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Category Archives: Insurance

How Well Does That Blanket Cover Your Client?

Blanket additional insured endorsements are useful tools for preventing administrative oversights and reducing paperwork, but they also carry risks for both the named and additional insureds. Discover methods contractors and subcontractors can use to minimize the risks of breaching their contracts when using blanket AI endorsements.

One of the age-old problems in obtaining additional insured status under a contractor’s or subcontractor’s insurance policy is making sure the appropriate actions have been taken to effect the required coverage. Certificates of insurance are commonly used to verify that the certificate holder has been added as an additional insured, but because they are not part of the policy, information contained on certificates may not be binding on the insurer. This article examines the use of blanket endorsements to effect additional insured status as a means of overcoming at least some of the imperfections of the process.

Additional insured status is a common and effective tool for protecting one party from certain risks arising out of another party’s activities. For example, municipalities typically require additional insured status from anyone holding a public event on city property, such as concerts, parades, and carnivals. The rationale behind this requirement is that the activities expose the city to certain risks that would not otherwise exist, so the person or organization that creates the risk should assume responsibility for any losses incurred as a result of the activities. In the case of a public concert, for example, if someone is injured when the crowd gets unruly, both the city and the concert sponsor will likely be sued. As an additional insured under the sponsor’s policy, the city can tender the claim under that policy instead of having to file the claim under its own insurance. The risk has been effectively transferred to the concert sponsor (assuming the available policy limits are sufficient to cover the claim.)

On a construction project, the owner typically requires additional insured status under the general contractor’s liability insurance policies; general contractors may do likewise with subcontractors. As in the example above, the rationale is that the construction activities create certain risks that would not otherwise exist and increase the magnitude of certain other risks. For example, a construction project in a retail district carries the risk that a pedestrian will be injured from flying debris, collapsed scaffolding, or a tool dropped from several stories up. These risks are directly related to the contractor’s operations on the site. Further, goes the rationale, the contractor (or subcontractor) performing the work is generally in the best position to prevent or control losses arising out of the work, and should therefore bear the corresponding financial risk.

However, requiring additional insured status does not necessarily guarantee that you will get it. The named insured (contractor or subcontractor) must notify the insurance company of the request, and absent a provision to the contrary, the person or entity requesting additional insured status must be listed, or “scheduled”, by name on an endorsement that is attached to the policy.

Because this requirement is so common in construction contracts, some contractors may handle hundreds of requests for additional insured status in a given year. Further, because the contracting process is often drawn out, and the insurance requirements given little more than a cursory review, this method of providing additional insured status carries inherent risks of error and oversight. Whether the result of failing to forward the request for additional insured status to the broker or insurer, failing to ensure additional insured status under a new or renewal policy, or some other oversight, a contractor (or subcontractor) can easily find itself in breach of a contract, among other unpleasant outcomes. Likewise, the would-be additional insured may find itself embroiled in a coverage dispute with the insurer and a contract dispute with the named insured contractor; meanwhile, it may be forced to tender the claim to its own insurer (or, if self-insured, fund its own defense). All of these possible outcomes frustrate the intent of the contracting parties.

Blanket additional insured endorsements were introduced as a means of avoiding administrative errors and oversights in providing additional insured status. These endorsements typically contain language indicating that additional insured status is automatically provided when the named insured agrees to provide such status. To avoid overly broad grants of coverage, these endorsements typically limit their application to certain types of written contracts, such as construction contracts or equipment rental agreements.

The obvious benefits of blanket, or automatic, additional insured endorsements are that they protect against failure to add a party as an additional insured in accordance with the contractual agreement, and reduce the administrative burden of making each request individually. However, from the additional insured’s perspective, there are also some potential drawbacks to obtaining additional insured status in this manner. First, in the past, blanket additional insured endorsements had to be manuscripted as no standard endorsements were available. Because they are not standardized, manuscript endorsements can differ from one policy to the next. Consequently, they offer less predictability in terms of scope of coverage, as well as how a court might interpret the language of the endorsement.

Because blanket additional insured endorsements typically require a contractual obligation on the part of the named insured to provide such status, those who obtain additional insured status through such an endorsement must retain proof of the contractual requirement to effect coverage. Even when the additional insured’s coverage does not apply to completed operations, claims arising out of occurrences that took place during the course of construction may not surface until years later. Some additional insureds assume that a certificate of insurance showing additional insured status at the time of the occurrence will be sufficient to trigger the insurer’s duty to defend and indemnify. That is not necessarily true. The additional insured will also need evidence that there was in fact a contract requiring such coverage. While a certificate of insurance indicating that the certificate holder has been added as an additional insured is evidence of a contractual requirement, a better approach may be to require the certificate to refer to the contract requirement. For example, the following language could be required on the certificate:

“In compliance with the contract requirements, certificate holder is an additional insured under the policy.”

If possible, the contracts themselves should be retained. (This should not impose a significant additional burden in most instances, as construction contracts are typically retained for access to indemnity and other provisions that may come into play well after the project is completed.)

Finally, blanket additional insured endorsements restrict insurers ability to provide notice of cancellation to additional insureds. Most insurance policies require such notice to be provided only to the named insured. Additional insureds often try to obtain a guarantee of notice of cancellation by modifying the certificate language, but this is an unreliable approach.


Blanket additional insured endorsements are useful tools for preventing administrative oversights and reducing paperwork, but they also carry some risks for both the named insured and the additional insured. Fortunately, these risks can be managed fairly effectively.

Owners and contractors requiring additional insured status should make certain the additional insured requirement is part of a written and properly executed contract, and retain copies of these contracts (as well as the certificates of insurance) for an appropriate period of time—at least 3-5 years if completed-operations coverage was required and included in the additional insured’s coverage. Further, they should stipulate in the contract insurance requirements a minimum scope of coverage to be provided to them as an additional insured.

