CU 00 01–COMMERCIAL LIABILITY UMBRELLA COVERAGE FORM ANALYSIS

(April 2019)

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INTRODUCTION

The Insurance Services Office (ISO) Commercial Liability Umbrella is a stand-alone coverage form that contains its own coverage, exclusions, and conditions. It provides excess limits over General Liability, Automobile Liability, Employers Liability, and other underlying liability coverage forms or policies. In addition, and because it is a stand-alone coverage form, it may include coverage that the underlying coverage forms or policies do not include or provide.

This analysis is of the 04 13 edition. Changes from the 12 07 edition are in bold print.

Related Article: ISO Commercial Liability Umbrella Coverage Form Archive has information and analyses of previous editions of this coverage form.

COVERAGE FORM ANALYSIS

This coverage form begins with a statement that certain provisions in it restrict coverage. The named insured is encouraged to carefully read the coverage form in order to understand its rights and duties and to determine what is covered and not covered. The statement goes on to define the terms “you and your” as the named insured and an insured as any person or entity qualifying as such under Section II–Who Is an Insured. The terms “we, us, and our” are defined as the insurance company that provides the coverage.

Reference is made to Section V–Definitions whenever a term is in quotation marks because the common meaning of the term has been replaced by whatever meaning is provided in that section. Using the definition in interpreting coverage could result in enhanced or restricted coverage.

SECTION I–COVERAGES

Coverage A–Bodily Injury and Property Damage Liability

1. INSURING AGREEMENT

a. The insurance company agrees to pay, on the insured's behalf, the ultimate net loss in excess of the retained limit because of bodily injury or property damage that this insurance covers. It has the right and the duty to defend any suit that seeks those damages but only when the underlying insurance does not cover the loss or when the underlying insurance limits are exhausted. When the insurance company does not have a duty to defend, it still has a right to defend or participate in defending the insured against suits for damages that this insurance covers. Any duty to defend does not apply if the alleged injury or damage is not covered.

The insurance company may investigate or settle any claim or suit at any time and at its sole discretion. The most it pays is described in Section III–Limits of Insurance. Its obligation to pay ends when the limits of insurance are used up by paying judgments and settlements. The only obligations the insurance company owes to the insured are those described above and in Supplementary Payments–Coverages A and B.

Note: This is not an indemnity form. Under indemnity forms, the insurance company reimburses the insured for its incurred losses. This coverage form works just the opposite in that, when a covered loss event occurs, the insurance company assumes the insured's financial responsibility and makes required payments based on its terms.

Restaurant

Example: The Main Street Diner's insurance program includes commercial general liability coverage with limits of $1,000,000/$1,000,000 and a $5,000,000 umbrella. Fifteen customers are sickened to varying degrees due to botulism in the undercooked chicken Main Street used to prepare its chicken salad. One of those customers 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 1: The umbrella is an indemnity form. If the insurance company follows its insuring agreement to the letter, Main Street drains its cash account and borrows funds to pay the remaining $179,000. The insurance company reimburses Main Street after it makes the payment.

Scenario 2: The umbrella is not an indemnity form. The insurance company pays the remaining $179,000 on Main Street’s behalf.

Note: Avoiding using an indemnity coverage approach maximizes the umbrella coverage form's usefulness. Because the intent is to respond to large losses, its usefulness is diminished if it includes provisions that create cash flow problems and inconveniences the insured. Handling claims on an indemnity basis 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.

b. When an underlying coverage is subject to a sub-limit, this coverage form does not apply to that particular exposure unless there is a sub-limit on the schedule of underlying insurance. (04 13 addition)

Example: Melissa’s underlying CGL policy includes CG 24 15–Limited Pollution Liability Extension Endorsement subject to a $25,000 aggregate limit. A covered pollution loss occurs. The loss exceeds $100,000 so Melissa looks to her umbrella policy for the additional $75,000. The umbrella does not respond because there is no sub-limit on the schedule of underlying insurance.

Note: This limitation was not explicitly stated in previous editions of this coverage form. The ISO Commercial General Liability Coverage Form does not contain any sub-limits but there are many exposures that can be endorsed to the CGL that are subject to sub-limits. The goal of this new wording is to allow the umbrella carrier to provide only the coverage for exposures it knows about and for which it charges a premium that contemplates the additional exposure. The umbrella should not drop down to cover a sub-limit situation unless it has been notified of the exposure sub-limit and can decide whether to drop down and pick up the coverage or place a limitation on the exposure just as the underlying had.

c. Coverage applies only if an occurrence that takes place in the coverage territory causes the bodily injury or property damage. There is no requirement that the occurrence take place during the policy period. However, the bodily injury or property damage must take place during the policy period. There is no requirement that the bodily injury or property damage take place in the coverage territory.

Example: Carrie slips and falls on a banana peel left on the sidewalk. If the banana was dropped on the United States side of the border but Carrie stumbled and fell in Canada, where did the occurrence take place? If Carrie picked herself up and continued her walk but then collapsed from back spasms two weeks later, when did the bodily injury take place? Was it when it manifested or when the injury occurred? Unfortunately, the answers to these questions are not consistent in all jurisdictions. State laws and court precedents result in different answers. Although this example appears foolish, consider more serious issues such as construction defects, medical malpractice, pollution, and similar examples where the occurrence that leads to the bodily injury or property damage may take place long before and even at some distance from where the bodily injury or property damage actually manifests.

Because insurance is designed to cover fortuitous losses ISO includes language to bar coverage for injuries or damages that the insured knew about prior to the policy period. Therefore, coverage applies only when none of the following parties had knowledge of the bodily injury or property damage before the policy's inception date:

Insureds, but only those described in 1.a. of Who is an Insured
Employees of the named insured given authority to give or receive notice of an occurrence or claim

If the bodily injury or property damage occurs prior to policy inception and continues into the current policy period, changes in its scope, or once again resumes during the policy period, the insured is considered to have known about it prior to the policy period.

Example: Cream Cakes’ policy incepts on 01/01/20. A pipe burst on 06/12/19. It caused underground property damage, but Frank was the only person who knew about it. Kream Cakes’ neighbor noticed the problem on 01/15/20 and notified Kream Cakes that it would file a claim soon.

Scenario 1: Frank was not an insured and was not an employee authorized to give notice. The date of the property damage is 01/15/20 and is the current carrier’s responsibility.

Scenario 2: Frank was authorized to report the damage. Even though he did not report it at the time, he knew about it at that time. The current policy does not respond but the prior one responds to the 01/15/20 problem as a continuation of the 06/12/19 loss.

d. This provision further clarifies the eligibility of bodily injury or property damage. If a bodily injury or property damage loss takes place during the policy period and it then either continues, changes its scope, or resumes after the policy period ends, it continues to be eligible for coverage under the umbrella policy in effect when the bodily injury or property damage first took place. However, coverage applies only if the injury or damage did not take place in a prior policy year or, if it did, none of the parties referred to above knew about it.

Example: Bill’s Plumbing policy period is 5/1/18-5/1/19 and 5/1/19-5/1/20. He installed the hot water heating system for the Helio Condominiums on 4/29/19. On 4/30/19 Gretchen, who lives in the unit closest to the hot water heating system, notices an unusual odor and contacts Millie, the Condominium executive director. Millie contacts Bill’s Plumbing immediately. On 5/1/2019, Gretchen, her husband and three children are found unconscious in their unit. Sixteen other members of the condominium project also become ill. Investigation shows that Bill made an error in his installation that resulted in a slow gas leak.

Scenario 1: Millie’s call to Bill’s Plumbing was received by Bill on 4/30/2019. Gretchen’s bodily injury started on 4/30/19 and notice of it was provided to Bill on that day. This means that the policy in effect on 4/30/19 will respond to all bodily injury related to the gas leak even though the worse manifestation came on 5/1/2019.

Scenario 2: Millie’s call to Bill’s Plumbing was received by a message answering service on 4/30/2019 that did not get the message to Bill until 5/1/2019. Gretchen’s bodily injury started on 4/30/19 but Bill was not aware of it until 5/1/2019. This means that the policy in effect on 5/1/19 will respond to all bodily injury related to the gas leak even though the bodily injury actually started prior to that policy period.

e. Bodily injury or property damage is considered known at the earliest date when any insured defined in the paragraph 1.a. of Section II–Who is an Insured does any of the following:

Reports any part of any injury or damage to the current insurance company or any other
Receives a written or verbal demand or claim for damages
First becomes aware in any other way that bodily injury or property damage has either occurred or has begun to occur

It is also known at the earliest date when an employee authorized to give or receive notices of claims does any of the above.

f. The insurance that applies to bodily injury is not limited to only the individual who sustains the bodily injury. It also applies to damages that any person or organization claims for care, loss of services, or death that results at any time from the bodily injury.

SpilledCoffee

Example: Penelope slipped on spilled coffee on the floor at Melville’s Fish 'n Fries on 01/05/18. She struck her head, never regained consciousness, and died on 06/02/19. Penelope's family filed a claim for wrongful death against Melville's. The coverage form that responds is the one in effect on 01/05/18, not the one in effect on 06/02/19.

2. EXCLUSIONS

This insurance coverage does not apply to any of the following, except as noted:

a. Expected or Intended Injury

Coverage does not apply to bodily injury or property damage expected or intended by the insured. This exclusion has an exception that covers bodily injury that results from the insured using reasonable force to protect persons or property.

Note: The primary reason for this exclusion is to keep the insurance company from becoming involved with non-accidental losses. This approach is in the public interest. By excluding such coverage society is protected from an insured using insurance coverage for gain, to inflict injury on a competitor, as an instrument of revenge, or to cause any other intentional harm. This exclusion's wording continues to be challenged and interpreted by the courts, especially in cases where the action was intentional but the type and extent of injury or damage that resulted was not.

Related Court Cases:

"Expected or Intended Injury" Exclusion Did Not Apply To Bar Patron's Injuries

Loss Deemed As Intentional Tort Not Covered

No Coverage For Discrimination

Patient Injury Is Accidental

b. Contractual Liability

There is no coverage for bodily injury or property damage in cases where the insured must pay damages based on its having assumed liability in a written contract or agreement. However, coverage does apply to liability for damages under either of the following circumstances:

The insured would have the liability even without a contract or agreement
The insured assumed the liability in an insured contract or agreement as defined in the policy. The bodily injury or property damage must occur after the contract or agreement was executed. Attorney fees and litigation expenses incurred by or for a party other than the insured are considered damages because of bodily injury or property damage and are covered as such, but only if both of the following apply:

o The cost of that party's defense is assumed in the same insured contract

o The fees and expenses are associated with damages that this insurance covers

Example: Ernie's Electric adds Chip 'n Dale's General Contractors as an additional insured under its Commercial General Liability and Umbrella coverage forms, according to the terms of the contract they both signed. A fire at the construction project occurs and both parties are sued. The insurance company mounts a vigorous defense. The contract did not specifically state that Ernie was responsible for providing the defense. Chip 'n Dale's defense costs are not covered because the contract did not explicitly state that they would be paid.

