In its recent decision in Western Heritage Ins. Co. v. Darrah, 2012 U.S. Dist. LEXIS 71768 (M.D. Pa. May 23, 2012), the United States District Court for the Middle District of Pennsylvania had occasion to reconsider the effect of a designated premises or project limitation endorsement.

Western Heritage insured Darrah’s Automotive and Recyling under a general liability policy.  The policy’s declarations, as originally issued, described Darrah’s business as “Auto Sales/Salvage & Repair Garage.”  This description, however, was amended by a subsequently issued endorsement titled “Limitation of Coverage to Designated Premises or Project.”  The endorsement contained two boxes: one for designating a “Project” and another for designating a “Premises.”  No information was entered in the “Premises” box, but in the “Project Box,” the insured’s operations were described as “Auto Dismantling and Recycling Operations.”  The endorsement further stated “If no entry appears above, information required to complete this endorsement will be shown in the Declarations as applicable to this endorsement.” Finally, the endorsement limited the policy’s coverage to:

“bodily injury”, “property damage” . . . and medical expenses arising out of:

  1. The ownership, maintenance or use of the premises shown in the Schedule and operations necessary or incidental to those premises; or
  2. The project shown in the Schedule.

The insured, Darrah’s Automotive and Recycling, sought a defense and indemnification in connection with an underlying suit brought by an individual who claimed to have suffered scarring and disfigurement while working at Darrah’s premises.  Plaintiff’s initial complaint alleged that he was injured while repairing a vehicle in the repair/body shop.   Western Heritage denied coverage for the suit on the ground that the policy’s coverage was limited to “auto dismantling and recycling operations,” and that plaintiff claimed that he was injured while repairing a vehicle.  In a 2010 decision, the district court agreed with Western Heritage, finding that the effect of the endorsement was to limit coverage under the policy to a specific area of work, and that premises was not a consideration.  See, W. Heritage Ins. Co. v. Darrah, 2010 U.S. Dist. LEXIS 121533 (M.D. Pa. Nov. 17, 2010).  In so ruling, the court rejected Darrah’s argument that the endorsement also provided coverage for injuries happening at the premises identified in the declarations because of the empty “Premises” box, noting that the endorsement limited coverage by operations or by premises.  Thus, because the “Project” box contained information, and the “Premises” box was empty, the endorsement only applied to Darrah’s operations, not its premises.

Following the court’s November 2010 ruling, plaintiff amended his complaint to allege that the premises where is was injured was used for auto dismantling and recycling operations, and that he was injured “while working on repairing a vehicle in the repair/body shop in use in auto dismantling and recycling operations.”  Although the amended complaint did not allege that plaintiff was injured while performing auto dismantling or recycling operations, Darrah’s nevertheless argued that a duty to defend was triggered, since the new allegations demonstrated that “the repair/body shop business was an integral part of the Darrah Defendants auto dismantling and recycling operation.”  Western Heritage argued, on the other hand, that the new allegations only described the premises, but did not alter the fact that plaintiff was injured while performing work outside the scope of the policy’s coverage.

The court rejected Darrah’s interpretation of the amended complaint, observing that merely alluding to the fact that the premises was used in auto dismantling and recycling operations did not mean that “every activity that took place in the repair/body shop was part of that operation.”  The court further observed that Darrah’s argument in effect would circumvent the endorsement by determining coverage based on premises rather than operations – a conclusion the court already had rejected.  As the court explained:

… we infer that the repair/body shop was not being used at that time as part of the dismantling and recycling operation. If the latter operation were happening at the time of Stine's injury, he should certainly have been able to make the necessary allegations, even if he himself was just repairing a vehicle. In fact, if we were to accept Defendants' approach to the coverage issue, coverage would be for the premises where the dismantling and recycling operation took place, but coverage is not for premises or any particular location, as Plaintiff points out, but for a work operation, the dismantling and recycling of automobiles