Magazine article Risk Management

Understanding AI Form Changes

Magazine article Risk Management

Understanding AI Form Changes

Article excerpt

As organizations begin preparations for spring and July 1 renewals, it is important to scrutinize additional insured (AI) endorsements included on general liability insurance policies and to pay attention to AI endorsements provided to the company to confirm that coverage has been secured. New revisions to "standard form" endorsements can significantly impact--and restrict--the scope of AI coverage provided. In fact, the changes strike at the heart of AI coverage: they affect the validity of coverage under state law, limits of liability and scope of coverage available.

Additional insured requirements arise from the contracts companies enter into every day. These include services provided to customers, supplies received to conduct business and leases for facility locations. Sometimes a business receives AI coverage from others, but it can also provide AI coverage to the contracting party. A company's goal in providing AI coverage is for the terms to be restrictive so that policies remain primarily available to protect and insure the company. Conversely, when a company is receiving AI coverage, it wants the scope of coverage to be as broad as possible to avoid tapping into its own insurance policies for mistakes made by others.

Changes to Standard Policy Forms

Recently, the Insurance Services Office (ISO) changed the way businesses may contract with each other by revising 24 AI endorsements in three material ways.

First, it added language stating AI coverage is only available "to the extent permitted by law." Second, the new forms state that AI coverage will not be broader than the contract requires and, third, liability limits will be no greater than required by the contract.

The common consequence of these revisions is that AIs and named insureds can no longer simply rely upon the AI endorsement, declarations, certificates of insurance or even the general liability policy to understand the coverage available. Instead, they must also rely upon their contract, which is now integrated into the policy. They should also be aware of state law limitations that could invalidate coverage.

To the Extent Permitted by Law

While the full implications of the language "to the extent permitted by law" cannot be known, it is likely to be far-reaching, creating uncertainty and likely leading to litigation. The language will come into play where state law bars indemnification of a party's sole or concurrent negligence. …

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