Any endorsement to a standard commercial general liability (CGL) endorsement
that eliminates coverage should be of concern to small contractor insureds—a
class of risks for whom general liability exposures are by far the most
significant they face in the course of business. Yet the number of exclusionary
endorsements added to many contractor accounts makes the review process
formidable even for experienced industry personnel.
If an important restriction on coverage is missed and not addressed, the
results can be catastrophic. Today's example involves severe language
removing coverage for contractor activities on sites where consolidated
insurance—"wrap-up"—programs are or ever were in place.
Separating enrolled versus nonenrolled contractors in wrap-up programs is
well understood within the industry. But some CGL insurance providers
materially expand the extent of wrap-up exclusions imposing limitations not
anticipated by any of the parties. One such wrap-up exclusion read as
follows:
[D]oes not apply to any work insured under a consolidated (Wrap-Up)
insurance program and this insurance shall have no obligation to defend or
indemnify for any claim or any project where such wrap-up insurance exists or
has ever existed. This exclusion applies whether or not a claim is covered
under such wrap-up insurance. The limits of such wrap-up insurance are
exhausted, the carrier is unable to pay, or for any other reason.
Who Is Included?
There are categories of included and excluded—"enrolled" and
"nonenrolled"—parties in all wrap-up programs. Delivery services,
suppliers, truckers, equipment installers, waste removal, and other categories
of business usually are ineligible for coverage under the wrap-up policy under
which all enrolled contractors are named insureds.
The language quoted above was found in the policy of an equipment installer,
a traditionally ineligible party to a wrap-up. The firm was occasionally
installing high technology equipment on large construction sites as work
reached completion. Wrap-up insurance was, or had been, in place on the
project.
What makes this particularly sweeping exclusionary language so problematic
is the fact that the equipment installer will continue to service the equipment
for years after the construction project is completed—a project, in other
words, where a wrap-up program "ever had been" in place.
Please note that the exclusion makes no reference to the insured equipment
installer being a participant in the wrap-up program.
The Severity of Language
The severity of the exclusion becomes apparent when compared to standard
designated operations exclusions, standard wrap-up exclusions developed by
Insurance Services Office, Inc. (ISO), or other limitations specific to an
enrolled contractor. Designated operations exclusion are specific to scheduled
construction sites. The standard ISO wrap-up exclusion applies specifically
because "a consolidated (wrap-up) insurance program has been provided by
the prime contractor/project manager or owner of the construction project in
which you are involved." Such standard exclusions are readily understood.
But the exclusionary language quoted above goes well beyond industry norms to
remove coverage for any claim or project where wrap-up insurance is in place
or ever existed.
The application for insurance that preceded the issuing of the exclusion
endorsement made no inquiry as to the applicant's participation in wrap-up
insured projects or its performance of work at wrap-up sites. Information
addressing limitations related to wrap-up issues was not descriptive. The
policy to which the quoted wrap-up exclusion was added had approximately 50
pages of other endorsements, all of which reduced important coverage.
Only One Example
Wrap-up endorsements are only one of many severe endorsements that can be
routinely added to contractor accounts. The quality of a contractor's
general liability insurance is highly important to all parties involved.
Insurance coverage forms for this segment of our economy have evolved over more
than a century in the United States through a laborious process of identifying
construction risks and developing insurance coverage to deal with them. The use
of nonstandard, severely restrictive endorsements and exclusions that remove
coverage otherwise available and essential to the construction industry poorly
serves the public.