Summary: The Insurance Services Office (ISO) has implemented an underground storage tank (UST) policy form with rules and endorsements available for use in the United States, Puerto Rico, and Canada . The UST policy, CG 00 42 04 13, offers bodily injury and property damage liability coverage on a claims-made basis for insureds who become legally obligated to pay compensatory damages because of an underground storage tank incident. This article discusses CG 00 42, with its insuring agreement, exclusions, and conditions. Since some of the clauses that appear on CG 00 42 are similar to those that are on the commercial general liability coverage (CGL) form, only the clauses that make CG 00 42 distinctive are highlighted here. For information on the CGL forms, see CGL Coverage Form — Coverage A and Claims-Made CGL Form.
Topics covered: The insuring agreement Exclusions Other clauses Limits of insurance and defense expense amount Conditions Extended reporting periods Definitions Endorsements
The Insuring Agreement
a.Coverage A — Bodily Injury and Property Damage Liability
(1)We will pay those sums that the insured becomes legally obligated to pay as compensatory damages because of “bodily injury” and “property damage” to which this insurance applies.
(2)This insurance applies to “bodily injury” and “property damage” only if:
(a)The “bodily injury” or “property damage” is caused by an “underground storage tank incident” that commences on or after the Retroactive Date shown in the Declarations of this policy and before the end of the policy period;
(b)The insured's responsibility to pay damages because of “bodily injury” or “property damage” is determined in a “suit” on the merits in the “coverage territory” or in a settlement we agree to; and
(c)A claim for damages because of the “bodily injury” or “property damage” is first made against any insured, in writing, in accordance with paragraph (3) below, during the policy period or any Extended Reporting Period we provide under Section V — Extended Reporting Periods.
(3)A claim by a person or organization seeking damages will be deemed to have been made at the earlier of the following times:
(a)When notice of such claim is received and recorded by any insured or by us, whichever comes first; or
(b)When we make a settlement in accordance with paragraph 3. below.
All claims for damages because of “bodily injury” to the same person, including damages claimed by any person or organization for care, loss of services or death resulting at any time from the “bodily injury”, will be deemed to have been made at the time the first of those claims is made against any insured.
All claims for damages because of “property damage” causing loss to the same person or organization as a result of an “underground storage tank incident” will be deemed to have been made at the time the first of those claims is made against any insured.
(4)The amount we will pay for damages because of “bodily injury” or “property damage” or for “corrective action costs” (Coverage B) is limited as described in Paragraph 1. of Section III — Limits Of Insurance.
Analysis
Coverage A, concerned with bodily injury and property damage liability, is on a claims-made basis. Under coverage A, the insurer will pay those sums that the insured becomes legally obligated to pay as compensatory damages because of bodily injury (BI) or property damage (PD) to which the insurance applies. The insurance applies only under certain circumstances: if the BI or PD is caused by an underground storage tank incident that commences on or after the retroactive date shown in the declarations and before the end of the policy period; if the insured's responsibility to pay damages is determined in a suit filed in the coverage territory or in a settlement that the insurer agrees to; and if the claim is first made against any insured in writing during the policy period or any extended reporting period.
The insured should note that this coverage is only for compensatory damages. There is no exclusion that specifically rules out punitive damages, but the singling out of compensatory damages in the insuring agreement declares the intent of the policy to apply only to that type of damages.
Furthermore, the damages must be caused by an underground storage tank incident, a defined term; it means a release from an insured tank. This sounds simple enough except that the definition contains words that are themselves defined terms under the policy. The definitions are discussed later in this article.
As noted above, this insuring agreement offers coverage on a claims-made basis. Thus, the agreement discusses retroactive dates and extended reporting periods; for more information on claims-made type policies, see Claims-Made CGL Form.
The insuring agreement makes clear the point that a claim is deemed to have been made when notice is received by any insured or by the insurer. Thus, the named insured is not the only one that can receive notice of a claim and then have that claim be deemed as “made.”
b.Coverage B — Corrective Action Costs
(1)We will pay those sums the insured becomes legally obligated to pay for “corrective action costs” to which this insurance applies as a result of an “underground storage tank incident”.
(2)This insurance applies only if:
(a)An “underground storage tank incident” commences on or after the Retroactive Date shown in the Declarations of this policy and before the end of the policy period; and
(b)Such “underground storage tank incident” is reported in writing, in accordance with paragraph (3) below, during the policy period or any Extended Reporting Period we provide under Section V — Extended Reporting Periods.
(3)An “underground storage tank incident” will be considered reported at the earliest time:
(a)You report to us, in writing, an “underground storage tank incident”;
(b)You report to an “implementing agency”, in writing, an “underground storage tank incident”; or
(c)You receive a written notice from an “implementing agency” which requests or demands that you take action due to an “underground storage tank incident”.
(4)The amount we will pay for damages because of “bodily injury” or “property damage” (Coverage A) or for “corrective action costs” is limited as described in Paragraph 1. of Section III — Limits Of Insurance.
Analysis
Coverage B deals with corrective action costs. Under Coverage B of CG 00 42, the insurer will pay those sums that the insured becomes legally obligated to pay for corrective actions costs as a result of an underground storage tank incident. The coverage applies only if the incident commences on or after the retroactive date shown in the declarations and before the end of the policy period; also, the incident must be reported in writing during the policy period or any extended reporting period provided under the policy.
