The ISO general liability coverage form has changed many times over the years, but many of the terms have remained standard. Despite familiarity, these standard terms can be a source of coverage gaps if they are not properly addressed. It is important to always discuss updates and changes in the insured’s operations and operating structure to avoid potential gaps in coverage.
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First Named Insured

It is common for an insured to list the main entity in its organizational chart as the first named insured on its commercial general liability (CGL) policy. However, there are several important responsibilities that are required of the first named insured on behalf of all named insureds that should be considered when designating an entity as the first named insured. For example, the first named insured is responsible for paying premiums, receiving return premiums, maintaining records necessary for audits, remitting any applicable deductible payments, and receiving any required policyholder notices from the insurer. In fact, one policy form states, “[t]he first named insured is authorized to act and agrees to act on behalf of all persons or organizations insured under this policy with respect to all matters pertaining to the insurance afforded by the policy.” Given these responsibilities, the first named insured should be the entity that will actually perform these duties within the organization and not simply the main entity in the corporate structure.

If the topmost company in the organizational chart will not be the first named insured, consider whether “Additional Insured – Controlling Interest” (CG 20 05) should be included in the policy for that “parent” or if it should be included as a named insured. That decision may depend on whether the “parent” company has other holdings that are not intended to be insured under the policy in question.

Joint Ventures

Joint ventures can be formed for short-term projects and/or for long-term, ongoing operations. In either case it is important to understand the scope of coverage provided (or not provided) under the CGL policy. Remember, under the vast majority of policies, joint ventures MUST be listed/scheduled as named insureds on the CGL policy or by an endorsement in order to have coverage. The unendorsed policy states that:

“No person or organization is an insured with respect to the conduct of any current or past partnership, joint venture or limited liability company that is not shown as a named insured in the Declarations.”

Ideally a joint venture (JV) will be insured by a separate CGL insurance policy issued to the JV which includes coverage for its members as additional insured’s. However, it is common to find that the JV Agreement assigns responsibility to secure insurance to one of the member companies (regardless of the level of interest in same) and the JV is simply added to that member’s CGL policy. This can be done by amending the “Who is an insured” section of the policy to schedule the joint venture as a named insured.

Important considerations:

  • If insured separately, will the coverage extend beyond the life of the JV? Or is “tail” coverage needed for completed operations?
  • If covered by a member’s policy, are the limits sufficient to absorb potential claims from the JV and the member’s own operations?
  • Does coverage include the JV and its members? Are members covered on a basis “scaled” to their interest?
  • Has the umbrella liability policy been endorsed to be as broad as the JV policy or will it follow the primary policy wording?

Finally, remember that the first named insured is responsible for notices, premium payments, etc. for all insureds covered under the policy, even the JV.

Additional Insured

The contractual obligation to indemnify another party or “hold harmless” is quite common in contracts but rarely does this obligation depend upon whether or not the indemnifying party’s insurance will respond to meet its commitment to the indemnitee. Most contracts require the indemnitor to provide the indemnitee with additional insured status in the CGL policy, in which case failure to do so could expose the named insured to unexpected costs to defend another party or put them in breach of contract. Both of these situations are easily avoided by attaching a blanket additional insured endorsement.

The CG 2010 endorsement, “Additional Insured-Owners, Lessees or Contractors – Scheduled Person or Organization” which covers the party(ies) named in the endorsement for bodily injury, property damage and personal and advertising injury caused by acts or omissions of the named insured, is frequently used to cover this exposure. It provides protection under both coverage A and B of the CGL form. Do not overlook completing the schedule within the endorsement to add the statement “where required by written contract or agreement” in order to truly provide “blanket” coverage for these requests.

There are a number of other additional insured endorsements intended to meet contractual obligations of the insured, including Vendors, Managers or Lessors of Premises, Lessors of Leased Equipment and Grantor of Licenses. Alternatively, additional insured status may be provided on a case-by-case basis with a “Designated Person or Organization” endorsement, CG 20 26 or other customized or manuscript endorsements available from the insurer. When drafting additional insured language it is important to keep in mind the insured’s standard contract language as well as their contractual risk transfer philosophy and intent.

Leased Workers

In a CGL policy, leased workers are defined as employees of the named insured for which they are performing work. This means that if a worker sustains an injury during the course of their employment for that CGL–insured employer, the employer’s CGL policy will not defend the employer or pay any damages resulting from that suit. The CGL policy responds to a third party injury and because the leased worker is an employee, that worker is considered a first party to the policy.

