A new edition of the Insurance Services Office, Inc. (ISO), commercial general
liability (CGL) policy was filed in 2001 with implementation beginning in December
of that year. The revised occurrence form—CG 00 01 10 01—and its claims-made
counterpart—CG 00 02 10 01—contain a number of significant changes in coverage
pertaining to liability for Internet activity, vicarious liability for criminal
acts of others, insured status of trusts and volunteer workers, negligent supervision
and employment in connection with aircraft, autos, and watercraft, and repair
of owned property undertaken to prevent third-party liability. The occurrence
form was also revised to incorporate into its insuring agreement the "known
loss" provisions that were previously made a part of the policy by use of endorsement
CG 00 57.
In addition to changes in the CGL coverage form itself, the 2001 ISO revision
also includes a number of new standard endorsements that can be used to modify
coverage in various ways. Among the most important of these are the following.
CGL Coverage for Internet Exposures
The most extensive revisions in the 2001 CGL coverage form are aimed at clarifying
or in some cases restricting coverage in connection with the insured's Internet
activities. Liability arising from use of the Internet is still a new and quickly
evolving area of the law. For the most part, ISO has chosen to apply general
liability coverage to Internet activity in the same way that the policy responds
to advertising, communications, and publishing activities conducted through
older and more traditional media.
For example, personal and advertising injury coverage has traditionally excluded
liability of insureds in the advertising, publishing, and broadcasting businesses.
The same underwriting considerations have led, in the 2001 policy, to an exclusion
of insureds in "corresponding" Internet businesses: (1) those that design or
determine the content of other entities' websites; (2) those that act as Internet
service providers (ISPs); (3) those that provide Internet search services; and
(4) those that own, host, or exercise control over electronic chatrooms and
bulletin boards.
Personal and advertising injury coverage applies, in part, to the insured's
liability in connection with certain offenses committed in an "advertisement."
The definition of that term is expanded in the 2001 CGL to include "material
placed on the Internet or on similar electronic means of communication." Internet
ad banners, in other words, are "advertisements." But a company's entire web
site may not necessarily be deemed an "advertisement. The new definition specifies
that
regarding web-sites, only that part of a web-site that is about your
goods, products or services for the purposes of attracting customers or
supporters is considered an advertisement.
In light of the fact that Internet activity takes place, from one point of
view, in an almost non-geographical "cyberspace," and that a personal and advertising
injury offense committed on the Internet would be difficult to pinpoint to a
particular country, city, or state, the 2001 CGL redefines the policy's coverage
territory. The worldwide feature of CGL coverage, which up until now was restricted
to products liability and short-term travel on the insured's business, applies
also to "personal and advertising injury offenses that take place through the
Internet or similar electronic means of communication." In other words, the
location of an occurrence or offense that causes covered injury or damage is
irrelevant, in practical terms, when the injury or damage takes place over the
Internet.
Another 2001 CGL revision that was prompted in large part by the growth of
Internet activity is the expansion of the policy definition of "property damage."
That definition now specifies that, "electronic data is not tangible property."
Damage to electronic data caused by the insured's Internet activity therefore
would not produce a covered property damage claim under the CGL, since property
damage consists of physical injury to tangible property, resulting loss of use
of that property, and loss of use of tangible property that has not been physically
injured. In any of these three cases, the property damage must be to tangible
property. Since the definition does not apply in the new CGL to electronic data,
the meaning of that term is also explained. Electronic data consists of:
information, facts or programs stored as or on, created or used on, or
transmitted to or from computer software, including systems and applications
software, hard or floppy disks, CD-ROMS, tapes, drives, cells, data processing
devices or any other media which are used with electronically controlled
equipment.
Other CGL Coverage Form Revisions
Two of the CGL Coverage A exclusions undergo substantial revision in the
2001 edition of the form. The "aircraft, auto or watercraft" exclusion (exclusion
g) of the CGL is modified to include language addressing the issue of negligent
supervision. In a number of jurisdictions, courts have recognized such claims
as constituting separate causes of action, even when the injury or damage directly
results from the ownership or operation of an auto, watercraft, or aircraft
by an insured.
For instance, an employer may be sued in connection with automobile accident
injuries caused by the reckless driving of an employee on company business.
If the allegations against the employer go beyond vicarious liability for actions
of the employee to claim that the employer was negligent in hiring someone with
a poor driving record (for instance), does that separate allegation of negligence
come within the CGL auto exclusion? A number of appellate court decisions have
said no—that negligent supervision of a driver is a separate source of liability
from the ownership or operation of the vehicle and is, therefore, not excluded
by exclusion g. (See, for example, Home State Insurance
Co. v Continental Insurance Co., 726 A2d 1289 (NJ 1999), and Thomas Milfred Pablo v Scott Allen Moore, 995
P2d 460 (Mont 2000).)
The position of ISO and the insurance industry is that negligent hiring,
supervision, or monitoring are not intended to be separate—covered—loss exposures
in connection with the ownership or operation of aircraft, autos, or watercraft
by an insured. To clarify this intent, the following language has been added
to CGL exclusion g.
