Premises and Off-Premises Liability Applied
Liability insurance pays what an insured is legally obligated to pay, so the first question in a premises or operations loss is whether the law would hold the insured liable, and the second is which policy language answers. The sections below take both in turn: how the law has traditionally sorted the people who come onto property, how landlords and tenants divide responsibility, the older policy classes that grew up around those exposures, how the commercial general liability (CGL) form treats on-premises and off-premises injury, and the owners and contractors protective form that protects the party who hires a contractor.
The Law Sorts Visitors by Status
The care an owner or occupier owes depends on why the visitor is on the property. Michigan keeps the three traditional categories of visitor: trespasser, licensee and invitee (Kandil-Elsayed v F & E Oil, Inc, Michigan Supreme Court, July 28, 2023). That decision deals with invitees, so the duties described below for licensees, trespassers and children are the general common-law rule, which states apply with variations. What a producer needs is the reasoning, because it explains why a premises liability policy responds to a claim at all.
Invitee
An invitee is a visitor on the property for the occupier’s business purposes or because it is held open to the public; Michigan courts say invitee status is commonly given to people who enter for business purposes. A shopper, a delivery driver at the loading dock and a bank customer are invitees. Michigan gives the invitee the highest level of protection in premises law. The land possessor must use reasonable care to protect invitees from an unreasonable risk of harm caused by a dangerous condition of the land. Reasonable care ordinarily means inspecting, finding the dangers a reasonable inspection would reveal, and repairing them or warning. A wet floor that has been wet for an hour is a danger a reasonable store would have found.
Licensee
A licensee is permitted on the property for the visitor’s own purposes, such as a social guest. The general duty is lower: to warn of known dangers that the visitor is unlikely to discover, and not to injure the visitor by active carelessness. The occupier is not generally required to inspect for hidden defects. A guest who falls through a rotted stair tread the host has never noticed presents a very different claim from one who falls through a tread the host knew was cracked and did not mention.
Trespasser
A trespasser has no right to be there. The general duty is only to refrain from willful or wanton injury, and a landowner who knows trespassers regularly use a path may owe more toward those known to be present. A person who cuts across a closed factory lot at night and is hurt in an unmarked pit has a weak claim, but one injured by a spring gun set to hurt intruders has a strong one.
Children and attractive nuisance
The law treats children differently. Under the attractive nuisance idea, a possessor who knows that children are likely to come onto the land may be liable for harm from an artificial condition the children are too young to appreciate, when the danger is one the possessor could have removed or guarded at modest cost. An unfenced swimming pool, a pile of loose pipe or an abandoned refrigerator are standard examples. The point is that a child’s status as trespasser does not end the inquiry.
Open and obvious conditions and comparative fault
A danger the visitor could plainly see no longer ends the claim before it starts. Michigan used to treat an open and obvious condition as removing the possessor’s duty unless the condition had special features, such as being effectively unavoidable. The Michigan Supreme Court overruled that approach in 2023. The duty to an invitee stays the same, and the open and obvious nature of the condition is weighed in two later steps. The first is breach: the jury may consider whether the condition was open and obvious and whether, despite that, the possessor should have anticipated the harm. The second is comparative fault: if breach, causation and harm are shown, the jury assigns the visitor a percentage of fault and the damages are reduced by it.
Michigan’s statute does the reduction. The court reduces the damages by the injured person’s percentage of fault (MCL 600.2959). If that percentage is greater than the aggregate fault of everyone else, whether or not a party to the suit, economic damages are still reduced by the percentage and noneconomic damages are not awarded.
Worked example. A store leaves a heavy extension cord stretched across a lighted aisle, plainly visible. A shopper looking at her phone trips and recovers a verdict measured at $80,000: $20,000 of economic damages and $60,000 of noneconomic damages. The store argues the cord was obvious, but the jury still reaches breach, because a store should anticipate that shoppers browsing shelves will not watch the floor.
| Jury finds the shopper | Her fault compared with all others | Economic | Noneconomic | Award |
|---|---|---|---|---|
| 30% at fault | Less than the 70% held by others | $20,000 x 0.70 = $14,000 | $60,000 x 0.70 = $42,000 | $56,000 |
| 60% at fault | Greater than the 40% held by others | $20,000 x 0.40 = $8,000 | None | $8,000 |
The liability policy owes what the insured is legally obligated to pay, so these reduced amounts, not the $80,000, are what Coverage A pays on the store’s behalf.
