By Patrick A. Calhoon
Your client is severely injured while working as a volunteer for a non-profit organization. You determine that the organization bears responsibility for your client’s injury. After the lawsuit is filed you learn that the organization is seriously cash strapped. Even worse, its insurance carrier has flat-out denied coverage for your client’s injuries. According to the carrier, the organization only has “designated premises” coverage for bodily injury. They say there is no coverage because your client’s injury occurred away from the organization’s home office, which is the only premises designated in the policy. The organization produces its policy to you in discovery. It looks like a typical commercial general liability policy and provides coverage for bodily injury. But, upon further review you find an endorsement entitled “Limitation of Coverage to Designated Operations, Premises, or Projects”. It only lists the home office of the organization. The endorsement then states:
The following new part is added to Coverage A.
Bodily Injury and Property Damage Liability, Insuring Agreement.
- The “bodily injury” or “property damage” arising from:
(a) The classification or operations shown above; or any operations necessary or incidental to those classifications or operations shown above;
(b) The ownership, maintenance or use of the premises shown above and operations necessary or incidental to those premises; or
(c) The projects shown above.
After reading that, you fear the endorsement may exclude coverage for bodily injury unless it occurred at the designated premises. Is the insurance company telling the truth? There is really no dispute that the organization is liable for your client’s injuries. After all, it was the organization’s decisions that resulted in the injuries. But if there is no coverage, your client may never recover a penny. It’s a tough situation.
Of course, insurance companies are quick to reject policyholder attempts to recover for losses under Designated Premises liability coverage where the injury occurs some place other than the designated premises. However, there are a number of cases across the country, including in California, in which courts have found coverage for liabilities under Designated Premises endorsements under facts similar to the above scenario.
For example, in Feurzeig v. Insurance Company of the West (1997) 59 Cal.App. 4th 1276, the California Court of Appeals addressed a “Limitation-Designated Premises and Schedule of Premises Endorsement” requiring the injury “arise out of . . . ownership, maintenance or use of the premises shown in the schedule and operations necessary or incidental to those premises. . . .” Id. at *1280. Another endorsement included a column labeled, “Description of Hazards,” under which appeared the following: “Buildings or Premises- Bank or Office-Mercantile or Manufacturing (Lessor’s Risk Only) Including Products and/or Completed Operations.” The endorsement then identified each of the insured premises. Id.
Charles Feurzeig was an officer of real estate company insured by Insurance Company of the West. Feurzeig was sued for slander as a result of his comments regarding property the insured was managing, but which was not identified on the policy. Importantly, the comment was made from one of the insured’s designated premises. The insurer denied the insured’s defense tender, and the trial court granted a nonsuit in favor of the insurer. The trial court found the “Lessor’s Risk Only” language limited coverage to the insured’s liability as a lessor of premises described in the endorsement.
In reversing, the court quoted AIU Ins. Co. v. Superior Court (1990) 51 Cal. 3d 807, 822, and stated:
[b]ased solely on the face of the policy, [the insurer] provided [the insured] with coverage for a hazard (slander) arising from use of the premises, and the Lessor’s Risk Only phrase at best creates ambiguity whether the “use of the premises” means “any use” or only “leasing activity use.” Under traditional rules of construction, we construe any ambiguity created by this language against the insurer and in favor of coverage.
Id. (emphasis added.)
After acknowledging that the “arising out of use” language “has broad and comprehensive application, and affords coverage for injuries bearing almost any causal relation with the specified instrumentality[,]” the court found a potential for coverage existed because the slanderous comments were made from an insured property:
The claims here were connected with [the insured’s] ‘use of’ or ‘operations. . . incidental to’ the described premises to conduct its general business operations, and some of the alleged slanders occurred in connections with [the insured’s] ‘use of’ those premises to conduct [the insured’s] business.
Id. at *1285.
Other states have found coverage under Designated Premises endorsements for injuries which occurred at undesignated locations. For example, in Southeast Farms, Inc. v. Auto-Owners Ins. Co., 714 So.2d 509 (Fla.App. 1998), Southeast Farms was sued for allegations that it negligently failed to inspect the condition of the truck on which it loaded potatoes at a farm (that it did not own) in Alabama and negligently failed to determine the qualifications of the driver (whom it did not employ or train) to operate the tractor-trailer. Auto-Owners denied coverage under a CGL policy it issued to Southeast Farms based on a “Limitation of Coverage to Designated Premises or Project” endorsement. The only location listed was Southeast Farms’ Florida offices. The Alabama potato farm where the negligence occurred was not listed. Regarding the covered premises, the policy had terms nearly identical to language referenced above. Id. at *510.
In the resulting declaratory action over coverage, Auto-Owners argued that the negligence asserted did not arise out of Southeast Farms’ operations at the listed Florida premises and thus, there was no coverage. It was undisputed that Southeast Farms’ principal business was that of a produce broker, and it did not engage in the business of trucking or hauling. The trial court ruled in favor of Auto-Owners, stating:
The endorsement entitled “Limitation of Coverage to Designated Premises or Projects” is clear and unambiguous and excludes coverage for the injuries set forth in the complaint. The automobile accident did not involve ownership, maintenance or use of the “premises” specified in the policy, and it was not incidental to Southeast Farms, Inc.’s business of acting as produce brokers.
Id. at 510-11.
