Last Friday, in Ohio Casualty Insurance Company v. Lloyd Technologies Inc., No. A-09-CA-633-LY (W.D.Tex. September 30, 2011), a Federal District Court Judge in the Austin Division of the Western District of Texas concluded that commercial general liability exclusion j(4), excluding coverage for property damage to “personal property in the care custody or control of the insured,” precluded coverage for damage to a sensitive photo equipment dropped by the insured while moving it with a forklift.  Lloyd Technologies was hired to move a 15,000 pound piece of delicate photo equipment using a forklift and dropped the equipment during the move which resulted in alleged damages of over $2.6 million to the equipment.  The insured was sued in an underlying action and their insurer brought this declaratory judgment lawsuit to determine coverage for the loss.

Applying Texas law, the court noted that “possessory” control of the damaged property is the proper focus of the inquiry under exclusion j(4).  And, to find that the insured had care, custody or control, the damaged property must be the object of the work, or “totally and physically manipulated by the insured or both.”  Even though the forklift used by Lloyd Technologies was owned by the customer and their representatives and supervisors were present during the move, Lloyd’s employees alone physically moved the equipment and operated the forklift that moved and lowered the equipment.  Further, the court found that the equipment being moved was not merely incidental to Lloyd’s work, but it was in fact, Lloyd’s work – it was hired to move it and it was under their immediate supervision when damaged.  Accordingly, the court found that the “care custody or control exclusion” applied to preclude coverage.

The court also examined the “your work” exclusion and agreed with the insured that the exclusion contemplates “the use of warranties and representations and the use of materials, parts, or equipment.” The court observed that Lloyd was not repairing of constructing the equipment, but was moving it and concluded that the “your work” exclusion did not apply.  Lastly, the court considered arguments that the customer, Samsung, was an additional insured under the policy. The court found that because the service agreement with the customer, Samsung, expired before the policy period, and the additional insured endorsement required that the agreement be in effect during the policy, Samsung was not entitled to additional insured status.

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