(November 2019)
When a property owner or general contractor hires an independent contractor to perform work on its behalf, it creates two additional liability exposures. One exposure is the injuries or damages the contractor may sustain due to the negligence of the property owner or the general contractor. The other exposure is injury the independent contractor may cause to other parties that could be alleged as negligence on the part of the property owner or the general contractor.
One way to cover these exposures is to attach CG 28 07–Principals Protective Liability Coverage to the Insurance Services Office (ISO) CG 00 09–Owners and Contractors Protective Liability Coverage Form–Coverage for Operations of Designated Contractor. This allows the named insured to insure these exposures separately from its own Commercial General Liability Coverage Form (CGL) or Policy.
While the CGL Coverage
Form covers this vicarious liability exposure, many owners and general
contractors prefer to contractually shift this liability to that independent
contractor because if the CGL Coverage Form provides the coverage, any loss
might adversely affect the named insured’s loss experience or deplete the available
aggregate limits.
The term “vicarious liability” is commonly used to describe liability against an employer due to injury or damage caused by an employee under a strict employer and employee relationship. However, vicarious liability to owners or general can also be imposed for acts by non-employees such as independent contractors under certain circumstances. The imposition of liability is often due to work that is inherently dangerous; projects that impose non-delegable duties on the project owner under federal, state, or local laws; or negligence on the part of the organization in hiring incompetent or unqualified contractors.
Principals Protective Liability Coverage is one method to protect the property owner or general contractor against liability for bodily injury by other parties caused by an independent contractor that performs work on the named insured’s behalf.
Newspaper publishers frequently use Principals Protective Liability Coverage to cover their liability for the acts of independent contractors they use to distribute and deliver their products. ISO addresses newspaper publishers by including classifications for Principals Protective Liability Coverage for them under Rule 46 in the ISO Commercial Lines Manual (CLM).
Related Article: Owners and Contractors Protective Liability Coverage Form Rating Considerations
This analysis is of the
04 13 edition. The single change from the 12 07 edition is in bold print.
The Principals Protective Liability Coverage Insuring Agreement replaces paragraphs 1. a. and 1.b. of the insuring agreement in CG 00 09. Paragraphs 1.c., 1.d., and 1.e. are not changed and continue to apply. The first major difference is that the insuring agreement in CG 00 09 provides bodily injury and property damage liability insurance coverage while the insuring agreement in the Principals Protective Liability Coverage provides only bodily injury coverage. Another change is that two coverages are available.
The insurance company has the right and duty to defend the insured in any suit that seeks damages but only for suits for bodily injury this insurance covers. It has the right to investigate and settle any claim or suit if it chooses to do so. However, the amount it pays is limited as stated in Section III–Limits of Insurance. Its obligation to defend ends when the limits of insurance are used up by paying claims or settling suits. The only other obligation it has to pay sums, perform acts, or provide services is as Supplementary Payments provides.
Coverage applies to only bodily injury caused by a covered occurrence. The bodily injury must happen during the policy period. There is no coverage for property damage.
All the exclusions in the OCP Coverage Form are replaced by the following:
a. Coverage A and Coverage B do not apply to:
(1) Expected or Intended Injury
Coverage does not apply to bodily injury expected or intended by the insured. This exclusion has an exception where coverage applies to bodily injury that results from the insured using reasonable force to protect persons or property.
Note:
This exclusion is the same as the corresponding exclusion in the OCP coverage
form except for the elimination of property damage.
(2) Pollution
Coverage does not apply to bodily injury that arises from the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of pollutants. Pollutants are defined as any solid, liquid, gaseous, or thermal irritant or contaminant. Pollutants also include smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, reconditioned, or reclaimed.
(a) The exclusion applies at any location the insured now owns or occupies or ever owned or occupied. However, it does not apply to bodily injury sustained within a building caused by any of the products of combustion from any equipment used to heat, cool, or dehumidify the building or from equipment used to heat water for use by the building’s occupants or to any bodily injury as the result of a hostile fire.
(b) The exclusion also applies at or from any location that the insured or others now or ever used to handle, store, dispose of, process, or treat waste.
(c) Coverage does not apply to bodily injury that arises from any pollutants that any insured or any party for whom he named insured is legally responsible or liable for now or ever transported, handled, stored, treated, disposed of, or processed as waste.
(d) Bodily injury at or from any premises, site, or location where the insured or any contractor or subcontractor is working directly or indirectly on the insured's behalf and performing operations is also not covered but ONLY if the pollutants had been
brought to that premises, site, or location by any insured, contractor, or subcontractor in connection with those operations.
However, this exclusion (d) does not apply when escape of fuels, lubricants, or other operating fluids needed to perform the normal functions or operation of mobile equipment or its parts causes the bodily injury. In order for this exception to apply, the equipment must be designed with such a receptacle to hold, store, or receive the fluids. This exception does not apply if the discharge, dispersal, escape, or release is intentional or is a part of the operation being performed.
