ISO COMMERCIAL LIABILITY UMBRELLA COVERAGE FORM ARCHIVE

(April 2019)

This is a repository of articles and analyses that relate to earlier editions of this coverage form.

Archive Index
Analysis	CLU Coverage Form Analysis (12 01 edition)
Analysis	CLU Coverage Form Analysis (12 04 edition)
Analysis	CU 00 01–Commercial Liability Umbrella Coverage Form Analysis (12 07 edition)
Endorsements	Available Endorsements and Their Uses (12 07 edition)
Endorsements	CU 00 03–Exclusion–Sending Materials and Information
Miscellaneous	Commercial Liability Umbrella Loss Examples
Special Analyses	Maintaining Underlying Coverage
Comparisons	Reserved for Future Use

CLU COVERAGE FORM ANALYSIS (12 01 edition)

Note: This discussion is based on the 12/01 Edition.

Typically, the Commercial Liability Umbrella (CLU) coverage acts as an excess layer that applies after exhaustion of the occurrence and aggregate limits of the following:

Commercial General Liability (CGL),
Commercial Automobile, and
Garage Policies.

For most of their history, umbrella forms have been proprietary. Because they were developed by various companies for their own use, the form was non-standard in terms of insuring agreements, exclusions, conditions, definitions, optional coverages, etc.

SECTION 1 – COVERAGES

COVERAGE A – BODILY INJURY AND PROPERTY DAMAGE

1. INSURING AGREEMENT

1.a. (1) (2) Specifically, the carrier agrees to pay the “ultimate net loss” amount that pierces the policy's “retained limit.” However, the loss must involve “bodily injury” or “property damage” and that BI or PD loss must be eligible under the umbrella policy.

The CU 00 01 form is not an indemnity form. Under an indemnity form the company would reimburse losses incurred. The CLU form works in the opposite manner. When a covered event occurs, the insurer assumes the insured's responsibility and makes the needed payment (subject to policy terms).

The insuring agreement grants the insurer the right to investigate or settle any “occurrence” as well as the right to settle any resulting claim or “suit. This language tracks very closely with the Commercial General Liability Coverage Form with the exception of its reference to the “retained limit.”

“Retained limit” is defined in Section V – Definitions. A “retained limit,” typically, applies to a claim for which coverage is either excluded or the coverage limits have been exhausted in the underlying policy.

1.b. (1) (2) (3) In this section, ISO includes language to bar coverage for known injury or damage. This language is currently used in most ISO liability coverage forms. It is meant to clarify that this policy will not respond to any injury or damage known by the insured (or an “employee” of the insured who was authorized to give or receive notice of injury, damage, or claim) before the umbrella policy’s inception.

“Bodily injury” or “property damage” coverage applies only when none of the following parties has knowledge of the BI or PD before the policy's initial effective dates:

insured or
“employee” of the insured given authority to give or receive notice of an “occurrence” or claim

If an “occurrence” or claim occurs prior to policy inception, and continues into the current policy period, or changes in its scope or once again resumes during the policy period, it is considered to be known by the insured prior to the policy period.

1.c. This provision further clarifies the eligibility of “bodily injury” or “property damage.” If the BI or PD took place during the policy period and then it continues, changes its scope or resumes after the policy period ends, that event is eligible for coverage under the CU. However, coverage only applies if the event happened without prior knowledge of the same parties referenced earlier in the insuring agreement.

1.d. (1)(2) Additionally, this language establishes criteria by which a determination can be made concerning when “bodily injury” or “property damage” is considered known by the insured or an authorized “employee” of the insured.

The case that precipitated this change in language is that of Montrose Chemical Corporation of California, Plaintiff and Appellant vs. Admiral Insurance Company, Defendant and Respondent. CA Supreme Court #S026013 filed July 3, 1995

2. EXCLUSIONS

The Umbrella exclusions are typical liability exclusions that parallel those found in the CGL.

a. Expected or Intended Injury is excluded unless it is the result of the use of reasonable force to protect persons or property. However, the CGL exclusion is being challenged in several states. The outcome will obviously impact the way the Umbrella will respond to these type claims, absent any change in the current language.

b. Contractual Liability is excluded except in the following instances:

the liability is created by an agreement that qualifies as an “insured contract” and the “bodily injury” or “property damage” takes place after the contract or agreement was implemented, or
the insured would have been liable even in the absence of a contract or agreement.

The umbrella policy's protection against covered instances of contractual liability extends to related defense and court costs, including legal fees to defend an insured for civil suits or alternative dispute resolution (ADR) (typically arbitration that has gone wrong).

c. Liquor Liability is excluded unless the insured is not in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages. The coverage provided by this form is typically referred to as host liquor liability, an extension of the coverage found in the CGL. In other words, company-sponsored events, i.e., picnic, Christmas party or a vendor’s exhibition would be covered for host liquor liability unless there is a statute, ordinance, or other regulation with respect to a particular event prohibiting coverage (i.e., a company event fundraiser that included bingo or other games of chance).

Liquor liability coverage can be purchased for those insureds in the business of manufacturing, selling, distributing servicing, or furnishing alcohol. The appropriate endorsement, which overrides the exclusion, must be attached to the policy.

d. Workers Compensation and Similar Laws exclusion is inserted to avoid duplicating coverage that is provided in the workers’ compensation policy.

e., h., j., k. The ERISA and Employment-Related Practices, Watercraft, Aircraft, and Racing Activities exclusions are also typical CGL policy exclusions.

Note: The CGL exclusion Watercraft, Aircraft also includes Auto. This is an important difference, insofar as the Umbrella policy extends coverage to “bodily injury” or “property damage” arising out of the ownership, maintenance, use, or entrustment to others of any covered auto owned or operated by or rented or loaned to any insured. With respect to this coverage, use is inclusive of “loading or unloading.”

f. Auto Coverages The purpose of this exclusion is to prevent coverage for any vehicle that is not a “covered auto.” As a refresher, covered auto status is based upon whether an auto is described in the schedule of underlying auto as a “covered auto.” The term is found in the Definitions section of the policy. Also excluded are physical damage losses. Because the Umbrella is a liability policy, claims involving the insured's own vehicles (first party losses) should be filed against the appropriate auto policy.

g. Similar to the Workers Comp exclusion, the Employer’s Liability exclusion also exists to avoid duplication of coverage, in this instance, by an employer's liability policy. However, excess coverage for employer's liability exposures is available under the Umbrella if an Employer’s Liability policy is shown in the schedule of underlying coverages on the Umbrella Declarations.

i. In contrast to the CGL, the Umbrella Policy has an absolute pollution exclusion. The Umbrella makes no provision for exceptions to the exclusions. However, if pollution coverage is provided in the schedule of “underlying insurance”, the Umbrella will follow the provisions, exclusions, and limitations of the “underlying insurance. Please also refer to our Court Cases section for a variety of other disputes on this topic.

l., m. The umbrella policy’s War and Damage To Property exclusions are very similar to those found in the CGL. In other words, no coverage exists for losses involving war, war-related, or similar events. Also, no coverage applies under the umbrella for loss, damage or destruction to property that has any incident of ownership or control by an insured.

n., o., p., q. Damage To Your Product, Damage To Your Work, Damage To Impaired Property or

Property Not Physically Injured and Recall of Products, Work, Or Impaired Property. These exclusions deny coverage for “bodily injury” or “property damage” resulting from the insured’s product or work. The comprehensive provisions also bar recovery for any loss involving a defective component or a failure to perform as described in the terms of a contract. Neither is there coverage for loss, cost, or expense of a product being withdrawn, recalled, inspected, or repaired or destroyed because of a known or suspected defect.

provided by the supplier did, in any way, contributed to the malfunction.

r. Personal and Advertising Injury is excluded in Coverage A- Bodily Injury. This provision is needed in order to avoid duplicate coverage. Such claims are handled under Coverage B- Personal and Advertising Injury Liability.

s. (1 -11) Professional Services coverage is better provided by a specialty product and is therefore excluded from a standard Commercial Umbrella policy. Nearly a dozen different instances that are excluded are described under this provision such as legal, accounting, cartography (map-making), cosmetics, health services, optical services and others.

Note: The referenced, excluded activities are only used to illustrate what does not qualify for coverage. Any service that could reasonably be considered professional would be barred from coverage as a specialty hazard.

The CLU can be easily modified to provide protection for this exposure by attaching CU 24 23, Coverage For Professional Services.

COVERAGE B- PERSONAL AND ADVERTISING INJURY LIABILITY

INSURING AGREEMENT

1.a. The insuring agreement for Coverage B acts similarly to the insuring agreement for Coverage A – Bodily Injury except, in this portion of the policy, we are dealing with “personal and advertising injury.” “Personal and advertising injury” includes both direct and consequential “bodily injury” that result from a wide variety of offenses. Items qualifying as personal and advertising injury include false arrest, detention or imprisonment, or malicious prosecution. It also includes wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling, or premises when such an action is committed by or on behalf of the site’s owner, landlord, or lessor.

“Advertisement” means a notice that is broadcast or published to the general public or specific market segments. The notice must be about an insured’s goods, products, or services. Further, the intent of the notice must be to attract customers or supporters.

Court cases such as Lunney v. Prodigy Services Co., 94 N.Y. 2d. 242, 701 N.Y.S. 2d 684, 723 N.E. 2d 539 (1999) precipitated ISO’s development of this language. Briefly this involved a plaintiff suing an Internet Service Provider (ISP), alleging that the latter failed to do its duty to protect subscribers. The plaintiff alleged damages because an unidentified imposter stole the plaintiff's identity in order to open several e-mail accounts. The anonymous user then sent several inappropriate and threatening posts to several parties vial e-mail and through posts in chat rooms. Essentially the court upheld a lower court decision that the ISP was not a publisher, but only acted passively in allowing information to be transmitted. It was not held liable for the messages that hurt the reputation of the plaintiff.

Here again, as with Coverage A, the insurer has the discretion to investigate any offense that may involve the CLU. The company may choose to settle any related claim or “suit” as long as it follows the policy’s relevant provisions. However, an insurer’s duty to respond to a claim ends when the insurance limits are exhausted. Of course exhaustion includes consideration of any coverage applicable under the policy’s other sections, particularly the Supplementary Payments section.

1.b. Personal Injury and Advertising Injury coverage is only applicable to an eligible offense that occurs:

in the “coverage territory” and
during the policy period.

EXCLUSIONS

A wide variety of causes of loss are barred from recovery under Coverage B of the CLU.

a.(1) Knowing Violation Of Rights of another prohibits coverage for an act that infringes on the rights of another party. The exclusion is valid regardless whether the damage or injury is due to an insured’s direct action or is done on the orders or instructions of an insured.

a.(2) Material Published With Knowledge Of Falsity arising out of the oral or written publication of material, which is known to be untrue, is not covered.

a.(3) Material Published Prior To Policy Period as a result of oral or written material that was first published prior to the start of the policy period – no coverage.

a.(4) Criminal Acts are excluded.

Example: A reporter breaks into a building to photocopy confidential records used in a newspaper story that is later published.

a.(5) (a) (b) and (6) Contractual Liability and Breach of Contract in which the insured agrees to accept some risk of loss in writing. Later when a related loss occurs, there is no coverage. However, contractual liability does not affect coverage if the contract involves a source of loss that the umbrella insures against such as false arrest or if the assumed liability would have existed even without a contract. Further, loss related to a contractual breach does not qualify for coverage. There is protection in one limited event. The umbrella will respond to a breach of an implied contract involving one party's use of another party's advertising idea.

a.(7) Quality Or Performance Of Goods – Failure To Conform To Statements arising out of the insured’s product, goods, or services to perform as indicated in an “advertisement” is excluded.

Note: See the example under a.(3) above.

a.(8) Wrong Description of Prices – no coverage exists for losses that occur as a result of a wrong description for goods, products, or services stated in an “advertisement.”

a.(9) Infringement Of Copyright, Patent, Trademark, Or Trade Secret incidents are likely to increase as a result of the Internet. ISO added a specific exclusion to reinforce that the fact that coverage does not exist for infringement of intellectual property. However, there is an exception. Coverage B of the CLU does cover infringement of copyright, trade dress, or slogan in an “advertisement.”

a.(10)(a)(b)(c), (11), and (12) Insureds In Media And Internet Type Businesses, Electronic Chatrooms, Or Bulletin Boards, Unauthorized use of Another’s Name Or Product. This group of exclusions helps clarify the extent of coverage previously mentioned in the insuring agreement. Coverage is provided for placing of frames, borders or links, or advertising, for you or others anywhere on the Internet in as much as this is considered outside the business of advertising, broadcasting, publishing, or telecasting. However, this area will continue to be developed and refined. For instance, how does one answer the question “What is an Internet Type Business?” Certainly some such businesses must or will likely soon exist which, while operating via the Internet, may be quite distinct from operations with heavy “media” type exposures. Coverage language must be developed to handle them. One step may be to have the term defined or, at a minimum, be provided with a reference to firms that typify such businesses. On the downside, insurers must also anticipate courtroom challenges over current language and interpretation.

a.(13), (14), and (15) Pollution, Employers Liability, and Professional Services exclusions are similar to Coverage A exclusions for Pollution, Employment Related Practices, and Professional Services. These coverages are more appropriately written on specialty products.

b. This part tells insureds that absolutely no coverage is available for loss or expenses that involve pollution. Something that may, on the face of it, appear curious to be included for this coverage. However, suits and disputes seeking coverage for pollution have become so common and creative that it is probably prudent to specifically mention an exclusion for this expensive source of loss.

SUPPLEMENTARY PAYMENTS – COVERAGES A AND B

The CLU offers seven supplemental coverages. These coverage limits apply in addition to the limits stated in the Policy Declarations. The supplemental items involve costs that are associated with defending an insured in a claim or suit. The seven supplementary payments are as follows:

a. All handling costs that result from the insurer's involvement with the claim or suit.

b. Bail Bonds - The CLU offers a maximum of $2000 to pay for bail bonds (including bonds for related traffic law violations) required because of an occurrence we cover. As is typical in most policies, the insurer does not have a responsibility to provide any actual bond.

c. Attachment Bond - the policy will pay for bonds to lift attachments. However, these payments are limited to bond amounts that don't exceed the applicable limit of insurance. Again the carrier has not obligation to provide the actual bonds.

d. Expenses created at the insurer's request - This supplemental coverage handles costs to an insured that exist because the insured is asked to help with a claim or suit investigation. One category of expense is a maximum daily limit of $250 for lost earnings.

e. Taxes related to suit costs - the carrier will handle such costs.

f. Prejudgment interest - This supplemental coverage is all about timing. It obligates the carrier to pay interest on awards levied against an insured that are made before the carrier makes an offer to settle that is equal to the policy limit (that applies to the suit). This obligation is also ended when the applicable limit is exhausted. After either event, additional interest is the insured's problem.

g. Other judgment interest - This is handled similarly to item f. above, regarding post judgment interest amounts. The carrier's obligation concerns interest that all interest on the full amount of any judgment that builds between the period that the judgment is made and until and offer of limits is made, the policy limits have been used up or the amount (subject to policy limits) have been turned over to a court (deposited).

2. Impact on limits - This provision confirms that the supplemental coverages are in addition to any applicable limit, rather than a part of the limit. Further, the umbrella insurer also bears the cost of any expense related to its right to look into a loss that may affect their coverage.

3. a-f. In addition, when the insurer defends the insured against a “suit” and an indemnitee of the insured is also named, the insurer will defend the indemnitee if the conditions specified in the policy form are met. In particular, the insured’s relationship with the indemnitee has to be related to an “insured contract (refer to item 9. below in the Definitions discussion). Further, the liability the insured acquires under the contract has to be the sort that qualifies for coverage under the CLU. Other pieces must also fall into place before the insurer will defend BOTH the CLU insured and an indemnitee. The obligation to defend the indemnitee must also have been part of an insured contract. The insurer must be able to control the suit’s defense, having the ability to have their choice of legal representative handle matters.

Conflict of Interest

The existence of a conflict of interest between the insured and the indemnitee creates an impossible situation for a CLU insurer to handle. It could not possibly appropriately defend both parties and its obligation would, in such an instance, lie with the insured. Finally, in order to provide a defense to the indemnitee, that party must agree in writing to the following:

assist the carrier with handling the lawsuit
send copies of all suit-related paperwork to the insurer
contact all carriers who may provide coverage to the indemnitee
help the insurer with respect to other available coverage
give the insurer permission to access relevant records
don't interfere with the insurer's control of the suit's defense

SECTION II – WHO IS AN INSURED

The parties that are identified as insureds are nearly the same as those shown in the CGL Coverage Form. There are, however, two significant differences. Notably, the Umbrella includes a Trust, as an insured (as defined in Section V-Definitions). In addition, the Umbrella makes a distinction of parties considered to be insureds between the liability that arises from a covered operation and the liability that results from the ownership, maintenance, or use of a “covered auto.”

1. The first section identifies insureds with respect to liability arising out of an operation, namely:

a. Each named insured as designated in the Declarations:

(1) An individual, including spouse

Note: Insured status is gained only for business operations in which such individuals are sole proprietors. Otherwise, it is the legal business entity that is the rightful insured (see below).

(2) Partnership/joint venture

When this entity is the described party, insured status belongs to the entity's members and partners. Wives and husbands of partners have limited insured status. It is extended when they are involved with insured business activities.

(3) Limited liability company (LLC)

Under this entity type, LLC members and managers are given insured status. However, members are only protected for business activities and managers are protected within the scope of their job.

(4) Corporations

Corporate directors and executive officers are insureds while performing their respective jobs. Another group also enjoys a narrow insured status. An insured corporation's stockholders are protected for their liability as stockholders.

