5: general provisions.
Section II--Who Is an Insured
Section III--Limits of Insurance
Section IV--Commercial General Liability Conditions
WHO IS AN INSURED
Section II of the CGL coverage forms entitled "Who Is an Insured," was modified in 1993, 1996, 2001, and 2004. The commentary in this section does the following:
1. Presents the 2001 and 2004 "Who Is an Insured" provisions.
2. Compares the 1986 and later provisions to the corresponding provisions of the 1973 comprehensive general liability policy and the broad form general liability endorsement (hereinafter referred to as the "old" provisions).
3. Describes the modifications to the "Who Is an Insured" where applicable.
"Who Is an Insured" consists of four parts in the 2001 edition of the CGL policy; part 3 is omitted from the 2004 edition. Each part is discussed in turn below.
Part 1--"You" and Other Designated Persons
Part 1 of Who Is an Insured reads as follows:
1. If you are designated in the Declarations as:
a. An individual, you and your spouse are insureds, but only with respect to the conduct of a business of which you are the sole owner.
b. A partnership or joint venture, you are an insured. Your members, your partners, and their spouses are also insureds, but only with respect to the conduct of your business.
c. A limited liability company, you are an insured. Your members also are insureds, but only with respect to the conduct of your business. Your managers are insureds, but only respect to their duties as your managers.
d. An organization other than a partnership, joint venture or limited liability company, you are an insured. Your "executive officers" and directors are insureds, but only with respect to their duties as your officers or directors. Your stockholders are also insureds, but only with respect to their liability as stockholders.
e. A trust, you are an insured. Your trustees are also insureds, but only with respect to their duties as trustees.
In 1996, Who Is an Insured was modified to include various references to limited liability companies, which are an increasingly common alternative to individual proprietorships, partnerships, joint ventures, and corporations. Limited liability companies resemble corporations in some respects and partnerships in others.
If the named insured is a limited liability company, the company is an insured. The members (essentially, owners) of the company are also insureds, but only with respect to the conduct of the company's business. The company's managers are also insureds, but only with respect to their duties as the company's managers.
Trustees are able to be added to the pre-2001 CGL forms as additional insureds by endorsement. With the introduction of the 2001 CGL forms, trustees of trusts that are named insureds are included as insureds, thus eliminating the need for the additional insured endorsement.
Apart from the additions to limited liability companies and trusts, the above provisions are virtually identical in effect to the parallel portions of the old provisions. An improvement over the old coverage for spouses is the current statement that the spouses of members of a joint venture are insured persons, provided the named insured is a joint venture. Under the old language, spouses are insured persons only if the named insured is a sole proprietor or partnership.
Since at least 1941 and until the 1973 general liability provisions were replaced, stockholders have been considered as insureds but only while acting within the scope of their duties as such. However, the italicized wording was replaced in the 1986 and later CGL forms with a provision that reads: "your stockholders are also insureds, but only with respect to their liability as stockholders."
One reason for the amendment might have been cases such as Turner & Newall v. American Mutual Liability Insurance Company, 1985-86 C.C.H. (Fire and Casualty) 1046, in which an insurer was obligated to defend and provide coverage to an English corporation that held stock, through a wholly owned Canadian subsidiary corporation, in an American corporation named as an insured under liability policies. The U.S. District Court for the District of Columbia ruled that the English corporation was covered under the liability policies as a stockholder of the named insured "while acting within the scope of his duties as such" because, in part, of the ambiguity conveyed by the phrase in quotes. As a result, the insurer of the liability policies written for the American corporation was required to pay the English corporation the costs of defending asbestos-related bodily injury suits arising out of the conduct of both the English corporation and the American corporation.
Part 2--Volunteer Workers and Employees
The second part of Who Is an Insured (2001 and 2004 versions) reads as follows:
2. Each of the following is also an insured:
a. Your "volunteer workers" only while performing duties related to the conduct of your business, or your "employees", other than either your "executive officers" (if you are an organization other than a partnership, joint venture or limited liability company) or your managers (if you are a limited liability company), but only for acts within the scope of their employment by you or while performing duties related to the conduct of your business. However, none of these "employees" or "volunteer workers" are insureds for:
(1) "Bodily injury" or "personal and advertising injury":
(a) To you, to your partners or members (if you are a partnership or joint venture), to your members (if you are a limited liability company), a co-"employee" while in the course of his or her employment or performing duties related to the conduct of your business, or to your other "volunteer workers" while performing duties related to the conduct of your business;
(b) To the spouse, child, parent, brother or sister of that co-"employee" as a consequence of Paragraph (1)(a) above;
(c) For which there is any obligation to share damages with or repay someone else who must pay damages because of the injury described in Paragraphs (1)(a) or (b) above; or
(d) Arising out of his or her providing or failing to provide professional health care services.
(2) "Property damage" to property:
(a) Owned, occupied or used by,
(b) Rented to, in the care, custody or control of, or over which physical control is being exercised for any purpose by you, any of your "employees," "volunteer workers," any partner or member (if you are a partnership or joint venture), or any member (if you are a limited liability company).
b. Any person (other than your "employee" or "volunteer worker"), or any organization while acting as your real estate manager.
c. Any person or organization having proper temporary custody of your property if you die, but only:
(1) With respect to liability arising out of the maintenance or use of that property; and
(2) Until your legal representative has been appointed.
d. Your legal representative if you die, but only with respect to duties as such. That representative will have all your rights and duties under this Coverage Part.
Volunteers as Insureds
The portions of Section 2.a. regarding volunteer workers have no counterparts in earlier editions of the CGL forms. Newly added in the 2001 edition as an automatic insured is a volunteer worker, a term defined to mean "a person who is not your 'employee', and who donates his or her work and acts at the direction of and within the scope of duties determined by you, and is not paid a fee, salary or other compensation by you or anyone else for their work performed for you."
Reference to the quoted term "employee" was an addition to CGL forms in 1993 in order to better facilitate coverage for employee leasing exposures that have grown immensely over recent years. To clarify matters, the term "employee" also needed to be defined. The definition section now defines employee to mean:
"Employee" includes a "leased worker." "Employee" does not include a "temporary worker".
