275.6-5

ADDING CLAIMS-MADE UNDERLYING COVERAGE TO THE ISO COMMERCIAL LIABILITY UMBRELLA COVERAGE FORM

(April 2019)

INTRODUCTION

The Insurance Services Office (ISO) CU 00 01–Commercial Liability Umbrella Coverage Form is written on an occurrence basis. This works well because all auto coverage and most general liability coverage is written on an occurrence basis.

This article addresses the changes to CU 00 01 that must be made when underlying coverages are written on a claims made basis.

Note: The analysis of CU 27 00 is of the 04 13 edition. Changes from the 12 07 edition are in bold print.

CU 27 00–UNDERLYING CLAIMS-MADE COVERAGE

This endorsement revises parts of the commercial liability umbrella coverage form’s insuring agreements for bodily injury liability and personal and advertising injury liability. It also revises one personal and advertising injury liability exclusion and adds the section on Extended Reporting Periods.

Coverage A–Bodily Injury and Property Damage Liability

Insuring Agreement changes:

• Paragraphs a. and b. are unchanged. This is the primary declaration of coverage.
• Paragraph c. (1) is unchanged. It states that an occurrence that takes place in the coverage territory must cause the bodily injury or property damage.
• Paragraph c. (2) is replaced. It is changed to state that the bodily injury or property damage cannot take place before any retroactive date on the underlying policy's declarations. It also cannot take place after the policy expiration date. The CU 00 01 requires only that the bodily injury or property damage take place during the policy period.

Note: The retroactive date is not on the umbrella. It is on only the underlying coverage form or policy.

• Paragraph c. (3) is replaced. It is changed to state that any bodily injury or property damage claims must be made during the policy period or during the extended reporting period and must also be filed as outlined in paragraph d. below. The CU 00 01 c. (3) is a discussion about prior knowledge not claims made.
• Paragraph d. is replaced. It is changed to state that a claim is considered made at the earlier of the following two times:
• When the insured, the underlying carrier, or the umbrella carrier receives and records it
• When either the underlying carrier or the insurance company makes a settlement

The CU 00 01 d. is more discussion regarding prior knowledge and not claims made.

• Paragraph e. is replaced. It is changed to state that all claims that result from a person’s bodily injury are considered made as of the date of the first claim made against any insured.

The CU 00 01 e. is more discussion regarding prior knowledge and not claims made.

Example: Connie is seriously injured at Larry's Department store when she unintentionally wanders into the part of the store being remodeled. On June 1, Connie's family, on her behalf, reports a claim to IMJ Contracting, the general contractor on the job. Connie's family, again on Connie's behalf, then learns that Bob, the work crew supervisor, actually caused the injury and files a claim against him on July 1. Because Bob is an insured under the IMJ policy, the insurance company will defend him, and the claim against him is considered made on June 1. On August 1, Connie’s family, on her behalf, files a claim against Larry’s Department Store. Because the IMJ policy names the store as an additional insured, Larry turns the claim in to IMJ, the insurance company will defend him, and the date of claim is June 1. When Connie dies unexpectedly from the injuries, the family files claims against all parties on their own behalf. The claim date for the family claims is also June 1.

• Paragraph f. is replaced. The language in this endorsement is similar to paragraph e. above in that all property damage claims for a specific loss to a person or organization are dated as of the date of the first claim. The CU 00 01 explains that bodily injury includes all damage claims for loss of services and death.

Coverage B–Personal and Advertising Injury Liability

Insuring Agreement changes:

• Paragraphs a. and b. are unchanged. This is the primary declaration of coverage.
• Paragraph c. is replaced. It is changed from one part to three parts:

(1) The offense must be committed in the coverage territory.

(2) The offense must be committed after the retroactive date on the underlying coverage form or policy's declarations. It also cannot take place after the policy expiration date.

Note: The retroactive date is not on the umbrella. It is on only the underlying coverage form or policy.

(3) Any personal or advertising injury claim must be made during the policy period or during the extended reporting period and be filed as outlined in paragraph d.

• Paragraph d. is added. It states that a claim is considered made at the earlier of the following two times.
• When the insured, the underlying carrier, or the umbrella carrier receives and records it
• When either the underlying carrier or the insurance company makes a settlement
• The earliest date is considered the date that the claim is made.
• In addition, all claims that result from the personal or advertising injury to the same person or organization are considered made as of the date of the first claim made against any insured.

Exclusions changes

The Material Published Prior to Policy Period exclusion is amended to state that the publication must take place prior to any retroactive date on the declarations.

Note: This wording could be problematic because the retroactive date is on the underlying coverage form or policy's declarations. There is no retroactive date on the umbrella declarations.