(5) Trusts

Under this legal arrangement, the agreement's trustees gain insured status while handling their trust-related responsibilities.

b. Volunteer Workers

Volunteers are defined in Section V. They are insured only in connection with duties related to the insured's business. However, “volunteer workers” are not insured for “bodily injury” or “personal and advertising injury” to a named insured, partners, or members or to a co-“employee” in the course of his or her employment or to other “volunteer workers” while performing duties related to the conduct of your business. ISO's commercial umbrella form places coverage for volunteers directly into the coverage form, eliminating the need for a separate endorsement. The coverage given to volunteers is narrow. No protection is extended to a volunteer's family. Naturally the coverage exists only while such a person is handling duties related to the insured’s business.

Important: Be sure to be clear about how coverage is extended to volunteers and their duties. Covered duties are not the same as employee duties. Volunteers are generally used for non-work activities, such as special events, charitable functions, etc. Therefore, the covered duties are those that the business establishes for that volunteer.

2. The second portion of the “Who is an insured” section identifies covered persons when a loss or suit involves vehicles. With respect to liability relating to the ownership, maintenance, or use of “covered autos,” the policy language mirrors the Business Auto Policy form. The CLU considers the following parties as covered persons:

a. you are an insured or

b. anyone else while using (with your permission) a “covered auto” you own, hire, or borrow is also an insured.

Note: Coverage is not extended to owner or lender of a “covered auto” unless it is a trailer or semi-trailer. If the owner of a “covered auto” is an employee, there is no coverage nor are family members of an employee covered.

3. Lastly, any additional insured under any policy of “underlying insurance” is automatically an insured under the CLU policy. The umbrella form incorporates additional insured coverage into its wording, eliminating the need for a separate coverage endorsement. The additional insured status is subject to the limitations indicated in the form. In other words, a coverage amount must be shown or exist in the underlying policies or an amount must be required by an eligible contract or agreement. Any payment made for the benefit of an additional insured is subject to policy provisions and limits. The final amount is net of any applicable “underlying insurance”. The additional insured coverage provided in the Umbrella is not broader than coverage provided in the “underlying policy”.

Note: No person or organization is an insured with respect to the conduct of any current or past partnership, joint venture, or limited liability company that is not shown as a Named Insured in the Declarations.

SECTION III – LIMITS OF INSURANCE

1.a.-c. The purpose of this section is to confirm that the limit of insurance shown on the Declarations is the most an insurer is obligated to pay. The total obligation is unaffected by the number of insureds, claims made, “suits” brought, or number of vehicles involved or persons or organization making claims or bringing “suits.”

2.a.-b. The Aggregate Limit shown in the Declarations is the most an insurer will pay for the sum of all “ultimate net loss” (defined in Section V), under Coverage A, Bodily Injury and Property Damage Liability or Coverage B, Personal and Advertising Injury.

3. Subject to the Aggregate Limit, the Each Occurrence Limit is the maximum the applicable CLU insurer will pay for the sum of all “ultimate net loss” under Coverage A because of all “bodily injury” and “property damage” arising out of any one “occurrence.”

4. Similarly, subject to the Aggregate Limit, the Personal and Advertising Injury Limit is the most we will pay under Coverage B for the sum of all “ultimate net loss” because of all “personal and advertising injury” sustained by any one person or organization.

SECTION IV- CONDITIONS

This section is comparable to ISO’s CGL with the exception of the following conditions:

Appeals,
other Insurance
loss Payable
transfer of Defense,
maintenance of Underlying, and
expanded Coverage Territory
which are discussed below.

1. Appeals - If the “underlying insurer” or insured chooses not to appeal a judgment that exceeds the “retained limit,” the CLU insurer has the right to do so, but at the insurer’s own expense. This provision allows the umbrella insurer to protect itself. Unfortunately, when two separate companies provide the underlying and excess layers of coverage, there's a possibility that the excess carrier may not believe a large loss was handled properly. This clause allows an excess carrier to press its interests independently of an underlying insurer that may have conceded a dispute.

2.a-b. Bankruptcy Of Insured – Bankruptcy or insolvency of the insured or of the insured’s estate or of the “underlying insurer” does not affect the CLU insurer’s obligations under this Coverage Part.

3.a c. Duties In The Event of Occurrence, Offense, Claim Or Suit – This condition is an exact replica of what is in the CGL policy. It can't be emphasized enough that an insured is responsible for a serious set of obligations that must be met. Failing to do so can jeopardize coverage.

4.a- Legal Action Against Us – No person or organization has a right under this Coverage Part to join the insurer as a party or otherwise bring us into a suit that is asking for damages from an insured. Neither may any party sue the CLU insurer under this Coverage Part unless and until the party has complied with all of the policy terms. This part of the provision is meant to limit the benefits of the policy to the contracting parties and not provide coverage or defense to other parties involved in the loss or suit who should have their own coverage. It also acts to make sure that a party doesn't try to take shortcuts to filing a lawsuit until that party fulfills all relevant contract conditions.

4.b. A person or organization may sue the carrier to recover on an agreed settlement or on a final judgment against an insured but the insurer will not be liable for damages that are not payable under the terms of the Coverage part or that are in excess of the applicable limit of insurance.

5. Other Insurance

a. This part clarifies the umbrella policy's status as an excess coverage. Its protection does not apply until all viable primary sources of protection first respond to a loss or suit. One exception is when the excess status doesn't exist because another policy is written in a layer above the umbrella.

Part 5.a explains that the excess carrier does not have to provide a legal defense when that is being handled by a primary insurer. However, the umbrella insurer is obligated to make a defense when no underlying carries does. In that instance, the umbrella carrier may be able to legally recover its costs from the primary carrier(s).

b. This part explains that the umbrella policy is only obligated to pay the portion of “ultimate net loss” that it owes. That is the amount that exceeds the amounts owed by any primary sources of coverage that is net of any and all applicable deductibles or self-insured retentions.

6a-c. Premium Audit – Any insurer that writes umbrella coverage will determine the premium according to its rating rules. The bill will be sent to the policy's named insured. The insured is obligated to pay the premium by the applicable due date. The insured also has the responsibility to maintain all records that are relevant to determine a premium for the coverage and the insured must provide this information (via copies) to the carrier.

7a-d. Representation Or Fraud – When an insured receives the umbrella policy, it’s assumed that the insurer can rely on all of the information it used in its decision to write the coverage. The carrier is owed accurate and complete information. If the insured is dishonest or fraudulent (by providing false information or withholding relevant information) the insurer can void the contract, even when a loss is involved.

8. Separation Of Insureds – The insurance provided by the policy, not including the limits of liability or any rights or duties specifically assigned in this coverage Part to the first Named Insured, applies separately to each Named Insured. This condition also applies with respect to a claim or “suit” brought against each named insured.

Note: While insured’s enjoy separate privileges, remember that if a loss arises out of the same occurrence, the policy’s restrictions on maximum payment still controls the loss.

9. Transfer Of Rights Of Recovery Against Others To Us- This condition provides the insurer the rights to recover all or part of any payment made by the insurer on behalf of the insured. Additionally, the insured must do nothing after a loss to impair that right. In fact the insured has a duty to actively cooperate in any effort to subrogate against another party.

10. When We Do Not Renew – If the Umbrella insurer chooses not to renew coverage, written notice will be mailed to the first Named Insured shown on the Declaration not less than 30 days before the expiration dates. Of course, this provision is often superseded by applicable state law.

11. Loss Payable – This provision explains that the umbrella policy is not applicable until an obligation arises to pay the policy's retained limit (as defined within the policy).

12. Transfer of Defense – If a settlement or judgment exhausts the coverage that is due by an applicable primary insurer, that carrier's obligation to provide a legal defense ends. At that time, the umbrella carrier is required to assume a legal defense.

13. Maintenance of Underlying Insurance – This is an extremely important condition. Essentially it requires that the described/listed “underlying insurance” be kept in force. Coverage that is reduced because of responding to valid claims or suits is in compliance with this provision. However, if an insured does not maintain the underlying coverage, the umbrella carrier can operate as though it still existed. The insured has an obligation to tell the umbrella carrier when primary coverage is not in force.

14. Expanded Coverage Territory - As indicated in Section V – Definitions, the coverage territory means anywhere in the world with the exception of any country or jurisdiction, which is subject to trade or other economic sanction, or embargo by the USA. If, however, a “suit” is brought outside the United States, or its territories, and the carrier is prevented from defending the insured, the insured has permission to begin defense of the “suit.” Under that circumstance, the policy obligates the insurer to reimburse the insured for the defense costs. Payment for these expenses would be paid under Supplementary Payments. Reimbursement is limited to reasonable and necessary expenses incurred for the defense of a “suit” seeking damages for which this coverage applies.

Further, the insurer is also obligated to reimburse an insured who is legally obligated to pay for damages resulting from an eligible occurrence. This obligation is triggered when a loss occurs in part of the policy’s “coverage territory” that is outside the USA (including its territories), and applicable law prohibits the carrier to pay on behalf of the insured.

SECTION V- DEFINITIONS

Note: A number of the following terms in this section of the CLU have the same definition used in the CGL.

1a-b.“. “Advertisement” – When an insured distributes product or service information to either the general public or targeted groups, that information is consider to be an advertisement if the information is meant to attract either buyers or potential buyers. The Commercial Umbrella definition is broader than the CGL as it extends to information that is sent or made available electronically. When a Website is involved, the coverage provided by the umbrella does not protect the entire site. Its protection is limited to the area of the site that contains the product or service information.

Any advertisement placed on the Internet must meet the same standards with regard to compliance with the Federal Trade Commission and other agencies such as National Advisory Division (NAD) or the Council of Better Business Bureau as a printed document. Of particular concern are the internal and external risks for the security, confidentiality, and integrity of personal information supplied via the Internet.

2. “Auto”- This definition is the same as what is shown in the CGL.

3. “Bodily Injury”- Umbrella coverage is expanded to include disability as well as mental anguish or other mental injury resulting from “bodily injury,” which avoids the possibility of stacking limits by filing separate personal injury and bodily injury claims.

Personal Injury and Bodily Injury have separate insuring agreements and a separate limit of liability that could, prior to this change in definition, be attached separately in a civil action. This language means either Coverage A or Coverage B will respond but not both.

4. “Coverage Territory” – This is anyplace in the world unless the area is under any sort of economic sanction by the U.S. Government. This provision differs from its peer found in the CGL. The umbrella will provide for a defense for a lawsuit that is filed in a foreign territory and an insured is entitled to a reimbursement for its legal costs. In other words, if required by a foreign jurisdiction, the umbrella policy will act as an indemnity agreement.

5. “Covered Auto” – This term refers to vehicles that are eligible for coverage under the described primary insurance policies. This ties in with the umbrella form's auto coverage.

6. “Employee”- Includes a “leased worker” but not a “temporary worker.” This is the same as the CGL definition.

7. “Executive Officer” - Any person with an office position established by a governing document. Such documents include (but are not limited to) by-laws, corporate charters, company constitutions, etc. This is the same as the CGL definition.

8. “Impaired property” - Refers to tangible property that has been made useless or less useful because of the insured. Specifically, the property must have been damaged because of the insured's product or service or because of the insured's actions (usually a breach of contract). Therefore, impairment can be created by a defective product or by carelessness on the insured's part (same as the CGL).

9. “Insured contract” – This reads the same as the CGL except the Umbrella includes reference to any contract or agreement entered into, as part of your business, pertaining to the rental or lease, by you or any of your “employees, of any “auto. This is another tie-in to the Business Auto Coverage.

10. “Leased Worker” – Same as the CGL.

11. “Loading or unloading” – Same as the CGL.

12. “Mobile equipment” – Same as CGL.

13. “Occurrence” – Same as CGL.

14. “Personal and advertising injury” – Same as CGL.

15. “Pollutants” – Same as CGL.

16a-b.“Pollution cost or expense” - This is a broad definition. It refers to all costs (expenses) related to an incidence of pollution. It may refer to the cost of clean-up, remediation and testing. It also applies to following-up on the effects of the incident. It also refers to government orders to take action because of an actual incident or even absent any particular loss.

17. “Products-completed operations hazards”- This is the same as CGL.

18. “Property damage” – With regard to “covered autos,” “property damage” also includes “pollution cost or expense” to the extent coverage exists in the “underlying insurance” or would have except for the exhaustion of the underlying limits. However, electronic data is not considered tangible property, rather it is a form of information that is handled electronically. It applies to software and hardware and to all types of electronic media.

19. “Retained limit” - The total amount of available primary coverage, whether it consists of a retention or underlying insurance policies.

20. “Self-insured retention” - This refers to the amount that has to be paid by the insured in order to trigger a response from the umbrella policy. The insured's obligation has to be due to a type of loss that is covered by the umbrella, but not by a primary contract. Amounts that the insured has to pay because his primary limits have been exhausted are not considered a self-insured retention.

21. “Suit” – Same as CGL.

22. “Temporary worker” – Same as CGL.

23. “Ultimate net loss”- Refers to the net payment the umbrella is obligated to pay for an eligible loss, settlement or agreement. Such payment does not include recoveries or salvage.

24. “Underlying insurance” - Any contract that appears as a primary policy on the umbrella declarations.

25. “Underlying insurer” - Any insurer that provides described, primary coverage.

26. “Volunteer worker” - Refers to anyone who donates their work. Their work, even though donated, must be directed by the insured. The donated work must not result in compensation. Note: Compensation does not refer to financial payment. It can and does include any significant benefit that is provided in exchange for the work.

Recall that the Umbrella policy includes “volunteer workers” as covered persons to the extent of the duties assigned by the insured.

27. “Your product”- This is the same as the CGL definition, referring to items that are handled, made or distributed by an insured.

28. “Your work” – Refers to work activities that are performed by an insured. Materials and equipment that are part of the work activity is also considered an insured's work, including statements and guarantees about the provided work.

CLU COVERAGE FORM ANALYSIS (12 04 edition)

INTRODUCTION

Insurance Services Office's (ISO) Commercial Liability Umbrella Coverage Form (CLU) is intended to provide additional protection to insureds with substantial assets or exposures.

Note: This discussion is based upon the 12/04 Edition of the program.

The CLU coverage responds as an excess layer, extending the protection of the occurrence and aggregate limits of the following:

Commercial General Liability (CGL),
Commercial Automobile, and
Garage Policies.

Many umbrella policies are still proprietary since they have typically been created and maintained by individual insurers. Because they were developed by various companies for their own use, the form was non-standard in terms of the following:

insuring agreements,
exclusions,
conditions,
definitions,
endorsements, etc.

Shortly after the introduction of their Personal Lines Umbrella, Insurance Services Office (ISO) released their Commercial Liability Umbrella Coverage Form. ISO programs are widely used throughout the insurance industry. The availability of their CLU program should result in a significant level of standardization in this line of business. One characteristic favoring acceptance of this product is that much of the language is patterned after ISO’s Commercial General Liability (CGL) Coverage Form.

Note: This policy is subject to individual state amendatory endorsements as well as the Common Policy Conditions – IL 0017.

SECTION 1 – COVERAGES

COVERAGE A – BODILY INJURY AND PROPERTY DAMAGE

1. INSURING AGREEMENT

1.a. (1) (2) The policy opens with the statement that the insurer is responsible for making certain payments on behalf of the insured. The insuring agreement is conservative, making use of defined terms to lay out the form's financial obligation. Specifically, the carrier agrees to pay the “ultimate net loss” amount that pierces the policy's “retained limit.” However, the loss must involve “bodily injury” or “property damage” and that BI or PD loss must be eligible under the umbrella policy.

12/04 change; This insuring agreement was slightly modified to read more clearly.

The CU 00 01 form is not an indemnity form. Under an indemnity form the company would reimburse losses incurred. The CLU form works in the opposite manner. When a covered event occurs, the insurer assumes the insured's financial responsibility and makes any needed payment that qualifies under the policy terms.

Example: An insured is protected by a CGL and an umbrella policy. A loss occurs and, after using the limit available under the CGL, the insured is still facing an unpaid amount of $179,000.

Scenario A - the umbrella is an indemnity form and Carrier A follows the policy's insuring agreement to the letter. Therefore, the insured must drain his cash account and borrow funds to pay the claimant. After that payment is made, the carrier reimburses the insured.

Scenario B - the umbrella is NOT an indemnity form. Carrier A pays the claimant in the place of the insured.

Avoiding the use of an indemnity contract maximizes the usefulness of an umbrella policy. The form is designed to handle large losses. Its usefulness is diminished if it included a provision that would create cash flow problems and inconvenience to insureds. It could also aggravate litigation problems if it created a significant delay in paying damages to third parties. It could also increase costs if a delay creates higher post-judgment costs (interest) or separate penalties, or even separate bad faith claims.

Example: "Hazy Hangover Bar & Grille" is covered by a CGL with an occurrence and general aggregate of $1,000,000. Hazy's underlying policy includes a liquor liability exclusion but no such exclusion is attached to the Umbrella. A new bartender slips several drinks to an attractive patron. That patron turns out to be a minor who, while returning home from Hazy, causes an auto accident. The damages, although excluded in the CGL, are covered in the Umbrella excess of the “retained limit.”

1.b. (1) (2) (3) In this section, ISO includes language to bar coverage for known injury or damage. This language is currently used in most ISO liability coverage forms. Its purpose is to prevent the policy from responding to any injury or damage known by the insured (or an “employee” of the insured who was authorized to give or receive notice of injury, damage, or claim) before the umbrella policy’s inception. This wording helps to preserve the intent to having a CLU address accidental losses that occur during the policy period, not to make it available as a financial backstop for losses that have already occurred.

“Bodily injury” or “property damage” coverage applies only when none of the following parties has knowledge of the BI or PD before the policy's initial effective dates:

insured or
“employee” of the insured given authority to give or receive notice of an “occurrence” or claim

1.c. This provision clarifies the eligibility of “bodily injury” or “property damage” further. If a BI and/or PD loss takes place during the policy period and then it either continues, changes its scope or resumes after the policy period ends, that event is eligible for coverage under the CLU. However, coverage only applies if the event happened without prior knowledge of the same parties referenced earlier in the insuring agreement.

