“I enjoy your column!” (Thanks!)

“Being a pet owner, I read it with interest and had to dig into the coverage issue surrounding a veterinarian looking for coverage on his GL for pet sitting. I agree, this should definitely be considered a GL exposure rather than a professional exposure. And I agree with you that the pet would be property (my bird dog is my most valuable possession), but I'm not sure if I'm following you on the interpretation of the CCC provisions of the GL.

“Exclusion J(4) excludes damage to property in the CCC of the insured. Whether the insured refers to the named insured, all insureds or insureds engaged in the particular activity in question is probably another argument in itself.” (It is.) “But in most cases it seems to be interpreted to at least mean insureds engaged in the activity.”

Paragraph 2.a.(2) of “Who Is An Insured” does take away insured status from employees for property damage in the CCC of you, employees or volunteers. But I would read that as removing any potential coverage for the employee where that employee may damage property in the CCC of the named insured that was not technically in the CCC of the employee himself. I never looked at this provision as removing the employee from the scope of Exclusion J.

“I guess I'm having trouble following the paragraph where you state the vet would have coverage for PD to the pets in the CCC of the employee. I would think Exclusion J applies to employees and employers and the special provisions of “Who Is An Insured” would not remove the employee from the scope of the exclusion. Was that the avenue you were taking to find coverage for the vet, by indicating the pets were in the CCC of somebody who did not have insured status? Thanks for clarifying your position.”

In short, yes. Arent you glad I clarified that? Actually, Dave, that is exactly what I meant. Lets walk through it.

Im envisioning two types of loss that might arise from the pet-sitting operation. In one, it may be the pet itself that is damaged or lost; for instance, if the employee of the vet fed the tropical fish until they burst or forgot to feed the dog and it died. In the other scenario, other property of the vets customer may be lost or damaged; for instance, the kid feeding the dog knocks over a Ming vase in getting into the house or leaves the door unlatched and a burglar makes off with that same Ming vase.

Exclusion J(4) is the CCC exclusion in the 2001 CGL form. The 1986 commercial general liability form exclusion (J)(4) refers to property damage to “personal property in your care, custody or control.” This version of the exclusion distinguishes between real and personal property; and makes use of the term “your,” thereby limiting application of (J)(4) to the named insured only, since the policy states that the words “you” and “your” refer to the named insured.

Clearly, then, the vet would not be covered if he himself were performing the service and harmed the pet.

But as the exclusion as it appears in the 86 CGL refers to property in your care, and your is defined as referring to the named insured, there would be coverage for the vet if an employee harmed the pet and the customer made a claim.

In all of the FC&S analysts opinions, there would be coverage in the event the employee or the vet damaged other property in the house, because that property is not in the CCC of the insured. We think that it is stretching things too far to say the house is in the vets CCC, simply because a key was left with him to allow access to the pets.

The current version of the exclusion on the CGL form closely parallels the 1986 version except that the care, custody or control exclusion now talks about personal property in the care, custody or control of the insured instead of in “your” (the named insureds) control. Therefore, my thought is that the employer (here, the vet) would have coverage, because he is not “the insured” who has CCC of the property at the time of loss.

Both of these situations are illuminated by the following exchange with an FC&S subscriber, from the FC&S Questions and Answers.

“Q: An employee of a cleaning company that we insure broke a table while dusting it in the office of a client. I denied the claim because of the care, custody and control exclusion on the current ISO CGL policy. However, someone else in my office believes it should be covered. Who is right?”

“A: There should be coverage for the cleaning company, but not for the individual employeeif he were suedfor the damage under the current version of the ISO CGL form. Under the Who Is An Insured section of the form, an employee is not an insured for property damage to property in the care, custody or control of, or over which physical control is being exercised for any purpose by the named insured or any employee. The employee is not an insured at all for a loss that involves property damage to property in his care, custody or control.”

“Coverage for the employer probably is not excluded because he actually did not have control over the property that was damaged.”

Were backed up by some case law here. Quoting from FC&S: “In Holter v. National Union Fire Ins. Cothe Washington court of appealsheld that because employee was not included within the definition of the term insured under a CGL policy, the exclusionary clause of damage to property in the insureds care, custody or control was not applicable when a boat elevator [that] the insureds employee was operating fell from its track and into water.”

