Built into the Insurance Services Office, Inc. (ISO), commercial general liability (CGL) policy coverage part for over 35 years is an "Aircraft, Auto or Watercraft" exclusion—currently labeled as exclusion g. in the Commercial General Liability Coverage Form (CG 00 01 04 13). While it is apparent from its title that this exclusion applies to aircraft and watercraft as well as autos, this article will focus on how the exclusion applies to autos.
Further, even though "auto" is defined in the CGL policy, presume the vehicles in this discussion all fit that definition of "auto." To better understand the definition of "auto" or to review a comparison of "auto" to "mobile equipment," see "Auto versus Mobile Equipment in the CGL."
The basic purpose of the CGL policy auto exclusion g. is found in the first paragraph of the exclusion. One commentator offered that the simplest way to phrase the meaning of the exclusion is to say there is no coverage when bodily injury or property damage is caused by the operation or use of a vehicle by an insured. 1
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".
Another way to look at the auto exclusion is as "a device for coordinating coverage between two concurrent policies, one covering the insured's automobiles and the other covering the insured's 'general' liability." 2 In other words, the CGL policy's auto exclusion is intended to eliminate from the CGL policy coverage for bodily injury or property damage that is customarily covered by a commercial auto policy.
Arising Out of an Auto—Causal Connection
For the exclusion to apply, the bodily injury or property damage must arise out of the ownership, maintenance, use, or entrustment to others of specified autos. The autos specified are only those autos owned by, operated by, rented to, or loaned to any insured. 3 More on these specified autos later.
What does "arising out of" mean in the context of this exclusion? There must be a sufficient causal connection between the auto and the bodily injury or property damage. What constitutes a sufficient causal connection varies, but the auto does not ordinarily need to be the sole or proximate cause of the injury or damage. 4 The required causal connection usually only needs to be a substantial factor in bringing about the injury.
For example, one court noted that it is sufficient to show only that the accident or injury was connected with, had its origins in, grew out of, flowed from, or was incident to the automobile in order to meet the requirement that there be a causal relationship between the accident or injury and the automobile. See New London County Mut. Ins. Co. v. Bialobrodec, 48 A.3d 742 (Conn. App. 2012). But, the mere fact that the auto is the site of the injury is usually insufficient. In other words, if the incident could have happened anywhere, the causal connection is usually too remote. One court held the causal connection means the injury must have resulted from some act or omission related to the auto. See ABC, Inc. v. Countrywide Ins. Co., 308 A.D.2d. 309, 310 (N.Y. App. Div., 1st Dept. 2003).
Arising Out of Ownership, Maintenance, Use, or Entrustment to Others
For the exclusion to apply, the causal connection must stem from the ownership, maintenance, use, or entrustment to others of the specified autos.
Ownership may be beyond simply having a title to the auto. For example, ownership has been found in cases where there was only legal possession or responsibility for the auto's use. 5 Liability imposed solely because of the ownership of the auto usually involves the owner of the auto permitting others to operate or use the auto. While very few states impose vicarious liability on the owner without any allegation of an independent tort or duty owed by the owner to the person injured by the auto, 6 some states do statutorily impose such liability on all auto owners. 7 That is, liability is solely imposed because the auto was owned (but see also entrustment below).
Maintenance generally means any type of repair performed on the auto, including work on the internal and external mechanical condition of the auto.
"Maintenance," as that term is used in an insurance policy, means performance of work on "an intrinsic part of the mechanism of the car and its overall function."
— Elrac, Inc. v. GE Capital Ins. Co., 57 A.D.3d 833, 871 N.Y.S.2d 243 (2d Dep't 2008).
The exclusion for maintenance of an auto would apply to bodily injury or property damage that arises out of negligence in the maintenance of the specified auto.
Entrustment to others is permitting others to operate or use the auto. Negligent entrustment is when one party (owner) is liable because the owner negligently "entrusted" the auto to the driver and that negligence proximately caused the bodily injury or property damage. Negligence of an owner under this theory constitutes an independent act of negligence—not vicarious liability as with statutorily imposed liability on an owner. 8
Because bodily injury and property damage is sometimes alleged to have been caused by concurrent acts of negligence (i.e., concurrent with the negligent operation or use of an auto), the October 2001 and later editions of the ISO CGL policy clarified the auto exclusion by adding to the exclusion.
