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Insurance - Contracts and the CGL

image Mark Gaskamp CSP, CRM, CIC, CPCU, ARM, ALCM Managing Director, Wortham, L.L.C., Austin, TX

AUSTIN - What were you doing in 1986? Listening to the latest tunes from Van Halen or Hank Williams, Jr., watching “The Fridge” do the Superbowl Shuffle, wishing you had gone to flight school so you could be like Tom Cruise in “Top Gun”, or saddened by the “Fire Fred” sign flying above Memorial Stadium. Maybe you were wondering how a nuclear power plant could explode in Chernobyl or the Columbia space shuttle disaster could ever happen. Or maybe you were beginning your risk management career like me. Of course many of you millennials out there were not around to fully appreciate the ‘80s, but I think you may get the picture that times have changed. You may not find it in the history books or Wikipedia, but 1986 was a big year in the insurance world. In 1986 ISO introduced the new Comprehensive General Liability (CGL) policy. This marked a significant change in the way liability coverage was afforded and much of the terminology used in today’s insurance policies.

  Why bring up the history lesson?  Well, many attorneys crafting subcontracts and lease agreements have failed to appreciate these changes and continue to reference coverages and terms that no longer exist. It is a cycle of using the same contract verbiage year after year without looking at the changes required to match today’s coverage terms.  Even the millennial attorneys out there continue this practice by “borrowing” verbiage from old contracts. This practice becomes problematic because it becomes impossible to technically meet the requirements of the contract. Signing a poorly worded contract that cannot be complied to could well put you in breach of the contract. 
    There are a few common provisions that are often found in contracts with outdated verbiage. Number 1, it’s not a “broad form comprehensive” policy. It is simply a “commercial” general liability policy. There is no such thing as “broad form property coverage” or “broad form contractual liability”. The requests to delete the “contractual liability exclusion” or include the “cross liability endorsement” are not appropriate for the current  CGL. These coverages were incorporated into the 1986 CGL rather than added by endorsement. It makes it very difficult for you or your insurance agent to prove something that does not exist. In most cases what the requirements should stipulate is that there be no exclusion that would take away these coverages, which in many cases is the exact opposite of how many contracts are worded.
    A couple of my other favorites…a reference to “public injury” or requiring a “combined single limit” on the CGL. The term “public injury” does not exist in the insurance world. This term should be replaced with “bodily injury,” “property damage,” and “personal and advertising liability” coverage as outlined in the CGL policy. The coverage limits should also be specified for each area of coverage as outlined in the CGL (per occurrence, general aggregate, products/completed operations and personal and advertising liability). As an aside, there really is no need to require a medical payments limit as this does not restrict the coverage afforded by the per occurrence limit on the CGL policy. 
    This may sound like a list of pet peeves from an insurance agent that reviews these poorly worded contracts on almost a daily basis, but when it comes to contracts, words matter. At the time of the law suit or claim, vague or inaccurate wording must be vetted to determine liability exposure and potential insurance coverage. This is particularly true in today’s world when most insurance endorsements stipulate “as required by written contract.” The beauty of the process (tongue in cheek) is the only party that wins with a poorly worded contract is the attorney who may well have drafted the contract in the first place, spending (i.e. billing) countless hours litigating who should be responsible for damages based on the contract’s specifications. 
    The solution to this problem is to update contracts with the appropriate wording and if you receive a contract that is poorly worded by today’s standards, communicate this to the upstream party so they can address these concerns.  It will save everyone time and money… well almost everyone.
     Mark Gaskamp is a Managing Director for Wortham Insurance & Risk Management, an independent insurance agency in business since 1915 and one of the leading construction insurance brokers in Texas.  Mark has over 25 years of risk management and safety experience.  His role with Wortham is to partner with Wortham Construction Practice Group clients to help manage their exposures and reduce their overall cost of risk. He is an active member of the American Society of Safety Engineers Construction Practice Specialty Group, and serves on safety committees of the Association of Building Contractors, Association of General Contractors, Texas Aggregate and Concrete Association, and is a National Faculty Member of Certified Risk Managers International.  For more information visit www.worthaminsurance.com or contact Mark at (512) 532-1536 or mark.gaskamp@worthaminsurance.com.


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