Auto Coverage Under a CGL Policy

Everyone knows that an ISO Commercial General Liability (CGL) policy does not cover the use of autos other than some limited coverage such as accidents arising from, for example, valet parking on or next to owned or rented premises. And, of course, there is coverage for motor vehicles that qualify as “mobile equipment.”

Aside from that, the CGL policy excludes the “ownership, maintenance, use or entrustment to others” of autos. Well, not really. This is what the pertinent stem of the exclusion actually and exactly says is excluded [emphasis added]:

“‘Bodily injury’ or ‘property damage’ arising out of the ownership, maintenance, use or entrustment to others of any aircraft, ‘auto’ or watercraft owned or operated by or rented or loaned to any insured. Use includes operation and ‘loading or unloading.'”

For the exclusion to apply, not only must the loss arise out of the “ownership, maintenance, use or entrustment to others” of an auto, it must also meet at least one of two other conditions: the auto must either be (1) owned or operated by an insured; or (2) rented or loaned to an insured.

In my October 2021 column, I wrote about the member of a church who used his mini van to pick up elderly church members on Sunday mornings and give them a ride to and from services. The church had a CGL policy in place but not an auto policy. If the church member had an at-fault accident that injured someone and the church was sued, would the church be covered by its CGL policy?

The short answer is yes, as long as the auto wasn’t (1) owned or operated by or (2) rented or loaned to someone insured on the church’s CGL policy. And this assumes there would be an argument that the church was “using” the auto vicariously through the church member.

The complication in this church scenario was that church members are often included as insureds on CGL policies. If the church member was an insured, there is no coverage for the church under its own CGL policy because the auto was owned by “any insured” under the policy. By my last count, the ISO CGL policy mentions “any insured” 25 times.

It should be apparent that a CGL policy potentially provides significant coverage for accidents arising from autos as long as the auto isn’t owned or operated by or rented or loaned to an insured under the CGL policy and, of course, there isn’t another exclusion that applies. One way this potential coverage can be diluted is through adding third parties as additional insureds on the CGL policy. This can best be illustrated by an actual claim I consulted on about five years ago.

A large tenant, to enter into a lease, required that the landlord add the tenant as an additional insured on the landlord’s CGL policy. While it is more common for a landlord to ask to be an additional insured on a tenant’s policy, the opposite may be true for a desirable tenant. In this case, the tenant insisted that it, its employees, and several other entities be added as additional insureds on the landlord’s CGL policy.

The claim arose when a customer of the tenant was run over in the parking lot by an employee of the tenant. Both the tenant and the landlord were sued. The tenant had no coverage under its own CGL policy because the auto was owned and operated by an insured (the tenant’s employee) under that policy. Fortunately, the tenant had coverage under a business auto policy.

The landlord sought coverage under its CGL policy, but the claim was denied because the auto in question was owned and operated by an insured under the policy–but only because the employee had been added as an additional insured on the landlord’s CGL policy. If the tenant and its employees had not been added as additional insureds on the landlord’s CGL policy, the landlord would indeed have coverage for the claim under its own CGL policy. In this case, like the tenant, the landlord had coverage under its business auto policy.

‘While a CGL policy may provide some auto coverage, business relationships may sometimes have unintended consequences that create coverage gaps.’

This illustrates perhaps the obvious–that every business needs auto coverage whether it owns autos or not. While a CGL policy may provide some auto coverage, business relationships may sometimes have unintended consequences that create coverage gaps.

It also illustrates that adding other entities as additional insureds on your CGL policy not only increases your risk of a claim and the dilution of policy limits, it also may result in the named insured effectively removing coverage for itself with regard to any exclusion that applies to all insureds if it applies to “any insured.”

Wilson, CPCU, ARM, AIM, AAM is the founder and CEO of InsuranceCommentary.com and the author of six books, including the Amazon 4.8 star “When Words Collide…Resolving Insurance Coverage and Claims Disputes,” which BookAuthority ranks as the #1 insurance book of all time. Email: Bill@InsuranceCommentary.com.

Topics Auto