Application. A hardware store has a floor that its staff mop at 4 p.m. without a warning sign, and a customer slips at 4:10 p.m. The customer is an invitee, the condition was created by the store’s own staff, and the store had no reason to think a customer would notice a wet floor in a lighted aisle. The store is likely liable. The policy question follows: the injury happened on premises the store rents and the claim is for damages, so Coverage A of the CGL is the coverage. If the customer instead asks only for the ER bill, Coverage C can pay it, as set out below.
Landlords and Tenants
Each party is responsible for what it controls. A landlord keeps control of common areas, such as a hallway, a lobby, a stairway and a shared parking lot, and is generally answerable for their condition. A tenant controls the leased space, and is generally answerable for conditions there. Where the landlord promises repairs, or does them negligently, the landlord’s responsibility can reach into the leased area. Lease terms and local law fill in the details, and this is general law.
Three coverage consequences follow.
- The landlord needs its own liability coverage. A tenant’s policy does not insure the owner’s building. A landlord of a four-unit building with a broken handrail in the common stair is sued as owner and as the party controlling the stairs, and its premises liability coverage responds to the injured visitor.
- The tenant is insured for the leased space it occupies. The tenant’s CGL covers its liability for injury to customers and visitors in its space, and carries a separate limit for damage to premises rented to it. In the CGL the exclusion for property the insured owns, rents or occupies does not apply to damage by fire to premises rented to the insured or temporarily occupied with the owner’s permission, and a separate Damage To Premises Rented To You limit applies. It also does not apply to damage other than by fire to premises rented for seven or fewer consecutive days, which the same limit covers. A restaurant that rents a banquet hall for two nights and starts a fire pays the owner’s building damage up to that limit; a tenant on a five-year lease whose dishwasher floods its own suite faces the exclusion for non-fire damage.
- The lease can move liability. A tenant that agrees in the lease to answer for the landlord’s tort liability to third persons has made an assumption of liability. The CGL excludes liability assumed under a contract, but not liability assumed in an “insured contract”, and the definition of insured contract begins with a contract for a lease of premises, excluding the part of the lease that indemnifies another person for fire damage to premises rented to the insured. Read the lease as part of the coverage analysis. A tenant that signs an indemnity for the landlord’s negligence in the hallway has an insured contract; one that signs an indemnity for fire damage to the building does not.
The Older Classes of Premises Liability Insurance
Before the CGL, liability coverage was sold as separate policies for different exposures, and the names are still heard in the market:
| Class | Who it served | Exposure it described |
|---|---|---|
| Owners, landlords and tenants (OL&T) | Those who own, lease out or occupy buildings | Injury to others from the condition and use of the premises |
| Storekeepers | Retailers | Premises injury to customers, plus the store’s operations |
| Manufacturers and contractors (M&C) | Manufacturers and building trades | Operations away from the premises, plus products and completed work |
The CGL combined these into one form with two main sub-lines. Premises and operations liability covers a loss arising on the insured’s premises or from its operations. Products and completed operations liability covers injury or damage away from the insured’s premises that arises from its products or finished work. Reading an exposure by the old class still helps in underwriting: a bakery with a retail counter is a storekeeper risk with a manufacturing exposure, a landlord is OL&T, and a remodeling contractor is M&C, because the injury will often happen away from its shop. This describes market practice and not any provision of the current form.
Premises and Operations Under the CGL
Coverage A
Coverage A pays damages the insured is legally obligated to pay because of bodily injury or property damage caused by an occurrence in the coverage territory during the policy period. The territory includes the United States, its territories and possessions, Puerto Rico and Canada. The form also excludes injury to the insured’s own employees, which a workers’ compensation policy handles, and injury arising from the use of an auto, aircraft or watercraft owned or operated by or rented or loaned to an insured. That last exclusion is why a delivery truck’s collision is a commercial auto claim and not a CGL one, while a customer’s fall on the same company’s loading dock is a CGL claim.
