Aside from the mildly disturbing fact that the drafters of insurance
requirements are "cutting and pasting" wording that is almost 30 years old,
the BFPD no longer separately exists—it
is generally not commercially available by that name.1
The Conversion
More importantly, calls for BFPD reflect a lack of understanding of what
was automatically included in the
so-called simplified ISO commercial general liability policy (editions 1985
and later) after its conversion from the ISO comprehensive general liability
insurance policy (edition 1973).
Because changes to the comprehensive general liability insurance policy
were far-reaching, in both coverage and approach to premium development, in
the mid-1980s, ISO distributed a vast number of publications; its effort to
inform the insurance industry as well as the public was nothing short of
exhaustive. There was simply no shortage of clear, detailed explanations
available to explain the "new" CGL policy changes and their anticipated
implications.
Historical Development
When viewed in the context of historical development of today's CGL
policy, including various ISO publications, the failure to recognize the
breadth of today's CGL policy is, to say the least, disconcerting.
In 1985, ISO explained very clearly and without equivocation that the
following coverages were provided under the "new" commercial general
liability policy:
Both new forms [occurrence and claims-made] contain the
essential scope of coverage provided
under the old Comprehensive General Liability Insurance (Ed. 1-73) and the
Broad Form Comprehensive General Liability Endorsement (GL 04 04 Ed. 5-81)
including the following coverages:
-
Premises/Operations Liability
-
Products/Completed Operations
-
Contractual Liability
-
Personal and Advertising Injury
-
Medical Payments
-
Fire Damage Legal Liability
-
Broad Form
Property Damage
-
Host Liquor Liability
-
Incidental Medical Malpractice
-
Non-Owned Watercraft
-
Limited Worldwide Liability
-
Additional Persons Insured
-
Extended Bodily Injury
-
Automatic Coverage for Newly Acquired
Organizations
For details of coverage provided, refer to the forms
mentioned above.2 [Emphasis added.]
Beyond the Pale
Considering the misunderstandings emanating from today's CGL policy, to
say nothing about the sheer volume of coverage disputes, it would seem that
taking into account the express intent of the policy drafters would be good
advice. After all, ISO's drafting and explanation of its policies, while not
done in a vacuum, is far more objective than an insurer's or policyholder's
interpretation and construction of the CGL policy when millions of dollars
are at stake in a disputed claim.
While certainly insurers that adopt ISO
wording are not bound by ISO's explanations, resolutely ignoring or simply
dismissing ISO's unambiguous explanations as to the intent of coverage is
inexplicable.
An Example—Extended Bodily Injury Coverage
Consider "extended bodily injury coverage," which has been included in
today's CGL policy. In the 1973 comprehensive general liability insurance
policy, the definition of "occurrence" meant an accident and further that
the bodily injury or property damage be neither expected nor intended from
the standpoint of the insured.
Extended bodily injury coverage, which was
part of the "Broad Form Comprehensive Liability Endorsement,"
amended the definition of "occurrence"
by affirmatively stating that an "occurrence"
included any intentional act by an insured that resulted in bodily
injury if the bodily injury arose solely from the use of reasonable force
for the purpose of protecting persons or property.
Thus, in determining whether an act is an occurrence or is expected or
intended from the standpoint of the insured, the breadth of coverage
provided by the extended bodily injury coverage may be overlooked. Yet, ISO
was quite clear in stating that the scope of the "new" CGL policy (1985
edition) included extended bodily injury coverage. It may be worth noting
that the ISO CGL's definition of "occurrence" and the wording of the
expected or intended injury exclusion have not changed since the 1985
edition.
BFPD—Limiting the Care, Custody, or Control Exclusion
One of the chief purposes3 of the BFPD wording was to limit or
restrict the application of the 1973 comprehensive general liability
insurance policy's exclusion to property damage to property in the insured's
care, custody, or control or property over which the insured was exercising
physical control.
Operations Exclusion
The approach taken by ISO in implementing the BFPD endorsement was to
limit the property damage exclusion for property in the insured's care,
custody, or control to apply only to
"that particular part" of property on which work is
being performed (present tense) or to
unfinished work that needs to be redone
because the work was not done right the first time. Both exclusions apply to
property damage only during
operations—other exclusions applied to property that was within the
completed operations hazard.
In today's ISO CGL policy (editions 1985 and later), exclusions j.(5) and
j.(6) reflect the incorporation of a portion of the BFPD limitations as the
two exclusions apply only to "that particular part" of certain property.
The Typical Example
A painter is burning paint off a house with a torch and accidentally sets
fire to entire house. The property damage to the house
is covered. The exclusion applies only
to the portion to which the torch is applied at the time of the fire as this
portion is considered excluded as "that particular part."4
The General Contractor
While the interpretations today are mixed, the phrase "that particular
part" for the purposes of applying the exclusion has been construed to mean
any portion of the project that is
within the contractual undertaking of the contractor.
For instance, "that
particular part" has been applied to all property that is damaged except
that which "may exceed the contractor's contractual duties."
