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A Common Improper Claim Denial in the BAP

Author: Chris Boggs

The VU recently republished an article from Randy Maniloff highlighting the importance of policy language and how seemingly innocuous words impact coverage (link here). As Maniloff stated, policy language is king.

His article focused on three small words and how coverage is altered by their use: “an," “any" and “the." Specifically, the article detailed why “an" or “any" insured differs from “the" insured.

  • “An" or “any" insured means what it says – any party extended insured status in the policy.
  • “The" insured means only the named insured(s).

Obviously, these are more than semantic differences. A claim may be covered or denied based on which term is used to describe “insured." Maniloff's article explains this very well.

This leads us to one of the most common, yet improper business auto policy (BAP) claim denials commonly seen at the VU. Here is the scenario:

An employee of the insured corporation (or LLC or whatever) jumps into the company-owned vehicle to go to an appointment, make a delivery or otherwise conduct business for the named insured. While backing out of the parking lot, the driver backs into another vehicle; it just so happens, the vehicle hit is owned personally by the driver of the company-owned vehicle.

When the business turns in the claim, the carrier denies the claim citing this policy language:

B. Exclusions

This insurance does not apply to any of the following:

6. Care, Custody Or Control

"Property damage" to or "covered pollution cost or expense" involving property owned or transported by the "insured" or in the "insured's" care, custody or control. But this exclusion does not apply to liability assumed under a sidetrack agreement.

Combined with:

1. Who Is An Insured

The following are "insureds":

b. Anyone else while using with your permission a covered "auto" you own, hire or borrow except:

(1) The owner or anyone else from whom you hire or borrow a covered "auto".

This exception does not apply if the covered "auto" is a "trailer" connected to a covered "auto" you own.

(2) Your "employee" if the covered "auto" is owned by that "employee" or a member of his or her household.

The adjuster's contention is that because an insured owned the vehicle, the “Care, Custody or Control" exclusion applies. There are two things wrong with this contention; the first is that the vehicle the employee hit was not in the insured's care, custody or control – it was sitting in the parking lot where the employee put it, and the named insured never assumed care, custody or control. The second reason this denial is wholly improper in the innocuous, though key term: “the."

Read the exclusion again. It excludes damage to property owned or transported by “THE" insured or in “THE" insured's care, custody or control.

Adjusters argue that because the property was owned by “AN" insured, there is no coverage because of the exclusion. But the exclusion specifically excludes damage to property owned by “THE" insured. (On a side note, it seems odd that, according to the adjuster's logic, if the driver hit any other employee's vehicle in the parking lot, there would be coverage.)

Clearly, the employee's vehicle is not owned, or even in the custody of, “THE" insured. The exclusion does not apply.

We have received several denials of this type in our Ask An Expert service. Another common one is where the employee keeps the company vehicle at home. This from an Ask An Expert: “Our insured was leaving her house and backed into her fence with a company car (owned by her employer). The BAP carrier denied the claim citing (the above language), is this correct?"

As presented, this denial is improper. I think it would be safe to assume the employee's house was not owned by or in the care, custody or control of “THE" insured. Even though the driver is “AN" insured, the exclusion applies only if the damage is to “THE" insured's property.

Let's change up this example and see if and how the coverage changes. In this revised example, the homeowner is the president of a closely-held corporation; in fact, she is the only stockholder of ABC, Inc.  

ABC, Inc. has a BAP in place covering 10 vehicles, one of which is driven by the president. While leaving her house, the president smashes into her garage attached to the house she and her husband own in their personal names. Does the exclusion apply?

I'll end the suspense; no, the exclusion still does not apply. Why? The corporation owns the vehicle, the individual owns the house. These are two separate persons under the law. Again, the exclusion applies only when the “THE" insured owns the property. Since ABC, Inc. does not own the house, and neither does it (the corporation) have care, custody or control of the house. ABC Inc's BAP owes the claim.

Courts have declared a difference between “an" or “any" and “the." Policy language is king, and words in the policy have specific meaning and apply in specific ways. Don't allow adjusters to make “an" or “any" equal to “the."

Last Updated: March 16, 2018

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