Author: VU Faculty

Based on the number of "Ask an Expert" questions we're getting, there appears to be an increasing use of the the CGL "Designated Premises" endorsement. Generally speaking, this is something your insured wants to avoid. On top of that, we're seeing it used for the wrong reason and/or used to accomplish something the insurer thinks it accomplishes but really doesn't.

The "designated premises" issue has come up FOUR times in the past month or so. Below are the questions and some answers...we hope.

"The 'Limitation of Coverage to Designated Premises' states insurance applies only to BI, PD...'arising out of...the ownership, maintenance or use of the premises and operations necessary or incidental to those premises'.

"How limiting is this? For example, if you rent equipment, is there no liability coverage arising out of the use of your rental equipment taken off site? Another example - you are a fuel broker and arrange for fuel to be delivered by an independent trucking company at a customer's site. If something happens at that site and you get sued, because it happened away from your premises, would you not have coverage?"

The endorsement (CG 21 44 11 85) limits liability coverage to the premises or project listed. It is a very limiting endorsement. If an occurrence happens away from the premises, the insured would have to show that the operation is necessary or incidental to the premises. Of course, it doesn’t explain or define an operation that is “necessary or incidental,” so this will be subject to interpretation. The limitation on “projects” does not have similar wording limiting coverage to operations that are necessary or incidental to the project.

If you show the premises in the schedule and you rent equipment to be used away from the premises, it would be necessary to show that the rental is necessary or incidental to the premises. Again, this is not defined, so the insured should get the benefit of the doubt. If the project were listed as “fuel delivery” (if the underwriter will do that), you would have broader coverage.

Any endorsement with “21” at the beginning of the number is an exclusion. I would try to have the endorsement removed or find an insurer that would not add it to the policy. The intent of the endorsement is to do exactly what it says – limit coverage to premises or projects.

"One of our carriers is putting the Designated Premises Limitation endorsement on ALL of our BOP's that are written in an individual's name.

"However, I am not comfortable at this time with them doing this. Due to the nature of the accounts and the off-premises exposures, this could be a problem. I tried to check court cases on this to see if there was something, but was unable to locate any.

"This question may seem trite, but could possibly have some implications on clients if I am not totally aware of some of the activities they may be doing or already doing."

Needless to say, this is not a desirable endorsement. It's been around, before ISO added it to their portfolio, as a manuscript endorsement for years in one form or another.

According to ISO, this endorsement does not exclude off-premises liability, but would limit on-premises liability to the designated location. However, the wording is kind of vague with the use of "necessary or incidental to" the premises. You never know what a court might decide. The only one I've ever seen is Harvey v. Mr. Lynn 5, Inc., 416 S2d 960 (La 1982) and even the decision was vague.

I'd ask the underwriter why there is a need for the endorsement and, if possible, get it removed.

"I write a day care center with a nonstandard company and they have attached a Limitation of Coverage to Designated Premises or Project Endorsement to the policy. I always understood this endorsement was so they would not pick up the liability on any other business the insured might own.

"When we questioned the company about liability coverage when taking the kids to the park or any outing, they said there would be NO coverage...only coverage ON premises. Is this correct? Is there something I can do. The company will not remove this endorsement."

The company needs to actually read the endorsement. The endorsement does limit liability to a designated location, as opposed to other locations the insured might have. However, there is incidental off-premises coverage for things like taking the kids to the park.

As one of our faculty members points out, "If it is the ISO endorsement, the underwriter may THINK it restricts coverage like the old OL&T form. But, it does grant coverage for off-premises operations incidental to the designated premises. This is a common misunderstanding. This endorsement really only excludes non-incidental and/or unrelated off-premises or other premises exposures."

"We write a museum under a CGL policy. Each summer the museum sponsors a summer camp for kids, held away from premises. I'm not sure how long the kids stay, but several days at a pop at least. The insurance company does not like the exposure of the summer camp so they have added the CG 21 44 11 85 endorsement to the policy.

"#1. Suppose a kid gets hurt at the off premises camp. Any coverage? Is this 'incidental' to the museum’s operations?

"#2. Further, what other holes are created by the use of this endorsement?

"#3. Is there a better way to eliminate the camp exposure, from the company’s standpoint?

Here's what the endorsement says:

CG 21 44 11 85

THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.

LIMITATION OF COVERAGE TO DESIGNATED PREMISES OR PROJECT

This endorsement modifies insurance provided under the following:

COMMERCIAL GENERAL LIABILITY COVERAGE PART.

SCHEDULE
Premises:
Project:

(If no entry appears above, information required to complete this endorsement will be shown in the Declarations as applicable to this endorsement.)

This insurance applies only to "bodily injury," "property damage," "personal injury," "advertising injury" and medical expenses arising out of:

1. The ownership, maintenance or use of the premises shown in the Schedule and operations necessary or incidental to those premises; or

2. The project shown in the Schedule.

CG 21 44 11 85
Copyright, Insurance Services Office, Inc., 1984"

"Incidental to" can mean a lot of things. I say the endorsement possibly does little or nothing to exclude the camp exposure...BUT it does it potentially drastically reduce their existing CGL coverage by attempting to limit coverage to just the primary premises. Shouldn't they be using the CG 21 00 11 85 - Exclusion - All Hazards in Connection with Designated Premises endorsement showing the camp?

We have a fundamental problem here. We already know the insurer's intention. They think this endorsement will exclude coverage for the camp exposure. Maybe it will, maybe it won't. The fact is we already know that if a claim arises, the insurer will deny and fight. When in the situation it is not recommended to play with words and look for holes.

I have seen quite a few of these type cases where an agent will rely on ambiguity. In the long run, sometimes they win, sometimes they lose. But almost always they lose the client because the insurer fights the claim.

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