Contractors and subcontractors using blanket additional insured endorsements to provide contractually required coverage can minimize the risks of breaching their contracts by sticking with language that has been tested, and making sure the endorsement extends the contractually required scope of coverage.

Source: irmi.com

Secure Favorable Wording in Contractual Liability Exclusion

Contractual liability exclusions are a fact of life in directors and officers (D&O) policy forms. While there is no getting around the existence of the contractual liability exclusion within standard policy wording, insureds can certainly benefit from variations in wording that can carve-back certain elements of coverage. Consider asking the following questions in order to determine potential ways to minimize the impact of the exclusion.

  • Is there a carve-back for liability that would have attached even in the absence of a contract or agreement? All policy forms should make this exception.
  • Does the exclusion bar coverage for written contracts only? Or does it also apply to oral contracts?
  • Does the exclusion only refer to “contracts,” or does it also apply to “agreements,” “warranties,” and/or “guarantees”? Inclusion of these other terms, especially when combined with wording excluding them in their oral forms, can significantly broaden the effect of the exclusion and thus constrict coverage.
  • Is there a carve-back for defense costs in the event of claims against insured persons (e.g., Side A defense coverage)?
  • Does the exclusion apply to both express and implied contracts? Much like the inclusion of some of the terminology shown above, implied contracts can extend the restrictive impact of the exclusion to a far greater range of the insured’s activities.
  • Does the lead-in wording to the exclusion bar coverage for claims “for” contractual liability, or does it bar coverage for claims “based upon, arising out of, or in any way related to” contractual liability? The former is the less common approach but is more favorable for an insured.
  • Does the exclusion explicitly state that it also applies to the liability of others that an insured assumes?
  • Is there an exception for contractual liability related to “employment claims”? With the blurring of some D&O and employment practices liability (EPL) risks in recent years and the frequency with which officers have employment contracts, this is particularly relevant.

Source: www.irmi.com

Builders Risk Protective Safeguard Endorsements and Warranties

Builders risk policies may contain protective safeguard and/or warranty endorsements that require insureds to implement specific measures to protect property during construction. Such requirements must be complied with by the insured as a condition of coverage. What do these requirements look like, and what are the implications to stakeholders?

Builders risk insurance underwriters may impose policy restrictions regarding the implementation of specific measures to protect property being constructed or renovated. These restrictions are typically memorialized by a policy condition or warranty1 (hereafter collectively referred to as a “condition”) set forth in an endorsement to a builders risk policy. The purpose of these endorsements (“protective safeguards”) is to impose an obligation on the insured to ensure it will fully comply with specific safeguard(s). Otherwise, coverage will be negated.

Protective safeguards endorsements are nonstandard, and substantial differences exist between insurers and policies. These endorsements are titled in a variety of ways. Some examples include the following.

  • Protective Measures and Safeguards Endorsement
  • Protective Safeguards Endorsement
  • Security and Protective Device Provision
  • Protective Safeguards Warranty Endorsement
  • Protective Safeguards and Services Endorsement

Why Do Underwriters Utilize Protective Safeguard Endorsements?

These endorsements are used for different reasons. Some insurers provide a premium discount for actions that reduce risk. Underwriters want to ensure that such safeguards are implemented and maintained by issuing an endorsement. Other underwriters contend that certain construction projects may not be insurable without imposing mandatory safeguards. Still others simply want to reduce their exposure to loss, and they view these endorsements as a tool to accomplish that.

These endorsements tend to be utilized more on smaller construction projects compared to larger ones. It is uncommon for builders risk policies that insure larger projects to incorporate such endorsements. This is because the loss prevention programs of large project owners, construction managers, and general contractors are more evolved and in tune with the demands of underwriters.

What Causes of Loss Do These Endorsements Apply to?

Each of these endorsements has introductory language that specifies how the endorsement restricts coverage. Some endorsements limit the applicability to one or more specific causes of loss (perils). Other endorsements apply to all perils.

Here is an example of language that applies to specified perils.

Protective Measures and Safeguards Endorsement

You agree to maintain the protective measure(s) or safeguard(s) shown below for the term of the policy. If you do not maintain the protective measure(s) or safeguard(s), we will not cover “loss” caused by or resulting from fire, theft, or vandalism during the period that the stated protective measure(s) or safeguard(s) are not in effect or in working condition.

If you fail to provide or maintain the stated protective measure(s) or safeguard(s), coverage for “loss” caused by or resulting from fire, theft, or vandalism is automatically suspended. This suspension will last until the measure(s) or safeguard(s) are back in operation. (Emphasis added.)

Here is an example of language that applies to all losses.

Protective Safeguards Warranty Endorsement

In consideration of the issuance of this policy, the insured hereby warrants that the Protective Safeguards described in the schedule below for which an X is shown in the corresponding box will be maintained at the job sites designated in the Declarations.

Failure to maintain the Protective Safeguards required would void insurance coverage for any loss which occurs at the jobsites at any time while such required Protective Safeguards are not maintained.

The undersigned authorized representative of the Insured hereby agrees, on behalf of the Insured, to maintain the Protective Safeguards specified above and further acknowledges and agrees that failure to maintain those Protective Safeguards will operate to void coverage for any loss which occurs at the job sites at any time while Protective Safeguards are not maintained there. (Emphasis added.)

The latter policy language is much more restrictive than the former because the warranty applies to any loss that occurs while a protective safeguard is not maintained—coverage is void during such period.

Types of Safeguards

Each of the endorsements set forth the applicable required protective measures/safeguards. These are segregated into the categories identified below. Within each category are actual safeguard wordings taken from builders risk policies and endorsements. Note that some of these requirements are very clear; others are ambiguous at best.


