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ISO COMMERCIAL LIABILITY UMBRELLA COVERAGE FORM CONTRACTUAL LIABILITY AMENDATORY ENDORSEMENTS

(April 2019)

INTRODUCTION

The Insurance Services Office (ISO) CU 00 01–Commercial Liability Umbrella Coverage Form, Exclusion b. Contractual Liability, excludes damages for bodily injury or property damage that the insured must pay because it assumed liability in a contract or agreement. However, there are two very important exceptions.

• If the insured would have had the liability even if the contract did not exist, coverage for that liability continues to exist.

Note: This means that the insured is not penalized by having coverage removed from a specific liability just because a contract required that liability to be covered.

• If the damages were assumed in a contract that is defined in the Definitions Section as an “insured contract.” There are further discussions on when the insured contract must have been put into place and how the contract must be worded in order for defense costs to be included but this article is focusing only on the term “insured contract” because if the contract is not an insured contract, the rest is irrelevant.

INSURED CONTRACT DEFINITION

There are seven types of insured contracts.

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

b. Sidetrack agreements

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

d. Obligations that ordinances require to indemnify a municipality, except in connection with work for a municipality

e. Elevator maintenance agreements

f. The part of any contract or agreement the insured enters into as part of its business as it relates to the insured or its employees renting or leasing any auto. However, these are not considered insured contracts to the extent that they obligate the insured or any of its employees to pay for property damage to any auto the insured or its employees rent or lease.

g. The part of any contract or agreement that relates to the insured’s business where the named insured assumes another party's tort liability 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 if the construction or demolition has an impact on any railroad bridge, trestle, track, road-bed, tunnel, underpass or crossing
• Any part of any contract or agreement that pertains to loaning, leasing, or renting an auto to the named insured or any of its employees when the auto is loaned, leased, or rented with a driver
• Any part of any contract or agreement that holds a party in the business of transporting property by auto for hire harmless for the named insured’s use of a covered auto over a route or territory that a public authority authorizes the party to serve

The definition is almost identical to the ISO Auto and CGL definitions of insured contract except for one omission that is part of the CGL. The CGL definition excludes two types of contracts related to architectural, engineering, and surveying services while the umbrella does not contain any such exclusions. This lack of exclusion is partially resolved because the Umbrella contains the professional services exclusion while the CGL does not. However there remains a coverage gap because the insured contract exclusion in the CGL is not limited to only professional services. This is a gap in coverage whereby the umbrella is providing coverage not provided by the underlying CGL.

CONTRACTUAL LIABILITY AMENDATORY ENDORSEMENTS

When ISO wants to change or amend contractual liability coverage it revises the definition of an insured contract. There are four such endorsements available.

CU 21 07–Contractual Liability Limitation

This endorsement changes coverage from blanket contractual liability coverage to a more limited version by eliminating item g. Item g. includes any contract or agreement that relates to the insured’s business, including indemnification contracts with municipalities for work performed for them where the insured assumes the tort liability of another party to pay for bodily injury or property damage to a third party.

Removing this item is like changing all risk coverage in property insurance to named perils coverage because this endorsement covers only the contracts specifically named and listed in items a.-f above.

CU 24 09–Contractual Liability–Railroads

This endorsement redefines insured contract to broaden coverage. It eliminates all restrictions that specifically relate to construction and demolition operations around railroad property. The revised definition applies only for the railroad and the jobsite described in the endorsement schedule.

This endorsement broadens the definition of insured contract but only for operations that affect the railroad and job site in the endorsement schedule. There are two changes that broaden coverage:

• The exception for railroad operations under item c. is eliminated. This means that easement and license agreements are insured contracts even when they involve demolition or construction within 50 feet of railroad property.
• Under the exceptions for paragraphs f. and g, item (1) that removes certain railroad contracts is eliminated. As a result, there are no railroad specific limitations.

CU 24 30–Amendment of Insured Contract Definition

This endorsement amends the definition of Insured Contract. It reduces coverage by changing paragraph item g. to apply only when both of the following circumstances exist:

• The named insured or a party that works on its behalf causes the bodily injury or property damage.
• The law permits the named insured to assume the liability.

There are no changes to any other parts of the definition.

Example: Frankie signs a contract where he agrees to be liable for any damage he causes while he replaces the furnace at Rusty’s Restaurant. A waitress trips on the frayed carpeting and falls, strikes Frankie's equipment, and causes it to tip over and strike a customer. The customer sues Rusty and he turns it over to Frankie. Frankie's insurance company denies coverage because CG 24 30 is part of the policy and the waitress caused the bodily injury to the customer, not Frankie or his employee.

CU 24 31–Limited Contractual Liability–Railroads

This is a combination of CU 24 09–Contractual Liability–Railroads and CU 24 30–Amendment of Insured Contract Definition.