270_C450

NOTE – This is from our older court case archives. It may involve situations that are inapplicable to newer coverage forms. Please be aware of this possibility when reading and using this case.

General Liability Insurance	Reasonable Expectation
Rental Exclusion

Rental Exclusion Did Not Apply To Tryout Of Machine

The intent of the rental exclusion in a General Liability policy carried by a firm that sold machines was studied by the court in this case. A customer was permitted to try out a machine for one day to see if it was suitable for his business. The agreement was that he would not pay a fee for the one day of use if he decided to purchase it. If he returned it, however, he would pay $7 for each hour of use. It was explained that the charge would cover the cost of cleaning and restoring the machine for it to be sold as a new item.

The customer’s son was injured while operating the machine during the tryout period. The dealer’s insurance company denied liability on the basis of the standard rental exclusion in the policy. A lawsuit ensued and the trail court concluded that the tryout was a rental arrangement to which the insurance protection did not apply.

On appeal, the court considered “the intent of the rental exclusion, the meaning an ordinary person would give to the term “rental,” and the reasonable expectations of coverage” on the part of the insured. It noted that the customer did return the machine, paid $50 as the agreed price for cleaning it, and purchased a different machine after the tryout.

The court judged that tryouts of the kind occurring here were customary to the business of selling machines and did not involve the extra risk associated with renting such equipment for long period as well as selling it, the situation for which it concluded that the exclusion was intended.

The court also reasoned that a person of ordinary intelligence would consider a rental to be “a commercial transaction entered into for profit” and not applicable under review. For those reasons, it concluded that the insured had a reasonable expectation of coverage.

The appeal court found that the transaction was not an excluded rental within the meaning of the General Liability policy and reversed the judgment of the trail court. The coverage was applicable.

Herwig, Plaintiff, Appellant v. Enerson and Eggen, Defendant, Third-Party Plaintiff, Appellant; Gehl Company, Defendant, Herwig Sr., Third-Party Defendant, Iowa National Mutual Insurance Company, Third-Party Defendant, Respondent. Wisconsin Court of Appeals. District IV. No. 79-1474. June 17, 1980. CCH 1980 Fire and Casualty Cases 290.