Note: The liability assumed and technically eligible under an insured contract also must occur during the policy period. A retroactive agreement is not covered because it unfairly manipulates coverage.

Payment for defense expenses related to damages assumed under an insured contract or agreement may be covered under Supplementary Payments–Coverages A and B. This section should be reviewed to determine when defense of an indemnitee and payment of an indemnitee’s defense expenses is included outside the limits.

c. Liquor Liability (04 13 changes)

The insurance company does not pay for bodily injury or property damage that any insured may be liable for because of any of the following:

Causing or contributing to a person becoming intoxicated
Furnishing alcoholic beverages to a person who is under the legal drinking age
Furnishing alcoholic beverages to a person who is already under the influence of alcohol
Any law that relates to the sale, gift, distribution, or use of alcoholic beverages

Related Court Cases:

Fraternal Organization Found Subject to Liquor Liability Exclusion

Insured May Be Liable For Post-Party Accident

The following significant changes become effective with the 04 13 edition:

When any of the actions described above result in an occurrence there is also no coverage if any of the following claims related to that occurrence are brought against the insured:

Hiring, employment, monitoring, or training others

Example: Jerry hired Pete as a bartender. Pete told him he had already taken TIPS training, so Jerry allowed him to start without further training. Pete serves Chase beer while he is obviously intoxicated. Chase causes a serious car accident and Jerry’s bar is sued. One portion of the claim states that Pete never received TIPS training. This is used as proof that Jerry did not properly hire, train, or supervise Pete and that led to the tragic accident.

Noting that a person is intoxicated and either providing transportation to that person or failing to provide such transportation

Related Court Cases:

Liquor Liability Suit Based on Failure to Restrain Patron Did Not Circumvent Exclusion

Can Insurer Duck Liability for Drunk-driving Deaths?

Example: Savoy Sam’s regularly asks his off-duty employees to provide rides for intoxicated customers. Paula accepts such an offer and George begins to drive her home. Paula becomes ill and abusive, so George stops the car and orders her to get out. He drives away without looking back. Paula passes out and stumbles into the street where a passing vehicle strikes and kills her. Her family sues Savoy Sam’s because of its decision to ask untrained drivers to provide intoxicated customers transportation.

This entire exclusion does not apply unless the named insured is in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages.

When the named insured does not serve alcoholic beverages but does permit others to bring such beverages onto its premises, this exclusion does not apply even if a license is required to operate. It is not such a business even if it charges a fee to consume the beverage on the premises. (04 13 change)

Example: Bernie’s Pizza applied for a liquor license, but it was not yet approved. Bernie knows that he must serve alcohol in order to attract business. As he waits, he advertises a Bring Your Own Bottle promotion and even hosts a contest where customers can blind taste test beers to determine which is best. He charges an entry for the taste tests in order to have prize money but does not supply any of the alcohol. Mercy becomes intoxicated following one of the contests, causes an accident, and Bernie’s is sued. This coverage form responds to the claim because Bernie is not in the business of serving alcohol.

A very important exception occurs because this is umbrella coverage. Even if this exclusion is deemed to not apply based on the above statements, the coverage provided in this form is dictated by the coverage provided in the underlying. If there is valid underlying liquor liability coverage, or there would have been except that the bodily injury and property damage limits were used up coverage is available only for what the underlying coverage provides. There are three important limitations to this exception:

The coverage is limited to the coverage provided by the underlying
The limitations, provisions, and exclusions that apply to the underlying liquor liability also apply to the coverage provided by the umbrella.
Elsewhere in this umbrella there may be other provisions, exclusions or limitations that apply to the coverage provided by this exception. If so, those other provisions, exclusions or limitations apply. (04 13 change)

d. Workers Compensation and Similar Laws

There is no coverage for any requirement or obligation of the insured imposed by any workers compensation, disability benefits, unemployment compensation, or similar law.

Note: If this exclusion was not in effect, an insured could neglect their statutory obligations and not suffer the consequences.

Example: Lincoln employs five persons to help him with his Internet startup. He is obligated to purchase workers compensation coverage but decides to delay doing so until he is more established. Ruth, a programmer, is killed in a car accident while on company business. Her family discovers there is no workers compensation coverage and sues Lincoln for compensation. Both defense and liability are denied because of this endorsement. Lincoln must pay all costs related to the suit and all fines imposed on him from his own funds.

e. E.R.I.S.A.

Coverage does not apply to any obligation the insured has with respect to the Employees' Retirement Income Security Act (E.R.I.S.A.). This exclusion also applies to subsequent amendments to it or any other similar federal, state, or local laws.

f. Auto Coverages

This exclusion has two parts. There is no coverage for:

Bodily injury or property damage that arises out of owning, maintaining, or using any auto that is not considered a covered auto. In order to be considered covered, the auto must be covered on the underlying policy.
Loss, cost, or expense payable or that result from:

Uninsured or underinsured motorists laws
Auto medical payments coverage
Personal Injury Protection (PIP)
No-fault laws
Any first party physical damage coverage

Note: Many states require that uninsured or underinsured motorists coverage be offered up to the limits for the liability coverage.

g. Employers Liability

Bodily injury to an employee of the insured is excluded if the injury is a result of employment or performing duties in conjunction with conduct of the insured’s business. Consequential bodily injury to the spouse, children, parents, brothers, or sisters of that employee is also excluded. This exclusion applies if the insured is liable as an employer or in any other capacity. It also applies if it must share damages with or repay someone else who must pay damages because of the injury.

Example: Sam is using a machine that is manufactured by his company to do his job. The machine malfunctions and Sam loses his arm. If Sam sues his company because it is the manufacturer of the malfunctioning machine, there is no coverage for his employer because of this exclusion.

Related Court Cases:

CGL Policy Doesn’t Cover Employee’s Injuries

Insurer May Deny Coverage for BI to Insured’s Employees

This exclusion has three exceptions:

It does not apply to liability the insured assumed under an insured contract.

Coverage applies if a covered auto injures a domestic employee who is not insured under workers compensation coverage.

Note: This exception is in the umbrella coverage form. It is not in the CGL coverage form.

If there is valid underlying coverage, or there would have been except that the bodily injury limits were used up, this exclusion does not apply. There are three important limitations to this exception:

o The coverage is limited to the coverage provided by the underlying

o The limitations, provisions, and exclusions that apply to the underlying employers liability also apply to the coverage provided by this policy.

o Elsewhere in this policy there may be other provisions, exclusions or limitations that apply to the coverage provided by this exception. If so, those other provisions, exclusions or limitations apply. (04 13 change)

h. Employment-Related Practices

Note: There is no such exclusion within the CGL but the CG 21 47–Employment–Related Practices Exclusion is attached to most CGL policies and this exclusion is identical to the bodily injury and property damage section of that endorsement.

There is no coverage for bodily injury to a person that results from that person not being employed or whose employment is terminated. There is also no coverage for on-the-job practices, policies, acts, or omissions. Ten acts are listed but they are meant to be examples, not an exclusive list. The listed acts are coercion, discipline, defamation, malicious prosecution, demotion, reassignment, humiliation, evaluation, harassment, and discrimination.

This exclusion applies whether the insured is liable as an employer or in any other capacity. It also applies if it must share damages with or repay someone else who must pay damages because of the injury. In addition, there is no coverage for consequential claims from family members because of bodily injury to any person.

This exclusion continues to apply if the insured is liable as an employer or in any other way. It also applies to any obligation the insured has to share damages with or repay another party required to pay damages because of the injury.

This exclusion applies even if the injury occurred before the person became an employee or after the person was terminated.

Note: Two of the paragraphs above were added in response to court ruling.

The addition of the malicious prosecution to the list was because the court in Peterborough Oil Company, Inc. v. Great American Insurance refused to exclude malicious prosecution as an employment-related practice. It reasoned that, if the insurance company did not intend to cover malicious prosecution, it should have listed it. The court determined that this exclusion must be read narrowly, so even with the term “such as” preceding the list, only the items listed could be excluded. This should be used as a cautionary tale for any exclusion wording.
Excluding employment-related practices for persons before hiring and after termination paragraph regarding employment status was a 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.

Related Court Cases:

Umbrella Insurer Could Not Recover From CGL Carrier for Wrongful Termination Claim

Terminated Employee Challenges Reduction in Work Force Reasoning, Alleges Age and Sex Discrimination

i. Pollution

The Umbrella Policy has an absolute pollution exclusion that is not quite absolute. If there is valid underlying coverage, or there would have been except that the bodily injury and property damage limits were used up, this exclusion does not apply but only for the coverage that underlying coverage provides. There are three important limitations to this exception:

The coverage is limited to that which is provided by the underlying
The limitations, provisions, and exclusions that apply to the underlying pollution coverage also apply to the pollution coverage provided by this policy.
Elsewhere in this policy there may be other provisions, exclusions or limitations that apply to the coverage provided by this exception. If so, those other provisions, exclusions or limitations apply. (04 13 change)

j. Aircraft or Watercraft (04 13 change)

There is no coverage for bodily injury or property damage that results from owning, maintaining, using, or entrusting to others any aircraft or watercraft. This applies only to aircraft or watercraft any insured owns, operates, rents, or has loaned to it. This exclusion applies even if the only claim is that an insured was negligent or engaged in wrongdoing in the supervising, hiring, employing, training, or monitoring of others.

This exclusion has five exceptions. It does not apply to:

Watercraft at locations the named insured owns or rents but only when the watercraft is ashore

Watercraft the named insured does not own if they are less than 50 feet long and are not used to transport people or property for a fee

Liability assumed under any insured contract with respect to owning, maintaining, or using aircraft or watercraft

The coverage provided, or that would have been provided except for the limits being used up, by valid underlying coverage for aircraft or watercraft liability. There are three important limitations to this exception:

o The coverage is limited to the coverage provided by the underlying

o The limitations, provisions, and exclusions that apply to the underlying aircraft or watercraft liability also apply to the coverage provided by this policy.

