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| October 2008, Volume 22 |
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275.4-2CU 00 01–ISO COMMERCIAL LIABILITY UMBRELLA COVERAGE FORM ANALYSIS(April 2008) INTRODUCTIONThe purpose of the Insurance Services Office (ISO) Commercial Liability Umbrella (CLU) Coverage Form is to provide additional insurance protection to insureds with significant assets or exposures. Note: Changes made in the current edition CLU coverage form are indicated in bold type. This analysis is of the 12/07 edition. Please refer to PF&M Section 275.9-5, ISO Commercial Liability Umbrella Archive, for information and analyses of previous editions of the coverage form. The coverage form opens by explaining that the words you and your as used in the policy are defined as the named insured indicated on the declarations. It is important to note that there may be more than one listed named insured and that the coverage form treats each one equally. While the first named insured has additional rights and responsibilities and those are outlined in the conditions section, those rights and responsibilities do not affect the coverage provided. It is also important not to confuse the terms named insured and insured. Insured is defined in the Who Is An Insured section of the coverage form. It includes the named insured but it also includes a number of other entities and individuals. The words we, us and our refer directly to the insurance company providing the coverage. Certain words used in the policy are defined in Section V–Definitions. Keep in mind that coverage can apply or be excluded based on a definition. For that reason, consider the definitions section carefully. SECTION I–COVERAGESCOVERAGE A–BODILY INJURY AND PROPERTY DAMAGE LIABILITY1. INSURING AGREEMENTa. The coverage form opens with the statement that the insurance company is responsible for making certain payments on behalf of the insured. The insuring agreement is conservative and utilizes defined terms to establish the coverage form's financial obligations. Specifically, the insurance company agrees to pay the ultimate net loss amount that exceeds the retained limit. However, the loss must involve bodily injury or property damage insured by the coverage form. Note: CU 00 01 is not an indemnity coverage form. Under an indemnity form, the insurance company reimburses the insured for its incurred losses. This form works in the opposite way. When a covered loss event occurs, the insurance carrier assumes the insured's financial responsibility and makes any needed payment that qualifies under the terms of the coverage form. Example: Main Street Grocery's insurance program includes commercial general liability coverage with limits of $1,000,000/$1,000,000 and a $5,000,000 umbrella. 15 customers become ill to differing degrees due to botulism in the undercooked chicken used in the chicken salad and one dies from subsequent complications. The general liability coverage form pays losses up to its $1,000,000 occurrence limit but Main Street faces another $179,000 that is not paid. Scenario A: The umbrella is an indemnity form. If the insurance company follows the coverage form's insuring agreement to the letter, Main Street Grocery must drain its cash account and borrow funds to pay the remaining $179,000 claims amount. After it makes the payment, the insurance carrier reimburses Main Street. Scenario B: The umbrella is not an indemnity form. The insurance company pays the remaining $179,000 claims amount in the place of Main Street. Note: Avoiding the use of an indemnity coverage approach maximizes the usefulness of an umbrella coverage form. Since the form is intended to respond to large losses, its usefulness is diminished if it includes a provision that creates cash flow problems and inconvenience to the insured. Handling claims in this manner could aggravate litigation problems by creating significant delays in paying damages to third parties. It could also increase costs if a delay created higher post-judgment interest costs, separate penalties or even separate bad faith claims. The insurance company has the right and duty to defend the insured any time the underlying carrier does not provide coverage, either because coverage does not apply or because the limits are inadequate. It also has the right to be involved in the defense of any other suit involving the coverage provided by the form but is not obligated to do so. However, it is not obligated to provide a defense if the coverage does not apply to the alleged act. The insurance company decides when to investigate and when to settle any claim or suit. This is important because, while the insured may not want to settle, the carrier is in charge and it decides without consulting with the insured. The most the insurance company pays is described in Section III–Limits Of Insurance. The insurance carrier is not obligated to provide a defense once the limit of insurance has been paid in judgments or settlements. Note: Refer to Supplementary Payments for a list of obligations the insurance company assumes separate from the limits of insurance. b. Coverage applies only if the bodily injury or property damage is caused by an occurrence. The occurrence must take place in the coverage territory. The actual bodily injury or property damage must occur during the policy period. Example: Carrie slips and falls on a banana peel left on the sidewalk. When did this occurrence begin? Was it when the banana peel was dropped on the sidewalk or when Carrie slipped on it? If the banana was dropped on the United States side of the border but Carrie stumbled and fell in Canada, where did the loss occur? If Carrie picked herself up and continued her walk but then collapsed from back spasms two weeks later, when did the bodily injury occur? Was it when it manifested or when the injury occurred? Unfortunately, the answers to these questions are not consistent in all jurisdictions. State law and court precedents result in different answers. Although this example may seem foolish, consider more serious issues such as construction defects, medical malpractice, pollution and similar examples where the situation that leads to the bodily injury or property damage may occur long before and even at some distance from where the bodily injury or property damage actually manifests. Since insurance is designed to cover fortuitous losses, ISO includes language that excludes coverage for occurrences, injuries or damages known of by the insured before the policy period. For this reason, coverage only applies when none of the following parties had knowledge of the bodily injury or property damage before the initial effective date:
If an occurrence or claim occurs before the coverage inception date and continues into the current policy period, changes in its scope or once again resumes during the policy period, it is considered known by the insured prior to the policy period. Note: The 12 07 change restricting coverage to only when an insured described in the first paragraph of Who Is An Insured knows of a loss is a logical broadening of coverage and should prevent confusion. The previous version would have provided that losses known to any employee or volunteer would have excluded coverage under the current coverage form. This was in conflict with the second part of the known loss limitation that restricted coverage only when certain types of employees knew of the losses. c. This provision further clarifies the eligibility of bodily injury or property damage. If a bodily injury or property damage loss occurs during the policy period and then either continues, changes in scope or resumes after the policy period ends, that loss is covered under the umbrella coverage form or policy in effect when the bodily injury or property damage first took place. However, coverage only applies if the event occurred without the prior knowledge of the same parties referred to above in the insuring agreement. Example: Scenario 1: Kropcover Kings, a large crop dusting company, is insured under an umbrella. Kropcover is sued by a neighboring business whose premises is sprayed with a fungicide by one of Kropcover's planes. A canister on one of its planes ruptured shortly after the plane took off and drenched the plaintiff's buildings, parking lot and employees with the harmful chemical. It turns out that the canister was delivered to Kropcover two days before the umbrella policy took effect and was badly damaged during shipment. The deliveryman failed to inform anyone at Kropcover that he dropped the canister when he loaded and unloaded it from his company's truck. Since the damage to the canister's valve was not evident, it was put into regular service. This loss is covered. Example: Scenario 2: Kropcover Kings is sued under exactly the same circumstances as in the first scenario with one important difference. When the canister was delivered, the Kropcover warehouse manager observed the deliveryman drop the canister. When the two of them examined it, the deliveryman admitted it was the second time it had been dropped. The manager noticed some slight damage but went ahead and accepted it anyway. When Kropcover's umbrella insurer learned about this, it denied the loss and advised that Kropcover submit the loss to its previous carrier. d. This language establishes the criteria by which a determination can be made concerning when bodily injury or property damage is considered known by the insured, but only those described in 1.a of the Who Is An Insured section (12/07 change) or an authorized employee of the insured. The bodily injury or property damage is known at the earliest date when an insured, but only those described in 1.a of the Who Is An Insured section (12/07 change) or an authorized employee:
Note: The 12 07 change restricting coverage only when an insured described in the first paragraph of Who Is An Insured knows of a loss is a logical broadening of coverage and should prevent confusion. The previous version would have provided that losses known to any employee or volunteer would have excluded coverage under the current coverage form. This was in conflict with the second part of the known loss limitation that restricted coverage only when certain types of employee knew of the losses. Please refer to PF&M Section 270_C155, Known Injury Or Damage Not Excluded In Continuous Or Progressive Damage Loss, in Court Cases, for the case that caused paragraph 1.d to be added. e. This tagalong paragraph broadens damages for bodily injury to include claims by persons or organizations for care, loss of services or death that result from the bodily injury. These damages can result at any time. Example: Presley slipped on the wet floor at Melville’s Fish Market on 1/5/08. He struck his head, never regained consciousness and died on 6/2/09. His family filed a claim for wrongful death against Melville's and the coverage form that responded was the one in effect on 1/5/08, not the one in effect on 6/2/09. 2. EXCLUSIONSThese exclusions are typical of liability coverage and parallel those in the ISO Commercial General Liability (CGL) Coverage Forms. a. Expected Or
