The endorsement amending the aircraft, auto, or watercraft exclusion in a commercial general liability (CGL) policy raised some questions for me. The endorsement amends the current language to impose an absolute exclusion.
The long history of coverage applying to premises and vehicles, and the "loading and unloading" exposure, is well received within the industry. These elements have been well-integrated, and coverage disputes are rare.
To discover a CGL policy endorsement removing all coverage related to an "auto" caused me to ask, "What does this actually do?" What about vehicles parked on the premises and the integration of "loading and unloading" exposures? What new, and now uninsured, exposure does this endorsement create?
What Does the Standard Exclusion Do?
The current Insurance Services Office, Inc. (ISO), exclusion reads as the following.
g. Aircraft, Auto or Watercraft:
"Bodily injury" or "property damage" arising out of the ownership, maintenance, use or entrustment to others of any aircraft, "auto" or watercraft owned or operated by or rented or loaned to any insured. Use includes operation and "loading or unloading".
But exceptions to the exclusion related to the "auto" exposure are important. The following continues in the policy form.
This exclusion does not apply to: …
(3) Parking an "auto" on, or on the ways next to, premises you own or rent, provided the "auto" is not owned by or rented to or loaned to you or the insured;
This section requires a careful reading. Please note that it addresses parking an "auto" on, or on the ways next to, a premises that you own or rent. Note further, the "auto" cannot be one owned by or rented to or loaned to the insured. Teaching examples include employee parking areas or the parking of trucks on-site or on adjacent ways waiting to load or unload, etc. This is an important coverage.
Of greater importance, the extension of "use" to include "loading or unloading" must be considered carefully. The definition is the following.
11. "Loading or unloading" means the handling of property:
- After it is moved from the place where it is accepted for movement into or onto an aircraft, watercraft or "auto"; or
- While it is in or on an aircraft, watercraft or "auto"; or
- While it is being moved from an aircraft, watercraft or "auto" to the place where it is finally delivered;
but "loading or unloading" does not include the movement of property by means of a mechanical device, other than a hand truck, that is not attached to the aircraft, watercraft or "auto".
The subject to address is the "loading or unloading" of an "auto" and the extent of coverage under the CGL policy. Allow me to use some teaching examples as reminders to describe where "loading or unloading" starts and stops.
The definition is clear that there is no coverage under the CGL form for injury or damage arising out of the transportation of the property on a vehicle. "Loading or unloading" does not include movement of the property by means of a mechanical device, other than a hand truck, that is not attached to an auto.
Loading or unloading property with a lift permanently attached to the vehicle is a commercial automobile claim. Liability arising out of a piece of equipment falling off of a vehicle on the highway is covered under the commercial auto policy. But things may quickly change within a short distance and perhaps seconds in time.
Let us assume that the insured is loading equipment on a vehicle by a mechanical hoist affixed to their building, a conveyor not attached to the vehicle, a forklift, or a mobile crane. If the property falls, causing property damage or injury to a passerby, the CGL policy will respond.
What Type of Problems Does the Expanded "Auto" Exclusion Create?
What is the effect of the referenced exclusion where the important exceptions have been removed? Property is loaded or unloaded in many different ways. Mechanical hoists are integrated into warehouse truck dock loading doors to move large quantities of goods safely and efficiently. Property may be moved to trucks by hoists within a building as other property is being moved by forklift. Conveyors are widely used. Construction sites are the scene where equipment and supplies are lifted on and off trucks by mobile cranes, forklifts, and by hand. These activities may change within moments; after one crew is finished, the second begins.
One of the more common events is the movement of mobile equipment on and off the trucks as new construction sites are started or closed. Let's assume a mobile crane is being driven onto a trailer for transit to a new construction site. The crane slips off on the incline, and the boom smashes into expensive equipment owned by a different party or causes injury. What does this exclusion do?
To move away from contractors for a moment, how does this exclusion affect a warehouse owner? The warehouse owner owns the hoists, conveyors, and forklifts and supplies the personnel involved loading the vehicles. The warehouse owner may be less exposed to outside parties on their premises, but this exposure is not improbable.
In What Situations Would this Endorsement Be Acceptable?
Are there types of businesses where this endorsement would not pose an uninsured risk to the insurance buyer? If so, what characteristics do they share?
- There is no parking of vehicles they do not own, rent, or loan to the insured either on the premises or on ways next to premises they own or rent; or
- They are not involved in loading or unloading property—except by means of a hand truck attached to a vehicle.
Is this policy acceptable to a business with any form of customer or employee parking? Is this policy acceptable to a business involved in any type of mechanical or manual loading or unloading? I think not.
What Is the Remedy?
This endorsement was a single page attached to a very large policy document. As one who has lectured on CGL forms in several states, my first brush with this endorsement was, "What is this?," followed by, "What does it do?"
It required me to stop and think, review reference materials, and then read some a second time. Perhaps I have become too comfortable with decades of the careful integration of commercial auto and CGL forms to provide fluid coverage between the two.
Separately, how would one remedy the limitation in coverage? Can we imagine a commercial auto provider willing to extend coverage to remedy the limitations endorsed by the CGL policy provider? In today's market, certainly not.
The Need to Read Policies Carefully
Endorsements limiting coverage under standard policy forms are dangerous. The CGL policy form, in particular, was developed over decades to address exposures common to a wide segment of the American economy. Reducing this coverage places the buyer at risk.
In my work with insurance buyers, I continually see policy forms that need to be avoided if at all possible. In some instances, markets may be severely limited and all parties need to be clearly aware of limitations or exclusions that may be to their detriment.
The exclusionary endorsement to the CGL policy "auto" exclusion is one to be avoided.
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