Example: Scenario 1: Kropcover Kings, a large crop dusting company, is insured by a CLU. They are sued by a neighboring company when that business's premises is sprayed with a fungicide by one of Kropcover's planes. A canister on one of their planes ruptured shortly after the plane took flight, inundating the plaintiff's buildings, parking lot and employees with the harmful chemicals. The canister, which was delivered to Kropcover two days before the CLU policy took effect, was severely damaged during shipment. The deliveryman failed to tell anyone at Kropcover that he dropped the canister when he loaded it onto and later while taking it off his company's truck. The damage to a valve was not evident, so it was put into regular service. This loss would be covered.

Example: Scenario 2: Kropcover Kings is sued under the exact same circumstances as the first scenario with one important difference. When the canister was delivered, the Kropcover warehouse manager witnessed the deliveryman dropping the canister. While they examine it, the deliveryman admits that it's the second time the canister was dropped. The manager notices some slight damage, but goes ahead and accepts it. When their CLU insurer discovers this information, the loss is denied.

2. EXCLUSIONS

The Umbrella exclusions are typical liability exclusions that parallel those found in the CGL.

b. Contractual Liability is excluded except in the following instances:

the liability is created by an agreement that qualifies as an “insured contract” and the “bodily injury” or “property damage” takes place after the contract or agreement was implemented, or
the insured would have been liable even in the absence of a contract or agreement.

d. Workers’ Compensation and Similar Laws exclusion is inserted to avoid duplicating coverage that is provided in the workers compensation policy.

e., h., j., k. The ERISA and Employment-Related Practices, Watercraft, Aircraft, and Racing Activities exclusions are also typical CGL policy exclusions.

12 04 Edition Change: Under the latest edition, exclusion j. "Aircraft Or Watercraft of the CLU Coverage Form" was changed. The latest wording was modified. A new paragraph attempts to bar BI or PD losses from negligent employer practices whenever such losses also involve watercraft or aircraft. The exclusion applies to any incidence of use for either owned, rented or borrowed craft.

g. Similar to the Workers Comp exclusion, the Employer’s Liability exclusion also exists to avoid duplication of coverage, in this instance, by an employer's liability policy. However, excess coverage for employer's liability exposures is available under the Umbrella if an Employer’s Liability policy is shown in the schedule of underlying coverages on the Umbrella Declarations.

l. War

12 04 Edition Change: This exclusion was changed to become more specific. The previous edition's wording has been replaced with the wording previously used in mandatory form CU 00 02. The exclusion is a separate bar to coverage for BI or PD losses involving war or war-like activity.

m. Damage To Property exclusion is very similar to that found in the CGL. In other words, no coverage applies under the umbrella for loss, damage or destruction to property that has any incident of ownership or control by an insured.

Example: Klutz Office Supplies is covered by a CLU Policy. During an extended surge in business, Klutz rents warehouse space from a neighboring firm. While using the property, a new Klutz employee crashes a forklift into one of the warehouse's load-bearing beams. The building collapses shortly afterwards. City authorities close down the multi-unit warehouse and office facility for the three weeks it takes to repair the structural damage. Neither the building damage, loss of merchandise, nor the damage equipment is eligible for any coverage. Why not? Because the warehouse and all property were either owned, controlled or rented to Klutz.

Interestingly, with regard to damaged property, the umbrella policy contains language that excludes any coverage for expenses incurred for repairs made on the insured’s own property. The exclusion applies regardless the reason for any such repairs. These exclusions were prompted by the ruling passed down in Aetna Insurance Company v. Aaron, 112 Md. App. 472.685 A.2d 858 (1996). In this case, the Maryland Court of Special Appeals held that an insurer was obligated to defend and indemnify the insured in a suit brought by the insured’s condominium association. The association sued to recover costs resulting from repairs it made to the insured’s condominium. The association alleged that the repairs were necessary to prevent additional damage to another condominium owned by a third party.

n., o., p., q. Damage To Your Product, Damage To Your Work, Damage To Impaired Property or

Property Not Physically Injured and Recall of Products, Work, Or Impaired Property. These exclusions deny coverage for “bodily injury” or “property damage” resulting from the insured’s product or work. The comprehensive provisions also bar recovery for any loss involving a defective component or a failure to perform as described in the terms of a contract. Neither is there coverage for loss, cost, or expense of a product being withdrawn, recalled, inspected, or repaired or destroyed because of a known or suspected defect.

Example 1: Grill-rilla Ltd. manufactures gas grills including their fuel tanks. Joe buys a Grill-rilla grill and uses it frequently over the summer. One day Joe's grill malfunctions (a defective temperature control). The grill melts down and starts a fire. The grill's fuel tank explodes and destroys a wall of Joe's home. Joe and his younger children (who were in the room on the opposite side of the destroyed wall) were seriously injured. While Grill-rilla's CLU would be available to handle the PD and BI, there is no coverage for the destruction of the Grill-rilla grill.

Note: The insured could have a course of action against a supplier if it is determined that the part or component provided by the supplier did, in any way, contribute to the malfunction.

Example 2a: The insured is a roofing contractor and completes a job. Afterwards, during a rainstorm, the client discovers leakage coming from the roof. It is determined that the leakage is the result of defective craftsmanship. In this case there is no coverage.

The umbrella policy does have an exception to the exclusion. It applies to work performed by a subcontractor hired by the insured. If the damage is the result of the subcontractor’s completed work, the insured would have coverage.

Example 2b: The insured is a general contractor and completes a job. The insured subcontracted part of the project to a roofing contractor. Afterwards, during a rainstorm, the client discovers a serious leak in the new roof. It is determined that the cause of the leakage is the result of defective craftsmanship. The client sues the general contractor. In this case the umbrella would provide coverage.

Example 3: The insured manufactures a switch that is sold to another company. The second company uses the switch as a component in an electric starter. The switch turns out to be defective, which means the starter will not work. The starter is impaired but not damaged. The cost to repair or replace our insured’s defective switch is not covered.

Example 4: The insured, a tire manufacturer, knows about a change in the manufacturing process that could result in a batch of tires being defective. Notwithstanding this report, large numbers of tires are shipped to various distributors. A problem with the tires surfaces and it becomes apparent that immediate action is necessary. The tires are recalled for replacement. There is no coverage for any of the tire recall expenses.

Example: Kondescension Kontractors is insured by a CGL and a CLU. They are hired by a local medical group to build a small clinic. A year later, the medical group asks Kondescension to add a wing onto the original building. Kondescension's chief project manager draws up plans for the addition and it is built. Later, part of the wing collapses and an inspection reveals it was caused by a flaw in the project manager's plans. The costs of repairs and extra expense to correct the design are not covered by the CLU because it arose from an engineering service.

Note: The CLU can be easily modified to provide protection for this exposure by attaching CU 24 23, Coverage For Professional Services.

12 04 Edition Change - the following exclusion was added with the new (12 04) edition of the CLU program.

t. Electronic Data - this item denies coverage for loss that is related to the loss and/or destruction of computer information. The way such data is stored (media) or used (access on an internal computer or transmitted or received via the Internet, e-mail, etc.) does not affect its eligibility. The property is not covered by the CLU.

Note: The way the latest edition of the CLU handles electronic data may cause confusion. The exclusion explains what is meant by "electronic data" and this same explanation is used in the policy's reference to Property Damage. In that section, electronic data is mentioned as not being considered tangible property. However, the policy does not include electronic data in its Definitions Section. For clarity's sake, it should be a defined termed that is referenced properly.

COVERAGE B- PERSONAL AND ADVERTISING INJURY LIABILITY

INSURING AGREEMENT

12/04 change: This insuring agreement was slightly modified to read more clearly.

1.a. The insuring agreement for Coverage B acts similarly to the insuring agreement for Coverage A – Bodily Injury except, in this portion of the policy, we are dealing with “personal and advertising injury”. “Personal and advertising injury” includes both direct and consequential “bodily injury” that result from a wide variety of offenses. Items qualifying as personal and advertising injury include false arrest, detention or imprisonment, or malicious prosecution. It also includes wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling, or premises when such an action is committed by or on behalf of the site’s owner, landlord, or lessor.

Example: Maintoywne Inkpress is a printing shop that is covered by a Commercial Umbrella. Maintoywne's owner rents out several rooms above the shop and the rooms have a separate back entrance. The renter is a young office worker. The office worker gets into trouble with members of a local gang. One night, several gang members bust into the apartment and throw the office worker out, warning him not to come back for several days. This incident would not qualify as a “personal injury” because it did not directly or indirectly involve the insured.

Example: Again we have Maintoywne Inkpress, whose owner rents the rooms above his shop to a young office worker. After his shop is broken into and a new copier is stolen, Maintoywne's owner suspects his renter was involved with the theft. The owner changes the locks on the rented rooms and tells the office worker that he won't let him in until he tells what he knows about the theft. This deprivation of living space could qualify for coverage if the renter decides to file suit.

Other items that qualify as “personal and advertising injury” are oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products, or services; or that violates a person’s right of privacy. The use of another’s advertising idea in your “advertisement” or infringing upon another party’s copyright, trade dress, or slogan in your “advertisement” also qualify as personal or advertising injury.

Example: A local antiques shop puts up several billboards which brag that it is in the most desirable business location in the region. It also includes an inspiring location description. A realtor sues the antique shop when she realizes that the billboard contents were taken verbatim from the real estate ad she wrote years earlier in order to sell commercial lots at that business site. The antique shop's Commercial Umbrella insurer denies to defend the own because the billboard has nothing to do with the shop's good's or services.

For the purpose of the policy definition, published notices include material distributed on the Internet and by other similar electronic methods. When promotional material appears on a Web site, only that part of the site that is about an insured’s goods, products, or services is considered an advertisement.

Example: A lawn equipment manufacturer publishes an ad on part of the “Outdoorists Today” Website. The ad appears on a corporate sponsor page that links to the home page. “Outdoorists Today” is sued by “Outsiders Forever,” who claims that the former stole the graphics used on the home page. Although the insured ad appears on the “Outdoorists Today” site, the commercial umbrella would not respond to the suit because it did not involve the insured’s ad area.

In accordance with rapid technological advancement, ISO’s Commercial Umbrella language expands on ISO CGL “personal and advertising injury” offenses to incorporate language for Internet liability and other electronic communications. This coverage, however, is excluded for web-site designers, Internet access and service providers (except for posting links, frames or borders), electronic chat rooms, or bulletin boards. The inclusion of this language is in recognition of the increased use of the Internet by commercial business owners and clarifies the extent of coverage provided by the Umbrella product. Court cases such as Lunney v. Prodigy Services Co., 94 N.Y. 2d. 242, 701 N.Y.S. 2d 684, 723 N.E. 2d 539 (1999) precipitated ISO’s development of this language. Briefly, this involved a plaintiff suing an Internet Service Provider (ISP), alleging that the latter failed to do its duty to protect subscribers. The plaintiff alleged damages because an unidentified imposter stole the plaintiff's identity in order to open several e-mail accounts. The anonymous user then sent inappropriate and threatening posts to several parties vial e-mail and through posts in chat rooms. Essentially, the court upheld a lower court decision that the ISP was not a publisher, but only acted passively in allowing information to be transmitted. It was not held liable for the messages that hurt the reputation of the plaintiff.

1.b. Personal Injury and Advertising Injury coverage is only applicable to an eligible offense that occurs:

in the “coverage territory” and
during the policy period.

EXCLUSIONS

A wide variety of causes of loss are barred from recovery under Coverage B of the CLU.

a. (1) Knowing Violation Of Rights of another prohibits coverage for an act that infringes on the rights of another party. The exclusion is valid regardless whether the damage or injury is due to an insured’s direct action or is done on the orders or instructions of an insured.

Example: M.C. ME, a famous rap artist, repeatedly refuses an interview with “Tell-All” Magazine. Tell-All is insured under a CLU. A Tell-All editor orders his reporter/photographer to “come back with something” on the uncooperative star or “don’t come back at all.” The reporter resorts to climbing trees outside the artist’s residence in order to take photos of the artist while inside the home. If the artist sues, and it is determined that rights of privacy were violated, there is no coverage.

a. (2) Material Published With Knowledge Of Falsity arising out of the oral or written publication of material, which is known to be untrue, is not covered.

Example: Scenario A - "Tell-All” Magazine publishes the photos and an "insider's article" featuring M.C. Me. The photos and article were provided by the photographer/reporter from the previous example. M. C. Me sues "Tell-All," claiming that the story's references to drug and criminal behavior are false. "Tell-All"'s umbrella insurer tells the publisher that it is dropping its defense of the suit. During the claim investigation, the photographer/reporter admits that he fabricated his "insider" source in order to create a hot story.

Example: Scenario B - "Tell-All” Magazine publishes the photos and an "insider's article" featuring M.C. Me. The photos and article were provided by the photographer/reporter from the previous example. M. C. Me sues "Tell-All," claiming that the story's references to drug and criminal behavior are false. "Tell-All"'s umbrella insurer defends the magazine. As it turns out, the photographer/reporter based his article on a number of stories provided to her by a third-party who used to be employed by M.C. Me. The former employee made up the stories he told to the reporter. He wanted revenge against the loss of his job.

a. (3) Material Published Prior To Policy Period as a result of oral or written material that was first published prior to the start of the policy period – no coverage.

Example: Playmasters Inc., a sports equipment manufacturer, is sued by a group of irate customers. The customers are a group of golfers who allege that Playmaster's ads about their product, "Perfekputter" were false and misleading. Playmasters files notice of the suit with its umbrella carrier. The carriers deny the claim. Its umbrella policy was issued with effective dates of 2-10-2003 to 2-10-2004. The ads ran during the 2002 holiday shopping season. Of course, even if the ads ran during the policy period, the insurer could invoke the exclusion under a.(7) below.

a. (4) Criminal Acts are excluded.

Example: A reporter breaks into a building to photocopy confidential records used in a newspaper story that is later published.

a. (5) (a) (b) and (6) Contractual Liability and Breach of Contract in which the insured agrees to accept some risk of loss in writing. Later when a related loss occurs, there is no coverage. However, contractual liability does not affect coverage if the contract involves a source of loss that the umbrella insures against such as false arrest or if the assumed liability would have existed even without a contract. Further, loss related to a contractual breach does not qualify for coverage. There is protection in one limited event. The umbrella will respond to a breach of an implied contract involving one party's use of another party's advertising idea.

a. (7) Quality Or Performance Of Goods – Failure To Conform To Statements arising out of the insured’s product, goods, or services to perform as indicated in an “advertisement” is excluded.

Note: See the example under a.(3) above.

a. (8) Wrong Description of Prices – no coverage exists for losses that occur as a result of a wrong description for goods, products, or services stated in an “advertisement”.

Example: Merciless Used Motors is sued by a group of customers when it refuses to sell the previously owned vehicles that an ad listed as selling for $19.99 instead of $1,999. This suit does not qualify for coverage under the umbrella.

a. (9) Infringement Of Copyright, Patent, Trademark, Or Trade Secret incidents are likely to increase as a result of the Internet. ISO added a specific exclusion to reinforce that the fact that coverage does not exist for infringement of intellectual property. However, there is an exception. Coverage B of the CLU does cover infringement of copyright, trade dress, or slogan in an “advertisement.”

a. (10)(a)(b)(c), (11), and (12) Insureds In Media And Internet Type Businesses, Electronic Chatrooms, Or Bulletin Boards, Unauthorized use of Another’s Name Or Product. This group of exclusions helps clarify the extent of coverage previously mentioned in the insuring agreement. Coverage is provided for placing of frames, borders or links, or advertising, for you or others anywhere on the Internet in as much as this is considered outside the business of advertising, broadcasting, publishing, or telecasting. However, this area will continue to be developed and refined. For instance, how does one answer the question “What is an Internet Type Business?” Certainly some such businesses must or will likely soon exist which, while operating via the Internet, may be quite distinct from operations with heavy “media” type exposures. Coverage language must be developed to handle them. One step may be to have the term defined or, at a minimum, be provided with a reference to firms that typify such businesses. On the downside, insurers must also anticipate courtroom challenges over current language and interpretation.

a. (13), (14), and (15) Pollution, Employers Liability, and Professional Services exclusions are similar to Coverage A exclusions for Pollution, Employment Related Practices, and Professional Services. These coverages are more appropriately written on specialty products.

SUPPLEMENTARY PAYMENTS – COVERAGES A AND B

a. All handling costs that result from the insurer's involvement with the claim or suit.

b. Bail Bonds - The CLU offers a maximum of $2000 to pay for bail bonds (including bonds for related traffic law violations) required because of an occurrence we cover. As is typical in most policies, the insurer does not have a responsibility to provide any actual bond.

c. Attachment Bond - the policy will pay for bonds to lift attachments. However, these payments are limited to bond amounts that don't exceed the applicable limit of insurance. Again, the carrier has not obligation to provide the actual bonds.

d. Expenses created at the insurer's request - this supplemental coverage handles costs to an insured that exist because the insured is asked to help with a claim or suit investigation. One category of expense is a maximum daily limit of $250 for lost earnings.

e. Taxes related to suit costs - the carrier will handle such costs.

f. Prejudgment interest - this supplemental coverage is all about timing. It obligates the carrier to pay interest on awards levied against an insured that are made before the carrier makes an offer to settle that is equal to the policy limit (that applies to the suit). This obligation is also ended when the applicable limit is exhausted. After either event, additional interest is the insured's problem.

g. Other judgment interest - this is handled similarly to item f. above, regarding post judgment interest amounts. The carrier's obligation concerns interest that all interest on the full amount of any judgment that builds between the period that the judgment is made and until and offer of limits is made, the policy limits have been used up or the amount (subject to policy limits) have been turned over to a court (deposited).

2. Impact on limits - this provision confirms that the supplemental coverages are in addition to any applicable limit, rather than a part of the limit. Further, the umbrella insurer also bears the cost of any expense related to its right to look into a loss that may affect their coverage.

