by Diana Kowatch, CPCU, AU, AAM, CPIW
As our society continues to draw heavily upon its legal system to resolve and interpret even the smallest detail of the legal contract known as insurance, drafters and providers of such coverage must be in a continual state of revision in order to keep up with vast volumes of court decisions.
As a result, the Insurance Services Office (ISO) has developed and filed a new set of revisions to its Commercial General Liability program.
These revisions include the addition of a number of new multistate endorsements, the withdrawal of several existing multistate endorsements, and the revision of others. Some of these changes do not impact coverage but were made to clarify existing coverage. However, there are also some significant coverage changes that will impact the way we think about several aspects of the general liability contract.
The 1996 revisions to the general liability multistate endorsements
ISO has labeled these changes as the 1996 Revisions. The endorsements themselves contain a March 1997 revision date, and the first batch of state approvals has been received using an April 1, 1997, effective date.
Named insured or additional insured--excess versus primary
Whenever the named insured in one policy was also an additional insured under another policy, some confusion previously existed as to how and when each policy responded. In this new set of revisions, it is made clear that the first policy (the one in which the entity is a named insured) is excess over the other insurance in which the entity is an additional insured. It was done in this manner because if an entity is added to another entity's policy as an additional insured, the first entity usually has done so in order to make the second entity responsible for the cost and coverage for a specific exposure.
Two new mandatory endorsements have been developed for this purpose. The new endorsements amend the Other Insurance condition in the CGL coverage form. The new endorsements are:
* Amendment of Other Insurance Condition (Occurrence Version), CG 00 55, and
* Amendment of Other Insurance Condition (Claims-Made Version), CG 00 56.
In addition, two new claims-made endorsements have also been developed:
* Supplemental Extended Reporting Period Endorsement With Amendment of Other Insurance Condition, CG 27 10, and
* Supplemental Extended Reporting Period Endorsement For Specific Accidents Products, Work or Locations With Amendment of Other Insurance Condition, CG 27 11.
The two claims-made endorsements replace two existing endorsements which have been withdrawn:
* Supplemental Extended Reporting Period Endorsement, CG 27 01, and
* Supplemental Extended Reporting Period Endorsement For Specific Accidents Products, Work or Locations, CG 27 04.
What impact does this change have with respect to coverage? Basically it is more of a clarification of intent rather than a coverage change. There are no changes in premium charge or rating as a result.
Vendors GL 24 10 withdrawn
The purpose of endorsement CG 24 10, Excess Provisions--Vendors, is to clarify that the vendor coverage (vendors as additional insured) is excess over other insurance. This endorsement is now a duplication of the above mentioned mandatory endorsements affecting the Other Insurance condition. The CG 24 10 is no longer necessary and has been withdrawn.
There is no change to coverage or rate.
Blanket additional insured endorsements
Often insureds such as contractors and subcontractors are contractually obligated to name long lists of additional insureds in their CGL as a result of contractual obligations. Prior to this revision, each additional insured had to be listed specifically in order to be considered an additional insured. This resulted in a nightmare of paperwork for insureds, insurers, agents, and brokers. To resolve this issue, a new endorsement has been developed to allow the addition of additional insureds without being required to name each one. The new endorsement--Additional Insured--Owners, Lessees or Contractors--Automatic Status When Required In Construction Agreement With You, GL 20 33, provides the necessary coverage without having to name and endorse each one to the policy.
A comparable need existed for named insureds who regularly lease equipment from others. They, too, have the need to add the owners of the leased equipment as additional insureds to their respective CGL policies. Additional Insured--Lessor of Leased Equipment--Automatic Status When Required In Lease Agreement With You, CG 20 34, is now available to eliminate the administrative handling costs of these expensive and time-consuming changes to the liability insurance coverage form.
Both of these new endorsements can be purchased to broaden and provide the insured with automatic coverage. The pricing of this endorsement is on a "refer to company" basis which means it is up to the discretion of the insurer.
A clarification is important. Only those additional insureds that are required of the insured in either construction contracts or agreements for the CG 20 33 and lease contracts or agreements for the CG 20 34 are automatically covered. Any other additional insured must be added individually as in the past.
Additional insured--with or without contractual liability
The titles of the two additional insured endorsements have been changed to clarify the usage and application of the endorsements as well as the coverage contained within. There is no change to the content of the endorsements themselves, only to the titles. The two endorsements are:
* Additional Insured--Owners, Lessees or Contractors, Scheduled Person or Organization (For Use When Contractual Liability Coverage Is Not Provided To You In This Policy), CG 20 09--formerly known as Additional Insured--Owners, Lessees or Contractors (Form A). This endorsement should be used when the named insured does not have contractual liability coverage with the same insurer as the additional insured named in the endorsement.
* Additional Insured--Owners, Lessees or Contractors--Scheduled Person Or Organization, CG 20 10--formerly known as Additional Insured-Owners, Lessees or Contractors (Form B). This endorsement should be used when the named insured and the additional insured named in the endorsement do have contractual liability coverage with the same insurer.
There is no change in coverage, nor is there any rating impact as a result of these revisions.
Pollution--Heating Equipment
A new mandatory endorsement, CG 00 54--Amendment of Pollution Exclusion--Exception for Building Heating Equipment, has been developed. This endorsement is to be attached to all CGL policies. Previously, the CGL excluded bodily injury or property damage that arose from pollutants at or from any premises owned or occupied by an insured or rented/loaned to an insured. One of the results of this exclusion was that the CGL did not respond to a faulty heater that emitted toxic pollutants. Many legal cases have arisen directly from this exclusion. Now, in order to resolve this quandary, the new endorsement clarifies that if bodily injury is sustained within a building and is caused by smoke, fumes, vapor, or soot from equipment used to heat the building, there is coverage under the CGL.
