Q It is my recollection that under the "old" CGL (non-simplified) that there was a provision that excluded business operations that began prior to the policy inception and were not listed in the classification section. I can find nothing in the current CGL that is similar. For example, a wholesaler with a CGL that is effective 12-1-95 through 12-1-96 begins a metal fabrication "division" on 6-1-96. The policy renews with no changes.
The audit for the '95-'96 year is done by letter from the company to the insured and no mention is made of the new operation. The agent either does not ask the right questions of the insured or ignores the new exposure as no endorsement is ordered. The policy renews 12-1-97 with only the wholesale code. Assume no deceit on the client's part. Is there a coverage problem?
SCOTT SIMMONDS, CPCU, Morris Insurance Services, Kennebunk, Maine
A You are correct that there is no specific provision that excludes business operations that may have commenced prior to policy inception/renewal and were not listed in the classification section. A standard, unendorsed CGL does not exclude or limit coverage to only those premises, locations or operations listed and scheduled. So unless an endorsement has been added to exclude some portion of the named insured's operations, all are covered.
However, there is another, related provision that must be reviewed and evaluated carefully. It is found in standard ISO CG 00 01--Commercial General Liability Coverage Form, Section IV--Commercial General Liability Conditions:
"6. Representations
By accepting this policy, you agree:
a. The statements in the Declarations are accurate and complete;
b. Those statements are based upon representations you made to us; and
c. We have issued this policy in reliance upon your representations."
Based upon the above provision, insureds who accept a new policy or renewal that shows the operation(s) of the insured in the Declarations to be only that of a retailer when, in fact, the operation is both retail and manufacturing and likewise with the classifications listed in the schedule of operations, may be opening themselves up to cancellation, non-renewal or, in some cases, policy voidance (if and where allowed by applicable state jurisdiction).
There is another item you must consider and discuss with the insured. Often with auditable policies, if the size and exposure of a particular account does not warrant the time and expense of a physical audit, a simplified audit is done via letter. In those letters, most insurers will ask if any aspect of the operation has changed. Although each insurer uses its own wording in the audit letter, it would be a very good idea if the audit letter were reviewed with extreme care. It may well have specifically asked the insured whether or not operations had changed, or stated something along the lines of "if you have begun any new operations or terminated any existing operations in the past policy period, please attach information explaining those changes." Most standard audit letters contain wording to that effect. The insured or a representative of the insured is often asked to sign the audit verifying the facts stated to be true and accurate.
The insurer also has the right to physically audit the books of an insured for as far back as three years prior and charge an additional premium that should have been paid. Refer to the standard ISO IL 00 17--Common Policy Conditions:
"C. EXAMINATION OF YOUR BOOKS AND RECORDS
We may examine and audit your books and records as they relate to this policy at any time during the policy period and up to three years afterward."
So at the very least, past premium may be owed.
To answer your specific question on coverage, the CGL provides bodily injury and property damage coverage for all of the operations conducted by the named insured (subject to policy provision), unless excluded by endorsement, or unless the insurer has some allowable grounds to deny all liability coverage based upon a misrepresentation by the insured. These misrepresentations could be either in the form of a signed, inaccurate or incomplete response to the audit letter regarding changes in operation or it could be in acceptance of a new or renewal policy where the statements in the Declarations are not accurate or not complete.
PRODUCTS/COMPLETED OPERATIONS REVISITED
In the June 1997, and inadvertently again in the December 1997 Q&A column, there was question on products/completed operations and ISO Endorsement CG 24 07, Products-Completed Operations Hazard Redefined. The question and response generated comment, and what follows is clarification of the coverages found in the CGL with respect to products/completed operations. Special thanks is given to R.J. Suglia of Professional Risk Advisors, Independence, Ohio, and Earl L. Pitstick of The Ohio Casualty Group.
The unendorsed ISO CGL provides coverage as follows:
SECTION I - COVERAGES
COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. We may, at our discretion, investigate any "occurrence" and settle any claim or "suit" that may result.
Thus, all bodily injury or property damage (not otherwise excluded or limited) is covered by the CGL. Although not specifically mentioned as covered, products-completed operations are included by virtue of the fact that they are not excluded, subject to the internal exclusion and limitations within the policy.
The question then, is not if products-completed operations are covered but exactly what is defined as products-completed operations? Along with that is the next question--When does the General Aggregate Limit apply and when does the Products-Completed Operations Aggregate Limit apply?
To answer both of those questions, we must look at the definition of products-completed operations found in the CGL:
14. "Products-completed operations hazard":
a. Includes all "bodily injury" and "property damage" occurring away from premises you own or rent and arising out of "your product" or "your work" except:
(1) Products that are still in your physical possession; or
(2) Work that has not yet been completed or abandoned. However, "your work" will be deemed completed at the earliest of the following times:
(a) When all of the work called for in your contract has been completed.
(b) When all of the work to be done at the job site has been completed if your contract calls for work at more than one job site.
(c) When that part of the work done at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project.
Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed....
When the above definition is applied, any otherwise covered claims/losses that fall into this definition should be paid under the Products-Completed Operations Aggregate Limit instead of the General Aggregate. Any other covered losses/claims will be paid under the General Aggregate Limit.
Application of Endorsement CG 24 07, Products-Completed Operations Hazard Redefined does just what the title states and changes or redefines products-completed operations for the applicable restaurant class. Thus the Products-Completed Operations Aggregate Limit will apply to any loss/claim for this class instead of the General Aggregate.
Another important note: Once Endorsement CG 24 07, Products-Completed Operations Hazard Redefined is used, the scope of medical payments coverage for this type of loss changes. Injury now occurring which previously would have had available medical payments coverage no longer has that option. An exclusion exists under medical payments coverage as follows:
COVERAGE C. MEDICAL PAYMENTS
. . . . . 2. Exclusions
We will not pay expenses for "bodily injury":
. . . . . f. Included within the "products-completed operations hazard." *
©COPYRIGHT: The Rough Notes Magazine, 1998