Aircraft with a paid crew chartered by, loaned to, or hired by the named insured provided it is not owned by any insured

Note: This exclusion is similar to the underlying CGL Coverage Form exclusion, but it contains certain broadening features:

The exclusion in the CGL Coverage Form applies to auto coverage while this exclusion does not. This means that auto liability is provided unless excluded elsewhere. (See exclusion f.)
The CGL Coverage Form covers non-owned boats less than 26 feet long, while the umbrella limits coverage to non-owned boats less than 50 feet long.

Umbrella coverage is extended to aircraft and watercraft coverage provided in underlying coverage forms or policies on a following form basis, subject to their conditions, limitations, and exclusions.
The umbrella provides coverage for chartered, hired, or loaned aircraft if a paid crew is provided as long as no insured owns the aircraft. The CGL Coverage Form does not have a similar extension.

k. Racing Activities

If autos or mobile equipment are involved in prearranged professional or organized racing activities, there is no coverage during practice or the actual activity. The activity is not limited to racing but includes speed, demolition, or stunt contests.

Note: This is similar to the mobile equipment racing activity limitation in the CGL coverage form and the racing limitation in the Business Auto coverage form.

Related Court Case: Loss during Bus Contest Excluded

l. War

Coverage does not apply to bodily injury or property damage caused directly or indirectly in any way by war, undeclared war, and civil war, including warlike action by a military force. This exclusion also applies to actions a government takes to prevent or defend against an expected or actual attack by any government or other authority that uses military personnel or agents. It also applies to rebellion, revolution, insurrection, or unlawful seizure of power and actions the government takes to prevent or defend against any of these.

m. Damage to Property

The insurance company does not pay for property damage to:

(1) Property the named insured owns, rents, or occupies. Costs or expenses it or any other party incurs to repair, replace, enhance, restore, or maintain such property for any reason are excluded. Costs to prevent injury to persons or damage to property of others are also excluded. In addition, coverage does not apply to property the insured owns or that it transports when the damage arises out of owning, maintaining, or using a covered auto. However, there is coverage if this last sentence involves liability assumed under a sidetrack agreement.

ElectronicsStore_1

Example: Klutz Electronics is insured under an umbrella coverage form. During an extended surge in business, Klutz rents warehouse space from a neighboring business. 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 the multi-unit warehouse and office facility for the three weeks it takes to repair the structural damage.

The building owner sues Klutz but none of the damage is covered because the warehouse was rented to Klutz at the time of loss.

Note: The umbrella coverage form specifically excludes coverage for any expense the insured incurs to repair its own property and it applies regardless of the reason for such repairs. The ruling in Aetna Insurance Company v. Aaron 112 Md. App. 472.685 A.2d 858 (1996) prompted these exclusions. The Maryland Court of Special Appeals held that an insurance company was obligated to defend and indemnify the insured in a suit brought by the insured’s condominium association. The association sued to recover costs that resulted from repairs it made to the insured’s condominium. The association alleged that the repairs were necessary to prevent additional damage to another condominium a third party owned.

(2) Premises the named insured sold, gave away, or abandoned. This applies only when the property damage arises out of any part of those premises. This exclusion does not apply when the premises is considered the named insured’s work, provided the premises was never rented out or occupied by the named insured.

Note: This is especially important to homebuilders who build model homes.

(3) Property loaned to the named insured. This does not apply to liability assumed under a sidetrack agreement or liability assumed in a written trailer interchange agreement. A trailer interchange agreement is commonly used in the trucking industry.

(4) Personal property in the insured's care, custody, or control. This does not apply to liability assumed under a sidetrack agreement or liability assumed in a written trailer interchange agreement. A trailer interchange agreement is commonly used in the trucking industry.

(5) The specific part of real property on which the named insured or others on its behalf are performing operations. This applies only when the property damage comes out of those operations. This does not apply to liability assumed under a sidetrack agreement.

(6) The specific part of any property that must be restored, repaired, or replaced because the named insured's work was done incorrectly. It does not apply to liability assumed under a sidetrack agreement. It also does not apply to damages covered under the products-completed operations hazard.

Note: This could be called a quality workmanship exclusion.

Example: Ralph's Reliable Roofing is a roofing contractor. He recently completed a roofing job. During a rainstorm at a later date, the client discovers water coming in through the new roof. It is subsequently determined that the leakage resulted from defective workmanship. Coverage does not apply for repairs to the roof.

n. Damage to Your Product

Coverage does not apply to property damage to the named insured's product that arises out of it or 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. The grill malfunctions one day 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 young children were in the room on the opposite side of the destroyed wall and were seriously injured. While Grill-rilla's umbrella coverage applies to the bodily injury and property damage, the destruction of the grill itself is not covered.

Note: The named insured might have a course of action against a supplier if it is determined that the part or component the supplier provided contributed to the malfunction in any way.

o. Damage To Your Work

There is no coverage for property damage to the named insured's work that arises out of it or any part of it included in the products-completed operations hazard.

There is an exception to the exclusion that applies to work performed by a subcontractor that the insured hired. Coverage applies if the damage to property is the result of the subcontractor’s completed work.

Example: Gerry's General Contracting completes a job. Gerry subcontracted part of the project to Ralph's Reliable Roofing. During a rainstorm at a later date, the client discovers water coming in through the new roof. It is subsequently determined that the leakage resulted from defective workmanship. The client sues Gerry. Coverage applies for damage to the roof and to any of Gerry’s work that is a result of Ralph’s work.

p. Damage to Impaired Property or Property Not Physically Injured

The insurance company does not cover property damage to impaired property or property not physically injured when the damage is caused by a defect, inadequacy, or dangerous condition in either the named insured’s product or its work. Coverage also does not apply if the damage is caused by a delay or failure by the named insured or others who act on its behalf to meet contract terms and conditions.

However, this exclusion does not apply when there is sudden and accidental physical injury to the named insured’s product or work that causes other property to not be useable.

Example: Sully’s Switches manufactures a switch it sells to another company that uses it as a component in an electric starter.

Scenario 1: The switch turns out to be defective and, because of this, the starter does not work. In this case, the starter is impaired but not damaged. The cost to repair or replace Sully's defective switch is excluded. The loss of use due to the starter not working is also excluded.

Scenario 2: The switch suddenly bursts into flames due to a wiring defect. The fire is quickly extinguished but because the switch no longer functions, the starter does not work. The damaged switch is not covered but the loss of use due to the starter not working is covered.

q. Recall of Products, Work, or Impaired Property

There is no coverage for any incurred loss, cost, or expense when the named insured’s product, work, or any impaired property is recalled or withdrawn from the market or from any use. There is also no coverage for costs and expenses the named insured or others incur because they can no longer use the recalled or withdrawn item. This exclusion also applies to withdrawal, recall, inspection, repair, replacement, adjustment, removal, and disposal expenses.

This exclusion applies when the recall or withdrawal is due to a defect, deficiency, inadequacy, or dangerous condition in the item recalled.

Example: Titanic Tires is a tire manufacturer. It sends many tires to various distributors. A problem with the tires develops that requires immediate action and the tires are recalled in order to be replaced. The recall expenses are not covered.

Note: This exclusion is necessary because it could be argued that the insurance company’s loss potential is significantly reduced by the named insured acting responsibly. As with other expenses the named insured incurs to prevent a loss, this exclusion is in place to notify the named insured that being responsible is a just cost of doing business.

r. Personal and Advertising Injury

There is no coverage for any bodily injury that arises out personal and advertising injury.

Note: Bodily injury that is a consequence of personal and advertising injury is covered under Coverage B–Personal and Advertising Injury Liability.

Example: Jerry runs out of the store with his purchases. A store guard forcibly stops him and takes him back into the store for questioning. Jerry is both humiliated and in pain. The guard releases him after he inspects the property and determines that Jerry purchased the merchandise. Jerry sues the store for false arrest and for the injuries he sustained while being detained. This insuring agreement does not cover these losses. However, Coverage B–Personal and Advertising Injury insuring agreement covers both losses.

s. Professional Services (04 13 change)

Bodily injury and property damage due to providing or failing to provide any professional service is excluded. The specific professional services excluded are listed but the exclusion is not limited to only the services listed. Thirteen professional services are listed.

Note: The exclusion lists the specific professional services excluded but the exclusion is not limited to only the ones listed. Some courts interpret exclusions narrowly and state that any company that wants to exclude a specific activity should do so and not rely on the "but not limited to" wording. In those jurisdictions, any professional services not specifically excluded may be treated as covered.

Two changes made to the list of services in the 04 13 edition reduce coverage.

The services in s. (2) previously applied only when an architect, engineer, or surveyor that provided services for the construction manager named insured performed the services listed. This restriction is eliminated but the services remain. This means that any professional service that prepares or approves maps, shop drawings, opinions, reports, surveys, field orders, changer orders, drawings, or specifications is now excluded. This is much broader and could have negative implications for many contractors.
The services in s. (11) were excluded only if the pharmacy practice was by other than a retail druggist or part of a drugstore operation. The exception for retail druggists and drugstore operations is removed. This is a significant change that could produce a gap in coverage because most underlying Businessowners Policies and Commercial General Liability coverage forms provide this coverage. If coverage is needed CU 22 20–Druggists or CU 22 63–Druggists – Broadened Coverage must be attached.

There is also no coverage for negligence on the part of the insured in hiring, supervising, monitoring, employing, and training as it relates to any professional service occurrence that results in injury or damage. (04 13 addition)

t. Access or Disclosure of Confidential or Personal Information and Data-Related Liability (05 14 edition)

Note: CU 21 86–Exclusion – Access or Disclosure of Confidential or Personal Information and Data-Related Liability – With Limited Bodily Injury Exception was introduced as a mandatory endorsement with a 05 14 edition date. Because it is mandatory and totally replaces Exclusion t. Electronic Data, as an editorial enhancement, we are removing the eliminated exclusion and instead analyzing the wording from CU 21 86.

Coverage does not apply when damages are due to either of the following:

(1) Disclosure of or access gained to confidential or personal nonpublic information belonging to any person or organization. Examples of such information are patents, trade secrets, customer lists, credit card information, health information, how to process, and financial information.

(2) The loss of, loss of use of, damage to, corruption of, inability to access, or inability to manipulate electronic data.

There are many types of damages and this exclusion applies to all of them even when limited to notification costs, credit monitoring expenses, forensic expenses, public relations expenses, and similar expenses.

Electronic data is defined as information, facts, or programs used with computer software or any other media used with electronically controlled equipment.

Damages because of bodily injury are excluded only when item (1) of this exclusion applies.

Note: The Electronic Data exclusion contained a statement that the exclusion did not apply if valid underlying insurance was in place and instead coverage would be a follow form. However, that follow form coverage is no longer a part of this exclusion. If coverage is needed, consider CU 04 02, Electronic Data Liability Endorsement.

u. Recording and Distribution of Material in Violation of Statutes (04 13 change)

The change in this exclusion incorporates CU 00 04–Recording and Distribution of Material or Information in Violation of Law Exclusion that was previously a mandatory endorsement.