This exclusion applies even if the claims against any insured allege negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by that insured, if the "occurrence" which caused the "bodily injury" or "property damage" involved the ownership, maintenance, use, or entrustment to others of any aircraft, "auto," or watercraft that is owned or operated by or rented or loaned to any insured.
In other words, even if the insured is alleged to have fault in supervising, hiring, employing, training, or monitoring employees (or others), the auto exclusion still applies, even if these listed causes were a concurrent cause of the bodily injury or property damage.
Use of an auto, which also includes loading and unloading of the auto, is most often the source of liability in connection with an auto. Accordingly, the application of the auto exclusion is commonly applied to the use of the auto. But what constitutes the use of an auto?
At the outset, it is worth observing that the use of an auto certainly involves more than auto accidents that take place on public roads. The term "use" is a broad catchall designed to include all uses of the auto that do not fall within ownership or maintenance. "Use" of the auto can be distinguished from "operation" of the auto—"use" denotes the purpose for which the auto is employed, whereas "operation" refers more to driving the auto or physical operation and includes the manipulation of the controls of the auto. An auto may be "used" even if it is not in motion. 9
Determination of whether the "use" of an auto caused bodily injury or property damage is necessarily a fact-intensive inquiry and is often decided on a case-by-case basis. See A&W Maintenance, Inc. v. First Mercury Ins. Co., 91 F. Supp. 3d 113 (D. Mass. 2015).
Some states may apply certain tests to determine if bodily injury or property damage arose out of the use of an auto. For example, a court may look at the inherent nature of the auto, the proximity of the accident to the auto, whether the use of the auto was terminated, and whether the auto actually caused the injury. 10 In one matter, a court determined that an injury that occurred while loading a patient into an ambulance resulted from the "use" of the ambulance. "The alleged attempt to load her into the ambulance directly caused her injury." National Cas. Co. v. Western World Ins. Co., 669 F. 3d 608 (5th Cir. 2012).
In another matter, the court found that a hunter, who was severely injured when a rifle exploded after exiting the auto, was not injured because of the use of the auto.
… the accident could have occurred in any location, regardless of where the rifle was stored or how the hunters reached their destination. The fact that the truck was used to transport the hunters and assist in the hunt simply provides no connection between the use of the truck and the explosion of the rifle.
— State Farm Mut. Auto. Ins. Co. v. Ferrin, 54 P.3d 21 (Mont. 2002).
Finally, a court found that a person who suffered bodily injury by falling into an open tank while walking backward and guiding a truck was not injured because of the use of an auto.
Any person walking backwards and unable to see where they are going faces a risk of tripping and falling—this risk is not peculiar and intrinsic to a spotter for a truck. The nature and extent of Jodrie's injuries were due to the presence of the open clarifier tank. Accordingly, although there is certainly a risk of falling while guiding a large truck, Jodrie's injuries in this case were not caused by merely tripping and falling but were caused due to the presence of the open clarifier tank. The mere involvement of the truck in an accident involving external circumstances is not sufficient to find that the Underlying Accident "arose out of the ownership, use, or maintenance of the auto."
— A&W Maintenance, Inc. v. First Mercury Ins. Co., 91 F. Supp. 3d 113 (D. Mass. 2015).
Loading and unloading the auto can be problematic. The CGL policy defines loading and unloading as the following.
11. "Loading or unloading" means the handling of property:
a. After it is moved from the place where it is accepted for movement into or onto an aircraft, watercraft or "auto";
b. While it is in or on an aircraft, watercraft or "auto"; or
c. 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 above addresses only the handling of property in the context of loading and unloading. In other words, whether bodily injury or property damage arises out of loading and unloading, as defined, may not be applicable to persons entering or existing autos.
This CGL policy's definition of loading and unloading is consistent with the "complete operations" view of handling property. That approach stands for the proposition that any bodily injury or property damage that takes place during the loading of the property into the auto, during transport of that property, or during the unloading of that property from the auto—including placing the property to where it is to be finally delivered—is deemed to arise out of the use of an auto. One court explained it in the following quote.
