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Products liability endorsements

Question: Does the endorsement for Products/Completed Operations Hazard Redefined [CG 24 07 01 96; CG 24 07 01 96; CG 24 07 01 96] need to be attached to a Commercial General Liability (CGL) form that covers a school or other risks where on-premises serving of food takes place? I have heard that the endorsement is only needed when the insured has operations that involve "substantial" exposure to products hazard on the insured's own premises; but, just what does "substantial" mean?

— New York Subscriber

Answer: Endorsement CG 24 07 redefines the products-completed operations hazard to include products consumed on the premises where they are sold. The endorsement does not define or even use the term "substantial." In any case, if the insured is debating whether to use CG 24 07, the insured should not be thinking in a quantitative manner — that is, in a way that measures the need for the endorsement based on how much food or drink is consumed on the premises. The key point is whether the exposure to loss is substantial. The insured should decide whether it has an exposure to loss to such a degree that the possibility of a loss is not acceptable, monetarily or ethically. The exposure you describe, a school, should have the endorsement because the students consume the insured's products on the insured's premises, with the potential for a huge loss. There is no iron-clad rule for an insured to follow in deciding whether to use CG 24 07, but a common sense, risk management approach to coverage, an approach that recognizes the risks and loss probabilities unique to the insured, is required. It should be noted that the CGL form, even without CG 24 07, will give the insured coverage for a bodily injury claim based on the claimant's eating the insured's food on the premises. However, the definition of a products-completed operations hazard on the CGL form makes the claim subject to and applied to the insured's general aggregate limit. But if CG 24 07 is attached to the CGL form, changing the definition of products completed operations hazard, a claim arising out of consuming food or beverages on the insured's premises would be subject to the products-completed operations aggregate limit. Such an approach keeps the general aggregate and the products-completed operations limits separate and enhances the coverage that an insured has and needs.

Coverage territory and product liability

Question: Our insured is a buying agent for AutoZone. The insured company purchases parts for AutoZone from a Chinese manufacturer. AutoZone takes possession of the goods at the port in China. From there, the items enter the U.S. through the port in Los Angeles. They clear customs and then are transported via truck to Mexico through Texas to be sold by AutoZone in Mexico. The question is: Would someone who bought the product in Mexico have any way to make a claim against our insured?

— Georgia Subscriber

Answer: What you have to check here is the definition of coverage territory in your policy. For example, in the standard CGL form, coverage territory can be all parts of the world if the injury or damage arises out of goods or products made or sold by the named insured in the United States, Puerto Rico and Canada. Of course, any lawsuit against the insured has to be filed in one of these same locations for responsibility to pay damages to be established. In your situation, if the definition of coverage territory is the same as that in the standard CGL form, the only way for there to be liability coverage would be if the products were made or sold in the United States and the injured party then sues in the U.S. From the way you describe the situation here, it appears that the insured does not make or sell the products in the U.S., so anyone injured after a sale in Mexico is not going to have the insured's policy pay for damages. Remember that this comment applies only to insurance coverage and not legal liability. So, the insured may well be sued and held liable in a Mexican lawsuit. But, the insurance policy that the insured has probably won't provide coverage, depending on the definition of coverage territory.

Underground storage tanks

Question: My client owns some property that is currently leased to others who use the site as a small grocery store. If the tenants were to put in an underground storage tank for gasoline sales, would endorsement CG 24 15, the limited pollution liability extension endorsement, provide sufficient coverage for my client in the event of a pollution claim? Or, should we provide an underground storage tank policy for our client?

— Colorado Subscriber

Answer: CG 24 15 replaces the pollution exclusion (f) found in the standard CGL form. It provides limited protection, subject to an aggregate limit shown in the endorsement's schedule, for some on-premises exposures that could face a landowner. Under the standard CGL form, coverage for bodily injury or property damage arising out of the dispersal, discharge, release or escape of pollutants at or from premises owned by any insured is excluded. CG 24 15 deletes this part of the pollution exclusion thereby giving coverage to a landowner like your client. However, that same endorsement declares there is no coverage when a pollutant escapes at or from a storage tank or other container that is below the surface of the ground and that subsequently is exposed by erosion or excavation, allowing the pollutant to escape at a premises owned by any insured. So, while your client would have some limited liability protection if the storage tank leaks gasoline by using CG 24 15, that protection is gone if the storage tank is somehow exposed and the pollutants then leak out and cause damage. As for the underground storage tank policy, CG 00 42, that policy states that damages and injuries due to the escape of pollutants from an underground storage tank are covered, subject to listed exclusions. CG 00 42 is a claims-made policy so the bodily injury and property damage have to occur after the retroactive date shown in the declarations and before the end of the policy period, and of course, a claim for damages has to be made in writing during the policy period or any extended reporting period. If you use either CG 24 15 or CG 00 42, your client will have liability coverage on a limited basis. You should consult with your client and the insurer to obtain the better choice.

Pollution liability

Question: The insured sold a container of bleach to a customer. While the customer was transporting the bleach in his vehicle, the cap to the container came loose causing the chemical to seep onto the back seat and floor of the vehicle. These parts have been bleached. The insured's CGL form has an exclusion for pollution. Does this scenario fit into the pollution exclusion?

— Kansas Subscriber

Answer: No, the pollution exclusion is not applicable in this instance. The pollution exclusion does not address a product claim such as this in which the insured's product caused property damage to another's property. In this instance the insured's product caused damaged to another person's property, and that is what the CGL form is meant to cover.

Products liability in Japan

Question: We insure a manufacturer domiciled in the United States. The manufacturer is looking into forming a dealer relationship with a company in Japan so that our insured would sell its finished product to the dealer and the dealer would in turn sell that product to consumers in Japan. Our insured is questioning whether its CGL form would give it liability coverage due to the requirement in the CGL form that the occurrence must take place in the coverage territory; "coverage territory" is a defined term that does not include Japan. What do you think?

— South Dakota Subscriber

Answer: With reference to the named insured's products, "coverage territory" under the CGL form means all parts of the world, under certain circumstances. First, the injury or damage has to arise out of goods or products made or sold by the named insured in the United States (including its territories and possessions), Puerto Rico and Canada; second, the insured's responsibility to pay damages has to be determined in a lawsuit filed in these same territories. In the scenario you describe, your insured makes the product in the United States. As long as an injured party files a lawsuit in the United States, Puerto Rico or Canada to determine your insured's responsibility for the injuries, the CGL form will respond to a claim. A lawsuit filed in Japan against your insured will not require a response by the insurer. See also:

• Allianz identifies top global business risks to watch in 2019
• The 8 most misunderstood coverage issues in CGL insurance