On appeal, the Florida Court of Appeals reversed, finding there was coverage, and entered summary judgment entered in favor of Southeast Farms. The Florida Court of Appeals acknowledged that it was correct that the site of Southeast Farms’ alleged negligent acts was not a covered premises. Id. at *511. The court explained, “[i]f the policy restricted coverage to the listed premises, the case would end here. However, the policy also covers ‘operations necessary or incidental to [the listed] premises.’” Id. The court then stated, “certainly the act of obtaining transportation for brokered potatoes is an incident of the brokering of potatoes.” “[T]he term ‘operations necessary or incidental to those premises’ appears broad enough to include business operations necessary or incidental to the listed premises.” Id. at *511-12. Thus, the court found coverage because the negligent acts which resulted in the injury all occurred at the designated premises and were incidental to the business conducted at that location, and it didn’t matter that the injury occurred at an undesignated premises. Id.
In another case, American Guar. Liab. Ins. Co. v. 1906 Co., 129 F.3d 802 (5th Cir. 1997), the 1906 Company, formerly known as Hattiesburg Coca–Cola Bottling Company, had a CGL policy with a Designated Premises endorsement listing as the premises the site of its bottling operation. The 1906 Company established a division to operate a photography studio at a site more than a mile away from the headquarters. Id. at * 804. Decision making regarding the photography business occurred at the bottling company’s premises, although the operations of the photography business occurred at the separate site. Id. Claims arose alleging, among other things, negligence of the insured company and its CEO in hiring, supervision of, and entrustment to the individual hired to manage the photography studio. Id.
The district court found that the insurance policy unambiguously limited liability coverage to injuries arising from certain premises designated on the declarations page of the policy and that the photo studio address was not included in that designation. Id. Accordingly, the district court granted summary judgment in favor of the insurer.
The primary dispute on appeal concerned the effect of the Designated Premises endorsement attached to the CGL policy which was very similar to the language in our initial hypothetical scenario. Id. at *805-06. No premises were listed in the endorsement. The only premises listed on the declaration of the policy were three buildings, listed under the header “Covered Premises.” The studio was not among the covered premises. The American Guarantee court agreed with the district court that the policy unambiguously limited coverage to injuries arising out of the premises listed on the declaration page of the policy. Id. But the analysis regarding the endorsement and coverage did not end there.
The court ultimately found coverage despite the Designated Premises endorsement. The court concluded that “arising out of the use” of the designated premises requires there be a causal connection between the injuries and the designated premises. In finding a sufficient causal link, the court noted that the decision to set up the undesignated studio, construct its offices, purchase equipment, and, eventually close it down were all made by the CEO and other officials and employees at the 1906 Company headquarters, a designated premises. Id. at * 807-08.
Finally, in C. Brewer and Co., Ltd. v. Marine Indemn. Ins. Co. (2015) 135 Hawai’i 190 the Hawaii Supreme Court very recently held that a Designated Premises Endorsement provided coverage for injury and damage that occurred away from a listed location because the injury or damage arose out of the ownership, maintenance or use of the designated premises.
- Brewer and Co., Ltd involved coverage for the former owner (C. Brewer) of land under the Kaloko Reservoir on the Island of Kauai. The Reservoir was fronted by an earthen dam. The dam burst in March 2006, killing seven people and causing extensive property damage downstream. Id. at * 192.
After the dam burst, the present owner of the property was sued in various wrongful death and property damage cases. The present owner filed suit seeking damages and indemnification from the former owner, C. Brewer. The allegations of that lawsuit were that C. Brewer sold the property while aware of the dam’s structural instability and for negligent entrustment of the dam to Kilauea Irrigation Company (KIC) , a company formed by C. Brewer which had been tasked by the State of Hawaii with revitalizing and maintaining the property. Id. at * 193-94.
- Brewer’s carrier moved for summary judgment, arguing among other things, that the Designated Premises Endorsement limited coverage to liability arising out of the ownership, maintenance or use of specifically identified premises. The dam was not listed as a designated premise in the policy. The lower court granted summary judgment to the insurer based upon the Designated Premises Endorsement and the case made it to the Supreme Court of Hawaii. Id. at * 195-96.
The Supreme Court of Hawaii started its analysis by construing the Designated Premises Endorsement, which stated, “This insurance applies only to ‘bodily injury’, ‘property damage’, or ‘personal and advertising injury’ arising out of the ownership, maintenance or use of the premises shown in the above Schedule.” The listed properties included C. Brewer’s corporate headquarters, but not the Dam site. Id. at * 196-97.
The court found a causal connection between C. Brewer and its entrustment of the System to KIC, the operation of the designated premises, and the injuries that resulted from C. Brewer’s allegedly negligent corporate decisions. The court further found that the Designated Premises Endorsement did not clearly convert the policy into a premises liability policy. Therefore, the court rejected the insurer’s argument to construe the Designated Premises Endorsement as limiting coverage to injury and damage occurring on designated premises. Further, the policy’s broad coverage territory encompassed the United States, Canada, Puerto Rico and other parts of the world. This further supported C. Brewer’s argument that the Designated Premises Endorsement did not limit coverage merely to listed locations. Id. at * 198-201.
While some courts have refused to apply a broad interpretation to Designated Premises Endorsements and policies under various factual scenarios, the above case law provides an opportunity for a finding of coverage under the right set of facts. As for the scenario presented in the beginning of this article, coverage should be available if the court agrees the injury arises from the use of the designated premises or is incidental to the use of the premises. For example, if there is a sufficient causal link between decisions made at the organization’s headquarters that are incidental to the business conducted at the headquarters and your client’s the injury; coverage should be available based on the above discussed authorities.