"Reading the Policy" Means Reading Every Word

Every insurance professional has had experience with small policy language changes that have big effects (usually negative) on coverage. Sometimes it's a single word—added, deleted, or altered—that fundamentally changes the way a policy will respond to a given loss exposure, and those language differences are obviously the hardest to deal with, or even to find.

Take a look, for example, at this phrase from a modified commercial general liability (CGL) policy "aircraft, auto or watercraft" exclusion: "… the ownership, nonownership, maintenance, use or entrustment to others of any auto.…"

The term nonowership, of course, has a long tradition in commercial automobile insurance. It provides liability coverage for automobiles the insured does not own, hire, lease, rent, or borrow but that are used in connection with the named insured's business. It includes autos owned by employees, partners, or members of their households used in connection with the business. So, it's not a strange coverage term … in an auto policy. But remember, the policy under discussion is a CGL policy.

A knowledgeable CGL insured doesn't expect to have coverage for liability arising out of the ownership, maintenance, or use of autos. But that same insured will expect to have CGL coverage in connection with auto-related exposures when some unrelated third party—for whose activities the insured does not otherwise have any legal responsibility—is the owner, operator, or user of an auto. (The use of vehicles by an independent contractor doing work for the insured is a common example. In such situations, the insured's liability arising out of the nonownership of an auto is an important feature of CGL coverage, although few people would be likely to describe the exposure using that term.)

In this instance, the CGL insurer that was excluding coverage for the "nonownership of any auto" was one that markets its policies to firms with large land holdings, industrial operations, or retail establishments with substantial vehicular traffic. Warehouses, industrial sites, timber operations, quarries, and entertainment venues are examples. These risks typically have heavy traffic on their premises and perhaps personnel directing traffic in and out. An exclusion applicable to the "nonownership" of autos wipes out general liability coverage for these common exposures.

The modified exclusion in question was imposed in the middle of 1 of 23 pages of endorsements to a standard CGL policy. While it resulted in a material, and important, reduction in coverage, it could easily have gone unnoticed by an insured—or that insured's insurance professional—unless every word of the policy and its endorsements were read carefully.