January 2007, Volume 1
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275.4-2

ISO COMMERCIAL LIABILITY UMBRELLA COVERAGE FORM ANALYSIS—CU 00 01 (12 04 Edition)

(June, 2005)

INTRODUCTION

Insurance Services Office's (ISO) Commercial Liability Umbrella Coverage Form (CLU) is intended to provide additional protection to insureds with substantial assets or exposures.

Note: This discussion is based upon the 12/04 Edition of the program. For information on the previous program, please refer to PF&M Section 275.6-8, CLU 12 01 Ed. Coverage Form Analysis.

The CLU coverage responds as an excess layer, extending the protection of the occurrence and aggregate limits of the following:

  • Commercial General Liability (CGL),
    •
  • Commercial Automobile, and
  • Garage Policies.

Many umbrella policies are still proprietary since they have typically been created and maintained by individual insurers. Since they were developed by various companies for their own use, the form was non-standard in terms of the following:

  • insuring agreements,
  • exclusions,
  • conditions,
  • definitions,
  • endorsements, etc.

Shortly after the introduction of their Personal Lines Umbrella, Insurance Services Office (ISO) released their Commercial Liability Umbrella Coverage Form. ISO programs are widely used throughout the insurance industry. The availability of their CLU program should result in a significant level of standardization in this line of business. One characteristic favoring acceptance of this product is that much of the language is patterned after ISO's Commercial General Liability (CGL) Coverage Form. For more information on the CGL, please refer to PF&M Section 270.4-2, Commercial General Liability Coverage Form Analysis.

Note: This policy is subject to individual state amendatory endorsements as well as the Common Policy Conditions — IL 0017. Please refer to PF&M Section 275.4-3, Commercial Liability Umbrella Available Endorsements And Their Uses, for more information. For help with discussing (or publicizing) this topic with clients, please refer to PF&M Section 295.9-13, Commercial Umbrella Liability Policy Letter.

SECTION 1 — COVERAGES

COVERAGE A — BODILY INJURY AND PROPERTY DAMAGE

1. INSURING AGREEMENT

1.a. (1) (2) The policy opens with the statement that the insurer is responsible for making certain payments on behalf of the insured. The insuring agreement is conservative, making use of defined terms to lay out the form's financial obligation. Specifically, the carrier agrees to pay the "ultimate net loss" amount that pierces the policy's "retained limit." However, the loss must involve "bodily injury" or "property damage" and that BI or PD loss must be eligible under the umbrella policy.

12/04 change: This insuring agreement was slightly modified to read more clearly.

The CU 00 01 form is not an indemnity form. Under an indemnity form the company would reimburse losses incurred. The CLU form works in the opposite manner. When a covered event occurs, the insurer assumes the insured's financial responsibility and makes any needed payment that qualifies under the policy terms.

Example: An insured is protected by a CGL and an umbrella policy. A loss occurs and, after using the limit available under the CGL, the insured is still facing an unpaid amount of $179,000.

Scenario A - the umbrella is an indemnity form and Carrier A follows the policy's insuring agreement to the letter. Therefore, the insured must drain his cash account and borrow funds to pay the claimant. After that payment is made, the carrier reimburses the insured.

Scenario B - the umbrella is NOT an indemnity form. Carrier A pays the claimant in the place of the insured.

Avoiding the use of an indemnity contract maximizes the usefulness of an umbrella policy. The form is designed to handle large losses. Its usefulness is diminished if it included a provision that would create cash flow problems and inconvenience to insureds. It could also aggravate litigation problems if it created a significant delay in paying damages to third parties. It could also increase costs if a delay creates higher post-judgment costs (interest) or separate penalties, or even separate bad faith claims.

The insuring agreement grants the insurer the right to investigate or settle any "occurrence" as well as the right to settle any resulting claim or "suit. This language tracks very closely with the Commercial General Liability Coverage Form with the exception of its reference to the "retained limit."

"Retained limit" is defined in Section V — Definitions. A "retained limit," typically, applies to a claim for which coverage is either excluded or the coverage limits have been exhausted in the underlying policy.

Example: "Hazy Hangover Bar & Grille" is covered by a CGL with an occurrence and general aggregate of $1,000,000. Hazy's underlying policy includes a liquor liability exclusion but no such exclusion is attached to the Umbrella. A new bartender slips several drinks to an attractive patron. That patron turns out to be a minor who, while returning home from Hazy, causes an auto accident. The damages, although excluded in the CGL, are covered in the Umbrella excess of the "retained limit."

1.b. (1) (2) (3) In this section, ISO includes language to bar coverage for known injury or damage. This language is currently used in most ISO liability coverage forms. Its purpose is to prevent the policy from responding to any injury or damage known by the insured (or an "employee" of the insured who was authorized to give or receive notice of injury, damage, or claim) before the umbrella policy's inception. This wording helps to preserve the intent to having a CLU address accidental losses that occur during the policy period, not to make it available as a financial backstop for losses that have already occurred.

"Bodily injury" or "property damage" coverage applies only when none of the following parties has knowledge of the BI or PD before the policy's initial effective dates:

  • insured or
  • "employee" of the insured given authority to give or receive notice of an "occurrence" or claim

If an "occurrence" or claim occurs prior to policy inception, and continues into the current policy period, or changes in its scope or once again resumes during the policy period, it is considered to be known by the insured prior to the policy period.

1.c. This provision clarifies the eligibility of "bodily injury" or "property damage" further. If a BI and/or PD loss takes place during the policy period and then it either continues, changes its scope or resumes after the policy period ends, that event is eligible for coverage under the CLU. However, coverage only applies if the event happened without prior knowledge of the same parties referenced earlier in the insuring agreement.

Example: Scenario 1: Kropcover Kings, a large crop dusting company, is insured by a CLU. They are sued by a neighboring company when that business's premises is sprayed with a fungicide by one of Kropcover's planes. A canister on one of their planes ruptured shortly after the plane took flight, inundating the plaintiff's buildings, parking lot and employees with the harmful chemicals. The canister, which was delivered to Kropcover two days before the CLU policy took effect, was severely damaged during shipment. The deliveryman failed to tell anyone at Kropcover that he dropped the canister when he loaded it onto and later while taking it off his company's truck. The damage to a valve was not evident, so it was put into regular service. This loss would be covered.

Example: Scenario 2: Kropcover Kings is sued under the exact same circumstances as the first scenario with one important difference. When the canister was delivered, the Kropcover warehouse manager witnessed the deliveryman dropping the canister. While they examine it, the deliveryman admits that it's the second time the canister was dropped. The manager notices some slight damage, but goes ahead and accepts it. When their CLU insurer discovers this information, the loss is denied.

