Spring weather systems, such as the storms that have recently produced significant flooding in Texas, frequently create the necessity for restoration and remediation work. In performing such restoration work, it may be necessary to remove and store personal property contained within the physical structure that is being repaired. If you routinely perform such work, it is important to ensure that you have adequate insurance protection in the event any of that stored personal property is damaged.
For example, assume a hypothetical restoration company, Alpha Restoration, Inc., is hired to remediate flood damage to the walls and floors of a warehouse facility for an after-market auto parts manufacturer, APM Co. To complete the repair work, it is necessary to remove the manufacturing equipment from the warehouse. While the equipment is being stored, an Alpha employee negligently throws a cigarette into a trashcan containing paper. The ensuing fire destroys APM’s equipment. APM then asserts a claim against Alpha, and Alpha tenders the claim to its commercial general liability (“CGL”) company. Alpha’s CGL insurer issues a reservation of rights letter and cites the “Care, Custody, or Control Exclusion” in the general liability insurance policy.
Contractors and subcontractors purchase a CGL policy to provide insurance coverage in the event the contractor accidently causes bodily injury or property damage to a third party. Many contractors and subcontractors may not be aware, however, that their CGL policy does not provide coverage for damage to property of a third party while that property is in the “care, custody, or control” of the contractor or subcontractor. Those kinds of damages are usually covered, in a classic construction situation, by a Builder’s Risk policy.
The question that will arise in Alpha’s insurance claim is whether APM’s manufacturing equipment was in Alpha’s “care, custody, or control.” This is a question that may eventually be decided by a court in a lawsuit between Alpha and its insurers. In making this determination, courts will consider whether the property of the third person is “under the supervision of the insured” and is a necessary element of the work the contractor is performing. In some cases, “care, custody, or control” is determined just by physical possession of the property.
How could Alpha ensure that it will have insurance to protect against claims of property damage to property that is in its “care, custody or control” but no longer at the construction site? Depending on the type of the contractor’s operations, there are various policies that should cover the exposure. One option is to inquire as to the availability of an endorsement to the CGL policy that will replace the coverage otherwise removed by the “care, custody, or control” exclusion. In addition, a contractor could purchase a bailee policy, which covers the exposure of holding another’s property. A Builder’s Risk policy will provide coverage for property on which the contractor is performing work – so long as the project is under construction and the other entity’s property is at that site. However, these issues must be considered at the time of considering risks in connection with a particular project. If it is not a part of your company’s usual portfolio of risks, you will want to discuss it with your lawyer or risk manager or broker.