Summer, 2000
CLAIMS LAW UPDATE
LOADING AND UNLOADING
[Ref: Law of Automobile Insurance: Business Auto Coverage]
Does the loss in the following scenario arise out of the use of an auto? A stack of firewood collapses while being stacked by a delivery service which delivered and unloaded the firewood on a customer’s property. The customer is injured as a result of the collapse. The delivery truck is covered under a business auto policy (BAP). Will the delivery service’s BAP provide coverage?
Loading and unloading claims commonly arise in a business setting, but can also occur with personal autos. Interestingly, the business and personal auto policies take different approaches to consideration of loading and unloading. While the insuring agreements of com- mercial auto policies such as the BAP and those in the personal auto policy (PAP) are similar in that they provide coverage for losses arising out of the “owner- ship, maintenance or use of a covered ‘auto’,” the policies differ on how they address the loading and unloading issue. This article will focus predominantly on the commercial auto policy, which in most cases will be the standard ISO BAP or a policy that contains similar provisions. Discussion of this issue would not be complete, however, without highlighting the funda- mental differences between how the BAP and the PAP treat loading and unloading.
It is important to keep in mind that because of the nature of most businesses and their exposures, liability coverage for business activities is typically provided by the BAP or a CGL policy. There is a fine line between these two coverages with regard to the loading and unloading of a motor vehicle. Thus, determining which policy should provide coverage for such a claim can sometimes be difficult.
The general rule is that the BAP covers injuries or damages that occur during the actual pick-up or delivery of property. The CGL is intended to cover injuries or damages which occur before a pick-up or after delivery. A variety of questions should be asked when such a claim arises such as “when exactly does pick-up begin?” or “when exactly does delivery end?”
The BAP and CGL are designed to be mutually exclusive in order to avoid duplication of coverage. An exclusion in the BAP is usually accompanied by a grant of coverage in the CGL and vice versa. The firewood delivery example illustrates a situation where both coverages could be at issue.
“USE” IN THE BAP AND PAP
Both the BAP and PAP provide liability coverage for loss arising from the “ownership, maintenance or use of a covered ‘auto’.” Since the standard policy does not define use, it has only been through judicial decisions that the general rule has evolved that loading and unloading constitute use. For both policies, the general rule for determining “use” has been that there must be some sort of connection between the loss and the use of the vehicle. In U.S. Fire Insurance Co. v. Ganz, 623 F Supp 337 (N.D.Cal.1985), the unloading of commingled cremated remains was at issue. The court said:
although the word ‘use’ must be given an all-inclusive connotation, there must . . . be a causal connection between the use and the injury. . .The test for determining the existence of the requisite causal connection has been expressed in varying language. It has been stated that the resulting injury must be a ‘natural and reasonable incident or consequence of the use of the [automobile] for the purposes shown by the declarations [to an insurance policy], though not foreseen or expected...’ and that the injury cannot be said to arise out of the use of an automobile ‘if it was directly caused by some independent act, or intervening cause wholly disassociated from, independent of and remote from the use of the [automobile].’
Other courts use a similar rule referred to as the “substantial nexus” test which requires a connection between the act and the use of the vehicle.
Two issues may arise in the context of loading and unloading with respect to the question of whether a loss arose out of the use of an auto. First, while loading and unloading are almost universally recognized as activities which constitute use of an auto, there may not be the necessary causal connection to the use of the auto to trigger coverage. This can occur where, although the injured party was in the process of loading or unloading, the actual injury is caused by a separate or intervening act not sufficiently connected to the auto. For instance, if while unloading a truck at a loading dock, the driver falls because of broken flooring on the loading dock platform a separate act could be considered to be the cause, not the unloading. Since the actual cause of the accident was the broken flooring and not a condition arising out of the loading or unloading of the vehicle, a court may decide that the necessary causal connection or substantial nexus is not satisfied. Thus, despite the fact that the accident clearly happened during the unloading process, the policy would not provide coverage because the causal connection was lacking. Second, the necessary causal connection may be lacking because the injury may have occurred before the loading actually began or after the unloading had been completed. This second issue has generated significant litigation, caused the courts to create two different rules to analyze the scope of the loading and unloading processes, and has resulted in exclusionary language in the BAP to deal with the issue.
LOADING AND UNLOADING IN THE BAP AND PAP
The PAP and BAP deal with this second issue in different ways. First, keep in mind that while under the standard PAP or BAP loading and unloading is only considered to be a use of the vehicle because of court decisions, there are some policies which do specifically state that loading and unloading is covered as “use.” However, whether it is a standard PAP with no reference to loading or unloading, or a non-standard policy with loading and unloading language, courts use one of two rules, the “coming to rest” rule or the “completed operations” rule, to evaluate whether the loss falls withing the scope of the loading and unloading process under these policies. The BAP approach will be discussed later.
