Author: VU Faculty
Below is a recent "Ask an Expert" question we received involving a BusinessOwners Policy. While we attempted to address the coverage issues raised from the standpoint of the BOP, it became very clear that this risk was not suited for a BOP, regardless of whether or not the insurer was willing to issue one. While BOP's can be ideally suited for many mainstream businesses, it isn't for everyone.
"We have a question on the Business Owners Policy form CG 00 01 (10/93) [Actually, it's the BP 00 06 01 97. - Ed.]. Our insured is a boat dealer that the company has agreed to put on their BOP. We need to know if Exclusion G.2. would apply to a products/completed operations exposure. We are concerned that if the insured is working on servicing a watercraft, the completed operations, or their work, would be excluded on the BOP form. If there is some other place in the form the coverage would be excluded, I'd like to know that as well. This is the section that we noticed."
The first thing to note is that it is often very difficult to comment on BOP policies since most companies use their own, proprietary forms. In such cases, unless provided with an actual copy of the form, the best we can do is comment on the ISO-equivalent form. In this case, here is the referenced exclusion:
g. "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".
This exclusion does not apply to:
(1) A watercraft while ashore on premises you own or rent;
(2) A watercraft you do not own that is:
(a) Less than 26 feet long; and
(b) Not being used to carry persons or property for a charge;
(3) Parking an "auto" on, or on the ways next to, premises you own or rent, provided the "auto" is not owned by or rented or loaned to you or the insured;
(4) Liability assumed under any "insured contract" for the ownership, maintenance or use of aircraft or watercraft; or
(5) "Bodily injury" or "property damage" arising out of the operation of any of the following equipment:
(a) Cherry pickers and similar devices mounted on automobile or truck chassis and used to raise or lower workers; and
(b) Air compressors, pumps and generators, including spraying, welding, building cleaning, geophysical exploration, lighting and well servicing equipment.
Based on the above, there appear to be only two operative phrases in the exclusion that MIGHT cause a coverage problem if the insured is working on watercraft:
1. The wording "...ownership, maintenance, use or entrustment to others...."
2. The wording "...owned or operated by or rented or loaned to any insured...."
With regard to the first one, ownership, use and entrustment to others shouldn't be a problem, but the "maintenance" one might. HOWEVER...
The exclusion is only triggered if such ownership, maintenance, etc. of a watercraft involves one that is "owned or operated by" or "rented or loaned to" the insured. The only part of this that would appear to present a problem (since the insured doesn't own it and it wasn't rented or loaned to him) is the "operated by" wording. Does this mean operated as a watercraft or just operated as in turning the engine on and off?
The bottom line is that I don't think THIS exclusion applies to this exposure (i.e., what little we know about it), but there is definitely a gray area here based on a literal reading of the wording. Also, keep in mind that this opinion is based solely on the minimal information provided and could conceivably be totally off the mark if we are not aware of the actual exposures involved and any policy language that differs from the ISO form.
However, if your main concern is whether or not he'd have coverage for damage to the watercraft during or after (completed op) his work is performed, that's excluded elsewhere in the ISO policy. Here are excerpts from the BOP edition you're referring to:
k. "Property damage" to:
(4) Personal property in the care, custody or control of the insured;
(5) That particular part of real property on which you or any contractor or subcontractor working directly or indirectly on your behalf is 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.
Paragraph (6) of this exclusion does not apply to "property damage" included in the "products-completed operations hazard." (see exclusion "m" below)
m. "Property damage" to "your work" arising out of it or any part of it and included in the "products-completed operations hazard".
This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.
As you can see, there is no coverage for this workmanship exposure regardless of whether or not it's a watercraft. While the property is in his "CCC," there's no coverage and, with regard to a completed operation, there's no coverage to "your work." For example, if they do engine work, then later the engine catches on fire due to their negligence and burns the boat up, there's no coverage for damage to the engine, but there would be for damage to the remainder of the boat. If they're "test driving" the boat before relinquishing control back to the owner (i.e., it's not yet a completed operation), then there's no coverage for damage.
Below are some additional observations of our BOP faculty:
First, it never ceases to amaze me what some underwriters will agree to put on a BOP. And it's accepted as if the price and business income are worth everything else that's given up. To me this is one of those classes of business that needs a specialty policy. Would you use a BOP for an aircraft or auto dealer?
1) It is important to remember that any form of garagekeepers that is attempted to be used for the CCC exposure must be amended to bring "watercraft sales, service and storage" into the definition of "garage operations." Does the insured have:
a) repair?
b) launching services?
c) dry dock winter storage?
d) consignment?
2) The property coverage part will exclude coverage on the insured's inventory if it is afloat. Will the insured participate in "in-water boat shows"?
3) I disagree that the insured "does not own" the watercraft from the standpoint of prem/ops. There may be a question under floorplan watercraft, but the insured does own his stock of watercraft, thus the exclusion could cause problems.
4) Remember the BOP GL and CG 00 01 are not equivalent. There are various differences.
5) I don't have a BOP Special Property Form handy right now, but isn't there an exclusion for certain perils to personal property in the open? If so, this has a major impact on the stock outside.
There are a bunch of exposures that the BOP will not address very well. The Care Custody and Control Exclusion is a big one. I also have a concern about sea trials and the operation of a watercraft. One of the people working on boats may try one out to see if they fixed it. They really need a Protection and Indemnity Cover of some sort to pick up this exposure.
You also have the 26' vessel limitation to worry about. We do not know the size of the nonowned watercraft. A boat dealer's or marina operator's package would probably be in order. Reviewing one would give a rather comprehensive picture of the potential problems in the BOP. Not so worried about products but have these other concerns.
You also may have issues about the Longshoreman act under the workers compensation. Depending on what they do and where.
As someone once said, "The right to do something does not mean that doing it is right." This appears, at least on the surface, to be too complex and unique an exposure to fit a standard BOP. Just because the BOP appears to "fit" doesn't mean you have to wear it.