Insurance coverage does not apply to bodily injury or property damage that arises directly or indirectly out of any act or omission that violates or allegedly violates:

The Telephone Consumer Protection Act (TCPA), including its amendments or additions
The CAN-SPAM Act of 2003, including its amendments or additions
The Fair Credit Reporting Act (FRCA). This includes any and all its amendments plus related acts such as the Fair and Accurate Credit Transactions Act (FACTA) (04 13 change)
Any other statute, ordinance or regulation that prohibits or limits sending, transmitting, communicating, printing, disseminating, disposing of, transmitting, or distributing material or information. (04 13 change)

Note: This exclusion does not state that the named insured or even an insured must be the violator. 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 does not apply.

Coverage B–Personal and Advertising Injury Liability

1. INSURING AGREEMENT

a. The insurance company agrees to pay, on the insured's behalf, the ultimate net loss that exceeds the retained limit because of personal and advertising injury that this insurance covers. The insurance company has not only the right but also the duty to defend any suit that seeks those damages. However, the duty applies only when the underlying insurance does not cover the loss, or its limits are exhausted. When it does not have a duty to defend, it still has a right to defend or participate in defending the insured against suits for damages that this insurance covers.

Example: Living Examples LLC is accused of violating its tenants’ right of privacy. The case is granted class action status. Basic Insurance Company is the CGL carrier and defends Living Examples. Much Bigger Insurance company provides $10,000,000 limits on the umbrella and is concerned that the case will breach its limits. As a result, it demands to participate in the case’s defense from the beginning.

The duty to defend applies only if coverage applies to the injury. The insurance company may investigate or settle any claim or suit at any time and at its sole discretion. The most it pays is described in Section III–Limits of Insurance. Its obligation to pay ends when the limits of insurance are used up by paying judgments and settlements. The only other obligations the insurance company owes to the insured are those described above and in Supplementary Payments–Coverages A and B.

Note: This limitation was not explicitly stated in previous editions of this coverage form. The ISO Commercial General Liability Coverage Form does not contain any sub-limits but there are many exposures that can be endorsed to the CGL that are. The goal of this new wording is to allow the umbrella carrier to provide only the coverage for exposures it knows about and for which it charges a premium that contemplates the additional exposure. The umbrella should not drop down to cover a sub-limit situation unless is has been notified of the exposure sub-limit and can decide whether to drop down and pick up the coverage or place a limitation on the exposure just as the underlying had done.

c. Coverage applies only if the personal or advertising injury is caused by an offense that takes place in the coverage territory and during the policy period. The offense must arise from the named insured’s business.

2. EXCLUSIONS

a. Insurance does not apply to personal and advertising injury caused by the following.

(1) Knowing Violation of Rights of Another

The insurance company does not pay for personal and advertising injury that the insured causes or directs. This exclusion applies only if the insured knew that the act would violate the rights of another and result in personal and advertising injury.

Flowershop

Example: Patricia owns Pretty Petals Flower Shop. She is so concerned about competition from Fanny's Frugal Florists down the street that she breaks into her store to find out where she gets her flowers. Because of this exclusion, there is no coverage if Fanny sues Patricia for violating its privacy or stealing its confidential information.

(2) Material Published with Knowledge of Falsity (04 13 change)

Coverage does not apply when personal and advertising injury is caused by material published by the insured or at its direction and the insured knew the information was false. The publication can be either oral or written. This exclusion applies regardless of the way the material is published. (04 13 addition)

Example: Patricia's activities have not yet been discovered. She calls a local reporter friend of hers and tells her that she can prove that Fanny's Frugal Florists uses illegal immigrants to bring rare flowers over the border in violation of various federal laws. The local reporter writes an expose on Fanny's in the local paper based on that information. There is no coverage if Fanny sues Patricia for supplying this false information.

(3) Material Published Prior to Policy Period (04 13 change)

There is no coverage for personal and advertising injury when the material that caused the alleged injury was first published before the coverage inception date. The publication can be either oral or written. This exclusion applies regardless of the way the material is published. (04 13 addition)

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 the insurance company discovers that the material was published elsewhere prior to the policy period.

BakeryCommercial_1

Example: Little Rascal’s Bakery has a highly valued secret family recipe. Kelly Flatts, Rascal's ex-wife, includes the secret recipe in her new recipe book. When her ex-husband sues her, the insurance company denies coverage because it discovers that the recipe was published in the local newspaper ten years earlier.

(4) Criminal Acts

Insurance does not apply to personal and advertising injury that arises out of a criminal act the insured commits or directs.

Example: Patricia’s action in the earlier example is excluded because her breaking and entering is a criminal act.

(5) Contractual Liability

There is no coverage for liability the insured assumed in a contract or agreement. There are two exceptions. This exclusion does not apply to liability the insured has without a contract or agreement. It also does not apply to liability for false arrest, detention, or imprisonment the insured assumes in a contract or agreement.

Example: Ruth leases retail space from Kravitz Real Estate. The lease requires that Ruth assume Kravitz’s liability if it is sued for false arrest, detention, or imprisonment. One of Ruth’s employees stops a suspected shop lifter and brings him back into the store. The “shoplifter” is determined to be innocent and sues both Ruth and Kravitz Real Estate because the incident occurred on its sidewalk. Contractual coverage is provided for the liability Ruth assumed for Kravitz Real Estate.

(6) Breach of Contract

Coverage does not apply to personal and advertising injury that arises out of breach of contract. There is an exception. Coverage applies if the contract was an implied contact and the injury is related to an advertising idea of another used in the named insured's advertisement.

Note: An implied contract is much different than a written one. As a result, it is more difficult to prove that a breach occurred in an implied contract.

Example: John is watching a football game and notices a new advertisement for his favorite soft drink. He previously mentioned a great idea he had 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

Personal and advertising injury that arises when goods, products, or services fail to meet the named insured's advertised statements of quality or performance is excluded.

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 because they had to replace their mattresses after only five years.

(8) Wrong Description of Prices

The insurance company does not pay for personal and advertising injury when the named insured’s advertisement shows the incorrect price for goods, products, or services.

Example: A group of customers sue Merciless Used Motors 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

Coverage does not apply to personal and advertising injury that arises out of any infringement of copyright, patent, trademark, trade secret, or any other intellectual property rights.

Note: There is no requirement that the named insured, an insured, or even someone acting on behalf of either does the infringing. All infringement is excluded.

There are two exceptions. This exclusion does not apply:

When the named insured's advertisement infringes on copyright, trade dress, or slogan
When use of another’s advertising idea in the named insured’s advertisement is considered infringement of intellectual property rights

Related Court Cases:

Insurer Is Obligated To Defend Copyright Infringement Claim

Advertising Injury Applies To Use Of An Individual’s Name As Advertising Idea

(10) Insureds in Media and Internet Type Businesses

There is no coverage for personal and advertising injury committed by an insured in the businesses of advertising, broadcasting, publishing, or telecasting. There is also no coverage if the insured’s business designs or determines website content for others, or provides Internet search, access, content, or service.

There is an exception. This exclusion does not apply to the sections of the definition of personal and advertising injury that address false arrest, detention or imprisonment, malicious prosecution, or wrongful eviction, entry, or invasion of private occupancy.

A point of explanation is provided. Placing frames, borders or links, or advertising on the Internet is not considered being in the business of advertising, broadcasting, publishing, or telecasting, even if the placement is provided to others.

(11) Electronic Chatrooms or Bulletin Boards

Personal and advertising injury that arises out of an electronic chatroom or bulletin board the insured owns, hosts, or controls is excluded.

Note: It is important to note that coverage applies for personal and advertising injury related to posting on chatrooms and bulletins as long as the insured did not control, host, or own it.

Example: Conrad was outraged when he read that Uriah, a former schoolmate, was running for public office. He wrote on a chatroom that Uriah regularly paid him to complete his homework. Uriah sued Conrad for this malicious attack.

Scenario 1: The local newspaper hosted the chatroom. There is coverage.

Scenario 2: Conrad hosted the chatroom and called it Conrad’s Critiques. There is no coverage.

(12) Unauthorized Use of Another’s Name or Product

The insurance company does not pay for personal and advertising injury that arises when the named insured tries to mislead another’s customers or potential customers on the Internet. This exclusion applies when the misleading is caused by unauthorized use of the name or product of another party in the named insured's email address, domain, or metatag.

(13) Pollution

Coverage does not apply to personal and advertising injury that arises out of the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of pollutants at any time.

Note: There are NO exceptions.

(14) Employment-related Practices

Note: There is no such exclusion within the CGL but the CG 21 47–Employment–Related Practices Exclusion is attached to most CGL policies and this exclusion is identical to the personal and advertising injury section of that endorsement.

There is no coverage for personal or advertising injury to a person that results from that person not being employed or whose employment is terminated. There is also no coverage for on-the-job practices, policies, acts, or omissions. Ten acts are listed but they are meant to be examples, not an exclusive list. The listed acts are coercion, discipline, defamation, malicious prosecution, demotion, reassignment, humiliation, evaluation, harassment, and discrimination.

This exclusion applies even if the injury occurred before the person became an employee or after the person was terminated.

Note: Two of the paragraphs above were added in response to court ruling.

The addition of the malicious prosecution to the list was because the court in Peterborough Oil Company, Inc. v. Great American Insurance refused to exclude malicious prosecution as an employment-related practice. It reasoned that, if the insurance company did not intend to cover malicious prosecution, it should have listed it. The court determined that this exclusion must be read narrowly, so even with the term “such as” preceding the list, only the items listed could be excluded. This should be used as a cautionary tale for any exclusion wording.
Excluding employment-related practices for persons before hiring and after termination paragraph regarding employment status was a 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.

(15) Professional Services (04 13 changes)

Personal or advertising injury due to providing or failing to provide any professional service is excluded. Thirteen specific professional services excluded are listed but the exclusion is not limited to only the services listed.

Note: The exclusion lists the specific professional services that are excluded but the exclusion is not limited to only the services listed. Some courts interpret exclusions narrowly and state that any company that wants to exclude a specific activity should do so and not rely on the "but not limited to" wording. In those jurisdictions, any professional services not specifically excluded may be treated as covered.

Two changes made to the list of services in the 04 13 edition reduce coverage.

