Designated Premises Endorsement and Necessary and Incidental Operations

The standard commercial general liability (CGL) form usually provides insurance coverage for the on-premises and off-premises operations of the named insured. However, this comprehensive coverage can be limited by endorsements attached to the CGL form. One such endorsement is CG 21 44, Limitation of Coverage to Designated Premises or Project—the designated premises endorsement. This endorsement played a definite role in a recent Massachusetts appeals court ruling. The case is United States Liability Insurance Company v. Harbor Club, Inc., 2010 WL 841287 (Mass.App.Ct.).

The insured, Harbor Club, did business as Trader Ed's, a restaurant in Hyannis . Trader Ed's was sued by Kimberly Mooney, an invitee to an off-premises party (more than 60 miles from the restaurant) hosted by Trader Ed's. She suffered injuries when a gas grill exploded. The insured submitted a claim for defense and indemnification to the insurer, United States Liability Insurance Company. The insurer declined coverage and filed a declaratory judgment action seeking a judgment that the designated premises endorsement attached to the liability policy provided a proper basis for the denial of coverage. The trial court sided with the insurer and this appeal followed.

The appeals court noted that the CGL form covers liability for bodily injury claims caused by an occurrence on premises owned or rented by the insured or because of the insured's operations. However, the designated premises endorsement modifying the insurance provided by the CGL form stated that the insurance applies only to bodily injury arising out of the ownership, maintenance or use of the premises shown in the declarations, and operations necessary or incidental to those premises shown in the declarations. Therefore, the task before the court was to distinguish between an off-premises event generally connected to the insured's business and an event, while off-premises, necessary or incidental to the designated premises.

The appeals court agreed with the trial court's reasoning that any business related event can be said to have some abstruse connection to the business premises, for example, planning the event can be undertaken on premises and sending out invitations to the event can be done from the business premises. However, the endorsement required more, otherwise the designated premises limitation would only apply to activities that are entirely unrelated not only to the premises, but to the business itself. The judgment of the trial court was affirmed.

Editor's Note: The appeals court emphasized the point that in the interpretation of the endorsement's wording, the covered operations have to be necessary or incidental to the designated premises, not to the business itself. The off-premises party in this instance may very well have had connections with the insured's business as a restaurant, but it did not have a connection with the designated premises, and so, the endorsement provided no coverage for the off-premises bodily injury claim.

This may seem to be drawing a very fine line of distinction between an off-premises exposure that is covered (an exposure necessary or incidental to the designated premises itself) and an off-premises exposure that is not covered (an exposure connected simply to the insured's business itself). However, note that a majority of courts around the country have in fact drawn such a fine line.