The Designated Premises Endorsement
February 9, 2017
Summary: In April 2017 ISO introduced revisions to the CG 21 44 04 17 endorsement, Limitation of Coverage to Designated Premises or Project. The revision changes the name to Limitation of Coverage to Designated Premises, Project, or Operation and provides for limitations and specifications that did not seem necessary until a string of court cases arose in 2016 expanding the coverage area to an almost unfathomable size.
The standard commercial general liability (CGL) form usually provides insurance coverage for operations of the named insured whether on or off-premises. However, this comprehensive coverage can be limited by endorsements attached to the CGL form. One endorsement that limits the locational coverage of the CGL form is CG 21 44, Limitation of Coverage to Designated Premises or Project. This endorsement is also known as the designated premises endorsement (DPE). The purpose of this endorsement is to limit coverage to the premises or project specifically designated in the endorsement. The motive of the insurer is clear: listing premises and projects that are covered limits the exposure for a certain policy. If the insured does not choose to have all premises and business operations covered, in theory that coverage can be limited to certain locations using the designated premises endorsement.
Besides some minor formatting changes, this endorsement has basically been the same since it was first introduced in 1985. The language in the 1998 form is as follows:
Limitation of Coverage to Designated Premises or Project CG 21 44 07 98
Schedule
Premises:
Part:
(If no entry appears above, information required to complete this endorsement will be shown in the Declarations as applicable to this endorsement.)
This insurance applies only to “bodily injury”, “property damage”, “personal and advertising injury” and medical expenses arising out of:
1. The ownership, maintenance or use of the premises shown in the Schedule and operations necessary or incidental to those premises; or
2. The project shown in the Schedule.
Analysis
Until recently this policy language was effective in limiting insurer liability to bodily injury or property damage that occurred at the specific location or while working on the specific project listed in the schedule or in the declarations. In 2016 a few court cases were decided in favor of the insured that expanded the coverage area to cover incidents that were not originally intended to be covered by the policy language. The 2017 version of the form includes more strict policy language in order to prevent such a broad interpretation. Instead of lumping bodily injury and property damage, personal and advertising injury, and medical payments into one section, the revised form separates the three sections in order to provide more specific coverage.
Similar to the 07 98 version of the endorsement, this new revision modifies the CGL coverage part. In order to modify the coverage effectively the revision separately replaces sections of Coverage A – Personal Injury and Property Damage, Coverage B – Personal and Advertising Injury Liability, and Coverage C – Medical Payments. In order to precisely depict the differences in the revised sections, separate paragraphs were added for each Coverage A, Coverage B, and Coverage C.
The revised endorsement form may be attached to either CG 00 01, the occurrence version, or CG 00 02, the claims-made version of the CGL policy. In order to accommodate for differences between the two forms, CG 21 44 provides separate sections depicting the different coverage for the two forms.
Coverage A – Bodily Injury and Property Damage
1. Paragraph 1.b under Section I – Coverage A – Bodily Injury and Property Damage Liability is replaced by the following:
b.This insurance applies to “bodily injury” and “property damage” caused by an “occurrence” that takes place in the “coverage territory” only if:
(1)The “bodily injury” or “property damage”:
(a)Occurs on the premises shown in the Schedule or the grounds and structures appurtenant to those premises; or
(b)Arises out of the project or operation shown in the Schedule;
(2)The “bodily injury” or “property damage” occurs during the policy period; and
(3)Prior to the policy period, no insured listed under Paragraph 1. Of Section II – Who Is An Insured and no “employee” authorized by you to give or receive notice of an “occurrence” or claim, knew that the “bodily injury” or “property damage” had occurred, in whole or in part. If such a listed insured or authorized “employee” knew, prior to the policy period, that the “bodily injury” or “property damage” occurred, then any continuation, change or resumption of such “bodily injury” or “property damage” during or after the policy period will be deemed to have been known prior to the policy period.
