2013 Revisions to ISO s Commercial General Liability Coverage Forms

Transcription

1 INSURANCE LAW The Times They Are A-Changin By Shanda K. Pearson 2013 Revisions to ISO s Commercial General Liability Coverage Forms Concerns for both policyholders and insurers will be erased, but a number of questions will arise in determining how to act in light of the revisions. 20 For The Defense August 2013 Shanda Pearson is a shareholder with the Minneapolis litigation firm of Bassford Remele. A majority of her practice is focused on insurance coverage matters, including providing coverage opinions and litigating coverage disputes. Ms. Person also has experience litigating medical malpractice, product liability and personal injury matters. She was selected to the Minnesota Rising Stars list from 2007 to 2012 and to the Minnesota Super Lawyers list in Ms. Pearson is an active member of DRI s Insurance Law Committee, currently serving as an associate editor of the committee newsletter, Covered Events. She is also a member of DRI s Appellate Advocacy Committee.

2 Let s face it. Most people dislike change. As Woodrow Wilson once said, If you want to make enemies, try to change something. But change should not always be viewed in a negative light. In the insurance industry, changes to insurance policy language are sometimes necessary to respond to judicial interpretations, or misinterpretations, of policy language, legislative initiatives, and the changing needs of policyholders. The million dollar question, of course, is whether those changes will ultimately raise more issues that they solve. The Insurance Services Office (ISO) recently introduced revisions to a number of its coverage forms and endorsements, including its commercial general liability (CGL) coverage forms (CG Occurrence and CG Claims-made). The effective date of the revised policy language varies, but in most ISO states the changes will apply to policies written on or after April 1, Because of the frequency with which insurers use standard ISO forms, insurance personnel, policyholders, and their attorneys need to be on the lookout for policies that incorporate the 2013 revisions; many of the revisions alter the scope of coverage afforded under various policies. This article will address the more significant changes to ISO s CGL coverage forms and applicable multistate endorsements, as well as the impetus and potential impact of those changes. This will include discussing revisions to (1) additional insured and insured contract definition endorsements; (2) the liquor liability exclusion; (3) professional liability exclusion endorsements; and (4) the offenses included in the definition of personal and advertising injury. Striking the Hammer: Some Revisions Affect the Construction Industry Greatly Some of the most widely anticipated and significant 2013 ISO CGL revisions involve coverage for the construction industry. The scope of indemnification provisions and additional insured coverage have been hot topics in insurance coverage for the last several years. ISO s 2013 endorsement revisions impact multiple additional insured endorsements and the insured contract exception to the contractual liability exclusion. While the revisions will likely have the greatest impact on policyholders in the construction industry and insurers handling construction-related claims, they apply in other contexts as well. The Name of the Game in Construction: Shifting Liability Downstream Having a general understanding of indemnity and insurance coverage issues often associated with construction agreements is necessary to understand fully the impact of the ISO revisions discussed in this section. In short, there are two avenues by which parties generally attempt to shift liability downstream in the construction and other contexts: (1) contractual indemnity provisions; and (2) agreements to procure insurance. Contractual Indemnity Provisions Many contracts include provisions whereby a downstream party such as a subcontractor agrees to indemnify an upstream party such as a general contractor for bodily injury or property damage claims that arise out of the downstream party s work. The breadth of indemnification provisions vary. While some provisions state that the indemnitor is liable only for its own negligence, others are so broad that they, much to the surprise of a subcontractor or indemnitor who does not carefully scrutinize the language, require indemnification for the indemnitee s own or even sole negligence. Compare Estate of Williams v. Southern Indiana Gas and Electric Co., 551 F. Supp. 2d 751, (S.D. Ind. 2008) (requiring indemnity from any claims whether due in whole or in part to the negligence of [the indemnitee] ), with Time Warner, Inc. v. St. Paul Fire and Marine Ins. Co., 633 N.W.2d 640, 642 (Wis. Ct. App. 2001) (providing exceptions for occurrences resulting from the sole negligence or intentional action of [the indemnitee] ). Damages paid for liability assumed under a contractual indemnification provision are sometimes covered by the