“Though the policy did not specifically include employees within the definition of insured, the insurer argued that the exclusion was still applicable because acts of employees are considered acts of the employer under the master-servant rule.”

“In rejecting the argument, the court held that the master-servant rule does not broaden the scope of insured in the care, custody or control exclusion. The court said that had the insurer intended to exclude such losses it could have worded the exclusion: this policy does not apply . . . to injury or destruction of property in the care, custody or control of the insured or any of his employees, or property as to which the insured or any of his employees for any purpose is exercising physical control.”

“Since no reference was made to employees, however, the exclusion was inapplicable to this loss.”

It is interesting to note that based on the wording of the CCC exclusion in the 1986 commercial general liability coverage form, the conclusion in the Holter case was very logical conclusion.

The basis of the decision was an employee not being included within the definition of the term “insured” with reference to the care, custody or control exclusion.

Under the 1986 CGL forms, an employee is included as an insured for acts within the scope of employment. However, the CCC exclusion on the 1986 CGL forms states that the insurance does not apply to property damage to personal property in “your” care, custody or control. “Your” is a defined term in the CGL forms and it refers to the named insured shown in the declarations and not all insureds. Therefore, employees, even though they are insureds for the most part, are not named insureds and the wording of the exclusion can be interpreted as not applying to employees.

This anomaly must have attracted attention since the current version of the CGL forms changed the wording of the exclusion; it now states that the insurance does not apply to property damage to personal property in the care, custody or control of the insured.

Of course, this still has no effect on the fact that the employee has no coverage for the property damage. This is so, because the Who Is An Insured section of the CGL form states that an employee is not an insured for property damage to property “in the care, custody or control of, or over which physical control is being exercised for any purpose by” the named insured or any employee.

The employee is not an insured at all for a loss that involves property damage to property in his care, custody or control; since he is not an insured, he has no coverage under the employers CGL form and the applicability of an exclusion is not relevant.

A question remains as to whether the CCC exclusion reaches the employer, the named insured, if the employee is the one doing the damage. The wording of the exclusion applies to “the insured.”

If the named insured had custody or control of the property, then yes, the exclusion would apply. However, if the employee has the property in his custody and control, no “insured” has care, custody or control over the property and the exclusion is not applicable to the named insured. The named insured would still have to be found somehow liable for the damage in order for the CGL form to cover the property damage loss, but if that happens, the CCC exclusion is not applicable.

This is the exact situation that arises with the pet-sitting operation, and can be applied.

Before closing, lets look at one more CCC example that has come to the attention of FC&S. I had the opportunity to speak to a senior underwriting executive at a major insurer recently, who told me his company had just established a joint Underwriting Department-Claims Department coverage committee. The first question that came before the committee had to do with automatic car washes and the CCC exclusion.

In my neighborhood there is a car wash called Johnnys that you drive up to, turn your car over to an attendant, go to a waiting room, and wait while they vacuum, wash and dry your car. You turn the keys over, the car and essentially the control (and care and custody) of the car to the car wash guys. No question the CCC exclusion applies here. Johnnys needs garagekeepers legal liability, specifically covering property in the CCC of the insured.

The committee wasnt thinking about that kind of car wash. Instead, it was focused on the kind with bays where you wash your own car with a wand and where there may not be an employee present. They also may have one automated bay where your car is pulled through on a short track and the driver stays in the auto during the process.

Is the CGL CCC exclusion applicable here?

We think not. The driver is still in the auto, there is no exercise of control over the car by the car wash, and there is probably a sign that says “Not Responsible for Damage to Antennas and Other Auto Equipment.” Further, even though it might damage the car, the driver could stick the thing in gear at any time and exercise control of the car. This operation does not need garagekeepers and can rely on the CGL for adequate liability protection.

Thats about enough of the care, custody or control exclusion for now. Or at least all I care to get into in my control of this article. Theres more in FC&S, if you want custody of it.

Bruce Hillman, JD, is Editorial Director of Risk and Insurance Markets for the Professional Publishing Group of The National Underwriter Company, in Erlanger, Ky. Questions and comment are invited at [email protected].

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, June 30, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.