When you think of the word “absolute” modifying a policy exclusion, the pollution exclusion probably comes to mind. But despite the definitive sounding name of something called the Absolute Pollution Exclusion – we don’t cover pollution, no way, no how – the real story has been much different. Anyone reading this knows that courts across the country are deeply divided over whether the exclusion, despite its broad language and name, applies to any claim involving a hazardous substance or is limited to so-called traditional environmental pollution. See “The Latest Pollution Exclusion Scorecard” in this issue.

Based on the Absolute Pollution Exclusion experience, it may not be unreasonable to wonder if something called the “Absolute Auto Exclusion,” contained in a CGL policy, is really so absolute after all. That was the issue in a recent federal appeals court decision and, trust me, it’s worth reading on.

But first, why even the need for an “absolute” auto exclusion when the ISO commercial general liability form contains an “auto” exclusion? The “auto” exclusion contained in ISO’s standard CGL form applies, in general, to injury or damage arising out of the ownership or use of an auto. However, for the exclusion to apply, the auto must be owned or operated by or rented or loaned to any insured. On the other hand, the “absolute” auto exclusion applies to injury or damage arising out of the use of any auto. Period. In other words, the “absolute” auto exclusion removes the qualification that the auto must have some connection to an insured, i.e., that it must be owned or operated by or rented or loaned to any insured.

As a result of this, the Absolute Auto Exclusion can be quite broad in its application, as demonstrated very clearly by the Eleventh Circuit’s decision in James River Ins. Co. v. Fortress Systems, LLC, No. 13-10564 (11th Cir. June 24, 2014). Some of the following is taken from the Southern District of Florida’s opinion in the case.

Bodywell Nutrition, LLC, a sports nutrition and dietary supplement company, retained Fortress Systems to manufacture a powder-form drink called First Order. While FSI manufactured First Order without defect, the companies with whom FSI subcontracted the shipping of the product used vehicles without proper cooling systems. This caused the First Order powder to clump together and became insoluble. Bodywell filed a complaint against FSI.

FSI was insured under a $5 million CGL policy issued by James River. This was no small claim. Bodywell and FSI entered into a settlement in excess of $10 million including an assignment of policy rights against James River, which had disclaimed coverage.

At issue in the subsequent coverage dispute was the applicability of the Absolute Auto Exclusion – barring coverage for property damage arising out of the use of any auto. The exclusion stated: “‘Bodily injury’ or ‘property damage’ arising out of the ownership, maintenance, use or entrustment to others of any aircraft, ‘auto’ or watercraft. Use includes operation and ‘loading or unloading’ which includes the handling and placing of persons by an insured into, onto or from an ’auto.’ This exclusion applies even if the claims against any insured allege negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by that insured, if the ‘occurrence’ which caused the ‘bodily injury’ or ‘property damage’ involved the ownership, maintenance, use or entrustment to others of any aircraft, ‘auto’ or watercraft.”

That’s a mouthful. The Eleventh Circuit described the exclusion in simpler terms: By its plain language, the Absolute Auto Exclusion precludes coverage for damage arising from the use of any auto, without exception.

The Absolute Auto Exclusion had been added to the CGL policy by endorsement – replacing the standard “auto” exclusion in Fortress’s policy. James River asserted that the Absolute Auto Exclusion applied because the clumping occurred as a result of the shippers’ failure to use temperature controls in their vehicles. To be clear, Fortress had nothing whatsoever to do with the shipping of First Order, other than to hire other companies to do the shipping using their vehicles.

Applying Nebraska law, the Florida District Court concluded that the Absolute Auto Exclusion applied. The court rejected the argument that damage did not arise out of the use of the shippers’ vehicles, but, rather, the heat in the vehicles. “By Bodywell’s own admission, First Order was damaged by the shippers’ failure to use climate-controlled vehicles. . . . Bodywell claimed that the shippers failed to heed the warning labels requiring that First Order be stored in a cool dry place, and ‘either used transport vehicles that were not temperature-controlled or did not use any temperature-controlling capabilities that were available in those vehicles.’ . . . Bodywell’s statements show that it was the manner in which the vehicles were used, or the capabilities of the vehicles employed, that damaged First Order. There is a clear causal connection between the use of the shippers’ vehicles and the subsequent property damage. Therefore, the Court concludes that the damage arose out of the use of an auto, and that Defendants’ coverage claim is barred by the Absolute Auto Exclusion.” The Eleventh Circuit, in agreement with the reasoning of the District Court, affirmed.

Fortress demonstrates that the “absolute,” in the Absolute Auto Exclusion, isn’t kiddin’ around. The decision shows in stark terms the significant difference between an “auto” exclusion and an Absolute Auto Exclusion. Fortress itself had nothing whatsoever to do with the actual shipping of First Order. That would have clearly prevented the applicability of a standard “auto” exclusion. But not so with the unqualified Absolute Auto Exclusion. Conclusion: the insurer realized a multi-million dollar savings based on taking the “absolute” road with the Auto Exclusion.