1.d. (1)(2) Additionally, this language establishes criteria by which a determination can be made concerning when "bodily injury" or "property damage" is considered known by the insured or an authorized "employee" of the insured.

The case that precipitated this change in language is that of Montrose Chemical Corporation of California, Plaintiff and Appellant vs. Admiral Insurance Company, Defendant and Respondent. CA Supreme Court #S026013 filed July 3, 1995. Please refer to PF&M Section 270.4-2, Commercial General Liability Policy Coverage Form Analysis for additional information on this case or, for a summary, please refer to PF&M Section 270_C155, "Known Injury Or Damage Not Excluded In Continuous Or Progressive Damage Loss", in Court Cases.

2. EXCLUSIONS

The Umbrella exclusions are typical liability exclusions that parallel those found in the CGL.

a. Expected or Intended Injury is excluded unless it is the result of the use of reasonable force to protect persons or property. However, the CGL exclusion is being challenged in several states. The outcome will obviously impact the way the Umbrella will respond to these type claims, absent any change in the current language. For more information on such state challenges, please refer to PF&M 270.6-10, Expected or Intended Exclusion.

b. Contractual Liability is excluded except in the following instances:
  • the liability is created by an agreement that qualifies as an "insured contract" and the "bodily injury" or "property damage" takes place after the contract or agreement was implemented, or
  • the insured would have been liable even in the absence of a contract or agreement.

The umbrella policy's protection against covered instances of contractual liability extends to related defense and court costs, including legal fees to defend an insured for civil suits or alternative dispute resolution (ADR) (typically arbitration that has gone wrong). For an angle on ADR, please refer to PF&M Section 310.8, Alternative Dispute Resolution.

c. Liquor Liability is excluded unless the insured is not in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages. The coverage provided by this form is typically referred to as host liquor liability, an extension of the coverage found in the CGL. In other words, company-sponsored events, i.e., picnic, Christmas party or a vendor's exhibition would be covered for host liquor liability unless there is a statute, ordinance, or other regulation with respect to a particular event prohibiting coverage (i.e., a company event fundraiser that included bingo or other games of chance).

Liquor liability coverage can be purchased for those insureds in the business of manufacturing, selling, distributing servicing, or furnishing alcohol. The appropriate endorsement, which overrides the exclusion, must be attached to the policy. For more information, please refer to PF&M Section 277.4-2 ISO Liquor Liability Coverage Forms Analysis.

d. Workers' Compensation and Similar Laws exclusion is inserted to avoid duplicating coverage that is provided in the workers compensation policy.

e., h., j., k. The ERISA and Employment-Related Practices, Watercraft, Aircraft, and Racing Activities exclusions are also typical CGL policy exclusions.

Note: The CGL exclusion Watercraft, Aircraft also includes Auto. This is an important difference, insofar as the Umbrella policy extends coverage to "bodily injury" or "property damage" arising out of the ownership, maintenance, use, or entrustment to others of any covered auto owned or operated by or rented or loaned to any insured. With respect to this coverage, use is inclusive of "loading or unloading".

12/04 Edition Change: Under the latest edition, exclusion j. "Aircraft Or Watercraft of the CLU Coverage Form" was changed. The latest wording was modified. A new paragraph attempts to bar BI or PD losses from negligent employer practices whenever such losses also involve watercraft or aircraft. The exclusion applies to any incidence of use for either owned, rented or borrowed craft.

f. Auto Coverages The purpose of this exclusion is to prevent coverage for any vehicle that is not a "covered auto." As a refresher, covered auto status is based upon whether an auto is described in the schedule of underlying auto as a "covered auto." The term is found in the Definitions section of the policy. Also excluded are physical damage losses. Since the Umbrella is a liability policy, claims involving the insured's own vehicles (first party losses) should be filed against the appropriate auto policy.

g. Similar to the Workers Comp exclusion, the Employer's Liability exclusion also exists to avoid duplication of coverage, in this instance, by an employer's liability policy. However, excess coverage for employer's liability exposures is available under the Umbrella if an Employer's Liability policy is shown in the schedule of underlying coverages on the Umbrella Declarations.

i. In contrast to the CGL, the Umbrella Policy has an absolute pollution exclusion. For detailed analysis on the pollution exclusion in the CGL, please refer to PF&M 270-4-2, Commercial General Liability Policy Coverage Form Analysis. The Umbrella makes no provision for exceptions to the exclusions. However, if pollution coverage is provided in the schedule of "underlying insurance", the Umbrella will follow the provisions, exclusions, and limitations of the "underlying insurance." For more information on losses involving this issue, please refer to PF&M Section 270.6-14 Pollution In The Court. Please also refer to our Court Cases section for a variety of other disputes on this topic.

l. War

12/04 Edition Change: This exclusion was changed to become more specific. The previous edition's wording has been replaced with the wording previously used in mandatory form CU 00 02. The exclusion is a separate bar to coverage for BI or PD losses involving war or war-like activity.

m. Damage To Property exclusion is very similar to that found in the CGL. In other words, no coverage applies under the umbrella for loss, damage or destruction to property that has any incident of ownership or control by an insured.

Example: Klutz Office Supplies is covered by a CLU Policy. During an extended surge in business, Klutz rents warehouse space from a neighboring firm. While using the property, a new Klutz employee crashes a forklift into one of the warehouse's load-bearing beams. The building collapses shortly afterwards. City authorities close down the multi-unit warehouse and office facility for the three weeks it takes to repair the structural damage. Neither the building damage, loss of merchandise, nor the damage equipment is eligible for any coverage. Why not? Because the warehouse and all property were either owned, controlled or rented to Klutz.

Interestingly, with regard to damaged property, the umbrella policy contains language that excludes any coverage for expenses incurred for repairs made on the insured's own property. The exclusion applies regardless the reason for any such repairs. These exclusions were prompted by the ruling passed down in Aetna Insurance Company v. Aaron, 112 Md. App. 472.685 A.2d 858 (1996). In this case, the Maryland Court of Special Appeals held that an insurer was obligated to defend and indemnify the insured in a suit brought by the insured's condominium association. The association sued to recover costs resulting from repairs it made to the insured's condominium. The association alleged that the repairs were necessary to prevent additional damage to another condominium owned by a third party.

n., o., p., q. Damage To Your Product, Damage To Your Work, Damage To Impaired Property or

Property Not Physically Injured and Recall of Products, Work, Or Impaired Property. These exclusions deny coverage for "bodily injury" or "property damage" resulting from the insured's product or work. The comprehensive provisions also bar recovery for any loss involving a defective component or a failure to perform as described in the terms of a contract. Neither is there coverage for loss, cost, or expense of a product being withdrawn, recalled, inspected, or repaired or destroyed because of a known or suspected defect.

