Coverage Corner

THE CGL ENDORSEMENT TO BE THANKFUL YOU DON’T HAVE!

By Cathy Trischan

It is the season to be thankful – thankful for the good things we have and thankful that certain hardships have passed us by. For our commercial clients, we are thankful not to have endorsements that severely limit the scope of coverage under Commercial General Liability (CGL) policies.

An unendorsed CGL policy covers all the named insured’s locations and operations, subject to the policy’s terms and conditions. Assuming that the Named Insured has been truthful in the application and has not concealed or misrepresented material facts, coverage applies to exposures the insurer may not be aware of and new exposures that begin during the policy term.

Concern over the unknown is why some insurers want to limit coverage to known exposures. While the concern is valid, this approach can have devastating effects for the insured.

One of the most serious coverage restrictions comes in the form of this endorsement – Limitation of Coverage to Designated Premises, Project or Operation (CG 21 44 04 17.) Below is the language limiting Coverage A, Bodily Injury and Property Damage Liability.

This insurance applies to “bodily injury” and “property damage” caused by an “occurrence” that takes place in the “coverage territory” only if:

(1) The “bodily injury” or “property damage”:

(a) Occurs on the premises shown in the Schedule or the grounds and structures appurtenant to those premises; or

(b) Arises out of the project or operation shown in the Schedule

Similar language is included to limit Coverage B, Personal and Advertising Injury Liability, and Coverage C, Medical Payments, to scheduled premises, projects, or operations.

Although this endorsement can be used to limit coverage to a particular premises or to a particular project or operation, we will use a premises example.

Imagine the named insured building owner asks its employee to go to a local home improvement center to get landscaping materials to use at the insured’s premises. While in the store, the employee drops a bag of limestone onto the foot of a fellow shopper, causing the shopper to fall and suffer an injury. The shopper sues the employee and the named insured. With this endorsement listing only the insured’s owned premises, there is no coverage for this claim. The bodily injury or property damage did not occur on the described premises or the grounds and structures appurtenant to the premises.

The current April 2017 version of this endorsement provides no coverage away from the described premises. One is hard-pressed to find an insured who does not have some off-premises exposure. Our insureds go to the bank and post office; they leave the premises to meet with customers and for dozens of other reasons.

This endorsement was not always this restrictive. The July 1998 version of the endorsement titled Limitation of Coverage to Designated Premises or Project (CG 21 44 07 98) stated instead that:

This insurance applies only to “bodily injury”, “property damage”, “personal and advertising injury” and medical expenses arising out of:

1. The ownership, maintenance or use of the premises shown in the Schedule and operations necessary or incidental to those premises; or 2. The project shown in the Schedule

That trip to the home improvement center would likely have been considered an operation necessary or incidental to the premises. The language was changed in response to court cases where the earlier version of the endorsement did not function as intended.

So what should an agent do if a quote includes the problematic CG 21 44 04 17 endorsement? Here are a few options:

▲ Ask for it to be removed. If the underwriter is comfortable that there are no additional unknown exposures, this could be an option.

▲ Ask for the language on the endorsement to include more than a simple address. Collaborate with the underwriter to find language that would allow coverage for certain off-premises exposures while still addressing the insurer’s concerns.

▲ Ask for the earlier version of the form, CG 21 44 07 98, to be used instead. This preserves coverage for those necessary or incidental off-site exposures.

▲ Instead of limiting coverage to a particular premises, ask the underwriter to take a different approach. Exclusion – All Hazards in Connection with Designated Premises (CG 21 00 07 98) is an endorsement used to remove coverage for locations the insurer wishes to exclude. The underwriter might be willing to use this endorsement and list known locations the insurer does not want to cover or “all owned or rented premises except [address of known locations].” Language acceptable to both parties can often be negotiated.

I wish you all a wonderful holiday season with much to be thankful for and an absence of problems such as this one.

Til next time!

Cathy Trischan, CPCU, CRM, CIC, ARM, AU, AAI, CRIS, MLIS, TRIP is IA&B’s commercial lines education consultant. She works with our CIC and CISR programs, as well as our live CE webinars. Catch her at one of our upcoming courses: IABforME.com/education

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