“Corrective action costs” is a defined term, meaning reasonable and necessary expenses incurred by the named insured in response to a confirmed underground storage tank incident for corrective action as specified in 40 CFR (Code of Federal Regulations) sections 280.60-280.67 and 40 CFR section 280.72, promulgated by the EPA. The insured has to be familiar with EPA regulations to understand the full breadth of this coverage; but it is clear that this insuring agreement, for an example, gives the insured coverage for reasonable and necessary clean-up costs due to a release of petroleum from an underground storage tank.
An underground storage tank incident is considered reported at the earliest of the following times: when the named insured reports the incident in writing to the insurer; or, when the named insured reports to an “implementing agency” in writing an underground storage tank incident; or, when the named insured receives a written notice from an “implementing agency” that requests or demands that the named insured take action due to the incident. (“Implementing agency” is put in quotes because it is a defined term that means the EPA or the designated state or local agency responsible for carrying out an EPA approved underground storage tank program.) Now, if the insured receives a notice from the EPA demanding action due to an underground storage tank incident, this may mean that the incident is considered reported under the terms of the coverage B clauses, but it does not mean that the insured can sit back and do nothing and expect the insurer to willingly pay all the corrective action costs whenever they happen to come to the insurer's attention. The named insured still has a contractual duty to see to it that the insurer receives prompt written notice of the request or demand for action.
CG 00 42 has nine exclusions. The first five exclusions deal with expected or intended injury, contractual liability, workers compensation, employer's liability, and damage to property; the wording of these exclusions is similar to that found on the commercial general liability (CGL) coverage form—see CGL Coverage Form—Coverage A. However, there are also several variations that should be noted.
The expected or intended exclusion does not have the exception for the use of reasonable force to protect persons or property. The contractual liability exclusion does not have the insured contract exception, although it does state that the exclusion does not apply to liability for damages that the insured would have in the absence of the contract. The employer's liability exclusion also does not have the insured contract exception. The damage to property exclusion applies only to property owned, rented to, or occupied by the named insured; to premises the named insured sells, gives away, or abandons; to property loaned to the named insured; and to personal property in the care, custody, or control of the insured.
The sixth and seventh exclusions on CG 00 42 are exclusions that relate to the nature of this particular coverage form and are reproduced here.
f.Failure to Comply With Environmental Laws
This insurance does not apply to “bodily injury” or “property damage” or “corrective action costs” arising out of an “underground storage tank incident” which results from or is directly or indirectly attributable to failure to comply with any applicable statute, regulation, ordinance, directive or order relating to the protection of the environment and promulgated by any governmental body, provided that failure to comply is a willful or deliberate act or omission of:
(1)The insured; or
(2)You or any of your members, managers, partners or “executive officers”.
Analysis
The sixth exclusion on CG 00 42 applies to failure to comply with environmental laws. The policy does not apply to bodily injury or property damage arising out of an underground storage tank incident that results from or is directly or indirectly attributable to failure to comply with regulations or laws relating to the protection of the environment. This exclusion is qualified in that it applies only if the failure to comply is a willful or deliberate act or omission of the insured, the named insured, or any of the named insured's members, partners, or executive officers. In other words, if the insured deliberately does not obey environmental laws or regulations (such as construction or maintenance regulations) and a release of petroleum from an underground storage tank into the soil or ground water occurs, CG 00 42 will not respond to a claim for BI or PD.
g.Corrective Actions
This insurance does not apply to “corrective actions costs” or any other expenses:
(1)Resulting from any “underground storage tank incident” which is intended from the standpoint of the insured;
(2)Resulting from actions taken to report, investigate or confirm a “release”;
(3)To repair, replace or upgrade any “insured tank”;
(4)Which are fines or penalties imposed by a federal, state or local governmental authority;
(5)To replace the contents of an “insured tank”; or
(6)Which are part of your restoration, enhancement or routine maintenance of any “insured tank” or of the site where any “insured tank” is located.
Analysis
The seventh exclusion deals with corrective actions costs. The policy will not cover corrective action costs or any other expenses under the following instances: costs or expenses resulting from any incident that is intended from the standpoint of the insured; costs or expenses resulting from actions taken to report, investigate, or confirm a release; costs or expenses to repair, replace, or upgrade any insured tank; costs or expenses that are fines or penalties imposed by the government; costs or expenses to replace the contents of an insured tank; and costs or expenses that are part of the named insured's restoration, enhancement, or routine maintenance of any insured tank or of the site where any insured tank is located.
Basically, this exclusion acts to deny expenses incurred by the insured that should not be paid by an insurance policy. Repair and maintenance costs are normal business expenses and should not be an insured item; fines and penalties are imposed because the insured broke a law and that also should not be an insured item; and finally, if a release of petroleum from an underground storage tank is intended by the insured, that is not a fortuitous occurrence and should not be an insured item.
h.War
This insurance does not apply to “bodily injury” or “property damage”, however caused, arising, directly or indirectly, out of:
(1)War, including undeclared or civil war;
(2)Warlike action by a military force, including action in hindering or defending against an actual or expected attack, by any government, sovereign or other authority using military personnel or other agents; or
(3)Insurrection, rebellion, revolution, usurped power, or action taken by governmental authority in hindering or defending against any of these.
Analysis
The eighth exclusion deals with war. The policy will not cover bodily injury or property damage arising out war, warlike action, insurrection or essentially other related activity, regardless of how the injury is caused.
i.Electronic Data
Damages arising out of the loss of, loss of use of, damage to, corruption of, inability to access, or inability to manipulate electronic data. However, this exclusion does not apply to liability for damages because of “bodily injury”.