Extended Reporting Periods

This additional section explains the extended reporting period and describes how it works. It also identifies the named insured’s options.

1. When an underlying coverage is written on a claims-made basis, the umbrella carrier provides one or more Extended Reporting Periods but only when required to do so. One reason it must be offered is when this coverage is cancelled or not renewed. Another is when the coverage is renewed or replaced but is subject to a later retroactive date. Yet another is when the coverage is renewed or replaced by bodily injury, property damage, or personal and advertising injury coverage not written on a claims-made basis.

Example: Tommy’s Tummy Busters is written on a policy with policy period 08/01/19 to 08/01/20. The retroactive date on the underlying policy is 08/01/15.

Scenario 1: Tommy’s insurance company no longer writes restaurant policies and notifies Tommy that his coverage will not be renewed on 08/01/20. Tommy can request an extended reporting period.

Scenario 2: Tommy’s insurance company renews his coverage on an occurrence rather than a claims-made basis. Tommy can request an extended reporting period.

Scenario 4: Tommy changes insurance companies and the new carrier issues the policy on an occurrence basis. Tommy can request an extended reporting period.

2. Extended Reporting Periods do not change the nature of the coverage provided or extend the coverage period. They are meant only to provide additional time to report claims. Only claims for the following can be made during the extended reporting period:

• Bodily injury or property damage that occurs after the retroactive date on the underlying carrier’s declarations but before the coverage period ends.
• Personal and advertising injury caused by an offense committed after the retroactive date on the underlying carrier’s declarations but before the coverage period ends.

3. A Basic Extended Reporting Period is a part of this endorsement. It is not subject to an additional premium charge. It begins at the end of the coverage period but lasts for only:

• Five years but only for claims because of bodily injury and property damage that arise out of an occurrence reported to the insurance company during the policy period and up to 60 days after the policy period ends. Reporting must be made according to the terms in Duties in the Event of Occurrence, Offense, Claim, or Suit.
• Five years but only for claims because of personal and advertising injury that arise out of an offense reported to the insurance company during the policy period and up to 60 days after the policy period ends. Reporting must be made according to the terms in Duties in the Event of Occurrence, Offense, Claim, or Suit.
• Sixty days for claims that arise out of occurrences or offenses not previously reported to the insurance company.

Example: Tommy’s policy period was 08/01/19 to 08/01/20 and had a retroactive date of 08/01/15. It was non-renewed, he had only the basic extended reporting period, and the following claims:

• June slipped at the restaurant on 09/15/19. The occurrence was not reported until 09/15/20 and the first claim was made on that date. This claim is covered under the extended reporting period.
• Tommy told a food critic about poor food preparations at a competitor’s restaurant on 09/01/20. The competitor sues Tommy on 11/01/20. There is no coverage because the offense took place after the policy expired.

This period does not apply to claims if any subsequent insurance coverage the named insured purchases covers them. This applies even if the limit of insurance that applies to such claims is used up.

4. The Basic Extended Reporting Period does not increase or reinstate the Limits of Insurance. It simply extends the policy period. It is not additional coverage.

5. A Supplemental Extended Reporting Period is available by endorsement, but it is subject to an additional premium charge. Its duration is unlimited and begins when the Basic Extended Reporting Period ends.

It is not automatic and is subject to stringent time limits. The named insured must request the endorsement in writing within 60 days after the policy period ends. The supplemental extended reporting period does not go into effect unless the named insured pays the premium for the endorsement when it is due.

The insurance company calculates the additional premium according to its rules and rates. In doing so, it considers the nature of the exposures, previous types and limits of insurance, limits of insurance that remain under this coverage form to pay future damages, and other relevant factors. Unlike the ISO Commercial General Liability Coverage Form that can be charged up to 200% of the policy premium, there is no cap on the charge that can be made on the Commercial Liability Umbrella Coverage Form.

This extended reporting period endorsement provides the terms that apply to the Supplemental Extended Reporting Period and they are consistent with this section.

6. The insurance company provides a supplemental aggregate limit of insurance equal to the policy aggregate once the Supplemental Extended Reporting Period is in effect. These limits are available only for claims first received and recorded during the Supplemental Extended Reporting Period.

CU 27 01–EXCLUSION OF SPECIFIC ACCIDENTS, PRODUCTS, WORK OR LOCATION

An insurance company may be reluctant to write or renew umbrella liability coverage for a given risk due to certain portions of the risk's operations that it wants to avoid. In many cases, this forces the carrier to totally accept or reject the risk. In some cases, determining that a narrow part of a total exposure renders the entire account unacceptable is the only course of action. However, another option is available when an eligibility issue is due to a past accident, a certain product, or a given project or location. An alternative to completely rejecting a risk in cases like these is to use CU 27 01–Exclusion of Specific Accidents, Products, Work, or Location to remove the unacceptable part of an exposure.