  • You agree to maintain perimeter fencing at minimum of 8 feet surrounding entire jobsite and locked gate(s).
  • The entire Insured Project site will be surrounded with a chain link fence not less than 6 feet in height, suitably anchored in the ground a reasonable distance from insured property. Gates though the chain link fence will be securely locked during nonworking hours.
  • The active construction site is fenced.
  • You will maintain a fence around the entire perimeter of the insured premises. This fence may be constructed of chain link, wood or other suitable material, and must be locked at all times during which normal operations usual to the conduct of your business are not being performed.
  • Enclose the jobsite with a fence at least 6 feet in height.
  • Complete perimeter 6-foot chain link fencing with gates closed and locked during all “nonworking hours.”
  • Fenced jobsite means a fence, not less than 6 feet in height, that completely surrounds the jobsite, with no openings unless gated. All gates to such fence shall be closed and locked, to secure against entry to the jobsite, during all nonworking hours.
  • Perimeter fencing which completely surrounds each job site shown with gates closed and locked during all nonworking hours.
  • A fence with adequate strength and locking gates with a height of at least 6 feet must surround the construction site.


  • You agree to maintain lighting on site.
  • The entire insured project site will be illuminated from sunset to sunrise, each day.
  • The active construction site is lighted from sundown to sunrise once power is available at the site.
  • You will maintain lighting around the entrances to the premises, including gates to fences.
  • Shall illuminate the jobsites sufficiently to reveal the presence of trespassers.
  • Exterior illumination (other than public street lights) providing illumination to all sides of the “project site.”
  • Exterior lighting means the premises shall be provided with lighting that shall illuminate the entire perimeter of the premises, and will be operational during all nondaylight hours.
  • Around the entrances of the building or structure, including fence gates.
  • The construction site must be illuminated by adequate lighting a night.

Detection Systems

  • Operable Burglar Alarm System. You agree to maintain a burglar system connected to central station or monitored by a public or private alarm company.
  • Operable Burglar Alarm System. You agree to maintain a burglar system connected to central station or monitored by a public or private alarm company.
  • Automatic Burglar Alarm. Protecting the entire building or structure, which signals to an outside central station or police station.
  • Automatic Burglary Alarm. Protecting the entire building or structure, which has a loud sounding gong or siren on the outside of the building or structure.
  • Operable Smoke or Fire Detection System. You agree to maintain a smoke or fire alarm system connected to a central station or monitored by a public or private alarm company.
  • Automatic Fire Alarm. Automatic Fire Alarm, protecting the entire building or structure, that is connected to a central station or reporting to a public or private fire alarm station.


  • Automatic Fire Extinguishing System. You agree to maintain the automatic fire extinguishing system.
  • Operational Sprinkler Sprinkler/Standpipe System. When and as required by local fire department/building codes and/or contract documents.
  • Automatic Fire Extinguishing System. Automatic sprinkler system, including supervisory services.
  • Flow Alarm. The insured shall install and employ a water flow alarm on all automatic sprinkler system(s) from the time the system(s) are first filled. The insured shall exercise due diligence in maintaining the water flow alarm in good working order and the Insured shall immediately notify the underwriter in writing when the automatic sprinkler system(s) are impaired.

Fire Hydrants

  • Prior to start of construction, fire hydrants will be installed within the insured project site’s boundaries or within 100 feet thereof and will be connected to a public water supply, tested and fully operational.
  • There will be an operating fire hydrant operating under adequate water pressure within 100 feet of the premises, within __ days after policy inception.
  • Fire hydrants means hydrants installed such that no part of the insured project is more than 500 feet from the nearest hydrant. Installed hydrants must be connected to a public water supply, tested and fully operational.

Video Surveillance

  • Video/surveillance equipment with recording system.
  • Video surveillance monitoring that is around the perimeter and interior of the building or structure and supervised by an independent security service at all times during which normal operations usual to the conduct of your business are not being performed.
  • Internet-based video surveillance and recording be provided by an established supplier.

Security Services

  • Guard Person. You agree to maintain, at your expense, a watchperson at the indicated premise(s) at night and during non-working hours.
  • Guard Person. You will maintain a private watchperson, under your exclusive employ. The watchperson will be on duty on the premises at all times during which normal operations usual to the conduct of your business are not being performed. This watchperson will have a radio, cellular telephone or other communications device allowing instantaneous notification of law enforcement and fire protection authorities.
  • Guard Person. You will maintain a private watchperson, under your exclusive employ within the number of days after policy inception indicated below. The watchperson will be on duty on the premises at all times during which normal operations usual to the conduct of your business are not being performed. This watchperson will have a radio, cellular telephone or other communications device allowing instantaneous notification of law enforcement and fire protection authorities.
  • Guard Person. Employ a watchman to guard the job sites when insured or a contractor representative hired by the insured does not otherwise occupy the sites.
  • Guard Person. The named insured will employ a person, whose sole duty will be the security of any insured project site, who will be on the premises of the insured project site during all nonworking hours. This guard will be equipped with a telephone for immediate use.
  • Guard Person. Watchman or guard on clock stations whose regular patrol route covers all areas of the “project site” at least hourly during “nonworking hours.” The watchman or guard shall have a telephone on premises for his use.
  • Security Service. The named insured will employ a security service with one or more guards on the premises of the insured project site, with a recording system or watch clock, making no less frequently than hourly rounds covering the entire insured Project site during all nonworking hours. The guard or guards will record or have a watch clock record the time of each inspection round. The guard or guards will be equipped with a telephone for immediate use.
  • Security Service. Engage a guard service which shall maintain a representative on the job sites when the job sites are not occupied by the insured, one of the insured’s representatives or a contractor representative hired by the insured.
  • Security Service. Security service means a watchman, or watchmen, making no less than hourly rounds of the entire jobsite during nonworking hours, and maintaining appropriate log(s) of such hourly rounds. Security service shall be required once the erection of walls has commenced at any structure at the insured construction site.
  • Security Service. Private security guard service for each job site with regular patrols of the job site during all nonworking hours.


