Recent Changes to ISO Standard Forms and Endorsements for Commercial General Liability Coverage

Recent Changes to ISO Standard Forms and Endorsements for Commercial General Liability Coverage

by Monica L. Freeman, Woods & Aitken LLP

On April 1, 2013, the Insurance Services Office, Inc. (“ISO”) began implementing new Commercial General Liability (“CGL”) forms and endorsements. This article will highlight a few of the changes relevant to the construction industry, but it is important to speak with your insurance agent to obtain additional information on all of the recent changes.

A. BROADENING THE PROFESSIONAL LIABILITY EXCLUSION

In its recent updates, ISO has broadened the existing contractors professional liability exclusion (CG 22 79 04 13) by adding the following language to paragraph 1:

This exclusion applies even if the claims against any insured allege negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by that insured, if the “occurrence” which caused the “bodily injury” or “property damage”, or the offense which caused the “personal and advertising injury”, involved the rendering of or failure to render any professional services by you on your behalf with respect to the operations described above.


A similar change was made to the exclusion for construction management errors and omissions.

The stated purpose of this modification is to reinforce the CGL coverage intent for claims that involve allegations of negligent supervision, hiring, training, etc. and to clarify that these activities involve “professional” judgment and thus, for insurance coverage purposes, negligent supervision is a matter of “professional” negligence (excluded by CGL policy) and not “general” negligence (possibly covered by CGL policy). It is possible that the modification may result in a reduction of coverage in states that have previously refused to apply the professional services exclusion for claims involving negligent supervision. Contrast ISO’s view to a recent case decided by the Nebraska Court of Appeals where the Court submitted to the jury an owner’s claims based on an engineer’s failure to “supervise the project and ensure construction was completed according to project specifications” even in the absence of any evidence concerning the engineer’s standard of care. Associated Eng’g, Inc. v. Arbor Heights, LLC, 2011 WL 6090238, No. A-10-1211 (Neb. Ct. App. Dec. 6, 2011) (unpublished opinion). In Arbor Heights, the Court drew an apparent distinction between claims relating to design errors which it categorized as professional negligence and claims relating to failure to supervise which it categorized as a breach of contract. This raises the question of whether, based on Arbor Heights, Nebraska courts would, in a coverage dispute case involving the revised exclusion, continue to associate failure to supervise with breach of contract rather than professional negligence and deny coverage under both CGL and professional liability policies.

It is important to note, however, that the changes to the contractors liability exclusion still only apply when the insured is providing “professional services”, which by definition do not include “services within construction means, methods, techniques, sequences and procedures employed by you in connection with your operations in your capacity as a construction contractor.” The greatest risk to contractors with regard to these exclusions is on projects that are undertaken using the design build or construction management at-risk delivery methods. In those arrangements, the contractor often takes on a larger role with regard to issues of design, constructability and supervision. In situations like this, it is especially important that contractors consult with their insurance agent and advise them of the activities they anticipate performing on the project. The agent can then help them determine whether professional liability (errors and omissions) is necessary in addition to CGL coverage to properly manage the risks involved.

B. SAVINGS CLAUSE TO ADDRESS ANTI-INDEMNITY STATUTES

Another modification to the standard ISO forms and endorsements includes a “savings clause”, which is meant to preserve additional insured coverage in light of anti-indemnity statutes. Anti-indemnity statutes generally provide that a party cannot contractually agree to indemnify another person for that person’s negligence. Nebraska’s anti-indemnity law provides the following:

In the event that a public or private contract or agreement for the construction, alteration, repair, or maintenance of a building, structure, highway bridge, viaduct, water, sewer, or gas distribution system, or other work dealing with construction or for any moving, demolition, or excavation connected with such construction contains a covenant, promise, agreement, or combination thereof to indemnify or hold harmless another person from such person's own negligence, then such covenant, promise, agreement, or combination thereof shall be void as against public policy and wholly unenforceable. This subsection shall not apply to construction bonds or insurance contracts or agreements.


Neb. Rev. Stat. § 25-21,187(1).

In some states, the presence of anti-indemnity statutes has caused courts to void the contractual additional insured requirements. As a result, the ISO CGL endorsement has been revised to add a “savings clause” which states that the insurance will be provided to an additional insured “only to the extent provided by law.” Nebraska’s anti-indemnity statute specifically states that it does not apply to insurance contracts, so this change should have little or no impact on coverage in Nebraska. The Nebraska Supreme Court also recently affirmed that “even if an indemnity agreement is invalid, its invalidity does not affect the coverage extended to another party under an additional insured endorsement.” Federated Service Ins. Co. v. Alliance Construction, LLC, 282 Neb. 638, 648, 805 N.W.2d 468, 477 (2011).

It is important in general to be aware of the applicable law governing your contract and to closely examine the indemnification obligations you have agreed to by contract. It is further important to review those obligations with your insurance agent/risk manager to understand whether and how those obligations will be covered by insurance. As noted above, several additional changes were made to the ISO forms and endorsements and so you are encouraged to check with your insurance agent for additional details on how these changes might impact your current coverage.