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Here at Your Own Peril: The Baffling
Meaning of “Care, Custody or Control” in CGL Policies
Published
in Without Prejudice
(Official Journal of the Ontario Insurance Adjusters Association),
Vol. 65, No. 5, Jan. 2001
By
Lee Akazaki
It
happens more often than one likes to admit. When called upon
to interpret a clause in an insurance policy, one can get the
sinking feeling that a common grasp of the English language
might be of no help whatever. One suddenly feels empathy for
Wiley Coyote, in chase of the Roadrunner, standing next to a
sign pointing to his feet saying: “Beware—Quicksand.”
One clause which adjusters must apply in everyday practice has
nevertheless confounded lawyers for quite some time. This is
the following exclusion in the standard Commercial General Liability
(CGL) Form:
“Exclusions.
“This Insurance does not apply to:
“h. ‘Property damage’ to:
“4) Personal property in your care, custody or control.”
Sometimes, the
adjective “personal” does not appear. This may significantly
influence the scope of the exclusion.
“Personal
Property”
It is good to start with this phrase. As we shall see, the underlying
legal meaning of this phrase informs the debate over the meaning
of the entire exclusion clause, whether or not it includes the
word “personal.”
Lawyers instinctively distinguish between personal and real
property (personalty and realty). Real property is land, building
and fixtures. Personal property is everything else, animate
as well as not. The word “personal” only signifies
that it is not fixed to the ground. Title to real property is
established by registration, surveys and leases. Ownership of
personal property is a creature of uninterrupted possession.
This does not mean that we are reduced to keeping all of our
worldly goods under lock and key. Treating them as our own is
sufficient. A gesture such as handing car keys over with appropriate
words at a family birthday party is sufficient to transfer title
in the car, even without formal registration. According to the
common-law definition of “personal property,” the
exclusion should therefore apply in practical terms to all property
left on the insured’s premises.
If only the law were so simple. It is not. The Newfoundland
Court of Appeal has held that this legal definition is not consistent
with the “plain and ordinary meaning” of the phrase.
In the interpretation of insurance contracts, the “plain
and ordinary meaning” prevails over legal technicality.
In Day & Ross (Nfld.) Ltd. v. Insurance Corp. of Newfoundland
Ltd., [1987] N.J. No. 337 (Nfld. C.A.), the court held that
the phrase “must mean property of the insured, property
owned by him, property personal to him and not personal property
in the strict legal sense.” The exclusion, if qualified
by the word, “personal,” does not extend to liability
for other people’s property left on the premises. If it
did, according to the court, “coverage would be rendered
illusory.”
This judicial interpretation, at first blush, conforms to the
principle that liability coverage provides indemnity for loss
occasioned by persons other than the insured. If the word “personal”
appears in a CGL form, the policy covers all liability for damage
to or loss of property except that of the insured. Where the
court’s reasoning breaks down is the fact that, if the
policy only excluded the insured’s own property, there
would be no need for the remainder of the exclusion, i.e. “care,
custody or control.” The court has effectively excised
these three words from the policy exclusion. Moreover, since
it is third-party liability insurance, there would be no need
for the exclusion of the insured’s own property. The insuring
agreement does not require such an exclusion. The decision in
Day & Ross offends a more basic rule of legal interpretation,
that the contract wording must be read as a whole and that each
word must be given as having been bargained for at the time
the parties entered into the agreement. The legal meaning might
indeed be better than the plain and ordinary meaning. The exclusion
typically comes after clauses such as “Property you own,
rent or occupy.” The exclusion as applied by the court
in Day & Ross would be rendered superfluous. We must then
turn to the law relating to “care, custody or control”
for a more satisfactory answer.
“Care, Custody or Control”
Despite what it says, “or” seems generally to have
been interpreted to mean “and.” The Canadian reading
of this phrase was stated in a 1982 decision of the British
Columbia Court of Appeal, Sumitomo Canada Limited v. Canadian
Indemnity Co. (1983), 138 D.L.R. (3d) 173 (B.C. C.A.). The action
was brought by the owner of industrial coils against a transport
company, who delivered them to a warehouse and remained legally
responsible for their condition. The coils, stored outside,
were spoiled by rain. Judgment was granted against the carrier
and a subsequent action was brought against its third-party
liability insurer. “[T]he proper interpretation is that
the exclusion in respect of care, custody or control of the
insured does not mean the existence of a legal responsibility
for the goods in or on the part of the insured against the owner
of the goods.” This reasoning again picks up on the basic
premise to the exclusion in third-party liability coverage,
that the premium pays for indemnity from loss or injury done
to others. By saying that care, by itself, would not be sufficient
to trigger the exclusion, the court has read “or”
to mean “and.”
Unfortunately, it is clear from reading this decision that coverage
would have been properly denied if the coils had been damaged
while still on the transport company’s trailer. This and
other Canadian decisions tend to deal with exceptions to the
exclusion, where a bailee has temporarily lost “care,
custody and control” in fact. They do not assist in cases
where the insured might not be a bailee or freight carrier but
owes a common-law duty of care in negligence or contract: eg.,
a restaurateur who provides a coat closet or an umbrella stand,
a parking lot operator or a marina.
In the United States, to which Canadian courts have frequently
looked for precedents, the judicial treatment is more voluminous.
However, it is a veritable checkerboard of conflicting decisions.
There is one case, however, which is consistent with Sumitomo
and also makes a lot of practical sense. Ron Reynolds v. Select
Properties Ltd. 634 So. 2d 1180 (1994), a decision of the Supreme
Court of Louisiana, dealt with coverage under a CGL for a self-storage
warehouse’s liability to a customer for damage to property
left in its care. It was noted that, both under statute and
common law, in Louisiana the relationship between self-storage
operators and customers has always been that of lessor-lessee,
and not bailor-bailee. Thus, the reasoning applies to all businesses
where goods are left for some degree of safekeeping but there
is no custodial control or title. The warehouse “had no
proprietary interest in storing Mr. Reynolds’ property.
Instead, [it] received benefit from the lease of the storage
space itself.” Therefore, it was held, the warehouse did
not have “care, custody or control” of the property.
Based on this analysis, a typical parking lot operator should
be covered by the policy because all it provides is a parking
space. A repair garage who has parked a customer’s vehicle
on his lot after completion of work might not be covered, however,
because it retains the keys pursuant to a lien giving it a right
of possession until the repair bill is settled. Where it gets
murky, however, is the case involving some control to access.
Valet parking, bank safety deposit boxes, and coat checks, to
name three examples, are operations whereby coverage may or
may not exist depending on the facts and on the nature of the
specific allegations of negligence or contractual breach.
What makes the reasoning of the Louisiana Supreme Court so attractive
is that its definition of “care, custody or control”
circumscribes a legal relationship between the insured and the
goods being stored. If the exclusion refers to “personal
property,” the word “personal” should only
serve to differentiate it from land, buildings and premises.
This relationship is a duty of care which is different from
bailment (the subject of bailee’s insurance or cargo insurance)
or possessory title (the subject of first-party insurance).
With the state of the law nevertheless unsettled, perhaps the
most prudent course is to read the exclusion, not in isolation,
but in the context of the policy as a whole.
R.
Lee Akazaki received his B.A. and LL.B. from the University
of Toronto, and is now practising law with Gilbertson Davis
Emerson LLP, Barristers and Solicitors. He is certified by the
Law Society of Upper Canada as a Specialist in Civil Litigation.
He is the author of articles on insurance, professional liability,
information technology and copyright law.. |