Intended Injury This exclusion is identical to the same exclusion in the CGL coverage form. There is no coverage for any bodily injury or property damage that the insured either expects or intends. The only exception to this exclusion is when reasonable force is used to protect persons or property. Note: This exclusion is being challenged in a number of states, especially in cases where the action was intentional but the type and extent of injury or damage that resulted was not. The outcome of these challenges will certainly have an impact on the way the umbrella will respond to these types of claims if there is no change in the current wording. Please refer to PF&M Section 270.6-10, Expected Or Intended Injury Exclusion, for more information on such state challenges. b. Contractual Liability
This exclusion is identical to the same exclusion in the CGL coverage form. Liability assumed by contract is excluded except in cases where the insured would have been liable even in the absence of a contract or agreement, or 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 took effect. The legal fees associated with contractual liability are considered part of the damages and are included within the limit of liability. However, under certain circumstances, the legal fees may be part of Supplementary Payments and outside the limit of liability. This is a very important issue. If the contract does not specifically state that the insured has assumed the obligation to defend the indemnitee, the defense is paid within the limits, not within Supplementary Payments. Example: Valley Electric names Hill & Dale General Contractors as an additional insured under its CGL and Umbrella coverage forms, according to the terms of the contract signed by Valley and Hill & Dale. A fire occurs at the project and both Valley and Hill & Dale are sued. The insurance company mounts a vigorous defense. Because the contract did not specifically state that Valley was responsible to provide the defense, Hill & Dale’s defense costs are included within the limit of insurance, while Valley’s are handled as part of the Supplementary Payments. The costs of Hill & Dale’s defense serve to exhaust the CGL limits and reduce the umbrella limit available to pay losses. c. Liquor Liability This exclusion is identical to the same exclusion in the CGL coverage form. There is no coverage for bodily injury or property damage for which the insured is considered responsible if it contributes to the intoxication of an individual or provides alcoholic beverages to a minor or to an intoxicated person. In addition, there is no coverage if the liability is due to a regulation or statute relating to the insured providing or using alcohol. This exclusion applies only if the insured's business is that of manufacturing, distributing, selling, serving or furnishing alcoholic beverages. Note: There is an exception to this exclusion but only under the umbrella coverage form. If the insured has underlying liquor liability coverage, this exclusion does not apply and the umbrella becomes following form coverage with respect to the provisions, exclusion and limitations in the underlying coverage. d. Workers’
Compensation And Similar Laws This exclusion is identical to the same exclusion in the CGL coverage form. The umbrella coverage form is not excess over workers compensation, disability, unemployment compensation or any other type of statute or law. e. E.R.I.S.A. There is no similar exclusion in the CGL coverage form. The umbrella does not provide any coverage for E.R.I.S.A. or other similar federal, state or local rules or regulations. f. Auto Coverages This exclusion has two parts. The first part excludes coverage for any vehicle that is not a covered auto. A covered auto is any auto covered by underlying auto coverage. The second part excludes coverage that is for the benefit of the insured. This means physical damage to the insured’s own vehicles is excluded, as is no-fault coverage, auto medical payments coverage and uninsured and underinsurance motorist coverage. Personal Injury Protection (PIP) coverage is also excluded, although the wording of the endorsement does not make it clear that the personal injury protection is a type of auto only coverage. Note: Auto
coverage is excluded in the CGL coverage form under the Aircraft, Auto Or
Watercraft exclusion. g. Employer’s Liability This exclusion is similar to the same exclusion in the CGL coverage form. There is no coverage for injury to an employee if the injury is due to the employee performing his or her job while an employee. In addition, there is no coverage for injury to family members that results from an injury to the employee while performing his or her job. Note: It is important to be aware that this exclusion applies whether or not the insured is being sued as the employer or as a supplier of goods and services. Example: Sam uses a machine manufactured by his company to do his job. The machine malfunctions and Sam loses his arm. If he sues his company because it manufactured the machine that malfunctioned, there is no coverage for his employer because of this exclusion. This exclusion has three exceptions:
Note: This exception is also in the CGL coverage form.
Note: This exception is unique to the umbrella coverage form and is not in the CGL coverage form.
Note: This exception is unique to the umbrella coverage form and is not in the CGL coverage form. h. Employment-Related Practices There is no similar
exclusion in the CGL coverage form but CG 21 47–Employment-Related Practices
Exclusion is attached to most CGL policies. This exclusion is identical to the
bodily injury and property damage section of Employment-related practices that result in bodily injury are excluded. There is no coverage for bodily injury to the employee or the consequential bodily injury to family members of the employee who claims injury due to such practices. Bodily injury directly related to any of the following is excluded:
The employment-related
practices exclusion applies even if the injury occurred before the individual
became an employee or after the person was terminated. This paragraph was added
to the 12 07 edition in response to Owners Insurance Company v. Clayton South
Carolina Supreme Court where the insurance company was required to pay for
damages to a terminated employee who was slandered after her employment was
terminated. Note: The exclusion continues to apply if the employer is liable in a capacity other than as an employer. i. Pollution The umbrella coverage form pollution exclusion is not quite absolute. It is actually a following form exclusion. If the underlying coverage form or policy provides pollution liability coverage, the umbrella provides the coverage. However, since it is following form, the provisions, conditions, exclusions and any limitations that apply to the underlying pollution coverage also apply to it. j. Aircraft Or Watercraft This exclusion is similar to the underlying CGL coverage form exclusion but it contains certain broadening features:
k. Racing Activities There is no coverage if autos or mobile equipment are involved in prearranged or organized racing activities or during practice for such activities. Other activities to which it applies includes speed, demolition or stunt contests and is not limited to racing. This is similar to the mobile equipment racing activity limitation in the CGL coverage form and the racing limitation under the Business Auto Policy. l. War This exclusion is identical to the same exclusion in the CGL coverage form. It excludes coverage for bodily injury or property damage losses involving war or warlike activity. m. Damage To Property The exclusion eliminates property damage coverage for: (1) Property owned, rented to or occupied by the named insured, or to owned or transported property damaged due to use, ownership or maintenance of an auto, unless covered under a sidetrack agreement; (2) Premises sold or relinquished in any way by the named insured; (3) Property loaned to the named insured; (4) Personal property that any insured, not just the named insured, has in its care, custody or control; (5) Real property being worked on by the named insured or its subcontractors but only if the damage is based on the work being performed; and (6) Any part of property that the named insured worked on that must be repaired because of poor workmanship. Item (2) does not apply to premises considered the named insured’s work and that was never occupied or rented by the named insured. This is often called the model home exception. Items (3), (4), (5) and (6) do not apply to liability assumed in a sidetrack agreement. Items (3) and (4) are exempt in the event of a written trailer interchange agreement that assumes this liability. Item (6) does not apply to damages covered under the products/completed operations hazard. This exclusion is similar to the CGL coverage form exclusion with the same name with two important differences:
Example: Klutz Office Supplies is insured under an umbrella coverage form. During an extended surge in business, Klutz rents warehouse space from a neighboring firm. A new Klutz employee crashes a forklift into one of the warehouse's load-bearing columns and the building collapses a short time later. City authorities close down the multi-unit warehouse and office facility for the three weeks it takes to repair the structural damage. The building damage, loss of merchandise and the damaged equipment are not covered. Why not? Because the warehouse and all its property was either owned, controlled or rented to Klutz. Interestingly, and with respect to damaged property, the umbrella coverage form language excludes any coverage for expenses incurred for repairs made on the insured’s own property. The exclusion applies regardless of the reason for any such repairs. The ruling in Aetna Insurance Company v. Aaron, 112 Md. App. 472.685 A.2d 858 (1996) prompted these exclusions. 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. Example: The insured is a roofing contractor and completes a job. During a rainstorm at a later date, the client discovers water coming in through the roof. It is determined that the leakage is the result of defective workmanship. There is no coverage in this case. The umbrella coverage form contains an exception to the exclusion that applies to work performed by a subcontractor hired by the insured. Coverage applies if the damage to property is the result of the subcontractor’s completed work. Example: The insured is a general contractor and completes a job. The insured subcontracted part of the project to a roofing contractor. During a rainstorm at a later date, the client discovers water coming in through the new roof. It is determined that the leakage is the result of defective workmanship. The client sues the general contractor. In this case the umbrella provides coverage. n. Damage To Your Product This exclusion is identical to the same exclusion in the CGL coverage form. There is no coverage if the named insured’s product is damaged by the product itself or by any part of it. Example: Grill-rilla Ltd. manufactures gas grills including their fuel tanks. Joe buys a Grill-rilla grill and uses it many times over the course of the summer. One day, Joe's grill malfunctions due to a defective temperature control, 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 umbrella coverage applies to the bodily injury and property damage, there is no coverage for the destruction of the grill itself. 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 contributed to the malfunction in any way. o. Damage To Your Work This exclusion is identical to the same exclusion in the CGL coverage form. If the named insured’s work is damaged by the work itself or any part of it, there is no coverage if coverage applies under the products/completed operations hazard. However, this exclusion does not apply if subcontractors working on behalf of the named insured performed the damaged work. p. Damage To Impaired Property Or Property Not Physically Injured This exclusion is
