What is the care, custody, or control exclusion?

Exclusion j in the ISO commercial general liability form is titled "Damage To Property." It lists six kinds of property your GL will not pay to repair or replace:

1. Property you own, rent, or occupy.
2. Premises you sell, give away, or abandon.
3. Property loaned to you.
4. "Personal property in the care, custody or control of the insured."
5. "That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the 'property damage' arises out of those operations."
6. "That particular part of any property that must be restored, repaired or replaced because 'your work' was incorrectly performed on it."

Item 4 is the one people call the CCC exclusion. Items 5 and 6 travel with it and often apply to the same loss. The form also carves out two exceptions you should know: items 3 through 6 do not apply to liability assumed under a sidetrack agreement, and item 6 does not apply to damage within the products-completed operations hazard.

The exclusion applies to personal property, not real property. IRMI points out that the test is the type of property, not who owns it, so a building is outside j.(4) while movable equipment is inside it.

Whether property was in your "care, custody, or control" is decided case by case. IRMI's review of the case law shows the range:

• An Arkansas court read "care" as temporary charge, "custody" as keeping or guarding with a duty to account for it, and "control" as the power or authority to manage or direct it.
• Illinois uses a two-part test: the property was in the insured's possessory control at the time of loss, and it was a necessary element of the work being performed.
• In one example IRMI cites, a crane rental under a service agreement was not in the contractor's custody, so coverage applied. In another, a warehouse that stored, packed, and shipped goods had them in its control, so the exclusion applied.

IRMI's glossary adds that some courts look for physical possession, while others treat anyone with a legal duty to take care of the property as having it in their CCC. The practical point: if your crew is the one handling, running, or responsible for a piece of equipment when it is damaged, expect the exclusion to be argued.

These are the situations where the CCC exclusion and its neighbors tend to come up for service contractors. Whether an exclusion actually applies depends on the facts and the policy wording.

Before you buy anything, read the property allocation in your MSA. Many oilfield contracts are written so each side takes care of its own property regardless of fault. The International Association of Drilling Contractors (IADC) model U.S. daywork contract is a good illustration: the contractor assumes liability for its own surface equipment (Subparagraph 14.3), while the operator assumes liability for its own equipment, "including, but not limited to, casing, tubing, and well head equipment," and indemnifies the contractor group for it (Subparagraph 14.6).

When your MSA follows that pattern, damage to operator property is the operator's risk and the CCC exclusion matters less. When your MSA makes you responsible for operator property "in your possession" or damaged by your negligence, the CCC exclusion is now sitting right in the middle of a promise you made. Our knock-for-knock indemnity guide and MSA insurance requirements guide walk through how those clauses are usually built. Indemnity language is a legal question for your attorney. Our job is making the insurance match it.

There is no single fix, because the right answer depends on what kind of property you handle and what the contract says.

• Modify the GL exclusion. IRMI describes riggers liability coverage, added by an endorsement that "modifies or deletes" the care, custody, or control exclusion, for contractors who move property and equipment belonging to others.
• Bailee coverage on inland marine. Inland marine coverage includes the legal liability of bailees, meaning businesses temporarily entrusted with others' property.
• Rented and leased equipment. Equipment you rent is usually handled on your contractors equipment policy, not your GL.
• Fix the contract. If the MSA puts operator property on you, ask your attorney whether it can follow the knock-for-knock pattern instead.