Example 1: Grill-rilla Ltd. manufactures gas grills including their fuel tanks. Joe buys a Grill-rilla grill and uses it frequently over the summer. One day Joe's grill malfunctions (a defective temperature control). The grill melts down and starts a fire. The grill's fuel tank explodes and destroys a wall of Joe's home. Joe and his younger children (who were in the room on the opposite side of the destroyed wall) were seriously injured. While Grill-rilla's CLU would be available to handle the PD and BI, there is no coverage for the destruction of the Grill-rilla grill.

Note: The insured could have a course of action against a supplier if it is determined that the part or component provided by the supplier did, in any way, contribute to the malfunction.

Example 2a: The insured is a roofing contractor and completes a job. Afterwards, during a rainstorm, the client discovers leakage coming from the roof. It is determined that the leakage is the result of defective craftsmanship. In this case there is no coverage.

The umbrella policy does have an exception to the exclusion. It applies to work performed by a subcontractor hired by the insured. If the damage is the result of the subcontractor's completed work, the insured would have coverage.

Example 2b: The insured is a general contractor and completes a job. The insured subcontracted part of the project to a roofing contractor. Afterwards, during a rainstorm, the client discovers a serious leak in the new roof. It is determined that the cause of the leakage is the result of defective craftsmanship. The client sues the general contractor. In this case the umbrella would provide coverage.

Example 3: The insured manufactures a switch that is sold to another company. The second company uses the switch as a component in an electric starter. The switch turns out to be defective, which means the starter will not work. The starter is impaired but not damaged. The cost to repair or replace our insured's defective switch is not covered.

Example 4: The insured, a tire manufacturer, knows about a change in the manufacturing process that could result in a batch of tires being defective. Notwithstanding this report, large numbers of tires are shipped to various distributors. A problem with the tires surfaces and it becomes apparent that immediate action is necessary. The tires are recalled for replacement. There is no coverage for any of the tire recall expenses.

r. Personal and Advertising Injury is excluded in Coverage A- Bodily Injury. This provision is needed in order to avoid duplicate coverage. Such claims are handled under Coverage B- Personal and Advertising Injury Liability.

s. (1 -11) Professional Services coverage is better provided by a specialty product and is therefore excluded from a standard Commercial Umbrella policy. Nearly a dozen different instances that are excluded are described under this provision such as legal, accounting, cartography (map-making), cosmetics, health services, optical services and others.

Note: The referenced, excluded activities are only used to illustrate what does not qualify for coverage. Any service that could reasonably be considered professional would be barred from coverage as a specialty hazard.

Example: Kondescension Kontractors is insured by a CGL and a CLU. They are hired by a local medical group to build a small clinic. A year later, the medical group asks Kondescension to add a wing onto the original building. Kondescension's chief project manager draws up plans for the addition and it is built. Later, part of the wing collapses and an inspection reveals it was caused by a flaw in the project manager's plans. The costs of repairs and extra expense to correct the design are not covered by the CLU because it arose from an engineering service.

Note: The CLU can be easily modified to provide protection for this exposure by attaching CU 24 23, Coverage For Professional Services.

12/04 Edition Change: the following exclusion was added with the new (12 04) edition of the CLU program.

t. Electronic Data - this item denies coverage for loss that is related to the loss and/or destruction of computer information. The way such data is stored (media) or used (access on an internal computer or transmitted or received via the Internet, e-mail, etc.) does not affect its eligibility. The property is not covered by the CLU.

Note: The way the latest edition of the CLU handles electronic data may cause confusion. The exclusion explains what is meant by "electronic data" and this same explanation is used in the policy's reference to Property Damage. In that section, electronic data is mentioned as not being considered tangible property. However, the policy does not include electronic data in its Definitions Section. For clarity's sake, it should be a defined termed that is referenced properly.

Interested readers are asked to please refer to PF&M Section 270_C196, Insurer Not Obligated To Respond To Ineligible Allegations, for a case involving intangible property.

COVERAGE B- PERSONAL AND ADVERTISING INJURY LIABILITY

INSURING AGREEMENT

12/04 change: This insuring agreement was slightly modified to read more clearly.

1.a. The insuring agreement for Coverage B acts similarly to the insuring agreement for Coverage A — Bodily Injury except, in this portion of the policy, we are dealing with "personal and advertising injury". "Personal and advertising injury" includes both direct and consequential "bodily injury" that result from a wide variety of offenses. Items qualifying as personal and advertising injury include false arrest, detention or imprisonment, or malicious prosecution. It also includes wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling, or premises when such an action is committed by or on behalf of the site's owner, landlord, or lessor.

Example: Maintoywne Inkpress is a printing shop that is covered by a Commercial Umbrella. Maintoywne's owner rents out several rooms above the shop and the rooms have a separate back entrance. The renter is a young office worker. The office worker gets into trouble with members of a local gang. One night, several gang members bust into the apartment and throw the office worker out, warning him not to come back for several days. This incident would not qualify as a "personal injury "since it did not directly or indirectly involve the insured.

Example: Again we have Maintoywne Inkpress, whose owner rents the rooms above his shop to a young office worker. After his shop is broken into and a new copier is stolen, Maintoywne's owner suspects his renter was involved with the theft. The owner changes the locks on the rented rooms and tells the office worker that he won't let him in until he tells what he knows about the theft. This deprivation of living space could qualify for coverage if the renter decides to file suit.

Other items that qualify as "personal and advertising injury" are oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products, or services; or that violates a person's right of privacy. The use of another's advertising idea in your "advertisement" or infringing upon another party's copyright, trade dress, or slogan in your "advertisement" also qualify as personal or advertising injury.

"Advertisement" means a notice that is broadcast or published to the general public or specific market segments. The notice must be about an insured's goods, products, or services. Further, the intent of the notice must be to attract customers or supporters.

Example: A local antiques shop puts up several billboards which brag that it is in the most desirable business location in the region. It also includes an inspiring location description. A realtor sues the antique shop when she realizes that the billboard contents were taken verbatim from the real estate ad she wrote years earlier in order to sell commercial lots at that business site. The antique shop's Commercial Umbrella insurer denies to defend the own because the billboard has nothing to do with the shop's good's or services.

For the purpose of the policy definition, published notices include material distributed on the Internet and by other similar electronic methods. When promotional material appears on a Web site, only that part of the site that is about an insured's goods, products, or services is considered an advertisement.

