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


...leased, meaning there is no contract that requires insurance on that property, it is considered to be subject to Personal Property of Others coverage under the Building and Personal Property Coverage Form (BPP).

To cover non-leased personal property of others, it is necessary that a limit of insurance be shown on the Declarations page of the Commercial Property Coverage Part, along with the kind of covered causes of loss form, i.e., basic, broad or special, and the applicable co-insurance percentage. One of the more common reasons for litigation on this property is the failure to designate the foregoing information on the Declarations page.

One such case dealing with the failure to designate the value of business personal property of others is AIU Insurance Co. v. Mallay Corporation, 938 F. Supp. 407 (S.D. Tex. 1996). The named insured was a machine tool company whose largest customer was a chemical company. As part of its business, the named insured would mill and grind parts used by its customer in its chemical processing plant.

The problem arose when the named insured received a turbine from its customer that required burnishing so that it would meet precise specifications. While the turbine was being set into a lathe, it fell, and was so damaged that it could not be used without significant repairs. As a result of this damage, the turbine had to be repaired by another entity and at another location at a cost of $91,000. Additionally, the customer claimed it had sustained economic losses of $2.9 million, for which it sought reimbursement. Being uncertain whether it had insurance to cover what had happened, the named insured settled with its customer by paying $91,000 for release of all claims.

At the time of this incident, the named insured had in effect a CGL policy with AIU Insurance Company that included property coverage. The CGL policy was held not to apply to this accident because of exclusion j(4) having to do with personal property in the insured’s care, custody or control.

The property portion of the policy under the BPP Coverage Form reflected that personal property of others in the named insured’s care, custody or control was covered if located in the described building and within 100 feet of the described premises. The insurer, however, argued that the coverage did not apply here, either, because a limit of insurance for personal property of others was not expressed in the Declarations of the policy. The court agreed with the insurer here as well.

Another provision of the property coverage form stated that when a co-insurance percentage of 80 percent or more is shown in the Declarations, coverage may be extended to include personal property of others in the insured’s care, custody or control. However, the limit was $2,500 at each described premises, with payment to be made for the account of the owner. Since the named insured’s property policy contained a co-insurance percentage of 80 percent, the policy allowed it to receive the benefit of that extension, but only for $2,500. The remainder, unfortunately, appeared to be the amount that the named insured had to assume.

In another case, a boat owner brought his vessel to a marina for repairs and refurbishment. While it was in the care, custody or control of the marina, it was damaged when a hurricane struck that area. The boat owner maintained that he was entitled to coverage under the personal property of others coverage of the marina’s property policy. Unfortunately, the BPP Coverage Form...