While most employers would expect this type of injury to be covered under the employers liability portion of the NCCI workers compensation and employers liability policy, some states do not include leased workers in their systems. This creates a potential coverage gap.

The CGL policy can be endorsed using the “Coverage for Injury to Leased Workers” (CG 04 24) form which removes leased workers from the definition of employees. This change only applies to the employer’s liability exclusion(e) on the policy so these workers are still considered employees and therefore insureds under the policy for work they perform on behalf of the named insured.

A similar endorsement can be added to the umbrella policy for follow-form coverage using CU 04 00 (ISO) or a similar form if the insurer uses proprietary umbrella forms.

Loss of Electronic Data
Loss of Electronic Data

The CGL policy responds to third party property damage caused by the insured. However, under the CGL policy, property damage is defined as “physical injury to tangible property” or “loss of use of tangible property” and expressly states that “electronic data is not tangible property”. In these situations, even loss of data that was the result of damage to tangible property such as fire damage caused by the insured or the accidental damage to cables or equipment by an insured’s employee, would not be insured.

In order to reduce the exposure to an uncovered loss, the endorsement “Electronic Data Liability” (CG 04 37) should be used to amend the electronic data exclusion (p), so that the exclusion applies unless the loss results from physical injury to tangible property. Other insurer forms may also be available, however, coverage for losses caused by a computer virus or attack must still be insured under a cyber or internet policy. Be sure to consult your casualty and cyber experts to ensure language between multiple lines of coverage is properly dovetailed.

Fire Legal Liability or Damage to Premises Rented to You

The CGL policy is not intended to replace a first party property policy for the purpose of insuring premises that the insured owns, rents or occupies. However, the Fire Legal Liability or Damage to Premises Rented to You offered in the CGL policy form does provide some first party coverage in specific situations.

First, it is important to keep in mind that only losses to the premises, not property within the premises, are covered when caused by fire. Second, an exception is made for premises and contents only if the loss is caused by a peril other than fire (if that peril is not excluded elsewhere in the policy) and only if the premises were rented for a term of seven days or less. Most leases are quite broad and stipulate that the tenant is responsible for any damage to the premises during the term of the lease, even if the damage was not caused by the tenant. While the CGL policy provides coverage for damage resulting from the insured’s negligence (assumed in the absence of a contract or agreement) the contractual liability portion of the policy would exclude liability that was solely because of the insured’s contractual obligation.

Remember, this coverage is quite limited in scope and is not intended to replace first-party property insurance.

Personal Injury – Contractual Liability Coverage

Another area for a potential coverage gap is in the Personal/ Advertising Injury section of the CGL policy, Coverage B, where contractual liability is excluded. To best explain this we can look at the following example:

Imagine you are a contractor who has been hired to install a new roof on a customer’s building. The building owner is concerned about leaving the building exposed during the project, which will take several days to complete. The contractor arranges to have two of the employees stay at the jobsite overnight to provide security of the premises. The contract is amended to include these security services as part of the overall project work.

On the first night watching the project, a man comes around the side of the building carrying a backpack. The construction worker believes the man may be stealing tools from the site and demands he stop and hand over his bag. The man refuses and the worker begins to wrestle the bag from his back, knocking him to the ground. The worker then pushes the man into a small shed and locks the door while he awaits arrival of the police. The man insists he was asked by the owner to stop by and make sure the project was being guarded but the worker did not believe him and the refusal to turn over the backpack made the construction worker suspicious. When the police arrive, they listen to the man’s story and promptly call the owner of the building. He confirms that he asked the manager of the neighboring video store to stop by after he closed his shop to check on the workers watching the premises.

Weeks later, the neighbor is having anxiety attacks from having been shut up in the small, dark shed for nearly an hour and he decides to sue the building owner, the contractor and the contractor’s worker.

The contractor is covered by his CGL policy under the standard Coverage B protection for personal injury (which includes false arrest, detention or imprisonment). The contractor’s worker is also covered by this policy for his actions. Under the contract, the building owner will be indemnified by the contractor as well; however, personal injury assumed in a contract is excluded so the contractor will not have coverage for that obligation under the policy.

A “Limited Contractual Liability Coverage for Personal and Advertising Injury” endorsement (CG 22 74) modifies the contractual exclusion under Coverage B for liability assumed in a contract listed in the endorsement. It provides for injury that arises out of false arrest, detention or imprisonment. Because these types of services are incidental to the actual services being provided, they are often done as an add-on and not sufficiently disclosed so that proper coverage is arranged. Be sure to check with your insured regarding all contractual obligations.