Example: A lawn equipment manufacturer publishes an ad on part of the "Outdoorists Today" Website. The ad appears on a corporate sponsor page that links to the home page. "Outdoorists Today" is sued by "Outsiders Forever," who claims that the former stole the graphics used on the home page. Although the insured ad appears on the "Outdoorists Today" site, the commercial umbrella would not respond to the suit since it did not involve the insured's ad area.

In accordance with rapid technological advancement, ISO's Commercial Umbrella language expands on ISO CGL "personal and advertising injury" offenses to incorporate language for Internet liability and other electronic communications. This coverage, however, is excluded for web-site designers, Internet access and service providers (except for posting links, frames or borders), electronic chat rooms, or bulletin boards. The inclusion of this language is in recognition of the increased use of the Internet by commercial business owners and clarifies the extent of coverage provided by the Umbrella product. Court cases such as Lunney v. Prodigy Services Co., 94 N.Y. 2d. 242, 701 N.Y.S. 2d 684, 723 N.E. 2d 539 (1999) precipitated ISO's development of this language. Briefly, this involved a plaintiff suing an Internet Service Provider (ISP), alleging that the latter failed to do its duty to protect subscribers. The plaintiff alleged damages because an unidentified imposter stole the plaintiff's identity in order to open several e-mail accounts. The anonymous user then sent inappropriate and threatening posts to several parties vial e-mail and through posts in chat rooms. Essentially, the court upheld a lower court decision that the ISP was not a publisher, but only acted passively in allowing information to be transmitted. It was not held liable for the messages that hurt the reputation of the plaintiff.

Here again, as with Coverage A, the insurer has the discretion to investigate any offense that may involve the CLU. The company may choose to settle any related claim or "suit" as long as it follows the policy's relevant provisions. However, an insurer's duty to respond to a claim ends when the insurance limits are exhausted. Of course exhaustion includes consideration of any coverage applicable under the policy's other sections, particularly the Supplementary Payments section.

1.b. Personal Injury and Advertising Injury coverage is only applicable to an eligible offense that occurs:

  • in the "coverage territory" and
  • during the policy period.

For another angle on what constitutes an eligible occurrence, please refer to PF&M Section 270_C077, "Unfair Competition" Allegation Held To Be Covered As "Advertising Injury" Only When Competitor Is Affected in Court Cases.

EXCLUSIONS

A wide variety of causes of loss are barred from recovery under Coverage B of the CLU.

a. (1) Knowing Violation Of Rights of another prohibits coverage for an act that infringes on the rights of another party. The exclusion is valid regardless whether the damage or injury is due to an insured's direct action or is done on the orders or instructions of an insured.

Example: M.C. ME, a famous rap artist, repeatedly refuses an interview with "Tell-All" Magazine. Tell-All is insured under a CLU. A Tell-All editor orders his reporter/photographer to "come back with something" on the uncooperative star or "don't come back at all." The reporter resorts to climbing trees outside the artist's residence in order to take photos of the artist while inside the home. If the artist sues, and it is determined that rights of privacy were violated, there is no coverage.

a. (2) Material Published With Knowledge Of Falsity arising out of the oral or written publication of material, which is known to be untrue, is not covered.

Example: Scenario A - "Tell-All" Magazine publishes the photos and an "insider's article" featuring M.C. Me. The photos and article were provided by the photographer/reporter from the previous example. M. C. Me sues "Tell-All," claiming that the story's references to drug and criminal behavior are false. "Tell-All"'s umbrella insurer tells the publisher that it is dropping its defense of the suit. During the claim investigation, the photographer/reporter admits that he fabricated his "insider" source in order to create a hot story.

Example: Scenario B - "Tell-All" Magazine publishes the photos and an "insider's article" featuring M.C. Me. The photos and article were provided by the photographer/reporter from the previous example. M. C. Me sues "Tell-All," claiming that the story's references to drug and criminal behavior are false. "Tell-All"'s umbrella insurer defends the magazine. As it turns out, the photographer/reporter based his article on a number of stories provided to her by a third-party who used to be employed by M.C. Me. The former employee made up the stories he told to the reporter. He wanted revenge against the loss of his job.

a. (3) Material Published Prior To Policy Period as a result of oral or written material that was first published prior to the start of the policy period — no coverage.

Example: Playmasters Inc., a sports equipment manufacturer, is sued by a group of irate customers. The customers are a group of golfers who allege that Playmaster's ads about their product, "Perfekputter" were false and misleading. Playmasters files notice of the suit with its umbrella carrier. The carriers deny the claim. Its umbrella policy was issued with effective dates of 2-10-2003 to 2-10-2004. The ads ran during the 2002 holiday shopping season. Of course, even if the ads ran during the policy period, the insurer could invoke the exclusion under a.(7) below.

a. (4) Criminal Acts are excluded.

Example: A reporter breaks into a building to photocopy confidential records used in a newspaper story that is later published.

a. (5) (a) (b) and (6) Contractual Liability and Breach of Contract in which the insured agrees to accept some risk of loss in writing. Later when a related loss occurs, there is no coverage. However, contractual liability does not affect coverage if the contract involves a source of loss that the umbrella insures against such as false arrest or if the assumed liability would have existed even without a contract. Further, loss related to a contractual breach does not qualify for coverage. There is protection in one limited event. The umbrella will respond to a breach of an implied contract involving one party's use of another party's advertising idea.

a. (7) Quality Or Performance Of Goods — Failure To Conform To Statements arising out of the insured's product, goods, or services to perform as indicated in an "advertisement" is excluded.

Note: See the example under a.(3) above.

a. (8) Wrong Description of Prices — no coverage exists for losses that occur as a result of a wrong description for goods, products, or services stated in an "advertisement".

