The Dangers of Non-Standard Endorsements

EMERGING TRENDS MAY PUT YOUR BUSINESS AT RISK

Non-admitted (i.e.: surplus lines) insurers are frequently issuing Commercial General Liability (CGL) policies which contain non-standard endorsements. These non-standard endorsements may have exclusionary language that can drastically narrow or eliminate basic coverages you have come to expect.

We will focus on one troubling example, the “Action Over Exclusion,” also known as the “Bodily Injury to Independent Contractors.”

THE PROBLEM - CONSIDER THIS SCENARIO

An Owner of a building in Brooklyn, NY hires Bob’s Repair to perform maintenance work on the light fixtures in their lobby. The Owner executes a written agreement with Bob’s Repair which includes a hold harmless clause in favor of the Owner.

Bob’s Repair employee falls from their ladder while working on the light fixture and is injured. After collecting workers’ compensation benefits from the employer, the injured employee sues the Owner. If Bob’s Repair maintained a standard ISO CGL insurance policy, the Owner could tender the suit to Bob’s Repair’s CGL insurer for coverage under the contractual liability portion of the CGL policy.

If we then apply a typical Action Over Exclusion to Bob’s Repair’s CGL insurance policy removing the exception to Exclusion e. Employers’ Liability, their Insurer would deny coverage to both Bob’s Repair and to the Owner since there is no longer any coverage for liability assumed under an insured contract for the injured employee’s suit. This leaves Bob’s Repair with the burden of defending and indemnifying the Owner with no insurance coverage to fund that obligation.

This is a basic scenario in which a property owner or general contractor should have a reasonable expectation that their subcontractor’s CGL policy will provide this level of coverage.

HOW TO IDENTIFY THIS EXCLUSION

The applicable language to look for is found in a standard CGL insurance policy (ISO CG0001 12/07 edition), Exclusion e., Employer’s Liability.

By deleting the exception to the exclusion for liability assumed by the insured under an “insured contract,” the exclusion is again in play. The pertinent language deleted is underlined below.

e. Employer’s Liability “Bodily injury” to:(1) An “employee” of the insured arising out of and in the course of:(a) Employment by the insured; or (b) Performing duties related to the conduct of the insured’s business; or(2) The spouse, child, parent, brother or sister of that “employee” as a consequence of Paragraph (1) above.

This exclusion applies whether the insured may be liable as an employer or in any other capacity and to any obligation to share damages with or repay someone else who must pay damages because of the injury.

This exclusion does not apply to liability assumed by the insured under an “insured contract”.

HOW COMMON IS THE ACTION OVER EXCLUSION?

In New York alone, there are more than 20 different non-admitted insurers who now issue some form of an Action Over Exclusion endorsement to their standard contractor CGL policies. Chances are, at least one of your active contractors carries a CGL policy with a similar exclusion.

You will not find any reference to these Action Over Exclusions on a standard ACORD 25 Certificate. So what are the basic steps you can begin taking today to protect your business from this risk?

THE SOLUTION - bcs RECOMMENDS TAKING ONE OF THE FOLLOWING THREE STEPS:

1. Collect and review a copy of the contractor’s Schedule of Forms and Endorsements attached to their CGL insurance policy. Flag any non-standard endorsements, and escalate them for thorough review of the endorsement language, developing a list of non-approved endorsements to look for and reject.

2. Request that the contractor amend their ACORD 25 Certificate to include the following affirmative statement in the DESCRIPTION OF OPERATIONS section: “There are no “Action Over” or “Bodily Injury to Independent Contractors” or similar restrictions, endorsements or limitations as part of the General Liability policy evidenced on this certificate.”

3. Request that the contractor’s Insurer or Insurance Agent place the above affirmative statement on their letter-head, sign it and provide you with a copy.

Employing one of these measures is a fundamental starting point to determine if your contractor’s insurance might leave your business exposed to unnecessary liability. Whether your organization has the manpower or expertise to implement these suggestions is another matter. As with all other insurance and contractor risk issues, this is a problem to address prior to an on-site accident, not the day after. If your organization has contractors working at a job site, it is of paramount importance to actually know what kind of insurance that contractor has provided.

more about bcs

At bcs, our goal is to provide outstanding customer service to clients. One way we do this is by providing two solution levels: self-service and full-service. The self-service option equips you with our software, while the full-service solution also includes a dedicated team of professionals to help review and correct documents. If you would like to discuss Action Over Exclusions or any other insurance or risk management contractor issue on your mind, please make a request below in the comments.