This exclusion applies even if the claims against any insured allege
negligence or other wrongdoing in the supervision, hiring, employment, training
or monitoring of others by that insured, if the "occurrence" which caused
the "bodily injury" or "property damage" involved the ownership, maintenance,
use or entrustment to others of any aircraft, "auto" or watercraft that
is owned or operated by or rented or loaned to any insured.
The other Coverage A exclusion affected by the 2001 CGL revision is "damage
to property" exclusion j. The portion of that exclusion pertaining to damage
to owned property has been expanded to apply to an indirect "liability" exposure.
Some claims for the cost to repair the insured's own property have been successfully
brought under general liability policies, on the basis that the repair was necessary
to avoid third-party property damage or bodily injury—repair to the insured's
building, for example, when the damage poses a threat to the public at large.
The revised version of exclusion j makes clear that such preventative repairs
are not considered covered property damage. The exclusion now specifically applies
to:
any costs or expenses incurred by you, or any other person, organization
or entity, for repair, replacement, enhancement, restoration or maintenance
of such property for any reason, including prevention of injury to a person
or damage to another's property.
One Coverage B exclusion has also been revised. Exclusion d, which removes
personal and advertising injury coverage in connection with the commission of
criminal acts, previously applied to such acts committed by or at the direction
of "any insured." The 2001 revised version applies to criminal acts committed
by or at the direction of "the insured." The revised exclusion, in other words,
only affects coverage for the insured directly involved in the criminal act.
Other insureds, who may incur liability vicariously for the criminal act of
another insured, would still have coverage despite the exclusion.
Two changes are made to the policy's "Who Is an Insured" section. A separate
category for trusts is added to the list of possible named insureds. When the
named insured under a CGL is a trust, trustees are also insureds with respect
to their duties as such. Also added to the list of automatic insureds (i.e.,
employees, real estate managers, legal representatives of deceased named insureds,
etc.) are "volunteer workers" of the named insured. The term "volunteer workers"
is defined in the revised policy as:
a person who is not your "employee", and who donates his or her work
and acts at the direction of and within the scope of duties determined by
you, and is not paid a fee, salary or other compensation by you or anyone
else for their work performed for you.
In other respects, "volunteer workers" are provided insured status on a basis
comparable to that given to the named insured's employees—for example, they
do not have insured status with respect to bodily injury or personal and advertising
injury to another employee or volunteer worker.
The 2001 ISO CGL revision affects two of the policy's conditions. Previous
versions of the condition pertaining to "Legal Action Against Us" acknowledged
a third party's right to sue the insurer for recovery of an agreed settlement
or judgment "obtained after an actual trial." Since the CGL definition of "suit"
now includes arbitration proceedings and other forms of alternative dispute
resolution, it is possible that judgment could be rendered against an insured
in a forum other than "an actual trial." Therefore, that phrase has been dropped
from the "Legal Action Against Us" condition.
In compliance with guidelines issued by the National Association of Insurance
Commissioners (NAIC) regarding due dates for audit and retrospective premiums,
the 2001 CGL has been revised to specify such a due date. The change affects
Condition 5 of the policy, "Premium Audit," which had previously stipulated
that audit premiums are due upon notice to the first named insured. The revised
language provides that "the due date for audit and retrospective premiums is
the date shown as the due date on the bill." This language accomplishes technical
compliance with the NAIC ruling, which considers uncollected audit premiums
to be nonadmitted on the insurer's income statement if no due date is specified
in the policy.
New Endorsements
In addition to changes in the CGL coverage form itself, the 2001 ISO revision
also includes a number of new standard endorsements that can be used to modify
coverage in various ways. Among the most important of these are the following.
Damage to Work Performed by Subcontractors on Your
Behalf—Two new optional endorsements (CG 22 94 and CG 22 95) eliminate
coverage for damage to the named insured's work when the damaged work or the
work out of which the damage arises was performed by a subcontractor. CG 22
94 imposes this additional exclusion absolutely; CG 22 95 allows it to be targeted
to specific work sites or operations. (See Pat Wielinski's article, "Full Circle Regression: The New ISO 'Your Work'
Endorsements.")
Additional Insureds—Completed Operations—Standard
endorsements CG 20 10 and CG 20 33, which extend insured status to project owners
and contractors on either a scheduled or blanket basis, are revised to make
more explicit the fact that such additional insured coverage does not include
completed operations. At the same time, a new additional insured endorsement
also designed for construction risks—CG 20 37—specifically provides the additional
insured with completed operations coverage.
Product Withdrawal Expense—A new coverage option,
provided by using endorsement CG 04 36, reimburses certain product withdrawal
expenses when the withdrawal is prompted by a defect in the product or an incident
of product tampering. Coverage provided by the endorsement is subject to an
aggregate limit and deductible.
Employee Benefits Liability—An employer's liability
arising out of errors or omissions in the administration of its employee benefits
program has for some time been insurable by means of endorsements to the CGL
policy. These endorsements were developed and filed by individual insurers.
ISO has now introduced a standardized version of employee benefits liability
coverage. The new endorsement is CG 04 35.