Example: Merciless Used Motors is sued by a group of customers when it refuses to sell the previously owned vehicles that an ad listed as selling for $19.99 instead of $1,999. This suit does not qualify for coverage under the umbrella.

a. (9) Infringement Of Copyright, Patent, Trademark, Or Trade Secret incidents are likely to increase as a result of the Internet. ISO added a specific exclusion to reinforce that the fact that coverage does not exist for infringement of intellectual property. However, there is an exception. Coverage B of the CLU does cover infringement of copyright, trade dress, or slogan in an "advertisement."

a. (10)(a)(b)(c), (11), and (12) Insureds In Media And Internet Type Businesses, Electronic Chatrooms, Or Bulletin Boards, Unauthorized use of Another's Name Or Product. This group of exclusions helps clarify the extent of coverage previously mentioned in the insuring agreement. Coverage is provided for placing of frames, borders or links, or advertising, for you or others anywhere on the Internet in as much as this is considered outside the business of advertising, broadcasting, publishing, or telecasting. However, this area will continue to be developed and refined. For instance, how does one answer the question "What is an Internet Type Business?" Certainly some such businesses must or will likely soon exist which, while operating via the Internet, may be quite distinct from operations with heavy "media" type exposures. Coverage language must be developed to handle them. One step may be to have the term defined or, at a minimum, be provided with a reference to firms that typify such businesses. On the downside, insurers must also anticipate courtroom challenges over current language and interpretation.

a. (13), (14), and (15) Pollution, Employers Liability, and Professional Services exclusions are similar to Coverage A exclusions for Pollution, Employment Related Practices, and Professional Services. These coverages are more appropriately written on specialty products.

b. This part tells insureds that absolutely no coverage is available for loss or expenses that involve pollution. Something that may, on the face of it, appear curious to be included for this coverage. However, suits and disputes seeking coverage for pollution have become so common and creative that it is probably prudent to specifically mention an exclusion for this expensive source of loss.

SUPPLEMENTARY PAYMENTS — COVERAGES A AND B

The CLU offers seven supplemental coverages. These coverage limits apply in addition to the limits stated in the Policy Declarations. The supplemental items involve costs that are associated with defending an insured in a claim or suit. The seven supplementary payments are as follows:

a. All handling costs that result from the insurer's involvement with the claim or suit.

b. Bail Bonds - The CLU offers a maximum of $2000 to pay for bail bonds (including bonds for related traffic law violations) required because of an occurrence we cover. As is typical in most policies, the insurer does not have a responsibility to provide any actual bond.

c. Attachment Bond - the policy will pay for bonds to lift attachments. However, these payments are limited to bond amounts that don't exceed the applicable limit of insurance. Again, the carrier has not obligation to provide the actual bonds.

d. Expenses created at the insurer's request - this supplemental coverage handles costs to an insured that exist because the insured is asked to help with a claim or suit investigation. One category of expense is a maximum daily limit of $250 for lost earnings.

e. Taxes related to suit costs - the carrier will handle such costs.

f. Prejudgment interest - this supplemental coverage is all about timing. It obligates the carrier to pay interest on awards levied against an insured that are made before the carrier makes an offer to settle that is equal to the policy limit (that applies to the suit). This obligation is also ended when the applicable limit is exhausted. After either event, additional interest is the insured's problem.

g. Other judgment interest - this is handled similarly to item f. above, regarding post judgment interest amounts. The carrier's obligation concerns interest that all interest on the full amount of any judgment that builds between the period that the judgment is made and until and offer of limits is made, the policy limits have been used up or the amount (subject to policy limits) have been turned over to a court (deposited).

2. Impact on limits - this provision confirms that the supplemental coverages are in addition to any applicable limit, rather than a part of the limit. Further, the umbrella insurer also bears the cost of any expense related to its right to look into a loss that may affect their coverage.

Example: Justjumpin Gym Inc. makes gym and playground equipment. It is insured by two different carriers, one providing a CGL and the other a commercial umbrella. Earlier in the year, they were sued by a customer who had their Justjumpin 2000 mega playset collapse during a birthday party. Nearly a dozen young children were seriously injured. To date, only the CGL insurer is involved. However, the umbrella insurer has spent more than $10,000 to keep tabs on the progress of the lawsuit which threatens to pierce the limits of the underlying coverage.

3. a-f. In addition, when the insurer defends the insured against a "suit" and an indemnitee of the insured is also named, the insurer will defend the indemnitee if the conditions specified in the policy form are met. In particular, the insured's relationship with the indemnitee has to be related to an "insured contract (refer to item 9. below in the Definitions discussion). Further, the liability the insured acquires under the contract has to be the sort that qualifies for coverage under the CLU. Other pieces must also fall into place before the insurer will defend BOTH the CLU insured and an indemnitee. The obligation to defend the indemnitee must also have been part of an insured contract. The insurer must be able to control the suit's defense, having the ability to have their choice of legal representative handle matters.

Conflict of Interest

The existence of a conflict of interest between the insured and the indemnitee creates an impossible situation for a CLU insurer to handle. It could not possibly appropriately defend both parties and its obligation would, in such an instance, lie with the insured. Finally, in order to provide a defense to the indemnitee, that party must agree in writing to the following:

  • assist the carrier with handling the lawsuit
  • send copies of all suit-related paperwork to the insurer
  • contact all carriers who may provide coverage to the indemnitee
  • help the insurer with respect to other available coverage
  • give the insurer permission to access relevant records
  • don't interfere with the insurer's control of the suit's defense

SECTION II — WHO IS AN INSURED

The parties that are identified as insureds are nearly the same as those shown in the CGL Coverage Form. There are, however, two significant differences. Notably, the Umbrella includes a Trust, as an insured (as defined in Section V-Definitions). In addition, the Umbrella makes a distinction of parties considered to be insureds between the liability that arises from a covered operation and the liability that results from the ownership, maintenance, or use of a "covered auto".

1. The first section identifies insureds with respect to liability arising out of an operation, namely:

a. Each named insured as designated in the Declarations:

(1) An individual, including spouse

Note: Insured status is gained only for business operations in which such individuals are sole proprietors. Otherwise, it is the legal business entity that is the rightful insured (see below).

(2) Partnership/joint venture

When this entity is the described party, insured status belongs to the entity's members and partners. Wives and husbands of partners have limited insured status. It is extended when they are involved with insured business activities.

Example: Davis & Jones Courier Service is insured by a BOP and a CLU. One day, a husband of the senior partner helps out when a driver is ill. While using a partnership van to make a crosstown delivery, he loses control of the van and slams into a crowd at a street corner. The umbrella will respond to this loss.

(3) Limited liability company (LLC)

Under this entity type, LLC members and managers are given insured status. However, members are only protected for business activities and managers are protected within the scope of their job.

(4) Corporations

Corporate directors and executive officers are insureds while performing their respective jobs. Another group also enjoys a narrow insured status. An insured corporation's stockholders are protected for their liability as stockholders.

(5) Trusts

Under this legal arrangement, the agreement's trustees gain insured status while handling their trust-related responsibilities.

b. Volunteer Workers

Volunteers are defined in Section V. They are insured only in connection with duties related to the insured's business. However, "volunteer workers" are not insured for "bodily injury" or "personal and advertising injury" to a named insured, partners, or members or to a co-"employee" in the course of his or her employment or to other "volunteer workers" while performing duties related to the conduct of your business. ISO's commercial umbrella form places coverage for volunteers directly into the coverage form, eliminating the need for a separate endorsement. The coverage given to volunteers is narrow. No protection is extended to a volunteer's family. Naturally the coverage exists only while such a person is handling duties related to the insured's business.