Example: Justjumpin Gym Inc. makes gym and playground equipment. It is insured by two different carriers, one providing a CGL and the other a commercial umbrella. Earlier in the year, they were sued by a customer who had their Justjumpin 2000 mega playset collapse during a birthday party. Nearly a dozen young children were seriously injured. To date, only the CGL insurer is involved. However, the umbrella insurer has spent more than $10,000 to keep tabs on the progress of the lawsuit which threatens to pierce the limits of the underlying coverage.

3. a-f. In addition, when the insurer defends the insured against a “suit” and an indemnitee of the insured is also named, the insurer will defend the indemnitee if the conditions specified in the policy form are met. In particular, the insured’s relationship with the indemnitee has to be related to an “insured contract” (refer to item 9. below in the Definitions discussion). Further, the liability the insured acquires under the contract has to be the sort that qualifies for coverage under the CLU. Other pieces must also fall into place before the insurer will defend BOTH the CLU insured and an indemnitee. The obligation to defend the indemnitee must also have been part of an insured contract. The insurer must be able to control the suit’s defense, having the ability to have their choice of legal representative handle matters.

Conflict of Interest

assist the carrier with handling the lawsuit
send copies of all suit-related paperwork to the insurer
contact all carriers who may provide coverage to the indemnitee
help the insurer with respect to other available coverage
give the insurer permission to access relevant records
don't interfere with the insurer's control of the suit's defense

SECTION II – WHO IS AN INSURED

1. The first section identifies insureds with respect to liability arising out of an operation, namely:

a. Each named insured as designated in the Declarations:

(1) An individual, including spouse

Note: Insured status is gained only for business operations in which such individuals are sole proprietors. Otherwise, it is the legal business entity that is the rightful insured (see below).

(2) Partnership/joint venture

Example: Davis & Jones Courier Service is insured by a BOP and a CLU. One day, a husband of the senior partner helps out when a driver is ill. While using a partnership van to make a crosstown delivery, he loses control of the van and slams into a crowd at a street corner. The umbrella will respond to this loss.

(3) Limited liability company (LLC)

Under this entity type, LLC members and managers are given insured status. However, members are only protected for business activities and managers are protected within the scope of their job.

(4) Corporations

(5) Trusts

Under this legal arrangement, the agreement's trustees gain insured status while handling their trust-related responsibilities.

b. Volunteer Workers

Example: Galactic Music Palace is insured by a CGL and a CLU. The huge store is celebrating its 10^th anniversary and is throwing a party. The store didn't want to pull employees off the sales floor, so they enlisted a couple dozen volunteers to entertain customers and their children. One volunteer is supervising activity at a "moonwalk." A few older kids start rough-housing and the volunteer tries to settle things down. As he attempts to get the "ringleader" off the moonwalk, the child loses his footing, falling onto the asphalt sidewalk and is seriously injured. The umbrella would respond to this loss.

2. The second portion of the “Who is an insured” section identifies covered persons when a loss or suit involves vehicles. With respect to liability relating to the ownership, maintenance, or use of “covered autos,” the policy language mirrors the Business Auto Policy form. The CLU considers the following parties as covered persons:

a. you are an insured or

b. anyone else while using (with your permission) a “covered auto” you own, hire, or borrow is also an insured.

Note: Coverage is not extended to owner or lender of a “covered auto” unless it is a trailer or semi-trailer. If the owner of a “covered auto” is an employee, there is no coverage nor are family members of an employee covered.

3. Lastly, any additional insured under any policy of “underlying insurance” is automatically an insured under the CLU policy. The umbrella form incorporates additional insured coverage into its wording, eliminating the need for a separate coverage endorsement. The additional insured status is subject to the limitations indicated in the form. In other words, a coverage amount must be shown or exist in the underlying policies or an amount must be required by an eligible contract or agreement. Any payment made for the benefit of an additional insured is subject to policy provisions and limits. The final amount is net of any applicable “underlying insurance.” The additional insured coverage provided in the Umbrella is not broader than coverage provided in the “underlying policy.”

SECTION III – LIMITS OF INSURANCE

1.a.- c. The purpose of this section is to confirm that the limit of insurance shown on the Declarations is the most an insurer is obligated to pay. The total obligation is unaffected by the number of insureds, claims made, “suits” brought, or number of vehicles involved or persons or organization making claims or bringing “suits.”

2.a-b. The Aggregate Limit shown in the Declarations is the most an insurer will pay for the sum of all “ultimate net loss” (defined in Section V), under Coverage A, Bodily Injury and Property Damage Liability or Coverage B, Personal and Advertising Injury.

Example 1: An insured manufactures and installs outdoor playsets. After installation of the equipment and once put to its intended use, a toddler is seriously injured. A court finds the manufacturer liable for the injury and the plaintiff is awarded $4,000,000. The insured carries a CGL policy that covers product-completed operations with an occurrence limit of $1,000,000. The insured also has a $10,000,000 Umbrella Policy. Once the underlying CGL occurrence limit is exhausted, the Umbrella covers the remaining $3,000,000.

Example 2: Our insured’s employee, while driving a “covered auto” described as a tractor-trailer, is hauling company goods. While operating the vehicle, the employee falls asleep and runs into a domestic-made mini van occupied by a family of four. Three of the family members are severely injured and, subsequently, they sue to recover damages. The employee is judged negligent and liable. A settlement of $3,500,000 is reached. The employer’s Commercial Auto Policy responds as primary insurance, paying the first $1,000,000. The insured’s Commercial Umbrella Policy covers the balance.

Example 3: An insured manufactures a component used in aircraft engines. The insured has a CGL policy in place with a $500,000 occurrence limit. The policy excludes products. The insured also purchases a $5,000,000 Umbrella policy with a $100,000 self-insured retention. The Umbrella does not contain policy wording or an endorsement that exclude products coverage. After 20 years in business without a loss, the insured modifies the design of the part to reduce its production costs. Unfortunately, the new design proves to be defective in its application. An aircraft, with an engine that includes the insured’s component, stalls causing the plane to go into a tailspin. Although, the pilot is able to recover control of the plane and land the aircraft safely, there are a number of passenger injuries. Ultimately, it is determined that the insured’s component led to the engine malfunction. The total of the settlement was $2,500,000. The carrier issuing the CGL policy with the products exclusion denied the claim. The Umbrella policy will respond as primary insurance for the entire amount because the Umbrella does not exclude products coverage. However, the insurer’s payment is excess over the insured’s $100,000 SIR.

SECTION IV- CONDITIONS

This section is comparable to ISO’s CGL with the exception of the following conditions:

Appeals,

other Insurance
loss Payable
transfer of Defense,
maintenance Of Underlying, and
expanded Coverage Territory
which are discussed below.

5. Other Insurance

Example: Stumblebum Industries manufactures power tools. It is insured as follows:

Company A - CGL with $1,000,000 Aggregate Limit

Company B - CLU with $1,000,000 Aggregate Limit

Company C - Excess Layer $2,000,000 Aggregate Limit.

A Stumblebum sales rep is demonstrating their new line of pneumatic tools at a consumer fair when a compressor explodes. The damages and injuries exceed $4,000,000. In this instance, Company B does not have to respond to the loss until Company A fulfills its payment obligations. However, Company B must respond BEFORE Company C because the latter company's coverage is a second layer of excess protection.

Part 5.a explains that the excess carrier does not have to provide a legal defense when that is being handled by a primary insurer. However, the umbrella insurer is obligated to make a defense when no underlying carries does. In that instance, the umbrella carrier may be able to legally recover its costs from the primary carrier(s).

Note: While insured’s enjoy separate privileges, remember that if a loss arises out of the same occurrence, the policy’s restrictions on maximum payment still controls the loss.

Example: Do Right Casualty Co. wrote a policy for Bigloss Manufacturing with policy effective dates of 1-1-2003 to 1-1-2004. Because of problems with the account, a Do Right senior underwriter sent out a notice of non-renewal on 11/28/03 and Bigloss received it on 12/1/03. The chief financial officer of Bigloss sent a letter to Do Right, demanding that they send a renewal policy effective 12/1/04 to 12/1/05. With the letter, he enclosed an excerpt from the Anystate Insurance Code. It clearly said that insureds must receive 45 days advance notice for nonrenewal. Do Right immediately processed the renewal.

11. Loss Payable – This provision explains that the umbrella policy is not applicable until an obligation arises to pay the policy's retained limit (as defined within the policy).

SECTION V- DEFINITIONS

Note: A number of the following terms in this section of the CLU have the same definition used in the CGL.

1a-b. “Advertisement” – When an insured distributes product or service information to either the general public or targeted groups, that information is consider to be an advertisement if the information is meant to attract either buyers or potential buyers. The Commercial Umbrella definition is broader than the CGL as it extends to information that is sent or made available electronically. When a Website is involved, the coverage provided by the umbrella does not protect the entire site. Its protection is limited to the area of the site that contains the product or service information.

2. “Auto”

12/04 Change: - This definition was revised with the intent to have it match the meaning of the term used in the CGL and Commercial Auto forms. The term is now defined in two parts, with specific mention that the term does not apply to motorized property that meets the separate definition of "mobile equipment." Autos are, essentially, vehicles operated on public roads and/or are subject to vehicle registration and financial responsibility laws.

Example: While traveling on business, Sondra is browsing through a department store. The store is insured under a CLU. Through an unfortunate set of circumstances, Sondra is detained for shoplifting. She is forced to stay overnight in jail and this results in her missing an appointment with an important client. Sondra becomes so emotionally agitated, having to explain the situation to her employer as well as the customer, that she has a stroke. After the unfortunate mix-up is cleared-up, Sondra and her employer sue the department store. The store's CLU treats Sondra's injuries as a single BI claim.

Under the CLU, Personal Injury and Bodily Injury have separate insuring agreements and a separate limit of liability that could, prior to this change in definition, be attached separately in a civil action. This language means either Coverage A or Coverage B will respond but not both.

4. “Coverage Territory” – This is anyplace in the world unless the area is under any sort of economic sanction by the U.S. Government. This provision differs from its peer found in the CGL. The umbrella will provide for a defense for a lawsuit that is filed in a foreign territory and an insured is entitled to a reimbursement for its legal costs. In other words, if required by a foreign jurisdiction, the umbrella policy will act as an indemnity agreement.

5. “Covered Auto” – This term refers to vehicles that are eligible for coverage under the described primary insurance policies. This ties in with the umbrella form's auto coverage.

6. “Employee”- Includes a “leased worker” but not a “temporary worker.” This is the same as the CGL definition.

7. “Executive Officer” - Any person with an office positions established by a governing document. Such documents include (but are not limited to) by-laws, corporate charters, company constitutions, etc. This is the same as the CGL definition.

9. “Insured contract” – This reads the same as the CGL except the Umbrella includes reference to any contract or agreement entered into, as part of your business, pertaining to the rental or lease, by you or any of your “employees,” of any “auto.” This is another tie-in to the Business Auto Coverage.

10. “Leased Worker” – Same as the CGL.

11. “Loading or unloading” – Same as the CGL.

12. “Mobile equipment” – As it is in the case with the CGL, the definition of this term is extensive. The term specifically mentions bulldozers, forklifts, vehicles with treads and similar equipment (and their attachments) as mobile equipment, unless it is subject to vehicle registration or compulsory insurance laws.

The 12/04 Edition of the CLU was changed to dovetail with the policy's definition of "auto," in the hope that the term terms would clearly separate the two types of motorized property.

13. “Occurrence” – Same as CGL.

14. “Personal and advertising injury” – Same as CGL.

15. “Pollutants” – Same as CGL.

16a-b. “Pollution cost or expense” - This is a broad definition. It refers to all costs (expenses) related to an incidence of pollution. It may refer to the cost of clean-up, remediation and testing. It also applies to following-up on the effects of the incident. It also refers to government orders to take action because of an actual incident or even absent any particular loss.

17. “Products-completed operations hazards”- This is the same as CGL.

18. “Property damage” – With regard to “covered autos,” “property damage” also includes “pollution cost or expense” to the extent coverage exists in the “underlying insurance” or would have except for the exhaustion of the underlying limits. However, the term does not apply to electronic data. Property damage refers to tangible property rather than information that is handled electronically (intangible). It applies to software and hardware and to all types of electronic media.

19. “Retained limit” - The total amount of available primary coverage, whether it consists of a retention or underlying insurance policies.

20. “Self-insured retention” - This refers to the amount that has to be paid by the insured in order to trigger a response from the umbrella policy. The insured's obligation has to be due to a type of loss that is covered by the umbrella, but not by a primary contract. When a loss is covered by a primary policy, the CLU does not respond until the primary limit is exhausted.

Amounts that the insured has to pay because his primary limits have been exhausted are not considered a self-insured retention.

21. “Suit” – Same as CGL.

22. “Temporary worker” – Same as CGL.

23. “Ultimate net loss”- Refers to the net payment the umbrella is obligated to pay for an eligible loss, settlement or agreement. Such payment does not include recoveries or salvage.

12 04 Change: The definition was altered slightly to make it plain that the CLU's financial obligation is to respond to payments consisting of damages.

Important: Even with this clarification, it may be debatable that the CLU would respond to, for instance, punitive damages.

24. “Underlying insurance” - Any contract that appears as a primary policy on the umbrella declarations.

25. “Underlying insurer” - Any insurer that provides described, primary coverage.

26. “Volunteer worker” - Refers to anyone who donates their work. Their work, even though donated, must be directed by the insured. The donated work must not result in compensation. Note, compensation does not refer to financial payment. It can and does include any significant benefit that is provided in exchange for the work.

Recall that the Umbrella policy includes “volunteer workers” as covered persons to the extent of the duties assigned by the insured.

27. “Your product”- This is the same as the CGL definition, referring to items that are handled, made or distributed by an insured.

CU 00 01–COMMERCIAL LIABILITY UMBRELLA COVERAGE FORM ANALYSIS

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 not included or provided in the underlying coverage forms or policies. Its purpose is to provide additional insurance protection to insureds with significant assets or exposures.

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

COVERAGE FORM ANALYSIS

This coverage form begins by stating that certain of its provisions restrict coverage and encourages the named insured to carefully read it in order to understand its rights and duties and to determine what is covered and not covered. It also points out that the terms you and your to refer to the named insured and that an insured is any person or entity qualifying as such under Section II–Who Is An Insured. The terms we, us and our refer to the insurance company providing the coverage. Reference is made to Section V–Definitions because understanding the definitions is critical to understanding the coverage form.

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 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.

Any duty to defend does not apply if coverage would not be available for the alleged injury or damage. 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 exhausted by payment of judgments and settlements. The only obligations the insurance company owes to the insured are those described above and within Supplementary Payments.

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.

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 and one 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 A: 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 B: The umbrella is not an indemnity form. The insurance company pays the remaining $179,000 on behalf of Main Street.

Note: Avoiding use of 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 inconvenience to the insured. Handling claims in 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. Coverage applies only if the bodily injury or property damage is caused by an occurrence that takes place in the coverage territory during the policy period.

Example: Carrie slips and falls on a banana peel left on the sidewalk. When did this occurrence begin? Was it when the banana peel was dropped on the sidewalk or when Carrie slipped on it? If the banana was dropped on the United States side of the border but Carrie stumbled and fell in Canada, where did the loss occur? If Carrie picked herself up and continued her walk but then collapsed from back spasms two weeks later, when did the bodily injury occur? Was it when it manifested or when the injury occurred? Unfortunately, the answers to these questions are not consistent in all jurisdictions. State law 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 situation that leads to the bodily injury or property damage may occur long before and even at some distance from where the bodily injury or property damage actually manifests.

Insurance applies to bodily injury or property damage but only if no insured or employee it authorized to give or receive notices of claims was aware that a loss had occurred before the inception date. A covered event that took place before the inception date that continues into the policy period, changes in scope, or resumes during the policy period is considered known by the insured before the policy period and is excluded.

c. Bodily injury or property damage that occurs during the policy period that was not known prior to the policy period to have occurred by any insured, or employee it authorized to give or receive notices of claims, includes any continuation, change or resumption after the policy period ends.

Example:

Scenario 1: Kropcover Kings is a large crop dusting company and is insured under an umbrella. Al's Alfalfa, a neighboring business, sues Kropcover when one of its planes sprays a fungicide on Al's premises. This happened shortly after take-off when the fungicide canister on the plane ruptured and drenched Al's buildings, parking lot and employees with the harmful chemical. Subsequent investigation determined that the canister was delivered to Kropcover two days before the umbrella's inception date and was badly damaged during shipment. The deliveryman did not inform anyone at Kropcover that he dropped the canister when he unloaded it from his company's truck. Since the damage to the canister's valve was not evident, it was put into regular service. This loss is covered.

Scenario 2: Kropcover Kings is sued under exactly the same circumstances as in the first scenario with one important difference. The Kropcover warehouse manager observed the deliveryman drop the canister when he delivered it. Upon examining it, the deliveryman admitted it was the second time he had dropped it. The manager noticed some slight damage but decided to accept it anyway. When Kropcover's umbrella carrier learned about this, it denied the loss and advised Kropcover to submit the loss to its previous carrier.

d. Bodily injury or property damage is considered known by any insured or by its employee it authorized to give or receive notices of claims when the earliest of any one of these events occurs:

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
Fist becomes aware in any other way that bodily injury or property damage has either occurred or has begun to occur

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

Example: Penelope slipped on spilled coffee on the floor at Melville’s Fish 'n Fries on 01/05/11. She struck her head, never regained consciousness, and died on 06/02/12. Penelope's family filed a claim for wrongful death against Melville's and the coverage form that responded was the one in effect on 01/05/11, not the one in effect on 06/02/12.

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 resulting 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 and is in the public interest. It ensures that the insured will not use the insurance coverage for gain, such as theft, 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.

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 that:

The insured would have had if there was no contract or agreement
The insured assumed in an insured contract or agreement. 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 determined to be damages because of bodily injury or property damage are also covered, 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

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. The Supplementary Payments section should be reviewed to determine when the defense of an indemnitee and payment of an indemnitee’s defense expenses is included outside the limits.

