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.