Analysis
The problems that arose in regard to the previous version of the form originated in the lack of specificity of where bodily injury or property damage must occur in order for coverage to be provided. The revision at A.1.b(1)(a) Coverage A specifically states that bodily injury or property damage must “occur on the premises shown in the Schedule or the grounds and structures appurtenant to those premises.” This provides the insured with coverage for injuries or damages that occur at the scheduled location or on the grounds or appurtenant structures to those premises. If the insured has its corporate headquarters as a scheduled location, the parking garage and maintenance shed are both included as grounds or appurtenant structures to those premises.
A.1.b(1)(b) reflects the language in the original endorsement except for the addition of the term “operation,” which was incorporated into the Schedule separate from the Premises field to increase flexibility for risk specific underwriting associated with operations related to a scheduled premises or other operations not related to that scheduled premises. While the scheduled premises are clear because they are listed in the Schedule, the operations could be the insured tuning a piano with her piano tuning business.
The rest of the language in the Coverage A provision is indistinguishable from the language contained in CG 00 01 04 13, Commercial General Liability Form.
Coverage B – Personal and Advertising Injury Liability
Paragraph 1.b under Section I – Coverage B – Personal and Advertising Injury Liability is replaced by the following:
b.This insurance applies to “bodily injury” and “property damage” caused by an “occurrence” that takes place in the “coverage territory” only if:
(1)The offense arises out of your business
(a)Performed on the business premises shown in the schedule; or
(b)In connection with the project of operation shown in the schedule and
However, with respect to Paragraph 1.b(1)(a) of this Insuring Agreement, if the “personal and advertising injury” is caused by:
(1) False arrest, detention, or imprisonment; or
(2) The wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord, or lessor;
then such offense must arise out of your business performed on the premises shown in the Schedule and the offense must have been committed on the premises shown in the Schedule or the grounds and structures appurtenant to those premises.
Analysis
For the personal and advertising injury section, this revised endorsement explicitly adds coverage limitations for a few enumerated offenses including false arrest, detention, or imprisonment, and several owner, landlord, or lessor offenses including wrongful eviction from, wrongful entry into, and invasion of right of privacy by an owner, landlord, or lessor. These offenses are generally location based, but this form provides that the enumerated offenses “must arise out of your business performed on the premises shown in the Schedule and the offense must have been committed on the premises shown in the Schedule or the grounds and structures appurtenant to those premises.” If a customer of a store with the DPE endorsement is suspected of shoplifting and an employee empties the water from her radiator in attempt to prevent her from leaving the premises, that action would be considered false imprisonment and would be covered as grounds appurtenant to the covered premises. This revision is very similar to that in the Coverage A section of this same endorsement.
3. Paragraph 1.a under Section I – Coverage C – Medical Payments is replaced by the following:
a.We will pay medical expenses as described below for “bodily injury” caused by an accident that takes place in the “coverage territory” if the “bodily injury”:
(1)Occurs on the premises shown in the Schedule or the grounds and structures appurtenant to those premises; or
(2)Arises out of the project or operation shown in the schedule;
Provided that
(a) The accident takes place during the policy period;
(b) The expenses are incurred and reported to us within one year of the date of the accident; and
(c) The injured person submits to examination, at our expense, by physicians of our choice as often as we reasonably require.
Analysis
This revised section of the endorsement mirrors the provisions related to bodily injury in the section for Coverage A. If the bodily injury occurs on the scheduled location or grounds, there is coverage for medical expenses.
Relevant Court Cases
There have been several cases with similar and controversial rulings concerning this endorsement in the recent past. The latest court interpretations have expanded the normal CGL coverage area to cover incidents not originally intended by policy language.
In C. Brewer and Co., Ltd. v. Marine Indem. Ins. Co. of America, 347 P.3d 163 (Hawaii 2015), a dam breached, which caused significant property damage (PD) and bodily injury (BI). Prior to the dam breach Brewer owned the dam and had a CGL policy that provided coverage for negligence claims alleged against the company. The policy was provided by insurer James River, and contained endorsements that limited coverage to the premises that were listed in the policy. All of the negligent business decisions that caused the BI and PD that were an issue in the case were made at Brewer's business headquarters. Although the dam was not included in this list, Brewer's corporate headquarters were considered a covered location. Prior to the dam breach, Brewer sold the dam, despite knowledge of questionable structural stability.