Coverage C
Coverage C pays medical expenses regardless of fault, for bodily injury caused by an accident on premises the insured owns or rents, on ways next to them, or because of the insured’s operations. Three conditions apply. The accident must take place in the coverage territory during the policy period. The expenses must be incurred and reported within one year of the accident. And the injured person must submit to examination by physicians of the insurer’s choice as often as reasonably required. It pays first aid at the time of the accident, necessary medical, surgical, X-ray and dental services including prosthetic devices, and necessary ambulance, hospital, professional nursing and funeral services.
Coverage C does not pay for injury to any insured (other than volunteer workers), to a person hired to do work for or on behalf of any insured or a tenant of any insured, to a person injured on the part of the premises the person normally occupies, to a person who can claim workers’ compensation benefits, to a person injured in athletic activities, or for the products-completed operations hazard. Coverage C works as a goodwill coverage: a small bill is paid promptly and the visitor has less reason to sue.
The limits sit in the Declarations. Each Occurrence Limit is the most the insurer pays for the sum of Coverage A damages and Coverage C medical expenses from any one occurrence, and the Medical Expense Limit is the most for all medical expenses because of bodily injury to any one person. The hypothetical limits below are an example: $1,000,000 each occurrence, $2,000,000 general aggregate, $5,000 medical expense and $100,000 damage to premises rented to you.
Claim: the customer’s fall
The hardware store customer from the earlier example breaks a wrist. The medical bill is $4,200. The customer also lost wages and sues for $90,000 in total, including the bill.
- Coverage C. The accident occurred on premises the store rents, and the customer is not an insured, an employee or a person hired to do work. The store’s insurer pays the $4,200 without any finding of fault, since it is inside the $5,000 Medical Expense Limit, and that amount counts toward the Each Occurrence Limit.
- Coverage A. If the customer sues for the full $90,000 and the store is found liable, the insurer defends and pays the damages up to the Each Occurrence Limit. A judgment of $90,000 includes the wrist bill, and the insurer does not pay the same $4,200 twice.
- Result. For the occurrence the insurer pays $90,000 in all: $4,200 under Coverage C and $85,800 under Coverage A. Both count against the $1,000,000 Each Occurrence Limit, and the store pays nothing beyond any deductible.
If the customer had instead been a store employee hurt in the same fall, Coverage A and Coverage C would both be unavailable, and the workers’ compensation policy would answer.
Off-Premises Exposure
Premises coverage is the easy part of a business’s liability picture. The harder losses occur away from its location, in the form of work in progress, delivery and finished work.
- Operations in progress. Coverage A applies to an occurrence anywhere in the coverage territory, and Coverage C reaches injury “because of your operations.” An electrician’s apprentice leaves a cable across a customer’s hallway, and the customer’s visitor trips on it. The electrician’s CGL pays the damages and, for the medical bill, Coverage C.
- Completed operations. Injury or damage that occurs after the work is done and away from the insured’s premises falls under the products-completed operations hazard. A deck built in June that collapses in September is a completed operations loss. The hazard has its own aggregate limit, and Coverage C does not pay for it.
- Property in the insured’s care. The CGL excludes damage to personal property in the care, custody or control of the insured and to the particular part of real property on which the insured or its contractors are performing operations if the damage arises out of those operations. A plumber who floods the kitchen while repairing a pipe pays for the kitchen’s flooring under the CGL. The pipe being repaired is the particular part, and the cost of repairing the plumbing work itself is not covered.
- Vehicles. The auto exclusion applies. A crew’s truck is covered under commercial auto and not under the CGL, and the exclusion reaches loading and unloading as well. That term is defined: the handling of property after it is moved from the place it is accepted for movement into an auto, while it is in or on the auto, and while it is moved from the auto to the place it is finally delivered.
Claim: the roofing contractor. Ridgeline Roofing, an invented company, installs a roof on a customer’s house under a $1,000,000 each occurrence CGL. A crew member drops a bundle of shingles from the roof and breaks a neighbor’s fence ($1,800) and injures the neighbor’s visitor on the sidewalk ($60,000 in damages and medical expenses). A second crew member, hurt falling from the same roof, is a Ridgeline employee.
