Commercial General Liability Policies

It’s a Bird! It’s a Plane! But Is It Insured? California Case Reinforces Importance of Liability Coverage for Drone OperationsAs the popularity and diverse nature of drones increase, the liability risks associated with drone operations increase as well. A California federal judge recently held that a standard CGL aircraft exclusion barred liability coverage for injuries related to drone operations. The case arose out of a wedding reception gone wrong when a wedding photography company operated a drone to capture the big day. While the drone was hovering at eye level, a guest collided with the drone and sustained serious injuries, including loss of sight in one eye. The court found that the drone fell under the ordinary meaning of the word “aircraft” as defined in the Merriam-Webster’s Collegiate Dictionary, even though the policy did not define the term “aircraft.” The court ruled that the insurance company could recover the costs it spent defending the wedding photographer because the exclusion meant that the insurer did not have an obligation to defend the photographer against the suit filed by the injured wedding guest.

In a previous post, we advised against relying on the ambiguity of the term “aircraft” to avoid application of the aircraft exclusion in the standard CGL policy. The ambiguity argument has become all the more dangerous as courts like this one decide that a drone is an “aircraft.”

Reliance on a CGL policy becomes more problematic because many CGL policies explicitly exclude coverage for drones. For example, Commercial General Liability Form CG 21 09 06 15 excludes coverage for an “unmanned aircraft,” which is defined as an aircraft that is not designed, built, or modified to be directly controlled by person on or in the aircraft.

CGL policies can provide liability coverage for drone operations by endorsement. Commercial General Liability Form 24 50 06 15 provides coverage for an unmanned aircraft. Coverage A provides coverage for bodily injury and property damage, while Coverage B provides coverage for personal and advertising injury. You may purchase either coverage or both.

A CGL policy does not provide property coverage for the drone or its cargo; it provides liability coverage only. Commercial Property Form 04 14 12 16 protects drones that you own, rent or lease if you have a contractual obligation to provide insurance. This endorsement is appropriate for a drone if you are not transporting cargo. If you choose to endorse your standard policy with this form, carefully describe your operation in its entirety in the schedule to procure complete coverage. Commercial Inland Marine Form IH 00 61 01 16 is a separate form that covers cargo, but its coverage is limited because it lacks business interruption coverage.

A specialty drone policy generally provides liability coverage for drone operations, as well as property coverage for the drone itself. Because specialty policies are customizable, you can select what coverage you want. Both annual policies and on-demand policies are available. On-demand policies provide time-limited coverage for specific operations, while annual policies provide coverage throughout the policy period. Insurance companies offering specialized drone policies tout their comprehensive coverage for those companies that regularly utilize drones. Both new entrants into the insurance market as well as traditional aviation insurance companies are rushing to provide this coverage, thus expanding coverage options for drone operators.

For more information on drone coverage, please view our webinar.

Policyholder Diligence Ensures You’re InsuredPolicyholders take notice – a recent New York case highlights the importance of thoroughly analyzing and understanding all policy language to minimize project risk and ensure proper coverage. As an illustration, the Court of Appeals of New York recently held that a named additional insured was not covered under an insurance policy because the plain meaning of the language in the policy endorsement required a written contract between the policyholder and the additional insured.

In Gilbane Bldg. Co./TDX Construction Corp. v. St. Paul Fire & Mar. Ins. Co., the Dormitory Authority of the State of New York (DASNY) contracted with Samson Construction Company as general contractor for the construction of a new building. DASNY also contracted with a joint venture, formed by Gilbane Building Company and TDX Construction Corporation (the “JV”), to serve as construction manager on the project. The contract between DASNY and Samson required Samson to procure general liability insurance for the project and name the JV as an additional insured. Samson obtained this coverage from Liberty Insurance Underwriters.

Thereafter, DASNY sued Samson and the project architect. In turn, the architect filed a third-party complaint against the JV, which then provided notice to Liberty seeking defense and indemnification. Liberty denied coverage, and the JV initiated suit against Liberty, arguing that it qualified for coverage as a named additional insured. The New York Supreme Court denied Liberty’s motion for summary judgment and held that the JV was an additional insured under the applicable insurance policy. The Appellate Division reversed and the Court of Appeals affirmed.

The court reviewed the language of the additional insured provision which read, in relevant part, “an insured [is] any person or organization with whom you have agreed to add as an additional insured by written contract…” Here, the JV and Samson did not have a written contract with one another. Nonetheless, the JV argued that the written contract requirement conflicted with the plain meaning of the language in Liberty’s endorsement, “well-settled rules of policy interpretation,” and the parties’ reasonable expectations. The court disagreed, and found that the language was facially clear. It concluded that Liberty’s endorsement would only provide coverage to the JV if Samson and the JV entered into a written contract because “unambiguous provisions of an insurance contract must be given their plain and ordinary meaning.”

The court then explained how the outcome would differ if the provision did not include the word “with.” In that case, the endorsement would have provided coverage to “any person or organization whom [Samson had] agreed by [any] written contract to add…” Since Samson already contracted with DASNY to add the JV as an additional insured, coverage would have been effective as to the JV.

Regardless of the type of insurance policy at issue, it is critically important to thoroughly analyze the policy documents to ensure an accurate understanding of the language used. Individual policyholders often take policy language at face value, if they read the terms of the policy at all, and never question what coverage they have actually purchased. Similarly, when the policy at issue is part of a larger set of contract documents, companies often become complacent during the contract review process—especially when certain documents appear boilerplate or seem like only a minor formality to finalize a contract. Oftentimes, the perceived need for reviewing policy language is further dampened by the fact that the insurance policy comes into existence after the project contract is signed, such as the policy in this case.

As a result of complete oversight, the hurried nature of review, or the overwhelming volume of contract documents requiring review, policyholders can easily adopt a reading of policy language that might reflect reasonable expectations but does not necessarily adhere to the plain meaning of the language. Diligence must extend to the review of insurance policies because ignoring the actual language of the policy can result in significant risk exposure.  If you have any questions or concerns about your current insurance coverage or upcoming project needs, please contact Alex Thrasher and the team at Bradley to learn more about ways to ensure that you’re covered.

Federal Court Enters Powerful Duty to Defend Order in MaineIn addition to being a great place to find lobster, Maine may also be one of the country’s best jurisdictions for a policyholder seeking defense from its commercial general liability carrier.

In Zurich American Ins. Co. v. Electricity Maine LLC, the U.S. District Court for the District of Maine found against Zurich and in favor of Electricity Maine LLC, one of several defendants in an underlying class action lawsuit alleging pricing violations against the power company. Most notably, the court confirmed that Maine has a particularly low threshold for triggering an insurer’s duty to defend. The court found an “occurrence” despite Zurich’s argument that all the underlying allegations involved intentional conduct. And perhaps most shockingly, the court found the possibility of “bodily injury” based solely on the underlying complaint’s request for “actual damages in an amount to be proven at trial.” There is no mention in the complaint of emotional distress or mental anguish, but the court found an allegation of “bodily injury” anyway, relying on Maine’s broad duty to defend rules.

Based on this decision, a CGL policy can be triggered in Maine by virtually any general allegation of damage caused by negligence. Maine follows what it calls the “comparison test” and seems to allow for a duty to defend unless there is absolutely no chance of an eventual judgment that would fall within the scope of coverage provided by the policy.

Once again, we have an important reminder on two fronts. First, the duty to defend should be broadly construed, and some courts are willing to give the policyholder every benefit of the doubt, particularly in the face of ambiguous underlying allegations. Second, never forget choice of law. If you can go to Maine to resolve a duty to defend dispute (or to eat lobster), do it.