  • Cutting and Welding. All combustible materials will be moved at least 25 feet away from, the cutting and welding area(s) or will be covered or shielded by noncombustible material.
  • Cutting and Welding. All floor, wall, window and other openings including gaps, cracks, or spaces in the building or structure, within 25 feet of the cutting or welding area(s) will be covered by noncombustible material.
  • Cutting and Welding. Dedicated standby firefighting equipment will be provided at the cutting or welding area.
  • Cutting and Welding. A designated employee, trained in the use of the stand-by firefighting equipment, will be assigned the sole responsibility of fire watch and will remain on duty at the cutting or welding area during cutting and welding operations and at least 60 minutes after such operations are ceased. No hot work permits shall be issued and not hot work activities should be permitted within 2 hours of the end of the workday or the end of a shift.
  • Welding, Brazing, Soldering, and Thermal Cutting. A fire watch person with a UL listed portable fire extinguisher having a rating not less than 2-A/10-B, and trained in its use, will be present at all welding, brazing, soldering and thermal cutting operations and at least for 30 minutes following their completion; such operations shall cease 30 minutes prior to the end of the shift; 20 feet of clearance will be maintained between such operations and any combustible materials that are not permanently installed; adequate temporary protection shall be provided for any permanently installed combustible materials within 20 feet horizontally and for any combustible materials at any vertical distance below such operations.


  • Storage. Fully enclosed locking metal containers whose locks are protected against cutting, or a fully enclosed locked room with double cylinder dead bolt locks will be used for storage of electrical wiring, lighting fixtures, plumbing fixtures, switch panels, and other pilfer able items.
  • Brush Clearance. Brush clearance means all covered property at the project location shall have brush, and any other vegetation, completely cleared, to a minimum of 500 feet, from such covered property.
  • Locks. All points of ingress and egress to and from the building or structure will be gates and locked when normal operations usual to the conduct of the insured’s operations are not being performed. If a gate is unlocked, the insured will ensure guarded access to check credentials.

Which Parties Do These Protective Safeguards Impact?

These endorsements apply to either “named insureds” or “insureds,” depending how the builders risk policy is structured. Since the majority of builders risk policies include the project owner, general contractor, and subcontractors as insureds, one should assume the requirements apply to all insureds.

From a practical standpoint, these endorsements can cause significant problems for stakeholders. Based on my experience with projects and builders risk insurance, the stakeholders are rarely aware that a protective safeguards endorsement is part of the policy.

Unlike builders risk policies issued in Canada and Europe, policies issued in the United States rarely have a “separation of insureds” or a “severability of interest” clause. Such clauses clarify that coverage will remain intact for insureds that do not contribute to a breach of a policy condition or warranty. If there is no such clause in a builders risk policy, it is likely that none of the insureds will be covered if there is a breach of the condition by one of the insured parties.2

What Can Go Wrong?

Stakeholders are commonly unaware that a protective safeguards endorsement is part of the policy. How does this happen? Many reasons exist.

  • The insurance agent or broker that placed the policy is unaware that the proposal and policy contain such an endorsement.
  • There was no mention of the endorsement in the proposal, but the policy is issued with an endorsement.
  • The insurance agent or broker is aware of the endorsement but does not point this out to the policy sponsor (typically the first named insured).
  • The policy sponsor is unaware of the endorsement because it does not read the policy.
  • The policy sponsor is aware of the endorsement but does not inform the other insureds.
  • The builders risk policy is not distributed to other insureds by the policy sponsor.

What Are the Consequences?

If there is a builders risk loss and it is determined that the insured did not adhere to the requirements of a protective safeguard endorsement, it is probable that the builders risk insurer will deny coverage. This often leads to litigation. Insurers are generally successful in denying coverage when unambiguous protective measures are required in a builders risk policy but not adhered to by the insured.

An example is Liberty Ins. Underwriters, Inc. v. Weitz Co., 158 P.3d 209 (Ariz. Ct. App. 2007). Liberty issued a builders risk policy to Weitz, the contractor for four dormitories being built at Arizona State University. The policy contained three warranties that required the contractor to (1) maintain adequate fire extinguishers on the job site, (2) conduct a fire watch during all welding operations or other hot process, and (3) inspect the premises for fire hazards. Each of the warranty endorsements specified that failure to comply with the warranty rendered coverage null and void. After a fire destroyed one of the dormitories under construction, Liberty filed a declaratory judgement action seeking to exclude the loss due to the contractor’s failure to adhere to the warranty endorsements. Liberty prevailed.

In those cases where insureds prevailed, courts found that (1) the protective safeguard endorsements were ambiguous, (2) the insurer knew before the loss that the insured was not complying with the protective safeguards but failed to do anything about it, or (3) the failure to adhere to the required safeguard was not the cause of the loss.

Best Practices

The following actions can help prevent problems and litigation following a loss.

  • If a builders risk underwriter imposes protective safeguard(s) in its proposal, the agent or broker should review the safeguard(s) to better understand what is being required.
  • The agent or broker should attempt to eliminate the safeguard(s) if possible, or at least ensure the safeguards are reasonable for the project.
  • To the extent that the agent or broker is unsuccessful in eliminating the protective safeguard requirements, he or she should educate the sponsor of the builders risk policy by making it aware of the safeguards.
  • The policy sponsor should inform the stakeholders about the safeguard(s).
  • The general contractor should make the subcontractors aware of the safeguard(s) and require its workforce and subcontractors to adhere to the safeguard requirements.
  • The policy sponsor should read the builders risk policy and make it available to all insureds.