- The fence and the visitor’s injury arise from Ridgeline’s operations away from its premises, so Coverage A applies. The CGL pays $1,800 + $60,000 = $61,800 and defends, up to the occurrence limit.
- The injured crew member is outside Coverage A (employer’s liability exclusion) and is paid by Ridgeline’s workers’ compensation policy.
- If the visitor’s medical bills are submitted before any suit, Coverage C pays them regardless of fault, within the Medical Expense Limit, because the injury arose from Ridgeline’s operations.
Owners and Contractors Protective Liability
A property owner who hires a contractor can be sued for the contractor’s work. The owner may be vicariously or directly liable, and the contractor’s CGL may extend only partly to the owner as an additional insured. The owners and contractors protective (OCP) form, CG 00 09, is a separate policy bought by the owner, with the owner as named insured, for the operations of a designated contractor at a specified location.
Key terms of the form:
- Coverage. The insurer pays damages because of bodily injury or property damage caused by an occurrence arising out of operations performed for the named insured by the contractor at the location in the Declarations, or the named insured’s acts or omissions in connection with the general supervision of those operations. It has the right and duty to defend.
- Policy period and knowledge. The injury must occur during the policy period, and no listed insured or authorized employee may have known before the policy period that it had occurred.
- Limits. The Each Occurrence Limit is the most for all damages from one occurrence, and the Aggregate Limit applies separately to each designated project if there is more than one.
- Who is insured. The named insured, and certain people for the named insured’s business, including a real estate manager.
Its main exclusions:
| Exclusion | Effect |
|---|---|
| Acts or omissions by you and your employees, other than general supervision | The owner’s own negligence, such as removing a barricade, is not covered |
| Work completed or put to its intended use | Injury after the contractor finishes, or after the work is put to use, is outside the form |
| Workers’ compensation; employer’s liability | Injury to the owner’s own employees is not covered |
| Damage to property | Property the owner owns, rents or occupies, and the contractor’s own work, are excluded |
Claim: the building owner. Northfield Properties, an invented owner, hires a contractor to replace the roof of an office building and buys an OCP policy for $1,000,000 each occurrence. A passerby is hit by falling debris and sues both. The OCP policy pays and defends Northfield for the contractor’s operations. If the suit also alleges that Northfield’s maintenance manager removed a sidewalk barricade the night before, that allegation falls under the exclusion for the owner’s own acts other than general supervision, so the OCP policy would not pay for that part, and the owner’s CGL would be the policy to look to.
In practice the OCP policy sits beside the contractor’s own CGL and does not replace it. It gives the owner coverage of its own for the contractor’s operations, instead of depending on the contractor’s policy.
Lesson summary
- Michigan keeps three visitor categories. An invitee is owed reasonable care to protect against an unreasonable risk of harm from a dangerous condition, in general terms inspection, repair or warning. A licensee is generally owed a warning of known hidden dangers, a trespasser only freedom from willful or wanton harm, and attractive nuisance makes the owner answer for dangerous conditions that attract children.
- An open and obvious condition no longer removes the duty to an invitee. It goes to breach and to the visitor’s comparative fault, and damages are reduced by the visitor’s percentage of fault, with noneconomic damages barred when the visitor’s fault exceeds everyone else’s combined (MCL 600.2959).
- A landlord is generally responsible for common areas it controls, and a tenant for the space it controls. Each needs its own liability coverage.
- A tenant’s CGL excludes damage to rented property except fire damage to premises rented to or temporarily occupied by the insured, which has a separate limit, and damage other than by fire to premises rented for seven or fewer days.
- The classes owners, landlords and tenants, storekeepers, and manufacturers and contractors are older ways of naming exposures, now combined in the CGL’s premises and operations and products and completed operations sub-lines.
- Coverage A pays damages the insured is legally liable for; Coverage C pays specified medical expenses without regard to fault, within one year, but not to employees, tenants, persons hired to do work, or for the products-completed operations hazard.
- Off-premises operations are covered under Coverage A, completed work under the products-completed operations hazard, and vehicles are excluded.
- The OCP form, CG 00 09, protects an owner for a designated contractor’s operations and the owner’s general supervision, and excludes the owner’s own other acts.