Important: Be sure to be clear about how coverage is extended to volunteers and their duties. Covered duties are not the same as employee duties. Volunteers are generally used for non-work activities, such as special events, charitable functions, etc. Therefore, the covered duties are those that the business establishes for that volunteer.

Example: Galactic Music Palace is insured by a CGL and a CLU. The huge store is celebrating its 10th anniversary and is throwing a party. The store didn't want to pull employees off the sales floor, so they enlisted a couple dozen volunteers to entertain customers and their children. One volunteer is supervising activity at a "moonwalk." A few older kids start rough-housing and the volunteer tries to settle things down. As he attempts to get the "ringleader" off the moonwalk, the child loses his footing, falling onto the asphalt sidewalk and is seriously injured. The umbrella would respond to this loss.

2. The second portion of the "Who is an insured" section identifies covered persons when a loss or suit involves vehicles. With respect to liability relating to the ownership, maintenance, or use of "covered autos," the policy language mirrors the Business Auto Policy form. For more details, please refer to PF&M Section 220.4-2, Business Auto Coverage Form Analysis. The CLU considers the following parties as covered persons:

a. you are an insured or

b. anyone else while using (with your permission) a "covered auto" you own, hire, or borrow is also an insured.

Note: Coverage is not extended to owner or lender of a "covered auto" unless it is a trailer or semi-trailer. If the owner of a "covered auto" is an employee, there is no coverage nor are family members of an employee covered. For a legal dispute illustrating this point, please refer to PF&M Section 270_C144 No Coverage Under Umbrella For Family Member's Injuries in Court Cases.

3. Lastly, any additional insured under any policy of "underlying insurance" is automatically an insured under the CLU policy. The umbrella form incorporates additional insured coverage into its wording, eliminating the need for a separate coverage endorsement. The additional insured status is subject to the limitations indicated in the form. In other words, a coverage amount must be shown or exist in the underlying policies or an amount must be required by an eligible contract or agreement. Any payment made for the benefit of an additional insured is subject to policy provisions and limits. The final amount is net of any applicable "underlying insurance". The additional insured coverage provided in the Umbrella is not broader than coverage provided in the "underlying policy".

Note: 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.

SECTION III — LIMITS OF INSURANCE

1.a.-c. The purpose of this section is to confirm that the limit of insurance shown on the Declarations is the most an insurer is obligated to pay. The total obligation is unaffected by the number of insureds, claims made, "suits" brought, or number of vehicles involved or persons or organization making claims or bringing "suits."

2.a-b. The Aggregate Limit shown in the Declarations is the most an insurer will pay for the sum of all "ultimate net loss" (defined in Section V), under Coverage A, Bodily Injury and Property Damage Liability or Coverage B, Personal and Advertising Injury.

3. Subject to the Aggregate Limit, the Each Occurrence Limit is the maximum the applicable CLU insurer will pay for the sum of all "ultimate net loss" under Coverage A because of all "bodily injury" and "property damage" arising out of any one "occurrence."

4. Similarly, subject to the Aggregate Limit, the Personal and Advertising Injury Limit is the most we will pay under Coverage B for the sum of all "ultimate net loss" because of all "personal and advertising injury" sustained by any one person or organization.

Example 1: An insured manufactures and installs outdoor playsets. After installation of the equipment and once put to its intended use, a toddler is seriously injured. A court finds the manufacturer liable for the injury and the plaintiff is awarded $4,000,000. The insured carries a CGL policy that covers products and completed operations with an occurrence limit of $1,000,000. The insured also has a $10,000,000 Umbrella Policy. Once the underlying CGL occurrence limit is exhausted, the Umbrella covers the remaining $3,000,000.

Example 2: Our insured's employee, while driving a "covered auto" described as a tractor-trailer, is hauling company goods. While operating the vehicle, the employee falls asleep and runs into a domestic-made mini van occupied by a family of four. Three of the family members are severely injured and, subsequently, they sue to recover damages. The employee is judged negligent and liable. A settlement of $3,500,000 is reached. The employer's Commercial Auto Policy responds as primary insurance, paying the first $1,000,000. The insured's Commercial Umbrella Policy covers the balance.

Example 3: An insured manufactures a component used in aircraft engines. The insured has a CGL policy in place with a $500,000 occurrence limit. The policy excludes products. The insured also purchases a $5,000,000 Umbrella policy with a $100,000 self-insured retention. The Umbrella does not contain policy wording or an endorsement that exclude products coverage. After 20 years in business without a loss, the insured modifies the design of the part to reduce its production costs. Unfortunately, the new design proves to be defective in its application. An aircraft, with an engine that includes the insured's component, stalls causing the plane to go into a tailspin. Although, the pilot is able to recover control of the plane and land the aircraft safely, there are a number of passenger injuries. Ultimately, it is determined that the insured's component led to the engine malfunction. The total of the settlement was $2,500,000. The carrier issuing the CGL policy with the products exclusion denied the claim. The Umbrella policy will respond as primary insurance for the entire amount since the Umbrella does not exclude products coverage. However, the insurer's payment is excess over the insured's $100,000 SIR.

Although it does not involve an umbrella policy, for a legal action that deals with an aggregate limit, please refer to PF&M Section 270_C086 Aggregate Limit Held Applicable To Products And Completed Operations Injuries Combined in Court Cases.

SECTION IV — CONDITIONS

This section is comparable to ISO's CGL with the exception of the following conditions:

  • Appeals,
  • other Insurance
  • loss Payable
  • transfer of Defense,
  • maintenance Of Underlying, and
  • expanded Coverage Territory

which are discussed below.

1. Appeals — If the "underlying insurer" or insured chooses not to appeal a judgment that exceeds the "retained limit," the CLU insurer has the right to do so, but at the insurer's own expense. This provision allows the umbrella insurer to protect itself. Unfortunately, when two separate companies provide the underlying and excess layers of coverage, there's a possibility that the excess carrier may not believe a large loss was handled properly. This clause allows an excess carrier to press its interests independently of an underlying insurer that may have conceded a dispute.

2.a-b. Bankruptcy Of Insured — Bankruptcy or insolvency of the insured or of the insured's estate or of the "underlying insurer" does not affect the CLU insurer's obligations under this Coverage Part.

