By: Richard E. Guttentag, Esq., Stearns, Roberts & Guttentag, LLC

Insurance policies are required to specify terms such as the names of the parties, the subject of the insurance, the risks insured against, the term of the policy, the premium, and the conditions pertaining to the insurance.  Insurance policies also contain exclusions defining circumstances under which the insurance coverage does not apply. Certain policy terms and exclusions were recently analyzed in the case of Danny’s Backhoe Service, LLC v. Auto Owners Insurance Company, 2013 WL 2350166 (Fla. 1st DCA 2013).

In Danny’s Backhoe Service, LLC, the insurer issued an excavation contractor (“Contractor”) an insurance policy providing commercial general liability (“CGL”) coverage and commercial inland marine (“CIM”) coverage for equipment. An equipment leasing company (“Equipment Lessor’) was listed as an ‘additional insured’ under the CGL portion of the Contractor’s insurance policy.  The CIM coverage insured equipment that was described in the Declarations under “Contractors Equipment”.

On February 8, 2011, the Contractor rented a Caterpillar 307C Excavator from the Equipment Lessor to remove a customer’s in-ground swimming pool. During the removal of the pool, the excavator operator ruptured a propane gas tank, causing an explosion and fire that damaged the excavator.  The Equipment Lessor sued the Contractor claiming $68,437.00 in damages caused to the excavator by the equipment operator’s negligence.

The Contractor filed a claim under the insurance policy for the damaged excavator.  The insurer denied coverage and filed a declaratory judgment action alleging the excavator was not covered under the policy, and therefore the insurer had no duty to defend the Contractor in the lawsuit filed by the Equipment Lessor.

In support of the insurer’s position, the insurer argued that the only equipment listed in the insurance policy under “Contractors Equipment” for CIM coverage was a 2002 John Deere Backhoe.  Further, the policy set forth the following exclusions from CGL coverage:

2. Exclusions
This insurance does not apply to:

J. Damage To Property
“Property damage” to:
(1) Property you own, rent, occupy or use, including any cost or expense incurred by you or any other person, organization or entity, for repair, replacement, enhancement, restoration or maintenance of such property for any reason, including prevention of injury to a person or damage to another’s property;

(2) Property that any of your: (a) “Employees”; (b) “Volunteer workers”; (c) Partners or members (if you are a partnership or joint venture); or (d) Members (if you are a limited liability company) own rent, occupy or use. However, this exclusion J(2), shall not apply to your liability for damage to such property.

The trial court entered summary judgment in favor of the insurer finding that since the Caterpillar 307C Excavator was not added to the policy prior to the accident, the excavator was not covered under the policy and the insurer had no duty to defend the Contractor or pay any damages, attorney’s fees or costs on the Contractor’s behalf.  The trial court further found that it was clear from the record that the Contractor rented the excavator and therefore the excavator was excluded from coverage under exclusion paragraphs 2J(1) and 2 J(2) of the policy. The Contractor appealed the summary judgment, arguing that the trial court incorrectly interpreted the insurance policy to exclude coverage for the excavator.

The appellate court held that under the plain language of the insurance policy, the CIM coverage only extended to items listed under “Contractors Equipment.” Since the only item listed under “Contractors Equipment” prior to the accident was a John Deere backhoe, the appellate court concluded that the excavator was excluded from coverage.

As to the CGL coverage, the court explained that although the Equipment Lessor was an additional named insured under the policy, the coverage exclusion under paragraph 2J(1) unambiguously states that damage to “property you own or rent” is not covered.  Thus, whether applied to the Contractor or Lessor as the named insured, the excavator was excluded from the CGL coverage because the excavator was rented or used.

The Contractor also argued that exclusion paragraphs 2J(1) and 2J(2) created an ambiguity as to coverage that should operate in the Contractor’s favor. The appellate court disagreed.  The Court reasoned that it was clear that paragraph 2J(1) excluded coverage for damage to property that was leased by the insured, while paragraph 2J(2) excluded coverage for damage to property leased by the insured’s employees, etc. – unless the insured was liable for damage to that property.  The Court held that the two provisions were independent of each other, consistent with each other and were not ambiguous.

This case demonstrates the importance of updating your insurance policies so that all equipment that the company or insured uses is covered in the event of loss or damage to the equipment.  If your policy contains a section requiring you to list the equipment to be covered by the policy, and the damaged equipment is not listed, the equipment will likely be excluded from coverage.  This case also demonstrates the effect of Exclusions under insurance policies.  It is important to review your policies to ensure that you are familiar with the provisions and exclusions therein.

About the Author: Richard E. Guttentag is a partner with Stearns, Roberts & Guttentag, LLC, and is Board Certified in Construction Law by the Florida Bar. Mr. Guttentag exclusively in construction law including construction lien claims and defense, payment and performance bond claims and defense, bid protests, construction contract preparation and negotiation, and construction and design defect claims and defense. He can be reached for consultation at [email protected].

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