There is NO ‘Intentional Acts’ Exclusion in the CGL

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by Christopher J. Boggs, CPCU, ARM, ALCM

Intentional acts are NOT excluded by the commercial general liability (CGL) policy. Exclusion “2.a.” deletes coverage for only “Expected or Intended Injury,” not an expected or intended “Act.” An injury is the RESULT of an act; and only if the result is expected or intended, can the claim be excluded.

In support of this conclusion, the meaning of the word “accident” as used within the definition of “occurrence” refers to the outcome not the action leading to the outcome. If this were not the case, very few instances of “bodily injury” or “property damage” would ever be covered by the CGL.

Combine the legal definition of “accident” with the “expected or intended injury” exclusion and the intended breadth of the CGL’s protection is clear. In application, if the intentional action was expected to or intended to cause injury or damage, only then is such injury or damage NOT considered an accident and subject to the exclusion. Any approach to general liability coverage that applies a different view of the use of this exclusion/definition combination, as its logical conclusion, requires that the original action (act) itself be accidental before coverage applies.

As an example, consider a drywall contractor that misses the stud and instead drills a drywall screw into a water pipe (or electrical wiring or whatever). Six months after completing the job, the screw rusts away resulting in massive amounts of water damage. Is or should this be a covered completed operations “property damage” claim under the CGL?

Yes. Even though drilling in the screw was intentional; hitting the water pipe was accidental. The result of the intentional act is accidental damage which is covered by the policy. If the policy were not viewed and applied this way, the drywall contractor, in essence, would have had to accidentally drill the screw into the wall for coverage to apply, not just accidently drill it into the water pipe.

The difference is expectation and intent. The contractor intended to drill into the stud, but missed – an intentional act with an unexpected/unintended result. If, however, the drywall contractor drilled the screw into the water pipe on purpose following an argument with the GC, he obviously expects and intends some level of damage and any subsequent damage is excluded. The contractor intentionally drilled in a screw with the same result in both instances (water damage), but with differing original intents.

Misapplication of the Exclusion

Some insurance company claims adjusters apparently operate under the mistaken belief that the CGL does contain an “intentional acts” exclusion. A recent incident relayed to me from a professional friend evidenced this.

A pressure washing subcontractor was cleaning the exterior of a newly completed house in preparation for placing the house on the market. Following the cleaning process, the general contractor (GC) discovered that the chemicals used by the pressure washer severely marred and destroyed the appearance of several layers of bricks on one part of the house (not the entire house, just one part). The GC, of course, turned in a claim against the pressure washer requesting to have the bricks replaced.

You guessed it, the pressure washer’s insurance carrier denied the claim stating that the damage was the result of an intentional act (pressure washing the bricks with cleaning chemicals) and thus not “accidental.” The pressure washer was, understandably, livid. His question was the same as mine, if the carrier isn’t going to pay for damage caused by pressure washing because it’s an “intentional act,” why have the coverage (other than to satisfy a contract requirement)?

The chemicals applied were used for the purpose for which they were designed and the means of application were per instructions and industry standard. The pressure washer intended to clean the exterior of the house, but he did not intend the damage that resulted. Had the pressure washer used a chemical known to cause damage or knowingly acted in some manner such that injury or damage would be expected or intended; the denial would have been reasonable.

Does anyone agree with the carrier’s ruling? Can anyone say “bad faith?” (The carrier also denied coverage applying the “your work” exclusion (which is a discussion outside the scope of this article). That, too, is a fallacious argument as the damage was to bricks on the house which was someone else’s work (the mason’s), not the pressure washer’s.)

What is Excluded?

One court stated, “An intentional act exclusion precludes coverage only if the insured acts with specific intent to cause bodily harm or if the facts demonstrate that harm is substantially certain to result.” Two key phrases jump out, “specific intent” and “substantially certain.” A Florida court said, “We explained that an ‘occurrence,’ which is defined as an ‘accident,’ encompasses damage that is ‘neither expected nor intended from the standpoint of the insured.’”

Notice also that the phrase within the exclusion, “from the standpoint of the insured,” negates the “reasonable and prudent test” often applied to questions of negligence. The INSURED must reasonably expect or intend injury or damage for the exclusion to apply. This wording does not allow for any attempt to assert what someone else thinks is reasonable or was intended; only what the insured reasonably expected or intended.

Absent the insured’s specific intent to cause injury or damage or the substantial certainty that injury or damage will result, the unintended result of the insured’s actions meets the classical definition of an “accident” and is covered by the CGL. Remember, intentional injury or damage is excluded by the CGL; NOT an intentional act.

Continued Debate

Actions can be intentional yet result in unintended injury or damage; such claims are covered by the CGL (See “Attacked in a Restaurant: The Insurance Implications of Assault and Battery“). Only when the injury or damage (result) is intended or expected does it no longer qualify as an “occurrence” or “accident.” Non-occurrences and non-accidents are excluded by the CGL policy.

Interesting coverage debates occur on several insurance-focused groups on LinkedIn. One debate several weeks ago involved an “auto-booting” company that placed a boot on the wrong vehicle. The vehicle owner (an attorney) sued the company for loss of use of the vehicle.

The insurance carrier denied the claim on the basis that there was no property damage. Well, the definition of “property damage” includes the loss of use of undamaged property; so that denial seems incorrect.

Several individuals partaking in this on-line debate asserted and held tightly to the idea that even though the loss met the policy definition of property damage, there is still no coverage because the insured’s act was intentional not accidental. The problem with this argument, as has been detailed here, there is no exclusion for an intentional action only for an expected or intentional injury.

