General liability policies have long contained an exclusion for property “in the care, custody or control of the insured . . . .” Commercial General Liability Coverage Form, § I., Coverage A, ¶ 2.J.(4) (Insurance Services Office, Inc. 2012). The scope of this exclusion has been the subject of various court decisions over the last 60 years. However, on June 5, 2019, a California court of appeal rendered a decision confirming the narrow scope of this exclusion.  

In McMillin Homes Construction, Inc. v. National Fire & Marine Insurance Co., 2019 WL 2366468 (Cal. Ct. App. June 5, 2019), a general contractor was an additional insured on a general liability policy issued to a subcontractor. The insurer refused to defend the general contractor in a suit brought by homeowners for construction defects relating to work performed by the subcontractor. It argued, among other things, that its “care, custody or control: exclusion applied because the worksite was within the contractor’s control. The court disagreed.  

The court considered various earlier decisions. In doing so, it cited Home Indemnity Co. v. Leo L. Davis, Inc., 79 Cal. App. 3d 863, 870-71 (1978), noting, “‘Almost invariably where coverage is denied, physical control by the insured has been exclusive, even if such exclusivity was only momentary, so long as the damage occurred in that moment.’” Id. The court followed this rule, noting that the subcontractor “was responsible for controlling its jobsite and supervising the roofing work,” but the general contractor “was responsible for the whole project and coordinating schedules to ensure the project finished on time.” McMillin, at *8. 

Although the court found the exclusion to be unambiguous, it then addressed the interpretation of the exclusion assuming that it was ambiguous. Once again, it rejected the insurer’s argument. It noted that because construction defect litigation “‘is typically complex and expensive, a key motivation in procuring an additional insured endorsement is to offset the cost of defending lawsuits where the general contractor’s liability is claimed to be derivative.’” Id. Therefore, the court concluded that reading the “care, custody or control” exclusion “in a manner that nullifies the broad coverage provision for a general contractor sued for construction defects is not consistent with an insured’s objectively reasonable expectations.” Id. at *9. It emphasized that the insurer’s construction “bears little connection to the risk involved or the reason for a general contractor to seek coverage as an additional insured. Its stance might be ‘reasonable in the abstract,’ but it is inconsistent with the basic rule that limitations on a promised defense duty must be conspicuous, plain, and clear.” Id

McMillin stands as a clear statement that an “additional insured’s mere status as a general contractor—with overall responsibility for and nominal control of the entire project—does not meet [the] standard” of “exclusive or complete control” sufficient to trigger application of the “care, custody or control” exclusion. Id. at *5.