3.a c. Duties In The Event of Occurrence, Offense, Claim Or Suit — This condition is an exact replica of what is in the CGL policy. For more details, please refer to PF&M Section 270.4-2, Commercial General Liability Policy Coverage Form Analysis. It can't be emphasized enough that an insured is responsible for a serious set of obligations that must be met. Failing to do so can jeopardize coverage. For an example, please refer to PF&M Section 270_C030 Excess Insurer Held Not Liable For Portion Of Settlement When It Was Not Notified Of Lawsuit in Court Cases.

4.a- Legal Action Against Us — No person or organization has a right under this Coverage Part to join the insurer as a party or otherwise bring us into a suit that is asking for damages from an insured. Neither may any party sue the CLU insurer under this Coverage Part unless and until the party has complied with all of the policy terms. This part of the provision is meant to limit the benefits of the policy to the contracting parties and not provide coverage or defense to other parties involved in the loss or suit who should have their own coverage. It also acts to make sure that a party doesn't try to take shortcuts to filing a lawsuit until that party fulfills all relevant contract conditions.

4.b. A person or organization may sue the carrier to recover on an agreed settlement or on a final judgment against an insured but the insurer will not be liable for damages that are not payable under the terms of the Coverage part or that are in excess of the applicable limit of insurance.

5. Other Insurance

a. This part clarifies the umbrella policy's status as an excess coverage. Its protection does not apply until all viable primary sources of protection first respond to a loss or suit. One exception is when the excess status doesn't exist because another policy is written in a layer above the umbrella.

Example: Stumblebum Industries manufactures power tools. It is insured as follows:

Company A - CGL with $1,000,000 Aggregate Limit

Company B - CLU with $1,000,000 Aggregate Limit

Company C - Excess Layer $2,000,000 Aggregate Limit.

A Stumblebum sales rep is demonstrating their new line of pneumatic tools at a consumer fair when a compressor explodes. The damages and injuries exceed $4,000,000. In this instance, Company B does not have to respond to the loss until Company A fulfills its payment obligations. However, Company B must respond BEFORE Company C since the latter company's coverage is a second layer of excess protection.

Part 5.a explains that the excess carrier does not have to provide a legal defense when that is being handled by a primary insurer. However, the umbrella insurer is obligated to make a defense when no underlying carries does. In that instance, the umbrella carrier may be able to legally recover its costs from the primary carrier(s).

b. This part explains that the umbrella policy is only obligated to pay the portion of "ultimate net loss" that it owes. That is the amount that exceeds the amounts owed by any primary sources of coverage that is net of any and all applicable deductibles or self-insured retentions.

6a-c. Premium Audit — Any insurer that writes umbrella coverage will determine the premium according to its rating rules. The bill will be sent to the policy's named insured. The insured is obligated to pay the premium by the applicable due date. The insured also has the responsibility to maintain all records that are relevant to determine a premium for the coverage and the insured must provide this information (via copies) to the carrier.

7a-d. Representation Or Fraud — When an insured receives the umbrella policy, it's assumed that the insurer can rely on all of the information it used in its decision to write the coverage. The carrier is owed accurate and complete information. If the insured is dishonest or fraudulent (by providing false information or withholding relevant information) the insurer can void the contract, even when a loss is involved.

8. Separation Of Insureds — The insurance provided by the policy, not including the limits of liability or any rights or duties specifically assigned in this coverage Part to the first Named Insured, applies separately to each Named Insured. This condition also applies with respect to a claim or "suit" brought against each named insured.

Note: While insured's enjoy separate privileges, remember that if a loss arises out of the same occurrence, the policy's restrictions on maximum payment still controls the loss.

9. Transfer Of Rights Of Recovery Against Others To Us — This condition provides the insurer the rights to recover all or part of any payment made by the insurer on behalf of the insured. Additionally, the insured must do nothing after a loss to impair that right. In fact the insured has a duty to actively cooperate in any effort to subrogate against another party. For more on this matter, please refer to PF&M Section 410_C105 Insured's Waiver Affects Insurer's Subrogation Rights in Court Cases.

10. When We Do Not Renew — If the Umbrella insurer chooses not to renew coverage, written notice will be mailed to the first Named Insured shown on the Declaration not less than 30 days before the expiration dates. Of course, this provision is often superceded by applicable state law.

Example: Do Right Casualty Co. wrote a policy for Bigloss Manufacturing with policy effective dates of 1-1-2003 to 1-1-2004. Because of problems with the account, a Do Right senior underwriter sent out a notice of non-renewal on 11/28/03 and Bigloss received it on 12/1/03. The chief financial officer of Bigloss sent a letter to Do Right, demanding that they send a renewal policy effective 12/1/04 to 12/1/05. With the letter, he enclosed an excerpt from the Anystate Insurance Code. It clearly said that insureds must receive 45 days advance notice for nonrenewal. Do Right immediately processed the renewal.

11. Loss Payable — This provision explains that the umbrella policy is not applicable until an obligation arises to pay the policy's retained limit (as defined within the policy).

12. Transfer of Defense — If a settlement or judgment exhausts the coverage that is due by an applicable primary insurer, that carrier's obligation to provide a legal defense ends. At that time, the umbrella carrier is required to assume a legal defense.

13. Maintenance of Underlying Insurance — This is an extremely important condition. Essentially it requires that the described/listed "underlying insurance" be kept in force. Coverage that is reduced because of responding to valid claims or suits is in compliance with this provision. However, if an insured does not maintain the underlying coverage, the umbrella carrier can operate as though it still existed. The insured has an obligation to tell the umbrella carrier when primary coverage is not in force. For another view on this issue, please refer to PF&M Section 275.6-2, Maintaining Underlying Limits.

If you are interested in how this could become a subject of dispute, please refer to PF&M Section 270_C143 Agency's Inaction Results In Gap Between Primary And Umbrella in Court Cases.

14. Expanded Coverage Territory — As indicated in Section V — Definitions, the coverage territory means anywhere in the world with the exception of any country or jurisdiction, which is subject to trade or other economic sanction, or embargo by the USA. If, however, a "suit" is brought outside the United States, or its territories, and the carrier is prevented from defending the insured, the insured has permission to begin defense of the "suit." Under that circumstance, the policy obligates the insurer to reimburse the insured for the defense costs. Payment for these expenses would be paid under Supplementary Payments. Reimbursement is limited to reasonable and necessary expenses incurred for the defense of a "suit" seeking damages for which this coverage applies.

Further, the insurer is also obligated to reimburse an insured who is legally obligated to pay for damages resulting from an eligible occurrence. This obligation is triggered when a loss occurs in part of the policy's "coverage territory" that is outside the USA (including its territories), and applicable law prohibits the carrier to pay on behalf of the insured.