Another exception to exclusion (d) is when the bodily injury occurs within a building because of materials the contractor brought into it. The material must be part of an operation the contractor performs for an insured. Note: This includes materials such as paint, cleaning solvents, chemical treatments, and carpet or tile glue the insured or a contractor brings into a building to perform repair or service operations. One final exception to exclusion (d) is for bodily injury that is the result of a hostile fire.
Note: This exclusion is slightly different than the corresponding exclusion in CG 00 09 because coverages A and B in this endorsement do not provide any property damage coverage. All references to property damage are eliminated. Also, item (2) of the Pollution exclusion in CG 00 09 is eliminated because it applies to loss, cost, or expense of testing, which would be considered property damage.
b. Coverage A does not apply:
· If the named insured does not maintain workers compensation insurance for its business operations
· To bodily injury that arises out of any insured violating any statute, law, ordinance, or regulation
· Damages that the named insured is entitled to recover under a different contract or agreement
Note: These b. exclusions are all new exclusions for this endorsement only and that are not part of the CG 00 09.
c. Coverage B does not apply to:
(1) (04 13 change) Bodily injury that arises out of any involvement with aircraft, auto, or watercraft that any insured owns, operates, rents, or has loaned to it. This includes loading and unloading. However, this exclusion does not apply to the following:
· Any watercraft when out of the water and ashore at any location the named insured owns or rents
· Non-owned watercraft less than 26 feet long and not used to carry persons or property for a charge
· Autos the named insured does not own, rent, or have on loan when parked on or on ways that adjoin its premises
· Liability assumed under an insured contract that involves owning, maintaining, or using aircraft or watercraft
· Bodily injury that arises out of operations of machinery or equipment attached to or part of a land motor vehicle subject to a compulsory or financial responsibility law or other motor vehicle insurance law where it is licensed or principally garaged. This includes operation of any equipment in specific portions of the definition of mobile equipment. (The 04 13 edition removes the words “in the state” before the words “where it is licensed or principally garaged” that were in the 12 07 edition.)
Note: CG 00 09 does not contain a similar exclusion.
(2) Bodily injury that arises out of transporting mobile equipment by autos owned or operated by, or rented or loaned to, any insured, or using mobile equipment in, or practicing or preparing for, any organized racing, speed, demolition, or stunt activity.
Note: This is similar to exclusion 2. i. in CG 00 09 except that this exclusion does not refer to property damage and it adds the transporting of mobile equipment as being excluded.
(3) Bodily injury to:
· An employee of the insured that arises out of or in the course of his or her employment or performing duties related to conduct of the insured's business
· Specified relatives of the employee as a result of bodily injury to the employee who works or performs duties for the insured
This exclusion applies if the insured is liable as an employer or in another capacity. It also applies to any obligation to share damages with or to repay another party that must pay damages because of the injury.
This exclusion does not apply to liability the insured assumed under an insured contract.
Note: This exclusion is similar to exclusion f. in CG 00 09.
(4) The insured's obligation under workers compensation, disability benefits, unemployment compensation, or similar laws
Note: This exclusion is similar to exclusion d. in CG 00 09.
This section replaces three conditions in Section IV–Conditions in CG 00 09:
8. Other Insurance
Coverage A applies only when the insured's workers compensation insurance does not cover the loss. This means that there is no sharing of any loss with a workers compensation carrier.
Coverage B is primary and exclusive insurance. The insurance company agrees to not seek contribution from any other insurance that may be available to the named insured.
Note: Neither of the above precludes the insurance company from subrogating against another party to the injury though.
9. Premiums
The first named insured on the declarations pays all premiums and receives any return premiums from the insurance company.
Note: This is different than in CG 00 09 where the contractor pays the premiums and receives return premiums.
10. Premium Audit
a. All premiums are calculated according to the insurance company's rules and rates.
b. The advance premium is only a deposit premium. At the end of each audit period, the insurance company determines the actual earned premium for the period and notifies the first named insured. The premium due date is stated on the billing notice. However, if the advance and audit premiums are more than the earned premium, the insurance company refunds the excess to the first named insured.
c. The first named insured must keep the records and information the insurance company needs to do the premium calculations and send copies of such records and information to it when requested.
Notes:
This is different than in CG 00 09 where the contractor keeps the records and information the insurance company needs to perform the audit.
Audit period is not clearly defined or explained. It can be monthly, quarterly, annually, or any reasonable period both parties agree to.
This section adds two conditions to Section IV–Conditions in CG 00 09:
14. Representations
When the named insured accepts this policy, it agrees that:
a. The statements on the declarations are accurate and complete.
b. The statements on the declarations are based on representations the named insured made to the insurance company.
c. The insurance company issued the policy based on the named insured's representations.
