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Vol. 5, Iss. 10
October 12, 2016

Insurers Take Note (Again):
Another Reason To Revisit The “Designated Premises Endorsement”


I have never been one of those people who believes that, any time an insurer is told by a court that it must provide coverage, that it didn’t believe was owed, the insurer needs to amend its policy language. That is simply not feasible or sensible. There are umpteen reasons why an insurer may lose a case. And one loss on an issue, or even a few, may not be a reflection of the policy’s ability, in the grand scheme, to do its intended job. But that’s not to say there are never such times. Here is one. Insurers are losing too many cases, involving Limitations to Designated Premises endorsements, to not take action to ensure that the intent of the policy is achieved.

In my 2015 “Top 10” cases article I addressed the Hawaii Supreme Court’s decision in C. Brewer and Co., Ltd. v. Marine Indemnity Ins. Co., where the court gave a very (make that two verys) broad interpretation to a “Designated Premises Endorsement.” Consider this. A large portion of a dam in Hawaii collapsed, releasing over three million gallons of water. The insured was the seller of the dam and the purchaser alleged that the insured was aware of the dam’s questionable structural stability. The insured’s commercial general liability policy had a Designated Premises Endorsement that limited coverage to liability “arising out of the ownership, maintenance, and use of the [designated] premises.” And, most importantly, the dam site was not listed as a designated premises. Despite this, the court concluded that the “policy provides coverage for injury and damage arising out of [the insured’s] ‘use’ of its corporate headquarters to make negligent corporate decisions [the headquarters was a designated premise] even though the resulting damage happened at the unlisted Dam site.” I concluded that C. Brewer provided an important policy drafting lesson for insurers that sought to limit their CGL coverage to liability on designated premises.

Then, in Western Heritage Ins. Co. v. Cyril Hoover dba Okanogan Valley Transportation, No. 15-1154 (W.D. Wash. Mar. 30, 2016), the court reached a similar result, relying so heavily on C. Brewer that it should have just attached the opinion as an exhibit and incorporated it by reference. It would have been easier.

Now here we go again. Newman v. United Fire & Casualty Company, No. 14-35103 (9th Cir. Sept. 16, 2016) is a brief opinion and short on facts (but the dissent helps to fill in the gaps). Essentially, the substance of the entire opinion is contained in one paragraph:

“[W]e recognize that the endorsement in the commercial general liability policy titled ‘LIMITATION OF COVERAGE TO DESIGNATED PREMISES OR PROJECT’ . . . could be interpreted as limiting coverage to occurrences tied to National Contract Services’ (‘National Contract’) St. George, Utah, premises. Such an interpretation, however, would be inconsistent with the Policies’ definitions of the ‘coverage territory,’ which include, inter alia, all of the United States. Reading the Premises Endorsements in light of the Policies as a whole, we hold that the endorsements are reasonably susceptible to two different interpretations, and therefore are ambiguous. . . . Montana law construes ambiguous provisions against the insurer and in favor of extending coverage. We therefore reject United Fire’ argument that the Premises Endorsements limit coverage to incidents that occurred on the St. George premises. Because the Premises Endorsements purport to cover claims ‘arising out of . . . the use of the St. George premises, they are sufficiently capacious to include coverage for bodily injury in Montana that flows from or grows out of the use of the St. George premises.”

A dissenting judge weighed in (also briefly), noting that the majority relies on a “number of faulty premises [no pun intended by the judge, I guess] and conclusions.”

The dissenting judge made the following points: First, while the policy’s “coverage territory” includes all of the United States, the Premises Endorsement specifically states that it “modifies” the insurance provided.

Second, “because the Endorsement is a modification to the general form Policies, it must, in some way, differ from the initial grant of coverage provided for by the Policies; otherwise, it serves no function — it is completely meaningless surplusage. By conflating the term ‘premises’ with ‘business,’ the district court read the Premises Endorsement as covering any damages arising from National Contract’s business. This reading is effectively coextensive with the initial, limitless grant of coverage before that coverage was limited by the Premises Endorsement: damages caused by an occurrence anywhere in the United States, for which National Contract is responsible.”

Insurers: Take note.

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