Three million gallons of water was released following the collapse of a dam; killing seven people and causing property damage. The owner of the dam sued the prior owner because of the structural integrity of the dam. The prior owner sought coverage under its policy with James River Insurance who declined coverage because the Limitation of Coverage for Designated Premises or Projects Protected listed only the office location as being covered. The prior owner disagreed.
Here is how the court ruled.
The Kaholo Dam in Hawaii collapsed. Three million gallons of water was released killing seven people and causing significant property damage. James Pflueger (Pflueger) owned the dam at the time of the loss. He sued C. Brewer and Company, Ltd. (Brewer), the prior owner of the dam, for having sold him a dam with questionable structural integrity.
Brewer filed a complaint asking for a ruling regarding the coverage available from 17 different insurance companies. The action in this case applies to coverage provided by James River Insurance Company (James River) because it was the only one of the 17 insurance policies that was in effect at the time of the dam breach.
James River denied coverage because of a Limitation of Coverage to Designated Premises or Projects endorsement. The dam was not listed as a designated premises or project, so James River argued that no coverage was owed. The trail court awarded summary judgement for James River. Brewer appealed.
Brewer argued that the following wording in the endorsement was ambiguous:
This insurance applies only to “bodily injury”, “property damage”, “personal and advertising injury” and medical expenses arising out of the ownership, maintenance or use of the premises shown in the Schedule and operations necessary or incidental to those premises;
It argued that injury and damage due to negligent business decisions made in the designated premises (the corporate headquarters) should be covered.
The appellate court found Brewer’s alternative reading of the endorsement to be reasonable which resulted in the endorsement being ruled ambiguous. However, the appellate court ruled that it was necessary to determine the parties’ intent in using the endorsement. The trial court’s decision was vacated. James River appealed.
The Supreme Court of Hawaii carefully reviewed the language of the endorsement to see if the limitation was clear and unequivocal. It concluded that the wording was not and therefore affirmed the ruling in Brewers favor of the appellate court. It vacated the portion of the appellate court regarding the need to determine the intent of the parties.
The case was remanded back to the trial court for further action.
C. Brewer and Company LTD., Respondent/Plaintiff-Appellant v. Marine Indemnity Insurance Company of America; Fireman’s Fund Insurance Company of Hawaii; and James River Insurance Company, Petitioners/Defendants – Appellees. No. SCWC-28958. March 27, 2015. Supreme Court of Hawaii
A recent change in an endorsement
The CG 21 44-Limitation of Coverage to Designated Premises or Project endorsement has been unchanged since 07/01/98 until 04/1/2017 when it grew from 113 words to 1,142 words. ISO’s Release Notes explained that the endorsement was changed, partly, to address the courts’ finding in the court case above.
Here is a brief explanation of the CG 21 44 change in the PF&M analysis.
This list identifies endorsements available to modify the Insurance Services Office (ISO) Commercial General Liability Coverage Forms. It is arranged by form number and title and briefly explains the use of each endorsement. It does not include any state specific endorsements, changes or amendments. New endorsements introduced, or endorsements changed in the 04 13 edition and since are in bold print.
EXCLUSION ENDORSEMENTS (CG 21)
CG 21 44–Limitation of Coverage to Designated Premises or Projects (0417 change)
(Use with CG 00 01 and CG 00 02)
This restrictive endorsement is intended to restrict coverage to either a specific scheduled premise or a specific scheduled operation/project. Some significant lawsuits found off-premises coverage in the prior edition so the wording in the new version is much more precise. Of particular note is that the phrase “arising out of” has been eliminated when referring to the premises. The goal is to cover ONLY injuries that occur on the premises itself and to not cover injuries from activities or decisions that might emanate from that premises.
Related Court Cases:
Bachelor Party Goes Bad
Designated Premises Or Project Endorsement Is Not Specific Enough
Uncovering significant gaps
The CG 21 44 is often used as a Bandaid to make an otherwise unattractive risk look attractive by attempting to convert the very broad commercial general liability coverage into a very narrow specific coverage form. When a significant loss, such as seven deaths and three million gallons of water, occurs the CG 21 44 might not prove strong enough to resist coverage. A better way may be to identify potential coverage gaps and find markets to cover the problem.
Review the General Information Questionnaire of the Producer’s Commercial Lines Risk Evaluation System that is an important tool to use in finding gaps.
Category: Service Businesses Risk: Abstracters
Account number: _______________________________________________________________
Agency number: ________________________________________________________________
Producer number: ______________________________________________________________
Legal business name(s)
Type of entity:
|___ Individual||___ Corporation||___ Sub-S Corp.|
|___ Partnership||___ Joint Venture|
|___ Not-for-profit||___ Limited Liability Company|
SIC Code(s): __________________________________________________________________
Federal ID Number: ____________________________
When did the applicant start business operations? ___________________________________________
When did the present management assume control? _________________________________________
How many years experience does the owner have in this type of business? _______________________
How many years experience does the manager have in this type of business? _____________________
Has the applicant ever been involved in a bankruptcy procedure? ___ Yes ___ No
If yes, explain including the type of bankruptcy, the filing date, and the resolution.
Names of subsidiary companies or joint ventures that are not part of this application:
|Important People||Name||Phone Number|
|Other Decision Makers||____________________________||______________|
|Plant and Grounds||____________________________||______________|
The applicant’s primary operations are:
The applicant’s secondary and/or incidental operations are:
The applicant used to be involved in the following operations, but they have been discontinued:
The hours of operations are: _____________________________________________________________
How many days per week is the applicant open? ___
Is this a seasonal operation? ___ Yes ___ No
If yes, what is the season? From: _____________ to: _____________
Does the applicant have a safety program? ___ Yes ___ No
If yes, answer the following:
Name of safety director: _____________________________________________
Safety director phone number: ________________________________________
Safety director email address: ________________________________________
Attach a copy of the safety program.
Does the applicant have a disaster plan? ___ Yes ___ No
If yes, answer the following:
Name of disaster coordinator: ________________________________________
Disaster coordinator phone number: ___________________________________
Disaster coordinator email address: ___________________________________
Attach a copy of the disaster plan.
Doing the best for your client
The Producer’s Commercial Lines Risk Evaluation System questionnaire takes time to complete but it sets you apart because of its thoroughness. It tells your client that you are interested in learning about its business so that you can make informed suggestions on coverages and that you can present your client to only insurance carriers who are prepared to provide the coverage and service needs your client needs. The upfront time in completing the form will save time in the years to come.
Here you can review a letter you might want to use in contacting a current client or a prospect about providing a risk management survey and then use the Producer’s Commercial Lines Risk Evaluation System to guide you through the process.
We’ve found that many people are surprised when they take a close look at the coverages they have and compare them with what they really need. They may have enough property protection but not enough for their liability exposures. Or, they find additional exposures that have not been identified and are potentially uncovered.
At the [Agency], we first complete a survey with you to assess your insurance wants and needs. Then we develop a program that meets your specific needs using the products of various quality companies. This system can uncover gaps or overlaps in your coverage. The result can save you money and improve your insurance situation because you pay for only the coverages you need.
There is no cost or obligation to make sure your insurance covers your specific needs. The [Agency] will be there to help you make this important evaluation.
We’ll call you within the week to discuss this important service in more detail. In the meantime, please call or email if you have questions or concerns about your present coverages.