The fact that the word "includes" is used in the above definition instead of "means" avoids limiting the definition of employee solely to a leased worker. The term employee, therefore, can also be taken to mean any other employed person, other than an excluded person such as a temporary worker.
And to make it clear that a temporary worker is not given the same status and protection as other employees, including leased workers, the definitions section contains two additional defined terms that were added with the 1993 amendments:
"Leased worker" means a person leased to you by a labor leasing firm under an agreement between you and the labor leasing firm, to perform duties related to the conduct of your business. "Leased worker" does not include a "temporary worker". "Temporary worker" means a person who is furnished to you to substitute for a permanent "employee" on leave to meet seasonal or short-term workload conditions.
Incidentally, the definition of temporary worker is identical to that definition appearing in the labor contractor endorsement for use with the standard workers compensation policy as issued to the entity that desires to obtain the services of a labor contractor (lessor). The defined term leased worker, on the other hand, is referred to, but undefined, under the workers compensation policy.
Another term now defined is "executive officer," meaning a person holding any of the officer positions created by your charter, constitution, bylaws, or any other similar governing document. One of the primary reasons executive officer is a defined term is to avoid the argument raised by some employees confronted with a fellow employee suit (currently also referred to as a co-employee suit) to maintain that they were acting in the capacity of an executive officer at the time their negligent conduct injured another employee in order to overcome the CGL policy's co-employee exclusion. With this definition of executive officer within the policy, an alleged tortfeasor/co-employee will be unlikely to obtain coverage unless he is in fact an executive officer as defined in the policy.
One can conclude, based on section 2.(a)(1), that those who are automatically included as insureds under CGL forms are volunteer workers, employees, and leased workers. Those who are not insureds under this section are temporary workers and executives, the latter because they are automatically included as an insured in the first section of Who Is an Insured.
Paragraph 2.a.(1)(a), as it now reads above, was introduced with the 1993 edition and is referred to as the co-employee exclusion. It contains language to make it clear that no employee is an insured for bodily injury or personal injury to the named insured's partners or members if the named insured is a partnership or joint venture. Although earlier editions applied only to injury to "you or to a co-employee," ISO has maintained that the revised language is merely a clarification.
Because most states do not permit co-employee suits, many underwriters will delete reference to co-employee suits by endorsement. 1 When such an endorsement is issued, it still leaves intact such exclusions as paragraph 2.a.(1)(a) involving injuries, at the hands of an employee, upon the named insured's partners, members of joint venture, limited liability companies, and sole owners.
It was with the 1990 revision that paragraph 2.a.(1)(b) was introduced. It broadened the co-employee exclusion to preclude coverage for suits made by relatives of an employee against a co-employee. As a result, this wording has the same effect with respect to relatives' suits against co-employees as the employee injury exclusion (exclusion e. of Coverage A) has on relatives' suits against the named insured.
Third Party Actions
Paragraph 2.a.(1)(c) was introduced in 1990 to make clear that coverage is precluded even in such instances as a third party (or third party over) action discussed in Chapter 1.
Professional Liability Exclusions
The exclusion of injuries arising out of an employee's providing or failing to provide professional health care services [2.a.(1)(d) above] has no counterpart in the old provisions. Ordinarily, a professional liability exclusion endorsement is attached to a CGL policy whenever the insured's classification--for example, physician or hospital--calls for it. Such an exclusion differs from section 2.a.(1)(d) above in that the endorsement excludes professional liability of any insured under the policy, including the named insured. Section 2.a.(1)(d), in contrast, excludes professional liability of the insured employee only; it does not, for example, apply to vicarious liability that the named insured might have for the employee's providing or failing to provide professional health care services.
Therefore, section 2.a.(1)(d) should not be viewed as a substitute for the professional liability exclusions that may be attached to a CGL policy for certain classifications. The intent behind 2.a.(1)(d) seems to be to exclude coverage for professional liability that might fall upon incidental medical personnel of the insured organization, particularly an organization that does not otherwise provide medical services.
So, for example, a nurse employed by a manufacturer to administer first aid to other employees would not be covered for liability arising out of her providing of health care services. As long as the policy is not amended with a professional liability exclusion that applies to the named insured, the named insured would be covered for liability arising out of the employed professional's providing of health care services, assuming no other exclusion applied, such as (in the case of an employee's claim) those relating to injury to employees of the named insured and to workers compensation obligations. If, for example, an employed nurse injured a visitor to the premises in administering first aid to the visitor, the policy would not cover a claim against the nurse but presumably would cover a claim against the employer.
Section 2.a.(1)(d) may be intended, at least partially, as a counterpart to an exclusion under the incidental malpractice liability provisions of the broad form CGL endorsement that commonly was attached to the 1973 CGL policy. The old exclusion applied to any insured engaged in the business or occupation of providing any of a variety of medical services listed under the incidental malpractice coverage. Since an employed medical professional can be viewed as an insured engaged in the occupation of providing medical services, he or she would not have been covered under the old broad form endorsement either. However, the old exclusion applied to any insured in that business or occupation, whereas section 2.a.(1)(d) applies only to employees.
Property Damage Exclusion
Exclusion j of the 1986 CGL coverage forms excluded (among other things) damage to "personal property in your care, custody or control." In the 1990 CGL changes, ISO changed this part of the exclusion j. to apply to "personal property in the care, custody or control of the insured." After making this change, ISO became concerned that the change would be interpreted to mean that the CGL forms would cover damage to employees' property in the care, custody or control of the named insured.
To preclude this interpretation, the 1993 modifications added language to the "Who Is an Insured" property damage exclusion making it clear that no employee is an insured for damage to property in the care, custody, or control of the named insured or over which the insured is exercising physical control for any reason. [See section 2.a.(2).] In ISO's opinion, this change does not involve any change in coverage.