This change broadens coverage. There is currently no rating impact as a result of this increased coverage.
For those readers who wish further information on this topic, refer to a related article written by Donald S. Malecki, CPCU, in the Risk Management column found in the November 1996 issue of the Rough Notes Magazine.
Pollution--Hostile Fire
The current CGL excludes pollution with a few limited exceptions. To that, an endorsement may be added to virtually eliminate all pollution exposure via the Total Pollution Exclusion Endorsement, CG 21 49. A new optional endorsement has been developed to provide an alternative to the total pollution endorsement which will exclude all pollution except that which results from hostile fire. The new endorsement is CG 21 55, Total Pollution Exclusion With A Hostile Fire Exception.
The rating of this endorsement is on a "refer to company" basis.
Professional liability exclusions
At the present time, the CGL has one multi-purpose endorsement, CG 21 16, Exclusion--Designated Professional Services, to exclude liability from the rendering or failing to render of professional services. It is a mandatory endorsement for a number of specific classes as listed in the ISO Commercial Lines Manual (CLM). It has long been felt that more specific endorsements should be developed for the affected classes. As a result, a number of new endorsements were developed and the existing endorsement was revised. The new endorsements are:
* Exclusion--Diagnostic Testing Laboratories, CG 21 59
* Exclusion--Funeral Services, CG 21 56
* Exclusion--Professional Veterinarian Services, CG 21 58
* Exclusion--Counseling Services, CG 21 57,
each applying to a specific profession.
For all other professions without a more specific endorsement, the Exclusion--Testing or Consulting Errors and Omissions, CG 22 33, still applies as an option.
There is no change in either coverage or rate as a result of these revisions.
Exclusion--Patient Injury
Originally, the endorsement, Exclusion--Patient Injury, CG 22 49, was written to make sure that there was no overlap between the CGL and an insured's professional liability insurance policy when the insured was a medical or health care professional. However, with the mandatory endorsement, Exclusion--Services Furnished By Health Care Providers, CG 22 44, that is a class required endorsement, there is duplication and the CG 22 49 is not needed. It has been withdrawn.
As long as the mandatory CG 22 44 is applied where appropriate, there is no change in coverage and no rating impact.
Contractual liability exclusion for personal injury
Endorsement CG 22 74, Amendment of Contractual Liability Exclusion for Personal Injury Limited To False Arrest, Detention or Imprisonment For Designated Contracts or Agreements, allows for limited personal injury contractual liability coverage that the insured has assumed in a contract or agreement, as long as that contract or agreement is scheduled in the CG 22 74. In an attempt to make sure that the CG 22 74 is used appropriately, the wording has been revised to clarify that the insurer is obligated to provide defense or pay for defense expenses only when it results from a covered personal injury arising out of the offenses of false arrest, detention or imprisonment.
There is no coverage change, only a clarification and, as such, no rating impact.
Aggregate limits
The current endorsement--Amendment--Aggregate Limits of Insurance (Per Project), CG 25 03, was designed and developed to make a separate aggregate limit available for each specific construction project that an insured contractor was involved in. The current revisions to this endorsement were made to clarify better how the various aggregate limits will apply and to clarify that the endorsement has been changed from a blanket type coverage to a designated project coverage. Each project must be described in the schedule; however, if the insured still wishes the blanket overall coverage, the schedule can be worded in such a way as to provide that. For example, the wording may now state something similar to: all projects of the insured. In any event, it is important to understand that projects must be listed. There must be an entry in the schedule for coverage to apply. The endorsement has been renamed to read: Designated Construction Project(s) General Aggregate Limit, CG 25 03, to clarify the changes.
One important note: when using the CG 25 03, the term PROJECT is not defined and could lead to some discussion and ambiguity. Watch descriptions and terminology carefully.
The same thought process and concept has been applied to Designated Location(s) General Aggregate Limit Endorsement, CG 25 04. This endorsement is similar to the CG 25 03; but instead of a "per project" basis, it is a "per location" basis. The same types of changes have been made. The new title is: Designated Location(s) General Aggregate Limit Endorsement, CG 25 04.
Be careful when renewing a policy that previously contained either of these two endorsements. The coverage has been restricted in this revision since it now changes from blanket to specific. Each endorsement must contain a schedule. Watch renewals carefully. Be aware of the change and handle accordingly.
Exclusions--Employees as insureds
Employees are automatically included as insureds under the CGL unless specifically endorsed to exclude. However, when Endorsement CG 21 37, Exclusion--Employees As Insureds, is added to the CGL, thus eliminating insured status for employees, the employer now has a potential liability exposure for nonownership liability coverage for aircraft, auto, and watercraft that are operated by an employee. The wording of the Aircraft, Auto, and Watercraft exclusion is such that it is not applicable to an employee who is not an insured. To resolve this situation, the CG 21 37 has been revised with language that clarifies that even when employees are not insureds under the CGL, the Aircraft, Auto, and Watercraft exclusion will still be applicable.
This is a reduction in coverage for any CGL that has been endorsed with the CG 21 37. The rating of this exclusion is on a "refer to company" basis and is up to the decision of the individual insurer.
The overall impact of the 1996 Revisions To The General Liability Multistate Endorsements appear to be good ones and should result in a strengthening of the CGL program, while still allowing the necessary flexibility to meet individual needs.
------
The author
Diana Kowatch, CPCU, AU, AAM, CPIW, with over 20 years' experience in the insurance industry, is editor in chief of Rough Notes' Technical & Educational Products.