identical to the same exclusion in the CGL coverage form. Damage to property
that is impaired but not actually damaged is excluded if the problem is due to
the product or the work, or is because the named insured or a person working on
behalf of the named insured did not perform a contract as agreed. Example: The insured manufactures a switch it sells to another company that uses it as a component in an electric starter. The switch turns out to be defective and the starter does not work. In this case, the starter is impaired but not damaged and the cost to repair or replace the insured’s defective switch is not covered. q. Recall Of Products, Work Or Impaired Property This exclusion is identical to the same exclusion in the CGL coverage form. There is no coverage for the expenses the named insured or anyone else incurs when the named insured’s product, work or any impaired property is recalled. This includes the cost to inspect, repair, replace, remove, dispose of or withdraw the product and the loss of use of the product due to the recall. Example: 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 information, a large number of tires are shipped to various distributors. A problem with the tires develops and it becomes apparent that immediate action is necessary. The tires are recalled for replacement. There is no coverage for any of the recall expenses. r. Personal And
Advertising Injury This exclusion is identical to the same exclusion in the CGL coverage form. Bodily injury related to a personal and advertising injury is paid as a part of Coverage B–Personal And Advertising Injury Liability. s. Professional Services The CGL coverage form
does not provide a blanket exclusion of professional coverages. Instead,
specific endorsements must be attached to the CGL coverage form in order to
exclude coverage. The umbrella takes a different approach and excludes all
professional liability by stating that all bodily injury and property damage due
to providing or not providing professional services is excluded. The exclusion
lists the specific professional services that are excluded but the exclusion is
not limited to only the services listed. The
previous edition listed 11 professional services. The 12 07 edition lists 13
services. Note: Some courts narrowly interpret exclusions and state that if the company wants to exclude an activity it is up to the company to list it specifically. In those jurisdictions, any professional services not specifically listed as excluded may be treated as covered. t. Electronic Data This exclusion is identical to the same exclusion in the CGL coverage form. Losses related to the loss and/or destruction of computer information are excluded. 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 umbrella coverage form excludes this property. Note: If the insured has an underlying coverage form or policy that
provides this coverage, this exclusion does not apply and the umbrella becomes
follow form to the provisions, exclusion and limitations in the underlying
insurance (12/07 addition). u. Distribution of Material In Violation of Statutes (12 07 addition) This exclusion is identical to the same exclusion in the CGL coverage
form There is no coverage for bodily injury or property damage when the
Telephone Customer Protection Act, the CAN-SPAM Act of 2003 and other similar
types of regulations are violated through a direct or indirect act or omission.
Note: This exclusion does not state that the named insured or even an
insured must do the violating in order for the exclusion to apply. As a result,
situations could arise where an insured or the named insured is not aware that
its computers have been hacked to violate the act and coverage still would not
apply. Note: At this point in the CGL coverage form, a number of exclusions are excepted for fire damage to premises rented to or temporarily occupied by the named insured. This exception is subject to separate limits of insurance and is commonly called Fire Legal Liability. The umbrella coverage form does not provide Fire Legal Liability coverage because it does not have these or similar exceptions. COVERAGE B–PERSONAL AND ADVERTISING INJURY LIABILITY1. INSURING AGREEMENTa. The section of the insuring agreement under the Personal And Advertising Injury Liability is identical to the same section in the CGL coverage form except for certain umbrella specific issues.
b. This section is identical to the CGL coverage form. In order for personal or advertising injury to be covered, the offense must be related to the business, committed during the policy period and occur in the coverage territory. 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, for an example of what constitutes an eligible offense. 2. EXCLUSIONSa. Insurance does not apply to personal and advertising injury caused by: (1) Knowing Violation Of Rights Of Another This exclusion is identical to the same exclusion in the CGL coverage form. It excludes coverage if the insured or a party directed by the insured knowingly causes personal or advertising injury by violating the rights of another person. Example: Lindsay owns Pretty Petals Flower Shop. She is so concerned about competition from Frugal Florists down the street that she breaks into Frugal Florists to find out where they get their flowers. Because of this exclusion, there is no coverage if Frugal sues Lindsay for violation of privacy or of stealing confidential information. (2) Material Published
With Knowledge Of Falsity This exclusion is identical to the same exclusion in the CGL coverage form. It excludes any type of publication, whether oral or written, known to be false at the time of publication. Example: Lindsay’s activities have not yet been discovered. She calls a friend who is a local reporter and tells her that she can prove that Frugal Florist is using illegal immigrants to bring rare flowers over the border, in violation of various federal laws. Based on that information, the local reporter writes an expose on Frugal Florists in the local paper. Coverage does not apply if Lindsay is sued over supplying the false information. (3) Material Published Prior To Policy Period This exclusion is identical to the same exclusion in the CGL coverage form. Coverage applies only to oral or written publication of material that first occurs during the policy period. There is no coverage if the initial publication took place before the policy period. Note: This exclusion does not specify the party that does the initial publication. The insured may publish the material during the policy period, but there is no coverage if it discovers that the material was published elsewhere prior to the policy period. Example: Omer’s Bakery has a highly valued secret family recipe. Kiley Omer, the ex-wife of one of the owners, includes the secret recipe in her new recipe book. When she is sued, the insurance company denies coverage because it discovers that the recipe had been published in the local newspaper ten years earlier. (4) Criminal Acts This exclusion is identical to the same exclusion in the CGL coverage form. Coverage does not apply if the insured or a party directed by the insured commits a criminal act. Example: Lindsay’s action in the example above would be excluded because her breaking and entering is a criminal act. (5) Contractual
Liability This exclusion is less restrictive than the same exclusion in the CGL coverage form due to an additional exception. In the CGL and the umbrella coverage forms, there is no coverage for liability assumed under a contract or agreement but coverage applies for any liability that would have existed without the contract or agreement. The additional umbrella exception provides coverage for contracts or agreements that assume liability due to false arrest, detention or imprisonment. (6) Breach Of Contract
This exclusion is identical to the same exclusion in the CGL coverage form. Loss relating to a contractual breach is not covered. The only exception is in cases of an implied contract to use another person’s idea in the named insured’s advertisement. Note: An implied contract is much different than an actual written contract or agreement. As a result, it is more difficult to prove the occurrence of a breach of an implied contract. Example: John is watching a football game and notices a new advertisement for his favorite soft drink. He had previously mentioned a great idea for an advertisement to a friend at a party. John's friend led him to believe that he might use the idea and would get him a job at the agency if it worked. John contacts his friend, who denies all knowledge of the promise and even that John had supplied the idea. John sues the agency for breach of contract. This coverage form responds to the suit. (7) Quality Or
Performance Of Goods–Failure To Conform To Statements This exclusion is identical to the same exclusion in the CGL coverage form. When the named insured advertises that a product, service or good will meet a certain level of performance or quality, the named insured must stand behind the promise, not the insurance company. Example: Miracle Sleeping advertises that its new mattress has that brand new feel for up to ten years after the purchase date. There is no coverage when purchasers file a class action suit against Miracle Sleeping because their mattresses had to be replaced after only five years. (8) Wrong Description of Prices This exclusion is identical to the same exclusion in the CGL coverage form. There is no coverage for losses that occur in cases where there is a price error 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. The umbrella coverage form does not respond to this suit. (9) Infringement Of
Copyright, Patent, Trademark Or Trade Secret This exclusion is
identical to the same exclusion in the CGL coverage form. There is no coverage
when the offense is copyright, patent, trademark, trade secret or other intellectual
property rights infringement. However, there are two exceptions.
