Published in Without Prejudice
(Official Journal of the Ontario Insurance Adjusters Association),
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:
"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.
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.,  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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.