The services in (15) (b) previously applied only when an architect, engineer, or surveyor that provided services for the construction manager named insured performed the services listed. This restriction is eliminated but the services remain. This means that any professional service that prepares or approves maps, shop drawings, opinions, reports, surveys, field orders, changer orders, drawings, or specifications is now excluded. This is much broader and could have negative implications for many contractors.
The services in (15) (k) were excluded only if the pharmacy practice was by other than a retail druggist or part of a drugstore operation. The exception for retail druggists and drugstore operations is removed. This is a significant change that could produce a gap in coverage because most underlying Businessowners Policies and Commercial General Liability coverage forms provide this coverage.

Note: Because of the change in this exclusion, it is important that either CU 22 20–Druggists or CU 22 63–Druggists–Broadened Coverage be attached so that the professional exposures of pharmacists are covered.

Not lettered. Access or Disclosure of Confidential or Personal Information and Data-Related Liability (05 14 edition)

Coverage does not apply when personal and advertising injury arise from the disclosure of or access gained to confidential or personal nonpublic information belonging to any person or organization. Examples of such information are patents, trade secrets, customer lists, credit card information, health information, how to process, and financial information.

Example: Monica is a trained hearing aid specialist. She works for Friendly Folks Department Store. She decides to increase the number of her customers by regularly soliciting potential clients and explaining how their lives can be improved by purchasing a hearing aid. A group of clients she solicited files a lawsuit against Monica and Friendly Folks because of the public humiliation they suffered because of her activities. The suit papers are sent to the insurance company, but it denies coverage because the harassment is part of Monica’s attempt to provide professional services and Friendly improperly supervising and training her.

(16) War

There is no coverage for personal and advertising injury caused directly or indirectly in any way by war, undeclared war, and civil war, including warlike action by a military force. This exclusion also applies to actions taken by a government to prevent or defend against an expected or actual attack by any government or other authority using military personnel or agents. It also applies to rebellion, revolution, insurrection or unlawful seizure of power and the action the government takes to prevent or defend against any of these.

(17) Recording and Distribution of Material in Violation of Statutes (04 13 change)

The change in this exclusion incorporates CU 00 04–Recording and Distribution of Material or Information in Violation of Law Exclusion that was a mandatory endorsement.

Insurance coverage does not apply to personal or advertising injury that arises directly or indirectly out of any act or omission that violates or allegedly violates:

The Telephone Consumer Protection Act (TCPA), including its amendments or additions
The CAN-SPAM Act of 2003, including its amendments or additions
The Fair Credit Reporting Act (FRCA). This includes any and all of its amendments plus related acts such as the Fair and Accurate Credit Transactions Act (FACTA) (04 13 change)
Any other statute, ordinance or regulation that prohibits or limits sending, transmitting, communicating, printing, disseminating, disposing, transmitting, or distributing material or information. (04 13 change)

b. Pollution

This exclusion states that there is absolutely no coverage for costs or expenses involved with or related to pollution.

Note: This exclusion may appear odd or out of place, but it is placed here for a good reason. Suits and disputes seeking pollution coverage have become so common and creative that it is wise to specifically exclude these costs in both Coverages A and B.

Supplementary Payments–Coverages A and B

1. The following are paid for any claim the insurance company investigates or settles. They are also paid when the insurance company incurs these expenses to defend a suit that it has a duty to defend.

None of these costs will reduce the limits available to pay for settlements, claims, and judgments.

a. All costs the company incurs

b. Cost of bail bonds. These can be required for any reason, including violations of traffic laws. However, the costs are paid only when the bond is required because of a covered occurrence. The cost is limited to no more than $2,000. The insurance company is not required to furnish these bonds.

c. Cost of bonds to release attachments. However, it pays only for bond amounts up to the available limit of insurance. Bond amounts that exceed the limit of insurance are the insured’s responsibility. The insurance company is not required to furnish these bonds.

d. Reasonable expenses the insured incurs at the insurance company's request to assist it investigate or defend a claim or suit. This includes up to $250 per day in lost earnings if responding to the insurance company’s request results in the insured being away from work.

e. A suit's court costs that are the insured's responsibility. Attorney fees or expenses that are taxed by the court against the insured are not part of the court costs.

f. If the insurance company pays a judgment, the prejudgment interest charged against the insured will also be paid. However, if the insurance company offers the full limits to settle, it will not pay any prejudgment interest that accrues following that offer.

g. Interest that accrues on the full amount (not just the amount within the available limits) of any judgment after it is entered but before the insurance company pays, offers to pay, or deposits with the court the part of the judgment that is its responsibility.

2. The insurance company always has the right to defend even when it does not have the duty to defend. This means it can participate in the defense but that it cannot be forced to do so. The insurance company pays its own expenses when it chooses to participate in defending a suit. It will not contribute to the insured's defense expenses or the underlying carrier’s defense expenses.

Example: Justjumpin Gym, Inc. manufactures gymnasium and playground equipment. Not Just General Liability Insurance Company writes its Commercial General Liability coverage and Upper Limits Casualty writes its Commercial Liability Umbrella. Earlier in the year, a customer sued Justjumpin when its 2018 mega playset collapsed during a birthday party, seriously injuring twelve young children. To date, only Not Just General is involved. However, Upper Limits Casualty has spent over $10,000 to keep tabs on the progress of the lawsuit that threatens to use up the underlying coverage limits.

3. It is important to review this Supplementary Payments, Paragraph 3. alongside exclusion b. Contractual Liability. Item (2) in that exclusion because it explains that attorney fees and litigation expenses incurred by or for a party other than the insured are considered damages because of bodily injury or property damage and are covered as such, but only if both of the following apply:

The cost of that party's defense is assumed in the same insured contract
The fees and expenses are associated with damages that this insurance covers

The indemnitee’s defense costs are covered as part of damages. This means they reduce the limits available to the pay the loss.

Example: Lisa’s Custom Drapery is named as an additional insured on Ebert Construction’s CGL and Umbrella policies. Ebert installs all of Lisa’s textile products. A difficult installation results in four serious injuries. Ebert and Lisa are both sued, and Lisa’s carriers expect Ebert’s carriers to respond to the action.

Scenario 1: The contract between Lisa and Ebert requires that Ebert name Lisa as an additional insured but the contract is silent on defense costs. Lisa is responsible for all defense costs.

Scenario 2: The contract between Lisa and Ebert requires that Ebert name Lisa as an additional insured and pay reasonable attorney’s fee and defense costs. Ebert’s policy covers Lisa’s defense costs but every dollar it pays on defense reduces the limits available to pay the losses.

This paragraph explains how the indemnitee’s defense costs can be paid as part of Supplemental Payments so that they do not reduce the limits available to pay for the loss.

If both the insured and its indemnitee are sued in the same suit and the insurance company defends the insured in that suit, the insurance company also defends the indemnitee if all the following apply:

a. The damages the suit seeks must be for liability assumed in the contract between the insured and the indemnitee.

b. The insurance this coverage form provides must be for the liability described in a. above.

c. The insured contract described in item a. above must include a provision that requires that the insured assume defense costs or that the insured is obligated to defend damages for liability assumed in the contract.

d. The interests of the insured and the interests of the indemnitees, as regards the particular suit being brought, must not be in conflict. This lack of conflict is based on both the suit’s allegations and the information the insurance company obtains regarding the suit.

e. Both the insured and the indemnitee must ask the insurance company to handle the indemnitee's defense in the suit and agree to the same legal representative handling the interests of both parties.

f. The indemnitee must:

Agree in writing to actions the insured agrees to do in Section IV–Conditions. This is required because the indemnitee is not a party to the insurance contract, and they would not be subject to those conditions or to even be aware of them.
Cooperate with the insurance company in investigating, defending, or settling the suit.
Promptly send copies of any demands, notices, summonses, or legal documents it receives related to the suit to the insurance company.
Agree to notify any other insurance company that covers the indemnitee and work together with that company and this company to coordinate the benefits available from the various policies.
Give the insurance company written authorization to obtain records and other information related to the suit and to conduct and control the indemnitee's defense in the suit.

When all the above requirements in this paragraph are met, the indemnitee’s attorney fees and litigation expenses are paid without reducing the limits of insurance.

Example: Completing our example with Lisa and Ebert, Lisa’s insurance company discusses this section of the coverage form with Ebert and he agrees to all the conditions. He signs a written agreement to cooperate and provides authorization as required. Because of Ebert’s willingness to work with Lisa’s insurance company, it handles all defense costs for both Ebert and Lisa and the limits of insurance used to pay losses are not reduced.

There is no obligation for the insurance company to defend the indemnitee after the limit of insurance that applies is used up paying judgments or settlements.

In addition, if the indemnitee fails to meet the conditions in f. above, the insurance company is not obligated to defend the indemnitee.

Note: This last sentence goes beyond just Supplementary Payments. All defense ends when the indemnitee no longer cooperates. This is logical because the insurance company cannot defend any party that does not cooperate.

Example: The investigation into the tragic accident above produces some information that suggests that Ebert may be criminally negligent. He withdraws all his written authorizations and refuses to allow his employees to talk with Lisa’s insurance carrier. Lisa’s carrier contacts Ebert and Lisa and informs them that it will no longer provide any defense for Ebert.

SECTION II–WHO IS AN INSURED

1. This section does not apply to covered autos. Item 2. explains who is an insured for covered autos.

a. The declarations lists different types of entities. Who is an insured is based on the type(s) of entity(ies) selected.

(1) If the named insured is an individual, the named insured and his or her spouse are insureds. They are insureds only with respect to operations of the business that the named insured solely owns.

(2) If the named insured is a partnership or joint venture, that named insured is an insured. The named insured's members and partners and their spouses are also insureds. Their status as insureds is limited to operations of the named insured's business.

Example: Davis & Jones Storage has its insurance written on a Businessowners Policy and an umbrella coverage form. The senior partner's husband, Jack, helps one day when the warehouseman is ill.

Scenario 1: While using a forklift to move stock, Jack 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. Jack is an insured and is covered under the umbrella coverage form because he was assisting in the Davis and Jones Storage business operations.

Scenario 2: While using the forklift to move his new television into his truck, Jack 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. Jack is not an insured because he was not using the forklift as part of the Davis and Jones Storage business operation. The loss is not covered under the umbrella coverage form.

(3) If the named insured is a limited liability company, the named insured is an insured. Members of the company are insureds but only when conducting the named insured's business. The named insured's managers are also insureds but only when performing their specific duties as managers.

(4) If the named insured is any other organization, the named insured is an insured. The executive officers and directors are insureds while performing their duties as such. Stockholders are insureds but only in their very limited capacity as stockholders.

