US businesses carry liability insurance to cover their exposures to risk. Since many businesses now operate globally, their liability policy needs to include worldwide coverage. Most insurance policies issued in the United States for US based businesses provide very limited coverage for foreign exposures. We will review the definition of “coverage territory” in a general liability policy, provide a few examples that may affect your business, and outline recommendations for improving your worldwide coverage.
The definition of coverage territory in an Insurance Services Office (ISO) CG0001 12/07 Commercial General Liability Coverage Form (CGL) reads:
“Coverage territory” means:
a. The United States of America (including its territories and possessions), Puerto Rico and Canada;
b. International waters or airspace, but only if the injury or damage occurs in the course of travel or transportation between any places included in Paragraph a. above; or
c. All other parts of the world if the injury or damage arises out of:
- (1) Goods or products made or sold by you in the territory described in Paragraph a. above;
- (2) The activities of a person whose home is in the territory described in Paragraph a. above, but is away for a short time on your business; or
- (3) “Personal and advertising injury” offenses that take place through the Internet or similar electronic means of communication
provided the insured’s responsibility to pay damages is determined in a “suit” on the merits, in the territory described in Paragraph a. above or in a settlement we agree to.
Let’s look closely at three scenarios to determine if/when coverage is available to a business whose operations and headquarters are in the United States. We will assume this business maintains an un-amended version of the ISO CG0001 12/07 form. Will coverage be extended based on claims arising from each of the activities/scenarios below?
After a US based business opens an office in London, a prospective client slips and falls at the property and sustains bodily injury.
There is no coverage under the policy since the London office is a fixed location outside of the coverage territory. Even if a suit is brought in the United States, it is not covered since the accident is a premises claim and not from a good or product, temporary activity by a person, and not personal or advertising injury.
A US based sales executive travels to Europe for an industry conference. A visitor to the executive’s booth at the conference trips on a wire and sustains bodily injury.
There is limited coverage for suits brought in the United States since it is bodily injury that resulted from the activities of a person away for a short time on business.
A US business outsources the manufacturing of a product to a vendor in Mexico. A defect in that product injures a consumer in Asia.
There may be limited coverage for suits brought in the United States if the product was sold by the business from a location in the United States.
Now the question is, can the ISO CGL policy be modified to include coverage for all of the above exposures and claims?
Yes, ISO uses CG2422 10/01 Amendment of Coverage Territory – Worldwide Coverage, which amends the definition of Coverage Territory to read:
“Coverage territory” means anywhere in the world with the exception of any country or jurisdiction which is subject to trade or other economic sanction or embargo by the United States of America.
This language broadens the coverage territory to include claims filed anywhere in the world not excluded by federal law.
The ISO CG2422 endorsement also modifies the CGL form to address:
i) Reimbursing the insured, if the insurer is unable to pay on behalf in a particular country
ii) Requiring the insured to “fully maintain any coverage required by law, regulation or other governmental authority” or ISO CGL policy form will be excess of the required coverage that was not maintained
iii) Making the ISO CGL policy form excess of any other insurance available.
These additional modifications need to be carefully considered when operating in locations outside the US to ensure you comply with foreign local insurance requirements.
Are there other insurance methods available for US based businesses to insure foreign exposures? Yes. As with most things related to insurance, there are a number of methods available to address foreign exposures including:
1. Amending the coverage territory within each insurance policy impacted by those foreign operations; the other insurance policies in your insurance program should be examined and modified as necessary similar to our discussion above on the CGL policy;
2. Purchasing a standalone foreign insurance policy and include the necessary coverages needed to address exposures;
3. Purchasing “local insurance policies” in the actual country where the foreign operations are conducted;
4. A combination of all three of these options.
Worldwide coverage is important to consider when you have employees traveling and/or working outside of the US or if you have operations or physical locations outside of the US. Just like in the US, businesses need to maintain insurance to protect employees, business assets, business relationships, and to help minimize the financial impact of uncovered claims.
For more information about how BCS can minimize your exposure to vendor risk, please contact us. BCS offers the protection you need, a process you can trust, and accuracy you can depend on.