… "loading and unloading" insurance covers the entire process involved in the movement of goods, from the moment they are given into the [named] insured's possession until they are turned over at the place of destination to the party to whom delivery is to be made...."
— Cenno v. West Virginia Paper & Pulp Co., 109 N.J. Super. 41, 262 A.2d 223 (Super. Ct. App. Div. 1970).
A representative example of the breadth of the CGL loading and unloading definition is bodily injury to an elevator operator that was caused by the insured delivering a bed frame to an apartment when that bed frame fell and injured the foot of the elevator operator. The bodily injury was deemed to "arise" from the use of the auto even though the bodily injury took place in an elevator when the bed frame was on its way to be delivered.
As respects passengers suffering bodily injury while getting into or exiting an auto, the "complete operations" view does not usually apply—as that approach is for the handling of property, not people. Instead, the focus is on whether the use of the auto, possibly because of some act or omission related to the auto, caused the bodily injury to the passenger. The tests noted above for "use" of the auto, such as whether the bodily injury was due to the inherent nature or the condition of the auto, are important. Also, the proximity to the auto at the time of the bodily injury may be considered. For example, a hospital patient who had been transported to the hospital by the insured and suffered injuries because of a fall that occurred outside of the doors of the hospital, allegedly due to the negligence of leaving the patient unattended, was not the result of the use of the auto.
Specified Autos—Is the Auto Owned or Operated by or Rented or Loaned to any Insured?
For the CGL auto exclusion to apply, the bodily injury or property damage must not only arise out of the ownership, maintenance, use, or entrustment to others of an auto, the auto involved must also be owned, operated, rented, or loaned to any insured. Put differently, the CGL auto exclusion is not an absolute exclusion that applies to bodily injury or property damage caused by or arising from any autos. The exclusion applies only to certain specified autos. The specified autos are only those autos an insured owns or operates, or autos rented or loaned to an insured.
If the auto is not owned by the insured, operated by the insured, rented to the insured, or loaned to the insured, then the CGL auto exclusion does not apply.
Owned by. An owned auto is usually titled in the name of that insured. However, legal possession or responsibility for its use may be enough to constitute ownership of an auto even without a title in the insured's name. For example, an insured with a property right in an auto, such as a right to possession or control of the auto, may still be considered the owner of that auto, despite the fact that the auto was not titled to the insured.
Operated by. Use of an auto can be distinguished from operation of an auto. Operation typically means physically manipulating the controls of the auto to propel or drive the auto.
Rented to. Rented to requires the auto to be furnished for use (for consideration) without a driver. In a rental, the insured receiving the rental auto retains possession and control of the auto. The auto is not rented to an insured if the renter also supplies the driver. See Lewiston Daily Sun v. Hanover Ins. Co., 407 A.2d. 288, 293 (Me. 1979), quoting 13 Couch on Insurance § 45:991. In other words, engaging an Uber or a taxicab is not, for the purposes of this exclusion, considered an auto rented to an insured.
Loaned to. An auto loaned to an insured is roughly the same as rented to an insured, but there is no consideration given in exchange for the furnished auto. The concept of the insured having possession or control of the auto, without a driver, also applies here. For example, particularly during the recent COVID-19 pandemic, some cities allowed residents to use city buses without charge. It could not be reasonably argued that the city bus was loaned to the resident for the purposes of the auto exclusion. The resident was supplied with a driver of the bus and had no possession or control of the bus.
Independent Contractors' Use of Autos
Typically, independent contractors whose services are used by a business or organization are not insureds on the CGL policy of that business or organization. For instance, a named insured that engages a common carrier to pick up and deliver its inventory will not include the common carrier as an insured on its CGL policy. Therefore, the named insured's own CGL policy will apply to a claim alleging the named insured is liable for the common carrier's use of its autos when engaged by the named insured. 11 While the bodily injury or property damage caused by the common carrier did arise out of the use of an auto, the common carrier's autos are plainly not owned by, operated by, rented to, or loaned to the named insured. Accordingly, the CGL auto exclusion does not apply to the named insured for the common carrier's use of its autos.
In holding that an independent contractor's use of its autos on behalf of the newspaper was not excluded by the newspaper's CGL auto exclusion, the court noted the following.