Transportation Ins. Co. v. Piedmont Constr. Grp. LLC,
686 S.E.2d 824 (Ga. App. 2009). In other words, property damage to portions
of the work that are within the scope of the
construction agreement is deemed "that particular part" and thus is
excluded. Stated differently, "A common thread deciding whether there is
coverage for property damage is the scope of the insured's contract [with
the property owner]." Acuity v. Burd & Smith
Constr., Inc., 721 N.W.2d 33 (N.D. 2006) [emphasis added].
As the entire project of a general contractor will be within the "scope
of the insured's contract," interpretations that equate "that particular
part" with the scope of work leave general contractors
with virtually no coverage under this portion
of the BFPD. Such coverage positions regarding the breadth of the
BFPD were plainly not intended by the policy drafters.
BFPD Coverage Explained
In response to requests from insurance companies and insurance agents,
ISO published an Explanatory Memorandum on January 29, 1979, to explain the
intent of the BFPD endorsement, both as a separate endorsement and as part
of the "Broad Form Comprehensive General Liability Endorsement" (GL 04 04 07
76).5
As respects the intent of "that particular part," the ISO Explanatory
Memorandum maintained:
This paragraph is intended to
precisely define the extent to which damage to property on which the
insured is actually working is excluded. Under the present policy language
[1973 Comprehensive General Liability Insurance policy], with respect to
general contracting risks, the exclusion relating to property in the care,
custody or control of the insured is intended to remove from coverage all
property damage caused by the insured in many situations.
Under this care, custody or control exclusion, if the general
contractor who is in charge of the project damages a portion of it, the
damage is excluded even though that portion may be work being performed by a
subcontractor. On the other hand, if a subcontractor damages some portion of
the job beyond the scope of operations, the damage would be covered.
The intent under these endorsements [BFPD] is
to give the same coverage to both the general and subcontractor for the
damage arising out of their own operations and to exclude only damage to the
particular property on which the insured is working. [Emphasis
added.]6
Even with a cursory reading of the above explanation, it is abundantly
clear that the policy drafters, in this instance ISO, did not intend "that
particular part" to be considered all work within the "scope of the
insured's contract." To the contrary, the very reason for using the phrase
"that particular part" was to avoid that outcome—under the BFPD, general
contractors and subcontractors were to be
provided the same coverage—the exclusion applied only to the property
on which the general contractor or subcontractor was actually working.
According to the drafters, "The exclusion is intended to apply only to
the part of the property on
which the operations are being performed. In this context, 'property' is
intended to mean any unit of property which can become the subject of
liability.7" [Underlined in the original.] To help understand how
this section of the BFPD applies, ISO offers numerous short examples,
including this one that is often cited (and, seemingly, just as often
ignored):
The following examples illustrate the intent of exclusion
(2)(d):
A general contractor engages a steel erection contractor to
erect steel beams for a building. After erecting several beams, the
subcontractor negligently swings another beam against the erected beams
causing damage to all the beams. The damage to the beams already in place
would be covered. The damage to the swinging beams would be excluded under
2(d)(i) [that particular part of any property … upon which operations are
being performed by or on behalf of the insured].
In the above illustration, each beam is the "unit of property" or "that
particular part" of property. What is excluded is "that particular part" of
the property that is being worked upon—the
exclusion only applies to property damage to the swinging beam (as that is
the only "unit" upon which operations are actually being performed). The
beams already in place are clearly within the scope of work of both the
general contractor and the subcontractor. Yet, the policy drafters, ISO,
unequivocally state that the property damage to
the erected beams is covered by virtue of the BFPD endorsement.
Conclusion
ISO's express intent as to this section of the BFPD has been followed in
some instances. Take for example the Sixth Circuit applying Ohio law:
The opening words of the exclusion—namely, "[t]hat particular
part"—are trebly restrictive, straining to the point of awkwardness to make
clear that the exclusion applies only to building parts on which defective
work was performed, and not to the building generally. And we also agree
that "part," as used in this exclusion, means the "distinct component parts"
of a building—things like the "interior drywall, stud framing, electrical
wiring," or, as here, the foundation. Fortney &
Weygandt, Inc. v. American Manufacturers Mut. Ins. Co., 595 F.3d 308,
311 (6th Cir. 2010) (applying Ohio law).
Similarly, at least one commentator (Scott C. Turner in
Insurance Coverage of Construction Disputes
§ 32:5 (2011)) recognizes this intent: "The use of the word 'particular'
suggests that the exclusion only applies to the smallest unit or division of
the work in question."
As noted above, while insurers are certainly not required to abide by the
drafter's (ISO's) explanations or interpretations, it would seem that
questions regarding the intent of the parties
should take into account such explanations and illustrations. ISO published
its Explanatory Memorandum in the first instance, according to the
Memorandum, in response to questions by the insurers as well as insurance
agents and broker because of the difficulty in understanding the BFPD. Put
differently, it is indeed a challenge to reconcile an insurer's asserted
"intent" of the "that particular part" policy wording if the insurer readily
dismisses the drafter's express intent.