Limiting endorsements in the CGL (Heavily excerpted for clarity)

With the introduction of numerous limiting endorsements to the commercial general liability (CGL) policy over the years, many people in the insurance business undoubtedly will agree that the only liability coverage provided is for slip-and-fall cases.

Many producers know from experience, however, that nothing is guaranteed, not even coverage for slip-and-fall cases, despite its being traditionally the core liability coverage. In fact, some insurers have policy provisions or endorsements that make it difficult for insureds even to obtain defense in suits that allege they are liable for slip-and-fall accidents.

Problems arise, however, when insurers begin to tinker with the coverage, sometimes giving the appearance of taking unfair advantage of insureds.

Classification limitation endorsement

A good example of this tinkering is the classification limitation endorsement that some insurers add to their liability policies. A typical endorsement reads:

Coverage under this policy is specifically limited to those classification codes listed in the policy. No coverage is provided for any classification code or operation performed by the named insured not specifically listed in the Declarations of the policy.

From the court's perspective…language that coverage applied "only to those operations specified in the application for insurance and described on the declarations page" could be reasonably read either as (1) fixing two prerequisites for coverage (such that coverage would apply only to an operation that is stated in both the application and the declarations, or as (2) identifying two sets of documents where covered operations may be listed (such that coverage would apply to any operation that is either specified in the application or described in the declarations).

Accordingly, so long as a claim related to the insured's operations either specified in the application or described under the classification in the policy's declarations page, an insurer may have a duty to defend.

Obstacles for producers

…court cases involving classification limitation endorsements are common. It also should not come as a surprise that some insurers use them with applicants that are likely to be below-average risks and unable to obtain insurance in the standard market.

In one case, a court reasoned…that because the classification limitation endorsement intentionally narrows the scope of coverage, it serves as an exclusion. While an exclusion, in general, places the burden of applicability on the insurer, producers must keep in mind that an insured's operations should be stated broadly.

In doing so, producers should not think of classification limitations as exclusions of coverage. The classifications instead should be as numerous, or stated as broadly, as possible. The reason is that those operations not declared or not falling within the noted classifications could serve to limit coverage.

Another point for producers to remember is that insurers that use classification limitation endorsements with liability also are likely to issue other limitation endorsements, such as the designated premises endorsement. This endorsement, combined with the classification limitation endorsement, might have the effect of limiting coverage to the named insured's premises and not extend coverage to operations away from premises even if they are incidental to the covered premises.