“We have a monthly ‘Lunch & Learn’ producers meeting, and one part of each meeting is the ‘Insurance in the News’ segment. Each month, one of us is responsible for bringing in a news item involving a commercial lines claim or situation. I drew the ‘short straw’ for this month’s meeting next week, and wanted to pick your brain about some coverage issues for the claim situation I plan to present. I read about it one night in a LinkedIn insurance forum (I know...I need to get a life!).
“The insured operates a recovery vehicle, and was called to the scene of an auto accident. As usual, some operating fluids from the two cars involved in the accident had spilled onto the roadway, and the recovery vehicle operator spread some dry chemicals onto the spills, in order to help absorb the fluids, to make the cleanup easier.
“However, shortly after the roadway was cleared to open by the local police, a motorcyclist drove over the spot of the accident and skidded, seriously injuring the rider and his passenger. The police surmise that the recovery vehicle operator did not completely clean up the oily spill, which caused the motorcycle to skid.
“Since the cause of the accident was due to the remnants of the operating fluids from the accident that were still on the roadway, do you think the BAP on the recovery vehicle should have endorsement CA 99 48 in order to cover the resulting claim? And since CA 99 48 deals with pollutants, any chance this could also be covered under the CGL?”
First, you’re certainly not alone in reading insurance articles online, after work. Most insurance nerds I know (including me) do the same. I guess insurance is a condition for which there is no cure, so we just have to feed the addiction!
Let’s examine the BAP and the CGL regarding this situation. Assume that Jack Smith is the owner of JS Recovery & Towing, Inc. The commentary and coverage form excerpts below are based on an ISO Business Auto Policy (BAP) and Commercial General Liability Policy (CGL). Proprietary forms may be different.
ISO Business Auto Policy (BAP)
Excerpt:
Business Auto Coverage Form (CA 00 01 10 13)
Section II – Covered Autos Liability Coverage
A. Coverage
We will pay all sums an "insured" legally must pay as damages because of "bodily injury" or "property damage" to which this insurance applies, caused by an "accident" and resulting from the ownership, maintenance or use of a covered "auto".
Comments:
(1) I’m not sure that the BAP even applies to this situation. Note this provision in the insuring agreement above: “...resulting from the ownership, maintenance or use of a covered "auto".
(2) I think coverage primarily depends on a nexus between the recovery vehicle and the subsequent motorcycle accident. For example, if the dry chemicals were applied to the roadway directly from the recovery vehicle, such as by a sprayer attached to the vehicle, then I think the BAP could apply.
(3) On the other hand, just based on my own anecdotal observations, I think most times, the dry chemicals are applied by hand. In the accident scenes I’ve observed, the recovery vehicle operator walks around with a bag or canister of dry chemicals, pouring the chemicals directly onto the spill areas. If that’s the case with this situation, I do not see a direct connection to the operation of the recovery vehicle.
(4) But since each loss is fact-dependent, this might end up as a CGL claim (see below).
(5) I do not think the CA 99 48 10 13 Pollution Liability – Broadened Coverage is needed, or would apply even if attached. The endorsement primarily deals with pollutants that are “...Being transported or towed by, handled or handled for movement into, onto or from the covered ‘auto,’ or otherwise in the course of transit by or on behalf of the insured’." But if fluids leaked from the auto being towed, that might be different.
ISO Commercial General Liability Policy (CGL)
Excerpt:
Commercial General Liability Coverage Form (CG 00 01 04 13)
Coverage A – Bodily Injury and Property Damage Liability
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies.
2. Exclusions
This insurance does not apply to:
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".
Comments:
(1) The CGL covers the insured’s legal liability for BI or PD, except as excluded.
(2) Note that the auto exclusion only applies to BI & PD “...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.” Referring to the BAP discussion above, I think that if the chemicals were applied by hand, the motorcycle accident did not arise from an auto (the recovery vehicle), and would be within the scope of the CGL (Operations, or Completed Operations, depending on circumstances).
