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In March 2004, Insurance Services Office,
Inc. (ISO), began filing a revision of the standard commercial general liability
(CGL) insurance coverage form, scheduled for implementation with policies written
or effective on or after December 1, 2004. This article looks at the most significant
by Jeff Woodward IRMI
In March 2004, Insurance Services Office, Inc. (ISO) began filing a revision
of the standard commercial general liability coverage form, other miscellaneous
general liability coverage forms, and endorsements for use with these forms.
The changes are scheduled for implementation with policies written or effective
on or after December 1, 2004. This article will look at the most significant
revisions to the CGL form itself; a subsequent IRMI Insights article will examine
the new or revised miscellaneous coverage forms and endorsements.
Although the CGL policy excludes liability arising out of the use of owned
"autos," that exclusion does not apply to vehicles that meet the policy’s definition
of "mobile equipment." Mobile equipment comprises vehicles incapable of operation
on public roads (heavy construction cranes, for example); vehicles that are
designed for use off public roads but can nevertheless be driven on public roads
(farm tractors, bulldozers); and vehicles that would ordinarily be considered
"autos" except that they are "maintained for use solely on or next to" the named
insured’s premises (a farm pickup truck that is never driven off the farm).
The operation or use of any such vehicle is a general liability—rather than
an auto liability—exposure, and is covered under standard commercial general
In some states, certain vehicles in the last two categories mentioned above—and
particularly certain kinds of farm or construction equipment—are subject to
motor vehicle registration requirements and to the state’s financial responsibility
or compulsory insurance laws. Historically, general liability insurers have
been willing to tailor the CGL policy to meet any statutory insurance requirements
to which covered mobile equipment was subject. A standard endorsement, CG 99
01, was developed specifically for that purpose.
The scope of compulsory insurance and financial responsibility laws has expanded
significantly during the last couple of decades, now encompassing in most states
such coverages as uninsured motorists and personal injury protection, which
applies without reference to conventional principles of legal liability. As
a result of these changes, many insurers have come to regard the operation of
registered mobile equipment as an auto rather than a general liability exposure.
Recognizing that fact, ISO has decided to remove coverage in connection with
these vehicles from the CGL policy, leaving them, by default, as an exposure
to be insured by a business auto or other commercial automobile policy. To accomplish
this move, three changes to the CGL coverage form have been necessary.
The policy’s definitions of "auto" and "mobile equipment" have been modified
to state that land motor vehicles subject to any motor vehicle insurance law
are not "mobile equipment" —even if they otherwise fall within one of the defined
"mobile equipment" categories—but have the status of "autos" under the policy.
The primary result of this change is to bring such vehicles within the policies
"aircraft, auto or watercraft" exclusion.
The "aircraft, auto or watercraft" exclusion has been modified to preserve
coverage for the operation of equipment attached to vehicles that no longer
qualify as "mobile equipment" under the revised definitions discussed above.
This is in keeping with the traditional coordination of coverage between general
and auto liability policies with respect to equipment attached to vehicles.
The "over-the-road" exposure falls under the auto policy, while the operation
of the equipment remains a general liability exposure. For example, a truck
with attached cherry picker or air compressor is an "auto," and operation of
such a truck is excluded under the CGL; but liability arising out of the operation
of the cherry picker or compressor itself is not excluded.
In the same way, the "aircraft, auto or watercraft" exclusion of the 2004
CGL will make an exception for machinery or equipment "attached to, or part
of, a land vehicle that would qualify under the definition of ‘mobile equipment’
if it were not subject to" a motor vehicle insurance law. In other words, a
backhoe that is subject to its state’s compulsory insurance law will be an "auto,"
and its operation will be excluded from CGL coverage. But the operation (e.g.,
at a job site) of the arm and bucket will still be covered by the CGL policy.
Regarding the operation of mobile equipment that is subject to motor vehicle
registration, the CGL policy extends insured status to anyone operating such
equipment "along a public highway" with the named insured’s permission. (In
this respect, the current CGL policy provides the same permissive-user coverage
found in commercial automobile policies.) Since the operation of such vehicles
will not be covered at all under the 2004 revision, this section of the "Who
Is an Insured" section of the policy is being deleted.
A perennial challenge for CGL insureds who also have coverage under someone
else’s policy as an additional insured has been making sure that the additional
insured coverage will respond first to a loss covered by both policies. The
current CGL "Other Insurance" condition addresses this problem by stipulating
that the policy is excess over "any other primary insurance available to you
covering liability for damages arising out of the premises or operations for
which you have been added as an additional insured by attachment of an endorsement."
That language is a specific reference to a standard additional insured endorsement
(like ISO’s CG 20 10) that provides coverage to an additional insured for the
named insured’s "ongoing operations," but not for products or completed operations.
