Care, Custody or Control Exclusion
The care, custody and control exclusion appears in virtually all general liability and commercial auto liability policies. It eliminates coverage for damage to property that belongs to someone else but has been entrusted to you for some purpose.
The care, custody and control exclusion often applies to situations involving bailed property. A bailment exists when a person has temporary possession of property that belongs to someone else.
The person who has possession of the property is referred to as the bailee, while the owner is the bailor. A bailment does not involve a transfer of ownership. The bailee does not obtain title to the property, so he or she must return it to the owner when the bailment ends.
A business may have possession of someone else's property for a variety of reasons. It could be holding the property for safekeeping or to perform some type of work on it. Alternatively, a business might have leased or borrowed the property to use in its operations for a limited time period. Here are examples of bailments:
- You own a restaurant that provides a coat check service for customers.
- You have leased a copy machine from an office supply store to use in your accounting business.
- You own an auto body shop. Your business has customers' vehicles in its possession so your employees can make repairs on them.
- You own a plumbing business and have been hired by a general contractor to install piping and fixtures in a house that is under construction. The homeowner has purchased a new bathroom sink, which you are in the process of installing.
- You own a cafe. Your espresso machine is broken so you have borrowed one from a nearby coffee shop to use until your machine can be repaired.
In each of the above examples, you have someone else's property in your possession for a particular purpose. You must return the property to its owner when that purpose has been served.
If the property is damaged before you return it, the owner might seek restitution by filing a property damage claim against your business.
Meaning of Care, Custody, or Control
As mentioned previously, most general liability and auto liability policies contain a care, custody or control exclusion. Thus, it is helpful to understand what the words care, custody, and control generally mean. When interpreting terms in an insurance policy, courts often look to dictionary definitions for guidance. Here are some dictionary definitions of care, custody, and control:
- Care: Temporary keeping; watchful attention; charge or supervision
- Custody: Keeping; immediate charge or control; safekeeping
- Control: Domination or command; restraint
While care, custody, and control have different definitions, their meanings overlap somewhat. Moreover, each is subject to interpretation. Policyholders, insurers, and courts don't always construe these terms in the same manner.
General Liability Policy
In the ISO general liability policy, the care, custody and control exclusion is located under Coverage A, Bodily Injury and Property Damage Liability. It can be found in a group of exclusions entitled Damage to Property.
The exclusion eliminates coverage for property damage to:
Personal property in the care, custody or control of the insured
Note that the care, custody or control exclusion applies to personal property only. It does not apply to real property, meaning land and buildings. (Damage to buildings is addressed in other parts of the Damage to Property exclusion.) Moreover, the exclusion refers to "care, custody or control," not "care, custody and control." This means that "care," "custody" and "control" are usually viewed independently. Also, the exclusion applies to personal property in the care, custody or control of the insured. In liability insurance, the insured generally means the insured named in a claim or suit.
Examples of Excluded Claims
The following examples illustrate the types of claims that care, custody and control exclusion is designed to exclude:
- A customer files a claim against your restaurant seeking restitution for a fur coat that disappeared while in the care of your restaurant's coat-check service.
- You return a copy machine to the office supply store after your lease expires. The store then files a claim against your business, alleging that the machine was damaged while it was in your custody.
- A customer's vehicle is awaiting repairs at your body shop when it is stolen from your parking lot. The customer files a claim against your business demanding restitution for the value of the vehicle.
- A homeowner files a property damage claim against your plumbing business. She claims that you damaged her new sink while you were installing it in her bathroom.
- Your cafe's espresso machine has been repaired so you return the one you borrowed to the coffee shop. The coffee shop owner claims that the machine was damaged while it was in your possession. She has filed a claim against your business demanding restitution for the broken machine.
Commercial Auto Policy
The ISO Business Auto Policy also contains a care, custody and control exclusion. The exclusion is located in the auto liability section. The wording appears below.
Property damage or covered pollution cost or expense involving property owned or transported by the insured or in the insured's care, custody or control. But this exclusion does not apply to liability under a sidetrack agreement.
The care, custody and control exclusion eliminates coverage for damage to property (including vehicles) that is in your care, custody or control, whether it is owned by you or someone else. The exclusion applies to property damage and pollution cleanup costs. Here are examples of excluded claims. In all of the following scenarios, assume that your business has insured all company-owned vehicles for liability under a commercial auto policy.
- You are driving a truck owned by your business when you hit a patch of black ice. The truck skids into a tree, damaging the front end.
- You operate a computer repair business. You are using a company-owned truck to deliver a computer to a customer when you are involved in an accident. The customer's computer is destroyed.
- You are driving a rental car during an out-of-town business trip when you accidentally rear-end another vehicle. The rental car is damaged in the accident.
In the examples cited above, the damage to the truck, the computer, and the rental car would be subject to the care, custody or control exclusion. You can insure your business against damage to vehicles you own or rent by purchasing commercial auto physical damage coverage. Damage to property you transport in vehicles can be covered under inland transit insurance.
Exception for Sidetrack Agreements
The care, custody and control exclusions found in the standard general liability and commercial auto policies contain an exception for liability assumed under a sidetrack agreement. A sidetrack (also called a spur) is a short section of track that runs between a business establishment and the main railroad track. A sidetrack agreement is a contract between a railroad and a business entity in which the railroad allows the business to use a sidetrack. In return, the business agrees to indemnify the railroad if it is sued as a result of the business' negligent use of the sidetrack.