indemnitor s CGL policy. Standard CGL policies often exclude coverage for contractual liability claims against the policyholder, that is, damages for which the insured is obligated to pay by reason of the assumption of liability in a contract or agreement. CG The scope of coverage afforded by AI endorsements varies, but it is generally narrower than the coverage afforded via the insured contract exception , Exclusion b. But several exceptions apply to this exclusion. For instance, the exclusion does not apply to liability for damages assumed in a contract or agreement that is an insured contract[.] Insured contract is a defined term, which, unless amended by endorsement, means: f. That part of any contract or agreement pertaining to your business in which you assume the tort liability of another party to pay for bodily injury or property damage to a third person or organization. CG , at 15. Thus, unless amended by endorsement, the insured contract exception to the contractual liability exclusion often operates to provide potentially broad coverage when the policyholder has agreed to indemnify another for tort liability. Agreements to Procure Insurance and Additional Insured Endorsements Another method of risk shifting often used in construction and other contracts is an agreement, typically by a subcontractor, to procure insurance for an upstream party by naming that party as an additional insured (AI) on the subcontractor s policy. The scope of coverage afforded by AI endorsements varies, but it is generally narrower than the coverage afforded via For The Defense August

3 INSURANCE LAW the insured contract exception. Often, AI endorsements provide the AI with coverage for vicarious liability or for its own contributory but not sole negligence. See, e.g., Landmark Am. Ins. Co. v. Khan, 705 S.E.2d 707, 709 n.1 (Ga. Ct. App. 2011) (policy states AI is an insured only with respect to liability for [injury] caused, in whole or in part by acts or omission of The coverage provided to an AI under the revised ISO AI endorsements may now mirror that provided in the underlying agreement to provide insurance between the AI and the named insured. the named insured or those acting on its behalf); A-1 Roofing Co. v. Navigators Ins. Co., 958 N.E.2d 695 (Ill. Ct. App. 2011) (exclusion in AI endorsement bars coverage for claims arising out of the sole negligence of any additional insured ). Contract Drafters Beware: Contract Terms Will Limit the Scope of AI Coverage Under the AI Endorsement Revisions Until now, when a party qualified as an AI, that party was generally entitled to the same coverage as the named insured, subject, of course, to the policy s limits and exclusions. In other words, absent policy language to the contrary, coverage was generally governed by the named insured s policy terms rather than the contract between the named insured and AI requiring the purchase of AI coverage. See, e.g., J.A. Jones Const. Co. v. Hartford Fire Ins. Co., 645 N.E.2d 980 (Ill. Ct. App. 1995). Under ISO s 2013 revisions to 24 AI endorsements, however, the terms of the contract between the AI and the named insured may play a large role in determining the scope of coverage provided to the AI. 22 For The Defense August 2013 The new language in the ISO AI endorsements generally states as follows: A. Section II Who Is an Insured is amended to include as an additional insured the person(s) or organization(s) showing in the Schedule However: 1. The insurance afforded to such additional insured only applies to the extent permitted by law; and 2. If coverage provided to the additional insured is required by a contract or agreement, the insurance afforded to such additional insured will not be broader than that which you are required by the contract or agreement to provide for such additional insured. B. With respect to the insurance afforded to these additional insureds, the following is added to Section III Limits of Insurance: If coverage provided to the additional insured is required by a contract or agreement, the most we will pay on behalf of the additional insured in the amount of insurance: 1. Required by the contract or agreement; or 2. Available under the applicable Limits of Insurance shown in the Declarations; whichever is less. This endorsement shall not increase the applicable Limits of Insurance shown in the Declarations. See, e.g., ISO CG Additional Insured Owners, Lessees or Contractors Completed Operations. First, ISO has revised various AI endorsements to state that if the coverage provided to the AI is required by contract or agreement, the insurance afforded to the AI under the policy will not be broader than that which [the named insured is] required by the contract or agreement to provide[.] This very broad language appears to indicate that the scope of coverage provided under the AI endorsement will be determined by the scope of insurance coverage required by the underlying contract between the named insured and the AI. Thus, insurers will now need to analyze and construe the underlying