Some builders risk policies contain conditions relating to mandatory protective safeguards. These safeguards must be adhered to preserve coverage. But the first step is to make sure that the stakeholders are aware of the safeguards. Agents and brokers can and should serve an important role in this regard.

Source: www.irmi.com


1 Within the context of builders risk insurance, policies may contain warranties, such as a promissory warranty, that certain acts shall be done. Builders risk policies may also contain conditions (e.g., mandatory loss prevention measures) that, while not labeled specifically as a warranty, must be maintained after the risk attaches. For a full discussion of warranties and conditions, see Couch on Insurance, 3d, chapter 81, West Group Clark Boardman Callaghan Pub. 12/96.

2 See my IRMI Expert Commentary article titled “Builders Risk: Separation of Insureds Clause” (May 2015).

Healthcare Industry and Bodily Injury

Technology is fundamentally changing the way healthcare is delivered, monitored and addressed. And telemedicine – or the remote delivery of healthcare services – is one of the fastest growing, and most obvious examples of this shift.

While the use of technology can deliver great benefit to patients, it also creates new exposures for both traditional and digital healthcare organizations. And questions around medical responsibility in the event of bodily injury or harm to a patient are still being debated.

What is clear, is that traditional bodily injury coverage triggers have become outdated and are no longer sufficient due to the global rise of technology within healthcare.

Here is how CFC policy addresses each of these unique exposures:

Healthcare services Failure to adequately assess a patient and their symptoms via telemedicine could lead to incorrect diagnosis and delayed treatments. Similarly, if a patient is sending a picture of a physical issue such as a rash, a distorted image could lead to an incorrect diagnosis.

If a patient suffers misdiagnosis, delayed or incorrect treatment as a result of healthcare services provided through remote means, the policy will trigger.

Technology activities Artificial intelligence is now being used to more effectively triage patient conditions, most commonly diagnosing basic illnesses via a chatbot function, however, the way in which a patient describes their symptoms can leave them confused or undiagnosed.

If a patient suffers misdiagnosis, or goes undiagnosed via a chatbot, the policy will trigger.

System outage A failed update or computer system outage could affect remote patient monitoring functions, this could pose a risk to patient’s safety in the event of a medical emergency.

If a system failure leaves you unable to diagnose or treat a patient, the policy will trigger.

Cyber-attack A targeted ransomware attack could deny access to systems and patient data, where patients’ vitals are being monitored and medications prescribed via telemedicine.

If a cyber-attack cripples the telemedicine system or electronic medical records database, meaning patients could be unable to receive repeat prescriptions leading to injury or even death, the policy will trigger.

CFC’s eHealth insurance policy addresses this challenge by providing multiple bodily injury triggers. These include four main areas in which exposures can arise: healthcare services, technology activities, cyber events or system outages.  Please contact your insurance broker for more information.

Source: www.cfcunderwriting.com

The Hazards of Products and Completed Operations: Understanding the Fundamentals

Even those who are relatively new to the insurance industry cannot help but be exposed to continual references to products liability or completed operations coverage. Unfortunately, any type of coherent explanation as to how this coverage actually works is it too often misleading or lacking.

After all, liability coverage for products liability and completed operations liability insurance has been included in both the occurrence and claims-made Insurance Services Office, Inc. (ISO), commercial general liability (CGL) form for over 20 years—everyone knows it is there. So why pay it much heed?

Consider this—the most common reaction of an insurance professional who finally grasps the limitations of how the coverage applies is “What good is it?”1

Even more interesting is the reaction of many clients’ attorneys or accountants, or even of the clients themselves, when the fundamentals of this coverage are presented to them—some go as far as to suggest (or demand) a “tail.” Others point out how insurers try to weasel out of paying covered claims. Sorry, please try again!

Here is a litmus test that measures a basic understanding of what bodily injury or property damage will be covered within the products-completed operations hazard. Failure to grasp this deceptively simple concept will likely result in a fundamental misunderstanding of how products and completed operations coverage works.

An Example Illustrating the Harsh Reality

Consider an example. Dave’s Decks has been installing high-quality residential decks for the past 10 years. He is a sole proprietor with no employees and has done all the work himself. For the past decade, Dave has purchased through his insurance agent an occurrence-based ISO CGL policy (1985 edition or later) with no unusual endorsements. The policy has been in force continuously with the same insurance company for the past 10 years at the cost of about $1,000 per year. Dave’s CGL policy always included coverage for the products-completed operations hazard.

Dave has done well financially and has decided to retire. He sends his policy back to his insurance agent for cancellation on July 1, 2018; the policy is terminated on that date as Dave has requested.

The Deck Collapse and Resulting Bodily Injury

Unfortunately, Mary, one of Dave’s customers, is seriously injured when the deck she is standing on collapses on August 31, 2018. It is later found that in May 2018, when Dave built the deck, he forgot to properly fasten it to the wall. The collapse is the direct result of Dave’s failure to fasten the deck to the wall. Mary’s injuries are found to have been caused by the deck’s collapse.

Mary sues Dave for her injuries.2 In turn, Dave submits the complaint to his insurer. Surely, there is coverage, at least defense, for this mishap? Bear in mind, Dave has always purchased coverage for the products-completed operations hazard! Nevertheless, the harsh reality is that Dave’s CGL insurer has no obligation to defend or respond in any way to the suit by Mary—Dave has no insurance for this claim. Why? After all, Dave did purchase products-completed operations coverage for all 10 years he was in business.

CGL Coverage Trigger

Here is the point—the CGL insuring agreement promises to pay only if bodily or property damage occurs during the policy period.3 While Dave did purchase products-completed operations coverage as part of his CGL policy, the injury to Mary occurred about 2 months after his policy was terminated. Products-completed operations coverage of the CGL is subject to and does not override this trigger requirement—even if the bodily injury or property damage does arise from the named insured’s product or completed operation.