As used in this exclusion, electronic data means information, facts or programs stored as or on, created or used on, or transmitted to or from computer software, including systems and applications software, hard or floppy disks, CD-ROMS, tapes, drives, cells, data processing devices or any other media which are used with electronically controlled equipment.
Analysis
The final exclusion on CG 00 42 deals with electronic data. The policy will not cover damages arising out of the loss of, loss of use of, damage to, corruption of, inability to access, or inability to manipulate electronic data. Those items that are considered electronic data for purposes of the exclusion are explicitly laid out by it.
3.Our Right And Duty To Defend
We will have the right and duty to defend the insured against any “suit” seeking damages because of “bodily injury” or “property damage” to which this insurance applies, or seeking the payment of “corrective action costs” to which this insurance applies, and to pay or reimburse for “defense expense” as provided under paragraph 2. of Section III — Limits Of Insurance and Defense Expense Amount and paragraph 4. — Defense Expense Payments below.
However, we will have no duty to defend the insured against, or to pay or reimburse for “defense expense” for, “suits” seeking damages, or seeking the payment of “corrective action costs”, not covered by this policy.
We may at our discretion investigate any “underground storage tank incident” and settle any “suit” or claim for “bodily injury”, “property damage” or “corrective action costs” that may result.
Our duty to defend and to pay or reimburse for “defense expense” is limited as described in paragraph 2. of Section III — Limits Of Insurance and Defense Expense Amount and paragraph 4. — Defense Expense Payments below and ends at the earlier of the following times:
a.When we have used up the applicable limit of insurance in the payment of judgments or settlements, or payments or reimbursements for “corrective action costs”; or
b.When we have used up the Defense Expense Amount in payments or reimbursements of “defense expense”.
This applies both to claims or “suits” pending at that time and those files thereafter.
Analysis
The insurer states that it has the right and duty to defend the insured against any suit seeking damages because of bodily injury or property damage or seeking the payment of corrective action costs. The insurer also directly states that it has no duty to defend the insured or to pay any defense expenses for suits not covered by the policy. The duty to defend or pay defense expenses ends when the insurer has used up the applicable limit of insurance in the payment of judgments or settlements or when the insurer has used up the defense expense amount in payment of defense expenses, whichever comes first. Finally, the insurer states that it can settle any claim or suit without the permission of the insured.
This clause resembles the duty to defend agreement that is found in the CGL form, except that in CG 00 42, the duty is discussed not merely as part of the coverage insuring agreement, but as a separate and distinct clause.
4.Defense Expense Payments
“Defense expense” payments or reimbursements are subject to the Defense Expense Amount shown in the Declarations of this policy. This applies even if, by mutual agreement or court order, the insured assumes control of the defense of a “suit” before the Limit of Insurance or the Defense Expense Amount is used up. If no Defense Expense Amount is shown in the Declarations of this policy, the Defense Expense Amount shall be equal to the Aggregate Limit shown in the Declarations of this policy. If the insured assumes control of the defense before the Defense Expense Amount is used up, we will reimburse the insured, or pay, for reasonable “defense expense”, but only up to the remaining Defense Expense Amount then available.
Analysis
Defense expense payments are subject to the amount shown in the declarations of the policy; this applies even if the insured, by mutual agreement or court order, assumes control of the defense. If no defense expense amount is shown in the declarations, the expense amount is equal to the aggregate limit shown in the declarations. If the insured assumes control of the defense before the expense amount is used up, the insurer will reimburse the insured for reasonable defense expense or pay the expenses, but only up to the remaining available amount.
The term “defense expense” is a defined term that is discussed later in this article.
5.Supplementary Payments
We will pay, with respect to any claim we investigate or settle or any “suit” against an insured we defend, or any claim or “suit” to which this insurance applies and for which an applicable limit of insurance is available for payment of damages or “corrective action costs”:
a.All interest on the full amount of any judgment that accrues after entry of the judgment and before we have paid, offered to pay, or deposited in court the part of the judgment that is within the applicable limit of insurance.
b.Expenses incurred by the insured for first aid administered to others at the time of an “underground storage tank incident” for “bodily injury” to which this insurance applies.
c.Prejudgment interest awarded against the insured on that part of the judgment we pay. If we make an offer to pay the applicable limit of insurance, we will not pay any prejudgment interest based on that period of time after the offer.
These amounts will not reduce the Limits of Insurance or Defense Expense Amount as provided under SECTION III.
Analysis
CG 00 42 offers several supplementary payments. All interest on the full amount of any judgment that accrues after entry of the judgment is paid. Expenses incurred by the insured for first aid that is administered to others at the time of an underground storage tank incident are paid; CG 00 42 does not offer medical payments coverage like the CGL form, so this supplementary payment for first aid acts somewhat as an alternative. And, prejudgment interest awarded against the insured is paid. These supplementary payments do not reduce the limits of insurance or defense expense amount as shown on the policy.
Note that there are no references to bail bonds or other types of bonds or loss of earnings in the supplementary payments clause of CG 00 42; likewise, there is no mention of “all expenses we incur” as in the CGL form. For this latter item, see the discussion of the definition of “defense expense” later in this article.
6.No Other Obligation Or Liability
No other obligation or liability to pay sums or to perform acts or services is covered unless explicitly provided for in this policy.
Analysis
This clause simply reinforces the point that CG 00 42 applies to certain incidents and pays for certain costs as enumerated in the policy. There is to be no extra-contractual obligations for the insured or the insurer, obligations that may be read into the policy or somehow implied due to the lack of reference to them.