After the dam breach, Brewer brought suit against James River for coverage. James River argued that the (DPE) in their policy limited their coverage to the specified locations. The policy's DPE limited coverage to “'bodily injury' . . . arising out of the ownership, maintenance, or use of the premises shown in the schedule and operations necessary or incidental to these premises.” The trial court granted summary judgment for James River.
The appellate court found that the decisions made at Brewer's corporate headquarters would probably be the cause of any advertising injury, and that injury would likely occur off of the premises. Therefore the policy was found to be ambiguous as to whether the DPE prevented coverage to a non-listed location.
In the Superior Court, Brewer cited the Am. Guarantee & Liab. Ins. Co. v. 1906 Co., 273 F.3d 605 (5th Cir. 2001) decision to provide support for the argument that the policy in place included coverage for BI and PD that occurred on premises that were not listed in the policy (specifically the courts statement of “the phrase 'arising out of' is ordinarily understood to mean 'originating from,' 'having its origin in,' 'growing out of,' or 'flowing from.' In the insurance context, this phrase is often interpreted to require a causal connection between the injuries alleged and the objects made subject to the phrase.”).
The Hawaii Supreme Court accepted the rationale of the Am. Guar. Case and held that the James River policy provided coverage for BI and PD that “bears a causal connection to the “use” of designated premises, regardless of where the injury or damage occurs.” Here, although the claims arose directly out of the use of Brewer's corporate headquarters, the BI and PD caused by the dam breach “arose out of” those decisions that were negligently made in the Brewer headquarters. That causal connection was enough to trigger coverage, even though that location was clearly not covered in the endorsement language.
ISO has implemented the new policy language in order to prevent such a widespread interpretation of “designated premises” under the policy. If the new DPE form had been attached onto the policy in this case, the dam would have been excluded as a designated premises, as it was not listed specifically in the Schedule. A similar result would have occurred in the next case if the new DPE language had been included in the policy. The new endorsement should prevent these enormous, unexpected losses in the future.
Another case with different facts but a similar outcome is W. Heritage Ins. Co. v. Hoover, No. C15-1154RSM, 2016 WL 1242091 (W.D. Wash. Mar. 30, 2016). Here, Hoover had an employee and a passenger drive a vehicle on a 500 mile trip to pick up a recently purchased tow truck. A single-vehicle accident occurred during the trip. W. Heritage claimed that the only location covered as a designated premises was Hoover's place of business, but the court decided that since the decision to purchase the tow truck was made on designated premises, the fact that the accident occurred 500 miles away in the process of the tow truck transfer was not relevant.
It was in response to these and similar cases that ISO decided to draft the revision to CG 21 44. If the geographic boundaries of policy coverage can be extended by causal connection, it could widen the coverage area immensely. That opens the door for claims of coverage that an insurer may not be able to predict, in effect causing insurers to provide inaccurate premium quotes for businesses with huge risks that are not realized. In order to prevent ambiguity in policies, insurers should clearly define what premises are covered and should also consider the “arising out of” language that is included in the DPE. Insurers might also want to consider including specific policy language that prevents what happened in C. Brewer, where the decisions made in corporate headquarters gave rise to non-specified areas being covered under the policy, which is not generally the intent of the insurer.
If an insurer does not use the standard ISO form and applicable endorsements, it should consider changing its policy language to either reflect ISO's changes, or limit its own liability in some other way, in order to prevent liability for risks on unknown premises or for unknown projects or operations. Since risks of this nature are not known by the parties, or considered in the premium calculations. Early action could keep an insurer from having to pay out on a claim for a previously unknown risk for which they would otherwise be liable.