If the truth be told, most people do not take the time or effort to read the insurance policies they purchase. They depend on their agents to identify the coverages that are required and to obtain them for their benefit.
Even among the people who do take the time to read and analyze insurance policies, there are provisions in the commercial general liability (CGL) insurance policy that are relatively unknown and underutilized. This series will examine some of those provisions in an effort to give practitioners representing both the insureds and insurers additional ammunition to represent their client's interest.
The first provision in this series that we will discuss will be a provision found in the conditions section of the current CGL policy. The declarations provision states the following.
By accepting this policy, you agree:
The statements in the Declarations are accurate and complete;
Those statements are based upon representations you made to us; and
We have issued this policy in reliance upon your representations.
The declarations provision has appeared in every iteration of the Insurance Services Office, Inc. (ISO), CGL policy form since 1973. On many occasions, a claim will be presented to an insurer where the risks involving the claim had nothing to do with the risks that were listed in the declarations or which the insurer believed that it was insuring. Under the declarations provision, the insured is making a declaration that the statements in the declarations are accurate and complete and that the insurers are relying on them. Granted, there are certain endorsements that can be attached to CGL policies that would limit the exposure to the rating classification listed in the declarations. However, most policies do not have these endorsements; most policies only have the language found in the declarations provision that is referenced above.
Litigation Involving the Declarations Provision
One example of the use of the declarations provision is found in Gemini Ins. Co. v. S&J Diving, Inc., 464 F. Supp. 2d 641 (S.D. Tex. 2006). In that case, a young girl was abducted at an outdoor rock concert and motorcycle rally called the "Texas Tea Party." Following the assault, an investigation revealed that the kidnapper worked for Pajama Productions, Inc., the producer of the event. One of the principal shareholders of Pajama Productions was Stanley Jones. Mr. Jones was also the principal shareholder in a venture called S&J Diving, Inc. Gemini Insurance Company had issued a CGL policy to S&J Diving. Because Mr. Jones was an executive officer of S&J Diving as well as Pajama Productions, it was argued that coverage would be extended to him under the S&J Diving policy.
The court declined to provide coverage in this case and held that:
In this instance, the policy declarations and exclusions, when read together, reveal a clear intent by the parties to contract for liability insurance coverage for activities related only to marine survey operations. It is equally clear that the plain language of the policy characterizes S&J as a diving company; S&J agreed that such a description of its business operations was accurate and complete; and, Gemini relied on those representations in setting the premiums and issuing the policy. It is likewise reasonable to conclude that S&J's "declaration" of its business purpose limits the available coverage to a marine operation's typical undertakings.
Less than 25 cases across the entire United States have focused on or discussed the above representation provision. The majority of those cases addressing the provision have been within the last 5 years. As a result, this little-known and little-utilized provision is garnering greater and greater use in the industry.
The declarations provision may impact disputes in jurisdictions that have statutory laws that govern an insurer's reliance on an insured's representations in an application. For example, many states require that the applications be attached to the policies for an insurer to rely on a misrepresentation. Other states require that the insured give notice within a very short period of time if it does not intend to be bound by the policy based on the misrepresentation in the application. The declarations provision avoids all those statutory arguments and focuses not on the initial misrepresentation in the application but rather on a misrepresentation in the declarations. As a result, many insurers who were facing statutory defenses to arguments that there was a misrepresentation in the application may no longer have those defenses available to them.
The next article will focus on another little-known and little-utilized provision of the CGL policy that insureds typically fail to avail themselves: the "Supplementary Payments" provision. Like the provision above, it is not known by most insurance professionals and certainly not utilized for the benefit of insureds as widely as it should.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.