I’ve been assisting an agent with a claim denial by a major national carrier that has a large presence in the construction industry. The insured is a contractor who was hired to remove a section of a concrete retaining wall and rebuild it. They used a piece of mobile equipment to break up a section of concrete and accidentally damaged a gasoline storage tank, causing it to rupture and leak gasoline into the soil on the premises of the company that hired them. The carrier has reportedly denied the entire claim, citing three exclusions:
- ISO pollution exclusion
- ISO CGL exclusion j.(5)
- ISO CGL exclusion h.(2)
As for the pollution exclusion, the ISO CGL policy does not exclude such damage if the insured is working away from their premises and did not bring the pollutant onto the job site. Unfortunately, the policy was endorsed with the ISO CG 21 55 total pollution (except for hostile fire) exclusion endorsement, so the pollution damage is not covered. (Note: I’m going to be doing a webinar in the near future I call “Raiders of the Lost Coverage: Insurance Jones and the Temple of Exclusions.” It’s about commercial lines coverage gaps to avoid or be wary of and these types of near total pollution exclusions are high on that list…be vigilant and negotiated their removal if at all possible.)
Exclusion j.(5) applies to the concrete structure that the insured was working on but, based on the information provided by the agent, not to property damage to the tank. The carrier hasn’t responded to that contention, possibly because they are apparently hanging their hat on exclusion h.(2):
The use of “mobile equipment” in, or while in practice for, or while being prepared for, any prearranged racing, speed, demolition, or stunting activity.
The carrier is citing the “demolition” part of the exclusion to allegedly deny coverage to the retaining wall and tank. Clearly, this exclusion does not apply to construction demolition, but rather a competitive event like a demolition derby. I’ve always referred to this policy provision as the “Dale Earnhardt” exclusion. Without it, since NASCAR autos are designed for use off public roads, they would otherwise be “mobile equipment” and covered by a CGL policy if not for this exclusion.
The language tracks with the racing exclusion in ISO’s BAP where it is clear that the use of the word “demolition” does not refer to construction activity:
Covered “autos” while used in any professional or organized racing or demolition contest or stunting activity, or while practicing for such contest or activity. This insurance also does not apply while that covered “auto” is being prepared for such a contest or activity.
The basis for the proper interpretation of this exclusion is the legal principle of noscitur a sociis. If you are a Big “I” member agency, there are several Virtual University articles that discuss this legal concept, which means:
Noscitur a sociis Definition: Latin: that the meaning of a word may be known from accompanying words. … Under the doctrine of noscitur a sociis, the meaning of questionable words or phrases in a statute may be ascertained by reference to the meaning of words or phrases associated with it.
In addition, as my friend and fellow insurance nerd, Tim Dodge, CPCU, of the New York Big “I” points out:
Nautilus Ins. Co. v. Hale (Kentucky, 2007):
“Nautilus contends that since the trackhoe falls under ‘mobile equipment’ it is excluded under the Mobile Equipment Exclusion. The Exclusion reads that the policy ‘does not apply to:
- Mobile Equipment
‘Bodily Injury’ or ‘property damage’ arising out of
(1) The transportation of ‘mobile equipment’ by an ‘auto’ owned or operated by or rented or loaned to any insured; or
(2) The use of ‘mobile equipment’ in, or while in practice for, or while being prepared for, any prearranged racing, speed, demolition, or stunting activity.’
However, the exclusion by its terms applies to ‘mobile equipment’ used in a very specific manner, one which obviously does not apply to the facts of this case. That is, the highlighted passage, (h)(2), refers to ‘mobile equipment,’ and ‘demolition’ in the context of a prearranged racing, speed, or stunting activity. It is patently obvious that this passage contemplates a performance (e.g., a ‘demolition derby’). Any suggestion to the contrary is simply not credible.
Thus, while Interstate’s trackhoe certainly falls under the policy definition of mobile equipment, its use in this case does not even come close to falling under the excluded use of mobile equipment-a performance demolition activity. It is undisputed that Interstate was not engaged in a performance type demolition activity at the time of the accident. Therefore, this exclusion clearly does not apply to the facts before the Court. …
 Upon thorough review of the insurance policy, the Court can find no other potentially applicable exclusion referring to ‘mobile equipment.’”
The other words in the exclusion refer to “racing,” “speed,” and “stunting,” certainly not construction activities. The carrier’s initial response to this interpretation of the term “demolition” is:
“We appreciate your opinion regarding whether coverage applies in that case and have passed it along to our coverage counsel, who respectfully disagrees with your conclusion.”
They reportedly have taken the “demolition” issue to a court seeking summary judgment. I don’t think they will be successful, but you never know at the trial court level what you’re going to get. I don’t think there’s a credible insurance coverage expert in the country that would agree with the carrier’s interpretation.
This denial is reminiscent of one in a claim I was involved with several years ago where a truck damaged a loading dock at a warehouse. Under the property policy, the carrier denied the claim, citing the Property Not Covered provision that excluded “piers, wharves, pilings, or DOCKS.” Noscitur a sociis.
Photo by a4gpa