Endorsements to the commercial general liability (CGL) policy are highly specialized. A high percentage are either exclusionary or extend protection to distinct classes of additional insureds. Most of the remaining endorsements alter coverage for only a limited class or type of insured, or are state-specific. Discount the above CGL endorsement classes and only a few remain that extend beneficial additional coverage to an insured, and even fewer can be considered usable across the spectrum of all insureds.
Rather than detail coverage extensions beneficial to all insureds this post takes the opposite position, discussing three CGL exclusions every insured should absolutely avoid. Occasionally underwriters are unwilling (or unable) to forego some level of exclusion or limitation, so, where applicable, alternatives to these exclusionary endorsements are provided. The three exclusions every insured should avoid are the: 1) Total Pollution Exclusion Endorsement (CG 21 49); 2) Contractual Liability Limitation (CG 21 39); and 3) Limitation of Coverage to Designated Premises or Project (CG 21 44).
Total Pollution Exclusion
The pollution exclusion in the unendorsed CGL is known as the “absolute pollution exclusion.” This is obviously misnamed since the unaltered wording does provide some coverage via exceptions to the exclusions. Some suggest “broad form pollution exclusion” might be a better name for the removal of coverage accomplished by the unaltered wording.
Regardless of the terminology used to describe the unendorsed exclusion, some underwriters do not wish to provide coverage for any pollution event and accomplish this desire by attaching the Total Pollution Exclusion Endorsement (CG 21 49). Essentially every pollution event is excluded by this endorsement. However, there is still one pseudo exception to this exclusion; the “pollution” must be the proximate cause of the loss, not just present at the time of injury (see “Insurer is ‘Torturing’ Policy Using Pollution Exclusion to Deny Death Claims“).
Convincing the underwriter to remove this exclusion may be nearly impossible. If unable to negotiate the exclusion away, offer one of two alternatives: Total Pollution Exclusion with a Building Heating, Cooling and Dehumidifying Equipment Exception and a Hostile Fire Exception (CG 21 65); or Total Pollution Exclusion with a Hostile Fire Exception (CG 21 55).
Yes, both endorsements are still exclusions but they give back coverage for some injury or damage resulting from an otherwise excluded pollution event. CG 21 65 gives back coverage, by exception to the exclusion, for injury or damage caused by pollution originating from an HVAC system or arising out of a hostile fire. The CG 21 55 gives back coverage for injury or damage caused by pollution resulting from a hostile fire. A “hostile fire” is defined in the CGL as a fire which becomes uncontrollable or breaks out from where it was intended to be.
Obviously the first choice is to have the exclusion removed completely. Failing that, ask first for the CG 21 65 and lastly for the CG 21 55 if unable to negotiate the 21 65. Although still saddled with an exclusion, the insured regains some protection that may prove important.
Contractual Liability Limitation
Insureds regularly enter into contractual relationships to accomplish specific business purposes. However, the unendorsed commercial general liability policy specifically excludes liability assumed by contract (“2. Exclusions: b. Contractual Liability”); but the policy gives back coverage through exceptions to the exclusion.
Only one of the two exceptions to the contractual liability exclusion spells out the parameters by which contractually accepted liability is covered in the CGL. Exception “(2)” states that protection is provided when:
- The liability is assumed by an “insured contract;”
- The bodily injury or property damage occurs AFTER the execution of the contract;
- Defense and other fees are assumed in the contract (indemnify and hold harmless wording required); and
- A suit alleges injury or damage covered by the policy.
(See “Contractual Risk Transfer Coverage Extended from the Unendorsed CGL” for greater detail.)
The key to the breadth of the exception is the definition of “insured contract.” Attachment of the Contractual Liability Limitation (CG 21 39) exclusion alters the definition of “insured contract” by removing the “all other business-related contracts” provision provided by definition “f.”
CG 21 39 should be avoided if at all possible. All protection normally available for and extended to many contractually-created indemnitees is deleted by attachment of this exclusion. The list of contracts under which the insured can accept contractually-transferred liability is limited to a short schedule which includes: lease agreements; sidetrack agreements; easement or license agreements; obligations to indemnify a municipality; and an elevator maintenance agreement. NO OTHER CONTRACTS are covered as “insured contracts” when the Contractual Liability Limitation (CG 21 39) is attached.
Altering the definition of “insured contract” by attachment of the CG 21 39 requires the insured to make adjustments to the policy anytime it enters into a contract or agreement not contemplated in the remaining short list of acceptable contracts – provided the insured is aware of the need. The exclusion may lead to the requirement to attach additional insured endorsements, even though not requested, to meet specific contractual provisions and avoid a breach of contract or worse, an uncovered claim.
One reason among several an underwriter may choose to use this drastic exclusion is the breadth of coverage extended to the indemnitee under the contractual liability exception. The sole negligence of the indemnitee (transferor) can be picked up under the unaltered wording (“Contractual Risk Transfer Coverage Extended from the Unendorsed CGL“), making the coverage granted by the unendorsed policy broader than coverage granted by most additional insured endorsements.
Agents can recommend an alternative endorsement to the underwriter wanting to avoid the unknown breadth of protection being accepted in business contracts (normally covered under “f.”). The Amendment of Insured Contract (CG 24 26) endorsement redefines the meaning of “insured contract” to match the coverage granted by most additional insured endorsements. The CG 24 26 adds “…provided the ‘bodily injury’ or ‘property damage’ is caused, in whole or in part, by you or by those acting on your behalf” to the all other business contract wording provided in “f.”; thus requiring the insured be at least partially responsible for causing the injury or damage before coverage extends to the contractual indemnitee.
Avoid the Contractual Liability Limitation (CG 21 39) when possible. Its presence as part of the policy requires other endorsements (additional insured in particular) be attached to meet contractual guidelines. If the underwriter wants some control, offer the Amendment of Insured Contract (CG 24 26) as an alternative.
Limitation of Coverage to Designated Premises or Projects
As the name suggests, the Limitation of Coverage to Designated Premises or Projects (CG 21 44) extends liability protection to ONLY the location or project listed. The gap created by this endorsement is obvious; if the location or project is not specifically listed, there is no coverage.
Insured’s that have a location or conduct any business, activity or operation away from the stated premises or project may have an uncovered exposure. If this endorsement is present and an off-premises event is held, there is no coverage – unless it can be proven the other location was necessarily incidental to the listed location. Additionally, there is no coverage for a new location until the insurer is notified and the location is added (potentially negating the policy’s “newly acquired” wording).
This exclusion is most often seen where the insured is real-estate based and location specific. Examples include condominium associations or apartments. But its use is not limited to these risks, in fact it can be found attached to a number of different types of risk. Non-profits seem to be particularly subject to this limitation.
Unfortunately there is no alternative to this endorsement that can be offered to the underwriter. Anytime an agent is faced with this exclusion, he should make every effort to have the exclusion removed to avoid a possible gap.
Not only is knowledge of additional coverage endorsements necessary for agents to win or keep accounts, knowing what exclusionary endorsements to guard against is also beneficial. The above is not an all-inclusive list of the exclusions for which agents should be on the lookout; but they are some of the more commonly seen dangerous exclusions.