Who is an Insured
This section of CG 00 42 is similar to the who is an insured clauses of the standard CGL form; however, there are some differences. CG 00 42 does not mention a trust, or volunteer workers as insureds. Also, a reference to any employee providing or failing to provide professional health care services is missing in CG 00 42, as well as a reference to real estate managers. Finally, coverage for newly acquired and newly formed organizations is not mentioned in this section of CG 00 42.
Limits of Insurance and Defense Expense Amount
1.Limits of Insurance
a.The Limits of Insurance shown in the Declarations of this policy and the rules below fix the most we will pay regardless of the number of:
(1)Insureds;
(2)Persons or organizations making claims or bringing “suits”;
(3)Claims made or “suits” brought; or
(4)Requests or demands made by “implementing agencies” seeking “corrective action costs” or requiring action by you.
b.The Aggregate Limit is the most we will pay for the sum of:
(1)All damages because of all “bodily injury” and “property damage”; and
(2)All “corrective action costs”.
c.We will pay damages and “corrective action costs” only for the amount of damages or “corrective action costs” which are in excess of the deductible amount, if any, shown in the Declarations. Subject to the Aggregate Limit above, the most we will pay in any one “underground storage tank incident” for the sum of:
(1)All damages because of all “bodily injury” and “property damage”; and
(2)All “corrective action costs”
will be the lesser of the each “Underground Storage Tank Incident” Limit or the sum of those damages and “corrective action costs”.
If the sum of damages and “corrective action costs” is less than the “Underground Storage Tank Incident” Limit, we will pay all of any deductible amount, if applicable, to effect settlement of any claim or “suit”. Upon notice of our payment of a deductible amount, you shall promptly reimburse us for the part of the deductible amount we paid.
Each payment we make for damages or for “corrective action costs” reduces both the “Underground Storage Tank Incident” Limit and the Aggregate Limit.
The Limits of Insurance of this policy apply separately to each consecutive annual period and to any remaining period of less than twelve months, starting with the beginning of the policy period shown in the Declarations, unless the policy period is extended after issuance for an additional period of less than twelve months. In that case, the additional period will be deemed part of the last preceding period for purposes of determining the Limits of Insurance.
Analysis
The aggregate limit is the most that the insurer will pay for the sum of all damages because of BI and PD and all corrective action costs. CG 00 42 also has an each “underground storage tank incident” limit that controls what the insurer will pay for damages and corrective action costs for each time a release of petroleum from an underground storage tank occurs. Each payment made for damages or corrective action costs reduces the aggregate limit and the underground storage tank incident limit accordingly.
CG 00 42 allows for a deductible to be applied if the insured and the insurer have agreed to one (although the deductible is not applied to the defense expense amount). If the insurer pays a deductible in order to get a claim or a suit settled, the named insured is supposed to pay the insurer back for that payment.
2.Defense Expense Amount
a.The Defense Expense Amount as described in paragraph 4. of Section I — Defense Expense Payments is the most we are obligated to pay for “defense expense”, regardless of the number of:
(1)Insureds;
(2)Persons or organizations making claims or bringing “suits”;
(3)Claims made or “suits” brought; or
(4)”Underground storage tank incidents”.
b.Each payment or reimbursement we make for “defense expense” reduces the Defense Expense Amount but will not reduce the Limits of Insurance.
c.The Defense Expense Amount is not subject to a deductible, if applicable.
d.The Defense Expense Amount applies separately to each consecutive annual period and to any remaining period of less than twelve months, starting with the beginning of the policy period shown in the Declarations, unless the policy period is extended after issuance for an additional period of less than twelve months. In that case, the additional period will be deemed part of the last preceding period for purposes of determining the Defense Expense Amount.
Analysis
The important items to note here are paragraphs b. and c. Unlike the payments made for damages or for corrective action costs, payments made for defense expense do not reduce the limits of insurance shown on the declarations page of the policy; in other words, defense expenses are outside the limits of insurance. Paragraph c. notes that, as mentioned above, the defense expense amount does not have a deductible applied to it; defense expenses are paid from dollar one.
There are seventeen conditions listed on CG 00 42. There are the standard conditions — bankruptcy, duties of the insured, other insurance, separation of insureds, etc., etc.—and there are those that are peculiar to this policy. These latter conditions are highlighted here; for more information on the standard conditions, see General Provisions of the CGL and Claims-Made CGL Form.
9.Policy Issued To Comply With Law Or Regulation
When requested, we agree to furnish to the director of the “implementing agency” a signed duplicate original of this policy and all endorsements issued with this policy.
Analysis
This condition simply states that the insurer will give a duplicate of the insured's CG 00 42 to the Environmental Protection Agency (EPA) or the designated state or local environmental agency when such an agency requests it.
10.Cancellation
a.The first Named Insured may cancel this policy by mailing or delivering to us advance written notice of cancellation.
b.We may cancel this policy by sending by certified mail, or delivering, to you a written notice at your last mailing address known to us.
Cancellation will be effective:
(1)ten days after you receive notice of cancellation if we cancel for nonpayment of premium or misrepresentation by you; or
(2)sixty days after you receive notice of cancellation if we cancel for any other reason, unless we specify a later date in our notice as the effective date of cancellation.
c.If this policy is cancelled, we will send the first Named Insured any premium refund due. If we cancel, the refund will be pro rata. If the first Named Insured cancels, the refund may be less than pro rata. The cancellation will be effective even if we have not made or offered a refund.
Analysis
This condition points out the place of the first named insured when it comes to cancellation of the policy. The first named insured is not the only entity that is considered an insured under CG 00 42, of course, but when it comes to cancellation procedures, the first named insured may cancel the policy and will receive any premium refund due; no other insured has that status.