Put another way, products-completed operations coverage does not extend the policy period—the policy must be in effect when the bodily injury or property damage occurs. It does not matter that, or even if, a CGL policy was in effect when Dave designed, built, or sold the deck. An occurrence-based CGL policy applies to the completed deck only if the bodily injury or property damage takes place during the policy period. (But see also “The Montrose Endorsement—15 Years Later” [September 2014].)

The “Wrong” Tail

The supplemental extended reporting period (SERP) or “tail” that is sometimes offered as the solution to Dave’s coverage gap simply doesn’t work. First, the SERP or tail is not available on an occurrence CGL policy. Second, even if it was available, or if Dave had purchased a claims-made CGL policy and purchased the SERP, the SERP does not apply to bodily injury or property damage that occurs during the tail or reporting period. As the name suggests, the SERP only extends the CGL policy to include claims made against an insured during the extended reporting period that result from bodily injury or property damage that took place when the policy was in effect.

Discontinued Products-Completed Operations Coverage

What if Dave continued to purchase a CGL policy for some time after retirement? As now may be obvious, this or a similar approach will close the coverage gap, at least for as long as Dave continues to renew his CGL policy. However, as seasoned practitioners know, purchasing coverage for a business that is no longer operating is not that simple. While continuing Dave’s CGL policy would provide the needed protection, insurers may refuse to provide a CGL policy once the insurer understands that Dave has stopped building decks. Even the insurer that has provided Dave with CGL insurance for 10 years may not want to continue providing coverage for Dave’s Decks once the business closes down.

This is in part due to ISO’s withdrawal of the “Discontinued Operations” classification formerly available to insurers. Even though the exposure for Dave’s Decks is actually decreasing during his retirement, the practical result is that Dave’s Decks will likely have to seek CGL coverage in the nonadmitted marketplace, usually at a cost that is greater than the premium paid when Dave was actively building decks. Nonetheless, CGL coverage must continue in force for Dave to have coverage.4

The Products-Completed Operations Hazard—Important Considerations

Now that we have established a baseline understanding of the workings of products-completed operations coverage, it is important to consider several other situations in which a better understanding of exactly what is included in the “products-completed operations hazard” (which is a defined term in the CGL policy) is necessary.

Policy Limits

One of the six CGL limits is the products-completed operations aggregate limit. Knowing the types of claims that fall within and, therefore, reduce or exhaust this aggregate limit is critical.

Policy Exclusions

Several exclusions included within the CGL policy are tied directly to the products-completed operations hazard. For example, property damage exclusion j.(6), which eliminates coverage for the cost of restoring, repairing, or replacing the named insured’s work that was incorrectly performed, does not apply to property damage that is included within the products-completed operations hazard. Exclusion l. eliminates property damage to your work if the property damage arises out of your work and is included within the products-completed operations hazard.5 In either case, whether the exclusion applies is dependent on whether the claim falls within the products-completed operations hazard.

Even certain bodily injury claims are eliminated if they fall within the products-completed operations hazard. Specifically, medical payments coverage expressly excludes any bodily injury included within the products-completed operations hazard.

Endorsement Excludes Products-Completed Operations Coverage

Based on the type of business or organization being provided CGL coverage, an insurer may exclude or the policyholder may choose not to purchase coverage for any bodily injury or property damage that falls within the products-completed operations hazard. In circumstances like these, it is crucial to understand precisely what coverage is being removed from the policy.

For example, in litigation that alleged liability on the part of handgun manufacturers and distributors for contributing to market overflow, the question before the court was whether such allegations fell within the products-completed operations hazard, as the policyholder’s CGL policy excluded products-completed operations coverage. Market overflow was an assertion that manufacturers and distributors of handguns negligently created and supplied an unlawful national market in firearms, the source of the handguns that killed and wounded plaintiffs and their loved ones.

The policyholder asserted that the alleged liability was covered even with the products-completed operations hazard exclusion because (1) the products-completed operations hazard was intended to apply only to defective products claims and (2) the actions do not allege actual injuries from the distributor’s products but rather injuries from the company’s management and strategy, thereby rendering the exclusion inapplicable.

The appeals court concluded that the allegations arose out of the policyholder’s products and fell directly within the products-completed operations hazard exclusion. The court looked closely at the definition of the products-completed operations hazard and observed that wording applied to “all bodily injury and property damage occurring away from your premises and arising out of your product …” and that the proximate cause of the plaintiffs’ injuries was firearms.

Only Products-Completed Operations Coverage Is Provided

For liability policies that are written specifically for a construction project, such as a consolidated insurance program (CIP) or “wrap-up,” it is common to provide full CGL coverage for the period of the construction and then to provide products-completed operations only coverage for some period after construction is complete.

For example, in an owner controlled insurance plan (OCIP) (a type of CIP or wrap-up), the full CGL policy may be provided for a period of 24 months—the anticipated life of the construction. The OCIP usually includes extendedcompleted operations,6 providing only completed operations coverage for an additional period beyond the policy expiration date (usually 36 to 120 months, depending on several factors, including the applicable statute of repose). As everyone enrolled in the OCIP program (e.g., owner, general contractor, and subcontractors) is relying on the OCIP liability policy to provide them protection for the entire project, including liability that may result from injuries or damage arising out of completed work, fully comprehending the specifics of what is included within the products-completed operations hazard is vital.

The Products-Completed Operations Hazard—An Overview

As previously mentioned, products-completed operations hazard is a defined term and is found in the definitions section of the CGL policy.

Must occur away from your premises—To be included within the products-completed operations hazard, the bodily injury or property damage must occur away from premises owned or rented by the named insured andarise out of “your product” or “your work.” Said differently, bodily injury or property damage that takes place on the named insured premises is not within the products-completed operations hazard (this can be amended by endorsement—See Products-Completed Operations Hazard Redefined—CG 24 07). Second, the bodily injury or property damage must arise out of “your product” or “your work,” terms also defined in the CGL.