(10) Insureds In Media And
Internet Type Businesses This exclusion is identical to the same exclusion in the CGL coverage form. There is no coverage under this section of the coverage form for any insured engaged in advertising, broadcasting, publishing or telecasting businesses. Coverage also does not apply if the insured's business is to design websites for others, even if the website design is simply to determine the content that will appear on the website. There is also no coverage for insureds in the business of providing Internet search, access, content or service. However, this exclusion has an important exception. There is coverage for the personal injury coverages of false arrest, detention, imprisonment, malicious prosecution and wrongful eviction or wrongful entry by a landlord. This exclusion includes an important clarification. When the named insured or others place frames, borders, links or advertising on the Internet, the named insured is not automatically considered to be in the business of advertising, broadcasting, publishing or telecasting. This means coverage under this section could apply to the named insured or others. (11) Electronic Chatrooms
Or Bulletin Boards This exclusion is identical to the same exclusion in the CGL coverage form. There is no coverage if the personal or advertising injury is due to an insured controlled, hosted or owned electronic chatroom or bulletin board. (12) Unauthorized Use
Of Another’s Name Or Product This exclusion is identical to the same exclusion in the CGL coverage form. Tactics intended to mislead current or prospective customers of a business, such as using the business’s name in the named insured’s email address, domain name or metatag are not covered for any resulting personal or advertising injury. (13) Pollution This exclusion is identical to the same exclusion in the CGL coverage form. This is an absolute pollution exclusion. (14) Employment-Related
Practices There is no similar
exclusion in the CGL coverage form but CG 21 47–Employment-Related Practices
Exclusion is attached to most CGL policies. This exclusion is identical to the
bodily injury and property damage section of Employment-related practices that result in personal and advertising injury are excluded. There is no coverage for injury to the employee or the consequential bodily injury to family members of the employee who claims injury due to such practices. Injury directly related to any of the following is excluded:
The employment-related
practices exclusion applies even if the injury occurred before the individual
became an employee or after the person was terminated. This paragraph was added
to the 12 07 edition in response to Owners Insurance Company v. Clayton South
Carolina Supreme Court where the insurance company was required to pay for
damages to a terminated employee who was slandered after her employment was
terminated. Note: The exclusion continues to apply if the employer is liable in a capacity other than as an employer. (15) Professional
Services The CGL coverage form
does not provide a blanket exclusion of professional coverages. Instead,
specific endorsements must be attached to the CGL coverage form in order to
exclude coverage. The umbrella takes a different approach and excludes all
professional liability by stating that all personal and advertising injury due
to providing or not providing professional services is excluded. The exclusion
lists the specific professional services that are excluded but the exclusion is
not limited to only the services listed. The
previous edition listed 11 professional services. The 12 07 edition lists 13
services. Note: Some courts narrowly interpret exclusions and state that if the company wants to exclude an activity it is up to the company to list it specifically. In those jurisdictions, any professional services not specifically listed as excluded may be treated as covered. (16) War This exclusion is identical to the same exclusion in the CGL coverage form. It excludes coverage for personal and advertising injury losses involving war or warlike activity. (17) Distribution of Material In Violation of Statutes (12 07 addition)
This exclusion is identical to the same exclusion in the CGL coverage
form. There is no coverage for personal or advertising injury when the
Telephone Customer Protection Act, the CAN-SPAM Act of 2003 and other similar
type regulations are violated through a direct or indirect act or omission. Note: The exclusion does not state that the named insured or even an
insured must do the violating in order for the exclusion to apply. As a result,
situations could arise where an insured or named insured is not aware that its
computers have been hacked to violate the act and coverage still would not
apply. b. This exclusion informs the insured that
absolutely no coverage is available for losses or expenses involved with or
related to pollution. Note: While this exclusion
may appear odd or out of place, there is a good reason for it being here. Suits
and disputes seeking coverage for pollution have become so common and creative
that it is probably prudent to specifically exclude this expensive source of
loss. SUPPLEMENTARY PAYMENTS–COVERAGES A AND B1. When the insurance company has a duty to defend, it makes the following payments: a. All costs it incurs resulting from its involvement with the claim or suit. b. A maximum of $2,000 for the cost of bail bonds related to a covered occurrence. This includes, but is not limited to, bonds for related traffic law violations. As in most coverage forms and policies, the company is not responsible for furnishing these bonds. c. The cost of bonds to clear attachments. However, this is limited to bond amounts that do not exceed the limit of insurance that applies. Again, the carrier is not responsible for furnishing these bonds. d. If the insurance company asks an insured to incur expenses as a part of the claims process, it pays those expenses. If the insured must take time off work to assist the company, payments of up to $250 per day are considered part of these expenses. e. If the insured must pay court costs, they are paid as
supplementary payments. Attorneys’ fees
and attorneys’ expenses taxed against the insured are not considered part of
the court costs (12 07 addition). f. Prejudgment interest on awards levied against an insured on any judgment the insurance company pays. However, if the carrier offers to settle for an amount equal to the policy limit, it pays no prejudgment interest from the date the offer is made. g. Interest that accrues after the judgments is entered and before the carrier satisfies the judgment. Note: These payments do not reduce the limits of insurance. 2. When the insurance carrier has a right but not a duty to defend, it pays its own expenses but does not involve itself with the expenses of any underlying carrier or with the insured. Example: Justjumpin Gym, Inc. manufactures gymnasium and playground equipment. Its insurance is written by two different carriers, one providing a CGL coverage form and the other a commercial liability umbrella coverage form. Earlier in the year, a customer sued Justjumpin when its 2008 mega playset collapsed during a birthday party, seriously injuring nearly a dozen young children. To date, only the CGL insurer is involved. However, the umbrella insurer has spent almost $10,000 to keep tabs on the progress of the lawsuit that threatens to exhaust the underlying coverage limits. 3. Please note that this relates back to the contractual liability exclusion. If an indemnitee is covered under that exclusion and the insured and the indemnitee are both being defended, all expenses are outside the limit, subject to meeting the following conditions: a. The assumption of liability by the insured for the indemnitee must be included in an insured contract. b. The insurance under this coverage form must apply to the liability assumed. c. The particular insured contract in which the insured agrees to indemnify the indemnitee must state that the insured agrees to defend or assume the cost to defend the indemnitee. d. There must be no conflict of interest between the insured and indemnitee in the suit filed. e. Both the indemnitee and the insured must agree to use the same assigned counsel and each must ask the insurance company to handle the defense. f. The indemnitee must agree to cooperate, send copies of demands, suits and notices, notify other carriers providing coverage for the indemnitee and cooperate in coordinating coverages. In many ways, the indemnitee must agree to the same conditions as the insured. In a similar manner, the indemnitee must provide the insurer with the written authorization to obtain all necessary records and documentation needed to properly handle the defense. If the indemnitee does not meet these conditions, the defense cost is considered part of the damages and reduces the limit of insurance available to pay claims. The failure to meet these conditions can occur at any time during the claims handling process. SECTION II–WHO IS AN INSUREDThe insureds listed are nearly identical to the ones indicated in the CGL and Business Auto coverage forms. 1. This section identifies insureds with respect to liability arising out of operations, except for auto liability: a. If the named insured designated on the declarations is: (1) An individual The named insured and his or her spouse are insureds. This status is limited to conducting the business for which the named insured is the sole owner. (2) A
Partnership/Joint Venture Insured status belongs to the entity. The members, partners and their spouses are also insureds but only for actions related to the conduct of the named insured’s business. Example: Davis & Jones Storage has its insurance written on a Businessowners Policy (BOP) and an umbrella coverage form. The husband of the senior partner helps out on the day that a warehouseman is ill. While using a forklift, he makes a wrong turn and ends up on the sidewalk outside the building. He then loses control of the forklift and runs into a crowd at a street corner. The umbrella coverage form responds to this loss. (3) A Limited