contract to determine what coverage the AI receives. Moreover, this revision could lead to additional litigation among parties to the underlying contract when and if a party is unexpectedly left with no coverage because of a failure to address, for instance, a particular type of coverage in the underlying agreement. Additionally, under the new ISO AI endorsement revisions, the most an insurer will pay on behalf of the AI is the amount of insurance required by the underlying contract or agreement, or the amount of insurance available under the policy limits, whichever is less. Thus, if a contract requires the named insured to designate another party as an AI under a policy with limits of $500,000, and the named insured s policy has higher limits, the insurer s coverage obligation to the AI will likely be limited to $500,000 on any particular loss. In short, the coverage provided to an AI under the revised ISO AI endorsements may now mirror that provided in the underlying agreement to provide insurance between the AI and the named insured. Thus, the parties to such an agreement, and the attorneys involved in drafting the agreement, should take extra care to ensure that the agreement clearly reflects the parties intent and does not inadvertently supersede and limit the terms of the insurance policy providing AI coverage. Eliminating Contractual Privity Issue for Purported Additional Insureds Many AI endorsements state that a person or organization for whom the named insured is performing operations will qualify as an AI when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy. (emphasis added.) This includes the ISO Additional Insured Owners, Lessees Or Contractors Automatic Status When Required In Construction Agreement With You endorsement (CG 20 33). The such person clause in the provision has been problematic in situations in which a downstream party agrees to name an upstream party as an AI when there is not a signed contract between the two. For example, a subcontractor, the named insured, may agree in

4 its contract with a general contractor to add both the general contractor and the owner of a building as AIs on the subcontractor s policy. The subcontractor, however, does not have a written contract with the owner. When an AI endorsement contains the such person clause, the lack of a direct contract between the named insured and the purported AI has, in some jurisdictions, meant that the party not in privity of contract did not have coverage. Thus, in the above example, the lack of a direct contract between the subcontractor and building owner would mean the building owner would not qualify as an AI. Compare Westfield Insurance Co. v. FCL Builders, Inc., 948 N.E.2d 115 (Ill. Ct. App. 2011), & Brooklyn Hosp. Center v. One Beacon Ins., No /02, 2004 WL (N.Y. Sup. Ct. Dec. 14, 2004) (holding such AI endorsements require a direct contract between the named insured and purported AI), with Millis Development & Constr., Inc. v. Am. First Lloyd s Ins. Co., 809 F. Supp. 2d 616, 627 (S.D. Tex. 2011) (contrary holding). The 2013 ISO revisions include a new endorsement to address this issue, Additional Insured Owners, Lessees or Contractors Automatic Status for Other Parties When Required In Written Construction Agreement (CG ). This new endorsement provides additional insured status to any person or organization that the named insured is required by virtue of a written contract or agreement to name as an additional insured under the named insured s policy. When a policy contains this endorsement, all parties for which the named insured agrees in writing to provide coverage will qualify as AIs regardless of whether privity of contract exists between them. Responding to Anti-Indemnity and Other Legislation Having Similar Effects ISO has responded to anti-indemnity legislation passed by a majority of states in two particular ways. First, ISO revised two endorsements that amend the definition of insured contract in the CGL coverage forms to extend coverage for an insured contract only to the extent that any assumption of tort liability in that contract is permitted by law. Similarly, ISO revised 24 of its multistate AI endorsements to add a clause stating that the insurance afforded to an AI only applies to the extent permitted by law. Revising Two Endorsements That Amend the Insured Contract Definition The majority of states have passed antiindemnification laws that prohibit indemnification provisions in construction contracts requiring one party, the indemnitor, to indemnify another party, the indemnitee, against liability for the indemnitee s partial or sole fault by making these provisions void and unenforceable. See, e.g., Ariz. Rev. Stat ; 6 Del. Code 2704(a); N.Y. General Obligations Law (McKinney 2009); Ga. Code Ann ; Wash. Rev. Code ; W. Va. Code The insured contract exception to the contractual liability exclusion, however, extends coverage for contracts in which the insured has assumed the tort liability of another. The interplay between the insured contract exception, and