SNOW SCRAPER SMASHES SHELBY: DOES CGL PAY?

Commercial General Liability	Property You Own, Rent, or Occupy Exclusion
Care, Custody, and Control Exclusion

John McNeil needed to service and prepare a 93-foot Caterpillar scraper for a commercial development project. This required his moving the scraper inside a large shed. His 2008 Shelby GT was parked in a way that interfered with the scraper being moved inside the shed so McNeil moved it outside and parked it next to the shed. Unbeknownst to him, the Shelby rolled down the incline outside the shed and was resting outside the shed’s garage door. McNeil backed the 605-horsepower, 93-foot-long Caterpillar Challenger out of the shed and, because he didn’t see the Shelby, he destroyed it as he drove over it.

John McNeil operated J&J McNeil, LLC (J&J), an excavation and snow removal business. McNeil and his wife were the members of the LLC. Each owned a 50% share. J&J’s equipment included the 93-foot Caterpillar scraper. McNeil personally owned the Shelby that was financed by Harris Bank. The Shelby was not used in the business.

McNeil filed a claim with J&J’s commercial general liability insurance company, Dakota Fire Insurance Company (Dakota), for the damage to his Shelby. Dakota responded by bringing a declaratory judgment action seeking a determination as to whether the insurance policy would pay McNeil's insurance claim. Harris Bank, as the secured party of the Shelby, intervened and McNeil assigned all of his interest in the litigation to Harris Bank.

The circuit court determined that McNeil was acting in his individual capacity while operating the Shelby and was acting in J&J's capacity when he operated the scraper. As a result, the circuit court concluded that Dakota failed to establish that any of the policy’s exclusions applied to the loss. Dakota appealed.

On appeal, Dakota argued that the policy's “property you own, rent, or occupy” exclusion applied to the property damage McNeil caused to his Shelby because it applied to any property an insured owns, rents, or occupies. Harris Bank argued that the exclusion applied to only property that J&J owns, rents, or occupies. The appellate court applied the plain and ordinary meaning of the policy’s words in light of the circuit court's findings of fact and agreed with Harris Bank.

The appellate court found that the term “you” referred to only the named insured. The only named insured was J&J McNeil, LLC. John McNeil was not listed as a named insured. As a result, the “property you own, rent, or occupy” exclusion applied to only J&J's property. The facts clearly dictated that J&J did not own or rent McNeil's Shelby.

Dakota also argued that, because McNeil was an insured and the Shelby was in his control when he moved it outside the shed, it was not liable for the claim. In making its assertion, Dakota relied on the policy’s exclusion of personal property in the insured’s care, custody, or control. The high court noted that, although McNeil caused damage to his personal property, the circuit court found he did so while acting for J&J. The Supreme Court pointed out that the policy was clear that a member of an LLC is an insured only if the member is conducting business on the LLC’s behalf.

The Supreme Court affirmed the circuit court’s decision to not apply the policy’s care, custody, or control exclusion to the loss.

Dakota Fire Insurance Company v. J&J McNeil, LLC and Harris Bank. Supreme Court of South Dakota. June 25, 2014. 2014 WL 2895426