A CGL Is Not a Cargo Policy
A Commercial General Liability (CGL) policy is a third party liability insurance policy only insures an insured for risks of loss from third parties claiming damage to their property or bodily injury. In Artisan and Truckers Casualty Company v. Hanover Insurance Company, Slip Copy, 2015 WL 5081458 (N.D.Ill., 8/27/2015) the District Court for the Northern District of Illinois, was asked to provide coverage under a CGL for losses by theft to property in control of the insured.
Plaintiff Artisan and Truckers Casualty Company (“Artisan”) filed a complaint for declaratory judgment, asking this Court to find that Artisan does not have a duty to defend and indemnify its insured Alekseya Piskunov, Kateryna Piskunov, Star Way Corporation, and Star Way, Corp. (collectively “Star Way”) in an underlying suit brought against Star Way by Hanover Insurance Company (“Hanover”).
The relevant facts when determining an insurer’s duty to defend in the summary judgment context are those alleged in the underlying complaint that alleged the following: Hanover insures Access America Transport, Inc. (“Access America”). Access America entered into a Broker–Carrier agreement with Star Way, and pursuant to that agreement Star Way agreed to transport two Case backhoes belonging to CNH America LLC (“CNH”) to two consignees. Star Way accepted the shipment in Iowa and the backhoes were loaded onto a motor truck. The two backhoes were then reportedly stolen from the premises of Star Way Lines Inc. in Illinois before they could be delivered to the consignees.
Hanover paid CNH for the loss of the backhoes and in exchange for such payment CNH assigned its claims arising out of the loss of the backhoes to Hanover. Hanover then sued Star Way under the Carmack Amendment, 49 U.S.C. § 14706, for the value of the backhoes.
The insurance policy at issue (“the policy”) was issued by Artisan to “Star Way Corp.” In the case before this Court, Artisan claims it has no duty to defend Star Way in the underlying suit because there is no coverage under the policy. Artisan argues that the policy does not provide “cargo coverage” and that at least six exclusions in the Commercial General Liability Endorsement of the policy (“CGL Endorsement”) preclude coverage.
When evaluating an insurer’s motion for summary judgment based on an asserted lack of duty to defend, courts compare the allegations in the underlying complaint with the relevant policy provisions. If the facts alleged in the underlying complaint are within or potentially within policy coverage, the insurer has a duty to defend and cannot prevail on summary judgment. The burden is on the insured to prove that its claim falls within the coverage of an insurance policy. Once the insured has demonstrated coverage, the burden then shifts to the insurer to prove that a limitation or exclusion applies. When an insurer seeks summary judgment on the basis that an exclusion in the policy precludes coverage, the applicability of the exclusion to the allegations in the underlying complaint must be clear and free from doubt.
Artisan asserts that cargo insurance is a “distinct form of liability insurance” and not part of the policy. But aside from referring to the exclusions, it makes no argument as to whether the CGL Endorsement covers cargo loss.
The parties’ arguments suggest that both believe it is obvious that theft of the backhoes constitutes “property damage” for purposes of the CGL Endorsement. damages caused by theft were not property damages for the purposes of general liability insurance coverage, reasoning that there is a difference between damage to property and loss of property. In Hanover and Star Way have failed to meet their burden to demonstrate that their claim falls within the CGL Endorsement’s coverage for “property damage.” This alone is sufficient reason to grant Artisan’s motion for summary judgment.
Damage to Your Work Exclusion
The “Damage to Your Work” exclusion (“DTYW exclusion”) precludes coverage for “property damage to your work[,] arising out of it or any part of it …” For purposes of the CGL Endorsement, “your work” means “work or operations performed by you or on your behalf; and materials, parts or equipment furnished in connection with such work or operations.”
CGL insurance policies often include DTYW exclusions because “[t]he risk intended to be insured [by CGL insurance] is the possibility that the goods, products or work of the insured, once relinquished or completed, will cause bodily injury or damage to property other than to the product or completed work itself, and for which the insured may be found liable … The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or complete work is not that for which the damaged person bargained.” State Farm Fire & Cas. Co. v. Tillerson, 777 N.E.2d 986, 992–93 (Ill.App.2002) (internal quotations omitted) (ellipsis in original).
DTYW exclusions tend to arise in cases where the “work” at issue involves “workmanship,” the word “work” is unambiguous, and the Court must afford it its “plain, ordinary, and popular meaning.” W. Am. Ins. Co. v. Yorkville Nat. Bank, 939 N.E.2d 288, 293 (2010).
Here, the theft of the backhoes arose out of Star Way’s activity directed toward accomplishing the delivery of the backhoes. In addition, the exclusion applies where the damages arise during the course of the insured’s work rather than after the relevant work has been completed. Here the backhoes were stolen before Star Way had completed the relevant job by delivering the backhoes to the consignees; therefore the DTYW exclusion applies to the underlying complaint even if the theft constitutes “property damage.”
Damage to Property
Artisan asserts that the Damage to Property exclusion for “[p]roperty damage to … personal property in the care, custody or control of the insured” applies. Hanover responds that the underlying complaint does not allege that the backhoes were in the exclusive possessory control of Star Way when they were stolen. Artisan replies that possessory control is apparent from the allegation that Star Way received the backhoes for transport to the consignees.
Under Illinois law, an insured must have “possessory control … at the time of the loss” in order for the property to be deemed in its “care, custody, or control.” Bolanowski v. McKinney, 581 N.E.2d 345, 348 (1991). Illinois courts also note that the possessory control at the time the property is damaged must be “exclusive.” Another person or entity’s limited access to the property does not negate the exclusiveness of the insured’s possessory control. Country Mut. Ins. Co. v. Waldman Mercantile Co., 430 N.E.2d 606, 609 (Ill.App.1981).
Exclusive possessory control is determined by looking at the extent of the insured’s right and power to “access” and “maintain, move, or protect” the property.
It cannot be gleaned from the underlying complaint who among Star Way, Star Way Lines Inc., or any other entity that may have been involved had the predominant authority to access, maintain, move, and protect the backhoes at the time they were stolen. Hanover and Star Way did not establish coverage under the CGL Endorsement, and even if they had, the DTYW and the property exclusions apply to the allegations in the underlying complaint.
As a result the Court granted Artisan’s motion for summary judgment.
Cargo insurance is a specific type of insurance protecting the insured against the loss of property in his, her or its care custody and control while a CGL does not and specifically excludes such coverage. Trying to stretch a CGL into a cargo policy is asking the court to re-write the policy which it, properly, refused to do.
Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.
He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.
Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary. The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide.
The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972.
Mr. Zalma’s new e-books “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;” “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;” “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,” “Arson for Profit” and others that are available at www.zalma.com/zalmabooks.htm.
The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.