statutes prohibiting an agreement to indemnify another entity for its own fault, has led to coverage issues. In response, ISO revised two endorsements, Amendment of Insured Contract Definition Endorsement (CG ), and Limited Contractual Liability Railroads Endorsement (CG ), to amend paragraph f. of the definition of insured contract in the CGL coverage forms as follows, with the 2013 revision to those endorsements in italics: f. That part of any other contract or agreement pertaining to your business under which you assume the tort liability of another party to pay for bodily injury or property damage to a third person or organization provided the bodily injury or property damage is caused, in whole or in part, by you or by those acting on your behalf. However, such part of a contract or agreement shall only be considered an insured contract to the extent your assumption of tort liability is permitted by law. Tort liability means a liability that would be imposed by law in the absence of any contact or agreement. The in whole or in part language in the above definition, which ISO added to the endorsements in 2004, limits the definition of insured contract to those situations in which the tort liabilities assumed by the policyholder resulted in part but not solely from the negligence of those other than the policyholder, for example, an indemnitee. This language is potentially problematic in light of anti-indemnification statutes that prohibit indemnification for an indemnitee s own negligence. It is presumably for this reason that ISO added the underlined language limiting coverage for insured contracts to those that are permitted by law so that there will be no coverage for another party s tort liability assumed by the policyholder to the extent that a particular jurisdiction prohibits the assumption of that liability. In reality, this particular modification by ISO probably will not affect coverage very much. Most insurers have argued, and rightfully so, that there is no assumption of tort liability of another party, and thus no coverage under the insured contract exception to the contractual liability exclusion, to the extent that an indemnification agreement, in whole or in part, is deemed void or unenforceable. See Am. Intern. Specialty Lines Ins. Co. v. Kindercare Learning Center, Inc., No KI, KI, 2011 WL , at *10 (D. Or. 2011) (quoting Douglas R. Richmond & Darren S. Black, Expanding Liability Coverage: Insured Contracts and Additional Insureds, 44 Drake L. Rev. 781, 795 (1996) ( Unenforceable indemnity language in an incidental contract should excuse the insurer s obligations. Assuming no assumption of tort liability exists, there can be no insured contract coverage. ). See also Rapid Leasing, Inc. v. Nat l Am. Ins. Co., 263 F.3d 820 (8th Cir. 2001) (holding under similar policy language that [s]ince the indemnification provision is ineffective [for failing to evidence a clear intent to provide indemnity for the indemnitee s own negligence], CRST is not contractually obligated to assume the tort liability of another, and the lease agreement is not an insured contract. ). Of course, the new language may restrict coverage in an apparently small number of jurisdictions where courts may be inclined to hold that even an unenforceable indemnification agreement constitutes an insured contract. See, e.g., Martin County Coal Corp. v. Universal Underwriters Ins. For The Defense August

5 INSURANCE LAW Servs., Inc., No ART, 2010 WL 55926, at **5, 9 (E.D. Ky. Jan. 4, 2010) (holding that an insurer is not relieved of the duty to defend an indemnification agreement as an insured contract even if the agreement is unenforceable under state law). There is, however, not a great deal of case law directly on point. The new language may restrict coverage in an apparently small number of jurisdictions where courts may be inclined to hold that even an unenforceable indemnification agreement constitutes an insured contract. Additional Insured Endorsement Revisions Under previous versions of ISO AI endorsements, the invalidity of an indemnification agreement usually did not affect the coverage extended to another party under an AI endorsement unless the endorsement provided as such. Federated Serv. Ins. Co. v. Alliance Const. LLC, 805 N.W.2d 468, 477 (Neb. 2011) (citing secondary sources). See also Mid-Continent Cas. Co. v. Swift Energy Co., 206 F.3d 487, 496 (5th Cir. 2000); Premiere, Inc. v. Commercial Underwriters Ins. Co., 2003 WL (E.D. La. 2003) (finding the applicability or enforceability of indemnification agreement irrelevant to determining whether the agreement is an insured contract for determining whether a party qualifies as an AI, which is distinguishable from whether there is insured contract coverage). This is particularly true in states such as Delaware where a relevant antiindemnity statute explicitly provides that its provisions do not affect insurance obligations. 