by Avery S. Chapman, Esq.
All is well in the world. As an equine professional, you have care, custody, and control over others’ horses. As an owner, you have entrusted your horses to a professional. Each believes that in case of a misadventure, exposure or losses that they are adequately covered by an Excess Personal Liability Insurance (“EPL”) policy issued by your equine sport’s governing body. Guess again.
A review of certain master policies reveals that care, custody or control (“CCC”) is expressly excluded from coverage. Further, CCC policies only cover damage to the horse and not damage to third parties.
The Care, Custody or Control Exclusion
Whoa. Full halt. What’s that? Let me explain. In almost all commercial general liability policies (“CGL”) and most EPL policies issued by equine governing organizations to their members, there is an exclusion for coverage of property in one’s “care, custody or control.”
This means that the policy with such an exclusion does not cover damage to or liability caused by the personal property of another that is in your care, custody or control. Remember, a horse is considered “personal property” in this context. So, putting it another way, if you have care, custody or control of a horse owned by another, and while you do, that horse is hurt or hurts someone or something, let’s say, by breaking out of its paddock and running down a busy street, you are responsible for the damage to the horse and may not be insured against that damage. As well, you are not covered for the harm to any third parties or their property by that errant horse. On the other side, if you are the owner of that errant horse, you may find your trainer to whom you entrusted the care, custody or control of the horse, does not have insurance for the mishap.
Wait you say, why would a CGL or EPL policy exclude such a possibility? To understand that, you have to think like an insurance company. An insurance company is in the business of making money from premiums and sets those premiums from an understanding of what risks the insurance company is assuming. For example, this is why a 17-year old’s auto insurance is more expensive than a 47-year old’s auto insurance. The company understands the risk is decreased as a person matures and has more experience behind the wheel.
In the same vein, insurance companies typically exclude care, custody or control from CGL and EPL policies, only to include coverage back in after an insured specifically discloses in writing what activities the insured is undertaking. Once the insurance company has reviewed those disclosed activities, the company can price the premium according to the risk the company believes it is undertaking by insuring the activity. The company is weighing the likelihood of a mishap in a given activity against the profit to be gained by earning the premium by insuring the activity.
In the equine industry, this means disclosure of the type of equine discipline, sport, activity and whether it is commercial or personal. Insurance companies are reluctant to cover equine professionals and equine activities until the company understands the conditions of the care, custody, and control and hence the risk being assumed by the insurance company. Therefore, the broad CGL and EPL policies you may receive as a benefit for being a member of an equine organization likely do not include coverage for care, custody or control.
Now that you have that down, a word on the definition of care, custody or control. First, there is the scope of the definition. Care, custody or control applies to personal property, that is, movable property that is not real estate or buildings. It does not matter if the personal property is owned by an individual or a business, it is all personal property if you can move it. (For you deep thinkers, a fence is not considered personal property because once it is installed, it is considered a fixture of the real property on which it rests, even if you can relocate the fence line).[irp]
Care, Custody or Control Defined
The next question goes to the definition of the words care, custody or control. A leading insurance industry trade group, the International Risk Management Institute, notes that the definition of care, custody or control is dependent upon the jurisdiction and court giving the definition: “In some cases, CCC has been determined to entail physical possession of the property; in others, any party with a legal obligation to exercise care with respect to property has been deemed to have that property in its CCC.” The definition often turns on the facts of each particular case. American Family Mut. Ins. Co. v. William J. Bentley, 352 N.E.2d 860 (Ind. App. 1976).
One state supreme court has observed: “The care, custody and control clause in liability policies, so far as our research has extended, appears to be almost universally used, but its construction is, to a large extent, dependent upon circumstances of each case and we conclude that the phrase should be applied with common sense and practicality. Hardware Mut. Cas. Co. v. Crafton, 350 S.W.2d 506 (Ark. 1961).
For example in one case, liability for damage to a truck harmed by the collapse of a building while under the supervision of the dairy at the time of the collapse, was imputed to the dairy because the Court determined that supervising the truck meant that the truck was under the care, custody, or control of the dairy. Therefore, the Court applied the CCC exclusion. Paul Madden v. Vitamilk Dairy, Inc. & Continental Cas. Co., 367 P.2d 127 (Wash. 1961).
In contrast. Merely giving permission to park on a lot a trailer which is later destroyed by fire does not trigger the existence of “care” and therefore does not trigger the CCC exclusion. Rochester Woodcraft Shop, Inc. v. General Acc. Fire & Life Assur. Corp. Ltd., 35 A.D. 186, 187 (N.Y. App. Div., 3d Dept., 1970).
Turning, then, to the meanings of the CCC words:
“Care” may be defined as having temporary charge of the property. Hardware Mutual, supra.
“Custody” may be defined as a keeping or guarding and a necessity for an accounting Hardware Mutual, supra.
“Control” may be defined as having the ability or authority to affect the property. Vitamilk Dairy, supra.
Note also that the words are in the disjunctive, joined by the word “or” meaning that any one of them is sufficient to trigger liability and trigger the CCC exclusion.
So What Do I Do Now?
If you are a professional taking care, custody or control over others’ horses, you should first have your own CCC insurance to cover damage to those horses and to cover defense costs for such harm. Typically, such CCC policies are priced on a per-horse basis and cover accidents and sickness, but not mortality.
In addition, you should both: (a) insist the horses’ owner(s) obtain their own mortality policies (or specifically contract that right away); and (b) obtain your own umbrella policy to cover mishaps involving harm to third parties.
If you are an owner entrusting a horse to another, you should: (a) insist the other person has its own CCC policy and request to see it; (b) keep your mortality insurance in place while the horse is not with you; and (c) keep your own umbrella policy in place to guard against the failure of the other person to maintain the proper insurance.
In addition, whether professional or amateur, trainer or owner, there are various liability and asset protection strategies you should deploy as you conduct business in the equine community. Consult an equine attorney familiar with those constructs before a problem arises, because closing the barn doors after the horses get out is never useful.