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.

c. Liquor Liability

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

Causing or contributing to the intoxication of any person
Furnishing alcoholic beverages to a person under the legal drinking age or who is already under the influence of alcohol
Any law relating to the sale, gift, distribution or use of alcoholic beverages

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

This exclusion has an exception. If there is valid underlying liquor liability coverage, or there would have been except for the bodily injury and property damage limits being exhausted, the umbrella becomes following form coverage with respect to the provisions, exclusion and limitations in the underlying coverage.

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: The intent of this exclusion and the Employers Liability exclusion is to eliminate the possibility of the insured being indemnified under this coverage form for an injury covered by workers compensation or employer’s liability policies.

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.), including its subsequent amendments 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 a covered auto
Loss, cost or expense payable or that result from

Uninsured or underinsured motorists laws
Auto medical payments coverage or personal injury protection
No-fault laws
Any first party physical damage coverage

g. Employer’s Liability

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

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 unique to the umbrella coverage form.

If the underlying coverage form or policy provides coverage, this exclusion does not apply and the umbrella becomes following form coverage with respect to the provisions, exclusion and limitations in the underlying coverage.

Note: This exception is unique to the umbrella coverage form. It provides follow form coverage over Part Two of the Workers Compensation And Employers Liability Insurance Policy. In a monopolistic state this coverage would only apply if a Stop Gap coverage form or endorsement were attached to either the workers compensation or commercial general liability coverage.

h. Employment-Related Practices (12 07 changes)

Coverage does not apply to bodily injury to a person due to refusing to employ that person or terminating that employee's employment. It also does not apply to on-the-job practices such as the ten listed offending behaviors. They 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, or whether 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.

Note: The 12 07 edition added malicious prosecution 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 actually listed could be excluded.

This exclusion applies even if the injury occurred before the person became an employee or after the person was terminated. The 12 07 edition added this paragraph in 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.

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.

i. Pollution

Bodily injury or property damage due to the alleged, threatened or actual discharge, dispersal, seepage, migration, release or escape of contaminants at any time, including pollution cost or expense, is excluded.

This exclusion has an exception. If there is valid underlying pollution liability coverage, or there would have been except for the bodily injury and property damage limits being exhausted, the umbrella becomes following form coverage with respect to the provisions, exclusion and limitations in the underlying coverage.

j. Aircraft Or Watercraft

Insurance does not apply to bodily injury or property damage due to ownership, maintenance, use (including operation, loading or unloading), or entrustment to others of any aircraft or watercraft that any insured owns, operates, rents or has loaned to it. This exclusion applies even if the claim alleges that any insured was negligent or engaged in any wrongdoing in supervising, hiring, employing, training or monitoring others.

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

Watercraft ashore at locations the named insured owns or rents

Watercraft the named insured does not own that are less than 26 feet long and 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

If there is valid underlying aircraft or watercraft liability coverage, or there would have been except for the bodily injury and property damage limits being exhausted, the umbrella becomes following form coverage with respect to the provisions, exclusion and limitations in the underlying coverage.
Aircraft with a paid crew chartered by, loaned to or hired by the named insured provided it is not owned by any insured

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 in length, while the umbrella limits coverage to non-owned boats less than 50 feet in length.

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

k. Racing Activities

There is no coverage for loss due to using autos or mobile equipment in, practicing for, or being prepared for prearranged professional or organized racing, speed, demolition, or stunt activities.

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 the action taken 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 not covered. Costs to prevent injury to persons or damage to property of others are also not covered. In addition, coverage does not apply to property the insured owns or transports caused by owning, maintaining or using a covered auto.

(2) Premises the named insured sold, gave away, or abandoned if the property damage arises out of any part of those premises

(3) Property loaned to the named insured

(4) Personal property in the insured's care, custody or control

(5) The specific part of real property the named insured, or others on its behalf, are performing operations on if the property damage arises out of those operations

(6) The specific part of any property that requires restoration, repair or replacement because the named insured's work was done incorrectly

Paragraph (2) above does not apply if the location is the named insured's work and the named insured never occupied or rented the location or held it for rent.

Paragraphs (3), (4), (5) and (6) above do not apply to any liability assumed under a sidetrack agreement.

Paragraphs (3) and (4) above do not apply to liability assumed under a Trailer Interchange agreement.

Paragraph (6) above does not apply to property damage included in the product-completed operations hazard.

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 down the multi-unit warehouse and office facility for the three weeks it takes to repair the structural damage. The building damage, loss of merchandise, and the damaged equipment are not covered because the warehouse and all its property was owned or controlled by, or rented to Klutz.

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 resulting from repairs it made to the insured’s condominium. The association alleged that the repairs were necessary to prevent additional damage to another condominium owned by a third party.

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.

The umbrella coverage form has an exception to the exclusion that applies to work a subcontractor hired by the insured performed. 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.

n. Damage To Your Product

Coverage does not apply to property damage to the named insured's product arising 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 product-completed operations hazard.

Note: This exclusion does not apply if a subcontractor did the work on behalf of the named insured.

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 caused by a defect, inadequacy or dangerous condition in either the named insured’s product or its work. Coverage also does not apply if it is caused by a delay or failure by the named insured or others acting on its behalf to meet contract terms and condition.

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. The switch turns out to be defective and the starter does not work. In this case, the starter is impaired but not damaged and the cost to repair or replace Sully's defective switch is not 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. This exclusion applies to those costs and expenses the named insured or others incur because they can no longer use the recalled or withdrawn item. It also applies to withdrawal, recall, inspection, repair, replacement, adjustment, removal, and disposal expenses.

The reason for the recall or withdrawal must be due to a defect, deficiency, inadequacy or dangerous condition in the recalled item in order for this exclusion to apply.

Example: Titanic Tires is a tire manufacturer. It sends a large number of 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.

r. Personal And Advertising Injury

There is no coverage for any bodily injury arising out of personal and advertising injury.

Note: Bodily injury that arises from personal and advertising injury is covered under Coverage B–Personal And Advertising Injury Liability.

s. Professional Services (12 07 changes)

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. The 12 04 edition listed 11 professional services. The 12 07 edition lists 13 professional services.

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.

t. Electronic Data (12 07 change)

Coverage does not apply to damages that arise out of the loss of, loss of use of, damage to, corruption of, inability to access, or inability to manipulate electronic data. Electronic data is defined as information, facts or programs used with computer software or any other media used with electronically controlled equipment.

This exclusion has an exception. If there is valid underlying insurance for the listed electronic data risks, or there would have been except for the bodily injury and property damage limits being exhausted, the umbrella becomes following form coverage with respect to the provisions, exclusion and limitations in the underlying coverage.

u. Distribution of Material In Violation of Statutes (12 07 addition)

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
Any other statute, ordinance or regulation that prohibits or limits sending, transmitting, communicating, or distributing material or information.

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 in excess of the retained limit because of personal and advertising injury 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 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.

It does not have a duty to defend if coverage does not apply 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 exhausted by payment of judgments and settlements. The only obligations the insurance company owes to the insured are those described above and within Supplementary Payments.

b. 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.

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.

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

Coverage does not apply when personal and advertising injury is caused by material published by or at the direction of the insured and the insured knew the information was false. The publication can be either oral or written.

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

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.

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.

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 arising out of a criminal act committed by the insured or at its direction.

Example: Patricia’s action in the example above would be 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.

(6) Breach Of Contract

Coverage does not apply to personal and advertising injury arising 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 arising out of incorrect descriptions of goods, products or services as stated in the named insured's advertisement.

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 (12 07 change)

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

(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.

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 arising out of an electronic chatroom or bulletin board owned, hosted or controlled by the insured is not covered.

(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 metalog.

(13) Pollution

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

(14) Employment-Related Practices

(15) Professional Services

Personal and advertising injury due to providing or failing to provide any professional service is excluded. The specific professional services that are excluded are listed but the exclusion is not limited to only the services listed. The 12 04 edition listed 11 professional services. The 12 07 edition lists 13 professional services.

(16) War

There is no coverage for 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 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 taken by the government to prevent or defend against any of these.

(17) Distribution of Material In Violation of Statutes (12 07 addition)

Insurance coverage does not apply to personal and 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
Any other statute, ordinance or regulation that prohibits or limits sending, transmitting, communicating, or distributing material or information.

b. This exclusion states that there is absolutely no coverage for losses 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.

Supplementary Payments–Coverages A And B

1. In addition to payments it makes to investigate or settle claims or defend suits against an insured, the insurance company also pays the following amounts when it has a duty to defend:

a. All costs it incurs

b. Cost of bail bonds required because of traffic law violations or accidents as a result of using any motor vehicle that this insurance covers. The cost is limited to $2,000.

Note: The insurance company is not required to furnish these bonds.

c. Cost of bonds to release attachments. It pays only bond amounts up to the available limit of insurance.

Note: 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 the insured must be away from work.

e. A suit's court costs that are the insured's responsibility. This does not include attorney fees or expenses that are the insured's responsibility. (12 07 addition)

f. Prejudgment interest on the part of any judgment the insurance company pays provided the interest is awarded against the insured. However, prejudgment interest that accrues during the period of time after the insurance company offers its full limits is not covered.

g. Interest that accrues on the full amount 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 and that is within the limits of insurance

None of these payments reduce the limits of insurance.

2. The insurance company has the right, but not the duty, to defend the insured and to participate in the defense if it wishes. If it does, it pays its own expenses but does not contribute to the insured's expenses or those of the underlying carrier.

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 2011 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 exhaust the underlying coverage limits.

3. If an indemnitee of the insured is named in a suit against the insured that the insurance company defends, it also defends the indemnitee, subject to the following conditions being met:

a. The suit against the indemnitee must seek damages for which the insured assumed the indemnitee's liability in an insured contract or agreement.

b. The insurance this coverage form provides must apply to the liability the insured assumed.

c. The insured assumed the obligation to defend or the cost of defense in the same insured contract or agreement.

d. Based on what the insurance company knows about the occurrence and the allegations contained in the suit, there appears to be no conflict between the respective interests of the insured and the indemnitee.

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

f. The indemnitee agrees in writing to cooperate with the insurance company in investigating, defending or settling the suit, and to promptly send copies of any demands, notices, summonses or legal documents it receives related to the suit. It also agrees to notify any other insurance company having coverage available to the indemnitee and to cooperate with that company in coordinating such other insurance. In addition, it agrees to provide the insurance company with written authorization to obtain records and other information related to the suit and to conduct and control the indemnitee's defense in the suit.

Subject to these conditions, attorney fees and all litigation expenses are paid but these payments do not reduce the limits of insurance. The insurance company's obligation to defend the indemnitee ends when the applicable limit of insurance is exhausted by payment of judgments or settlements, or when these conditions and agreements are not met.

SECTION II–WHO IS AN INSURED

1. This section identifies insureds with respect to this insurance. However, it does not apply to any liability that arises from the ownership, maintenance or use of covered autos.

a. This applies to the entity or entities designated on the declarations:

(1) If the named insured is an individual, that individual is the named insured as well as the named insured's spouse. They are insureds only with respect to operations of the business the named insured solely owns.

(2) If the named insured is a partnership or joint venture, that partnership or joint venture is an insured. In addition, the named insured's members and partners, as well as their spouses, are 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 helps out on the day that a warehouseman is ill. While using a forklift, he 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. The umbrella coverage form responds to this loss.

(3) If the named insured is a limited liability company, the limited liability company is an insured. In addition, members of the company are insureds but only with respect to conduct of the named insured's business. The named insured's managers are also insureds but only to the extent of their specific duties as managers.

(4) If the named insured is any other organization, it is an insured. In addition, the executive officers and directors are insureds but only to the extent of their duties as such. Stockholders are also insureds but their status is limited to the extent of their liability as stockholders.

(5) If the named insured is a trust, the trust is an insured. In addition, their trustees are insureds with respect to their duties within the trust

b. Each of the following is also an insured:

(1) Volunteer workers but only when performing duties related to the named insured's business. Employees, excluding executive officers and managers of a limited liability company, are insureds within the narrow range of activities within the scope of their employment or while conducting the named insured's business.

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

To the named insured, its partners or members.
To other employees but only while they are in the course of their employment or performance of duties related to the conduct of the named insured's business
To the named insured's volunteer workers but only while they are performing duties related to the conduct of the named insured's business
To consequential loss a relative of any co-employee or volunteer sustains that results from excluded activities described in the preceding bullet items
Where an obligation exists to share damages with or repay others for damages because of injury described in all of the preceding bulleted items

(b) Volunteers and employees are not insureds for property damage to property owned, occupied or used by, rented to, or in the named insured's 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 those that the business establishes for them.

Example: Baby's Grand Pianos has umbrella coverage. The huge store celebrates its 10th anniversary by throwing a party. Since Baby's 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. A few of the older kids get a bit out of control and the volunteer tries to settle things down. While attempting to get the ringleader off the moonwalk, the child loses his footing, falls on the asphalt sidewalk, and is seriously injured. The umbrella responds to this loss.

(2) Any party, other than an employee or volunteer, acting 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 arising out of or caused by maintenance or use of that property but only until a legal representative is appointed

(4) A properly appointed legal representative for a deceased named insured but only while carrying out its duties as the legal representative.

Note: The legal representative assumes all of 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 does not include partnerships, joint ventures or limited liability companies the named insured has majority interest in or owns. This provision only applies for 90 days after the organization is formed or acquired, or until the end of the policy period, whichever comes first. In addition, Coverage A does not apply to bodily injury or property damage that occurred before acquisition or formation of the organization. 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 uses a covered auto the named insured owns, hires, or borrows with the named insured's permission is an insured. This broad statement is subject to the following limitations:

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

Example: Prime Time rents a small trailer and connects it to his covered auto. When the trailer disconnects and causes an accident, the trailer company is considered an insured under Prime Time's coverage because the trailer was attached to the covered auto prior to the accident.

(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) An employee or volunteer at any business that involves autos is not an insured unless it is the named insured’s business.

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

(4) A person other than the named insured’s employees, partners or members that move property to or from a covered auto is not an insured. The only exceptions are lessees or borrowers and their employees.

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 are not insureds for any vehicle they own, even though it may be considered the named insured’s covered auto.

Example: Carol is one of the partners in Lombard, Clark & Gable. While driving her own vehicle from the office to court, she collides with another vehicle. When 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 an insured.

(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.

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

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

3. The underlying coverage form or policy determines the final Who Is An Insured. An additional insured on the underlying policy becomes an additional insured on the umbrella. If a written contract establishes the terms of the additional insured status, the most paid is the required contract amount, reduced by any payments from any underlying coverage. The umbrella becomes following form to the underlying in that the coverage provided for the additional insured is the same as the coverage provided by 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 the following rules. This is regardless of the number of insureds, claims made, suits brought, or number of parties making claims or bringing 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. In 12 separate incidents, children are seriously injured 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 product-completed operations aggregate limit. No single occurrence is 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.

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.

Example: Bowman's Transportation Service uses 15-passenger buses to transport disabled and 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 item 2 above, the Each Occurrence Limit is the most paid for the total of all ultimate net loss under Coverage A 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 for $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. Because 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 item 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 Dewey, Cheatem and How 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. Because only one person was offended, even though multiple parties committed the offense in multiple mailings, only the single limit of insurance is available to apply to the loss.

5. The 12 07 edition adds this paragraph. It 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's policy period
Personal and advertising injury for offenses committed during this coverage's policy period

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.

Example:

Underlying policy period: 01/01/10 to 01/01/11. Limits: $1,000,000 occurrence/$1,000,000 aggregate

Umbrella policy period: 06/01/10 to 06/01/11. 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
02/01/10	$50,000	$950,000	N/A	None
03/01/10	$100,000	$850,000	N/A	None
04/01/10	$200,000	$650,000	N/A	None
05/01/10	$50,000	$600,000	N/A	None
06/01/10	$100,000	$500,000	$100,000	None
07/01/10	$200,000	$300,000	$300,000	None
08/01/10	$300,000	$0	$600,000	None
09/01/10	$200,000	$0	$800,000	None
10/01/10	$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. Once the retained limit is met, the umbrella starts to pay.

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 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.

SECTION IV–CONDITIONS

1. Appeals

The insured or the underlying insurance company may decide to not appeal a judgment that exceeds the retained limit but the umbrella carrier may decide to do so. In that case, it pays its own expenses and is also liable for taxable costs, pre-judgment and post-judgment interest, and disbursements.

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.

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

The named insured has a number of 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.

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

Nobody has the right to join the insurance company in any way, bring it into a suit claiming damages from an insured, or sue it unless all its terms and conditions are completely met and complied with.

The company can be sued to recover on an agreed settlement or on a final judgment against the insured. However, it is not liable for damages not subject to payment under this coverage form's terms or that are more than the applicable 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 sign.

5. Other Insurance

a. This insurance is excess over any insurance and does not contribute with it, except for insurance specifically written as 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 does. 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 and separately to each insured against whom claim is made or suit is brought.

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 the company enforce them.

10. When We Do Not Renew

If the insurance company decides to not renew, it mails or delivers 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 sufficient proof of notice.

Note: State amendatory endorsements may supersede this paragraph.

Example: Do Right Casualty Insurance Company wrote a policy for BigLoss Machine Tools Manufacturing for the period 01/01/10 to 01/01/11. Because of problems with the account, a Do Right senior underwriter sent notice of non-renewal on 11/28/10 that BigLoss received on 12/01/10. The chief financial officer at BigLoss sent a letter to Do Right and demanded that it issue the renewal policy for the period 01/01/11 to 01/01/12. The letter included an excerpt from the AnyState Insurance Code that clearly stated that the named insured must receive at least 45 days advance notice of non-renewal. Do Right immediately issued the renewal as demanded.

11. Loss Payable

The insurance company does not pay until and unless the insured or its underlying carrier pays the retained limit. The insured's obligation to pay part of the ultimate net loss must have been determined by a final settlement or judgment after litigation or a written agreement between the company, the claimant, and the insured.

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 the transfer of control of any unresolved claims or suits.