This condition also states the time span for cancellation to take effect: ten days (after the named insured receives notice) for nonpayment or misrepresentation, sixty days for any other reason. The insurer can specify a later date in the notice of cancellation and, although it is not spelled out in this particular condition, different time spans required by state law would take precedence.
Finally, this condition discusses the refund. A pro rata refund is made if the insurer cancels the policy. As for the first named insured canceling the policy, use of the term “short rate refunds” is not in vogue anymore, but the condition does allow that the refund “may be less than pro rata.”
11.Nonrenewal
If we decide not to renew this policy, we will send written notice of nonrenewal to you at least 60 days before the end of the policy period. We will send our nonrenewal notice by certified mail, or deliver it, to you at your last mailing address known to us.
Analysis
The named insured will receive a nonrenewal notice at the mailing address last known to the insurer, most usually the address listed on the declarations page. Even though this condition spells out nonrenewal procedures, it must be pointed out that state law will supersede this condition if there is a conflict.
12.Financial Responsibility And Reimbursement
If this policy is issued to certify your compliance with the Federal Environmental Protection Agency financial responsibility requirements imposed on you as an owner or operator of an “insured tank”, we will comply with such financial responsibility requirements. You agree to reimburse us for any payment made by us on your behalf which we would not have been obligated to make under the terms of this policy but for the agreement contained in the first sentence of this condition.
Analysis
The financial responsibility and reimbursement condition states that “if the policy is issued to certify your compliance with the EPA financial responsibility requirements imposed on you as an owner or operator of an insured tank, we will comply with such financial responsibility requirements”. In other words, the insurer is agreeing to pay whatever amount is required by the EPA in order for the insured to comply with financial responsibility requirements, and this is regardless of the stated policy limits. However, the condition goes on to state that the insured agrees to reimburse the insurer for any such over-policy-limit payment.
13.Examination Of Your Books And Records
We may examine and audit your books and records as they relate to this policy at any time during the policy period and up to three years afterward.
Analysis
This condition complements the requirements of the premium audit condition. It strengthens the insurer's right to audit the named insured's books to not only make sure that the proper premium is paid, but to also keep the insurer abreast of the financial condition and other policy related exposures of the named insured.
14.Inspections And Surveys
a.We have the right, but are not obligated, to:
(1)Make inspections and surveys at any time;
(2)Give you reports on the conditions we find; and
(3)Recommend changes.
b.Any inspections, surveys, reports or recommendations relate only to insurability and the premiums to be charged. We do not make safety inspections. We do not undertake to perform the duty of any person or organization to provide for the health or safety of workers or the public. And we do not warrant that conditions:
(1)Are safe or healthful; or
(2)Comply with laws, regulations, codes or standards.
c.This condition applies not only to us, but also to any rating, advisory, rate service or similar organization which makes insurance inspections, surveys, reports or recommendations.
Analysis
The insurer has the right to inspect the insured's at-risk operations and premises since it is offering insurance coverage to the insured. However, this condition makes clear that the insurer does not take upon itself the duty of loss control or risk management for the insured. It has happened that, if an insurer insisted on enforcing its right to inspect and survey the insured's exposures, some courts would say that the insurer took upon itself a duty toward the insured. Then, if a loss arose out of those conditions, the insurer would be liable to the insured for a faulty inspection. This condition tries to make clear that such insurer inspections and surveys are nothing more than an exercise of the insurer's right to know if it's insured is a suitable business risk.
15.Premiums
The first Named Insured shown in the Declarations:
a.Is responsible for the payment of all premiums; and
b.Will be the payee for any return premium we pay.
Analysis
Condition 10. already noted that the first named insured would get any premium refund due. This condition just reinforces that point and adds that that first named insured is responsible for the payment of the premium in the first place.
16.If You Are Permitted To Retain Defense Counsel
If by mutual agreement or court order the insured is given the right to retain defense counsel and neither the Limit of Insurance nor the Defense Expense Amount has been used up, the following provisions apply:
a.We retain the right, at our discretion, to:
(1)Settle, approve or disapprove the settlement of any claim or “suit”; and
(2)Appeal any judgment, award or ruling at our expense.
b.You and any other involved insured must:
(1)Continue to comply with the Duties In The Event Of An Underground Storage Tank Incident Condition (paragraph 2. of this Section) as well as the other provisions of this policy; and
(2)Direct defense counsel of the insured to:
(a)Furnish us with the information we may request to evaluate “suits” under this policy for those “suits”; and
(b)Cooperate with any counsel we may select to monitor or associate in the defense of those “suits”.
Analysis
If, by mutual agreement or court order, the insured is given the right to retain defense counsel and neither the limit of insurance nor the defense expense amount has been used up, there are certain provisions that apply. The insurer retains the right to settle, or to approve or disapprove the settlement of, any claim or suit; the insurer also retains the right to appeal any judgment or award. The named insured and any other involved insured must continue to comply with the “duties” condition and must direct defense counsel to furnish the insurer with information requested by the insurer to evaluate the lawsuits. Furthermore, the defense counsel of the insured must cooperate with any counsel selected by the insurer to monitor or associate in the defense of the lawsuits.
Basically, the insurer gives to the insured the right, under certain circumstances, to retain its own defense counsel, but the insurer still wants to retain some control, or at the very least, some presence in the defense of the insured. The insurer is paying the defense bills and will pay “those sums that the insured becomes legally obligated to pay,” so even though the insured has retained its own defense counsel, the insurer has no intention of becoming a silent and compliant recipient (victim?) of the insured's defense efforts.
