Ask the FC&S experts: The commercial lines coverages edition

Missouri Subscriber

A: The ISO Builders Risk form, CP 00 20 04 02, states that coverage ceases 90 days after construction is complete or 60 days after any building is occupied in whole or in part or it is put to its intended use. On this type of form, occupancy may equate to completion.

If the form states only that the coverage ceases when the building is complete (or if the building is not yet occupied), the word "complete" would take its lay meaning since it is not defined on the policy.

Merriam Webster Online defines complete as, among other definitions, "a: having all necessary parts, elements, or steps…4 a: fully carried out: thorough." These definitions indicate the project should be fully finished in order to qualify as "having all necessary parts" or "being fully carried out."

In general, trim and knobs are not thought to equate with "having all necessary parts" or construction completion. Construction completion implies construction crews being gone, heavy equipment being taken away, and other similar actions. So, when such actions occur, the project is complete, and the Builders Risk form provides coverage for ninety days past that point, even if some minor trim work remains to be done.

Builders risk—does occupancy equal completion?

Q: Our insured had a completed value builders risk policy on a four-townhouse building under construction. Each of the townhouses was separated from the rest by a masonry fire wall extending to the roof rafters and each wall was higher than the roof of the next townhouse. The policy incorporates much of the ISO form CP 00 20 04 02, but uses the term "project" (defined as new buildings or new structures) rather than "building," "structure," or "property."

The occupancy clause states "the building or structure under construction (the "project" shown in this Coverage Part's Declarations) may not be occupied or put to any use without our written consent and an additional premium, if any, paid."

One of the townhouses was completed, sold, and occupied, and the company underwriter interpreted the occupancy clause as meaning the "building" was occupied, thereby terminating the insurance on the entire building. We think each of the units is a separate "building" because of the fire walls. The occupancy clause would then apply only to the units which have been sold and occupied. What do you think?

Kentucky Subscriber 

A: We agree with you that the presence of the separate fire walls between the units has the effect of creating separate buildings in the traditional sense. However, the clause in question amends the concept of "building or structure" to mean "the project" shown in the declarations. Occupancy of one of the buildings in the project appears to be tantamount to occupancy of "the project."

The same occupancy clause indicates that the insurance company may issue written consent to the occupancy and charge additional premium, as appropriate. This provision goes to the heart of the occupancy clause. It is not the occupancy that the insurance company ordinarily objects to but the continuation of coverage on a completed and occupied building at the builders risk rate, which is considerably less than the ordinary building rate. The discount contemplates that values gradually build from zero to the completed value, so the insurance company is never fully exposed until the structure is finished.

In a situation such as yours, as townhouse units in the project are completed and sold the passage of title ends the interest of the builders risk insured and effects a reduction in exposure for the builders risk company. With no request for a companion reduction in premium, that would seem to be a windfall for the insurer.

Inland Marine

Inland marine coverage as all risk

Q: Our insured operates a stone quarry and has a stone crusher covered under an inland marine form. The motor that pumps oil to cool the main motor failed, causing the motor to run without oil. This caused the motor to overheat and seize up. The crusher has fail-safe devices meant to prevent such damage, but it has been determined by an investigation that a metal conduit housing an electrical cable for fail-safe devices had been crushed. This caused the wire to either sever or short-out and made the fail-safe devices inoperable. The cause of the crushed conduit is unknown, but could probably have been caused by a rock or some other object hitting it. 

This IM policy is on an all risk basis and we think the loss to the crusher should be covered. What is your opinion?

Indiana Subscriber

A: Inland marine policies are usually on an all risk basis like this one, and that means that there is coverage for direct physical loss of or damage to covered property unless there is a specific exclusion to prevent the coverage. There was direct damage to the crusher, so unless the policy has an applicable exclusion, there is coverage for this loss.

Some IM policies have an exclusion for damage caused by artificially generated current creating a short circuit or other electric disturbance, but even if your policy has that exclusion, the direct damage was caused by the lack of oil and overheating of the motor, not the artificially generated current.

Underground property exclusion under inland-marine policy

Q: An insured lost a hammer bar, which is a permanent part of a well digging truck and rig, insured under a commercial inland marine policy. The hammer bar was damaged (lost) when a well in which it was being operated collapsed. We are concerned about the applicability of the form's exclusion 4., "property that is underground, in caissons or underwater." Is this exclusion applicable? 

Alabama Subscriber

A: Although in a technical sense the hammer bar became property underground when it was lost in the well collapse, the exclusion seems not applicable to the loss.

First, the ejusdem generis doctrine can be applied. From Black's Law Dictionary, "Under ejusdem generis canon of statutory construction, where general words follow the enumeration of particular classes of things, the general words will be construed as applying only to things of the same general class as those enumerated," and "such general words are not to be construed in their widest extent, but are to be held as applying only to persons or things of the same general kind or class as those specifically mentioned." This rule basically means that specific words in an enumerated list in an insurance policy need to be read in the context of their overall meaning.

Therefore, underground property has to be read in context with property in caissons or underwater. The construction definition of "caisson" is "a water tight chamber used in construction work under water or as a foundation." It appears that the intent of the clause is to exclude property whose more or less permanent placement is underground, in caissons, or underwater. Because property falls into a hole, it does not give that property the characteristics of "underground property." The insurance company wrote an inland marine floater on a piece of property whose function is to operate below the surface of the ground with full disclosure of the nature of the rig. The hammer bar exposure goes with this line of business.

CGL — Liquor Liability Exclusion

Liquor liability exclusion applies to gift?

Q: If an executive officer buys a bottle of liquor and gives it to a staff member or other employee as a gift, would there be coverage under the host liquor liability exception to the liquor liability exclusion? 