13. Maintenance Of/Changes To Underlying Insurance (12 07 changes)

The 12 07 edition added /Changes To in the condition title. It requires that full underlying insurance be maintained for the entire policy period, other than reductions to the aggregate limit due to paying claims, judgments or settlements. However, failure to do so does not invalidate this insurance and it applies as if the underlying insurance was still in effect.

The 12 07 edition adds two new paragraphs.

The first new paragraph states that 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 second new paragraph states that the named insured must notify the insurance company as soon as practicable when any underlying insurance is no longer in effect or if the limits or scope of coverage of such underlying insurance changes.

14. Expanded Coverage Territory

a. If a suit is brought in a country where the insurance company is not allowed to defend the insured, it reimburses the insured for any defense costs and other necessary expenses incurred that would have been the 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, it 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 any coverage 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

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. 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. It includes any attached machinery or equipment. Auto is also any other land vehicle subject to compulsory or financial responsibility laws or motor vehicle laws in the state where it is licensed or principally garaged. It does not include mobile equipment.

3. Bodily Injury

This is bodily injury, disability, sickness or disease sustained by a person. This includes death resulting from bodily injury, sickness or disease at any time. It also includes mental anguish or other mental injury that results from bodily injury.

Example: While traveling on business, Sondra browses through a shoe store. The store's insurance includes a commercial umbrella coverage form. Because of an unfortunate chain of events and a series of unusual circumstances, Sondra is detained for shoplifting and forced to spend the night in jail, resulting in her missing an appointment with an important client. Sondra explains the situation to her employer and the customer and becomes so emotionally agitated and upset that she has a stroke. After the confusion is cleared up and the matter resolved, Sondra and her employer sue the department store. The store's umbrella coverage form rejects Sondra's injuries under bodily injury because the bodily injury was a consequence of the false arrest. However, coverage applies for consequential bodily injury under Coverage B–Personal And Advertising Injury Liability.

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 vehicle covered under the described primary insurance coverage forms or policies.

6. Employee

This includes leased workers. It does not include temporary workers.

7. Executive Officer

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

8. Impaired Property

This is tangible property that is not the named insured’s work or product. However, this property cannot be used or is less useful because of the insured’s defective, deficient, inadequate or dangerous product or work incorporated into it. Property can also be considered impaired where the named insured has not satisfactorily completed the terms of a contract or agreement. 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, pertaining 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 relating 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, or that affects any railroad bridge, trestle, track, road-bed, tunnel, underpass or crossing
Any contract pertaining to loaning, leasing or renting an auto to the named insured or to any of its employees if the auto is loaned, leased or rented with a driver
Any contract holding 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. 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. Leased workers are not the same as temporary workers.

11. Loading Or Unloading (12 07 change)

This is handling of property beginning when it is moved from its place of acceptance 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. This does not include property moved by mechanical devices other than a hand truck not attached to the watercraft, auto or aircraft.

12. Mobile Equipment

This includes 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 used only on or next to the owned or rented premises

c. Vehicles that use crawler treads to operate

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

e. Vehicles not described in a., b., c., or d. above and not self-propelled but used to provide mobility for permanently attached equipment. This is cherry pickers or similar devices used to raise or lower workers. Others are equipment such as 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. Self-propelled vehicles with permanently attached equipment designed for snow removal, road maintenance, other than construction or resurfacing, or street cleaning are considered autos, not mobile equipment. Cherry pickers or similar devices mounted on automobile or truck chassis and used to raise or lower workers or equipment and air compressors, pumps and generators permanently mounted on self-propelled vehicles are considered autos, not mobile equipment.

Mobile equipment does not include any vehicle subject to compulsory or financial responsibility laws or motor vehicle insurance laws in the state 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. It includes consequential bodily injury.

a. False arrest, detention or imprisonment

b. Malicious prosecution

c. Wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor

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

e. Oral or written publication of material that violates a person's right of privacy. The violation can take place using any form of communication, including the Internet and other electronic forms.

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

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

15. Pollutants

Pollutants include 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, including 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 resulting 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. This includes work at one site that has been completed, if the contract calls for work at more than one site, or that part of work done at a site put to its intended use by any party other than a contractor or subcontractor still working on the same project. 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 arising from any of the following:

Transportation of property, unless injury or damage is caused by a condition in or on a vehicle not owned or operated by any insured, and is created by loading or unloading that vehicle by any insured
The existence of tools, uninstalled equipment, or abandoned or unused materials

18. Property Damage (12 07 changes)

Property damage is physical injury to tangible property and all resulting loss of use of that property, and loss of use of tangible property 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 the ownership, maintenance or use of a covered auto and only when the underlying policy would have provided pollution cost or expense coverage except that the limits of insurance were exhausted.

Electronic data is not tangible property for all insurance in the umbrella, except with respect to the ownership, maintenance or use of covered autos. Electronic data includes information, facts or programs stored 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, previous editions might have covered it. 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, whether consisting of the self-insured retention or 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 claiming such damages that the insured submits to 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 and acts 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 includes any goods or products manufactured, sold, handled, distributed or disposed of by the named insured, by others trading under the named insured’s name, or by any party' whose business or assets the named insured acquired. This includes containers (excluding vehicles), materials, parts or equipment furnished in connection with such goods or products. It does not include real property.

b. It also includes 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.

c. It does not include vending machines or other property rented to or located for the use of others but not sold.

28. Your Work

This includes work or operations performed by the named insured, or by others on its behalf, and materials, parts or equipment furnished in connection with such work. It also includes 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.

ISO COMMERCIAL LIABILITY UMBRELLA COVERAGE FORM AVAILABLE ENDORSEMENTS AND THEIR USES

INTRODUCTION

This list identifies endorsements available to modify the Insurance Services Office (ISO) Commercial Liability Umbrella Coverage Form. It is arranged by form number and title and briefly explains the use of each endorsement. It does not include any state specific endorsements, changes or amendments. New endorsements introduced or changed in the 12 07 edition or later are in bold print.

Note: This section does not address any of the various ISO Terrorism Endorsements.

A list of forms that can be used with the Commercial Liability Umbrella Coverage Form may be useful.

Note: Many of these endorsements have corresponding endorsements used with the ISO Commercial General Liability Forms.

FORM NUMBERING

The ten-digit numbering sequence of ISO forms and endorsements has a very specific meaning.

The first two entries are alphabetical characters that indicate the line of insurance involved. For example, CU denotes Commercial Liability Umbrella.
The next two digits designate the specific insurance category. Additional detail and information on these categories is in the next section below.
The next two digits are the form or endorsement number within the insurance category.
The last four digits are the edition date of the form or endorsement expressed in month and year format. These digits are not used in this analysis.

CATEGORIES

Endorsements are grouped in categories according to their purpose as follows:

CU 00	Primary Coverage Forms
CU 01	Amendatory Endorsements
CU 02	Termination and Suspension Endorsements
CU 04	Additional Coverage Endorsements
CU 21	Exclusion Endorsements
CU 22	Special Provisions for Certain Types of Risks Endorsements
CU 24	Additional Coverage Endorsements
CU 27	Claims Made Endorsements
CU 31	Limits Endorsements

PRIMARY COVERAGE FORMS (CU 00)

CU 00 01–Commercial Liability Umbrella Coverage Form

CU 00 04–Recording And Distribution Of Material Or Information In Violation Of Law Exclusion (05 09 addition)

This endorsement adds to the Distribution Of Material In Violation Of Statutes exclusions in the coverage form. It adds the Fair Credit Reporting Act (FCRA) and the Fair and Accurate Credit Transaction Act (FACTA), including their additions or amendments. It also adds any other federal, state or local statute, ordinance or regulation, including their additions or amendments, that address recording and distributing such material or information.

Note: This is a mandatory endorsement.

AMENDATORY ENDORSEMENTS (CU 01)

CU 01 09–Condominiums

This endorsement changes policy terms to protect the rights of condominium unit owners.

TERMINATION AND SUSPENSION ENDORSEMENTS (CU 02)

CU 02 04–Earlier Notice Of Cancellation Provided By Us

This endorsement changes the 30-day cancellation provision in the Common Policy Conditions for other than non-payment of premium to the number of days entered in the space provided for any statutorily permitted reason. It is used to increase the number of days notice to be more than the number required by state law.

ADDITIONAL COVERAGE ENDORSEMENTS (CU 04)

CU 04 00–Coverage For Injury To Leased Workers

This buyback endorsement provides bodily injury and property damage coverage for leased workers by amending the definition of employee to exclude leased workers but only as it relates to the bodily injury and property damage coverage in the employer’s liability exclusion.

CU 04 01–Year 2000 Computer-Related And Other Electronic Problems–Limited Coverage Options

This endorsement excludes coverage for losses that result from year 2000 computer-related and other electronic problems. It then provides buy back coverage for coverages and locations on the endorsement schedule. It is used in place of CU 21 18–Exclusion–Year 2000 Computer-Related And Other Electronic Problems.

CU 04 02–Electronic Data Liability Endorsement

This endorsement adds coverage for third party claims and/or lawsuits for property damage to data stored, read, generated, created or in any way used with computer systems. The limit of insurance on the endorsement schedule is a sub-limit to the umbrella occurrence limit that, in turn, is subject to the umbrella coverage form aggregate limit.

CU 04 03–Employee Benefits Liability Coverage

This endorsement covers losses due to acts, errors or omissions in administering the named insured's employee benefit program. Coverage applies on a claims-made basis. The limit of insurance that applies to each employee, the aggregate limit, the retained limit, retroactive date and premium charged all must be on the endorsement schedule.

Note: If Employee Benefits Liability Coverage is provided using other than the ISO coverage form, it is important to compare coverages in order to prevent gaps in coverage. It is also important to determine if underlying coverage is on an occurrence or a claims-made basis.

EXCLUSION ENDORSEMENTS (CU 21)

CU 21 00–Exclusion–All Hazards In Connection With Designated Premises

This endorsement excludes all coverage for locations listed and described on the endorsement schedule.

CU 21 01–Exclusion–Athletic Or Sports Participants

This endorsement excludes coverage for bodily injury to any person practicing for or participating in any sporting or athletic contest or event sponsored by the named insured described on the endorsement schedule.

CU 21 02–Exclusion–Product-Completed Operations Hazard

This endorsement excludes coverage for bodily injury or property damage included in the product-completed operations hazard.

CU 21 03–Exclusion–Designated Work

This endorsement excludes coverage for bodily injury or property damage included in the product-completed operations hazard arising out of the named insured's work listed on the endorsement schedule.

CU 21 04–Exclusion–New Entities

This endorsement excludes coverage for newly acquired or formed organizations.

CU 21 05–Exclusion–Employees As Insureds

This endorsement excludes employees and volunteer workers as insureds. It also amends the aircraft or watercraft exclusion.

CU 21 06–Exclusion–Personal And Advertising Injury

This endorsement excludes Personal And Advertising Injury Liability and all references to it.

CU 21 07–Contractual Liability Limitation

This endorsement replaces the definition of Insured Contract to include only certain, specific written contracts. The covered contracts include lease of premises (except for fire damage), sidetrack agreements, easement or license agreements, obligations required by ordinance to indemnify a municipality (except for work in connection with the municipality), and elevator maintenance agreements. It also extends the definition of Insured Contract to include certain auto lease or rental agreements.

CU 21 08–Exclusion–Intercompany Products Suits

The endorsement excludes coverage when one named insured sues another named insured due to bodily injury or property damage arising from a product.

CU 21 09–Exclusion–Explosion, Collapse And Underground Property Damage Hazard (Specified Operations)

This endorsement excludes coverage for property damage caused by the explosion, collapse and/or underground property damage hazards but only for the specified hazards for specific locations or operations listed on the endorsement schedule. It does not apply to operations that others perform for the named insured or to property damage included in the products-completed operations hazard.

CU 21 10–Exclusion–Explosion, Collapse And Underground Property Damage Hazard (Specified Operations Excepted)

This endorsement excludes coverage for property damage arising out of the explosion, collapse or underground property damage hazards. Hazards, locations and operations exceptions to the exclusion must be listed on the endorsement schedule. It does not apply to operations that others perform for the named insured or to property damage included in the products-completed operations hazard.

CU 21 11–Limitation Of Coverage To Designated Premises Or Project

This endorsement limits coverage to apply only to losses arising out of the ownership, maintenance or use of the premises on the endorsement schedule, operations necessary or incidental to those premises, or the project on the endorsement schedule.

CU 21 12–Abuse Or Molestation Exclusion

This endorsement excludes coverage for losses arising out of the actual or threatened abuse or molestation by anyone of any person in an insured's care, custody or control.

CU 21 13–Amendment Of Liquor Liability Exclusion

This endorsement excludes liquor liability coverage for parties that furnish liquor with or without a charge who require a license, in addition to parties that manufacture, distribute or sell liquor.

Note: If there is underlying liquor liability coverage, the umbrella coverage form follows form with respect to that underlying coverage.

CU 21 14–Amendment Of Liquor Liability Exclusion–Exception For Scheduled Activities

This endorsement modifies the liquor liability exclusion similar to CU 21 13–Amendment Of Liquor Liability Exclusion. However, it includes coverage for certain specifically described activities, such as company picnics or year-end parties.

Note: If there is underlying liquor liability coverage, the umbrella coverage form follows form with respect to that underlying coverage.

CU 21 15–Exclusion–Financial Services

This endorsement excludes coverage for losses resulting from any insured providing or failing to provide financial services to others. It includes examples of financial services but the listing is not exhaustive.

CU 21 16–Exclusion–Designated Ongoing Operations

This endorsement excludes coverage for losses due to the ongoing operations and specified locations (if applicable) on the endorsement schedule. This exclusion applies, regardless of whether the operations are conducted by or on behalf of the named insured, or whether they are conducted for the named insured or for others. This exclusion can be limited to apply only to operations at scheduled locations.

CU 21 17–Exclusion–Designated Operations Covered By A Consolidated (Wrap-Up) Insurance Program

This endorsement excludes coverage for losses due to the named insured's ongoing and/or completed operations at locations on the endorsement schedule. The exclusion applies even if the wrap-up limits are exhausted, are still in effect, or if the coverage is identical.

CU 21 18–Exclusion–Year 2000 Computer-Related And Other Electronic Problems

This endorsement excludes coverage for losses due to computers and related equipment failing to correctly recognize and handle the year 2000 and later dates. CU 04 01–Year 2000 Computer-Related And Other Electronic Problems–Limited Coverage Options can be used to provide limited coverage.

CU 21 19–Exclusion–Year 2000 Computer-Related And Other Electronic Problems–Product-Completed Operations

This endorsement excludes coverage for losses included in the definition of product-completed operations hazard and arising directly or indirectly out of computers and related equipment failing to correctly recognize and handle the year 2000 and later dates.

CU 21 20–Exclusion–Year 2000 Computer-Related And Other Electronic Problems–With Exception For Bodily Injury On Your Premises

This endorsement excludes coverage for losses that arise directly or indirectly out of computers and related equipment failing to correctly recognize and handle the year 2000 and later dates. It has an exception that states that it does not apply to bodily injury that occurs on premises the named insured owns or rents.

CU 21 21–Exclusion–Year 2000 Computer-Related And Other Electronic Problems–Exclusion Of Specified Coverages For Designated Locations, Operations, Products Or Services

This endorsement excludes coverage for losses that arise directly or indirectly out of computers and related equipment failing to correctly recognize and handle the year 2000 and later dates. It has an exception that states that it applies only to the types of injury or damage for the coverages and locations listed on the endorsement schedule.

CU 21 23–Nuclear Energy Liability Exclusion Endorsement (Broad Form)

This endorsement excludes all losses caused by or resulting from the hazardous properties of nuclear materials. It defines Hazardous Properties, Nuclear Material, Source Material, Spent Fuel, Waste, Nuclear Facility, Nuclear Reactor and Property Damage.

CU 21 24–Exclusion–Non-Owned Aircraft (12 07 change)

This endorsement revises the Aircraft Or Watercraft exclusion to remove the exception for chartered non-owned aircraft, regardless of the allegations of any claim relating to any aircraft.

CU 21 25–Total Pollution Exclusion Endorsement

The pollution exclusion in the umbrella coverage form provides following form coverage if an underlying coverage form or policy provides pollution coverage. This exclusion removes the following form language to completely exclude pollution coverage in the umbrella coverage form.

CU 21 27–Fungi Or Bacteria Exclusion

This endorsement excludes liability coverage for losses that would not have taken place except for fungi or bacteria on or in a building or structure and its contents. It also excludes loss, costs or expenses the insured or others incur to test for or clean up fungi or bacteria. This exclusion does not apply to any fungi or bacteria on or contained in a product intended for bodily consumption.

CU 21 42–Exclusion–Exterior Insulation And Finish Systems

This endorsement excludes coverage for losses arising out of, caused by, or attributable to any exterior insulating and finish system. It defines exterior insulation and finish system.

CU 21 43–Exclusion–Designated Products

This endorsement excludes coverage for bodily injury or property damage included in the product-completed operations hazard that arise out of only the named insured's products listed on the endorsement schedule.

CU 21 50–Silica Or Silica-Related Dust Exclusion

This endorsement excludes liability coverage for losses arising out of any aspect or element of silica or silica-related dust. It defines silica and silica-related dust.

CU 21 51–Total Pollution Exclusion With A Hostile Fire Exception

This endorsement replaces the pollution exclusion in the umbrella coverage form. It is a total pollution exclusion but includes a limited exception for loss due to of heat, smoke or fumes from a hostile fire.

Note: The underlying pollution coverage in the umbrella coverage form no longer applies when this exclusion is used. This means that, while the hostile fire exception is provided, any coverage that may have been available in the underlying pollution coverage is not.

CU 21 52–Total Pollution Exclusion With A Building Heating, Cooling And Dehumidifying Equipment Exception And A Hostile Fire Exception

This endorsement replaces the pollution exclusion in the umbrella coverage form. It is a total pollution exclusion but it has two exceptions. The exclusion does not apply to injury from any smoke, fumes, vapor or soot released by building heating, cooling or dehumidifying equipment, or to injury or damage from the heat, smoke or fumes resulting from a hostile fire.