This endorsement is used with only claims-made coverage forms and policies and applies only when the umbrella coverage form is amended using CU 27 00. It excludes coverage for bodily injury or property damage that arises out of the specific accidents, products, work, or location listed and/or described on the endorsement schedule. It is frequently referred to as the laser beam endorsement.

The wording in CU 27 00 is intended to completely exclude any bodily injury or property damage related to the excluded accident, product, work, or location and applies even when other sources either facilitate or worsen a loss. Umbrella coverage does not apply if the loss can be connected to the specific excluded accident, product, work, or location.

Because this exclusion applies to claims-made coverage forms or policies, an Extended Reporting Period must be offered if this exclusion was not previously attached. However, this applies only if the current umbrella carrier wrote the previous coverage form or policy and covered the situation that this endorsement excludes. Using this endorsement brings some considerations into play:

• Premium

The limitation of the total exposure affects the normal premium charge. The lower premium to use this endorsement is based on deleting the applicable premises/operations and/or product-completed operations charges for the classification or classifications involved.

• Endorsement Effectiveness

Effective use of this endorsement depends on excluding the same accidents, products, work, or location that the underlying coverage form or policy excludes. Otherwise, the umbrella might be affected indirectly. If the primary coverage did not exclude the exposure, the umbrella coverage form might be required to defend an event it intended to exclude. Another possibility is that the umbrella may have to respond to a covered loss faster because the underlying loss the umbrella excludes erodes the underlying aggregate limits.

• Endorsement Schedule

Important information that applies must be entered in this section. This may be the date, location, and description of a specific accident, a description of the insured's product or project to be excluded, or the excluded location's address and description.

This endorsement adds a definition to the commercial liability umbrella coverage form. As it relates to this exclusion, location means the location on the endorsement schedule that involves the same or connecting lots or locations, where only a street, road, waterway, or railroad right-of-way interrupts the connection.

CU 27 02–AMENDMENT–EXTENDED REPORTING PERIODS FOR SPECIFIC ACCIDENTS, PRODUCTS, WORK, OR LOCATION

CU 27 01–Exclusion of Specific Accidents, Products, Work, or Location may be added to a commercial liability umbrella coverage form for the first time. When it is, CU 27 02–Amendment–Extended Reporting Periods for Specific Accidents, Products, Work, or Location must be added to the previous coverage form or policy. This is done in order to provide an extended reporting period for the exposure the current term excludes.

Example: Machinery and Tools Insurance Company offers to renew Mediocre Machinery, subject to excluding coverage on the MM 2014 machine. Mediocre agrees and Machinery and Tools adds CU 27 01–Exclusion of Specific Accidents, Products, Work, or Location to the renewal policy. It also adds CU 27 02–Amendment–Extended Reporting Periods for Specific Accidents, Products, Work, or Location to the expiring policy. Mediocre then exercises its option to purchase the Supplemental Extended Reporting Period for the additional aggregate.

This endorsement revises the Extended Reporting Period section of CU 27 00–Underlying Claims-Made Coverage to make it specific to the excluded exposure. There are no other significant changes.

CU 27 03–SUPPLEMENTAL EXTENDED REPORTING PERIOD ENDORSEMENT

This endorsement must be added if the supplemental extended reporting period that CU 27 00–Underlying Claims-Made Coverage provides is purchased. It establishes the premium terms and conditions that apply and reiterates the explanation of the extended period of indemnity in CU 27 00–Underlying Claims-Made Coverage.

CU 27 04–SUPPLEMENTAL EXTENDED REPORTING PERIOD ENDORSEMENT FOR SPECIFIC ACCIDENTS, PRODUCTS, WORK, OR LOCATIONS

This endorsement must be added if the supplemental extended reporting period that CU 27 02–Amendment–Extended Reporting Periods for Specific Accidents, Products, Work, or Location provides is purchased. It establishes the premium terms and conditions that apply and reiterates the explanation of the extended period of indemnity in
CU 27 00–Underlying Claims-Made Coverage.

CU 27 10–EXTENDED REPORTING PERIOD ENDORSEMENT FOR EMPLOYEE BENEFITS LIABILITY COVERAGE

This endorsement must be added if the supplemental extended reporting period that CU 04 03–Employee Benefits Liability Coverage provides is purchased. It establishes the premium terms and conditions that apply and reiterates the explanation of the extended period of indemnity in CU 04 03–Employee Benefits Liability Coverage.