Real Estate Managers, Custodians, and Legal Representatives
Subpart 2.b., respecting real estate managers, is virtually identical to a similar clause under the 1973 general liability coverage part. As a matter of history, this provision, worded a little differently, was first added to general liability policy provisions in 1955. Today, more so than ever, the question of who a real estate manager can encompass is highly litigated because it is a term that is not defined in CGL forms. For example, a court-appointed receiver who managed the real property of creditors was held to be a real estate manager in one case, as was a mortgagee in another case.
Subparts 2.c. and 2.d. express the same extent of insured status for custodians and legal representatives following the named insured's death as is provided under the assignment provision in the old general liability policy jacket.
Part 3--Operators of Mobile Equipment
As is noted elsewhere in this book, one of the more significant 2004 revisions has to do with the elimination of coverage for mobile equipment subject to a compulsory or financial responsibility law or other motor vehicle insurance law in the state where the equipment is licensed or principally garaged. Now considered as autos, these land vehicles are subject to coverage by business auto, truckers, or motor carrier coverage forms.
In light of this revision, coverage will no longer apply to operators of mobile equipment registered under any of the applicable laws. In fact, this part of the Who Is an Insured provision is deleted with the 2004 revisions. However, not all insurers will necessarily use the 2004 ISO edition, particularly those insurers who continue to maintain such risks on a CGL policy basis, rather than a commercial auto form. For this reason, the discussion of this part remains intact so as to continue giving readers the valuable background information about the rationale for this provision.
The third part of Who Is an Insured (2001 version only) reads as follows:
3. With respect to "mobile equipment" registered in your name under any motor vehicle registration law, any person is an insured while driving such equipment along a public highway with your permission. Any other person or organization responsible for the conduct of such person is also an insured, but only with respect to liability arising out of the operation of the equipment, and only if no other insurance of any kind is available to that person or organization for this liability. However, no person or organization is an insured with respect to:
a. "Bodily injury" to a co-"employee" of the person driving the equipment; or
b. "Property damage" to property owned by, rented to, in the charge of or occupied by you or the employer of any person who is an insured under this provision.
The above provisions respecting insured status for persons operating mobile equipment on public roads have essentially the same effect as similar provisions under the persons insured section of the 1973 general liability form.
An apparent, though not real, difference between the two versions is that the above version applies only to mobile equipment registered in the name of the named insured, while the 1973 version requires that the mobile equipment be registered in the name of the named insured only when the operator is someone other than an employee of the named insured. That is, the 1973 general liability form provided insured status to employees while operating registered equipment on public highways, regardless of whether the equipment was registered in the name of the named insured or another entity. The above provision, viewed by itself, seems to say that registration in the name of the named insured is required in all cases.
However, it must be remembered that, under the current CGL forms, employees are insured persons, apart from this provision, by virtue of part 2.a. of Who Is an Insured, discussed earlier. Therefore, as long as use of mobile equipment is not excluded by some other provision in the policy, employees are covered while driving it on public highways within the scope of their employment by the named insured--regardless of whether it is registered in the name of the named insured or another entity, and, presumably, regardless of whether it is registered. The same is true of any other person or organization that qualifies as an insured apart from the mobile equipment provision--say, the spouse of the named insured.
The problem is that no one knows for sure whether mobile equipment being used on a public highway at the time of an accident is registered in the named insured's name under any motor vehicle registration law, or even needs to be registered. Some owners of mobile equipment required to be registered under a motor vehicle registration law may intentionally forgo such a requirement under the belief that such equipment will never be used on public roads. At the other extreme are owners of mobile equipment who are ignorant of the law concerning registration of mobile equipment. There are also circumstances when certain mobile equipment does not have to be registered.
For any person other than those who otherwise qualify as insureds, the requirement that the equipment must be registered in the name of the named insured is applicable. For example, an independent contractor doing work for the named insured could not qualify as an insured under the named insured's policy while driving mobile equipment registered in his own name. If, instead, the contractor drove mobile equipment registered in the name of the named insured, the contractor would be covered, provided the independent contractor met all other conditions of coverage.
Also covered is any other person or organization responsible for the conduct of persons covered for the operation of the equipment, provided the person or organization has no other available insurance for the accident.
The above provision excludes bodily injury to a co-employee of the person driving the equipment. In the 1973 form, a similar exclusion applies to bodily injury to any fellow employee of such person injured in the course of his or her employment.
Another exclusion applicable to the provision under discussion eliminates coverage for property damage to "property owned by, rented to, in the charge of or occupied by you or the other employer of any person who is an insured under this provision." The 1973 form has a similar exclusion, to the same effect.
Part 4--Newly Acquired Organizations
Part 4 of Who Is an Insured in the 2001 version (part 3 in the 2004 version) reads as follows:
4. Any organization you newly acquire or form, other than a partnership, joint venture or limited liability company, and over which you maintain ownership or majority interest, will qualify as a Named Insured if there is no other similar insurance available to that organization. However:
a. Coverage under this provision is afforded only until the 90th day after you acquire or form the organization or the end of the policy period, whichever is earlier;
b. Coverage A does not apply to "bodily injury" or "property damage" that occurred before you acquired or formed the organization; and
c. Coverage B does not apply to "personal and advertising injury" arising out of an offense committed before you acquired or formed the organization.
This category provides essentially the same coverage as the provision titled "automatic coverage--newly acquired organizations" in the broad form comprehensive general liability endorsement. However, in the current forms, reference to limited liability companies has been added, the new term "personal and advertising injury" is substituted for "personal injury" or "advertising injury," and a number of qualifications have been added, which are probably best viewed as clarifications of the coverage previously intended. Among these qualifications are a statement that the coverage does not apply to newly acquired or formed partnerships or joint ventures; that the coverage expires at the end of the policy period if that is less than ninety days after the acquisition or formation date; and that Coverages A and B do not apply to incidents that took place prior to the acquisition or formation of the new organization.
Apart from these qualifications, there appears to be an actual difference between the old and current provisions in the matter of other insurance that the organization might have. The current forms refer to "other similar insurance available to that organization." The old language is more stringent, referring to any other insurance under which the new organization is an insured or under which it "would be an insured ... but for exhaustion of its limits of liability."
Undeclared Partnerships and Joint Ventures
The final clause under Who Is an Insured states that:
No person or organization is an insured with respect to the conduct of any current or past partnership or joint venture or limited liability company that is not shown as a Named Insured in the Declarations.