17.Transfer Of Duties When A Limit Of Insurance Or The Defense Expense Amount Is Used Up
a.If we conclude that, based on “underground storage tank incidents”, claims or “suits” which have been reported to us and to which this insurance may apply:
(1)A limit of insurance is likely to be used up in the payment of judgments or settlements for damages or in the payment of “corrective action costs”; or
(2)The Defense Expense Amount is likely to be used up in the payment or reimbursement of “defense expenses”,
we will notify the first Named Insured, in writing, to that effect.
b.When either of the following has occurred:
(1)A limit of insurance has actually been used up in the payment of judgments or settlements for damages or in the payment of “corrective action costs”; or
(2)The Defense Expense Amount has actually been used up in the payment or reimbursement of “defense expenses”
we will:
(a)Notify the first Named Insured in writing, as soon as practicable, that:
(i) Such a limit has actually been used up and that our duty to defend the insured against “suits” seeking damages subject to that limit has also ended; or
(ii) The Defense Expense Amount has actually been used up and that our duty to defend the insured against any “suit” seeking damages has ended,
whichever is applicable.
(b)Initiate, and cooperate in, the transfer of control, to any appropriate insured, of all:
(i) Claims; and
(ii) “Suits” for which the duty to defend has ended for the reason described in b.(1) or b.(2) above
and which are reported to us before that duty to defend ended.
(c)Take such steps, as we deem appropriate, to avoid a default in, or continue the defense of, such “suits” until such transfer is completed, provided the appropriate insured is cooperating in completing such transfer
c.When either b.(1) or b.(2) above has occurred, the first Named Insured, and any other insured involved in a “suit” seeking damages subject to that limit, must:
(1)Cooperate in the transfer of control of claims and “suits”; and
(2)Arrange for the defense of such “suit” within such time period as agreed to between the appropriate insured and us. Absent any such agreement, arrangements for the defense of such “suit” must be made as soon as practicable.
d.We will take no action with respect to defense for any claim or “suit” if such claim or “suit” is reported to us after:
(1)The applicable limit of insurance has been used up, even if the Defense Expense Amount has not been used up; or
(2)The Defense Expense Amount has been used up, even if the limit of insurance has not been used up.
When either d.(1) or d.(2) above has occurred, it becomes the responsibility of the first Named Insured, and any other insured involved in such claim or “suit” to arrange defense for such claim or “suit”.
e.The first Named Insured will reimburse us for expenses we incur in taking those steps we deem appropriate in accordance with paragraph b. above.
The duty of the first Named Insured to reimburse us will begin on:
(1)The date on which the applicable limit of insurance is used up, if we sent notice in accordance with paragraph a. above; or
(2)The date on which we sent notice in accordance with paragraph b. above, if we did not send notice in accordance with paragraph a. above.
f.If a limit of insurance is available for payment of damages or “corrective action costs”, and if our duty to defend the insured against “suits” and to pay “defense expenses” has ended because we have used up the Defense Expense Amount and we have transferred the control of defense of “suits” to you, the following provisions apply:
(1)We retain the right, at our discretion, to appeal any judgment, award or ruling at our expense.
(2)You and any other involved insured must:
(a)Continue to comply with the Duties In The Event Of An Underground Storage Tank Incident Condition as well as other provisions of this policy; and
(b)Direct defense counsel of the insured to:
(i) Furnish us with the information we may request to evaluate “suits” and coverage under this policy for those “suits”; and
(ii) Cooperate with any counsel we may select to monitor or associate in defense of those “suits”.
(3)You have the right to settle any outstanding or additional claims or “suits”. However, our obligation to pay for such a settlement is limited to the amount within or up to the available limit of insurance.
g.The exhaustion of:
(1)Any limit of insurance by the payment of:
(a)Judgments or settlements for damages; or
(b)”Corrective action costs”; or
(2)The Defense Expense Amount by the payment or reimbursement of “defense expenses”, and the resulting end of our duty to defend, will not be affected by our failure to comply with any of the provisions of this Condition.
Analysis
The last condition on CG 00 42 concerns the transfer of duties when a limit of insurance or the defense expense amount is used up. Should the insurer conclude that a limit of insurance or the defense expense amount is likely to be exhausted by claims or lawsuits, it notifies the first named insured, in writing, to that effect. Once the limit of insurance or the defense amount has, in fact, been used up, the insurer notifies the first named insured of that fact and of the fact that the duty to defend has ended. The insurer then transfers the control and defense to any appropriate insured of all claims and lawsuits and takes steps to avoid a default, with the first named insured reimbursing the insurer for incurred expenses. The insurer states it will take no action with respect to defense for any claim or lawsuit if such claim or suit is reported to the insurer after the limit of insurance or the defense expense amount has been used up; the first named insured and any other insured involved in the claim or lawsuit has to arrange for the defense.
As with condition 16, discussed above, this condition may transfer control of defense of lawsuits to the insured under certain circumstances; and, just as in condition 16, the insurer, under condition 17, still wants to retain some control over the proceedings. The insurer retains the right to appeal any judgment and requires the insured to direct the defense counsel to inform the insurer about the suit and to cooperate with a counsel chosen by the insurer to protect the insurer's interests.
CG 00 42 is a claims-made policy and so, it has a section on extended reporting periods, much like the claims-made CGL form. For more information on extended reporting periods, see CG 00 42 that reflect the nature of the underground storage tank coverage.