The presiding Justice ruled that Sun [the newspaper] did not "own" the El Camino. The evidence is undisputed that the El Camino was owned by McCarthy personally. It is equally clear that the vehicle was not being "operated" by Sun at the time of the accident. The word operation denotes the manipulation of the car's controls in order to propel it as a vehicle.
Although Sun was the user of the El Camino at the time of the accident, McCarthy was the actual operator. As previously determined, McCarthy was the employee of the independent contractor, and was not acting as an agent, servant, or employee of Sun.
Both parties agree there is no evidence in the record to support a finding the El Camino was "loaned" to Sun. Hanover, however, asserts the vehicle was "rented" to Sun, arguing that Sun contracted for the exclusive use of the El Camino. A rental of personal property is a contract whereby one gives temporary possession and control of the subject property to another for consideration. It cannot be said Sun rented the El Camino directly from its owner McCarthy.
— Lewiston Daily Sun v. Hanover Ins. Co., 407 A. 2d 288 (Me. 1979).
Employees' Use of Autos
Employees are automatically insureds on a CGL policy. 12 Consequently, if an auto is owned by, operated by, rented to, or loaned to an employee, the CGL auto exclusion completely eliminates coverage for that auto. A backdoor approach to obtain coverage for the named insured for an employee's operation of the employee's auto would seem to be to eliminate employees as insureds. In fact, there is an endorsement that accomplishes this: Exclusion—Employees and Volunteer Workers as Insureds (CG 21 37 12 19).
While the above endorsement does eliminate coverage for employees as insureds, the endorsement also amends the auto exclusion of the CGL to exclude autos operated by employees (or volunteer workers) in the course of employment or performing duties for the named insured. In other words, removing employees as insureds does not result in coverage for nonowned auto liability coverage in the CGL policy. Coverage for nonowned and hired auto liability is sometimes offered by insurers as a non-ISO endorsement, but the coverage does vary by insurer.
Exceptions to the CGL Auto Exclusion
There are two important exceptions to CGL auto exclusion for the ownership, maintenance, use, or entrustment to others of autos. 13
Valet Parking
Exception g. (3) states the auto exclusion does not apply to parking an auto on, or ways next to, a premises the named insured owns or rents. But the exception does not apply (and, therefore, the auto exclusion does apply) to parking autos that are owned by, rented to, or loaned to an insured.
This is often referred to as the "valet parking" exception. For example, many businesses offer valet parking of customers' autos. The CGL auto exclusion does not apply if an employee of a business accidentally backs into a pedestrian while attempting to valet park a patron's auto on or near the insured's premises. However, any damage to the auto itself is excluded by CGL exclusion j. (4)—personal property in the care, custody, or control of the insured. 14
Auto Repair Shops, Etc.
An endorsement amending the CGL auto exclusion is also required to be attached to the CGL for certain types of businesses based on Commercial Lines Manual CGL Classification Codes. Those businesses are auto repair or service stations, car washes, gasoline stations, tire dealers, and quick lubrication stations. The endorsement is the Operation of Customers Autos on Particular Premises (CG 22 68 09 97) and extends CGL coverage for the insured's liability for customer's autos on or next to the premises of the named insured. The autos to which this endorsement applies are only customers' autos with the insured for the purposes of servicing those autos. As with the valet parking exception, the exclusion still applies to autos owned by, rented to, or loaned to any insured.
Conclusion
The application of the CGL auto exclusion, exclusion g., relative to autos, necessitates a fact-intensive inquiry. First, the bodily injury or property damage must "arise" out of the ownership, maintenance, use, or entrustment to others of a land vehicle that fits the CGL definition of "auto." The above discussion is intended to assist in understanding what is usually meant by each of the qualifiers—ownership, maintenance, use, or entrustment to others, as well as what is usually meant by loading and unloading an auto.
Second, the CGL auto exclusion applies only to specified autos causing the alleged bodily injury or property damage. That is, the CGL auto exclusion applies only to these specified autos—only those autos owned by, operated by, rented to, or loaned to an insured. What is meant by owned, operated by (as contrasted to use), rented to, or loaned to an insured is also discussed to promote understanding. Beware, however, that some insurers use an "absolute" auto exclusion that, in essence, excludes any auto under all circumstances. But the ISO CGL policy is not an "absolute" auto exclusion and applies only to specified autos as described.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
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