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Federal Court interpreting PA Law Finds that Rental Company Not Covered by Lessee's Insurance in Accident Case

May 12, 2014

Recently, in the case of Modern Sales & Rental Equipment v. Main Street America Assurance Company, et al., No. 3494 EDA 2012 (Decided March 3, 2014), a case not handled by attorneys at Zarwin Baum, the Superior Court of Pennsylvania refused to extend coverage under an additional insured endorsement involving the entrustment of leased equipment. This declaratory judgment matter arose out of lawsuit in which the plaintiff had been run over and had his leg crushed by a track loader. The track loader was owned by Modern Sales and was leased to a United Construction Service. United in turn allowed a landscaping company to use the loader which permitted a 10 year old to operate the loader. It was the 10 year old who was "behind the wheel" when the plaintiff's leg was crushed.

Modern Sales sought coverage under a policy issued by Main Street to United. The policy contained an endorsement which limited the additional insured status to liability for bodily injury caused in whole or in part by its insured's (i.e, United's) maintenance, operation or use of the leased equipment. The Superior Court upheld the trial court's decision to deny coverage because the underlying action did not state a claim relating to United's use or operation of the track loader, despite Modern Sales' argument that use of the leased equipment included "entrustment." The Superior Court implied in its ruling that "entrustment" is not "use." It bolstered this conclusion by not only looking at the plain meaning of the additional insured endorsement but also at an exclusion within the policy relating to aircraft, auto or watercraft which specifically precluded coverage for use or entrustment of such equipment by the insured, even if the allegations included lack of supervision or monitoring by the insured. Thus, the court reached its conclusion that there was no coverage by simply comparing the type of claim raised against the plain language of the policy.

Practice Tip: Since it is the nature of the claim asserted in the underlying complaint that determines the scope of coverage, careful reading of the complaint in comparison to the language of the policy will determine whether a defense and indemnity are owed, especially where the coverage sought extends beyond the immediate contractual relationship of the parties.


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