Note: The underlying pollution coverage in the umbrella coverage form no longer applies when this exclusion is used. This means that, while there are exceptions, any coverage that may have been available in the underlying pollution coverage is not.

CU 21 58–Communicable Disease Exclusion (05 09 addition)

This endorsement excludes losses arising out of alleged or actual transmission of communicable diseases.

CU 21 70–Abuse Or Molestation Exclusion–Specified Professional Services (12 07 addition)

This endorsement excludes coverage for abuse or molestation losses that arise from professional services described on the endorsement schedule. As a result, coverage continues to apply to other types of abuse and molestation claims.

CU 21 75–Exclusion–Insurance And Related Operations (12 07 addition)

This endorsement excludes the professional obligations of an insurance agent or broker enumerated in the endorsement.

CU 21 84–Limited Exclusion–Designated Operations Covered By A Consolidated (Wrap-Up) Insurance Program (05 09 addition)

This endorsement excludes losses that arise out of the named insured's ongoing operations or those included in the products-completed operations hazard. It applies only to operations listed and described on the endorsement schedule covered under a consolidated (wrap-up) program that the owner of the project or the prime contractor/project manager provides. However, this exclusion no longer applies if the wrap-up program ceases to exist except for its limit being used up.

Note: This is a good alternative to CU 21 17–Exclusion–Designated Operations Covered By A Consolidated (Wrap Up) Insurance Program.

SPECIAL PROVISIONS FOR CERTAIN TYPES OF RISKS ENDORSEMENTS (CU 22)

CU 22 00–Exclusion–Bodily Injury To Railroad Passengers

This endorsement excludes coverage for bodily injury to any passenger while getting on, while aboard, or getting off a passenger railroad train.

CU 22 01–Exclusion–Property Entrusted

This endorsement excludes coverage for property damage to property of others entrusted to the named insured for safe keeping or on premises the named insured owns or rents with respect to Security and Patrol Agencies, Mini-warehouses, and Cold Individual Storage Locker Warehouses operations.

CU 22 02–Exclusion–Corporal Punishment

This endorsement excludes coverage for bodily injury, property damage, or personal and advertising injury to the named insured's students that arise out of any corporal punishment administered by any insured or at its direction.

CU 22 03–Exclusion–Riot, Civil Commotion Or Mob Action–Governmental Subdivisions

This endorsement excludes coverage for bodily injury, property damage, or personal and advertising injury that arise out of riot, civil commotion, mob action, or any omission or act of a governmental subdivision to prevent or suppress such actions.

CU 22 04–Exclusion–Fiduciary Or Representative Liability Of Financial Institutions

This endorsement excludes coverage for bodily injury, property damage or personal and advertising injury due to the ownership, maintenance or use of property if the named insured has only a fiduciary or representative responsibility. The exclusion does not apply to covered autos.

CU 22 05–Exclusion–Housing Projects Sites

This endorsement excludes coverage for losses due to ownership of a building that was on the site of a proposed housing project when a housing authority purchased the site. It also excludes coverage for losses due to a building scheduled for demolition beginning on the day it is vacated. This exclusion applies only while the building is vacant prior to and during its demolition.

CU 22 06–Exclusion–Existence Or Maintenance Of Streets, Roads, Highways Or Bridges

This endorsement excludes coverage for losses due to the existence and maintenance of streets, roads, highways, bridges, sidewalks, culverts, parking meters, traffic lights and signs, street benches, public refuse receptacles, safety zone stanchions, light and telephone poles, trees, water hydrants and alarm boxes. It also excludes liability arising out of the ownership, maintenance and use of mobile equipment used in connection with these activities.

CU 22 07–Exclusion–Rolling Stock–Railroad Construction

This endorsement excludes coverage for losses caused by the movement of railroad rolling stock, except rolling stock assigned to the job while on the jobsite.

CU 22 08–Exclusion–Saline Substances Contamination

This endorsement excludes coverage for property damage due to saline substance contamination caused by Natural Gas Oil or Gas Lease Operators.

CU 22 09–Exclusion–Failure To Supply

This endorsement excludes coverage for loss caused by any insured failing to supply gas, oil, water, electricity or steam, unless due to a sudden and accidental injury to equipment that provides the supply.

CU 22 10–Exclusion–Laundry And Dry Cleaning Damage

This endorsement applies to self-service laundry and dry cleaning establishments and explicitly excludes coverage for property being laundered or dry-cleaned.

CU 22 11–Exclusion–Logging And Lumbering Operations

This endorsement excludes coverage for all property damage caused by fire. It also excludes property damage to any vehicle during loading or unloading. This exclusion applies to only the named insured's logging and lumbering operations.

CU 22 13–Exclusion–Underground Resources And Equipment

This endorsement applies to the ten gas and oil operations listed on the endorsement schedule. It excludes coverage for property damage losses included in the underground resources and equipment hazard and related expenses.

CU 22 14–Exclusion–Described Hazards (Carnivals, Circuses And Fairs)

This endorsement applies only to carnivals, circuses and fairs. It excludes coverage for losses due to mechanically operated amusement devices as well as any bodily injury to persons involved with any sports or athletic event sponsored by the named insured, except as spectators.

CU 22 15–Limitation Of Coverage–Real Estate Operations (12 07 change)

This endorsement amends the coverage provided for real estate operations. Coverage applies only to losses arising from the named insured’s office and the named insured’s listings. It also includes coverage for premises the named insured shows that are for sale or rental (12 07 addition).

Note: Property management is specifically not included, as well as operations related to other owned properties.

CU 22 16–Underground Resources And Equipment Coverage (05 09 change)

This endorsement provides property damage coverage for the operations listed on the endorsement schedule that CG 22 57–Exclusion–Underground Resources And Equipment excludes. The property damage coverage provided is subject to the separate aggregate limit on the endorsement schedule. Paragraphs (4), (5) and (6) in exclusion m. Damage To Property in the coverage form do not apply to property damage included in the underground resources and equipment hazard.

CU 22 17–Stevedoring Operations Limited Completed Operations Coverage

This endorsement restricts coverage by adding to the products-completed operations hazard definition. The amended definition excludes occurrences if not on board vessels that remain at the operations site once work is completed or abandoned.

CU 22 18–Optical And Hearing Aid Establishments (12 07 change)

This endorsement adds professional liability coverage for optical goods, products and services and hearing aids. It corresponds to CG 22 65–Optical And Hearing Aid Establishments used with the ISO CGL coverage form. However, it is not the same because the underlying CGL coverage form does not exclude professional exposures. The 12 07 edition expands on one of the existing exclusions and adds two more that track with the 12 07 edition of the coverage form.

CU 22 19–Corporal Punishment

This endorsement amends the Expected Or Intended Injury exclusion by adding corporal punishment the named insured administers or directs others to administer to one of its students as an exception.

CU 22 20–Druggists (05 09 change)

This endorsement provides professional liability coverage for the health care services of a druggist. The changes bring this endorsement's wording into line with the 12 07 edition of the coverage form.

Note: This endorsement does not provide coverage when the druggist consults, prescribes, or is actively involved in managing drug therapy. This recognizes that state laws and statutes are expanding to allow druggists to perform professional services once restricted to physicians. Coverage is available for the broadened exposure under
CU 22 63–Druggists–Broadened Coverage.

CU 22 21–Colleges Or Schools

This endorsement excludes bodily injury to participants in sports or athletic practices, exhibitions or contests, but only if the named insured does not directly manage, organize or supervise them.

Note: This endorsement should be carefully compared to CG 22 71–Colleges Or Schools (Limited Form) and
CG 22 72–Colleges Or Schools because it corresponds to only one section of these similar sounding endorsements. As a result, this endorsement causes the umbrella to be broader in some ways and more restrictive in others.

CU 22 22–Exclusion–Erroneous Delivery Or Mixture And Resulting Failure of Seed To Germinate–Seed Merchants

This endorsement excludes coverage for property damage due to seed failing to germinate, as well as erroneous delivery of seed, improper mixing of the seed formula, and any failure to germinate that results from improper mixing or formula.

CU 22 23–Exclusion–Property Damage To Electronic Data (Computer Software Manufacturer)

This endorsement excludes property damage to electronic data that arises out of the named insured's computer software programs.

CU 22 24–Exclusion–Telecommunication Equipment Or Service Providers Errors And Omissions

This endorsement excludes coverage for losses due to telecommunication equipment or services errors and omissions. Losses due to any type of deficiency, error, omission, or defect in evaluation, consultation or advice given by any insured or on its behalf are also excluded. This exclusion also extends to any set-up when the named insured is the service provider. In addition, failure by any insured to provide telecommunication services is also excluded.

CU 22 25–Emergency Vehicles–Volunteer Firefighters And Workers Injuries Excluded

This endorsement excludes bodily injury to volunteer firemen and other emergency rescue personnel but only while they are performing such services.

CU 22 26–Emergency Vehicles–Fellow Volunteer Firefighters And Workers Injuries Exclusion Buyback

This endorsement deletes only exclusion 2 in CU 22 25–Emergency Vehicles–Volunteer Firefighters And Workers Injuries Excluded. It provides coverage for bodily injury to a fellow firefighter or other volunteer worker of the insured if the injury is sustained during firefighting, rescue or ambulance operations but only as it relates to covered automobile injuries

CU 22 27–Leasing Or Rental Concerns–Exclusion Of Certain Leased Autos

This endorsement excludes coverage for injury or damages caused by actions or inaction of parties that lease or rent a vehicle from the named insured.

CU 22 28–Leasing Or Rental Concerns–Rent-It-There/Leave-It-Here Autos

This endorsement excludes coverage for the owner or the rentee of a rent-it-there/leave-it-here auto left with the named insured.

CU 22 29–Leasing Or Rental Concerns–Schedule Of Limits For Owned Autos

This endorsement allows the insured to indicate one set of limits for leased vehicles that require direct primary insurance and another set of limits for leased vehicles that do not have that requirement.

CU 22 30–Leasing Or Rental Concerns–Lessees And Rentees Excluded

This endorsement excludes as insureds parties that rent or lease owned vehicles from the named insured. However, coverage still applies to the named insured and all other insureds. This endorsement is less restrictive than CU 22 27–Leasing Or Rental Concerns–Exclusion Of Certain Leased Autos.

CU 22 31–Garage Endorsement (12 07 change)

This endorsement is attached when underlying coverage is on a garage coverage form or policy.

CU 22 32–Agricultural Produce Trailers–Seasonal

This endorsement is used when underlying coverage includes a seasonal exposure to agricultural produce trailers. It excludes coverage on trailers that transport livestock, including any trailers used for other than farming or ranching.

Note: This endorsement is poorly worded. The first paragraph explains that the endorsement exclusion applies only if the underlying insured provides seasonal coverage for agricultural trailers. The exclusion applies only to Coverage A and Uninsured Motorists Coverage. However, the exclusion portion of the endorsement explains that insurance that this endorsement provides does not apply if the seasonal agricultural trailer is used to transport livestock or is used in a non-farming/ranching occupation.

As a result, the question to be answered is what coverage does the endorsement provide and what does it exclude.

CU 22 33–Public Transportation Autos

This endorsement extends the umbrella coverage form to cover damage to passengers’ property while carried by a public transport vehicle.

CU 22 34–Truckers Endorsement

This endorsement extends the umbrella coverage form to cover trucking operations.

CU 22 35–Truckers–Insurance For Non-Trucking Use

This endorsement extends the umbrella coverage form to provide coverage on non-trucking operations for truckers. CU 22 36–Truckers–Uniform Intermodal Interchange Uniform Endorsement Form UIIE-1

This endorsement extends the umbrella coverage form to provide coverage for the liability of third parties or their property that is covered for the liability the named insured assumed as a subscribing carrier under the Uniform Intermodal Interchange and Facilities Access Agreement.

CU 22 37–Motor Carrier Endorsement

This endorsement is attached to the umbrella coverage form when the underlying auto coverage is written on a motor carrier coverage form.

CU 22 38–Truckers–Named Lessee As Insured–Notice Of Cancellation

Any lessee listed on the endorsement schedule of this endorsement must be provided with at least 30 days advance notice before liability coverage is reduced or the policy cancelled.

CU 22 39–Driving Schools

This endorsement broadens the definition of Who Is an Insured to include the named insured, driving instructors, and student drivers while being instructed. This applies to only non-owned vehicles used for instruction.

CU 22 40–Policy Changes

This endorsement provides the means for the insurance company to amend non-coverage elements of existing umbrella coverage forms and policies.

CU 22 61–Exclusion–Damage To Work Performed By Subcontractors On Your Behalf–Designated Sites Or Operations

This exclusion is identical to exclusion o. Damage To Your Work except that is applies only to the site or operations on the endorsement schedule. It also removes the exception for subcontractors working on the named insured’s behalf.

CU 22 63–Druggists–Broadened Coverage (05 09 change)

This endorsement provides professional liability coverage for the health care services of a druggist.

Note: This endorsement provides broader coverage than CU 22 20–Druggists. The only druggist professional service excluded is one that results from willful violation of statutes and ordinances. In states where druggists are not required to have physician’s oversight in providing pharmacological services, the druggist’s professional exposure may become more like a physician’s professional exposure.

CU 22 64–Exclusion–Damage To Work Performed By Subcontractors On Your Behalf

This exclusion is identical to exclusion o. Damage To Your Work except that the exception for subcontractors working on the named insured’s behalf is removed.

CU 22 84–Exclusion–Testing Or Consulting Errors And Omissions (12 07 addition)

This endorsement excludes coverage for losses arising out of any error, omission, defect or deficiency in testing, evaluation, consultation or advice given by or on behalf of any insured.

CU 22 85–Exclusion–Internet Service Providers And Internet Access Providers Errors And Omissions
(12 07 addition)

This endorsement excludes coverage for losses due to Internet service or access error, omission, defect or deficiency in any evaluation, consultation or advice given by any insured or by others on behalf of any insured. It also excludes failure to provide adequate Internet services or access.

CU 22 86–Professional Liability Exclusion–Web-Site Designers (12 07 addition)

This endorsement excludes coverage for losses due to web-site designer or consultant acts, errors or omissions.

ADDITIONAL COVERAGE ENDORSEMENTS (CU 24)

CU 24 02–Waiver Of Charitable Immunity

The endorsement states that the insurance company will not use the status of the insured as a charity as a waiver of immunity unless the insured agrees in writing to the company using such a defense.

CU 24 03–Waiver Of Transfer Of Rights Of Recovery Against Others To Us

This endorsement amends the Transfer Of Rights Of Recovery Against Others To Us condition. The insurance company waives its rights of recovery against the party listed on the endorsement schedule but only with respect to the named insured's operations and work under contract with the designated party.

CU 24 04–Financial Institutions–Fiduciary Interest Only

This endorsement provides additional exclusions and provisions, including coverage for additional interests, on policies where the named insured is a fiduciary. It has a reporting provision and limits coverage to a fiduciary interest for the ownership, maintenance and use of property. The financial institution must submit a list of the properties acquired, relinquished or terminated every 60 days.

CU 24 05–Product-Completed Operations Hazard Redefined

This endorsement replaces the definition of Product-Completed Operations Hazard to provide on premises products coverage for certain scheduled operations.

CU 24 06–Fiduciaries–Fiduciary Interest

This endorsement provides additional exclusions and provisions, including coverage for additional interests, on policies where the named insured is a fiduciary. It is used most often for banks and other fiduciaries and is identical to CU 24 04–Financial Institutions–Fiduciary Interest Only except that the reporting requirement is removed.

CU 24 07–Boats

This endorsement modifies the Aircraft Or Watercraft exclusion to not apply to any watercraft listed on the endorsement schedule that the insured owns, uses or rents.

CU 24 08–Waiver Of Governmental Immunity

In this endorsement, the insurance company agrees to not exercise an insured’s governmental immunity in either adjusting or defending claims. The insured still has the right to request the carrier to claim the immunity but the request must be in writing.

CU 24 09–Contractual Liability–Railroads

This endorsement redefines Insured Contract to broaden coverage by including easements and agreements that relate to construction and demolition within 50 feet of a railroad.

CU 24 10–Seed Merchants–Coverage For Erroneous Delivery Or Mixture And Resulting Failure Of Seed To Germinate

This endorsement adds property damage coverage for losses due to erroneous delivery of seed. This includes failing to deliver seed at all, delivering the wrong seed, or delivering seed at the wrong season or time of the year. It also includes errors in the mechanical mixture of seed or seed failing to germinate if the failure is due to delivering the wrong seed, delivering seed at the wrong season or time of the year, or errors in the mechanical mixture of seed. This is the opposite of CU 22 22–Exclusion–Erroneous Delivery Or Mixture And Resulting Failure of Seed To Germinate–Seed Merchants, which excludes the coverage.

CU 24 11–Seed Merchants–Coverage For Erroneous Delivery Or Mixture (Resulting Failure Of Seed To Germinate Not Included)

This endorsement adds property damage coverage for losses due to erroneous delivery of seed. This includes failing to deliver seed at all, delivering the wrong seed, or delivering seed at the wrong season or time of the year. It also includes errors in the mechanical mixture of seed. It excludes property damage due to the seed failing to germinate. This endorsement is the same as CU 24 10–Seed Merchants–Coverage For Erroneous Delivery Or Mixture And Resulting Failure Of Seed To Germinate except that is excludes property damage due to seed failing to germinate.

CU 24 14–Fellow Employee Auto Coverage

This endorsement provides liability coverage when one employee injures another with a covered auto by eliminating the fellow employee exclusion from the Who is An Insured section of the umbrella coverage form.

CU 24 15–Fellow Employee Auto Coverage For Designated Employees/Positions

This endorsement is identical to CU 24 14–Fellow Employee Auto Coverage except that coverage applies to only the employees on the endorsement schedule.

CU 24 16–Broad Form Products Coverage

This endorsement is used only when the underlying coverage is a garage coverage form or policy. It provides coverage for Damage To your Product.