2.Extended Reporting Periods do not extend the policy period or change the scope of coverage provided. They apply only to claims for:
a.”Bodily injury” or “property damage” caused by; and
b.”Corrective action costs” which result from an “underground storage tank incident” that commenced before the end of the policy period, but not before the Retroactive Date, if any, shown in the Declarations.
Once in effect, Extended Reporting Periods may not be cancelled.
Analysis
These reporting periods do not extend the policy period or change the scope of coverage provided. As befitting an underground storage tank coverage form, the extended reporting periods apply to claims that result from an underground storage tank incident.
3.A Basic Extended Reporting Period is automatically provided, unless you choose to purchase a Supplemental Extended Reporting Period. When provided, there is no additional charge for the Basic Extended Reporting Period. The Basic Extended Reporting Period starts with the end of the policy period and lasts for six months. This period does not apply to claims for “bodily injury” or “property damage” or for “corrective action costs” that:
a.Are covered under any subsequent insurance you purchase; or
b.Would be covered but for the exhaustion of the applicable amount of either the limits of that subsequent insurance or the subsequent defense expense amount.
The Basic Extended Reporting Period does not reinstate or increase the Limits of Insurance or the Defense Expense Amount or extend the policy period.
Analysis
Note the differences between the basic extended reporting period as described under CG 00 42 and that under the CGL form. Whereas the basic extended reporting period under the CGL form is automatic without a condition, such a period under the underground storage tank policy is automatic unless the named insured chooses to purchase a supplemental extended reporting period. Also, the basic extended reporting period under CG 00 42 starts with the end of the policy period and lasts for six months; under the CGL form, the reporting period starts with the end of the policy period and lasts for five years or sixty days, depending on the circumstances.
4.Optional Supplemental Extended Reporting Period Endorsement
a.A Supplemental Extended Reporting Period of two years is available as an option, but only by an endorsement and for an additional charge. This supplemental period starts with the end of the policy period. If the Supplementary Extended Reporting Period is purchased, the Basic Extended Reporting Period does not apply.
b.You must notify is in writing of your intent to purchase the Supplemental Extended Reporting Period:
(1)Prior to either the end of the policy or the date of termination, whichever comes first, if we cancel or nonrenew this policy for a reason for which we give less than sixty days' notice.
(2)No less than thirty days prior to either the end of the policy period or the date of termination, whichever comes first, if we cancel or nonrenew this policy for a reason for which we give sixty days' or more notice.
(3)At the same time that you notify us of your intent to cancel or nonrenew the policy, if you cancel or nonrenew this policy.
This Supplemental Extended Reporting Period will not go into effect unless you pay the additional premium promptly when due.
c.The insurance provided under the Supplemental Extended Reporting Period Endorsement will be excess over any other valid and collectible insurance available to the insured, whether primary, excess, contingent or on any other basis, whose policy period begins or continues after the endorsement takes effect. Paragraph 4.b. of Other Insurance in Section IV — Conditions will be amended accordingly.
d. If the Supplemental Extended Reporting Period is in effect, we will provide the Supplemental Aggregate Limit and a Supplemental Defense Expense Amount as described below, but only for claims first received and recorded under Coverage A and incidents reported under Coverage B during the Supplemental Extended Reporting Period.
The Supplemental Aggregate Limit of Insurance will be equal to the dollar amount shown in the Declarations in effect at the end of the policy period for the Aggregate Limit. The Supplemental Defense Expense Amount will be equal to the dollar amount shown in the Declarations in effect at the end of the policy period for the Defense Expense Amount.
Paragraphs 1.b. and 2. of Section III — Limits Of Insurance and Defense Expense Amount will be amended accordingly.
Analysis
The supplemental extended reporting period is an optional endorsement available for a charge which must be paid promptly when due; CG 00 42 does not mention what the charge will be. This supplemental period starts with the end of the policy period and lasts for two years (unlike the supplemental reporting period of the CGL form which is of an unlimited duration); as noted above, if the supplemental period is purchased, the basic extended period does not apply. The insurance provided under the supplemental extended period will be excess over any other valid and collectible insurance available to the insured.
The named insured has to notify the insurer in writing of the intent to purchase the supplemental extended reporting period.
There are fourteen definitions on CG 00 42. The policy includes definitions of items like bodily injury, employee, executive officer, leased worker, and property damage that are commonly found on the CGL form; for information on these definitions, see CG 00 42.
Note that the property damage definition under CG 00 42 is worded to fit the type of coverage offered by the underground storage tank policy. Property damage is defined as physical injury to, destruction of, or contamination of tangible property including all resulting loss of use of that property. The definition also includes loss of use of tangible property that is not physically injured, destroyed, or contaminated but has been evacuated, withdrawn from use, or rendered inaccessible because of an underground storage tank incident.
Similarly, the definition of “suit” is altered to fit the nature of coverage under CG 00 42. The definition in CG 00 42 includes the same wording as the one found on the CGL form, and then adds “a civil proceeding or an administrative hearing in which payment of “corrective action costs” is sought.
2.”Corrective action costs” means reasonable and necessary expenses incurred by you in response to a confirmed “underground storage tank incident” for corrective action as specified in 40 CFR Sections 280.60-280.67 and 40 CFR Section 280.72 promulgated by the Federal Environmental Protection Agency (EPA).
Analysis
This definition was discussed previously in this article. The governing point in this definition is knowledge of the CFR dealing with environmental protection.
