part.
Analysis
The dec page of the garage policy lists limits for garage operations on a per accident and aggregate basis. Part 1 of this agreement describes the interplay of these two limits statements. The aggregate relates to the total that the insurance company will pay during the twelve months of the policy term (longer if the term is extended for added months fewer than 12). Thus, so much money is available (top limit) for each accident resulting in covered bodily injury or property damage, all capped by the aggregate limit. The term “garage operations,” furthermore applies not only to the garage premises and garage operations but to seven specific coverage additions that may be endorsed onto the policy.
Each “occurrence” of bodily injury or property damage, i.e., accidental damage through repeated exposure, is said to constitute one accident, thus subject to the per accident limit.
The auto liability coverage of the policy is not subject to an aggregate limit, but an aggregate of sorts is accomplished in part 2 of this agreement; damages payable under “covered pollution cost and expense” will be included in the damages payable for bodily injury and property damage and all subject to the per accident limit. As with garage operations, an occurrence in which injury or damage is inflicted over time is treated as an accident for purposes of the limit clause.
Payments for any med pay and uninsured/underinsured motorists coverages will not duplicate payments under auto liability coverage.
We will deduct $100 from the damages in any “accident” resulting from “property damage” to an “auto” as a result of “work you performed” on that “auto”.
Analysis
This is the final provision relating to the liability coverage of the garage policy. This provision makes the point that this particular deductible applies only to damage that is a result from the work that the named insured performed on an auto involved in an accident. In other words, if the insured has worked on an auto and that work has caused damage to the auto, aside from the damage to the actual work itself, the insurer will deduct $100 from any payment made for the property damage. So, if the insured has repaired the brakes of an auto and then while the driver is driving down a hill, the brakes fail and the auto crashes into a tree, this policy will pay for the damage for which the insured is liable, but the insurer will deduct $100 from the bill. Any bill for repair of the brakes won’t be paid due to exclusion (13), but the rest of the damage will be paid.