If the contractor knew it was the wrong car and placed the boot out of spite, the resulting loss of use is intended “from the standpoint of the insured.” Once it moves away from a true “accident” to an intended injury or damage, coverage is excluded. But until it moves from unintentional to intentional, there is still coverage.

Based on the facts of the case as they were presented in the forum, the insured did not know it was the wrong car and was not being malicious in placing the boot. This was an intentional act with unintended injury.

However, the exclusion uses the conjunction “or” (see: “How to Read an Insurance Policy“). “Or” is an exclusive term meaning that if either of the conditions exists, there is no coverage (or coverage or whatever the particular section is intended to accomplish). Although the injury was not intended, the insured should reasonably expect that the owner of any car with one of its boots in place would lose the use of the vehicle.

Because the loss of use is expected by the insured, there may be no coverage available even though the target of the boot was unintentional. In effect, booting the wrong car is a business risk to which the boot placement company is exposed; and insurance is not generally intended to cover a business risk (See: “Six Reasons the Loss is Excluded“). Their business is to boot vehicles; if they boot the wrong one that’s a risk they take. Damaging a vehicle is a different story; the insured is not in the business of causing actual property damage.

Coverage is likely unavailable in this case, but not because of the intentional act. The loss will likely be excluded because of ability to foresee the loss of use inherent in the nature of the business.

Concluding Thoughts

When evaluating the CGL’s expected or intended injury exclusion in light of the entire policy (including the definition of “occurrence” and the legal definition of accident), remember it’s expectancy or intention that triggers the exclusion, not the act. Does the insured intend to cause injury to a particular person or entity? Should the insured reasonably expect his actions to cause injury or damage to another party? If the answer to both is “no,” then coverage exists.


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Comments

  • July 13, 2009 at 1:53 pm
    Frances A. Sitta says:

    Interesting. Writing to you regarding specifically about molestation and abuse. If we assume that an adult knows the molestation will cause injury to the child ( you don’t have to agree with that if you don’t want to) then it makes it intentional injury. Then the only argument is if the “insured” intended it. So the insured could have coverage if an employee caused the intentional injury, but if the “insured” caused the intentional injury there would be no coverage. Do you really want to rely on that to advise your insureds on this issue?? Not me, I will take the agreed upon coverage every time.

  • July 13, 2009 at 2:18 pm
    Jim Larsen says:

    Interesting Frances – I’m not sure just what “agreed upon coveregae” is unless you are buying a separate molestation policy. I have had a number of these employee molested someone claims and each time the CGL responded defending the Insured – owners of properties or management company – but would not extend to the employee (employee as additional insured) part of the claim. If coverage for the owner was not the case why do we have a separate molestation endorsement added to the CGL policy? Oh just for clarification of intent I suspect. If the insured does not do or instruct the molestation to be done he should be covered but not the molestator.

  • July 13, 2009 at 10:12 pm
    Tom Murin says:

    Good article. I recall reading an interesting case about a demolition company that razed the wrong building. Clearly they intended to cause the damage unlike the power washer cited above. Unfortunately, I can’t remember how the court ruled!

  • July 14, 2009 at 4:43 pm
    Eli Gillespie says:

    In the example of the pressure washer, wouldn’t the damaged brick be excluded because of the Property Damage Exclusion – J, (5) or (6)?

    I know I’m moving further off the topic of intentional acts but this is puzzling to me.

  • July 15, 2009 at 1:28 pm
    Pierre-Michel Feuz says:

    Mr. Boggs helps us to understand and articulately clarifies for us these at times mystifying terms and expressions.

    “Intentional Act or Acts” do of course permeate in so many facets of Insurance and certainly retain our “legal” attention. One such aspect is that which is reflected in the Insurance of Financial Institutions, such as Banks….why ever mention this..well with the infamous Credit Crunch I felt I could help draw some emphatic similarities in the “Intentional Acts” definition..

    In Financial Institution coverage, some of the covers are sometimes referred to as Comprehensive Crime Insurance,
    (the Policy Section 1 mostly afford coverage in respect of Bonds and under Section 2 gives coverage in respect of Computer Crime).

    The Section 1 above referred in the first segment of coverage offers “Fidelity” of Employees and it is under this heading that one finds the similarity of coverage to that in the CGL on the subject of “Intentional Acts” which are covered as expressed in the text hereunder:-

    FIDELITY

    Loss resulting directly from dishonest or fraudulent acts committed by an Employee acting alone or in collusion with others. Such dishonest or fraudulent acts must be committed by the Employee with the manifest intent:

    (1) to cause the Insured to sustain such loss; or

    (2) to obtain financial benefit for the Employee or another person or entity.

    Additionally in respect of Loans and Trading, the bond will only cover loss resulting from dishonest or fraudulent acts committed by an Employee:

    (A) to cause the Insured to sustain a loss which result in an improper financial benefit for the
    Employee; and

    (B) an improper financial benefit for another person or entity with whom the Employee was in
    Collusion

    Provided that the Insured can establish that the Employee intended to participate in the financial benefit of such dishonest or fraudulent acts.

  • December 3, 2010 at 11:13 am
    Confuzzled says:

    I couldn’t help but think one thing while reading this article: why is the intentional injury exclusion necessary? As you noted, the definition of “accident” (which is included in the definition of “occurrence”) references the outcome of the intentional ACT. If it is found that one acted intentionally and intended the consequences, there is no “accident” (and thus no “occurrence”).

    I suppose what I’m thinking is the “occurrence” requirement is a threshhold issue. If you can’t prove there was an accident, you can’t prove there was an occurrence. If you can’t prove there was an occurrence, there’s no coverage.

    Similarly, if you prove there was an occurrence, there is coverage. If there’s coverage, how can you apply the intentional injury exclusion? You’ve already proven there was an accident (which by definition means there were no intended consequences).

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