Delaware Subscriber 

A: The liquor liability exclusion on the CGL form applies only if the insured is in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages. So, unless this executive officer is in that business, the exclusion would not apply.

However, there is another point that you should consider. Under the terms of the standard CGL form, an executive officer is an insured only with respect to his duties as the named insured's officer. Buying a bottle of liquor as a gift for an employee does not seem to meet this requirement. And that means that the officer is not an insured for the purposes of coverage under the CGL form. In that case, the use of the liquor liability exclusion is not relevant since the liability coverage is for insureds.

Liquor liability exclusion and scheduled exception 

Q: Liquor liability exclusion endorsement, CG 21 51, is attached to the CGL form of our insured; the insured is a non-profit symphony. The insured is holding a fundraiser that will serve wine. The cost of the fundraiser includes music by the symphony, dinner and beverage. Wine is served by the non-profit (not a separate caterer) and included in the price. No license is required from Pennsylvania , as far as the insured is aware. In the absence of listing the event in the schedule on CG 21 51, does the insured have coverage for this liquor liability exposure? 

Pennsylvania Subscriber

A: If your insured has CG 21 51 on its CGL form, it is recommended that the specific activity be described on the endorsement so that the liquor liability exclusion does not apply to the described event. CG 21 51 states that the liquor liability exclusion applies if the named insured sells or distributes alcoholic beverages, or furnishes alcoholic beverages for a charge. Based on your description of the event, this fits the named insured non-profit.

This endorsement is actually stricter than the liquor liability exclusion on the CGL form in that that exclusion requires the insured to be in the business of manufacturing, distributing, selling, or serving alcoholic beverages, while the endorsement applies to an insured that merely sells or distributes the alcohol and does not require the insured to be in the business of doing that. So, since the non-profit here is not in the business of selling or distributing alcohol, you can use CG 21 51, but fill in the schedule so that the exception to the exclusion can be applied.

Workers' Comp

Workers compensation and the "going and coming" rule 

Q: While driving the insured's truck, our insured's employee was injured after he dropped off a load and was returning to his point of origin. The driver was paid on a per load basis, and the insured included travel time as part of the compensation. The insurer said that it fell under the coming and going rule and was not covered, but the insured considers this employee to be on the job until he returns to the plant yard or home. Is this injury compensable?

New Jersey Subscriber

A: New Jersey statutes, section 34:15-36, were enacted in response to court exceptions to the going and coming rule. The statutes define the boundary of "employment" in regard to when an accident arises in the course of employment. The statutes also define "employment" as beginning when an employee arrives at the employer's place of employment and ending when the employee leaves the premises. However, there is an exception that states that employment also occurs when an employee is engaged in the "direct performance of duties assigned or directed by the employer." 

In addition, the statute provides that "the employment of an employee paid travel time by an employer for time spent traveling to and from a job site or of any employee who utilizes an employer authorized vehicle shall commence and terminate with the time spent traveling to and from a job site or the authorized operation of a vehicle on business authorized by the employer."

Based on the statutory definitions, the injury is compensable if the situation meets the requirement that the employee was paid travel time, that he was using an employer authorized vehicle, that he was under the direction of the employer at the time of the accident, and that he was performing employer-required duties.

A similar situation is discussed by the New Jersey Supreme Court in Zelasko v. Refrigerated Food Express, 608 A.2d 231 (N.J. 1992). In this case, the trucker, who was injured while en route to parking his tractor trailer in an offsite parking area, was not driving an employer-furnished vehicle, was not engaged in direct performance of employer-directed duties, and was not paid for travel time. The court, in discussing compensability, reasoned that those criteria should be met in establishing compensability.

It appears that such criteria were met in the insured's case, and the injury is compensable.

Workers compensation coverage for foreign travel? 

Q: We have received conflicting opinions from various sources on whether or not workers compensation coverage can be extended to U.S. employees while traveling overseas on company business. Can you help us?

Pennsylvania Subscriber

A: As is so often the case, we have to say it depends!

There is no defined coverage territory in part one (workers compensation section) of the NCCI workers compensation policy. (While Pennsylvania uses a non-NCCI form, coverage is generally the same as the NCCI form in this area.) Benefits are payable based on the levels set by the laws of the states listed on the information page.

Part two (employers liability) states that EL insurance does not cover "bodily injury occurring outside the U.S., its territories or possessions, and Canada ." However, this exclusion "does not apply to bodily injury to a citizen or resident of the United States of America or Canada who is temporarily outside those countries . . ." (emphasis added).

In general, employees who are domiciled in the U.S., its territories or possessions, and Canada are entitled to workers compensation and employers liability coverage if they are outside that territory on temporary assignment. "Temporary" is not defined on the policy, so you should check with the carrier to determine how it chooses to interpret that word. You also should notify the insurance carrier providing the domestic workers compensation coverage of the temporary assignments.

If foreign nationals are being hired or U.S. citizens are being assigned permanently (or for longer than a temporary period) outside the territory, other arrangements should be made. The foreign country may provide or require some type of coverage that must be obtained there. Or an accident and health policy might be chosen. Some carriers also offer foreign workers compensation coverage that is excess to any benefits provided by required insurance. Such policies should be individually reviewed to determine how they would apply to the situation.

If you are using the domestic policy for protection, note that the employers liability section provides coverage for suits that are brought within the coverage territory. A foreign workers compensation and employers liability policy may fill this potential gap. Other coverages that may be necessary—regardless of whether the employees are permanently or temporarily working outside the domestic coverage territory—are for repatriation and endemic disease. Endemic diseases are those peculiar or restricted to certain regions or countries. Repatriation coverage provides additional funds, up to the coverage limit, for bringing an injured or deceased employee back to the United States .

You should check with the insurance carrier providing the domestic workers compensation coverage to be sure that any coverage you arrange dovetails properly with the domestic insurance.