I suppose the last question is not quite as important as the others, but
in the world of risk management and insurance, questions involving care, custody,
or control do frequently arise. And, like the other questions, the answers we
find often fall short of expectations. Maybe the discussion that follows will
shed some light on this issue.
Property Damage Exclusion
Among the property damage exclusions in the post-1988 edition Insurance Services
Office, Inc. (ISO) commercial general liability (CGL) policy is exclusion j.4.—excluded
from coverage is any property damage to personal
property that is in the care, custody, or control of the insured.
We sometimes forget how easy it is to assume everyone knows our insurance
lingo. I was reminded of this a while back when a client remarked "it's not
personal property—the business owns it." So it is worth pointing out that, in
the context of this exclusion, the reference is not to ownership (business or
personal), but rather the type of property. In other words, the exclusion does
not apply to property that is considered real property, such as a building.
Back to our question: As the exclusion applies only to
personal property in an insured's care,
custody, or control, what constitutes care, custody, or control?
Case by Case
The bad news is that there is no "one-size-fits-all" answer to this question.
Put another way, whether something is in the care, custody, or control of another
is dependent on the circumstances. After reviewing cases that considered how
the care, custody, or control exclusion should apply, the Court of Appeals of
Indiana made this observation:
The common thread running through these opinions is the recognition that
application of such clauses depends on the
facts of each case. (American Family Mut.
Ins. Co. v. William J. Bentley, 352 N.E.2d 860 (Ind. App. 1976)
A very similar position was articulated by the Supreme Court of Arkansas:
The care, custody and control clause in liability policies, so far as our
research has extended, appears to be almost universally used, but its construction
is, to a large extent, dependent upon circumstances
of each case and we conclude that the
phrase should be applied with common sense and practicality. [Emphasis
supplied] (Hardware Mut. Cas. Co. v. Crafton,
350 S.W.2d 506 (Ark. 1961)
Some General Guidance
Of course, this provides only limited guidance on the issue. After all, if
common sense and practicality were the order of the day, we might not need the
courts at all (and we may have answered whether we live in the best of all possible
worlds). But are there at least some general
rules to keep in mind as to the meaning of care, custody, or control? In the
above case, the Supreme Court of Arkansas went on to explain:
In a general way the word "care" has reference to
temporary charge; "custody" implies
a keeping or guarding and a necessity for an
accounting, and "control" refers to power or authority to
manage, superintend, direct or oversee.&
Now we are getting somewhere. As most might guess, such definitions are not
universally accepted. For example, Illinois appears to follow a two-pronged
Under Illinois law, the "care, custody, or control" exclusion precludes
insurance coverage if a "two-pronged test" is met: (1) the property was
"within the possessory control of the
insured at the time of the loss"; and
(2) the property was "a necessary element of
the work performed [by the insured]."
[Emphasis supplied.] (Essex Ins. Co., v. Soy City
Sock Co., William E. Phillips Co., Inc., and Federal Ins. Co.; 503
F. Supp. 2d 1068 (U.S. Dist. 2007).
By "possessory control," the court means the property is in control only
if it is in the insured's possession—whereas the Arkansas definition of "control"
is a broader concept and applies when the insured has the
authority or power to control the property—not
necessarily possession. Also in Illinois, the reason for the possession of the
property must be to perform work on it. More on that later.
Probably the best approach to gaining an overall perspective on meaning of
care, custody, or control is by examples or illustrations.
A trucker brought a tank trailer of milk to a dairy. The procedure was that
the driver of the truck would park the tractor and tank trailer, and the employees
of the dairy would unload the milk after the dairy determined the milk was acceptable.
Unloading was by electric pump, with a hose attached to the tank trailer. While
only the dairy employees could unload the tank trailer, only the driver could
move the truck.
If the truck needed to be repositioned, the dairy employees had the authority
to direct the driver to move the truck, but were prohibited from actually moving
the truck themselves. In this case, a vacuum resulted from the pumping, causing
the tank trailer to collapse. The truck owner made claim against the dairy for
damage to the tank trailer, resulting in a finding of negligence by the dairy
in causing the damage to the tank trailer.
No Coverage Applied. The liability insurer
for the dairy denied coverage, contending the tank trailer was in the care,
custody, or control of the dairy and thus excluded from coverage. The dairy
contended that since the driver was the only person authorized to move the tank
trailer, it was under the control of the driver and not the dairy. The court
disagreed—although the driver was the only person authorized to actually
move the truck, the court concluded the
dairy had sole authority to direct that
the truck be moved.
The court ruled that the authority to direct movement of the truck meant
the truck was under the supervision of the
dairy at the time of the collapse—and concluded this meant the truck was under
the care, custody, or control of the dairy. Therefore, the exclusion applied.
