DECIPHER CGL CHANGES WITH CAUTION

Rough Notes, Nov 2004 by Malecki, Donald S

Mobile equipment coverage will be affected by ISO's 2004 CGL policy amendments

In attempting to clarify coverage under the CGL, ISO is going to create a lot of work for everyone. And, if that's not enough, coverage gaps will undoubtedly result as well, all because of something that happened in 1956. That was the year when voluntary coverage against injury by uninsured motorists was introduced. Its purpose then was to buttress the weaknesses of financial responsibility laws in compensating innocent victims for injuries sustained as occupants of covered autos or as pedestrians and caused by at-fault motorists who did not maintain insurance or by hit-and-run motorists.

Since becoming mandatory in many states for both private and commercial auto risks, uninsured motorists coverage not only is a common subject of dispute, but also is undoubtedly the leading subject of litigation in the United States. What is complicating matters-the subject of this article-is that insurers of the Commercial General Liability (CGL) policy are being hit with a barrage of claims involving mobile equipment, where the result is that insurers of the CGL policy must provide uninsured motorists coverage.

Concluding that it is not the CGL policy that should provide uninsured motorists coverage, but rather the Business Auto, Truckers, and Motor Carriers policies, ISO has taken steps to ensure that intent is understood.

The CGL policy and mobile equipment

Purely from a commercial insurance standpoint, liability coverage for mobile equipment under the CGL policy had its genesis in 1941, when standard liability forms were first introduced.

During this earlier period and until 1965. mobile equipment was not separately defined. The way coverage for this equipment was determined was by referring to the types of equipment specifically excepted by the defined term "automobile." When the CGL policy was restructured significantly in 1966. one of the new additions was a definition of "mobile equipment."

A new condition titled "Financial Responsibility Laws" also was added in 1966 in order to certify registered mobile equipment under financial responsibility laws of the states and Canadian provinces. This condition was applied as follows:

Say a certain self-propelled motor vehicle, not designed for on-the-road use, were to be involved in an accident on a public highway and found to be subject to the financial responsibility law of the state where it was licensed or principally garaged. The owner of this mobile equipment would be found to be liable and would have had to pay damages. The CGL policy, in effect, would certify that it could be considered as providing the coverages and limits prescribed by the financial responsibility law that required such proof. It also was a condition here that the named insured was to reimburse the CGL insurer for any payment made by the insurer that it would not have had to make in the absence of this provision.

This Financial Responsibility condition also appeared in the 1973 edition of the CGL policy until it was eliminated with the introduction of the 1986 CGL policy provisions. What was then required was the attachment of an endorsement titled Motor Vehicle Laws, CG 99 Ol 11 85.

This endorsement was intended to serve the same purpose as the policy condition it replaced in 1986, with two exceptions, one of which was very important. The exception that was not overly important was that the endorsement specifically referred to the coverages applicable, such as liability, no-fault (introduced in the mid-1970s), uninsured and underinsured motorists (introduced in 1980). The most notable and important exception was that, for the first time, the burden of determining the public highway usage of mobile equipment and the need for the endorsement fell upon named insureds.

As the trend reveals, the intent of insurers, in relation to mobile equipment under the CGL policy, has been to provide both uninsured motorists and underinsured motorists, in addition to other required coverages mandated by the applicable law, such as no-fault. What eventually has overwhelmed insurers, however, is the number of cases seeking uninsured and underinsured motorists coverages in relation to mobile equipment accidents, such as agricultural equipment, and forklifts.

Representative of such cases is Bills v. United States Fidelity & Guaranty Company, 280 F.3d 1231 (U.S.C.A. 9th Cir. 2002), where a front-end loader, as a self-propelled vehicle, was considered to be a motor vehicle for purposes of the uninsured motorists coverage. What is uncertain is whether coverage applied despite the absence of the Motor Vehicle Laws Endorsement, CG 99 01, which actually was a burden of the named insured to request.

The end of coverage under CGL?

Effective with its December 2004 CGL policy amendments, ISO is withdrawing the Motor Vehicle Laws Endorsement, CG 99 01. (Apparently this endorsement did not stop coverage from being provided despite its absence in the CGL policy.) In doing so, ISO states that this endorsement was developed before uninsured motorists coverage or no-fault were required coverages in many states and that such mandatory coverages, dealing with mobile equipment, can be more appropriately handled by commercial auto insurance.