(3) As to pollution, I doubt that the CGL exclusion would apply. The CGL defines a pollutant as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” In the context of a small amount of automotive operating fluids (oil, transmission fluid, radiator fluid, etc.) being cleaned up from a roadway auto accident, I don’t think this could be considered an “irritant or contaminant.” I think it would be more akin to a slip-and-fall type loss. However, if the automotive fluids were getting near to, or entering, a nearby waterway, this might fall under the CGL pollution cleanup exclusion.
Other Issues: BAP vs CGL
This loss serves as an excellent example of the fine line that can separate coverage between the BAP and CGL. The ISO BAP and CGL are intended to be compatible, to prevent coverage gaps and overlaps. This feature will function properly only if the current edition date of each ISO form is in place. Mixing edition dates can leave gaps. Worse still, mixing ISO and non-ISO can create significant problems, with the potential for a subsequent E&O claim. Therefore, virtually every coverage expert and E&O consultant I’ve ever talked to recommends that the BAP and CGL be written with the same carrier, when possible.
Here are two of the most frequent exposures that pose a high risk of an uncovered loss if the BAP and CGL are not compatible.
(1) Mobile equipment. In 2004, ISO revised the CGL definitions of “auto” and “mobile equipment,” which shifted certain over-the-road exposures for mobile equipment (such as mobile cranes and a wide assortment of other equipment) from the CGL to the BAP, based on the motor vehicle laws in the state where the mobile equipment is principally garaged.
Up until this change, such exposures were written on the CGL with attachment of endorsement CG 99 01 11 85 Motor Vehicle Laws. In conjunction with the CGL filing, ISO revised the BAP to correspond to the CGL change, so that such mobile equipment excluded by the CGL would now be covered by the BAP.
However, this created a potential coverage gap if both the CGL and BAP were not in sync, such as being different edition dates of ISO, or if either or both were non-ISO forms. Experts say that this gap still exists today.
(2) Loading and unloading. Moving property from Point A to Point B by means of an auto has five liability exposure points: (a) before the property has begun being moved onto an auto [e.g.: sitting on the loading dock, crate falls]; (b) once the property has begun being moved from that location into or onto an auto; (c) while the property is in or on an auto; (d) while it is being moved from the auto to the intended delivery place [going up stairs, in an elevator, etc.]; (e) after the property has been delivered to its intended delivery place [e.g., third floor, apartment 301, crate later falls] .
The BAP covers auto-related exposures. Interestingly, coverage for the auto portion of loading and unloading is provided by means of an exclusion: “Handling of Property.” This exclusion applies to exposure points (a) and (e) above, meaning that (b), (c), and (d) above are not excluded (i.e., covered).
The CGL excludes most auto-related exposures, including “loading and unloading” of an auto. Coverage for the non-auto portion of loading and unloading is crafted into the definition of “loading and unloading.” The definition excludes exposure points (b), (c), and (d) above, meaning that (a) and (e) above are not excluded (i.e., covered).
However, (there seems to be a “however” to most things in insurance!), specific exceptions to this neat division between BAP and CGL for the loading and unloading exposure are present. In a convoluted statement including the annoying use of double-negatives, the definition of “loading and unloading” in the CGL ends with this mind-bender: “...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". Translation:
(1) Loading and unloading an auto with a forklift or other self-propelled vehicle or device (“mechanical device not attached to an auto”) is a CGL coverage.
(2) Loading and unloading an auto with a hand truck (aka a “dolly”), is a BAP coverage.
(3) Loading and unloading an auto with a lifting arm device (a mechanical device that is attached to an auto), is a BAP coverage.
Bottom line: It is often a nightmare scenario when an ISO form and a non-ISO form attempt to be compatible in the loading and unloading exposure. For example, I recently read about a situation where a furniture store had a non-ISO BAP, and an ISO CGL. In the non-ISO BAP, liability exposure point (d) [above] terminated “unloading” when the property reached the ground.
Last Updated: March 10, 2016
_______________________________________________________________________________________________
Copyright © 2024, Big “I" Virtual University. All rights reserved. No part of this material may be used or reproduced in any manner without the prior written permission from Big “I" Virtual University. For further information, contact jamie.behymer@iiaba.net.