This clause differs from a similar one under the 1973 general liability form in that it includes reference to a limited liability company, and it applies to "any current or past partnership or joint venture" (emphasis added), whereas the old wording applies only to "any partnership or joint venture of which the insured is a partner or member." Thus, while the old wording might be interpreted not to exclude partnerships or joint ventures of which the insured was previously, but not at the time of claim, a partner or member (2), the new language is quite clear in excluding undeclared partnerships or joint ventures regardless of when they existed.
The current wording does not address a problem in interpretation of the earlier joint venture exclusion, which arose in a 1982 case decided by the Minnesota Supreme Court. That court held that the old exclusion did not relieve an insurer of the duty to defend its insured against an allegation of bodily injury arising out of the operation of an undeclared "joint venture or joint enterprise" of which the insured was a member. The decision rested on the fact that the exclusion does not specifically refer to joint enterprises. The case is Grain Dealers Mutual Ins. Co. v. Cady, 318 N.W.2d 247 (Minn. 1982).
The exclusion of partnerships or joint ventures that are not named in the policy declarations also has been expanded to exclude unnamed limited
liability companies. If coverage is wanted for a present or past limited liability company, it must be shown as a named insured in the policy declarations.
LIMITS OF INSURANCE
Section III of the CGL coverage forms defines the various limits of insurance and their applicability. This section of the policy differs from pre1986 forms in a number of ways, particularly with respect to the general aggregate limit under the CGL coverage forms. The Limits of Insurance section is quoted in part below.
1. The Limits of Insurance shown in the Declarations and the rules below fix the most we will pay regardless of the number of:
b. Claims made or "suits" brought; or
c. Persons or organizations making claims or bringing "suits".
2. The General Aggregate Limit is the most we will pay for the sum of:
a. Medical expenses under Coverage C; and
b. Damages under Coverage A, except damages because of "bodily injury" and "property damage" included in the "products-completed operations hazard"; and
c. Damages under Coverage B.
3. The Products-Completed Operations Aggregate Limit is the most we will pay under Coverage A for damages because of "bodily injury" and "property damage" included in the "products-completed operations hazard".
4. Subject to 2. above, the Personal and Advertising Injury Limit is the most we will pay under Coverage B for the sum of all damages because of all "personal injury" and all "advertising injury" sustained by any one person or organization.
5. Subject to 2. or 3. above, whichever applies, the Each Occurrence Limit is the most we will pay for the sum of:
a. Damages under Coverage A; and
b. Medical expenses under Coverage C
because of all "bodily injury" and "property damage" arising out of any one "occurrence".
6. Subject to 5. above, the Damage To Premises Rented To You Limit is the most we will pay under Coverage A for damages because of "property damage" to any one premises, while rented to you, or in the case of damage by fire, while rented to you or temporarily occupied by you with permission of the owner.
7. Subject to 5. above, the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of "bodily injury" sustained by any one person.
The wording of clause 6. above was changed in 1998 to show that the term is now the "damage to premises rented to you" limit instead of the "fire damage" limit. This complements the coverage afforded the insured as discussed above in connection with exclusion j under Coverage A. Note that this clause pertains to damage to premises; fire damage is no longer the only covered cause of loss to property rented to the named insured.
The most important difference between the current and the 1973 limits of liability provisions is that the current forms are subject to a general aggregate limit that limits the total amount payable during the policy period for Coverages A, B, and C, except for products-completed operations claims, which are subject to a separate aggregate limit. Under the 1973 liability policy, there is an aggregate limit applicable to bodily injury resulting from products or completed operations claims, and another aggregate limit applicable to property damage resulting from 1) risks rated on a remuneration basis or contractors equipment rated on a receipts basis; 2) operations performed for the named insured by independent contractors; and 3) the products and completed operations hazards. However, all other claims are subject only to a per occurrence, and not an aggregate, limit.
Consequently, the general aggregate limit can eliminate coverage under the current forms that would exist under the 1973 policy. To illustrate, say that the insured has an each occurrence limit of $500,000 for Coverage A and a general aggregate limit of $1 million. If during the policy period the insurer pays two Coverage A claims (neither involving products or completed operations) worth $500,000 each, the policy will provide no more coverage-under any of the policy's insuring agreements, including A, B, and C--for subsequent claims during the policy period, assuming the claims do not involve products or completed operations. If the coverage were under the 1973 liability policy, the each occurrence limit would still be available for any further claims during the policy period, assuming the claims did not fall under products-completed operations or any of the other categories that are subject to an aggregate limit under the 1973 provisions.
Reduction of the general aggregate limit does not affect the products-completed operations aggregate limit. Each aggregate limit represents a separate amount of insurance. Thus, an insured with a general aggregate limit of $1 million and a products-completed operations aggregate limit of $1 million could conceivably collect up to a total of $2 million under that policy.
Impact on Excess or Umbrella
What the difference described above means, in many cases, is that the insured's umbrella or excess liability insurer, if any, is more likely to become involved in claims that would, under the 1973 policy, be handled only by the primary insurer. Excess and umbrella liability insurers that provide insurance over the current CGL forms are likely to address the increased exposure through appropriate policy provisions. For example, an excess insurer might require the insured 1) to notify the excess insurer if the primary aggregate limits are exhausted, and 2) make a reasonable effort to have the exhausted limits reinstated promptly. Once aware of the exhausted limit, the excess insurer could consider the eventual need for demanding a higher premium or perhaps even canceling the policy.
Another concern with respect to excess or umbrella liability coverage and the claims-made CGL coverage form is the language ordinarily found in umbrella policies that states when the umbrella will drop down and pay claims that would have been covered by the underlying policy except for the reduction or exhaustion of its aggregate limit(s). The usual stipulation is that the umbrella will pay such claims only if the reduction of underlying limits was due to payment of damages for injury that occurred during the policy period of the umbrella policy.
