Logic & Language and Forms & Facts Oh the Tangled Web We Weave….

To paraphrase Sir Walter Scott, “Oh what a tangled web we weave when we try to figure out coverage under multiple insurance policies.”

This month, I’d like to feature a real-life coverage scenario involving both personal and commercial lines policies involved in the same potential claim. Luckily, this was just a coverage inquiry by an agent and not an actual claim.

A church member offered to pick up several elderly parishioners in his minivan for Sunday services. The church member allegedly had a personal auto policy (PAP). The church had no commercial auto coverage, only commercial general liability (CGL), because they didn’t feel they had much of an exposure without any owned vehicles.

Based on a high-profile news story, one of the church deacons expressed concern about the exposure to the church presented by the church member giving rides to church. What if one of the riders was injured and sued the church? What if the driver negligently injured someone in another vehicle or a pedestrian and the church was sued?

So, the pastor contacted the church’s agent who contacted the insurance company underwriter. Simply as a matter of chance, the same insurer issued both the CGL policy of the church and the PAP of the church member, and both policies were ISO forms. The first question was whether there could be liability coverage for the church under the PAP and the second question was whether the church’s CGL policy covered it.

After checking with the personal lines department, the underwriter advised that the PAP did not cover the church because, not being a resident family member or permissive user, it wasn’t an insured under that policy, nor did it cover the driver because the PAP was not rated for business use. In both cases, the underwriter was wrong.

First, unless there is insurance contract language to the contrary, how a risk is rated usually has nothing to do with coverage. This assumes there was no concealment, misrepresentation or fraud about how the vehicle was used. As a matter of fact, there was no “business” use as defined by the PAP, no remuneration of any kind.

Second, the “insured” definition for liability coverage included four categories of insured. The third category was: “For ‘your covered auto’, any person or organization but only with respect to legal responsibility for acts or omissions of a person for whom coverage is afforded under this Part.”

This extends coverage under the PAP to the church for its vicarious liability for the driver or any other insured under the PAP. The bottom line is that both the church and the driver, absent any exclusions triggered by extending facts and circumstances under the policy, are insureds and covered by the PAP. The underwriter’s response also indicates why coverage questions are best submitted to carrier claims departments rather than underwriting.

The next issue was whether there is CGL coverage for an auto accident in which the church might be held liable. According to the underwriter, there was no coverage under the CGL policy because “CGL policies don’t cover motor vehicles that aren’t mobile equipment.” Is that true? Not necessarily. The way truth is likely sought in this church is through the Scriptures. The way truth is sought in an insurance claim is through the insurance contract.

The ISO CGL policy excludes liability for “‘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’.” [emphasis added]

In order for this exclusion to apply to the church, both of two conditions must be met. First, the church must own, maintain, use, or entrust the auto to others. One might argue that the church is “using” the auto vicariously through the driver and there is some case law to support this, but otherwise, there is no ownership, maintenance or entrustment.

But it really doesn’t matter because the second condition isn’t met. That condition requires that the auto must be “owned or operated by” or “rented or loaned” to an insured, for now that insured is the church. The church does not own the auto, it wasn’t rented or loaned to it, nor was the church operating it. So, even if it’s argued that the church was using the auto vicariously, this second requirement in the exclusion stem is not triggered.

‘The problem with Americans is that we’re fixers rather than preventers.’

But wait! If we read the exclusion word

for word, it applies to an auto owned or operated by “any insured.” So, the question becomes, is the driver an insured under the CGL policy? At the time of this coverage issue, the ISO Commercial Lines Manual mandated the CG 20 22 — Additional Insured — Church Members And Officers endorsement be attached to the CGL policy.

If this endorsement was attached to the policy, then the “any insured” language in the exclusion is triggered with regard to autos “owned or operated by or rented or loaned to any insured.” That means, for the exclusion to apply to the church, the issue of “use” must be answered.

If your head is spinning at this point, relax. In this case, the underwriter had failed to add the endorsement to the policy. Failure to issue a mandatory endorsement in this day of automation may seem impossible, but it happened. As a result, the church member was effectively not an insured under the CGL policy, so the auto exclusion wasn’t triggered.

Needless to say, there are other reasons why insured status is desirable for church members, so it’s likely that this oversight would be corrected at renewal, if not earlier. The bottom line is that every entity needs specific auto insurance, even if only hired and nonowned coverage.

This scenario also illustrates why insurance contracts must be read in their entirety and very carefully and why it’s best to resolve a claim dispute before it ever happens…by resolving coverage issues in advance. As Gen. Jimmy Doolittle once said, “The problem with Americans is that we’re fixers rather than preventers.” Uncovered claims can often be prevented simply by reading and understanding the policy.