15. When Independent Contractor Is Designated
If there is an entry on the declarations for a designated independent contractor, this insurance applies to only bodily injury that arises out of its activities and the activities of its employees.
Note: The implication is that coverage applies to all contractors on a blanket basis if a contractor is not designated.
All references to contractor in any of the other conditions in CG 00 09 are deleted and do not apply.
The following definitions in CG 00 09 are deleted and do not apply:
The following definition is added:
Loading or unloading
This is handling property beginning when it is moved from the place where it is accepted onto or into a watercraft, auto, or aircraft. It continues while it is in or on the watercraft, auto, or aircraft. It ends when the property is delivered from the aircraft, auto, or watercraft to its final destination. Property moved by mechanical devices is not considered being loaded or unloaded unless the device is attached to a watercraft, auto, or aircraft or if the device is a hand truck.
Note: This definition is the same as the definition in the Commercial General Liability Coverage Form.
All references to property damage in the definitions in CG 00 09 are deleted and do not apply.
CG 28 07–Principals Protective Liability Coverage can be added to only CG 00 09. The following forms are required:
A limited number of endorsements are available to broaden, restrict, or clarify coverage or to meet specific state requirements.
Note: The policy construction difference between the Principals Protective Liability Coverage Form and the unmodified CG 00 09 is that the unmodified CG 00 09 can be written only as monoline coverage. When the Principals Protective Liability Coverage Form is added, it may be written with other coverage forms or parts if it is issued to the same named insured.
CG 28 07–Principals Protective Liability Coverage is relatively limited, so there is less need to tailor the coverage than there is with the CGL Coverage Form. A limited number of endorsements is available that broaden, restrict, or clarify coverage or to meet specific state requirements. These are the same endorsements available for use with CG 00 09.
Related Article: Owners and Contractors Protective Liability Coverage Form Available Endorsements and Their Uses
Deductibles are not used with Principals Protective Liability Coverage.
The CG 00 09 is changed
when the CG 28 07 is endorsed to it. The major change is that the named
insured, not the designated contractor, is the purchaser of the policy. A
designated contractor can still be listed on the declarations, along with the
location and description of the designated project.
Related Article:
CG 28 07–Principals Protective Liability Coverage
There are four
classifications that are available when the CG 28 07 is attached.
Code 27111: Principals Protective Liability–Newspaper
Publishers–Liability to Independent Contractors–(Coverage A)
This classification is
used with operations that are involved with newspaper distribution. The key is
that the independent contractors receive their remunerations based on the
difference between its purchase price of the newspaper and its selling price.
Coverage A provides liability coverage when an independent contractor is
injured. This class cannot be used in operations of transportation agents,
distributors, servicing dealers, news agents, or news dealers unless their
operations are as defined in the first sentence above.
Code 27112: Principals Protective Liability-Newspaper
Publishers–Liability for Independent Contractors–(Coverage B)
This classification is
used with operations that are involved with newspaper distribution. The key is
that the independent contractors receive their remunerations based on the
difference between its purchase price of the newspaper and its selling price.
Coverage B provides liability for bodily injury caused by an independent
contractor.
This class cannot be used
in operations of transportation agents, distributors, servicing dealers, news
agents, or news dealers unless their operations are as defined in the first
sentence above.
Code 15191: Principals Protective Liability–Liability to Independent
Contractors–(Coverage A)
This is a Not Otherwise
Classified (NOC) classification. Coverage A provides liability coverage when an
independent contractor is injured.
Code 15192: Principals Protective Liability–Liability for Independent
Contractors–(Coverage B)
This is a Not Otherwise
Classified (NOC) classification. Coverage B provides liability for bodily
injury caused by an independent contractor.
The premium basis for 15191 and 15192 is the total cost of all work let or sublet in conjunction with a specific project. The cost of all labor, materials, and equipment furnished, used, or delivered to be used to complete the work along with all fees, bonuses, and commissions made, paid, or due must all be included in the cost amount. The cost of finished equipment the contractor installed but did not furnish is not to be included if the contractor did not do any other work on or in conjunction with such equipment. The rates apply per $1,000 of total contract cost.
The premium basis for codes 27111 and 27112 is per news carrier.
Multiply the loss cost for the specific code by the insurance company's loss cost multiplier to determine the rate. Then multiply the premium basis by the rate to determine the final premium. Published loss costs are available for only codes 27111 and 27112. The others must be referred to the insurance carrier providing the coverage.
EXPERIENCE AND/OR SCHEDULE
RATING PLANS
The ISO Commercial General Liability (CGL) Experience Rating Plan and the ISO CGL Schedule Rating Plan do not apply to rating for Principals Protective Liability Coverage. There is no other similar ISO rating plan available for use with it. Special rating plans, programs, or deviations are at each insurance company’s discretion.