In the above example, control by the dairy was found to apply because the
dairy had the authority to direct movement
of the truck, which was deemed to be supervision, despite the fact that the
dairy was prohibited from actually moving the truck by driving it (Paul
Madden v. Vitamilk Dairy, Inc. & Continental Cas. Co., 367 P.2d 127 (Wash.
Fire It Up!
A truck driver parked his employer's truck and trailer at the site of a wood
products company. The wood products company was to load the trailer with sawdust.
The driver left (leaving the keys in the ignition), and an employee of the wood
products company inserted a blow pipe into the rear of the trailer to blow in
the sawdust, after which the employee left.
While the sawdust was being blown into the unattended trailer, a fire broke
out, damaging the truck. The owner of the truck made claim against the wood
products company, seeking payment of damages to the trailer caused by the fire.
The wood company sent the claim to its liability insurer, who subsequently denied
coverage for damage to the trailer, citing the care, custody, or control exclusion.
The insurer argued that the truck owner had surrendered care of the trailer,
including its custody and control, to the wood products company. Here, the wood
products company did not have the right to move the truck. If it needed to be
moved, the wood products company was required to find the driver to move the
truck. The court pointed out that the wood products company did not "exercise
dominion or control" over the truck and trailer as they were required to notify
the truck owner to send a driver to move the truck.
Coverage Applied. As the wood products
company did not have authority to do anything with
the truck, except fill it, and there was no agreement that the wood products
company was obligated to guard the truck, the court ruled against the insurer
and found the trailer was not in the care, custody, or control of the wood products
company at the time of the fire. Thus, coverage applied (Employers
Mutual Liab. Ins. Co. of Wisconsin v. Puryear Wood Prod. Co., 447 S.W.2d
139 (Ark. 1969)).
The distinction between this and the damaged milk tank trailer is that the
wood products company was found not to have supervision over the truck. In the
sawdust case, the unattended truck was merely left at the wood products premises
to be filled. No right to direct the truck or trailer's movement was conferred
on the wood products company. The court pointed out that the driver could have
remained with the truck during the filling process, but chose not to do so.
With Friends Like These!
Friends agreed to store a dragster for its owner in their garage for no charge.
A fire in the friends' home (and garage) destroyed the home, including the dragster.
The owner of the dragster brought claim against his friends for destruction
of his dragster. The friends sent the claim to their insurer, who denied coverage,
citing the care, custody, or control exclusion found in the friends' homeowners
In the coverage litigation that followed, the friends testified that they
felt the same responsibility for the dragster as for their own property; they
locked the garage (the owner of the dragster had a key), and further testified
they would not allow access to the dragster to anyone but the owner.
No Coverage. The court concluded that both
parties agreed the friends were to keep the dragster safe. Thus, the care, custody,
and control exclusion applied as the friends had "affirmative duties with respect
to the dragster, bringing it within their care, custody, or control and within
the exclusionary clause."
The safekeeping or "care" was the key issue in this case; the court determined
the circumstances were such that the friends had "care" of the dragster. Worth
noting is the fate of argument that the care, custody, or control exclusion
applied only to commercial transactions,
which the court rejected by simply stating, "The insurance policy does not so
limit the provision." This can be instructive as oftentimes it is presumed that
lack of consideration—i.e., no charge for storage, garaging, etc.—eliminates
the possibility of care, custody, or control (New Hampshire
Ins. Co. v. Frank Adellera, et al., 450 P.2d 668 Wash. 1972).
May I Park Here?
Apparently with permission, a person parked his trailer on the premises of
the owner. The owner of the trailer brought the trailer to the premises with
his own tractor, unhooked, parked the trailer, and drove away. Subsequently,
the trailer caught fire and was damaged. The owner of the trailer brought suit
against the property owner, contending the property owner was liable for the
damage to his trailer as the trailer was lawfully parked on the premises of
the owner. The property owner tendered the suit to his liability insurer to
defend the suit.
The property owner's liability insurer refused to defend based on the care,
custody, or control exclusion.
Coverage. The court noted that the fire
happened some 9 hours after the owner had parked the trailer. Further, the court
pointed out the property owner neither moved nor loaded the trailer and that
there was no proof that the property owner undertook to maintain the safety
of the trailer. Thus, the court concluded that the trailer was not in the care,
custody, or control of the property owner, and the property owner's liability
insurer should have defended the suit.
Unlike the dragster case, the court found no obligation on the part of the
property owner to safeguard the trailer. Thus, the trailer was not in the "care"
of the property owner (Rochester Woodcraft Shop, Inc.
v. General Acc. Fire & Life Assur. Corp. Ltd., 316 N.Y.S.2d 281 (N.Y.
