Author: Chris Boggs
Insurance Services Office (ISO) has introduced four new earth movement exclusions with effective dates of 12/1/19. Three are designed for use with the commercial general liability (CGL) coverage parts; and one is for use with the owners and contractors protective liability (OCP) coverage part.
In its filing, ISO states that it continually monitors various issues facing the construction industry and that some contracting risks may have operations with increased earth movement and unnatural seismic activity exposures. The filing went on to say that in order to provide additional underwriting tools to address these earth movement exposures, ISO was making these optional earth movement exclusions available to its carrier members.
These are extremely dangerous endorsements if used improperly. Before addressing the danger, let's review the endorsements.
CGL Program Earth Movement Exclusions
Three earth movement exclusions were created for the CGL program, the:
- CG 40 04-Exclusion-Earth Movement;
- CG 40 05-Exclusion-Earth Movement-Completed Operations; and
- CG 40 06-Earth Movement-Exclusion For Designated Operation(s) or Project(s).
All three apply essentially the same exclusionary wording and the same definition of earth movement."
The newly added Coverage A exclusion reads:
This insurance does not apply to "bodily injury" or "property damage" arising out of "earth movement" that is:
1. Caused by or alleged to have been caused by, in whole or in part; or
2. Aggravated by or alleged to have been aggravated by;
Only the CG 40 05 differs in its exclusionary wording but only slightly. Because the CG 40 05 applies to only completed operations, the last line of the exclusion reads:
"your work" and included in the "products-completed operations hazard".
Likewise, all three exclusionary endorsements apply the same definition of earth movement."
"Earth movement" means:
- Earthquake, including tremors and aftershocks and any earth sinking, rising or shifting related to such event;
- Landslide, including any earth sinking, rising or shifting related to such event;
- Mine subsidence, meaning subsidence of a man-made mine whether or not mining activity has ceased; or
- Earth sinking, rising or shifting including soil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty. Soil conditions include contraction, expansion, freezing, thawing, erosion, improperly compacted soil and the action of water under the ground surface.
Both the CG 40 04 and CG 40 05 apply to all projects or operations of the insured. But, the CG 40 06, as indicated by the endorsement's title, is project or operation specific.
OCP Program Exclusion
One earth movement exclusion was created for the OCP the CG 34 23 Exclusion Earth Movement. The exclusionary wording and earth movement" definition in this endorsement are the same as the wording in the CGL endorsements, the only difference is for which party's work the exclusion applies.
This endorsement excludes coverage for operations performed for the named insured by the contractor specifically named in the policy.
Danger, Danger, Danger
ISO's filing states that these endorsements are intended for operations involved in activities similar to excavation or tunneling, hydraulic fracturing, bridge culvert building and others that may include the use of explosives. However, there is nothing in the rules that limit use of these endorsements to insureds involved in these operations.
Let's review the definition of what constitutes earth movement" as excluded by these endorsements, specifically definition 4." which excludes: Earth sinking, rising or shifting including soil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty. Soil conditions include contraction, expansion, freezing, thawing, erosion, improperly compacted soil and the action of water under the ground surface.
Imagine a carrier attaching this endorsement to a grading contractor's policy. Nothing in the rules disallows its attachment to insureds performing this type of work. If the contractor improperly grades the land or something quirky arises from the work resulting in damage because of the earth sinking or rising or shifting, etc., there is no coverage. Granted, if this exclusionary endorsement was attached to a grading contractor's policy, the court would likely consider the policy illusory and disallow its use, but this would still require court involvement.
The warning is this, improper use of these endorsements creates gaps that hurt some insureds. Push back when any of them is attached.
Grading the Landscape
These endorsements are for the benefit of the insurance carriers, not the agent and certainly not the insured. They are one more way for carriers to limit their exposure. Be careful anytime one of these endorsements is attached.
Last Updated: February 14, 2020