Last year a new endorsement—CG 20 37—was introduced by ISO, by means of which
the additional insured may also be covered for claims that arise out of the
named insured’s work and fall within the products-completed operations hazard.
To avoid any suggestion that the additional insured’s own policy is not excess
over that products-completed operations coverage as well, the "Other Insurance"
condition is being revised to make reference both to premises and operations,
and to products and completed operations.
The CGL pollution exclusion contains an exception which preserves coverage
for bodily injury caused by fumes from building heating equipment (e.g., carbon
monoxide from a defective furnace). Without the exception, the policy’s definition
of "pollutants," which specifically includes "fumes," would be broad enough
to eliminate coverage for such claims. Since the introduction of the heating
equipment exception, questions have arisen regarding the policy’s coverage intent
with respect to air-conditioning equipment, and at least one bodily injury claim
resulting from fumes emitted by a defective water heater has resulted in a high-profile
coverage dispute ultimately decided by a federal circuit court: Admiral Insurance Co. v Feit Management Co.,
321 F3d 1326 (11th Cir 2003). That decision held that the exception for "equipment
used to heat a building" was not broad enough to apply as well to a water heater,
even if the toxic fumes were carried through the building by heating ducts.
In light of these coverage disputes, ISO is rewriting the building heating
equipment exception to make specific reference to equipment that is used "to
heat, cool or dehumidify the building, or equipment that is used to heat water
for personal use, by the building’s occupants or their guests."
For several years, the issue of liability for damage to or loss of electronically
stored data was a contentious one under general liability policies. For insureds
whose businesses created the possibility of damaging or destroying another entity’s
computerized records or software, a number of exclusions were developed for
use with the CGL policy. These endorsements specifically addressed errors and
omissions exposures for software developers and manufacturers, programmers,
data processing services, and consultants—the businesses that were perceived
at the time to have the greatest liability exposure for damaging a third party’s
With the advent of the Internet, which effectively created the possibility
of links between any two computers (and any two databases) in the world, the
liability exposure increased astronomically. Any person or business with a Web
site is now subject to claims that an interface or download with another computer
caused damage to the latter’s data or software.
In response to this dramatically increased exposure, ISO developed a CGL
coverage option—electronic data liability endorsement CG 04 37—and at the same
time modified the CGL "property damage" definition to stipulate that "electronic
data is not tangible property." The result of that revised language was to eliminate
coverage for direct damage to electronic data and coverage for the loss of use
of data that are not physically injured, by removing such losses from the scope
of "property damage."
As part of the 2004 CGL revision, ISO has now introduced additional language
intended to restrict coverage in connection with loss of electronic data. The
new language becomes exclusion "p" of the policy’s Coverage A, and eliminates
coverage for "damages arising out of the loss of, loss of use of, damage to,
corruption of, inability to access, or inability to manipulate electronic data."
Whether this new exclusionary language eliminates any coverage not already eliminated
by the stipulation that "electronic data is not tangible property" (and therefore
not a subject of "property damage" coverage) remains unclear. Does it, for example,
address one possible basis for a computer-based liability claim that is not
addressed by the "property damage" definition alone—a claim for loss of use
of computer hardware resulting from damage to electronic data? Such a loss would
clearly result in "inability to access" data. More questions of this kind are
raised than answered by the presence in the CGL policy of two separate yet apparently
overlapping provisions, both of which have the aim of restricting coverage for
loss of electronic data.
Whatever the scope of the new electronic data exclusion, the gap it creates
can be filled by a new coverage form also being introduced as part of the 2004
multistate revision, CG 00 65, Electronic Data Liability Coverage Form. That
new form covers an "electronic data incident" that causes "loss of electronic
data." The latter term is defined in language that reproduces precisely the
exposure now excluded from CGL coverage: "damage to, loss of, loss of use of,
corruption of, inability to access, or inability to properly manipulate electronic
CGL medical payments coverage does not apply to "a person injured while taking
part in athletics." Dictionary definitions of the term "athletics" have been
cited as grounds for limiting the scope of that exclusion to organized sports
and other "serious" athletic endeavors. For instance, Webster’s Collegiate Dictionary defines
"athletics" as "exercises, sports, or games engaged in by athletes"; the same
source then defines "athlete" as "a person who is trained or skilled in exercises,
sports, or games requiring physical strength, agility, or stamina."
Strict application of the term athletics in that sense would arguably not include the occasional sporting activities
of most "weekend athletes," impromptu softball or basketball games at company
picnics, children’s athletic instruction, etc., since none of those activities
involves people who are "trained or skilled in … sports." To restore the exclusion
to the scope that ISO says was always intended for it, it is being revised to
apply to "a person injured while practicing, instructing or participating in
any physical exercises or games, sports, or athletic contests."
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