App. Div., 3d Dept., 1970)
Pack and Ship
The insured owned and operated a warehouse. For one of their customers, the
insured had an agreement to not only store merchandise, but also to "store,
package, and ship" the merchandise of the customer.
A fire at the insured's warehouse damaged their customer's merchandise. The
customer's property insurer paid the customer, but as a subrogee for the customer,
the customer's property insurer sought to collect from the warehouse operator
the costs of damage to the customer's merchandise damaged by the warehouse fire.
The liability insurer for the warehouse denied coverage for the claim, citing
the care, custody, and control exclusion in the warehouse operator's CGL policy
and also sought a declaratory judgment from the courts that the insurer owed
no duty to the warehouse owner/insured.
Applying Illinois law, the court noted:
Under Illinois law, the "care, custody, or control" exclusion precludes
insurance coverage if a "two-pronged test" is met: (1) the property was
"within the possessory control of the insured at the time of the loss";
and (2) the property was "a necessary element of the work performed [by
Apparently, the warehouse did not dispute that the customer's merchandise
was property on which the warehouse performed work: the packing and shipping.
However, the warehouse argued that the warehouse did not have "possessory control"
of the customer's merchandise because the customer had access to the merchandise,
and the fire occurred at night when no employee of the warehouse was at the
premises. At the root of the warehouse argument is that possessory control cannot
exist if the warehouse had only "temporary or incidental access to the property"
or "limited possession."
No Coverage. The courts found possessory
control by observing, "While control exercised must be exclusive, it need not
be continuous." Exclusivity of possession may exist even if the possession is
of a short duration, the court opined, and the fact that the customer had access
to the merchandise did not preclude possessory control. Exclusive possession
centers on factors such as who supervised the operation in which the property
was damaged. The court's conclusion was that because the warehouse stored, packed,
and shipped the customer's merchandise, the warehouse had taken exclusive possession
of property, and the merchandise was a necessary element of the work the warehouse
performed. As both prongs of the test were met, the care, custody, or control
exclusion applied, and warehouse operator's liability insurer had no further
duty to their insured for this incident.
In rendering this decision, the court reviewed another case applying Illinois
law where care, custody, or control was not
found. That case involved musicians who left their musical instruments in an
establishment that caught fire, damaging the musical instruments. The distinction
was the establishment did not exercise possessory control solely because the
musical instruments were left on the premises between shows. (Essex
Ins. Co., v. Soy City Sock Co., William E. Phillips Co., Inc. and Federal Ins.
Co., 503 F. Supp. 2d 1068 (U.S. Dist. 2007)
A Needed Lift
The insured was a contractor using a crane supplied by its owner under an
oral agreement (the invoice to the contractor was stamped "crane rental"). The
owner of the crane supplied not only the driver of the crane, but also an operator
to make lifts, and these two employees of the crane owner retained full control
over the crane. During the course of the construction work performed by the
contractor, the crane was damaged, and the contractor was sued by the crane
owner for the cost of the damage to the crane.
The liability insurer for the contractor denied coverage, citing the care,
custody, or control exclusion of the contractor's liability policy. The court
acknowledged that businesses, for various financial reasons, rent equipment
which, for all intents and purposes, they operate and control—such as a leased
fleet of trucks. In taking exception to the insurer's position that the word
"rental" was conclusive as to the parties' intention, the court stated, "We
think this ignores the on-the-ground facts."
Coverage. Instead, the court found use
of the crane to be a service agreement, not a rental agreement. This was based
on several factors, including the facts that the crane owner's employees drove,
operated, fueled, maintained, and repaired the crane. Further, the court pointed
out the crane owner could move the crane to another job site and substitute
equipment capable of the same work. While the contractor could direct where
and when the crane should make lifts, the court deemed that to be the typical
function of a general contractor. The court concluded that the same factors
that make the agreement a service agreement also determine the crane was not
in the custody of the contractor. And, without possession or control, the exclusion
did not apply and the insurer was required to defend.
Here, the degree of supervision—that typical of a general contractor over
a subcontractor—was not, in the view of the court, enough to constitute custody
or control. (Crane Service & Equip. Corp. v. USF&G,
496 N.E.2d 833 (Mass. App. 1986)
While some general guidance can be found on the meaning of care, custody,
and control and thus the scope of the CGL exclusion for personal property in
the care, custody, or control of the insured, what becomes evident is that each
claim is fact specific. Seemingly small changes in the circumstances—such as
the degree of access the owner has to the property that has been damaged—can
result in a totally different outcome as to whether property is in the care,
custody, or control of the insured.
Additionally, as can be seen, some courts may emphasize some factors, while
other courts weigh more heavily other factors. For example, contrast the approach
of the Arkansas courts to the Illinois courts. If there is a serious question
about care, custody, or control, it may be best to remove such doubt and purchase
more appropriate additional coverage.