Designated Premises, Operations and Projects Endorsements
In 2017, I developed a webinar called “Raiders of the Lost Coverage: Insurance Jones and the Temple of Exclusions.” It evolved from an earlier seminar I did with the late John Eubank, CPCU, ARM, called “Horrible Commercial Lines Policy Forms and Endorsements to Avoid or Be Wary Of.” Both programs were about endorsements that severely reduce coverage under fairly standard policy forms.
These are usually not endorsements that agents request, but rather forms added by insurers for various reasons. In my March 4, 2019, column, I wrote about three sources of coverage gaps that lead to disputes:
- Failure to identify exposures;
- Failure to insure known exposures; and
- Failure to QC policy deliverables.
The third source is one all too often overlooked. To paraphrase an old adage, “Be careful what you DON’T ask for!”
When an agent orders a package of policy forms, the carrier providing the forms will always attach forms not specifically requested by the agent. Some of these are mandatory under the regulatory filings of the insurer, but not all of them. And many of them can be removed upon request, sometimes with a premium charge. Agents should be wary of any such endorsements that limit or exclude coverage.
One such category of endorsements limits coverage to designated premises, operations and projects.
For example, ISO has a series of endorsements under its BOP, CGL, and umbrella/excess programs, the BP 04 12, CG 21 44, CU 21 11, and CX 21 10. Some insurers have similar proprietary forms. These ISO forms were revised, in most states, in 2017 and the revisions in the forms arguably significantly reduce coverage while attempting to reduce perceived ambiguities in the form language. The International Risk Management Institute (IRMI) advised that the CGL form change in particular “marks a significant and historically unprecedented narrowing of coverage that has traditionally been available to general liability insureds with respect to designated premises.”
As evidenced by numerous court cases, these “designated premises/projects” endorsements have been problematic for years because of the language that says that coverages apply only if arising out of “The ownership, maintenance or use of the premises shown in the Schedule and operations necessary or incidental to those premises… .”
The question has always been, to what extent are operations away from a designated premises covered? How far away can you be and what constitutes “necessary or incidental to?”
Case law is all over the place on what this language means.
In their filing, ISO cited two recent court cases where coverage was found for BI and PD that occurred, in one case, at an unscheduled premises (largely because the “negligent decision” from which the BI/PD arose took place on the scheduled location) and, in another case, 500 miles from the designated premises. As a result, ISO has revised the language on all of the aforementioned forms so that coverage applies only if loss:
(a) Occurs on the premises shown in the Schedule or the grounds and structures appurtenant to those premises; or
(b) Arises out of the project or operation shown in the Schedule.
For designated premises, there is no longer any automatic coverage for “operations necessary or incidental to those premises.” This is true premises-only liability that harkens back to the time of owners, landlords and tenants liability forms in that there is no coverage that takes place off premises (or appurtenant grounds/structures) UNLESS such off-premises operations are specifically scheduled. The question is, how do you know what operations might be necessary or incidental to the designated premises so that you can list ALL of them?
Aside from that, what are the implications if hired and nonowned auto coverage has been added by insurers to these forms? Many carriers have H/NO endorsements for their CGL policies. ISO does not. They removed this endorsement from the GL line over 30 years ago and coverage in the ISO program must be added via Symbol 1 or Symbols 8 & 9 under their BAP program. But ISO still provides the BP 04 -04 – Hired Auto And Non-Owned Auto Liability endorsement in their BOP program.
So, for H/NO coverage, what is the potential implication for this designated premises change? A literal interpretation would be that, if only a premises is scheduled without any mention of a project or operation, then the H/NO coverage under the BP 04 04 only applies to accidents that occur on that premises. Needless to say, this makes the coverage under the BP 04 04 virtually illusory for this exposure and certainly can’t be the intention of the BP 04 04. However, that’s exactly what a literal reading of these forms would indicate.
As a result, when an ISO BOP policy includes H/NO coverage under the BP 04 04 AND the designated premises limitation BP 04 12 endorsement,
in addition to the schedule premises, a notation should probably be made in the “Project Or Operation” schedule that coverage applies to the operation of autos covered by the BP 04 04 (along with a list of any other operations necessary or incidental to the scheduled premises). If your carriers also provide H/NO coverage via proprietary endorsements on their CGL policies, the same action might be taken on the CG, CU, and CX Limitation endorsements.
The better solution is to have the BP 04 12 REMOVED from the policy, if at all possible, in order to avoid these issues. And don’t forget to QC those policy deliverables – be careful what you DON’T ask for!