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Vol. 5, Iss. 7
June 22, 2016

Rule No. 1:
A CGL Policy Does NOT Provide Coverage For “Bodily Injury” Or “Property Damage”


It is as common a refrain as you’ll hear in a conversation about a commercial general liability policy – “A CGL policy provides coverage for damages for ‘bodily injury’ or ‘property damage.’” But does it really? After all, that’s not what ISO’s workhorse insuring agreement says. It states: “We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’….”

As ISO’s language shows, a CGL policy does not provide coverage for damages “for” “bodily injury” or “property damage” but, rather, damages “because of” “bodily injury” or “property damage.” There is a real difference. It seems like a day does not go by that I do not hear, or read, the mistaken use of “for” -- and not the correct “because of” -- when describing the nature of “bodily injury” or “property damage” coverage in a CGL policy. I’m counting myself here too. It’s an easy mistake to make and a hard habit to beak.

This distinction was clearly on display in Auto-Owners Ins. Co. v. Southeastern CAR Wash Systems, No. 15-212 (E.D. Tenn. May 26, 2016). At issue was coverage under the following circumstances: “Miller operates a car-wash distribution and installation business in Eastern Tennessee. Miller held a commercial general liability insurance policy issued by Auto-Owners. In 2012, Miller contracted with Evans to install and maintain an ‘IQ Soft Touch Automatic’ car-wash unit, manufactured by D&S Car Wash Equipment Company, at the Island Oasis service station in Cleveland, Tennessee. After installation, the car wash began to malfunction, causing damage both to the unit and to one or more cars that went through the car wash. Although Miller attempted to repair the car wash, it was ultimately unable to do so. As a result of the problems, Evans incurred substantial losses, including damage to the car-wash unit, lost income during the periods the car wash was inoperable, reputational harms, and payments made in compensation for damage to customers’ cars.”

Evans sued Miller. Miller sought a defense from Auto-Owners under a commercial general liability policy. Auto-Owners agreed to provide a defense, under a reservation of rights, and filed an action seeking a determination that it was not obligated to defend or indemnify Miller.

The court addressed numerous issues. Of relevance here is whether the insuring agreement was satisfied for purposes of the claims for loss profits, due to the loss of use of the car wash, and payments to car wash customers for damages to their vehicles.

Auto-Owners argued that loss profits, due to the loss of use of the car wash, constitute “pure economic loss,” which does not fall within the scope of “physical injury to tangible property.” The court was not persuaded, holding that “Auto-Owners’s proffered interpretation would essentially read the ‘all resulting loss of use’ clause out of the definition of ‘property damage.’ The Court finds it difficult to conceive of loss-of-use damages as anything other than economic losses.” (emphasis in original). [The court was mindful that coverage could still be precluded by a policy exclusion.]

Next the court addressed the “because of” issue. It arose in the context of the claims for monies paid by Evans to customers because of damage to their cars.

The court noted that damage to the cars constitutes “physical injury to tangible property.” Auto-Owners saw it differently: “Auto-Owners argues these payments are not ‘property damage,’ but represent purely economic losses Evans voluntarily incurred by paying unknown third-parties for damage to their vehicles. Auto-Owners points out that Evans has not alleged that any of her tangible property was physically injured by the car wash, only that she lost intangible property (money) by reason of compensating others for physical injuries to their tangible property. Because none of these third parties have made claims against Miller, and because Evans’s claim is not one for physical injury to her tangible property, Auto-Owners contends these payments are not covered under the insuring agreement.”

The court, focusing on the “because of property damage” aspect of the insuring agreement, rejected Auto-Owners’s argument: “Auto-Owners is correct that these payments represent economic, rather than tangible, losses, but it does not follow that a claim for these payments is not covered by the Policy. The insuring agreement states that Auto-Owners will defend Miller against suits seeking damages because of ... ‘property damage.’ ‘Because of’ is not defined in the Policy, so it must be given its ordinary meaning. Webster’s Dictionary defines ‘because of’ to mean ‘by reason of’ or ‘on account of.’ These definitions communicate the idea of a causal relationship; that something follows as a consequence of something else. It is not a stretch to conclude that payments made by a business to cover damage to its customers’ vehicles are made ‘on account of’ the damage, or that these payments follow as a consequence of that damage.” (emphasis in original). The court also cited to numerous decisions nationally holding that the phrase “because of ... property damage” extends coverage for consequential damages arising in the wake of physical damage.

In the end, the court held that the “your product” and “your work” exclusions applied to preclude coverage for the damaged car wash. However, that was not enough to extricate Auto-Owners from a duty to defend, because neither of these exclusions applied to the claims for loss profits, due to the loss of use of the car wash, or payments to car wash customers for damages to their vehicles.


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