Your product—A broadly defined term, this includes goods or products manufactured, sold, handled, distributed, or disposed of by the named insured, others trading under the named insured’s name and includes a person or organization whose business assets a named insured has acquired. Your product includes containers (but not vehicles), materials, parts, or equipment used or furnished in connection with goods or services but does not include any real property.7

Your product—warranties—For those insurers who routinely break out the boilerplate “the CGL never provides coverage for any breach of contract claim,” take note—the definition of your product specifically includes warranties and representations made with respect to the fitness, quality, durability, performance, or use of your product.

Black’s Dictionary (Seventh Edition) states:

  • Warranty
  • 2. Contracts. An express or implied promise that something in furtherance of the contract is guaranteed by one of the contracting parties; esp. the seller’s promise that the thing being sold is as represented or warranted.

Breach of warranty is a contract theory of liability, not a tort theory. Claims that allege a product caused bodily injury or property damage (to other than to the product itself) because of a breach of warranty are asserting a breach of contract claim. Breach of warranty claims, while subject to other policy terms and conditions, cannot be dismissed simply because the theory of liability is a breach of contract. The CGL policy has, for over the last 45 years,8 plainly intended to provide coverage for claims alleging bodily injury or property damage arising out of products (or completed work), even if the theory of liability is a breach of warranty. In addition to warranties, your product also includes providing or failing to provide warnings.

Not your product—Vending machines or other property rented to or located for the use of others but not sold is not considered to be your product. For example, a hardware store rents chainsaws to home owners for their personal use. If the hardware store failed to properly maintain the equipment, and the home owner was injured using the chainsaw, the home owner’s claim against the hardware store is not considered by the hardware store’s CGL insurer to be within the products-completed operations hazard. The bodily injury did not arise out of the hardware store’s product as defined in the CGL policy.

Your work—Similarly, “your work” is a broadly defined term and includes operations performed by the named insured or on the named insured’s behalf, including material, parts, or equipment in connection with the operations. Operations or work performed on behalf of the named insured means that work done by a subcontractor is still considered your work.

Also similar to your product, the definition of your work includes warranties and representations made with respect to the fitness, quality, durability, performance, or use of your work, as well as providing or failure to provide warnings or instructions. The breach of contract issue raised above applies in the same manner to your work as it does to your product.

Not Products-Completed Operations Hazard

Physical possession—Products still in the named insured’s possession are not included in the products-completed operations hazard. In other words, for a claim to be within the products-completed operations hazard, the named insured has to have given up physical possession, and the injury or damage must take place away from the named insured’s premises. In most cases, bodily injury or property damage caused by a product that takes place on the insured’s premises or that takes place while the product is still within the possession of an insured would be considered a premises or operations claim.

Completed work—The products-completed operations hazard does not apply if the work has not yet been completed or abandoned. The work completed by the policy definition earlier of the following.

  • When all the named insured’s work as required in a contract has been finished.
  • When all the work at a job-site has been completed if the named insured’s contract requires work under the same contract but at another job-site.
    • For example, Chris’s Cooling has a contract to repair the air conditioning systems for The Real Estate Group at three different office buildings. Once Chris has completed the repair of the air conditioning equipment at the first location, that job is considered to be complete. Thus, any bodily injury or property damage that may arise from that first location is included within the products-completed operations hazard, even if the other two jobs are not finished.
  • When that part of the work done at a job has been put to its intended use by someone other than another contractor or subcontractor working on the same project.
    • An example of the above involves an elevator maintenance contractor. In this example, the contractor, Lyle’s Lift Service, has a multiyear contract with a building’s property manager to maintain the building’s elevators. After performing maintenance work on a particular elevator, Lyle puts the elevator back into service for use by patrons and tenants.Any bodily injury or property damage caused by the recently maintained elevator is within the products-completed operations hazard from Lyle’s standpoint—despite the fact that the contract for maintenance of the elevators remains ongoing for all elevators in the building. Because the elevator was put back into service and thus put to its intended use, the elevator causing the bodily injury falls within the definition of the products-completed operations hazard found in Lyle’s CGL policy.

Service or repair work—An important and often confused clarification of what constitutes completed work follows the above three-part completed work test. The CGL policy states that work is considered complete even if the completed work (as defined above) may need subsequent service, maintenance, repair, or replacement. Here is another example: Bill’s Builders is constructing a 3-story building that is to be sold as 20 residential condominium units. Even though construction is still ongoing for a majority of the units, three units are sold and occupied by the owners—meaning these three units have been put to their intended use.

If Bill’s Builders is called back to repair one of the sold units to fix doors that are not properly hung, the CGL policy makes clear that the unit is still considered completed work. Bodily injury or property damage that arises from the finished unit will be included within the products-completed operations hazard.

Performing work on completed workIt is, however, important to point out that the products-completed operations hazard does not apply to an injury to the unit owner that occurs while Bill is actually in the unit adjusting the doors. Say Bill’s ladder falls over and hits the unit owner while Bill is working on the doors—this injury to the unit owner is an operations claim and not a products-completed operations claim. In other words, this paragraph does not mean (as is too often assumed) that performing operations on completed work is the same as an injuryarising out of the complete work itself.

While this may seem inconsequential, it can become a major coverage issue when the only coverage provided to a contractor is products-completed operations coverage, which is commonly the case in consolidated insurance programs or wrap-ups. Insurers who regularly provide wrap-up liability coverage generally recognize that a contractor or subcontractor may have a warranty period in which they are obligated to go back to perform service or repair work and thus amend their CGL policy accordingly. For example, an insurer may extend the policy term to provide limited operations liability coverage beyond the policy expiration for bodily injury or property damage that takes place while certain contractors are performing required repair work during the warranty period.

