The standard CGL form excludes coverage for property damage to personal property in the care, custody, or control of the insured. This particular exclusion has been revised several times over the years, but the basic purpose of the exclusion has remained constant: to prevent the general liability policy from becoming a bailment type policy wherein the insured requires insurance protection in case he damages the property of another while he has that property in his possession.
The current language of the exclusion seems simple enough but, as with other insurance policy language, it is subject to a constant review by the courts. Coverage disputes arising out of the care, custody, or control exclusion are usually settled by courts based on a review of the facts of each particular claim. That makes it critical to review how various courts in the jurisdiction where the damage occurred before finalizing a coverage opinion. Circumstances that may affect coverage include the effect of a contract on the exclusion's scope; how the exclusion affects contractors' operations; how the exclusion applies when it comes to the damaged property being incidental to the property being worked on by the insured as opposed to the damaged property being a necessary element of the work; and the applicability of the exclusion to employees of the named insured.
Work product exclusion and impaired property exclusion clash
Before the court was a motion for summary judgment with respect to insurance coverage. The insurer asserted that the policy provided no coverage for any of the claims against the defendant and the insured, of course, disagreed. This case is Mississippi Phosphates Corporation v. Furnace and Tube Service, Inc., 2009 WL 1448967 (S.D.Miss.).
Furnace and Tube was hired to rebuild the waste heat boiler in the sulfuric acid plant of Mississippi Phosphates. After the work was completed, the boiler began to leak. Water from the inside of the boiler escaped and damaged refractory and related materials. Also, water from the inside of the boiler leaked into the stream of sulfur dioxide and sulfur trioxide, and this damaged the catalyst downstream of the waste heat boiler, reducing its effectiveness and shortening its useful life. After repeated attempts to repair the problem areas, the claimant was eventually forced to retain another contractor to dismantle the boiler and rebuild it. The claimant then filed a lawsuit against the insured to recoup its losses.
The insured forwarded the lawsuit to the insurer, which then denied coverage based on certain exclusions: the work product exclusion; the impaired property exclusion; and the care, custody, or control exclusion (although this exclusion was not deemed relevant since the damage occurred after the work of the insured was finished). These are the work-related exclusions found in the standard commercial general liability coverage form.
The court hearing this case applied Louisiana law in order to resolve the coverage dispute. In discussing the work product exclusion, the court noted that Louisiana courts had consistently held that the work product exclusion eliminated coverage for the cost of repairing or replacing the insured's own work or defective product. Here, the claim was for damage to the boiler due to defective work, and the exclusion eliminates coverage for the cost of repairing or replacing the insured's defective work.
However, as to the impaired property exclusion, the court found that the exclusion provided coverage for loss of use to other property arising out of sudden and accidental physical injury to the insured's work after it was put to its intended use. The claimant sought damages in this case beyond those attendant to or caused solely as a result of the allegedly defective repair work performed by the named insured: namely, loss of use of other property (the plant itself which had to shut down due to all of the repair work) arising out of the sudden and accidental physical injury to the plant after the boiler was put to its intended use. These damages were not excluded from coverage by the impaired property exclusion.
Therefore, based on the failure of the insurer to show that the claims made against the insured were totally excluded from coverage, the motion for summary judgment was denied.
Is the worker a temporary worker or an employee?
The insured brought a declaratory judgment action against the insurer, seeking a declaration that the insurer had a duty to defend in an underlying action relating to an accident in which a worker hired by the insured was injured. The main issue was whether the worker was a temporary worker as defined in the policy or an employee. This case is Rhiner v. Red Shield Insurance Company, 2009 WL 1458380 (Or.App.).
The insured had a comprehensive general liability insurance policy issued by Red Shield Insurance Company. This policy excludes coverage for claims made by the insured's employees, but it does extend coverage for claims made by temporary workers who are not employees. The policy defines a temporary worker as a person furnished to the named insured to substitute for a permanent employee who is on leave or to meet seasonal or short-term workload conditions.
The insured hired Mize to work for him cutting and trimming trees and shrubs. The insured hired Mize himself and did not go through an employment agency, labor contractor, or any other entity to obtain Mize's services. Mize worked for the insured continuously from October 2002 to December 2003. The worker was injured one day when he fell from a tree, and he filed a claim for workers compensation. The claim was approved and benefits were paid to Mize. However, the Department of Consumer and Business Services later determined that Rhiner was a noncomplying employer and Mize used this to bring an action against Rhiner for negligence and employer liability. Rhiner turned to Red Shield for defense and indemnification but the insurer refused to defend or indemnify, citing the policy's exclusions for employment-related injuries. The insurer contended that Mize was an employee because he was not a person who was furnished to the insured by a third party. Rhiner filed a declaratory judgment action against Red Shield and the trial court determined that Mize was a temporary worker and so, the insurer was required to defend and indemnify the insured against any liability to Mize. This appeal followed.
On appeal, the insurer said that Mize did not fit the definition of a temporary worker since he was not furnished to the insured and because he was not hired to meet seasonal or short-term workloads. The insured contended that the definition of a temporary worker was ambiguous. He said that the phrase "a person furnished to you" is not relevant to the case since the definition of temporary worker could be read to apply to any person hired to meet seasonal or short-term workloads, regardless of who furnished the worker. Moreover, the insured said, the definition is not clear about whether the worker may or may not furnish himself.
At the outset, the appeals court rejected the insured's contention that the policy's definition of temporary worker may be read to apply to any person who has been hired to meet seasonal or short-term workloads, regardless of who furnished the worker. The court held that the wording of the policy simply cannot reasonably be read to say that. The reference to seasonal or short-term workload refers to the purpose for which the worker has been furnished to the employer.
As for the meaning of "a person who is furnished to you" and whether it encompasses a worker who the insured hired directly, the court agreed with the insurer that there is only one plausible reading of the policy language. The word "furnished" is not defined in the policy, but the dictionary defines the word as meaning "to provide or supply with what is needed". Under that definition, the court said, the person who furnishes is the party who provides or supplies what is needed, and in the context of human labor, it is conceivable that a person can provide or supply himself to an employer. However, this must be viewed in the context in which the term is used in the policy as a whole. In context, the insured's proposed reading of the term "furnished" becomes untenable because it renders the entire phrase "a person furnished to you" superfluous.
The appeals court reversed the opinion of the trial court and held that, because the insured hired Mize directly and not with the aid of a third party, Mize was not a temporary worker within the meaning of the policy. Coverage of his claims against the insured was excluded.
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