Filed Under:Claims, Litigation

Global and Off-Premises Exposures

The Reality of Building and Property Coverage

In these days of mergers and acquisitions, globalization, and shifting business operations off-shore, questions can arise as to how various insurance policies address off-premises losses. For example, if an insured company based in Ohio expands its operations to Nevada or buys a plant in England, will the commercial property policy cover a fire loss to the newly acquired buildings? Or, if the insured is based in Ohio and then builds a manufacturing plant in India, then will the general liability policy provide coverage for the company if its product injures a consumer in Brazil? Additionally, if a company employee travels to Europe and rents a car for business purposes, will the business auto policy protect the insured if an at-fault accident occurs?

A reading of the various insurance coverage forms reveals that off-premises coverage mainly depends on the wording of the insuring agreements, definitions, and conditions clauses. Of course, an individual insurance company can have its own preferred definition of “coverage territory” in its own policies, but the standard Insurance Services Office (ISO) coverage forms offer reasonable guidelines.

Acquiring Properties

The building and personal property coverage form CP 00 10 declares that the coverage for the direct physical loss of or damage to covered property exists only at the premises described in the declarations. Therefore, if the insured declares that its covered property is at 123 Main Street, Main City, Ohio, the insured will not have coverage for its newly acquired building in Nevada or its plant in England.

However, there are caveats to this statement. The policy also declares that, as a coverage extension, up to $250,000 will be provided for loss or damage to a building, or up to $100,000 for business personal property, that the named insured acquires at other locations. It is important to note, however, that this coverage ends 30 days after the named insured acquires the property, and the extension would only apply to the Nevada building. This is because the commercial property conditions form—which must be included under the terms of the ISO commercial property program—states that the coverage territory includes only the United States, Puerto Rico, and Canada. In order for a loss to be covered, the incident must occur within the defined coverage territory. If the insured wants to cover its property in England or anywhere outside the defined coverage territory, then the company will either have to have to redefine the coverage territory or purchase insurance in the country where the new building is located.

Another coverage extension in CP 00 10 details that there is coverage for the businesses personal property while it is away from the described premises if the business is temporarily at a location it has not owned, leased, or operated while it is at any fair, trade show, or exhibition. Thus, if the insured sends some of its personal property to a trade show in Nevada, then that property is covered for up to $10,000, though the ban on coverage outside the coverage territory still applies.

Insuring Your Employees

The commercial general liability coverage form (CG 00 01) offers coverage for sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage to which the insurance applies. This only applies if the injury or damage occurs in the coverage territory, and the policy defines coverage territory as the United States, Puerto Rico, and Canada. If the insured has a manufacturing plant in India and someone is injured at that location, then the claim will not be covered under the terms of CG 00 01. As with property coverage, the insured must pursue an alternative route, such as purchasing liability insurance in the country where its operations are located. Now this pertains to premises liability coverage, but what about products liability? If the insured makes a product in India that is sold in Brazil, but it injures someone there, how does the CGL form respond?

CG 00 01 extends the coverage territory to all parts of the world if the injury or damage that arises out of goods or products made or sold by the named insured in the U.S., Puerto Rico, or Canada. The goods or products, however, must be assembled or sold in the defined coverage territory. If an item manufactured by the insured in India injures someone in Brazil, then the injury claim will not be covered by the standard CGL form. Moreover, even if the insured does make the product in the U.S. and it injures someone in Brazil, liability for any damages will be determined in a lawsuit on the merits in the defined coverage territory. This means that the injured party must file a lawsuit in the U.S., Puerto Rico, or Canada for the insured’s liability policy to respond.

The insured should also note that its coverage for a personal and advertising injury claim is worldwide. In this era of the Internet and mobile communication, many insureds have worldwide exposure to personal and advertising injury claims. The general liability policy will respond to these, but again, the insured’s responsibility to pay damages must be determined in a lawsuit filed in the U.S., Puerto Rico, or Canada.

Additional Risk

Along with the worldwide exposure to property losses and liability claims that many insureds face today is the additional risk of auto liability. The fact remains that if the insured has business operations in countries other than the U.S., some executives and employees will travel to other countries. The insured has the standard business auto policy (CA 00 01), but will it apply to a claim stemming from an accident that occurs in Europe or Asia?

CA 00 01 applies to accidents resulting from the ownership or use of covered vehicles within the coverage territory, which is defined as the U.S., Puerto Rico, and Canada. There is coverage anywhere in the world if a covered automobile of the private passenger type is leased, rented, or hired without a driver for a period of 30 days or less. As usual, the insured’s responsibility to pay damages must be determined in a lawsuit filed in the defined coverage territory.

As an example of this coverage, let’s say the named insured’s employee travels to Norway from Ohio on a two-week business trip. He rents a private passenger-type car to visit the company’s plants. He causes an accident while driving around Oslo, and the injured party files a lawsuit as a result. The rented vehicle is a covered auto and the employee has been designated as an insured under the auto policy, so the policy will respond to the claim if the injured party decides to file the lawsuit in Ohio.

On the other hand, if the company hired a driver and vehicle for the employee to better navigate Oslo and the Norwegian countryside, then the named insured’s auto policy would not respond to a claim if an accident occurred. Better risk management for the company would be to have an auto policy from the country in which the employee is traveling. This can be done through a rental company or a local insurance company in that foreign country, entities that know more about foreign country driving requirements than a U.S.-based company. The CA 00 01 policy will provide some coverage for an auto accident the insured causes in a foreign country, but an auto policy purchased in that foreign country would provide the necessary coverage with less hassle, and perhaps a lower premium.

There are, however, other global and off-premises risk exposures the insured must consider, such as protection for goods and products shipped overseas, workers’ compensation coverage for employees working overseas, and crime coverages. These exposures, as well as the property, liability, and auto exposures, can be covered to a degree by the domestic policies, but a close review of the insured’s operations and its off-premises exposures will no doubt identify areas that require attention and further protection, whether through insurance or some non-insurance risk management technique.

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