(5) If the named insured is a trust, the named insured is an insured. The trustees are insureds but only while performing duties the trust requires.

b. Each of the following is also an insured:

(1) Volunteer workers who perform duties related to the named insured's business are insureds. Employees who are acting within the boundaries of their employment or who are conducting the named insured’s business are also insureds. Executive officers and managers of LLCs are not considered employees because they are insureds in item a. above.

(a) Volunteers and employees are not insureds for bodily injury or personal and advertising injury:

To the named insured, its partners, or LLC members
To other employees. This restriction applies only when those co-employees are acting within the boundaries of their employment or are conducting the named insured’s business.
To the named insured's volunteer workers. This restriction applies only while those workers are conducting the named insured's business.
To consequential loss a relative of any co-employee or volunteer sustains if the volunteer or co-employee’s injuries would not be covered based on the preceding bullet items
Where there is an obligation to share damages with or repay others for damages because of injury described in any of the preceding bullet items

(b) Volunteers and employees are not insureds for property damage to property owned, occupied or used by, or rented to the named insured or that is in its custody.

Note: It is important to understand how coverage extends to volunteers and their duties. Their covered duties are not the same as employee duties. Volunteers are usually involved in non-work activities, such as special events and charitable functions. For this reason, their covered duties are the ones the business establishes for them.

MusicStore_2

Example: Galactic Music Palace has umbrella coverage. The huge store celebrates its 10th anniversary by throwing a party. Because 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” which consists of walking up and over scaffolding that extends approximately eight feet above the floor. A few of the older kids get a bit out of control and the volunteer tries to settle things down. The volunteer’s intervention causes the ringleader to lose his footing. He falls and is seriously injured. The umbrella responds to this loss.

(2) Any party, other than an employee or volunteer, that acts as the named insured's real estate manager

(3) Any party that has proper temporary legal custody of a deceased named insured's property but only with respect to liability that arises out of or is caused by maintenance or use of that property. However, this is only until a legal representative is appointed.

(4) A properly appointed legal representative for a deceased named insured. The legal representative is only an insured while carrying out its duties as such.

Note: The legal representative assumes all the deceased named insured's rights and duties. This goes beyond the standard insured status and extends to rights to cancellation, conditions, and other elements assigned only to named insureds.

c. Any newly formed or acquired organization qualifies as a named insured if no other similar coverage is available to it. This applies only if the named insured either owns or has a majority stake in the organization. The newly formed or acquired organization cannot be a partnership, joint venture, or limited liability company. This provision is limited to not more than 90 days after the organization is formed or acquired, or until the end of the policy period, whichever comes first. Coverage A does not apply to bodily injury or property damage that occurred before the organization was acquired or formed. Coverage B does not apply to personal and advertising injury arising out of an offense committed before the organization was acquired or formed.

2. This part of Who Is an Insured relates to liability directly related to owning, maintaining, or using covered autos.

a. The named insured is an insured.

b. Any person who is given permission by the named insured to use a covered auto the named insured owns, hires, or borrows is an insured. This broad statement is subject to the following limitations:

(1) If the named insured hires a vehicle, the owner and person from whom it was hired is not an insured. However, there is an exception for rented trailers or semitrailers connected to a covered vehicle.

Example: George rents a small trailer from Jasper. He leaves his car with Jasper and asks him to connect the trailer to it and then bring it to him at his office. Jasper complies but the trailer disconnects during the trip and causes an accident. Jasper is considered an insured under George’s coverage because the trailer was attached to the covered auto prior to the accident.

SmallTrailer

(2) The named insured’s employee is not an insured when driving his or her owned vehicle even though it is considered a covered auto under the named insured’s policy.

Example: Bobbie drives her own vehicle while running an errand for Barbie’s Beauty Salon. She makes a left turn and strikes a van. The injured individuals sue both Bobbie and Barbie’s. Bobbie is not an insured under Barbie’s policy.

3) Anyone who is using a covered vehicle while working for an auto-related business. The only exception is if the auto-related business belongs to the named insured.

Example: Premium Auto does all of Kramer’s fleet maintenance. Kelly, a Premium Auto employee, tests one of Kramer's vehicles. The brakes fail and the vehicle strikes a building, damaging it, and injuring some of its occupants. Kelly is not an insured under Kramer’s policy.

(4) A person who moves property to or from a covered auto is not an insured. There are several exceptions. Lessees, borrowers, partners, and members of an LLC remain insureds as well as the named insured’s employees and employees of lessees and borrowers.

Example: Marvin’s Movers truck swerves to avoid hitting a rabbit and flips over. Roger Do Right 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 of an LLC are not insureds for any vehicle they own, even when this coverage form considers that vehicle to be a covered auto.

Example: Carol is one of the partners in Lombard, Clark, & Gable. She collides with another vehicle while driving her own vehicle from the office to court. Both Carol and Lombard, Clark, & Gable are sued. The Lombard, Clark, & Gable coverage form responds for the non-owned exposure, but Carol’s policy must respond for her liability because she is not considered an insured on Lombard, Clark, & Gable’s coverage form for that vehicle.

(6) If an employee injures a fellow employee, the employee who caused the injury is not an insured if the injury occurs while the fellow employee is conducting the named insured's business. The employee is also not an insured for any consequential claim a family member of the injured fellow employee makes. (04 13 addition)

DogBakery

Example: Lucy drives the company car and strikes Henry while he is taking out the company’s trash. Because both are employees of A Dog Bakery, Lucy is not an insured under A Dog Bakery's policy for this accident.

Henry’s wife sues Lucy for lack of companionship. Lucy is not an insured.

c. Any supervisor of any insured listed above is also an insured. However, the supervisor's liability is limited to its liability as a supervisor or overseer.

3. This item applies to all liability, including auto.

The underlying coverage form or policy determines the final Who Is an Insured. An additional insured on an underlying policy becomes an additional insured on the umbrella.

Additional insured coverage that a contract or agreement requires is subject to Section III–Limits of Insurance. It is also limited to the lesser of the required contract amount, reduced by any payments from any underlying coverage or the limits of insurance on the declarations that apply. (04 13 changes)

The coverage provided to the additional insured is not broader than the coverage provided to the additional insured in the underlying coverage.

No person or organization is an insured with respect to conduct of any current or past partnership, joint venture or limited liability company that is not a named insured on the declarations.

SECTION III–LIMITS OF INSURANCE

1. The most the insurance company pays are the Limits of Insurance on the declarations, subject to other items in this section. The limits apply regardless of the number of insureds, claims made, suits brought, or number of parties that make claims of bring suits.

2. The Aggregate Limit 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. Children are seriously injured in 12 separate incidents when their clothing catches on a projection at the top of the slide. Green Fun’s underlying general liability insurance has a $1,000,000 occurrence limit and a $2,000,000 products-completed operations aggregate limit. Its umbrella has a $1,000,000 aggregate limit. No single occurrence is for more than $1,000,000 but the total of the 12 incidents is $4,000,000. The underlying general liability insurance pays $2,000,000 and Green Fun’s umbrella coverage pays its $1,000,000 aggregate limit. The remaining $1,000,000 is uninsured.

Playground

Note: The aggregate limit has one exception. Bodily injury and property damage due to a covered auto loss is not subject to the aggregate limit. This means that losses first covered under an underlying auto coverage form or policy are not subject to the umbrella aggregate in the same way as losses under an auto policy are not subject to an aggregate limit.

PassengerBus

Example: Bowman's Transportation Service uses 15-passenger buses to transport elderly persons around town and on short out-of-town excursions. Three buses flip during the policy period, seriously injuring the passengers. Each occurrence results in damages of $2,000,000. Because Bowman's underlying auto policy per occurrence limit is $1,000,000, the umbrella carrier pays the additional $1,000,000. While the umbrella aggregate limit is $2,000,000, the carrier pays all three losses because the aggregate limit does not apply to auto losses.

3. Subject to the Aggregate Limit described in 2. above, the Each Occurrence Limit is the most paid under Coverage A for the total of all ultimate net loss that arises from a single occurrence.

Example: An explosion at the Mount Airy Motel injures 30 people and kills another. The total liability damages claim is $7,000,000. Mount Airy has underlying CGL coverage with $1,000,000 occurrence and $1,000,000 aggregate limits. It 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 underlying coverage's aggregate remains to apply to the loss. This means the underlying coverage pays $500,000 and the remaining $6,500,000 is referred to the umbrella carrier. Because the umbrella occurrence limit is $5,000,000, only $5,000,000 is paid and the remaining $1,500,000 is uninsured.

4. Similarly, and subject to the Aggregate Limit described in .2 above, the Personal and Advertising Injury Limit is the most paid under Coverage B for the total of all ultimate net loss for an offense to one person or organization.

Example: The partners of Lawyers for Everyone were extremely upset when they lost a major case to an inexperienced novice, Gerald New, of Win At All Costs. When they received information from a reliable source that Gerald cheated on his bar exam, the partners decided to advertise the fact in multiple mailings. Gerald sued the partnership and each partner individually. Only the single limit of insurance is available to apply to the loss because only one person was offended, even though multiple parties committed the offense in multiple mailings.

5. This paragraph addresses underlying insurance with a different policy period and underlying insurance written on a claims-made basis.

If any underlying insurance has a different policy period, this coverage's limits are only reduced or exhausted by payments for:

Bodily injury or property damage that occurs during this coverage form's policy period
Personal and advertising injury for offenses committed during this coverage form's policy period

Example:

Underlying policy period: 01/01/19 to 01/01/20. Limits: $1,000,000 occurrence/$1,000,000 aggregate

Umbrella policy period: 06/01/19 to 06/01/20. Limits: $5,000,000 occurrence/$5,000,000 aggregate

Date Of Loss	Amount Of Loss	Underlying Aggregate Available After Payment	Umbrella Retained Limit	Umbrella Payment
02/01/19	$50,000	$950,000	N/A	None
03/01/19	$100,000	$850,000	N/A	None
04/01/19	$200,000	$650,000	N/A	None
05/01/19	$50,000	$600,000	N/A	None
06/01/19	$100,000	$500,000	$100,000	None
07/01/19	$200,000	$300,000	$300,000	None
08/01/19	$300,000	$0	$600,000	None
09/01/19	$200,000	$0	$800,000	None
10/01/19	$300,000	$0	$1,000,000	$100,000

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. The umbrella begins to pay once the retained limit is met.

Underlying insurance written on a claims-made basis is treated differently. The retained limits are only reduced or exhausted by claims for that insurance made during this coverage's policy period or any extended reporting period.

