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The Auto Exclusion In A General Liability Policy Has Limits

The general understanding among attorneys and insurance professionals is that a general liability (or CGL) policy's "auto" exclusion does just what it says, excludes coverage when an auto is involved. As litigation becomes more complex and more parties are brought into a case, even parties only tangentially related to the actual accident, closer analysis of the exclusion's language is necessary. The auto exclusion in many policies actually contains limiting language that can result in coverage under a CGL policy, even where an auto is involved.

The auto exclusion in many CGL policies excludes coverage for "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." By this language, the exclusion will not apply to just any auto accident, but will only apply if the auto is owned, operated by, rented or loaned to an insured. It is not at all unheard of for an insured to be sued because of an auto accident where it did not have any of the above-required connections to the auto. For example, a motor carrier might be sued for an accident involving a load that it brokered to another motor carrier. In that scenario the subsequent motor carrier, not the insured, likely owns, operates and/or leases the auto involved, and the insured therefore has not connection to the auto in order for the exclusion to apply.

In those instances, courts have regularly refused to apply the CGL policy's auto exclusion. See, e.g., Category 5 Mgmt. Grp., LLC v. Companion Prop. & Cas. Ins. Co., 76 So. 3d 20 (Fla. Dist. Ct. App. 2011) (auto exclusion not applicable where auto owned and operated by non-insured); Cincinnati Ins. Co. v. Blue Cab Co, Inc., 2015 WL 1538825 (N.D. Ill. March 31, 2015) (declining to apply exclusion where operator of auto was not an insured); Northbrook Excess & Surplus Ins. Co. v. Coastal Rescue Systems Corp., 182 Cal.App.3d 763 (Cal. Ct. App. 1986) (exclusion did not apply because aircraft involved in injury of student was neither rented nor loaned to insureds).

The limiting language in the auto exclusion can result in overlapping coverage between CGL and auto policies. While such policies are generally intended to complement one other, overlap is not entirely counterintuitive in light of the different rules of construction applicable to exclusionary provisions and coverage-granting provisions. As such, a court may not follow a hard and fast rule that coverage cannot exist under both an auto and a CGL policy. See, e.g., Employers Ins. Co. of Wasau v. Lexington Ins. Co., 2014 WL 4187842 (C.D. Cal. Aug. 19, 2014) ("Overlapping coverage between automotive and CGL polices, although unusual, is not prohibited.").

Some CGL policies eschew the limiting language in the common auto exclusion and include an endorsement broadening the exclusion. The most common such endorsement replaces the "auto owned or operated by . . ." language with "any auto." This makes the exclusion applicable to most any accident involving an auto. At least one court, however, has recognized that even such a broad exclusion has limits. In Essex Ins. Co. v. City of Bakersfield, 154 Cal.App.4th 696 (Cal. Ct. App. 2007), the broad auto exclusion contained the "any auto" language, but the Court still refused to hold that such an exclusion applies to "limit coverage in any cases involving automobiles by anyone anywhere." Rather, the Court held that some connection must exist between the insured and the automobile involved for the exclusion to apply.

As illustrated above, the application of an auto exclusion is not a black and white issue, even where the exclusion is written broadly and applies to any auto. Close examination of the language of the exclusion, the facts of the case, and the law in the applicable jurisdiction is necessary in each case to reach the correct result.

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