Liability Company (LLC) Insured status belongs to the entity. The members and managers of the LLC also have insured status but members are protected only for business activities and managers are protected only for activities within the scope of their job duties. (4) Other Organizations Note: This category includes corporations. Insured status belongs to the entity. In addition, corporate directors and executive officers are insureds while performing duties within their respective jobs as directors and officers. Another group also enjoys a narrow insured status. The named insured’s stockholders are protected for their liability as stockholders. (5) A Trust The named trust is an insured. In addition, all trustees are insureds but only while performing their trust-related duties. b. The following groups are also considered insureds: (1) Employees And Volunteer Workers Volunteers are insureds but only when performing business-related activities for the named insured. Employees are insureds when performing business-related activities for the named insured and when performing acts within the scope of their employment by the named insured. Executive officers and managers who are insureds as outlined in the section above are not considered employees in this section. Employees and volunteers are not insureds for any of the following: (a) Bodily injury or personal or advertising injury to a named insured, partners or members, 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 the insured business. In addition, there is no coverage for such injury to family members of the co-employees or volunteers. Coverage does not apply even if the employee or volunteer must share damages with another party. (b) Property damage to property owned, occupied or used by, rented to or in the custody of the named insured or any of the named insured’s employees, volunteers, partners or members. Note: Be certain you understand how coverage extends to volunteers and their duties. Their covered duties are not the same as employee duties. Volunteers are generally used for non-work activities, such as special events, charitable functions, etc. For this reason, the covered duties are those that the business establishes for that volunteer. Example: Galactic Music Palace has umbrella coverage. The huge store is celebrating its 10th anniversary by throwing a party. Since Galactic does not want to pull its employees from the sales floor for this activity, it enlists several dozen volunteers to entertain customers and their children. One of them supervises the activity at a moonwalk. A few of the older kids get a bit out of control and the volunteer tries to settle things down. While attempting to get the ringleader off the moonwalk, the child loses his footing, falls on the asphalt sidewalk and is seriously injured. The umbrella responds to this loss. (2) A person or an organization acting as the named insured’s real estate manager, other than an employee or volunteer, is an insured. (3) If the named insured dies, the person or organization with proper temporary custody of the named insured's property is an in an insured but only for the liability related to that property and only until a legal representative is appointed. (4) If the named insured dies, the named insured’s legal representative who assumes all of the named insured’s rights and responsibilities is an insured but only to the extent of the specific duties as a legal representative. c. When the named insured acquires or forms a new organization, that organization is a Named Insured, but only as long as the named insured owns it or maintains majority ownership of it, subject to the new organization not having its own insurance. The new organization cannot be a partnership, joint venture or limited liability company. Coverage ends 90 days after it is formed or acquired or at the end of the policy period, whichever occurs first. Occurrences and offenses prior to the date of formation or acquisition are not covered. 2. The second part of Who Is An Insured relates to the liability directly related to the ownership, maintenance or use of covered autos. The policy language mirrors the Business Auto coverage form. Please refer to PF&M Section 220.4-2, Business Auto Coverage Form Analysis, for more details. The following parties are covered persons: a. The named insured is an insured. b. Any person using a covered auto the named insured owns, hires, or borrows with the named insured's permission is an insured, subject to the following limitations: (1) If a vehicle is hired by the named insured, the owner and person from whom it is hired is not an insured. However, an exception applies for rented trailers or semitrailers connected to a covered vehicle. Example: Primbel rents a small trailer and connects it to his covered auto. When the trailer disconnects and causes an accident, the trailer company is considered an insured under Primbel’s coverage because the trailer was attached to the covered auto prior to the accident. (2) The named insured’s employee is not an insured when driving his or her owned vehicle that is considered a covered auto under the named insured’s policy. Example: Mary drives her own vehicle while running an errand for Maxie’s Beauty Shop. Mary makes a left turn and strikes a van. The injured individuals sue both Maxie’s and Mary. Mary is not an insured under Maxie’s policy. (3) An employee or volunteer at an auto-related business is not an insured unless it is the named insured’s business. Example: Premium Auto does all of Krandle’s fleet maintenance. While a Premium Auto employee is testing one of Krandle's vehicles, its brakes fail and the vehicle strikes a building, damaging it and injuring some of its occupants. Premium Auto’s employee is not an insured under Krandle’s policy. (4) A person other than the named insured’s employees, partners or members that move property to or from a covered auto is not an insured. The only exceptions are lessees or borrowers and their employees. Example: Marvin’s truck swerves to avoid hitting a rabbit and flips over. Roger is passing by and stops to help. While removing some of the cargo in order to make it easier to right the vehicle, he drops part of it on a fellow volunteer. Roger is not an insured. (5) The named insured's partners or members are not insureds for any vehicle they own, even though it may be considered the named insured’s covered auto. Example: Carol, one of the partners in Lombard & Gable, is driving her own vehicle from the office to court when she hits another car. When both Carol and Lombard & Gable are sued, the Lombard & Gable coverage form responds for the non-owned exposure but Carol’s policy must respond for her liability since she is not an insured. (6) If an employee injures a fellow employee, the employee causing the injury is not an insured if the injury occurs while the fellow employee is conducting the business of the named insured. Example: Lucy is driving the company car and strikes Henry while he is taking out the company trash. Since both are employees of Winston Bakers, Lucy is not an insured under the Winston Bakers policy for this accident. c. Any supervisor of any of the insureds listed above is also an insured. However, its liability is limited to their liability as a supervisor or overseer. 3. The underlying coverage form or policy determines the final Who Is An Insured. An additional insured on the underlying policy becomes an additional insured on the umbrella. If a written contract establishes the terms of the additional insured status, the maximum payment is the required contract amount, reduced by any payments from any underlying coverage. The umbrella becomes following form to the underlying in that the coverage provided for the additional insured is the same as the coverage provided by the underlying coverage. 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 indicated as a named insured on the declarations. SECTION III–LIMITS OF INSURANCE1. This section confirms
that the limits of insurance indicated on the declarations are the most
the insurance company is obligated to pay. The number of insureds, claims made,
suits brought, number of vehicles involved or persons or organization making
claims or bringing suits does not affect this obligation. The payment is
limited by the rules outlined in this section. 2. The Aggregate Limit indicated on the declarations is the most paid for the total of all ultimate net loss under Coverage A, Bodily Injury And Property Damage Liability, and Coverage B, Personal And Advertising Injury. Example: Green Fun, Inc. manufactures outdoor play sets. In 12 separate incidents, children are seriously injured when their clothing is caught at the top of the slide. Green Fun’s underlying carrier has an occurrence limit of $1,000,000 and a products/completed operations aggregate limit of $2,000,000. No single occurrence is more than $1,000,000 but the total of the 12 incidents is $4,000,000. Since Green Fun’s umbrella coverage form has a $1,000,000 aggregate limit, it pays only $1,000,000. The remaining $1,000,000 is uninsured. One exception applies to the aggregate limit. Bodily injury and property damage due to a covered auto loss is not subject to the aggregate limit. This means that losses that are first covered under an underlying auto coverage form or policy are not subject to an umbrella aggregate in the same manner as losses under an auto policy are not subject to an aggregate limit. Example: Paley Bus Company uses 15-passenger vans to transport disabled and elderly persons around town and on short out-of-town excursions. During the policy period, three vans flip, seriously injuring the passengers. Each occurrence results in damages of $2,000,000. Since Paley’s underlying auto policy per occurrence limit is $1,000,000, Paley's umbrella insurer pays the additional $1,000,000. Even though the umbrella aggregate limit is $2,000,000, the carrier pays all three losses because the aggregate does not apply to auto losses. 3. Subject to the Aggregate Limit described in item 2 above, the Each Occurrence Limit is the most the umbrella carrier pays for the total of all ultimate net loss under Coverage A that arises from a single occurrence. Example: An explosion occurs at the Mt. Airy Motel, injuring 30 people and killing another. The total liability damages claimed is $7,000,000. Mt. Airy Motel has an underlying CGL coverage form with $1,000,000 occurrence and $1,000,000 aggregate limits. Mt. Airy also has an umbrella coverage form with $5,000,000 occurrence and $10,000,000 aggregate limits. Since this is the second occurrence during the policy period, only $500,000 of the aggregate is still available to apply to the loss. Since the $7,000,000 in damages resulted from one occurrence, the underlying coverage pays up to its $1,000,000 occurrence limit but is limited to the remaining $500,000 aggregate. This means the underlying coverage pays $500,000 and the remaining $6,500,000 is referred to the umbrella carrier. Since the umbrella occurrence limit is $5,000,000, it pays only $5,000,000 and the remaining $1,500,000 is uninsured. 4. In a similar manner, and subject to the Aggregate Limit described in item 2 above, the Personal And Advertising Injury Limit is the most the carrier pays under Coverage B for the total of all ultimate net loss for an offense to one person or organization. Example: The partners of Law, Law, Fight & Law were extremely upset when they lost a major case to an inexperienced novice, Gerald New, of Win, Win & Win. When they received information from a reliable source that Gerald had cheated on his bar exam, the partners decided to advertise the fact in multiple mailings. Gerald sued the partnership and each partner individually. Since only one person was offended, even though multiple parties committed the offense in multiple mailings, only the single limit of insurance is available to apply to the loss. 5. (12/07/addition) Concurrency of policy