This section also clarifies how the Aggregate Limit applies. It applies separately to each consecutive annual period and to any remaining period of less than 12 months. This begins with the coverage inception date, unless it is extended after issuance for any additional period of less than 12 months. If that occurs, the additional period is treated as part of the last preceding period for the purpose of determining the Limits of Insurance.

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SECTION IV–CONDITIONS

1. Appeals (04 13 change)

The umbrella carrier is not bound by any decision the insured and/or the underlying insurance company makes to not appeal a judgment that exceeds the retained limit. If the umbrella carrier files the appeal, it pays its own expenses. It is also liable for taxable costs, pre-judgment and post-judgment interest, and disbursements that are part of the appeal process. Nothing in this provision increases the limits of insurance beyond those described in Section III–Limits of Insurance. (04 13 addition)

Example: The judgment against the defendant was $3,500,000. It has been three long years so both the insured and the primary carrier are content and do not wish to appeal the verdict. However, the umbrella carrier is on the hook for $2,500,000, believes there are errors in the judgment, and decides to file an appeal. The umbrella carrier bears all costs of the appeal, even though the appeal results in reducing the judgment to $500,000. This saves the underlying carrier $500,000 and the umbrella carrier pays nothing.

2. Bankruptcy

Bankruptcy or insolvency of the insured, the insured’s estate, or an underlying carrier does not relieve the insurance company of its obligations. However, the umbrella coverage does not replace the underlying insurance if the underlying carrier is bankrupt or insolvent. It continues to apply as if the underlying insurance is still in effect.

Example: Carrie is the named insured, ABC Insurance is the underlying carrier, and XYZ insurance is the umbrella carrier. An occurrence takes place in 2012, suit is filed in 2013, and a judgment is awarded in 2019. ABC became insolvent in 2016. XYZ pays all defense costs for the case that resulted in a $2,500,000 judgment. ABC’s underlying limit was $1,000,000. XYZ pays only its responsibility of $1,500,000. The $1,000,000 from the underlying carrier may be recovered through the bankruptcy court or state insolvency funds but Carrie is ultimately responsible for it.

3. Duties In The Event Of Occurrence, Offense, Claim, or Suit

The named insured has several duties to perform if there is a claim or demand for coverage:

a. The named insured must inform the insurance company of any occurrence or offense that may result in a claim as soon as practicable. This is different than as soon as possible. As a minimum, the notice should include information concerning how, when, and where the event took place and the names and addresses of all injured parties and any witnesses. It should also state the nature and location of any injury or damage as a result of the occurrence or offense.

Note: The notice must be provided even if there is only a remote chance of the settlement reaching the umbrella limits. The umbrella carrier must receive notice of any occurrence or offense.

b. Concerning claims made or suits brought, the named insured must immediately record the details of the claim or suit, the date it was received, and notify the insurance company quickly. This is in addition to being sure to provide the insurance company with timely written notice of the claim or suit.

c. Every insured involved in or with the claim must:

Immediately send the insurance company copies of demands, notices, summonses, and legal documents it receives in conjunction with the claim or suit
Authorize and grant approval for the insurance company to obtain records and other needed information
Cooperate with the insurance company as it investigates or settles the claim or defends against the suit
When the insurance company requests, assist it to enforce any right against any person or organization that may be liable to the insured for injury or damage that this insurance covers

d. No insured may voluntarily make any payments, assume any obligations, or incur any expenses (other than first aid) without the insurance company's consent. If it does, it does so at its own cost or expense.

4. Legal Action Against Us

No one has the right to join the insurance company in any way, bring it into a suit that claims damages from an insured, or sue it unless all its terms and conditions are completely met and complied with.

The insurance company can be sued to recover on an agreed settlement or on a final judgment against the insured. However, the insurance company’s liability does not go beyond what is available in this coverage form's terms. That liability is also limited to this coverage form’s limit of insurance.

An agreed settlement is a settlement and release of liability that the insured, the insurance company, and the claimant or its legal representative signs.

5. Other Insurance

a. This insurance is excess over any insurance and does not contribute with it. This condition does not apply when other insurance is written specifically to be excess over this insurance.

Example: Stumblebum Industries manufactures power tools. It has the following insurance:

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 total $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 because Company C's coverage is a second layer of excess insurance protection.

The excess carrier does not have a duty to defend the insured against a suit if another carrier has such duty. However, it will defend the insured if no other carrier does. It then becomes entitled to the insured's rights against those carriers.

b. When this insurance is excess, it pays only its share of the ultimate net loss. That is the amount that exceeds amounts any other primary sources of coverage owe, including any deductibles and/or self-insured retentions.

6. 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 due date for the company to receive the premium billed is the due date 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 is required to keep records and information the insurance company needs to calculate the premium and must send copies of such records and information to it when requested to do so.

7. Representations or Fraud

By accepting this coverage form as issued, the named insured agrees that the statements on the declarations are complete and accurate, are based on representations it made to the insurance company, and that coverage is issued based on those representations. Any fraud that the named insured commits relating to a claim or the coverage form voids coverage.

8. Separation of Insureds

Other than the Limits of Insurance and any rights and duties that apply specifically to the first named insured, the insurance provided applies to each named insured as if it was the only named insured. The insurance provided also applies to each insured against whom claim is made or suit is brought as though that insured was the only defendant.

Example: Jerry, Freda, and Virginia are employees of Rushin’ Delivery Services. They are carrying a grandfather clock up two flights of steps when the clock suddenly becomes unbalanced and slips out of their control. The clock is destroyed but the injuries sustained by Jake, Mary, Todd, and Julio, who were standing on the stair landing when the clock landed on them, are much more distressing. Each injured party sues Rushin’s and Jerry, Freda, and Virginia. They are all insureds under the policy. As a result, the coverage available under Rushin’s coverage applies separately to each of them.

9. Transfer of Rights of Recovery Against Others to Us

Any rights the insured has against others to recover all or part of any payment the insurance company makes transfer to the insurance company. The insured must preserve those rights and not do anything after the loss occurs to impair them. The company can request that the insured bring suit or transfer those rights to it and help it enforce them.

Note: The insured can waive any and all rights of recovery prior to a loss but must do so in writing. This condition applies only to rights that remain available at the time of loss.

10. When We Do Not Renew

If the insurance company decides to not renew, it is required to mail or deliver written notice of the non-renewal to the first named insured on the declarations at least 30 days before the expiration date. If the notice is mailed, proof of mailing is enough proof of notice.

Note: State amendatory endorsements may supersede this paragraph.

MachineTool0523

Example: Do Right Casualty Insurance Company wrote a policy for BigLoss Machine Tools Manufacturing for the period 01/01/19 to 01/01/20. Because of problems with the account, the Do Right senior underwriter sends notice of non-renewal on 11/28/19 that BigLoss receives on 12/01/19. The chief financial officer at BigLoss sends a letter to Do Right and demands that it issue the renewal policy for the period 01/01/20 to 01/01/21. The letter includes an excerpt from the Any State Insurance Code that clearly states that the named insured must receive at least 45 days advance notice of non-renewal. Do Right immediately issues the renewal policy as BigLoss demands.

11. Loss Payable (04 13 change)

This condition applies to a specific claim. The coverage form does not respond until both of the following occur:

Either the insured or the insured’s underlying carrier is obligated to pay the retained limit
A final judgment or settlement is determined, or a written agreement is reached between the insured, the claimant, and the insurance company that obligates the insured to pay in excess of its retained limits

Note: This condition’s wording has been changed significantly but the meaning has not. Reference is made to a specific claim now and previously only the word “liability” was used. The single paragraph was modified to use a. and b. in order to make the point of the condition more obvious.

12. Transfer of Defense

The underlying carrier's duty to defend transfers to the umbrella carrier after the underlying carrier pays its limits in judgments or settlements. The umbrella carrier agrees to cooperate in transferring control of any unresolved claims or suits.

13. Maintenance of/Changes to Underlying Insurance (04 13 changes)

Underlying insurance coverage must be maintained and cannot be reduced. The only reduction permitted is when the aggregate limit is reduced by payments for claims, judgments, or settlements to which this insurance applies.

Note: The wording” to which this insurance applies” at the end of the paragraph could be very important. If the payments that reduce the aggregate are for coverages in the underlying that the umbrella does not cover, a gap occurs between the aggregate in the underlying and the umbrella. This means that coverage must be carefully tracked between the two policies in order to prevent such gaps in coverage. However, failure to do the above does not invalidate this insurance. It applies as if the underlying insurance is still in effect. This means the named insured must fill in the gap when the underlying coverage does not satisfy the umbrella requirements.

Example: ABC’s underlying coverage and XYZ’s umbrella coverage are very similar when issued. An endorsement added to ABC’s coverage introduces a new pollution coverage, but that endorsement is not added to XYZ’s. A $250,000 loss is paid under ABC’s for that new coverage that reduces the General Aggregate. Another loss for $1,500,000 occurs that is not related to the new coverage. ABC has $750,000 available to pay the second loss but XYZ does not respond until the $1,000,000 that would have been in the aggregate for this loss except for the new coverage is paid. This means that the insured is responsible for the $250,000 gap in aggregate limits. XYZ then responds for the remaining $500,000.

The insurance company's liability does not change or increase if the underlying insurance's scope of coverage increases during this policy's term.

The named insured must notify the insurance company as soon as practicable when any underlying insurance is cancelled, not renewed, replaced, or terminated in any way or if the limits or scope of coverage of such underlying insurance changes.

Note: The previous edition stated only that the underlying coverage no longer be in effect instead of listing all possible ways that it might not be in effect.

14. Expanded Coverage Territory

a. If a suit is brought in a country where the insurance company is not allowed to defend the insured, the insurance company reimburses the insured for any defense costs and other necessary expenses incurred that would have been the insurance company's responsibility if it could have defended. Because these payments are made as Supplementary Payments, they are outside the limit of insurance. In addition, if a claimant is awarded damages and laws prohibit the company from paying them, the insurance company reimburses the insured for amounts it paid.

b. Payments or reimbursements are 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 the expenses are incurred.

c. Disputes between the named insured and the insurance company must be filed in courts in the United States, its territories and possessions, Canada, or Puerto Rico.

d. The insured must carry and maintain coverage that any governmental authority requires throughout the policy period. This requirement does not apply to any reduction in limits that may take place 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–DEFINITIONS

Whenever a term is defined in this section, the definition in this section must be used in the determination of coverage. This could result in a broadening or a restriction of coverage so must be carefully reviewed. When comparing umbrellas, it is very important to compare the definitions of the different carriers.

1. Advertisement

This is a published or broadcasted notice to the general public or specific market segments concerning the named insured's goods, products, or services in order to attract customers or supporters. Published notices include material placed on or in the Internet and other electronic forms of communication. Websites are not considered an advertisement. However, notices on websites that provide information about the named insured's goods, products, or services in order to attract customers or supporters are.