The original rule of “coming to rest” has been abandoned by most jurisdictions and replaced by the “completed operations rule.” Where it is used, the “coming to rest rule” (also referred to as the “continuous passage rule”) is used mostly in unloading situations. It states that the unloading ends when the object is taken from the automobile and reaches the place of first deposit after being removed from the motor vehicle. The rule can be interpreted to mean that the unloading is complete when the object comes to rest on the ground, sidewalk or even on a hand truck.
In contrast, the “completed operations rule” defines the loading operations to begin when the articles are moved from their place of storage to the motor vehicle. The unloading process does not end until the articles reach their place of ultimate destination. Courts have also defined the unloading process to include all activities required to effectuate a complete delivery. While the “completed operations rule” appears to be more liberal, it can be more difficult to apply because of the vagueness of the language. Thus, predicting which way a court will hold in a loading and unloading case in a “completed operations” jurisdiction is not always clear.
An example of the application of the completed operations rule is Home State Mutual Insurance Co. v. Acceptance Insurance Co., 958 SW2d 263 (Tex. Ct. App.1997). In this case, Esquivel Company delivered several truckloads of “base” for a road construction project. After a load was delivered, the Esquivel driver left the site. In the meantime, another contractor collided with the load of base previously unloaded by Esquivel. What made this case somewhat different was the argument that since the contract between the two companies called for more loads to be delivered after the accident occurred, there was an issue as to whether the unloading was actually complete. The court decided that the contract between the two companies did not determine when unloading was complete, but rather, the insurance policy language. Even though the contract required additional deliveries, the load which caused the injury had been completely delivered because:
LOADING AND UNLOADING EXCLUSIONS IN THE BAP
BAP claims are usually interpreted differently because unlike the PAP and non-standard policies, the BAP addresses loading and unloading through specific policy exclusions which are intended to define the scope of loading and loading. In policies without these exclusions, courts focus on the coming to rest or completed operations rules to determine whether a loss is covered or whether it falls outside the scope of coverage. Where the exclusions are present, such as with the standard BAP, they provide additional guidance for coverage interpretation. The BAP contains four exclusions that clarify which activities are not covered under the policy. These exclusions are: Handling of Property; Movement of Property By Mechanical Device; Operations; and Completed Operations.
Handling of Property Exclusion
The first and most significant exclusion is entitled “Handling of Property.” This exclusion is essentially the completed operations rule incorporated as part of the policy. The language exclusions:
A very similar exclusion was contained in the BAP at issue in Home State Mutual Insurance Co. v. Acceptance Insurance Co., discussed previously. Despite the exclusionary language in the policy, the court seemed to rely mainly on the completed operation rule to arrive at its conclusion that the BAP did not provide coverage. After the court’s completed operations analysis, however, it did say that the exclusion should apply “because at the time of the accident the truckload of base had been finally delivered.” Most courts would skip the completed operations analysis and go directly to the language of the exclusion.
Movement of Property by Mechanical Device Exclusion
The exclusion for “Movement of Property By Mechanical Device” also provides guidance on which activities are not covered by the BAP. The exclusion applies to:
“Bodily injury” or “property damage” resulting from the movement of property by a mech- anical device (other than a hand truck) unless the device is attached to the covered “auto”.
This exclusion applies when equipment is used to load or unload the insured vehicle. Coverage is provided, however, when the loading or unloading is done by a mechanical device attached to the covered auto.
The exclusion may be held invalid even where it would otherwise apply to the facts of a claim. For instance, the New Jersey Appellate Division found in Parkway Iron & Metal Co. v. N.J. Manufacturers Ins. Co., 629 A2d 1352 (N.J. Super. Ct. App. Div.1993) that the exclusion was invalid and against the public policy of the state. The court stated: “the net effect is to deprive certain persons or entities of omnibus coverage in certain situations. In the case before us, the crane operator, Williams, and his employer . . . are eliminated as per- missive users and additional insureds because [the] . . . crane was used in the unloading operation.” The court recognized the underwriting justification for excluding coverage for certain loading and unloading accidents under the BAP since such activities would be more appropriately covered under the CGL. However, the court found that since New Jersey’s financial responsibility statute requires coverage for certain users and this exclusion restricts coverage for those users, it is contrary to public policy. In Truck Insurance Exchange v. The Home Ins. Co., 841 P2d 354 (Colo. Ct. App. 1992), the Colorado Court of Appeals came to a similar conclusion.