periods in the underlying policies and the umbrella is important. Since doing
so is not always possible, this section addresses the subject and penalizes the
insured for not being concurrent. The insured may not be happy with the result
because this could create a gap in coverage. If the underlying
policy period is different than the umbrella policy period, the umbrella
responds only if the underlying limits are exhausted due to payment made for
occurrences and offenses that fall within the umbrella policy period. Example: Underlying policy period: 1/1/07 to 1/1/08. Limits: $1,000,000
occurrence/$1,000,000 aggregate Umbrella policy period: 6/1/07 to 6/1/08. Limits: $5,000,000
occurrence/$5,000,000 aggregate
The umbrella does not begin to pay until the underlying payments
satisfy the retained limits. In this non-concurrent policy, $400,000 in
aggregate losses occurred prior the umbrella policy period. This means that the
underlying aggregate will be exhausted $400,000 before the retained limit is
met and the umbrella starts paying. This $400,000 gap in limits is the
insured's responsibility. Once the retained limit is met, the umbrella starts
to pay. SECTION IV–CONDITIONSThis section is comparable to the CGL coverage form except for the following conditions:
All conditions are discussed but special emphasis is given to those unique to the umbrella coverage form. 1. Appeals This condition allows the umbrella insurer to protect its interest. Situations arise where an underlying insurer or a self-insured decides not to appeal a judgment. If the judgment exceeds the umbrella’s retained limit, the umbrella carrier can make the appeal and does so at its own expense. This is very important in cases where the underlying carrier believes that the verdict will exceed its limits and decides not to expend additional time and money for a lost cause. 2. Bankruptcy Bankruptcy of the insured
or of the insured’s estate does not affect this coverage. The umbrella must
proceed as though the insured is solvent. In addition, if the company providing
the underlying coverage becomes bankrupt, the umbrella must proceed as though
the underlying carrier is still solvent. This means the umbrella will not
respond until the retained limit is satisfied, even though the bankrupt carrier
cannot pay the losses. In that case, the insured is responsible for the
retained limit and the umbrella then responds. 3. Duties In The Event of Occurrence, Offense, Claim Or Suit This condition is identical to the same condition in the CGL coverage form. a. The named insured is responsible for ensuring that the insurance company is notified of the occurrence or offense as soon as practicable, regardless of the amount. This is important. The umbrella carrier must be notified even though the loss may not even be close to the retained limit. The notice must include information about where, how and when the occurrence or offense took place, names and addresses of injured individuals and any witnesses, and a description of the injury or offense. b. The named insured must notify the umbrella carrier when a claim of any size is made or a suit is filed against any insured, not just the named insured. The named insured must document information concerning the claim or suit and notify the umbrella carrier as soon as practicable. The named insured is responsible for getting all the relevant information to the umbrella carrier, not the underlying carrier! c. The named insured and any other insured involved in a claim must send copies of demands, notices, summons and other legal papers to the umbrella carrier. Both the named insured and the insured must authorize the carrier to obtain any necessary information and records and cooperate with the carrier in any investigation involved with the claim. If the named insured or the insured has a claim or right against another party, they must help the insurance carrier enforce that right. Pease refer to PF&M Section 275_C002, Excess Insurer Held Not Liable For Portion Of Settlement When It Was Not Notified Of Lawsuit, in Court Cases, for an example where failing to notify the insurer can jeopardize coverage. d. Any insured can make payments, assume obligations or incur expenses regarding a particular claim but none are paid unless the insurance carrier agrees to do so. First aid rendered at the time of an accident is the one exception. 4. Legal Action
Against Us This condition is identical to the same condition in the CGL coverage form. Based on the insuring agreement, the umbrella coverage form indemnifies the insured but the insurance company is not a party to any action made by any party against the insured. This means that no one has the right to name the insurance company in a suit or an action against an insured. It also states that the insurance company cannot be sued unless all terms of the coverage form are met. This statement appears to be directed more at the named insured and other insureds, since they are the ones having stated obligations in the coverage form. If an agreed upon settlement or final judgment has been rendered and the claimant has not yet received payment, that claimant can sue the insurance carrier but the carrier only pays amounts it is required to pay. 5. Other Insurance a. This section of the condition clarifies that the umbrella coverage form is excess coverage. Its protection does not apply until all other available primary insurance first responds to a loss or suit. One exception is that the excess condition does not apply to insurance specifically written as excess over the umbrella coverage part. Example: Stumblebum Industries manufactures power tools. It has insurance as follows: Company A: CGL coverage form with a $1,000,000 Aggregate Limit Company B: Umbrella coverage form with a $1,000,000 Aggregate Limit Company C: Excess Layer with a $2,000,000 Aggregate Limit A Stumblebum sales rep is demonstrating its new line of pneumatic tools at a consumer fair when a compressor explodes. The claims for damages and injuries exceed $4,000,000. In this case, Company B does not respond to the loss until Company A fulfills its payment obligations. However, Company B must respond before Company C since Company C's coverage is a second layer of excess insurance protection. This section of the condition explains that the excess carrier is not required to provide a legal defense when the obligation to do so is that of the primary insurer. However, the umbrella insurer agrees to assume the defense when no underlying carries does. In those cases, the umbrella carrier may be legally able to recover its costs of the defense from the primary carrier or carriers. b. This section of the condition explains that the umbrella coverage form only pays the portion of ultimate net loss that it owes. That portion is the amount that exceeds the amounts owed by any primary sources of coverage including any deductibles and/or self-insured retentions. 6. Premium Audit This condition is identical to the same condition in the CGL coverage form. The insurance company calculates the premium owed by the named insured based on its rules and rates. The premium shown on the declarations is a deposit or estimated premium and is subject to audit. At the end of the applicable audit period, the earned premium is developed based on the actual exposures during the audit period. The bill for any additional premium is sent to the first named insured and is due on the date indicated on it. The named insured receives a return premium in cases where the deposit premium is more than the actual audited premium. Since the insurance company calculates the premium based on the named insured's records and information, those records and information must be made available to the company and copies provided if required. 7. Representations Or Fraud Items a. b. and c. of this condition are identical to the Representations condition in the CGL coverage form. The named insured is responsible for reviewing statements it makes as indicated on the declarations and in the application provided to the insurance company. By accepting the insurance coverage provided, the named insured agrees that all statements are based on its disclosures to the insurance company and that the coverage provided is based on those statements. Coverage is void if the named insured defrauded the insurance carrier in matters relating to the coverage provided or claims made. 8. Separation Of