6 Del. Code 2704(b). However, 24 For The Defense August 2013 some states, such as Colorado, Kansas, and Oregon, have passed statutes that void agreements in construction contracts that require the purchase of insurance coverage for acts or omissions not caused by the negligence or fault of the party providing the coverage. See, e.g., Colo. Rev. Stat ; Kan. Stat. Ann (c); O.R.S (1). Even in states where this has not occurred, courts have construed or extended anti-indemnification statutes to invalidate agreements to procure insurance for another party s own negligence. See, e.g., Transcontinental Ins. Co. v. Nat l Union Fire Ins. Co. of Pittsburgh, 662 N.E.2d 500, 506 (Ill. Ct. App. 1996) ( the portion of the contract in which [the named insured] agreed to purchase insurance to insure its obligations under section 18 is also void because it is inextricably tied to the void indemnity provision ); see also BP Chemicals, Inc. v. First State Ins. Co., 226 F.3d 420 (6th Cir. 2000) (finding that the most reasonable construction of the additional insured endorsements in this case is that they were intended to assure performance of the indemnity agreement and, therefore, must be read in conjunction with the indemnity provisions[,] when the insurance obligation was not an independent, free-standing obligation ). As part of the 2013 revisions, however, ISO has revised 24 of its multistate AI endorsements, including those common to policies for policyholders in the construction industry, to add a clause similar to that discussed above stating the insurance afforded to an AI only applies to the extent permitted by law. This is likely an attempt by ISO to limit the scope of AI coverage provided in states that void agreements to procure AI coverage for another party s negligence. This savings clause will also probably operate to maintain AI coverage requirements in a contract even when a corresponding indemnification provision is determined to be void or unenforceable, although only time will tell how the judiciary will respond. Raising the Bar on the Liquor Liability Exclusion ISO has also made some changes to the liquor liability exclusion, Exclusion c, and two Amendment of Liquor Liability Exclusion endorsements. The changes are primarily intended to end the ways that policyholders have tried to circumvent the liquor liability exclusion in CGL policies in the past and to address Bring Your Own operations. Coverage Barred for Claims Related to Providing Transportation to Intoxicated Persons and Other Allegedly Negligent Acts Bars, restaurants, and other businesses that sell alcoholic beverages typically purchase liquor liability or dram shop policies specifically intended to cover claims related to the sale of alcohol. This is because most CGL policies contain liquor liability exclusion, Exclusion c, which ISO just revised. Before the revision, the liquor liability exclusion in the ISO CGL coverage forms excluded coverage for bodily injury or property damage for which the policyholder may be held liable by reason of the following: Causing or contributing to the intoxication of any person; The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or Any statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages. CG , at 2. Despite the language in this exclusion, policyholders in some jurisdictions have used what insurers deem cleaver pleading to convince courts to find coverage under a CGL policy for bodily injury claims involving intoxicated bar patrons. A prime example, and one that ISO considered in revising the liquor liability exclusion, is Penn America Insurance Company v. Peccadillos, 27 A.3d 259 (Pa. Super. Ct. 2011). There, a bar allegedly served alcohol to two intoxicated patrons and then forced them to leave the bar after they fought with another patron. The intoxicated patrons drove away from the bar and later collided with another vehicle. The complaint in the eventual lawsuit against the bar alleged not only that the bar was negligent by serving alcohol to obviously intoxicated persons, but also alleged that the bar was negligent by ejecting the patrons from the bar when the bar knew or

6 should have known that the patrons would try to operate a motor vehicle. The bar s general liability insurer argued that it did not have a duty to defend the bar in the underlying case on the basis of the liquor liability exclusion quoted above. The Pennsylvania Superior Court disagreed, reasoning that while the liquor liability exclusion clearly excludes liability based on the bar having caused or contributed to the intoxication of its patron, it does not limit, in any way, liability that may be asserted for other reason. The court, thus, held that the above allegation based on the bar s decision to eject the intoxicated patrons from the bar fell outside the liquor liability exclusion. While the Supreme Court of Pennsylvania declined to grant review of Peccadillos, a Pennsylvania federal district court declined to follow it in what many have considered a more solidly reasoned decision than the superior court decision. In State Automobile Mutual Insurance Company v. Lucchesi, No. 4:11-CV-0735, 2012 WL (M.D. Pa. June 5, 2012), the underlying complaint alleged that a restaurant served an obviously intoxicated patron and then permitted him to leave the establishment, after which he was struck by a car while crossing a street. At issue in the subsequent declaratory judgment action between the restaurant and its insurer was whether allegations in the underlying complaint that did not specifically refer to the furnishing of alcohol specifically that the restaurant was negligent in permitting the patron to leave the premises while visibly intoxicated fell outside the policy s coverage due to the liquor liability exclusion. The Lucchesi court held that the liquor liability exclusion barred coverage for all claims, including those that did not specifically refer to the furnishing of alcohol. Id. at *5 (noting the nearly unanimous consensus of courts considering similar issues and citing cases from eight jurisdictions where courts held that the liquor liability exclusion barred claims of negligent supervision and negligence in allowing an intoxicated person to leave a bar). Central to the court s analysis was the overwhelming weight of authority in other jurisdictions holding that when negligence claims are inextricably intertwined with or not sufficiently independent of the provision of alcohol, the liquor liability exclusion bars coverage. Id. (citing cases from Arizona, Indiana, Louisiana, Montana, Ohio, and the Eastern District of Pennsylvania). Nevertheless, ISO has revised the liquor liability exclusion in its CGL policy. In addition to barring coverage for the reasons listed in the previous version of the exclusion, the 2013 version of the ISO liquor liability exclusion also states that the exclusion applies even when a claim alleges negligence or other wrongdoing in: (a) The supervision, hiring, employment, training or monitoring of others by that insured; or (b) Providing or failing to provide transportation with respect to any person that may be under the influence of alcohol[.] if the occurrence which caused the bodily injury or property damage, involved [the three instances set forth at the beginning of this section]. CG , at 2. Certainly, explaining Lucchesi and the cases that the decision cites would persuade a court that even under the previous wording of the liquor liability exclusion a CGL policy containing the exclusion would not cover such claims. Clarified Coverage for Bring Your Own Operations ISO also revised its CGL policy liquor liability exclusion to address bring your own (BYO) operations. ISO CGL Forms Filing GL-2012-OFR12, at 6-9. CGL policies typically provide coverage for policyholders that periodically host or sponsor events and serve alcohol as long as the policyholders are not in the business of doing so. The new language in the liquor liability exclusion clarifies that permitting persons to bring alcoholic beverages on to the policyholder s premises for consumption in, for example, a BYO context, is not in and of itself considered the business of selling, serving, or furnishing alcoholic beverages, the activities to which the exclusion applies. Two Related Endorsements Changed Along with the revisions to the liquor liability exclusion, ISO has made similar changes to two Amendment of Liquor Liability Exclusion endorsements that an insurer can use in part to extend the liquor liability exclusion in the CGL coverage forms to apply to businesses that regularly serve alcoholic beverages regardless of whether profits result. See CG and CG The two endorsements now contain language that mirrors the above-quoted new language added to the liquor liability exclusion in the CGL coverage forms. In addition, while the revised endorsements still exclude coverage for bodily injury or property damage for which the policyholder may be held liable for causing or contributing to the intoxication of any person, the endorsements specifically state that this includes because alcoholic beverages were permitted to be brought on your premises, for consumption on your premises. Finally, the revised endorsements state that the exclusion will apply to situations in which the policyholder permits persons to bring alcoholic beverages on the policyholder s premises for consumption, or potential BYO exposure. So, in other words, while the revised CGL coverage forms may allow coverage for BYO situations, an insurer can exclude the coverage by endorsement. When an insurer uses this endorsement type, a policyholder will likely need separate liquor liability insurance to cover potential BYO liability. Stopping Weak Attempts to Circumvent the Professional Services Exclusion While a CGL policy provides comprehensive coverage for claims that arise out of the general operation of a policyholder s business, a professional liability policy is designed to insure members of a particular professional group from the liability arising out of a special risk inherent in the practice of the profession. Prisco Serena Sturm Architects, Ltd., 126 F.3d 886 (7th Cir. 1997). Accordingly, CGL policies often contain an exclusion that in some manner precludes coverage for liability arising from acts, errors, or omissions related to rendering professional services or certain, delineated services specific to the particular policyholder s profession. ISO excludes coverage for professional services from its CGL policies by endorsement. Even when a professional services or other similar exclusion bars coverage for the wrongful or negligent acts of a policyholder s employee or agent, sometimes a For The Defense August