This endorsement should be included when an individual is listed as a named insured. It provides a limited amount of auto coverage.

CU 24 18–Repossessed Autos

This endorsement appears to provide coverage but is actually an exclusion endorsement with limited exceptions. It excludes liability coverage for vehicles the named insured repossesses but has three exceptions. Liability coverage applies while the vehicle is being repossessed, while it is being held for sale, and after it has been sold but is awaiting delivery. The liability coverage provided is subject to the different each occurrence limit on the endorsement schedule.

CU 24 19–Lessor–Additional Insured And Loss Payee

This endorsement requires that the insurance company notify the additional insured on the endorsement schedule of any cancellation. This means it must send notice to the designated additional insured if it sends notice to the named insured. This places a burden on the carrier because coverage continues in effect for the designated additional insured if it is not notified. It also places an additional burden on the company because it must also notify the designated additional insured if the named insured cancels the policy.

CU 24 20–Broadened Bodily Injury Definition

This endorsement broadens the umbrella coverage form definition of Bodily Injury to include mental or emotional injury without requiring that it be a direct result of the bodily injury.

CU 24 23–Coverage For Professional Services

This endorsement eliminates the professional services exclusions in the umbrella coverage form. It then states that the coverage provided becomes follow form to the underlying coverage (12 07 addition).

Note: The wording added is open-ended and may be subject to different interpretations.

CU 24 30–Amendment Of Insured Contract Definition

This endorsement amends the definition of Insured Contract. It reduces coverage by inserting a provision in paragraph 9. g. of the definition that states that paragraph g. applies only if the named insured or a party working on its behalf causes the bodily injury or property damage.

CU 24 31–Limited Contractual Liability–Railroads

This endorsement is identical to CU 24 09–Contractual Liability–Railroads except for paragraph 9.g. of the definition. It states that paragraph g. applies only if the named insured or a party working on its behalf causes the bodily injury or property damage.

CU 24 32–Limited Coverage Territory

This endorsement replaces the very broad definition of territory in the coverage form with the more limited version similar to one previously used in ISO CG 00 01–Commercial General Liability Coverage Form (Occurrence Version). The Expanded Coverage Territory condition is deleted because the coverage is not expanded.

CU 24 33–Limited Coverage Territory–Additional Scheduled Countries

This endorsement is similar to CU 24 32–Limited Coverage Territory except that the coverage can be expanded to additional countries by listing them on the endorsement schedule.

CU 24 35–Amendment Of Coverage Territory–Worldwide Coverage With Specified Exceptions

This endorsement provides the standard liability umbrella coverage form definition of coverage territory except for the countries listed on the endorsement schedule.

CU 24 36–Product-Completed Operations Aggregate Limit O Insurance

This endorsement provides a separate Product-Completed Aggregate Limit Of Insurance. The policy aggregate cannot be exhausted by the product-completed operations hazard.

Note: This separate aggregate makes the umbrella coverage form track more closely with the ISO CGL Coverage Form.

CU 24 40–Canoes Or Rowboats (12 07 addition)

This endorsement amends the Aircraft Or Watercraft exclusion. It covers bodily injury or property damage caused by a canoe or rowboat an insured owns, uses or rents. It also broadens Section II–Who Is An Insured to include anyone who operates the named insured’s canoe or rowboat with permission.

CLAIMS-MADE ENDORSEMENTS (CU 27)

CU 27 00–Underlying Claims-Made Coverage

CU 27 01–Exclusion Of Specific Accidents, Products, Work Or Location

CU 27 02–Amendment–Extended Reporting Periods For Specific Accidents, Products, Work Or Location

CU 27 03–Supplemental Extended Reporting Period Endorsement

CU 27 04–Supplemental Extended Reporting Period Endorsement For Specific Accidents, Products, Work Or Locations

CU 27 10–Extended Reporting Period Endorsement For Employee Benefits Liability Coverage

LIMITS ENDORSEMENTS (CU 31)

CU 31 07–Split Uninsured And Underinsured Motorists Coverage Limits

This endorsement must be included with the umbrella coverage form when the underlying Auto Uninsured And Underinsured Motorists Coverage is subject to split limits so that the umbrella limits are written on the same basis.

CU 00 03–EXCLUSION–VIOLATION OF STATUTES THAT GOVERN E-MAILS, FAX, PHONE CALLS OR OTHER METHODS OF SENDING MATERIAL OR INFORMATION

Note: This endorsement was incorporated into the 12 07 edition of CU 00 01–ISO Commercial Liability Umbrella Coverage Form.

This is a very straightforward exclusion that Insurance Services Office (ISO) has developed in response to the popular introduction of no-call lists and anti-spamming laws that have been enacted in many jurisdictions in the United States.

The general public has grown increasingly intolerant of advertisements and solicitations that are categorized as particularly intrusive and uninvited. The volume of such commercial intrusions has, over several years, exploded via telemarketing and Internet channels. The backlash to the increase in unwanted marketing occurred for both emotional and economic reasons. The emotional trigger has been the increased effort needed to deal with calls during dinner time in the home and with being flooded with pop-up ads and unsolicited e-mails when booting up a computer or lap top. Many consumers have met their breaking point in having to answer and deal with phone calls and "junk" electronic mail. On the economic side, the unprecedented levels of junk or "spam" e-mail forces businesses to devote massive amounts of time and effort to filtering out and ridding their systems of the information. Unabated, the spam traffic affects employee productivity and reduces a company's network efficiency. These are hard dollar costs that businesses increasingly refuse to sacrifice.

State and Federal legislators have found the anti-spam backlash to be a popular way to garner the public's goodwill. Lawmakers have enacted and continue to consider more laws that prohibit unwanted advertising and soliciting. Violators are commonly faced with possible fines and even imprisonment if convicted of violating such laws. An intolerant public has been eager to litigate against incidents of spamming. Naturally, insurance products were used as a way to defend against such suits. This was not a new use that was anticipated or welcomed by insurers, especially since a number of states have experienced an explosion of related lawsuits, particularly involving violations of the national "Do Not Call" telephone registry.

Coverage Analysis

The form makes specific reference to the following:

The Telephone Consumer Protection Act
The CAN_SPAM Act
A generic mention of any enacted laws that are similar (share the same intent) of the above two laws

The form, when attached to a Commercial Liability Umbrella policy, bars coverage for loss involving BI, PD or Personal and advertising injury that is related to an insured's failure to abide by the above laws.

Of course, even without the use of the endorsement, the chance that a CLU would have to respond to such a claim might be remote due to:

The requirement that the infraction would have to involve BI or PD as defined in the policy
The likelihood that any such violation serious enough to trigger a loss would also be an intentional act

An act that is either intended or only involves intangible property (electronic data transmission) is ineligible for coverage regardless of the use of this exclusion.

However, the form may help an insurer avoid having to deal with defending such a lawsuit until a determination of intent or involvement of BI/PD is made. Avoiding getting tangled up in defense obligations is no small matter. As mentioned earlier, the issue is quite an emotional one and prospective, individual plaintiffs have been eager to file suits. Anti-spam and do not call violations have also become a popular target for attorneys seeking a new territory in which to file class action suits.

COMMERCIAL UMBRELLA LOSS EXAMPLES

In order for a firm to have an interest considering and buying a commercial umbrella policy, that firm will want to know about its coverage advantages. Specifically, an insurance professional must be prepared to tell a client or a prospect what, other than additional limits of insurance, an Umbrella Liability Policy would cover that is not handled by it primary layer of coverage.

Why should a business buy Commercial Umbrella Liability insurance in addition to existing Comprehensive General Liability, Automobile Liability, and Workers Compensation insurance when the limits of such insurance can usually be increased for a reasonable additional premium? The answer lies in the SIR area of protection provided by an Umbrella, the occurrences covered by an Umbrella subject to a self-insured retention (deductible) that are not covered by the underlying insurance.

Aerial Spraying Claim

The insured, a rancher, hired an air service to do aerial spraying of the insured’s property. Adjacent landowners claimed that the spray drifted onto and damaged their cotton crops. The air service that performed the spraying was uninsured. The insured's primary coverage specifically excluded damages arising from aerial spraying. The claim was covered under the insured's Commercial Umbrella Liability Policy, subject to that policy's retained limit.

Boat, Dock, And Harbor Claims

Example 1: A stevedore was injured. The insured had never had a stevedore's exposure previously and the insured’s Commercial Umbrella Liability Policy was applicable.

Example 2: A "roughneck" employed on an offshore drilling rig in navigable waters sustained a serious injury in the course of his employment. His employer's Workers Compensation carrier paid benefits under the Longshoremen's and Harbor Worker's Act. The injured employee also filed suit in Admiralty against the employer as a seaman under the Jones Act, on the contention that the drilling rig was an unseaworthy vessel. The suit was for damages in excess of $300,000. The Workers Compensation carrier defended this suit under its Employers Liability coverage, which was written with insurance limits in the amount of $100,000. The employer's Commercial Umbrella Liability Policy provided coverage for the excess. Though this claim was ultimately in the excess area rather than the SIR area of the Umbrella protection, the example demonstrates the great value of the Umbrella when there is uncertainty about the application of underlying coverage.

Foreign Territory Claim

A salesman for a firm hired a car for business use while in Europe. He had a serious accident, colliding with a bus load of tourists. Claims amounted to the equivalent of $500,000. There was no coverage for non-owned and hired automobiles outside of the United States and Canada in the primary insurance carried by the firm. Their Commercial Umbrella Liability Policy was applicable.

Commercial Umbrella Court Decisions

Defective Condition Nondisclosure Was Covered

An oil cargo that was valued at more than $8 million was lost when the vessel carrying it partially disintegrated, caught fire, and sank in the Pacific Ocean. The captain had attempted to sail the ship to Hawaii, under Coast Guard observation, when cracks had developed in the vessel's side plates earlier in the voyage and the plates fell into the ocean.

The cargo owner had chartered the vessel from its new owner to carry oil across the Pacific Ocean. The ship owner agreed to pay more than $8 million to the charterer in settlement of the charterer's claim against it. The charterer then sought additional recovery from the ship's previous owner. His claim was based upon an allegation of nondisclosure of the vessel's poor condition when it was sold to the present owner.

The two parties agreed to a settlement amount of $750,000, for which none of the previous owner's Liability insurers accepted liability. Legal proceedings against the insured's Umbrella Liability insurers followed when it was accepted that underlying policies were not applicable.

Evidence was introduced that the insured had reports from engineers to the effect that substantial repairs were necessary to make the ship seaworthy. Instead, the owner chose to sell the ship "as is" without informing the buyer of its condition. It was noted that the Umbrella insurance applied to claims not covered by underlying insurance and, otherwise, not excluded. As evidence of the nondisclosure established the potential liability of the insured and was within the purview of the insurance, and the amount of the settlement was reasonable, the defendant insurers were found liable for the amount claimed.

Pacific Resource, Inc., Plaintiff v. Oswego Shipping Corporation et al., Defendants, Third-Party Plaintiffs v. American Bureau Of Shipping et al., Third-Party Defendants. United States District Court, Southern District of New York. 79 Civ. 1606 (ADS). September 27, 1984. CCH 1985 Fire and Casualty Cases 1026.

Uninsured Motorist Protection Not Provided

A Commercial Umbrella Liability Policy protected an individual and his business against claims by third parties in excess of the total applicable limits of liability provided by underlying General, Automobile, and Employers Liability insurance. He and others, injured when a company car was involved in an accident, having exhausted the Uninsured Motorist coverage provided under the company's primary Automobile Liability insurance, made claim against the Umbrella insurer for their excess damages. Legal proceedings followed denial of liability by the insurer.

The main issue was whether or not the primary Automobile Policy's Uninsured Motorist Endorsement, including its arbitration provisions, was incorporated in the Umbrella Policy or was mandated by the pertinent New York Insurance Law to be so included.

The appeal court found that the Umbrella Policy provided protection only with respect to third party claims, and that any benefits in excess of those paid by underlying insurance were confined to those of a liability nature. Accordingly, Uninsured Motorist coverage included in the Automobile Policy was not included in the Umbrella Policy by its insuring provisions.

The court noted that the Insurance Law of New York required an Uninsured Motorist endorsement in every Automobile Liability Policy issued for any motor vehicle in New York. It said that this requirement was met by the primary Automobile Liability Policy. It did not extend to the Umbrella policy, purchased to provide excess protection for liability claims.

The appeal court affirmed the judgment of the trial court in favor of the Umbrella Liability insurer.

In the Matter of Matarasso et al., Appellants; Continental Casualty Company, Respondent. New York Supreme Court, Appellate Division, Second Department. No. 114 NE. June 15, 1981. CCH 1981 Fire and Casualty Cases 44.

Defense Contribution To Primary Insurer Not Required

A water reservoir and dam collapsed in Los Angeles as a result of subsidence of soil brought about by subterranean oil well digging by numerous oil companies. The city settled claims of property owners and then brought legal proceedings against the oil companies as a subrogor and on its own account.

One of the oil companies involved forwarded copies of the complaint to both its primary and Umbrella Liability insurers. The primary insurer paid its policy limit and the Umbrella (excess) insurer paid the balance of the amount for which the insured was accountable. The primary insurer sought contribution from the excess insurer to the $95,000 legal expenses it incurred in handling the litigation, a sum considerably higher than that paid by both companies in the settlement. The excess insurer refused and the primary company brought legal action.

The trial court ruled that there was no obligation on the part of the excess (Umbrella) insurer to contribute to the expenses of defense. The court noted that, by the terms of the excess policy, it was obligated for a pro rata share of defense costs if a claim was settled in excess of primary limits and the excess insurer had consented to "the proceedings continuing." There was no "continuation" because the excess insurer had promptly agreed to its part of the settlement.

The California Supreme Court affirmed the judgment of the trial court. It stressed that the defense expenses were incurred before the primary insurer requested contribution and that it incurred them in carrying out its obligation under its own policy. The judgment was in favor of the Umbrella (excess) insurer against the primary insurer.

Signal Companies et al., Plaintiffs, Appellants v. Harbor Insurance Company et al., Defendants, Respondents. California Supreme Court. No. L.A. 31201. July 3, 1980. CCH 1980 Fire and Casualty Cases 5.

MAINTAINING UNDERLYING LIMITS

INTRODUCTION

Every umbrella coverage form or policy has a condition that requires maintaining underlying policies and limits in full force and effect. The Insurance Services Office (ISO) Commercial Liability Umbrella Coverage Form refers to this condition as Maintenance Of/Changes To Underlying Insurance. This condition has two requirements:

The underlying coverage listed on the declarations must be kept in force throughout the policy period
The underlying limits may not be reduced except when claim payments the underlying carrier made reduce the limits

If the named insured does not comply with these requirements, the umbrella carrier operates as though the coverage and limits on the declarations are still valid and in force. This results in a gap in coverage.

This condition also requires the named insured to inform the umbrella carrier when primary coverage is no longer in force and/or when underlying limits or coverages change. This information is extremely important to the umbrella carrier because it may be forced to pay on a first dollar basis or assume the defense in an attempt to prevent a loss from penetrating the umbrella.

The following case is an example of a court decision when an insured did not maintain limits.

TRAVELERS V. OVERSEAS ACE HARDWARE

The case is known as Travelers Indemnity Company, Appellant v. Overseas Ace Hardware, Inc. Et Al., Appellees. Florida District Court of Appeal, Third District. Case No. 88-825. July 5, 1989. A detailed report is found in Commerce Clearing House 1989-90 Fire and Casualty Cases, Paragraph 1915.

The umbrella liability policy in question included a provision that the named insured was responsible "for maintaining in full force and effect during this policy period the policies of primary insurance described below, including their renewals." The limits to maintain were $1,000,000 General Liability and $500,000 Auto Liability.

A truck owned by the insured collided with a car in which two people were injured. The driver of the truck was at fault and Travelers paid almost $1 million to satisfy the third-party claims. Travelers then sought recovery of $300,000 of that amount from the insured, Overseas. A policy provision allowed the umbrella carrier to pay the full amount of the settlement and then recover from the primary carrier or the insured. The primary carrier reimbursed only $200,000 because its policy contained a $100,000 per person limit. The umbrella carrier looked to the insured for the balance.

Overseas filed an action against the insurance agency that served it, claiming that it failed to maintain proper primary insurance limits, because a $500,000 limit had been provided prior to the policy in the action. Overseas’ agent argued that the umbrella insurer settled for a large sum without authority and that the insured was liable for a lesser amount that was covered by the primary policy. The trial court granted motions for summary judgment for the insured and the agent. Travelers appealed. The appeals court found the umbrella policy condition language "clear and unambiguous" in that it required the insured to carry primary automobile liability insurance in a limit of $500,000. "To the extent that (it) did not do so, it became self-insured for that amount." Noting the policy provision authorizing the insurer to settle and pay the primary insurance requirement with the right to recover it, the court found the insured liable for that sum in excess of payment made by the primary insurer and said that it "may look to its agent for possible indemnification."

REASONS TO BE VIGILANT

The important lesson in this case is that it is very important to communicate with the umbrella carrier. Any change in any primary liability coverage must be disclosed to the umbrella carrier immediately and changes in the umbrella made in order to comply with the umbrella coverage form conditions. Underlying coverage forms and policies usually include commercial general liability, automobile liability, and employers' liability written in conjunction with workers compensation. In some cases, it can also include garage, aircraft, marine, and professional liability coverage. If an underlying carrier reduces its limits or the umbrella carrier increases its primary limits requirements, such as at renewal, the required adjustments must be made promptly. The same concerns apply to personal accounts that include personal umbrella liability insurance.

CONCLUSION

In general, commercial liability umbrella coverage forms and policies require the named insured to maintain the underlying coverage and limits throughout the policy term, and not modify their terms and conditions. The exception is any reduction or exhaustion of the aggregate limits of insurance due solely to covered injury or destruction that occurs during the policy period.

The excess liability protection included in umbrella liability coverage forms and policies is extremely important. As a result, maintaining the overall primary and excess protection must be done carefully.