Insureds This condition is identical to the same condition in the CGL coverage form. The insurance coverage provided applies separately to each named insured, not including the limits of liability or any rights or duties specifically assigned to the first named insured. This condition also applies with respect to a claim or suit brought against each named insured. Note: While insureds enjoy separate privileges, if a loss arises out of the same occurrence, the coverage form restrictions on maximum payment still controls the loss. 9. Transfer Of Rights Of Recovery Against Others To Us This condition is identical to the same condition in the CGL coverage form. When handling a claim or suit, the insurance company "steps into the shoes” of the insured. To continue that analogy, the insurance company continues to wear those shoes as it claims any and all rights the insured has against others as they relate to the particular claim or suit. The insured cannot do anything to impair those rights and must assist the insurance company in enforcing them. Please refer to PF&M Section 410_C105, Insured's Waiver Affects Insurer's Subrogation Rights, in Court Cases, for more information on this subject. 10. When We Do Not
Renew This condition is identical to the same condition in the CGL coverage form. If the umbrella carrier decides not to renew coverage, it must mail written notice to the first named insured indicated on the declarations at least 30 days before the expiration date. This provision is frequently increased and superseded by applicable state laws that specify longer notice periods. Example: Do Right Casualty Insurance Company wrote a policy for BigLoss Manufacturing with policy effective dates of 1/1/07 to 1/1/08. Because of problems with the account, a Do Right senior underwriter sent out a notice of non-renewal on 11/28/07 that BigLoss received on 12/1/07. The chief financial officer at BigLoss sent a letter to Do Right, demanding that they send a renewal policy effective 1/1/08 to 1/1/09. Enclosed with the letter was an excerpt from the AnyState Insurance Code that clearly stated that the named insured must receive at least 45 days advance notice of non-renewal. Do Right immediately issued the renewal as demanded. 11. Loss Payable This condition explains when the umbrella carrier must pay a claim. The insured or the insured's underlying carrier is obligated to pay the retained limit before the umbrella carrier becomes responsible. After that, the umbrella carrier is responsible for paying the part of the ultimate net loss for which the insured is responsible, either through a final settlement, a judgment following a trial or a written agreement to which the insured, the claimant and the insurance carrier agree. 12. Transfer Of
Defense Once a settlement or judgment exhausts the underlying coverage, that carrier no longer has a duty to defend. At that point, the umbrella carrier assumes responsibility for the defense. This condition states that the umbrella carrier agrees to cooperate in the transfer of defense. 13. Maintenance
Of/Changes To Underlying Insurance This condition is extremely important. It basically requires that the described/listed underlying insurance remain in force. Limits that are reduced because of payments of claims, judgments or settlements comply with this condition. However, if an insured does not maintain the required underlying coverage, the umbrella carrier acts as though it did and is in full effect. If the underlying coverage is broadened during the policy period, the
umbrella coverage is not similarly broadened. This means that the broadened
coverage applies only to the primary coverage and not to the excess (12 07
addition). The insured is obligated
to inform the umbrella carrier if any primary coverage is no longer in force in
addition to informing it of any coverage or limits changes (12 07 change). Please refer to PF&M Section 275.6-2, Maintaining Underlying Limits, for another view of this issue. Please refer to PF&M Section 275_C009, Agency's Inaction Results In Gap Between Primary And Umbrella, in Court Cases, for an example of how this could become an area of dispute. 14. Expanded Coverage
Territory a. If a suit is brought in a country where the insurance company is not allowed to defend the insured, it reimburses the insured for any defense costs and other necessary expenses incurred for which the insurer would have been responsible if it could have presented the defense itself. Since these payments are made as Supplementary Payments, they are outside the limit of insurance. In addition, if damages are awarded to a claimant and the insurance company is not allowed to pay the damages by law, it reimburses the insured for the amounts paid. b. Payments or reimbursements are paid in United States currency. The rate of exchange for damages paid is based on the exchange rate at the time the insured became obligated to pay the damages. The exchange rate for all supplementary payment expenses is based on the date that the expenses are incurred. c. Disputes between the named insured and the insurance carrier must be filed in courts in the United States, its territories and possessions, Canada or Puerto Rico. d. The insured must carry and maintain any coverages required by any governmental authority throughout the policy period. This requirement does not apply to any reduction in limits that may occur as payments are made due to payments of claims, judgments or settlements. If this is not done, the umbrella coverage provided is still valid but any obligations are based on the laws being in effect. As a result, if the insured sustains penalties as a result of not carrying the appropriate coverage, it must bear the damages for those penalties. SECTION V–DEFINITIONS1. Advertisement When an insured distributes product or service information to either the general public or targeted groups, and the information is intended to attract either purchasers or supporters, that information is treated as an advertisement. This definition also includes information sent or made available electronically. When a website is involved, the umbrella coverage does not protect the entire site but is limited to the part of the site containing the information about the product or service. 2. Auto This definition was revised to have it match the meaning of the term used in the CGL and Commercial Auto coverage forms. The definition has two parts, one of which specifically states that the term does not apply to motorized property separately defined as mobile equipment. Autos are vehicles operated on public roads and/or subject to vehicle registration and financial responsibility laws. 3. Bodily Injury The umbrella definition of bodily injury is broader than the definition in the CGL coverage form because it includes disability in addition to bodily injury, sickness, disease and death that results. Death does not have to occur during the policy period but must be a direct result of the injury sustained in an occurrence during the policy period. It also includes mental anguish or other mental injury resulting from bodily injury. Example: While traveling on business, Sondra browses through a department store. The store's insurance includes a commercial umbrella coverage form. Because of an unfortunate chain of events and a series of unusual circumstances, Sondra is detained for shoplifting and forced to spend the night in jail, resulting in her missing an appointment with an important client. Sondra has to explain the situation to her employer and the customer and becomes so emotionally agitated and upset that she has a stroke. After the confusion is cleared up and the matter is resolved, Sondra and her employer sue the department store. The store's umbrella coverage form rejects Sondra's injuries under bodily injury because the bodily injury was a consequence of the false arrest. However, coverage applies for consequential bodily injury under Coverage B–Personal And Advertising Injury Liability. 4. Coverage Territory This means anywhere in the world, except for countries or jurisdictions under any trade or economic sanction by the United States. This definition is different than the corresponding definition in the CGL coverage form. 5. Covered Auto This is any vehicle eligible for coverage under the described primary insurance coverage forms or policies. 6. Employee This includes leased workers but not temporary workers. This is the same definition as in the CGL coverage form. 7. Executive Officer This is any person holding an officer position established by a governing document, such as by-laws, corporate charters or company constitutions. This is the same definition as in the CGL coverage form. 8. Impaired Property Tangible property made useless or less useful because of the named insured’s work, product or failure to meet contractual obligations is considered impaired property. To be more specific, the loss must occur because of the named insured's product or service or because the named insured breached a contract. Property is considered impaired only if it can be restored to usefulness by the named insured taking action, such as fixing, replacing or removing the product or work, or by fulfilling its contractual obligations. This is the same definition as in the CGL coverage form. 9. Insured Contract The seven types of insured contracts are: a. Contracts for a lease of premises, except for that part of any contract that agrees to indemnify for fire damage to any premises leased, rented or temporarily occupied by the insured; b. Sidetrack agreements; c. Easement or license agreements, except for those related to construction or demolition operations on or within 50 feet of a railroad; d. Obligations required by ordinance to indemnify a municipality, except those related to work for a municipality; e. Elevator maintenance agreements; f. The part of any contract or agreement entered into as part of the insured’s business, pertaining to the rental or lease by the insured or its employees of any auto. However, such contracts or agreements are not considered insured contracts to the extent that they obligate the insured or any of the insured’s employees to pay for property damage to any auto rented or leased by the insured or any of the insured’s employees. g. The part of any contract or agreement relating to the insured’s business, including an indemnification contract with a municipality for work performed for that municipality, where the insured assumes the tort liability of another party to pay for bodily injury or property damage to a third party. Tort liability is the liability imposed by law, with or without a contract or agreement. The following exceptions to the contracts listed in f. and g. above are not considered insured contracts.