The problem here is that a primary claims-made CGL policy with a retroactive date earlier than the policy's inception date will cover claims first made during that policy period for injury that occurred before the policy period of both the current primary policy and the umbrella policy. Moreover, payment of such claims will reduce or exhaust the aggregate limits of the primary insurance. However, because the injury did not occur during the policy period of the umbrella policy, the umbrella insurer will not be required to provide drop down coverage if the aggregate limit in the primary policy is reduced or exhausted.
One might think that the best course for an insured with claims-made primary coverage is to obtain an umbrella policy that is also on a claims-made basis with a policy period and retroactive date concurrent with those of the primary policy, as well as extended reporting period options that parallel those of the underlying policy. Unfortunately, however, most claims-made excess policies do not offer tail options as broad as those of the ISO form. And, there may be other instances in which an umbrella policy is actually narrower in coverage than the underlying CGL policy. If such is the case, insureds may be faced with some losses that, although covered by their underlying insurance, are not covered by their excess form.
Insureds and their advisers should carefully inspect their excess liability policies for any restrictions along these lines. Agents and brokers should be especially certain that they explain the ramifications of the aggregate limit to their clients. Failure to do so could result in an errors and omissions claim against the agent or broker.
The general aggregate limit can be modified by endorsement CG 25 03, to apply separately to each of the named insured's projects away from premises owned by or rented to the named insured. Another endorsement, designated CG 25 04, can be used to make the general aggregate limit apply separately to each location owned by or rented to the named insured.
In addition to the two aggregate limits, the CGL coverage form contains an each occurrence limit, a personal and advertising injury limit, a fire damage limit, and a medical expense limit.
The each occurrence limit is the most that the insurer will pay, subject to the aggregate limits, for all damages under Coverage A and all medical expenses under Coverage C arising out of one occurrence. In other words, expenses paid under Coverage C reduce the amount payable per occurrence under Coverage A. For example, if one occurrence gives rise to claims under both Coverage A and Coverage C, the total recovery for all claims could not exceed the each occurrence limit. In the 1973 policy, if medical payments coverage was added to the policy, it was subject to a separate limit that did not affect the each occurrence limit applicable to bodily injury and property damage liability.
The personal and advertising injury limit is the most that the insurer will pay under Coverage B for all damages because of personal injury or advertising injury sustained by any one person or organization. The personal and advertising injury coverage of the broad form general liability endorsement used with the 1973 policy is subject only to the aggregate limit stated in the endorsement; there is no per person limit in the standard endorsement. Coverage B of the current CGL coverage forms is, as said earlier, subject also to the general aggregate limit.
Thus, it is possible that a Coverage B claim would not be payable, despite a sufficient per person limit for the claim, in the event that a number of Coverage A claims had extinguished the general aggregate limit. This could be true even if there had been no prior Coverage B claims. Under the broad form liability endorsement, the aggregate limit applicable to personal and advertising injury coverage is a separate amount of insurance that cannot be extinguished by prior bodily injury and property damage liability claims under the same policy.
It should also be noted that the per person limit applicable to Coverage B does not appear to apply separately for later offenses against the same person. If, for example, a person was slandered by the named insured on one occasion and awarded the full per person limit in damages, a second instance of slander against the same person during the policy period would not be covered under that policy. This would be the case even if the aggregate limit had not been exhausted.
The medical expense limit is the maximum amount payable per person under Coverage C. Under the previous forms, medical payments coverage is ordinarily written with a per person limit and an aggregate limit but is not applied to reduce the each occurrence limit governing bodily injury and property damage liability recoveries.
The damage to premises rented to you limit is the most the insurer will pay for property damage to any one premises while rented to the named insured or, in the case of fire, while rented to the named insured or temporarily occupied by the named insured with the permission of the owner. Any payment under this limit reduces the general aggregate limit.
Application of Limits
The final portion of the limits of insurance section is as follows:
The limits of this Coverage Part apply separately to each consecutive annual period, and to any remaining period of less than 12 months, starting with the beginning of the policy period shown in the Declarations, unless the policy period is extended after issuance for an additional period of less than 12 months. In that case, the additional period will be deemed part of the last preceding period for purposes of determining the Limits of Insurance.
Although this section is largely self-explanatory, an example may be useful. Say that an insured purchases a policy with a three-year policy period beginning July 1, 2004, and ending July 1, 2007. The above provision makes it clear that even if the stated policy limits are depleted by claims during the first year of the policy period, the full stated limits will again be applicable beginning on July 1, 2005 (and again on July 1, 2006).
The provision also addresses situations when an annual policy period is shortened, as might be the case if a policy with an inception date of July 1, 2004 was cancelled on January 1, 2005, instead of expiring on July 1, 2005. Despite the shortening of the last annual period, the full stated limits would apply to claims covered under that period.
If, however, a policy is extended for a period of less than one year--say the insured requests a one-month extension of the policy, after the regular policy term has expired--the limits will not be renewed for that additional period. That is, if the policy limits had been reduced by claims paid during the preceding annual policy period, the reduced amounts of insurance would apply to the extension period, and not the full limits stated in the policy.
The CGL coverage forms are subject to conditions contained in Section IV (titled Commercial General Liability Conditions
) of the coverage forms; and are also subject to the ISO common policy conditions, a separate form that must be attached to every commercial package or monoline policy issued under current ISO policywriting procedures.
The Section IV conditions concern: (1) bankruptcy, (2) duties in the event of occurrence, claim, or suit, (3) legal action against the insurer, (4) other insurance, (5) premium audit, (6) representations, (7) separation of insureds, and (8) transfer of rights of recovery against others to the insurer (subrogation), and (9) nonrenewal. In addition, the claims-made form contains a tenth condition, concerning the named insured's right to obtain claim information from the insurance company.
The common policy conditions form contains six additional conditions, concerning (1) cancellation, (2) changes, (3) examination of the named insured's books and records, (4) inspections and surveys, (5) premiums, and (6) transfer of the named insured's rights and duties under the policy (assignment).
In most respects, the Section IV conditions correspond closely to previous general liability conditions. Accordingly, they are only summarized here. See the appendices to this book for the full text of the conditions.
