G Insurance Alert March 2002 New Developments in CGL Policy Wording By Adam S. Cantor, Esq. n December 2001, the Insurance Services operations, an insured may negotiate contracts I Office (ISO) implemented significant changes requiring it, among other things, to add a third in the Commercial General Liability (CGL) party to its policy as an additional insured. For policy form. The purpose of this article is to example, contractors or suppliers doing business provide both an overview of some of the major with government organizations are frequently changes and to foster basic awareness that can be required to name a particular state or local agency used in later discussions with your carrier, broker, as an added insured. Failure to comply with a risk manager or other insurance professional. contractual obligation to provide another entity with additional insured status can result in a Who is an Insured? breach of contract claim against the insured. The “Who is an Insured” section of the CGL Problems could arise, however, where the insured’s policy includes several new features: contractual requirements included affording completed operation coverage to the added third a ) “volunteers” are being added as party. In the past, no standard endorsement automatic additional insureds, so existed and underwriters were reluctant to provide organizations which now use volunteer the coverage. With the introduction of ISO’s new workers on a regular basis will have endorsement extending completed operations to expanded coverage. additional insureds, the vehicle for addressing this b ) trusts can now be included as named exposure exists - but it must be negotiated on a insureds, if listed, with automatic coverage case by case basis. Therefore, speak to your broker also provided for trustees. or carrier if attachment of this endorsement will benefit your insurance program. c ) a new standard ISO endorsement has been developed to afford completed Loss or Damage operations coverage for additional Unkown Prior to Policy Period insureds. Insurance companies prefer not to underwrite The last change is most significant, as coverage burning buildings as risks - it’s just not good for this particular exposure had been difficult to get business! A basic principle of liability insurance is in the past. In the course of its usual business This document is published by Lowenstein Sandler PC to keep clients and friends informed about current issues. It is intended to provide general information only. L Roseland, New Jersey Telephone 973.597.2500 65 Livingston Avenue www.lowenstein.com 07068-1791 Fax 973.597.2400
G that it responds only to unknown losses. While the However, an absolutely impenetrable coverage principle appears self-evident, it wasn’t until gap is not created by the exclusion of data/ software recently that the CGL form actually focused on it from the definition of property damage. ISO is within the policy language. In Montrose Chemical stepping into the void resulting from this change Corporation v. Admiral Insurance Company , 913 P.2d and will introduce two new coverage options to 878 (Cal. 1995), the California Supreme Court meet policyholder needs. The first is an electronic ruled that while the insured knew of a loss prior to data liability endorsement (filed for availability in policy inception, the insurer was nevertheless still the first half of 2002) that will provide coverage for required to provide coverage until the insured’s loss of data resulting from physical injury to legal obligation to pay third party claims was tangible property. Later in 2002, ISO expects to established. As a result of this decision, ISO introduce an even broader electronic data liability introduced a rider in 1999 stating that the CGL coverage form that will provide for actual damage applied only to unknown losses. The 2001 policy to the electronic data itself. If required, insureds revisions now incorporates explicit language should consult their brokers about the availability directly into the form itself stating that coverage of these options. only applies to loss or damage unknown prior to the Internet Liability policy period. The uninterrupted growth of the Internet as a Coverage for Computer Data medium for delivering goods and services In a previous Insurance Alert, we addressed the continues to impact legal liability. Insurers have judicial debate about the application of standard recently introduced various products addressing e- insurance policies to data and computers (“Courts risks, such as cyber-terrorism, identity theft, Disagree on Insurance Coverage for Data,” hackers, etc. However, to facilitate increased October 2001). The insurance industry wants to demand for these new specialty policies, the short-circuit this debate and, consequently, ISO insurance industry has simultaneously added new has redefined the term “Property Damage” to exclusions to the CGL, in order to prevent any specifically state that electronically stored data or coverage overlap. software is not tangible property “for the purposes of this insurance,” thereby removing potential With respect to Personal and Advertising coverage for damage to data or software and loss of Injury coverage, ISO has added web site creators use resulting from that damage. Thus, someone and internet access providers to the list of those with a standard CGL form who becomes legally excluded from coverage (that group previously liable for a customer’s lost electronic data within its including advertisers, broadcasters, publishers and computer system will be out of luck as respects telecasters). A new exclusion has been added for coverage. those hosting bulletin boards and chat rooms, since some courts have determined that these businesses
G are also publishers. In addition, a personal and construction defects. The insurance industry views advertising injury exclusion has been added to this as a progressively difficult problem: when preclude coverage for companies that employ subcontractors are used extensively on a project, tactics to mislead and divert Internet customers by the risk of construction defects increases the unauthorized use of another’s name or product exponentially, as does the likelihood of claims in a domain name, e-mail address or metatag. At made against the insured’s CGL. the end of the day, ISO’s bottom-line goal is to continue introducing cutting edge, niche products To counteract those risks, ISO has made that respond to cyber-torts, while keeping the CGL available two new optional endorsements that now out of play on those same issues. restrict coverage by deleting the exception for subcontracted work. One removes the exception On the positive side, ISO has clarified the for all subcontracted work, while the other applies personal and advertising injury definition to apply to selected operations only. to defamation, disparagement or violation of privacy “in any form,” thus embracing all electronic Both insureds (especially general contractors) media. The definition of “advertisement” has and their sub-contractors need to be attentive to undergone revision, to include notices published or this change. The sub-contractor who relies on this posted via the Internet. Lastly, coverage territory exception for coverage must check with the has been redefined to include offenses that take insured if in fact its policy still contains the place through the Internet or other means of e- exception. If the named insured agreed, as part of communication. the contract with its subcontractors, to secure coverage on their behalf, it must be certain that its Changes to “Your Work” Exculsion - CGL policy wasn’t renewed with these restrictive Removal of Exception for Subcontractors endorsements attached - or else face the possibility The CGL form excludes property damage to of being stuck with both the liability of, and a the named insured’s work if the damage arises out breach of contract claim from, the subcontractor. of the insured’s workmanship and is included Amendment to the within the products-completed operations hazard. “Owned Property” Exclusion However, this exclusion often contains an exception for subcontractors, whereby it does not New language has been added to Exclusion j., apply to damage to work performed by a Damage to Property, based on case law that opened subcontractor on behalf of the insured. the door to coverage for repairs made to an insured’s property, where such repairs are Continued recent development in the undertaken based on a duty to prevent additional residential and commercial real estate markets has injury or damage to a third party property. In Aetna resulted in an increase of claims relating to Insurance Company v. Aaron , 685 A.2d 858 (Md.
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