Note: This definition is almost identical to the definition in the auto and CGL coverage forms. However, the CGL coverage form also excludes contracts with architects, engineers and surveyors while this definition does not. Note: The professional services exclusion in the umbrella coverage form specifically excludes architects, engineers and surveyors. 10. Leased Worker This is an individual the named insured leases through a leasing firm. A written agreement between the named insured and the leasing firm is required in order for the individual to be considered a leased worker. This is the same definition as in the CGL coverage form. 11. Loading Or
Unloading This is handling of property
beginning when the property is moved from its place of acceptance onto or into
a watercraft, auto or aircraft,
continuing while it is in or on the watercraft, auto or aircraft and
ending when delivered from the aircraft, auto or watercraft to its final
destination. This does not include property moved by mechanical devices other
than a hand truck not attached to the watercraft, auto or aircraft (12 07 addition). This is the same
definition as in the CGL coverage form. 12. Mobile Equipment This is any of the following types of land vehicles, including attached machinery or equipment: a. Bulldozers, farm machinery, forklifts and other vehicles designed primarily for off-road use; b. Vehicles used only on or next to the premises owned by or rented to the named insured; c. Vehicles that move on crawler treads; d. Vehicles used to provide mobility for permanently mounted power cranes, shovels, loaders, diggers and drills, and road construction or resurfacing equipment such as graders, scrapers or rollers, whether the vehicle is self-propelled or not; e. Vehicles not described above and not self-propelled but used to provide mobility for permanently attached equipment, such as cherry pickers or similar devices used to raise or lower workers, or equipment such as air compressors, pumps and generators, including spraying, welding, building cleaning, geophysical exploration, lighting and well servicing equipment; f. Vehicles not described above and used for purposes other than transporting persons or cargo. Self-propelled vehicles with permanently attached equipment, such as those designed for snow removal, road maintenance, other than construction or resurfacing, or street cleaning, cherry pickers or similar devices mounted on automobile or truck chassis and used to raise or lower workers or equipment and air compressors, pumps and generators, including spraying, welding, building cleaning, geophysical exploration, lighting and well servicing equipment are considered autos. All land vehicles subject to any state financial or compulsory responsibility laws or similar motor vehicle rules are considered autos, even if they meet these definitions. These vehicles must be insured under an auto coverage form or policy. This is the same definition as in the CGL coverage form. 13. Occurrence This is an accident, including continuing or multiple exposures to the same harmful conditions. This is the same definition as in the CGL coverage form. 14. Personal And
Advertising Injury This is any injury arising out of one or more of the following offenses, including any bodily injury as a consequence of the personal and advertising injury. a. False arrest, detention or imprisonment; b. Malicious prosecution; c. Wrongful eviction from, wrongful entry into or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor; d. Any oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services. This can take place in any form of communication, including the Internet and other electronic forms of communication. e. Oral or written publication of material that violates a person's right of privacy. The violation can take place using any form of communication, including the Internet and other electronic forms of communication. f. The use of the advertising idea of another in the named insured’s advertisement; or g. Infringing on the copyright, trade dress or slogan of another in the named insured’s advertisement. This is the same definition as in the CGL coverage form. 15. Pollutants Pollutants include irritants and contaminants such as smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste that are solid, liquid, gaseous or thermal in nature. Waste includes property to be disposed of, as well as property to be recycled, reconditioned or reclaimed. This is the same definition as in the CGL coverage form. 16. Pollution Cost Or Expense This term refers to loss, such as claims or suits, costs or expenses, including awards, fines or penalties, arising from any request, demand, order, statutory or regulatory requirement to test for, monitor, clean up, remove, contain, treat, detoxify, neutralize or in any way respond to or assess the effect of pollutants. It also includes any claim or suit by or on behalf of a governmental authority for damages because of any of these. This is the same definition as in the CGL coverage form. Note: As a result, this wording precludes coverage for any such action resulting from the Environmental Protection Act or on behalf of the Environmental Protection Agency (EPA) or any other governmental authority. This wording is part of the pollution exclusion in the CGL coverage form. 17. Products/Completed Operations Hazard This includes all bodily injury and property damage occurring away from any premises owned by or rented to the named insured that results from the named insured's product or work. It does not include those products still in the named insured’s physical possession or work not yet completed or abandoned. Work is considered completed when the work called for in the named insured’s contract has been completed. This includes work at one site that has been completed, if the contract calls for work at more than one site, or that part of work done at a site that has been put to its intended use by any party other than a contractor or subcontractor still working on the same project. Work is considered completed, even if it may still need service, maintenance, correction, repair or replacement. Bodily injury or property damage arising from any of the following is not included in this definition:
This definition is similar to the CGL definition. Item b. (c) is not included because it refers to a section that is not part of the umbrella coverage form. 18. Property Damage The definition of property damage is the same as in the CGL coverage form. However, since the umbrella also provides auto coverage, the definition is different when auto exposures are present. Property damage is both physical injury to tangible property, including all resulting loss of use of that property, and loss of use of tangible property not physically injured. Loss of use is considered to have occurred at the time of the injury or occurrence that caused it. Property damage includes pollution cost or expense but only with respect to the ownership, maintenance or use of a covered auto and only when the underlying policy would have provided pollution cost or expense coverage except that the limits of insurance were exhausted (12 07 addition). Electronic data is not tangible property for all insurance in the umbrella, except with respect to the ownership, maintenance or use of covered autos (12 07 addition). Electronic data includes information, facts or programs stored or used by the computer. Anything considered computer software, such as hard and floppy disks, CD-Roms or any media, is not tangible property. Note: This is extremely important and limiting and its importance cannot be overemphasized. If the named insured somehow passes a computer virus to the computer of another party and that virus destroys important data on that computer, an argument for coverage could have been made in the past. With this definition, that argument can no longer be made. 19. Retained Limit These are the total limits indicated on the declarations available from the underlying primary coverage, whether consisting of the self-insured retention or the underlying coverage forms or policies. 20. Self-Insured
Retention This is the amount the insured must pay before the umbrella responds. It applies only if underlying coverage does not apply to the loss. 21. Suit This is a civil proceeding alleging damages for injury or offenses covered by this insurance. It also includes arbitration or other alternative dispute resolution methods, where such damages are claimed and to which the insured must submit with the insurance company's consent. This is the same definition as in the CGL coverage form. 22. Temporary Worker This worker is any person furnished to the named insured as a substitute for a permanent employee on leave or in order to meet a seasonal need or a short-term workload situation. This is the same definition as in the CGL coverage form. 23. Ultimate Net Loss This is the total amount the umbrella pays as damages for a covered loss, settlement or agreement after all salvage or recoveries. This amount may be reached by a settlement, judgment, arbitration or an alternative dispute resolution entered into with the consent of either the umbrella carrier or the underlying carrier. 24. Underlying Insurance
This is any insurance policy listed or scheduled on the umbrella declarations as underlying insurance 25. Underlying Insurer
This is any insurance company that provides any insurance policy listed or scheduled on the umbrella declarations as underlying insurance. 26. Volunteer Worker This worker acts at the direction of, and within the scope of duties established by, the named insured but is not paid by the named insured or anyone else. This is the same definition as in the CGL coverage form. 27. Your Product a. This includes any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by the named insured, by others trading under the named insured’s name or by any party whose business or assets have been acquired by the named insured. This includes containers, excluding vehicles, materials, parts or equipment furnished in connection with such goods or products. b. It also includes:
c. It does not include vending machines or other property rented to or located for the use of others but not sold. This is the same definition as in the CGL coverage form. 28. Your Work This includes work or operations performed by the named insured, or by others on its behalf, and materials, parts or equipment furnished in connection with such work. It also includes warranties or representations made concerning the fitness, quality, durability, performance or use of the work and the providing or failing to provide adequate warnings or instructions. This is the same definition as in the CGL coverage form. |