The bankruptcy condition states that neither bankruptcy nor insolvency of the insured or the insured's estate will relieve the insurance company of its obligation under the forms. An equivalent condition appears within the action against company condition of the 1973 policy jacket.
Duties in the Event of Occurrence, Claim, or Suit
The purpose of this condition is to specify what the insured's obligations are as conditions precedent to the insurer's obligation of investigating, defending, or paying damages because of a claim or suit. Due to a 1990 amendment, the named insured must notify the insurer not only of an occurrence but also of an offense. The latter is a necessary addition because Coverage B, dealing with personal injury and advertising injury, applies to offenses, rather than occurrences. Thus, the duties of the named insured are the same whether there is an occurrence or an offense.
Although both the occurrence and claims-made forms stipulate that the named insured must notify the insurer as soon as practicable of an occurrence or offense that may result in a claim, the claims-made form, unlike the occurrence form, states that "notice of an occurrence is not notice of a claim." So, coverage under the claims-made form is not triggered by the named insured's notification that an occurrence may give rise to a claim. It is only when the injured party actually makes claim that coverage is triggered. In the 1993 and 1996 forms, the provision quoted above has been modified to state that "notice of an occurrence or offense is not notice of a claim" (emphasis added). This change is appropriate because Coverage B, which has been on a claims-made basis since the 1990 changes went into effect, responds to offenses, not occurrences. In the absence of the 1993/96 change concerning offenses, an insured with the claims-made form might maintain that, although notice of an occurrence may not be notice of a claim, such is not the case with notice of an offense for purposes of Coverage B.
Prior to introduction of the 1986 CGL forms, the distinction between notifying the insurer of an occurrence and the actual making of claim concerned some insurance agents, brokers, risk managers, regulators, and others, in that they felt it would often allow insurers to avoid liability for claims resulting from occurrences of which the insurer had been notified but for which claim had not yet been made. The insurer, once notified of an occurrence, could either cancel the policy or, upon renewing the policy, exclude the particular accident by endorsement, leaving the insured no option for insuring the accident but to purchase supplemental tail coverage for up to 200 percent of the policy premium.
In response to this concern, ISO amended the extended reporting period provisions to provide (in the event of cancellation, nonrenewal, etc.) for an automatic five-year tail for claims resulting from occurrences that the insured reports to the insurer no later than sixty days after policy expiration. So, although notice of an occurrence still does not trigger coverage under the claims-made policy, any resulting claim first made within five years of policy expiration will be covered under the policy in effect at the time of the occurrence, subject, of course, to whatever aggregate limits remain under that policy at the time of claim. This tail coverage applies only if there is no later policy purchased by the named insured that applies to the same loss or would apply but for the exhaustion of its limits of insurance.
Notice of the occurrence must be given to the insurer "as soon as practicable." The notice should include, "to the extent possible," how, when, and where the occurrence took place, the names and addresses of any injured persons or witnesses, and the nature and location of any injury or damage arising out of the occurrence.
Moreover, if the insured receives an actual claim, there is now a requirement that the insured must "immediately record the specifics of the claim or suit and the date received," notify the insurer as soon as practicable, and see to it that the insurer receives written notice of the claim as soon as practicable.
Legal Action Against Insurer
The legal action against us condition of the current CGL forms has the same purpose as the "action against company" condition of the 1973 policy. Its purpose is to make clear the conditions that must be met before anyone can bring an action against the insurer, including an insured. Until the 2001 CGL policy amendment, this condition stated that a person or organization could sue the insurer to recover on an agreed settlement or on a final judgment against an insured obtained after an actual trial. However, because the policy defines suit to allow damages to be awarded through an arbitration or other alternative dispute resolution, judgment can be obtained without first having an actual trial. In light of this fact, the italicized wording above was eliminated in the 2001 revision of CGL forms.
The other insurance condition specifies how both damages and defense costs under Coverages A and B are to be shared when a loss is covered by two or more insurers. Coverage C, medical payments, is not affected by other insurance and therefore always applies on a primary basis irrespective of other insurance.
When there is other valid and collectible insurance, how loss is apportioned depends on whether the other insurance is primary or excess. If a CGL policy is primary and the other insurance is excess, the CGL policy applies first. If, instead, both policies are considered to be primary, the loss is apportioned by contribution by equal shares if the other insurance permits this method of sharing. If the other insurance does not permit contribution by equal shares, the loss is apportioned by contribution by limits. Both methods of apportionment are identical to the procedures prescribed by the 1973 general liability policy.
Both the occurrence and claims-made CGL coverage forms are stated to be excess over any other insurance.
Part (1) of the other insurance provision reads as follows:
This insurance is excess over:
(1) Any of the other insurance, whether primary, excess, contingent or on any other basis:
(a) That is Fire, Extended Coverage, Builder's Risk, Installation Risk or similar coverage for "your work";
(b) That is Fire insurance for premises rented to you or temporarily occupied by you with permission of the owner;
(c) That is insurance purchased by you to cover your liability as a tenant for "property damage" to premises rented to you or temporarily occupied by you with permission of the owner; or
(d) If the loss arises out of the maintenance or use of aircraft, "autos" or watercraft to the extent no subject to Exclusion g. of Section I-Coverage A--Bodily Injury and Property Damage Liability.
The italicized portions of the above provisions were added in the 1996 revision. The added language corresponds to the fact that fire legal liability coverage under the 1993 and 1996 editions applies not only to premises rented to the named insured, but also premises that the named insured temporarily occupies with the owner's permission.
The insurance under the CGL forms is now excess to insurance purchased by the named insured to cover liability as a tenant for property damage to premises rented to or temporarily occupied by the named insured. So, for example, if the named insured rents a building for his business and buys a property insurance policy that gives the named insured coverage for damage to the rented premises for which he is liable, the named insured's CGL form will provide excess insurance to this other policy. That other insurance has to be valid, collectible, and available to the insured for this excess insurance clause to apply.
Part (2) of the other insurance provision, prior to the 2004 revision, read as follows:
(2) Any other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement.