2. Auto

This is a land motor vehicle, trailer, or semi-trailer designed for travel on public roads. Attached machinery or equipment is also considered auto. Any other land vehicle that is subject to compulsory or financial responsibility laws or motor vehicle laws where it is licensed or principally garaged is also an auto. Mobile equipment is not auto.

3. Bodily Injury

This is bodily injury, disability, sickness, or disease sustained by a person. Death that results from bodily injury, sickness, or disease is considered bodily injury regardless of when the death occurs. Mental anguish or other mental injury is bodily injury only when it results from bodily injury.

ShoeOutlet_1

Example: While traveling on business, Sondra browses through a shoe store. The store's insurance includes commercial umbrella coverage. Because of an unfortunate chain of events and a series of unusual circumstances, Sondra witnesses a shoplifting arrest. A flashback to her earlier years as a kidnapping victim occurs and she collapses. She is hospitalized for three months as she works through her trauma. Sondra sues the shoe store for causing her flashback. The store's umbrella coverage form rejects Sondra's injuries under bodily injury because the mental anguish did not result from any bodily injury.

4. Coverage Territory

This is anywhere in the world, except for countries or jurisdictions under any United States of America trade or economic sanctions.

5. Covered Auto

This is any auto covered in the underlying coverage forms or policies.

6. Employee

The term employee is broadened to include leased workers but not to include temporary workers.

7. Executive Officer

This is any person who occupies any officer position. The officer position must have been created by the named insured's charter, constitution, by-laws, or similar governing documents.

8. Impaired Property

This is tangible property that cannot be used or is less useful because of the named insured’s defective, deficient, inadequate, or dangerous product or work that was incorporated into it.

It is also tangible property that cannot be used or is less useful because the named insured did not satisfactorily complete the terms of a contract or agreement.

The tangible property described above cannot be the named insured’s product or work.

Impaired property must be capable of being restored to use by repairing, replacing, adjusting, or removing the named insured's product or work, or by the named insured fulfilling the terms of the contract or agreement.

9. Insured Contract

The seven types of insured contracts are:

a. Contracts for a lease of premises. This does not include that part of any contract that agrees to indemnify for fire damage to any premises that the named insured leases, rents, or temporarily occupies.

b. Sidetrack agreements

c. Easement or license agreements. These do not include those related to construction or demolition operations on or within 50 feet of a railroad.

d. Obligations that ordinances require to indemnify a municipality, except those related to work for the municipality

e. Elevator maintenance agreements

f. The part of any contract or agreement that the named insured enters into as part of its business that pertains to the named insured or its employee's rental or lease of any auto. However, they are not considered insured contracts to the extent that they obligate the named insured or any of its employees to pay for property damage to any auto the named insured or any employee rents or leases.

g. The part of any contract or agreement that relates to the named insured’s business where the named insured assumes the tort liability of another party to pay for bodily injury or property damage to a third party. This includes indemnification contracts with municipalities for work performed for them.

Tort liability is liability imposed by law, with or without a contract or agreement.

The contracts in f. and g. above have exceptions. The following are not considered insured contracts.

Any part of any contract or agreement that indemnifies a railroad for losses that result from construction or demolition within 50 feet of any railroad property but only when that construction or demolition has an impact on a railroad bridge, trestle, track, road-bed, tunnel, underpass, or crossing
Any contract that pertains to loaning, leasing, or renting an auto to the named insured or to any of its employees but only when the auto is loaned, leased, or rented with a driver
Any contract that holds harmless a party in the business of transporting property by auto for hire for the named insured’s use of a covered auto over a route or territory that a public authority authorizes the party to serve

Note: This definition is almost identical to the definition in the ISO Commercial Auto and CGL Coverage Forms. However, the CGL coverage form also excludes contracts with architects, engineers, and surveyors while this definition does not. However, the professional services exclusion in the umbrella coverage form specifically excludes architects, engineers, and surveyors.

10. Leased Worker

This is a person a labor leasing firm leases to the named insured under a written contract or agreement to perform duties related to conduct of the named insured's business. Temporary workers are not considered leased workers.

11. 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.

12. Mobile Equipment

This is the following land vehicles and machinery attached to them.

a. Bulldozers, farm machinery, forklifts, and other vehicles designed primarily for off-road use

b. Vehicles whose purpose is to be used only on or next to the owned or rented premises

c. Vehicles that use crawler treads to travel

d. Vehicles used to provide mobility for the described permanently mounted equipment. The equipment must be power cranes, shovels, loaders, diggers or drills, or road construction or resurfacing equipment such as graders, scrapers, or rollers. The vehicle is not required to be self-propelled.

e. Vehicles not described in a., b., c., or d. above and that are not self-propelled. They must be used to provide mobility for permanently attached equipment. The equipment is devices used to raise or lower workers, such as cherry pickers. It is also air compressors, pumps, and generators, including spraying, welding, building cleaning, geophysical exploration, lighting, and well servicing equipment.

f. Vehicles not described in a., b., c., or d. above and used for purposes other than transporting persons or cargo.

The following permanently attached equipment when on a self-propelled vehicle is an auto, not mobile equipment:

Designed to remove snow, maintain roads (other than to construct or resurface them), or to clean streets
Devices mounted on automobile or truck chassis and used to raise or lower workers or equipment, such as cherry pickers
Air compressors, pumps, and generators, including spraying, welding, building cleaning, geophysical exploration, lighting, and well servicing equipment.

Mobile equipment does not include any vehicle subject to compulsory or financial responsibility laws or motor vehicle insurance laws where it is licensed or garaged. These vehicles are treated as autos.

13. Occurrence

This is an accident. It includes continuous or repeated exposure to essentially the same harmful conditions.

14. Personal and Advertising Injury

This is any injury that arises out of one or more of the following offenses.

a. False arrest, detention, or imprisonment

b. Malicious prosecution

c. When an owner, landlord, or lessor of a premises wrongfully evicts, enters, or invades the rights of a person who is occupying that premises. The owner, landlord, or lessor may actually commit the wrongful act(s) or someone who acts on behalf of the owner, landlord, or lessor may commit them.

d. Any oral or written publication of material that slanders or libels a person or organization or disparages a person or organization's goods, products, or services. This can take place using 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 the Internet or any other electronic form of communication.

f. The named insured using the advertising idea of another in its advertisement

g. The named insured's advertisement that infringes on the copyright, trade dress, or slogan of another

15. Pollutants

Pollutants are irritants and contaminants such as smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste of a solid, liquid, gaseous, or thermal nature. Waste includes property to be disposed of, as well as property to be recycled, reconditioned, or reclaimed.

16. Pollution Cost or Expense

This term refers to loss, such as claims or suits, costs, or expenses. It includes awards, fines, or penalties that arise 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.

Note: As a result, this wording precludes coverage for any such action that results from the Environmental Protection Act or on behalf of the Environmental Protection Agency (EPA) or any other governmental authority.

17. Products-Completed Operations Hazard

This includes all bodily injury and property damage that occurs away from the named insured's owned or rented premises 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. When there is a multisite contact, when the work at one site is complete it is considered completed even though the other sites have work to be done. Whenever part of work done at a site is put to its intended use by any party, other than a contractor or subcontractor still working on the same project, that part of the work is considered complete. Work is considered completed, even if it may still need service, maintenance, correction, repair, or replacement.

This definition does not include bodily injury or property damage that arises from any of the following:

Transportation of property. However, coverage applies if a condition in or on a vehicle not owned or operated by any insured that is created by any insured during the loading or unloading of that vehicle causes the injury or damage.

Example: Bobby and Darrel work for Metal Trim, Inc. They load finished metal trim on Paul’s semi-trailer for transport. Bobby and Darrel tie down the metal and dislodge the mount by pulling too hard. Paul does not notice the problem until he turns onto the interstate and the mount pulls out, causing metal trim to scatter all over the interstate and resulting in multiple traffic accidents. The bodily injury and property damage due to the metal trim flying off the semi-trailer is covered because it is the result of Bobby and Darrel’s loading.

The existence of tools, uninstalled equipment, or abandoned or unused materials

18. Property Damage

Property damage is physical injury to tangible property and all resulting loss of use of that property. Loss of use of tangible property is property damage even if the property is 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 owning, maintaining, or using a covered auto and only when the underlying policy would have provided pollution cost or expense coverage except that its limits of insurance were exhausted. This coverage is limited to the coverage available in the underlying coverage.

Electronic data is not tangible property for all insurance in the umbrella, except with respect to owning, maintaining, or using covered autos. Electronic data includes information, facts, or programs stored on or used by the computer. Anything considered computer software, such as hard and floppy disks, CD-ROMs, flash drives, or any media, is not tangible property.

Note: This is extremely important and limiting! Its importance cannot be overemphasized. If the named insured passes a computer virus to another party's computer in any way, and that virus destroys important data on that computer, coverage might have applied under previous editions. That is no longer the case with this definition.

19. Retained Limit

These are the total limits on the declarations available from the underlying primary coverage. It consists 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 there is no underlying coverage that applies to the loss.

21. Suit

This is a civil proceeding that alleges damages for bodily injury, property damage, or personal and advertising injury that this insurance covers. It includes arbitration proceedings or any other alternative dispute resolution proceeding that claims such damages but only when the insured submits to then with the insurance company's consent.

22. Temporary Worker

This is any person furnished to the named insured to substitute for a permanent employee temporarily away from the business or to meet seasonal or short-term workload conditions.

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 is a person that the named insured does not employ but who donates his or her work. The person must act at the direction of, and within the scope of duties prescribed by, the named insured. Volunteer workers are not paid fees, salaries, or any other form of compensation by the named insured or any other party for the work performed.

27. Your Product

a. This is goods or products manufactured, sold, handled, distributed, or disposed of by the named insured, by others that trade under the named insured’s name, or by any party whose business or assets the named insured acquired. Containers (excluding vehicles), materials, parts, or equipment furnished in connection with such goods or products are also considered your product. Real property is not your product.

b. Warranties or representations made concerning the fitness, quality, durability, performance, or use of the product and providing or failing to provide adequate warnings or instructions are also your product.

c. Vending machines or other property rented to or located for the use of others but not sold is not your product.

28. Your Work

This is work or operations performed by the named insured. It may also be performed by others on the named insured’s behalf. Materials, parts, or equipment furnished in connection with such work is considered your work. Warranties or representations made concerning the fitness, quality, durability, performance, or use of the work and providing or failing to provide adequate warnings or instructions are also your work.