7 INSURANCE LAW 26 For The Defense August 2013 policyholder has nonetheless argued that a policy still provides coverage for negligent hiring or supervision claims brought against the policyholder that are tied to the employee s conduct. For example, an insured hospital may argue that even though a professional services exclusion bars coverage for malpractice allegations against a physician, the exclusion does not preclude coverage for claims against the hospital for negligently hiring or supervising the same physician. A number of jurisdictions considering this issue hold that professional services exclusions generally preclude coverage for negligent hiring and supervision claims under such circumstances. Some courts reason that the hiring or supervising of the employee is an act that constitutes a professional service within the meaning of the exclusion. See, e.g., Shuler v. Michigan Physicians Mut. Liability Co., 679 N.W.2d 106, 126 (Mich. Ct. App. 2004). Others reason that injuries flowing from the negligent hiring or supervision arise solely from the alleged wrongful act, or they are related to and interdependent with the wrongful act, so that the exclusion bars coverage for the underlying wrongful act and the negligent hiring or supervision claim. See, e.g., United States Fid. & Guar. Co. v. St. Elizabeth Med. Ctr., 716 N.E.2d 1201, (Ohio Ct. App. 1998). In a small number of cases, however, courts have held that a professional service or other exclusion in a policy that barred coverage for a claim against an employee did not apply to the policyholder in its oversight role. See, e.g., Liberty Life Ins. Co. v. Travelers Indemn. Co. of Illinois, 181 F.3d 88 (4th Cir. 1999) (cited by ISO in its discussion of the 2013 revisions to its professional services exclusion endorsements); Am. Family Mut. Ins. Co. v. Earight, 781 N.E.2d 394 (Ill. Ct. App. 2002) (involving a sexual assault claim). In the 2013 revisions, ISO has added language to its professional services exclusion endorsements stating that the 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 as long as the occurrence that caused the bodily injury or property damage, or the offense that caused the personal and advertising injury, involved rendering or failing to render certain professional services addressed by each respective endorsement. See, e.g., CG Professional Liability Exclusion Electronic Data Processing Services and Computer Consulting or Programming Services. ISO has explained this revision as a reinforcement of coverage intent. ISO CGL Forms Filing GL-2012-OFR12, at 41. But it has acknowledged that the change may reduce coverage in the minority of jurisdictions where courts have ruled that professional services exclusions do not bar coverage for negligent supervision and other types of claims now specifically referenced. Restricting Coverage for Personal and Advertising Injury A standard CGL policy provides coverage for damages because of personal and advertising injury to which the policy applies (Coverage B). The definition of personal and advertising injury in ISO s standard CGL coverage forms is injury, including consequential bodily injury, arising out of one or more specified offenses. One of those offenses is an [o]ral or written publication, in any manner, of material that violates a person s right of privacy[.] As part of the 2013 revisions, ISO has introduced an Amendment of Personal and Advertising Injury Definition endorsement (CG ), which when used, deletes the above offense from the definition of personal and advertising injury. This privacy-related offense is implicated when a plaintiff alleges the more traditional, common law invasion of privacy claims. See, e.g., State Farm Fire & Cas. Co. v. Nat l Research Ctr. for College & University Admissions, 445 F.3d 1100 (8th Cir. 2006) (allegations regarding gathering and disseminating students personal information arguably violated the students privacy). In more recent years, however, policyholders seeking coverage for data breach and other cyber liability-type claims often have attempted to target this Coverage B right of privacy offense to obtain coverage for such claims. See Netscape Communications Corp. v. Fed. Ins. Co., 343 F. App x 271 (9th Cir. 2009) (involving claims resulting from the collection of information about internet usage); Tamm v. Hartford Fire Ins. Co., 2003 WL (Mass. Super. Ct. 2003) (holding that the insurer had a duty to defend allegations regarding the insured s access to and distribution of information obtained in private