This second part was previously contained in two separate endorsements, introduced with the 1996 CGL revision. The endorsements were CG 00 55, Amendment of Other Insurance Condition (CGL Occurrence Version), and CG 00 56 (CGL Claims-Made Version). The endorsements were withdrawn from use in 1998 when the above wording was added to the CGL forms in 1998.
The effect of this provision is to make a person's or organization's own CGL policy excess over the policy modified by endorsement to include that person or organization as an additional insured. Thus, the additional insured is covered on a primary basis on the policy to which the additional insured endorsement is attached and on an excess basis on its own policy. This was heralded as a welcomed addition because a growing number of indemnitees (those who seek to transfer the financial consequences of their liability to indemnitors) also requested additional insured status on an indemnitor's CGL policy on a primary basis. Unless an additional insured endorsement was issued by the insurer that also reflected that the additional insured is to be covered on a primary basis, a dispute by the insurer was almost guaranteed. In fact, in the absence of some acknowledgement that the additional insured was to be protected on a primary basis, the insurer on whose policy the additional insured endorsement was issued often would maintain that the additional insured had its own policy and should also be taken into account in paying damages. The matter of how insurance was to be resolved, according to these insurers, was on a pro rata basis, that is, taking into account the policy of the additional insured and the policy to which the additional insured endorsement was attached. However, this pro rata adjustment defeated one of the purposes of additional insured status and that was to obtain coverage on a primary basis under the policy to which the additional insured endorsement was attached.
One of the problems with part (2) of the above provision is that it applies solely to premises or operations, presumably because ISO had revised some of its more commonly used additional insured endorsements to apply solely to on-going operations. When it introduced the endorsement entitled "Additional Insureds, Owners, Lessees, or Contractors--Completed Operations," CG 20 37, in 2001, a potential problem arose since there was no reference to products and completed operations. Arguably, the undefined word "operations", unless used specifically in the context of the premises and operations hazard, is broad enough to encompass both ongoing and completed operations. To avoid such arguments, however, ISO as part of its 2004 revisions, amended this part of the other insurance provision to read as follows:
(2) Any other primary insurance available to you covering liability for damages arising out of the premises or operations, or the products and completed operations, for which you have been added as an insured by attachment of an endorsement.
As this provision now reads, if the named insured (not its officers, directors, partners, employees, or agents) is added to another policy as an additional insured for products and completed operations, then the named insured's policy will apply as excess for both premises and/or operations, and products and completed operations.
A problem still exists despite this latest amendment because there is no reference to personal and advertising injury (coverage B), which automatically forms a part of the standard ISO CGL coverage parts and of many independently filed policies. Arguably, liability emanating from premises or operations could encompass various personal and advertising injury offenses. On the other hand, it could mean that the named insured's CGL policy will apply as excess for bodily injury and property damage, but on a primary basis for personal and advertising injury. The question is how many insurers covering a named insured who is covered as an additional insured by endorsement will take the position that coverage for personal and advertising injury applies on a primary basis, since doing so may come back to haunt them when they are providing coverage to additional insureds.
It is also important to keep in mind that this 2004 other insurance provision will not work with anything other than other ISO primary policies, or independently filed policies following ISO wording. Some insurers, for example, will attempt to nullify such attempts to give additional insureds coverage on a primary basis by stating that their liability policies apply as excess to anyone, including additional insureds.
To the extent that umbrella/excess liability policies have built-in additional insured provisions (rather than having to be modified by endorsements, which is probably the more common approach), the above other insurance provision of standard liability policies will not work. The probable rationale for the provision is so that coverage will apply on a horizontal, as opposed to a vertical, basis. In other words, the primary policy limits to which an additional insured endorsement is attached are to be exhausted first, followed by the additional insured's own liability policy. If the limits are still not met, then the umbrella/excess policy applicable to the additional insured applies next, followed by the additional insured's own umbrella/excess policy.
In an attempt to avoid this horizontal settlement, those who desire to be additional insureds on the policies of others not only will require coverage on a primary basis, but also on a non-contributing basis. The problem is that most insurers will balk at references to non-contributing. To reduce the chances of these types of objections, the term "non-contributing" needs to be defined. One way, for example, is to say that it means that all liability coverage available to the additional insured on a primary and umbrella/excess basis is to apply first, followed by the additional insured's own primary and umbrella/ excess policies, to the extent of any required excess coverage. This is another way of explaining the vertical settlement approach.
The other insurance provision also declares that if the named insured's insurance is excess, the insurer has no duty to defend if any other insurer has such a duty. If no other insured defends, the named insured's insurer will undertake that role.
In addition to being excess to the types of insurance listed above, the claims-made CGL form is also excess over other insurance:
that is effective prior to the beginning of the policy period shown in the Declarations of this insurance and applies to "bodily injury" or "property damage" on other than a claims-made basis, if:
(a) No Retroactive Date is shown in the Declarations of this insurance; or
(b) The other insurance has a policy period which continues after the Retroactive Date shown in the Declarations of this insurance.
The effect of the above condition is that a claims-made policy provides excess insurance for any loss that is also covered under a prior occurrence liability policy. This situation can arise under two circumstances.
The first such circumstance is when the claims-made policy has no retroactive date. It stands to reason that there is likely to be some overlap between an earlier occurrence policy and a claims-made policy that covers bodily injury or property damage retrospectively without limit as to time. Should this overlap occur, the claims-made policy is to be treated as excess insurance.
The second circumstance is when the policy period of an earlier occurrence policy extends beyond the retroactive date shown in the claims-made policy. To illustrate, assume that the claims-made policy has a retroactive date three years prior to its inception date. An earlier occurrence policy was in force for the same three-year period but was replaced with the present claims-made policy. A claim for bodily injury or property damage is first made following inception of the claims-made policy for injury or damage that occurred after the retroactive date.
In an event such as this, the occurrence policy applies because the trigger of coverage is bodily injury or property damage that occurs during the policy period. The claims-made policy also applies because the claim was first made during its policy period for bodily injury or property damage that occurred after the retroactive date. According to the provision shown above, the occurrence policy is primary and the claims-made policy is excess.
The other insurance clause does not state how coverage provided by the policy's extended reporting periods will coordinate with other available insurance. This matter is governed by a separate provision that is included in the extended reporting periods section of the policy (see Chapter 4).
