The Commercial General Liability policy is an interesting bit of insurance literature. It starts with a one-page insuring agreement that explains the policy will provide coverage for “bodily injury” or “property damage” claims for which the insured is legally obligated to pay. Subject to the actual policy limits, the insuring agreement appears very broad and open. However, the next 4 or so pages are a series of exclusions – 16 in total – that limits the coverage of the general liability form to more specific conditions. Some of these exclusions serve to ensure certain types of claims are directed to a more appropriate insurance policy. For example, claims related to workers compensation laws and employers liability are excluded. Property damage or bodily injury related to the use of an automobile, watercraft or aircraft are excluded. The intent of these exclusions is clear: auto claims should be handled by an auto insurance policy and employee injuries claims by workers compensation.
CCC and Incorrectly Performed Work Exclusions
In every ISO General Liability policy since 1988, there is an exclusion that eliminates coverage for damage to “personal property in the care, custody or control of the insured” (aka CCC), damage to “any part of real property…on which you are performing operations”, and damaged caused by your “incorrectly performed work”. These exclusions, under the common heading of “Damage to Property” are frequently the cause of denied general liability claims. It is important policyholders understand the intent of the damage to property exclusion and how to prevent denied claims from occurring. In the ISO CG 00 01 04/13 edition of the CGL policy, this exclusion reads as follows:
j. Damage To Property”
Property damage” to:
1) Property you own, rent, or occupy, including any costs or expenses incurred by you, or any other person, organization or entity, for repair, replacement, enhancement, restoration or maintenance of such property for any reason, including prevention of injury to a person or damage to another’s property;
(2) Premises you sell, give away or abandon, if the “property damage” arises out of any part of those premises;
(3) Property loaned to you;
(4) Personal property in the care, custody or control of the insured;
(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the “property damage” arises out of those operations; or
(6) That particular part of any property that must be restored, repaired or replaced because “your work” was incorrectly performed on it.
Paragraphs (1), (3) and (4) of this exclusion do not apply to “property damage” (other than damage by fire) to premises, including the contents of such premises, rented to you for a period of 7 or fewer consecutive days. A separate limit of insurance applies to Damage To Premises Rented To You as described in Section III – Limits Of Insurance. Paragraph (2) of this exclusion does not apply if the premises are “your work” and were never occupied, rented or held for rental by you. Paragraphs (3), (4), (5) and (6) of this exclusion do not apply to liability assumed under a sidetrack agreement. Paragraph (6) of this exclusion does not apply to “property damage” included in the “products-completed operations hazard”.
For the purpose of this article, we will focus on J.4, 5 and 6. In reality, any service industry that works on or with the property of others, whether it be real property or personal property, could be affected by this exclusion. For example, dry cleaners, automotive repair, appliance repair, contractors, handymen, pool cleaners, and janitorial companies all work on the real or personal property of others.
Understanding the Exclusion
The intent of this exclusion is similar to that of automobile and workers compensation claims. The CGL policy intends for the insured purchase appropriate coverage for their unique exposure. In other words, not every business has an exposure to claims that might fall under the “Damage to Property” exclusion. Retail stores, wholesalers, and offices rarely have the property of others loaned to them nor do they typically take custody of customer goods for service and repair. For businesses that do have an exposure, coverage can be provided by various types of property insurance, inland marine (such as bailee) or certain general liability endorsements.
A dry cleaner, for instance, should purchase Bailee coverage that specifically provides for loss or damage to the clothing of customers in their care, custody, control. Automotive repair shops should purchase garage keepers legal liability and broad form products to provide coverage for customer vehicles left for repair. Other industries (such as contractors, handymen, service and repair businesses) should consider policy endorsements such as “care, custody, control extension”. Please note that the coverage afforded by endorsements vary between insurance carriers and require careful review. A “care, custody, control extension” endorsement will probably have a sub-limit of coverage lower than GL occurrence limit. Some “care, custody, control” endorsements only address J.4 and J.5, while others provide coverage for J.6 as well. In addition, many insurance companies that work with contractors are hesitant to issue broad form property damage coverage in the fear they might unintentionally provide coverage for defective workmanship claims.
Know Your Coverage Before a Claim Occurs
As a policyholder, it is critically important you understand your insurance coverage before a claim occurs. Should you have questions about your policy coverage, conditions or exclusions, please contact us to discuss it further. We want you to be comfortable with your policy and feel assured you have the coverage your business needs.