4.”Defense expense” means payments allocated to a specific claim or “suit” we investigate, settle or defend, for its investigation, settlement or defense, including:
a.Fees and salaries of attorneys and paralegals we retain, including attorneys and paralegals who are our “employees”.
b.Fees of attorneys the insured retains when by mutual agreement or court order the insured is given the right to retain defense counsel to defend a “suit”.
c.All other litigation expenses.
d.Reasonable expenses incurred by the insured at our request to assist us in the investigation or defense of the claim or “suit”, including actual loss of earnings up to $250 a day because of time off from work.
e.Costs taxed against the insured in the “suit”.
”Defense expense” does not include salaries and expenses of our “employees” or the insured's “employees” (other than those described in a. and d. above) and does not include fees and expenses of independent adjusters we hire.
Analysis
Defense expense means payments allocated to a specific claim or lawsuit, including fees and salaries of attorneys and paralegals retained by the insurer and those retained by the insured when the insured is given the right to retain counsel. Defense expense includes actual loss of earnings of the insured up to $250 a day because of time off from work and costs taxed against the insured in a lawsuit. The term does not include salaries and expenses of the insurer's or the insured's employees (unless the employees are attorneys or paralegals working on the claim or lawsuit) and does not include fees and expenses of independent adjusters hired by the insurer.
This definition includes several items that are found in the supplementary payments section of the CGL form. The supplementary payments under the CGL form do not, of course, reduce the limits of insurance. Under CG 00 42, defense expense payments reducing the limits of insurance is a moot point; defense expense payments are subject to their own amount shown on the declarations page and separate from the limits of insurance for damages and corrective action costs.
7.”Implementing agency” means the Federal Environmental Protection Agency (EPA), or, in the case of a state with a program approved under section 6991c of the Hazardous and Solid Waste Amendments of 1984, as amended (or pursuant to a memorandum of agreement with the EPA) the designated state or local agency responsible for carrying out an approved underground storage tank program.
Analysis
This definition is rather straightforward; the implementing agency is the EPA or its state or local counterpart. An implementing agency comes into play under CG 00 42 when coverage B—corrective action costs—applies.
8.”Insured tank” means any petroleum underground storage tank not excluded or exempted from the definition of underground storage tank under section 6991 of the Hazardous and Solid Waste Amendments of 1984, including any attached underground pumps and piping, if such tank is owned or operated by you and is listed in the Declarations of this policy.
”Insured tank” does not include any tank which has been replaced by you during the policy period or the Extended Reporting Period, if such replacement is done without our agreement in writing.
Analysis
The key points for the insured in this definition are: be familiar with regulations promulgated by the Environmental Protection Agency (EPA); make sure that all underground storage tanks that are to be covered are listed on the declarations page of the policy; and, do not replace any tanks without letting the insurer know about the change.
11.”Release” means any spilling, leaking, emitting, discharging, escaping, leaching, or disposing of petroleum from an underground storage tank into ground water, surface water or subsurface soils.
Analysis
The coverage offered by CG 00 42 is limited to incidents where petroleum escapes from an underground storage tank. (What the term “petroleum” encompasses is not spelled out on the policy and will, no doubt, serve as a point over which attorneys and courts will debate while trying to settle a dispute over whether the policy offers coverage for an insured, akin to the debate over the meaning of “pollutant” under the current CGL form.) To continue, the “release” of petroleum must be from an underground storage tank and it must be into ground water, surface water, or subsurface soils. So this policy will not respond to, for example, a claim based on waste being discharged from a factory into a lake or leaking from a landfill, or to a claim based on an oil tanker running aground and spilling oil on the ground surface. CG 00 42 offers limited, specific coverage and the insured should be aware of it.
14.”Underground storage tank incident” means a “release” from an “insured tank”. The entirety of continuous or repeated “releases” from the same “insured tank” shall be deemed to be one “underground storage tank incident”.
Analysis
This definition represents the core of coverage A under CG 00 42. Coverage A applies when BI or PD is caused by an underground storage tank incident. Since the term “underground storage tank incident” contains other terms that are defined on CG 00 42, it has to be looked at with those other terms in mind. Basically, the definition describes a spill or leak or some kind of discharge of petroleum from an underground storage tank into ground water, surface water, or subsurface soils. For example, the insured has an underground storage tank filled with gasoline and the tank starts leaking the gasoline into the subsoil; the subsoil is damaged and the local environmental protection agency calls on the insured to respond to that leak and the damage caused; the insured's CG 00 42 would then be called into play to handle this incident.
If the leak or discharge of the petroleum is over a period of time, the definition of underground storage tank incident makes clear that the coverage form considers that continuing release from the same tank to be one incident and not a number of different incidents.
The Insurance Services Office has published several endorsements that can be used with the underground storage tank policy and with other coverage forms that are related to underground storage tanks. CG 04 26 11 94, coverage for injury to leased workers, is an endorsement that modifies the underground storage tank policy by changing the definition of employee so that it does not include a leased worker or a temporary worker. CG 30 57 11 94, supplemental extended reporting period endorsement, is used when the insured purchases the supplemental extended reporting period. There are also several state-specific endorsements available to modify the underground storage tank policy in keeping with a particular state's rules on cancellation and nonrenewal.
CG 29 78 11 94, exclusion — underground storage tank incidents, is an endorsement that is used to modify the pollution liability coverage forms. This endorsement adds an exclusion to the pollution coverage forms stating that those forms do not cover bodily injury, property damage, environmental damage, or clean up costs caused by underground storage tank incidents. This is meant to ensure that there is no double coverage for an underground storage tank incident; the insured cannot use both CG 00 42 and the pollution coverage forms to apply to such an incident.