From the standpoint of defense cost coverage, the CGL coverage forms will not respond for the payment of such costs when they are considered to be excess to another insurer's duty to defend the insured. If no other insurer has the duty to defend the insured, however, the coverage forms contain an affirmative statement that the insurer will undertake the defense refused by another insurer, but will then have all the insured's rights against the insurer that refused to defend.
When insurance under the CGL coverage forms is excess over other insurance, the insurer agrees to pay its share of the amount that exceeds the sum of (1) the total that the other insurance would pay in absence of the excess insurance and (2) the total of all deductible and self-insured amounts under that other insurance. The insurer, when excess, will share this remaining portion of the loss with other applicable excess insurance that is not intended to apply in excess of the insurance limits shown in the declarations.
The premium audit condition of the current CGL forms is virtually identical to the premium condition of the 1973 liability policy. Its purpose is to make clear that all premiums for coverage are computed with the insurer's rates and rules; that the advance premium is only a deposit premium and that final premium will be based on audit at the end of the policy period; and that the insured must maintain such records as are deemed necessary by the insurer to compute the premium.
The representations condition of the current CGL forms is identical to the declarations condition of the 1973 policy. As a result of this condition, the named insured agrees that (1) all statements made in the declarations are accurate and complete, (2) those statements are based on representations made by the named insured to the insurer, and (3) the insurer has issued the policy based on such representations.
Separation of Insureds
The separation of insureds condition of the current CGL forms is also known as the severability of interests clause. As a matter of interest and historical significance, this provision was first introduced with the commercial auto policies in 1955, and with CGL policy provisions in 1966. While there is no condition by the same name in the 1973 policy, the content of this provision appears within the definition of insured in the 1973 policy jacket. So, with the exception of the limits of insurance and the duties specifically assigned to the first named insured, the insurance of both the old and the current forms applies as if each named insured were the only named insured and separately to each insured against whom claim or suit is brought.
Transfer of Rights of Recovery
This condition is the counterpart of the 1973 policy's subrogation clause. Apart from its longer title, the current provision expresses the same content as the previous clause.
Both versions of the CGL coverage form are subject to a nonrenewal provision stating that if the insurer decides not to renew the policy, it must mail or deliver to the first named insured written notice of the nonrenewal not less than thirty days before the expiration date. This provision, which is included in the claims-made coverage form itself, was added to the 1986 edition of the occurrence form by means of endorsement CG 00 04. Since this condition is now included in the 1990 and later editions of the occurrence form, the endorsement is no longer needed. The policy provision relating to cancellation--see below--is contained in the common policy conditions form.
Right to Claim Information
Under the claims-made coverage form only, there is a condition titled "your right to claim and occurrence information." This condition states that the first named insured has the right to obtain insurance company records of reported occurrences and claim payments and reserves relating to any claims-made policy that the insurer has issued to the first named insured in the previous three years. If the insurance company cancels or elects not to renew the policy, it must provide the information no later than thirty days before the date of policy termination. Otherwise, the insurer must only provide the information if it receives a written request from the first named insured within sixty days after the end of the policy period. In that case, the insurer must provide the information within forty-five days after receiving the request.
The cancellation condition of the common policy conditions expresses the same substance as that of the 1973 general liability policy and enumerates the duties and obligations of the insured and insurer in the event of cancellation. This condition states that the policy can be cancelled by the insurer for nonpayment of premium by giving the insured not less than ten days' notice, whereas thirty days' notice is required for any other reason.
The changes condition explains that the first named insured shown in the policy declarations is authorized to make changes with the insurer's consent and that the policy's terms can be amended or waived only by endorsement issued by the insurer. The counterpart of this condition under the 1973 liability policy states that notice to any agent or knowledge possessed by any agent shall not affect a waiver or estop the company from asserting any right under the policy. This statement, which is sometimes a source of problems, does not appear in the current condition.
Examination of Books and Records
The examination condition of the current forms is comparable to the "inspection and audit" condition of the 1973 policy. Its purpose under both the current and the old contract is the same. It reserves the insurer's rights to examine the named insured's books and records at any time up to three years after the policy period.
Inspections and Surveys
The current inspections and surveys condition is considerably longer than its counterpart under the 1973 policy. Its purpose is to disclaim any implication that an inspection or survey by the insurer constitutes an undertaking for the benefit of the insured or others concerning the safety of any premises and operations.
The premiums condition of the current CGL forms does not appear to have a counterpart in the 1973 policy. It states that the first named insured is responsible for the payment of premium and will be the payee of any returned premiums by the insurer. If nothing else, this condition does make clear who has the responsibility for paying premiums in cases where there may be more than one named insured in the policy.
Transfer of Rights and Duties
The transfer condition of the current forms is identical in effect to the assignment clause of the 1973 policy. It is a stipulation of the condition that no assignment of interest is binding without the insurer's consent. However, in the event of the named insured's death, all rights and duties will be transferred to the named insured's legal representative and until such representative is appointed, anyone having proper temporary custody of the named insured's property will have the named insured's rights and duties, but only with respect to that property.
(1.) The following are the only states that permit suits against co-employees: Arkansas, Maryland, Missouri, and Vermont. (Source: Larson's Workers' Compensation Desk Edition, Chapter 14-28, Sec. 72.11, 9-94 revision.) However, according to this same source at Sec. 72.21, Note 7-1, 1-97 revision, the following states have statutory provisions permitting intentional tort actions against co-employees: Alabama, Arizona, California, Florida, Hawaii, Idaho, Iowa, Louisiana, Minnesota, Mississippi, Montana, Nebraska, New Hampshire, New Jersey, Oregon, Pennsylvania, South Dakota, Texas, West Virginia, Wisconsin, and Wyoming.
(2.) Donald S. Malecki, "Joint Venture Provision: Its Purpose and Scope," National Underwriter, Property and Casualty ed., June 17, 1977, p. 45.
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|Publication:||Commercial General Liability Coverage Guide, 8th ed.|
|Date:||Mar 1, 2005|
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