Other Situations Not Considered Included within the Products-Completed Operations Hazard

Transportation of property—Transporting property is generally not considered to fall within the products-completed operation hazard. An illustration: a manufacturer of plastic resin engages a common carrier to transport its product (the plastic resin) to distributors. During the trip, some of the resins escape from the common carrier’s trailer onto the highway, causing very slippery conditions that result in auto accidents and injuries to motorists. As the resin is the product of the manufacturer, resulting claims against the manufacturer would otherwise be within the products-completed operations hazard. To keep such claims within the general aggregate limit, the policy removes from the definition of products-completed operations hazard the transportation of property.

Dangerous conditions caused by loading or unloadingA noted exception to the above is a claim that is caused by the improper or negligent loading or unloading of a vehicle that is not owned or operated by the named insured. In this instance, the loading or unloading (and not the transportation) of the property is considered a completed operation.

If a Christmas tree lot ties trees to the top of the customer’s autos and that tree flies off the auto because the tree was not properly tied down, any bodily injury or property damage that results is within the products-completed operations hazard of the tree lot.

Tools and equipment—Bodily injury or property damage that is caused by the existence of tools, uninstalledequipment or abandoned or unused materials are not included within the products-completed operations hazard.

Included in general aggregate limit—Certain CGL classifications (ISO Commercial Lines Manual or CLM—ISO Classification Table) specifically note that products and completed operations are included, such as the classification Buildings or Premises—Office—Not-for-Profit Class Code: 61227 NOC (not otherwise classified). No separate premium charge is made for products-completed operations hazard for such businesses or organizations (any charge is included within the premises and operations premium), and thus any claims that would otherwise be considered products or completed operations claims are considered premises and operations claims and thus reduce the general aggregate limit.

On occasion, the “products/completed operations included” classification seems to cause confusion; some insurers contend that the intent of this classification wording is to eliminate coverage entirely for any claim that arises out of your product or your work.9 Of course, this wording does not reduce coverage; it merely states that the products-completed operations hazard does not include such claims—it does not say that no coverage applies to such claims.

Restaurants and other food vendors—The ISO Classification Table of the CLM also requires that an endorsement is attached to the CGL policy for certain classifications, such as a restaurant, to change the definition of products-completed operations hazard. The required endorsement is the Products-Completed Operations Hazard Redefined (CG 24 07), which changes the definition by removing the requirement that bodily injury or property damage takes place away from the named insureds’ premises for the claim to be included within the products-completed operations hazard. The intent is to consider food consumed on the premises to be included within the products-completed operations hazard (and within the products-completed operations aggregate limit). Therefore, a claim by a customer alleging food poisoning resulting from a meal consumed at Chef’s Best Restaurant will be included within the restaurant’s CGL products-completed operations hazard despite the fact the bodily injury from food poisoning took place on the restaurant’s premises.

As with the “products/completed operations included” classifications, some insurers wrongly contend that the Products-Completed Operations Hazard Redefined endorsement eliminates coverage for any bodily injury or property damage that arises out of the restaurant’s products. A careful reading of the endorsement reveals that the definition of products-completed operations has been expanded to include bodily injury or property damage that arises out of your products, even if the bodily injury or property damage takes place on the premises of the insured (in this case, the premises of the restaurant).

The above are two examples of the few instances in which the applicable CGL classification affects how the coverage is to apply.


The coverage provided for products and completed operations in the standard CGL policy seems to get short shrift. Too little attention is paid to the basics of how the coverage works within the context of the entire policy, including the requirement that any bodily injury or property damage, even if caused by an insured’s product or completed work, must take place during the policy period for coverage to apply.

It is only after this deceptively simple concept is properly understood can the more specific issues that surround the “products-completed operations hazard” be appreciated—such as how policy exclusions and other coverage endorsements affect the products-completed operations hazard.

Source: www.irmi.com

This reaction is usually based on the mistaken belief that products-completed operations coverage in effect when the product was made or sold or when the work was finished should provide protection for the insured for that product or work for the life of that product or work (e.g., forever)—regardless of whether a CGL policy is in effect when that product or work causes bodily injury or property damage.

This example sometimes goes “off the rails” as many immediately focus on the collapsed deck and begin to think about construction defects, including that the deck was defective when built, etc. Note that the only claim made against Dave is for bodily injury—Mary does not make a claim for property damage to the deck. In this example, there should be no dispute when the bodily injury took place.

If the bodily injury or property damage is cumulative or progressive—taking place over a period of months or years—determining when the bodily injury or property damage occurred is more complex. For more information, see “Trigger Theories and the CGL” (December 2008).

Failing to disclose to the insurer upon renewal of the CGL policy that an insured has ceased operations or otherwise representing to the insurer that the insured is continuing in business (when the insured is not), with the goal of continuing the CGL policy, is not a reasonable alternative. Any such representations may result in policy rescission due to material misrepresentation.

An important exception to this exclusion—the so-called subcontractor exception—applies to this exclusion and states: “This exclusion [exclusion L.] does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.”

Extended completed operations coverage is not an ISO policy form.

This distinction is often blurred by reference to “work product” in relation to products-completed operations coverage. Despite such terminology, “your product” does not include real property.

The comprehensive general liability Insurance policy (edition 1973) specifically granted coverage for product/work warranty claims as an exception to the contractual liability exclusion: “This insurance does not apply: (a) to liability assumed by the insured under any contract or agreement except an incidental contract; but this exclusion does not apply to a warranty of fitness or quality of the named insured’s products or a warranty that work performed by or on behalf of the named insured will be done in a workmanlike manner [italics added].

The Supreme Court of Alabama has ruled that this classification wording may negate the exclusion l.—Damage to “your work.” For more information, see “The ‘Your Work Exclusion’—A Curious View” (June 2014).



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