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The Insurance Services Office (ISO) is the industry organization that drafts standard insurance policy forms used by most insurance carriers. Because laws, exposures and claim trends continually evolve, standard policy form updates and revisions are introduced regularly, generally on a three year cycle. GL policies were last revised by ISO in 2013, so 2016 would be the next year we could expect to see some changes. Insurance companies will often tip off the types of changes that might be expected at the next revision by the types of exclusions or amendments they add to policies; based on what we see in many current GL policies these are some trends we might expect to see incorporated into the next general liability policy revisions.
The world has become digital, but insurance is still analog. GL policies have always been written and interpreted to cover only tangible injuries or damage. In the context of property damage liability especially, that puts GL policies at odds with a world where much valuable property now consists of bits and bytes, that is, intangible (but still valuable) information or data. The case discussed in the preceding article is a perfect example of the problems this creates. The current 2013 edition of the CGL form already specifies property damage only covers tangible property, but due to the growth of incidents like the one described earlier underwriters are now routinely adding an electronic data exclusion, further underlining their intent to cover only damage to tangible property. Expect the next policy revision to incorporate wording that further clarifies the policy intent to cover only liability for damage to tangible property.
Total Pollution Exclusions
The current form excludes claims arising from pollution, but there are a number of significant carve backs. Examples: pollution arising from a hostile fire (the smoke and water runoff from a structure fire is certainly a pollutant) is covered. Pollution in building heating or cooling systems (119 affected individuals and 12 deaths from the Legionnaires Disease outbreak in New York City this summer) is covered. And for both the GL and Auto forms there is an exception to the pollution exclusion for fuel, lubricants and other such fluids in motor vehicles and mobile equipment. Imagine a vehicle overturning and rupturing a full tank of diesel fuel which runs off into a river; that’s covered, although not pollution from any cargo the equipment is carrying.
Broad Form Indemnity Exclusions
We wrote about anti indemnity exclusions just in the last issue. Many states already will not allow, by statute, one party to indemnify another for the sole or partial negligence of the party indemnified. For those states or jurisdictions where no such laws exist, underwriters are often attaching a broad form indemnity exclusion. All this means is that if you sign a contract where you agree to indemnify another for damages they suffer due to your negligence, you’re OK; if you agree to indemnify them for their partial or sole negligence, even if in connection with work you might me doing for them, you’re out of luck, your insurance policy won’t respond. Don’t wait until this is built into a future CGL revision. Starting now, you should be looking at the indemnity provisions of any contract you sign. If you are assuming liability in the contract but your GL policy won’t cover it, you become the insurance company, not a place you want to be.
These are popping up everywhere. There is an aircraft exclusion in the current CGL form, which has been there through many prior editions in virtually the same form.
Problem: “aircraft” is not a defined term. Is a drone an “aircraft”? Is bodily injury or property damage caused by a drone covered? Unclear.
Expect to see something addressing this in the next revision.
The thing to take away from this discussion is not that you’ll be totally exposed if any of these current or future exclusions apply to you. Underwriters exclude things from policies for many reasons, but the most important reasons you’ll see an exclusion is either 1) it’s just not something possible to insure (think war, or nuclear explosion), or, 2) coverage is available elsewhere in a policy or form more appropriate to cover it.
By way of example of this last point, auto liability and liability for employee injuries have always been excluded from modern CGL policies. They are certainly insurable; if you need this coverage you can buy an auto or workers compensation policy. The same principal applies to technology risk, pollution and, in evolving form, drones. If you need it, you can buy it, from underwriters who specialize in those areas. Indemnity exclusions are a little more work, you just need to be sure you don’t agree to assume liability for the negligence of others, but that can certainly be done.
Bottom line, these evolving and possibly imminent changes to standard policy forms are in areas where solutions are available if you need them. We are keeping an eye on them. If you think any of them might apply to you in the meantime, let’s talk about solutions.