accounts). Thus, assuming another exclusion would not apply to such claims, including CG in a policy could have a large financial impact for policyholders that fail to purchase specific coverage to fill gaps as needed for such risks. Summarizing Noteworthy Additional Changes Following is a summary of some additional noteworthy changes to ISO s CGL coverage forms: Coverage A Electronic Data Exclusion: Exclusion g. to Coverage A of the ISO CGL form excludes coverage for damages arising out of the loss of, loss of use of, damage to, corruption of, inability to access, or inability to manipulate electronic data. The 2013 revision of this exclusion, and a consistent multistate endorsement, broadens coverage by adding an exception to the exclusion for damages because of bodily injury. Coverages A (Exclusion q.) and B (Exclusion p.) Makeover: The referenced exclusions in the ISO CGL coverage forms now bar coverage for claims that arise directly or indirectly out of acts or omissions that allegedly violate a number of federal statutes, including but not limited to the Telephone Consumer Protection Act (TCPA), the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act), and the Fair Credit Reporting Act (FCRA), as well as any other statute that addresses, prohibits, or limits the printing, dissemination, disposal, collecting, recording, sending, transmitting, communicating or distribution of material or information. While this may be viewed as narrowing coverage because the previous version of the exclusion did not include all of these activities, the wording in the revised exclusions was contained in a mandatory endorsement (CG 00 68), attached to ISO policies. ISO is withdrawing that mandatory endorsement and instead including the language from that endorsement in the CGL coverage forms. Conditions Other Insurance: Paragraph b.(1)(b) of the Other Insurance Condition in the CGL previously stated that the in-

8 surance provided under the CGL was excess over available primary insurance covering liability for damages for which you have been added as an additional insured by attachment of endorsement. As part of the 2013 revisions, ISO removed the phrase by attachment of an endorsement in recognition of the fact that some insurers provide parties additional insured status by means other than endorsement. With this revision, the named insured s coverage will be excess over any other primary insurance to which the named insured has been added as an additional insured, whether by endorsement or otherwise. Primary and Noncontributory Other Insurance Condition Endorsement CG 20 01: ISO has introduced this optional endorsement to revise the other insurance provision noted above to state that coverage is provided to an additional insured on a primary and noncontributory basis as long as certain conditions are met: (1) the additional insured is a named insured under another policy; and (2) the named insured has agreed in writing that the named insured s policy would be primary and would not seek contribution from other policies available to the additional insured. Many construction contracts require such policy language for additional insured coverage. Additional Insured Users of Golfmobiles Endorsement CG 20 08: Now that summer is here, it is important to note that ISO has revised this endorsement to include a definition of golfmobile. The new definition makes clear that additional insured status is limited to those persons using the golfmobile for the purpose of playing golf and for motorized conveyances that do not exceed a speed of 25 miles per hour. Druggists Endorsement CG 22 69: ISO s Druggists Endorsement modifies the CGL coverage part to add an exclusion for bodily injury or property damage caused by or arising out of certain specified services rendered by a pharmacist. ISO has revised this endorsement to include an exception to the exclusion for the administering of vaccinations in accordance with any applicable state or federal law. Real Estate Property Managed Endorsement CG 22 70: The ISO revisions added language to this endorsement clarifying that with respect to liability arising out of the policyholder s management of property for which the policyholder is acting as a real estate manager, the policy s CGL coverage is excess over any other valid and collectible insurance available, whether such insurance is primary or excess. Conclusion Needless to say, the much anticipated 2013 ISO changes will erase a number of concerns of both policyholders and insurers. But the revisions will also raise a number of questions as policyholders and insurers determine how to act in light of the revisions, whether related to evaluating language in underlying contracts that may essentially serve as de facto endorsements when they require AI coverage, or making sure that coverage gaps created by newly worded exclusions are filled. Regardless, the changes are here, and policyholders, insurers, and their agents will soon start seeing policies with the new language. Be on the lookout! For The Defense August