Business Personal Property of Others: Insuring It Properly Involves Many Considerations


If covered property sustains loss or damage from a covered cause, the insurer is supposed to pay for the loss up to the limit of insurance for that covered property.

Apart from the criterion of legal liability, the Legal Liability Coverage Form has a lot in common with property policies written to cover business personal property, including property of others. In fact, certain portions of the Common Policy Conditions applicable to property policies also apply to the Legal Liability Coverage Form.

An especially notable case that involved a Legal Liability Coverage Form for business personal property, including property of others all in the open, is QBE Specialty Insurance Company, FSI, Inc., No. 3:09cv435 (U.S. Dist. Ct. W. Dist. N.C. 2011).

FSI was engaged in intermodal storage for loaded and empty intermodal shipping containers. In this matter, FSI sought to purchase insurance for containers and their contents while stored at its yard, which was a “holding ground” for cargo. The written proposal referred to coverage for “property of others,” with a limit of $200,000. This proposal, however, did not mention or refer to “property of others in the open” coverage. After the insurer issued the Legal Liability Coverage Form, the insurance agent visited the premises to review security measures and operations.

The following year thieves broke into the premises of FSI and stole an intermodal shipping container filled with 1,920 computer monitors. The cargo in the containers was never recovered, but the container was. When this claim was submitted to the insurer, it was denied. The issue was whether the commercial property coverage provision extended coverage for the loss of cargo stored on FSI’s premises. The insurer maintained that the contents of the shipping container was not covered because it was “not in the open.”

The Legal Liability Coverage Form, on which the applicable coverage provision was written, provided as follows:

We will pay those sums that you become legally obligated to pay as damages because of direct physical loss or damage, including loss of use, to Covered Property caused by accident and arising out of any Covered Cause of Loss.

In turn, “Covered Property” was defined to mean:

Tangible property of others in your care, custody or control that is described in the Declarations or on the Legal Liability Coverage Schedule.

Reference was made to “personal property of others in the open” on the Commercial Property Coverage Declarations page. “Personal property of others in the open” was also listed under the description of property on the Legal Liability Coverage Schedule.

The insurer’s key argument was that cargo contained inside the shipping containers stored on the grounds of FSI’s property was not covered because it was not in the open. It contended that the computer monitors were not in the open because they were inside the shipping containers. In response, FSI contended that “in the open”...