SECTION V — DEFINITIONS

Note: A number of the following terms in this section of the CLU have the same definition used in the CGL. Please refer to PF&M Section 270.4-2, Commercial General Liability Coverage Form Analysis, for more details.

1a-b."Advertisement" — When an insured distributes product or service information to either the general public or targeted groups, that information is consider to be an advertisement if the information is meant to attract either buyers or potential buyers. The Commercial Umbrella definition is broader than the CGL as it extends to information that is sent or made available electronically. When a Website is involved, the coverage provided by the umbrella does not protect the entire site. Its protection is limited to the area of the site that contains the product or service information.

Any advertisement placed on the Internet must meet the same standards with regard to compliance with the Federal Trade Commission and other agencies such as National Advisory Division (NAD) or the Council of Better Business Bureau as a printed document. Of particular concern are the internal and external risks for the security, confidentiality, and integrity of personal information supplied via the Internet.

2. "Auto"

12/04 Change: This definition was revised with the intent to have it match the meaning of the term used in the CGL and Commercial Auto forms. The term is now defined in two parts, with specific mention that the term does not apply to motorized property that meets the separate definition of "mobile equipment." Autos are, essentially, vehicles operated on public roads and/or are subject to vehicle registration and financial responsibility laws.

3. "Bodily Injury" — Umbrella coverage is expanded to include disability as well as mental anguish or other mental injury resulting from "bodily injury," which avoids the possibility of stacking limits by filing separate personal injury and bodily injury claims.

Example: While traveling on business, Sondra is browsing through a department store. The store is insured under a CLU. Through an unfortunate set of circumstances, Sondra is detained for shoplifting. She is forced to stay overnight in jail and this results in her missing an appointment with an important client. Sondra becomes so emotionally agitated, having to explain the situation to her employer as well as the customer, that she has a stroke. After the unfortunate mix-up is cleared-up, Sondra and her employer sue the department store. The store's CLU treats Sondra's injuries as a single BI claim.

Under the CLU, Personal Injury and Bodily Injury have separate insuring agreements and a separate limit of liability that could, prior to this change in definition, be attached separately in a civil action. This language means either Coverage A or Coverage B will respond but not both.

4. "Coverage Territory" — This is anyplace in the world unless the area is under any sort of economic sanction by the U.S. Government. This provision differs from its peer found in the CGL. The umbrella will provide for a defense for a lawsuit that is filed in a foreign territory and an insured is entitled to a reimbursement for its legal costs. In other words, if required by a foreign jurisdiction, the umbrella policy will act as an indemnity agreement.

5. "Covered Auto" — This term refers to vehicles that are eligible for coverage under the described primary insurance policies. This ties in with the umbrella form's auto coverage.

6. "Employee" — Includes a "leased worker" but not a "temporary worker". This is the same as the CGL definition.

7. "Executive Officer" — Any person with an office positions established by a governing document. Such documents include (but are not limited to) by-laws, corporate charters, company constitutions, etc. This is the same as the CGL definition.

8. "Impaired property" — Refers to tangible property that has been made useless or less useful because of the insured. Specifically, the property must have been damaged because of the insured's product or service or because of the insured's actions (usually a breach of contract). Therefore, impairment can be created by a defective product or by carelessness on the insured's part (same as the CGL).

9. "Insured contract" — This reads the same as the CGL except the Umbrella includes reference to any contract or agreement entered into, as part of your business, pertaining to the rental or lease, by you or any of your "employees, of any "auto. This is another tie-in to the Business Auto Coverage.

10. "Leased Worker" — Same as the CGL.

11. "Loading or unloading" — Same as the CGL.

12. "Mobile equipment" — As it is in the case with the CGL, the definition of this term is extensive. The term specifically mentions bulldozers, forklifts, vehicles with treads and similar equipment (and their attachments) as mobile equipment, unless it is subject to vehicle registration or compulsory insurance laws.

The 12/04 Edition of the CLU was changed to dovetail with the policy's definition of "auto," in the hope that the term terms would clearly separate the two types of motorized property.

13. "Occurrence" — Same as CGL.

14. "Personal and advertising injury" — Same as CGL.

15. "Pollutants" — Same as CGL.

16a-b."Pollution cost or expense" - This is a broad definition. It refers to all costs (expenses) related to an incidence of pollution. It may refer to the cost of clean-up, remediation and testing. It also applies to following-up on the effects of the incident. It also refers to government orders to take action because of an actual incident or even absent any particular loss.

17. "Products-completed operations hazards" — This is the same as CGL.

18. "Property damage" — With regard to "covered autos," "property damage" also includes "pollution cost or expense" to the extent coverage exists in the "underlying insurance" or would have except for the exhaustion of the underlying limits. However, the term does not apply to electronic data. Property damage refers to tangible property rather than information that is handled electronically (intangible). It applies to software and hardware and to all types of electronic media.

Note: While the policy definition for "property damage" makes reference to electronic data, the latter is not specifically defined. It would be more consistent to add electronic data as a defined term.

19. "Retained limit" — The total amount of available primary coverage, whether it consists of a retention or underlying insurance policies.

20. "Self-insured retention" — This refers to the amount that has to be paid by the insured in order to trigger a response from the umbrella policy. The insured's obligation has to be due to a type of loss that is covered by the umbrella, but not by a primary contract. When a loss is covered by a primary policy, the CLU does not respond until the primary limit is exhausted.

Amounts that the insured has to pay because his primary limits have been exhausted are not considered a self-insured retention.

21. "Suit" — Same as CGL.

22. "Temporary worker" — Same as CGL.

23. "Ultimate net loss" — Refers to the net payment the umbrella is obligated to pay for an eligible loss, settlement or agreement. Such payment does not include recoveries or salvage.

12/04 Change: The definition was altered slightly to make it plain that the CLU's financial obligation is to respond to payments consisting of damages.

Important: Even with this clarification, it may be debatable that the CLU would respond to, for instance punitive damages.

24. "Underlying insurance" — Any contract that appears as a primary policy on the umbrella declarations.

25. "Underlying insurer" — Any insurer that provides described, primary coverage.

26. "Volunteer worker" — Refers to anyone who donates their work. Their work, even though donated, must be directed by the insured. The donated work must not result in compensation. Note, compensation does not refer to financial payment. It can and does include any significant benefit that is provided in exchange for the work.

Recall that the Umbrella policy includes "volunteer workers" as covered persons to the extent of the duties assigned by the insured.

27. "Your product" — This is the same as the CGL definition, referring to items that are handled, made or distributed by an insured.

28. "Your work" — Refers to work activities that are performed by an insured. Materials and equipment that are part of the work activity is also considered an insured's work, including statements and guarantees about the provided work.