The “mechanical device” exclusion has also generated litigation based on its give-back of coverage when the mechanical device is a “hand truck.” In Sellie v. North Dakota Ins. Guaranty Assoc., 494 NW2d 151 (N.D. 1992), a group of senior citizens on a bus tour had arrived at a hotel and were standing in the lobby. A member of the group was injured when she was struck from behind by a device stacked with luggage that was being pushed by the tour bus driver. The device was a standard luggage cart with four wheels. The bus company had a BAP with a mechanical device exclusion. The insurer contended that a hand truck has two wheels. The court looked at the dictionary definition of hand truck, and concluded that the number of wheels on a device is not determinative of whether the device is a hand truck. Based on this commonly accepted meaning of hand truck, the court held that the device used by the bus driver was a “hand truck” as described in the exception to the mechanical device exclusion. Thus, the woman’s injuries were covered by the BAP.
Operations Exclusion
The third exclusion in the BAP is the “Operations Exclusion.” The exclusion applies to:
Paragraph 6 of the definition of “mobile equipment” states:
As described above, Paragraph 6 in the mobile equipment definition provides coverage for equipment listed in b. and c. which is permanently attached to a self-propelled vehicle by considering it an “auto” and not “mobile equipment.” The operations exclusion, however, eliminates coverage where the operation of the equipment attached to the self-propelled vehicle is solely the cause of the loss, and the loss does not result from the operation of the vehicle. For example, if a truck has a cherry picker mounted on it and is involved in an accident as it is being driven to a job site, the loss is covered. If, on the other hand, the loss occurs as a result of operating the cherry picker at the job site, the exclusion applies.
The operations exclusion was interpreted by the United States Court of Appeals for the Tenth Circuit in Federal Insurance Co. v. Tri-State Ins. Co., 157 F3d 800 (10th Cir.1998). In this case, two employees of Healdton Tank Truck Service were to clean out Citation Oil’s water tanks. After the Healdton employees parked their trucks close to the tanks, they removed a manhole from the top of the tank and began to use their trucks’ vacuum pumps to remove the residue from the tank. The trucks’ engines were running, and fumes escaped causing an explosion and severe burns to one of the Healdton’s employees. The court of appeals explained that the operations exclusion “excludes any injuries that ‘arise out of’ equipment listed in either paragraph 6.b. or 6.c.” Since a pump is clearly listed in paragraph 6.c., the court stated that as long as it can be determined that the injuries arose out of operation of the pumps on the trucks, the exclusion bars coverage under the BAP. The court held that use of the pump had a causal connection to the fire and resulting injuries, and the operations exclusion precluded coverage under the BAP.
Completed Operations Exclusion
The final exclusion in the BAP which is often at issue in a loading and unloading situation is the “completed operations” exclusion. This exclusion eliminates coverage for “ ‘bodily injury’ or ‘property damage’ arising out of your work after that work has been completed or abandoned.” Work is defined to include “work or operations performed by you or on your behalf; and ...[m]aterials, parts or equipment furnished in connection with such work or operations.” In addition, work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will also be treated as completed. For example, after an ice storm, a shopping mall maintenance truck spreads salt on the mall parking lot ramps. The mall is negligent because some areas are missed. One hour later, a customer loses control and drives off the ramp as a result of ice remaining on the ramp. If the customer makes a claim against the mall’s BAP, the mall’s auto insurer could assert that the claim is excluded due to the completed operations exclusion because the negligence alleged occurred as a result of an unloading process that was a completed operation.
CONCLUSION
A variety of issues arise when determining if a claim involving the loading or unloading of a motor vehicle is covered under a BAP or similar policy. Some auto policies may contain express loading and unloading clauses which provide some guidance for determining if a loss is covered. Other policies, like the standard ISO PAP and BAP, do not contain such clauses. The BAP does contain exclusions which help define those activities intended to fall outside its coverage. Generally, if the policy does not contain the standard BAP exclusions, courts will apply the “coming to rest rule” or the “completed operations rule” to determine if a specific claim arose out of the loading or unloading of a covered auto. In most cases when coverage is excluded by the BAP or a nonstandard commercial auto policy, coverage is provided in a CGL. Thus, these coverages together effectively provide liability coverage to commercial entities with very little overlap or gaps in coverage.
As you have probably concluded, the loss described in the first paragraph would be covered because it arose out of the use of the covered auto and it occurred before the unloading was complete. Also, a separate or intervening act was not the cause.
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