An insured has a business auto policy. He rents a warehouse that he is not contractually obligated to insure. While backing out of the warehouse in a covered vehicle, he hit the building and caused structural damage. His auto carrier is denying coverage, indicating that “since the property was rented to you and under your care, custody and control they are unable to afford property damage coverage and no payment will be made for the building damage." The agent thinks this exclusion refers to business personal property and not real property. 

Q: Does the care, custody or control exclusion refer to business personal property or real property?

Response 1: Here's the exclusion in the insured's form:

7. Care, Custody or Control

Property damage to, towing or removal expense for, or covered pollution cost or expense involving, any property owned by, rented to, being transported by, used by, or in the care, custody or control of any insured, including any motor vehicle operated or being towed. But this exclusion does not apply to liability assumed under a sidetrack agreement.

The exclusion says “any property," not just personal property. Legal liability coverage is designed for this type of exposure. While your insured may have not been contractually responsible for insuring the building, that does not relieve them from being legally liable for damage they might cause to the building.

Response 2: The care, custody or control exclusion is not limited to personal property. It is interpreted to also apply to real property. It is a legal issue as to whether the building was in the care, custody or control of the tenant. Your insured should ask his lawyer if the building is in his care, custody or control under state law.

In some legal venues, a building is not in the care, custody or control of a tenant. In others, the legal venue looks at the specific facts, such as:

• If it's a triple net lease, then it might be in your client's care, custody or control.
• Given that your insured was not obligated to insure the building under the lease, it might be interpreted to not be in the tenant's care, custody or control.
• If your client is the sole tenant responsible for all maintenance, then it might be in the care, custody or control of your client.
• If there were multiple tenants, then it's likely not in the care, custody or control of your client.

There might be other factors that apply, such as the registered owner of the vehicle versus who is the entity on the lease agreement. If it's the same owner, there could be an issue. If it's different, the personal auto policy or the BAP should apply.

Read this article, “Who Has 'Care, Custody or Control' of a Leased Building?" for more on the topic.

You could ask the adjuster on what basis the insurer determined the building to be in the tenant's care, custody or control. Then ask the client's lawyer to review if the basis comports with the law of the legal venue.

Response 3: I don't think this is any different than the tenant causing a fire inside the building. The landlord's building insurance should pay. The tenant has a triple-net lease and therefore the tenant pays the landlord's premium. The landlord's coverage should apply in this situation.

Response 4: First, in almost all cases the verbiage is “care, custody or control" and not “care, custody and control." The difference is whether one or three is needed for the exclusion to apply. 

Second, I do not see that the exclusion is limited to real or personal property. In fact, the exclusion states “any" property. The insurer has correctly applied the exclusion. If insurance coverage is required to meet this exposure—absent a waiver of subrogation or exculpatory agreement from the landlord—then the agent should have offered the Legal Liability Coverage Form – CP 00 40 with Causes of Loss - Special Form attached and allowed the insured to establish an appropriate limit. 

Response 5: The exclusion doesn't expressly limit its application to personal property, though you might argue that the use of references like “towing" and “being transported by" imply this and such an interpretation is reasonable, thus making the exclusion ambiguous. That being said, this exclusion is often cited in claims like this.

A better treatment of this risk than insurance would have been a waiver of subrogation in the lease, so make sure there's not one before hanging your hat on the BAP exclusion

This question was originally submitted by an agent through the Big “I" Virtual University's (VU) Ask an Expert service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.

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