Hired & Non-Owned Auto on the GL – A Problem

Let’s say you have an insured with multiple companies, all owning various assets or performing different operations. A classic example is a property owner who deeds each of her properties into a separate LLC. No problem here – simply write a separate General Liability/Package policy for each location with a Designated Premises/Project limitation. This happens all the time, especially in the world of real estate where a designated premises endorsement is sometimes mandatory. 

Like a good insurance broker you recommend Hired & Non-Owned Automobile to the insured. For ~$150 to add to a BOP, and slightly more to put it on a Package, it’s a no-brainer upgrade – everyone should have this coverage in place. 

But here’s the rub – most Hired & Non-Owned coverage is an endorsement that amends the underlying General Liability… which you’ve limited to Designated Premises or Projects. Meaning your Hired & Non-Owned Auto coverage likely only protects the insured from BI/PD arising out of the ownership, maintenance, use, etc. of the designated premises, or only those operations you specified. 

As long as you put Hired & Non-Owned Auto coverage on each policy though, maybe you’re safe? Probably not 100%. Let’s say you have an insured that owns various real estate under the name “Real Estate LLC”. There are 3 properties, each insured with separate carriers for price or coverage reasons and each with a policy that contains a Designated Premises Limitation. You’ve done your job and endorsed Hired & Non-Owned onto to all 3 policies. 

Now this client, via their “Real Estate LLC”, is about to purchase a 4th property. They drive over to meet the seller and cause a serious accident. Very arguably the injured party can say your client was driving for/on behalf of “Real Estate LLC” – after all Real Estate LLC was the one making the deal to purchase this property. Clearly this is a Hired/Non-Owned situation – a member of Real Estate LLC was using an auto that Real Estate LLC does not own in its business on its behalf. 

Now remember – we have three policies written in the name of “Real Estate, LLC”. But all have a Designated Premises Limitation which says in part: 

[We cover liability for] The ownership, maintenance or use of the premises shown in the Schedule and operations necessary or incidental to those premises; 

While undefined, simply because an action is being conducted by a common owner doesn’t make that action “necessary or incidental” to any particular owned premises, otherwise this endorsement would be meaningless. So the question is – does looking at a new building, completely unrelated to your others, constitute “necessary or incidental” activities, as it relates to the other properties and their policies, thus triggering the General Liability coverage (and the Hired/Non-Owned endorsed thereto) under one or more? While ultimately a legal question, my answer would be an emphatic, “No.” 

There are solutions to this situation – write Hired/Non-Owned on a separate/standalone auto policy; this policy won’t be limited to the “Designated Premises” like the GL would be. Further, since a separate Hired/Non-Owned Auto policy would “follow the insured”, you wouldn’t need to endorse it on every policy that insured has – potentially saving money.

Granted, it can be difficult to find a carrier that will write standalone Hired & Non-Owned coverage, but it’s even more unlikely to be able to change or manuscript your GL coverage.

Granted, this is likely a small crack in coverage but it’s one to be aware of. It’s also more likely to affect “smaller” insureds who don’t have the clout – say a schedule of 50 properties – to be able to convince a carrier to offer exception. At the very least, though, even if you can’t find coverage you need to make your clients aware of the potential gap.

What Enron Can Teach Us About D&O Coverage

The Enron saga is, itself, utterly fascinating. If you haven’t had the chance there are several good documentaries about it, one being “Enron: The Smartest Men in the Room”. Unfortunately I don’t believe it’s available on Netflix anymore, but alternate streaming services still have it (here’s an Amazon link). I’m sure there’s more in-depth and technical sources out there but as a relatively “soft” documentary it’s a great film with which to wind down a day. FindLaw.com also has an interesting set of articles if you’re looking for more to peruse.

While perhaps not the most interesting of all the specific topics dealing with Enron, there are some curious lessons in the way insurance played out – especially D&O. If you’re just looking for the take-home point it’s this: even if a defendant pleads guilty that is not considered a “final adjudication” of guilt (I know!), at least in the Enron case. This was surprising to me, as well as to Enron’s D&O insurers I suppose, whom I understand had a total of about $350M in limits put up. Here is an expert explaining the circumstance from an IRMI Whitepaper (I have since lost the link but I *believe* the below is verbatim):

Former Enron CFO Andrew Fastow pleaded guilty in criminal proceedings associated with Enron’s bankruptcy. Yet since the Enron D&O policy forms were written on a “final adjudication” basis, the insurer was obligated to continue defending Mr. Fastow against civil lawsuits because his conduct still had not been subject to “final adjudication.” Although Mr. Fastow had already pleaded guilty to criminal charges, he had not yet been sentenced and until that time could still change his plea. But by continuing to defend Mr. Fastow, other far less culpable directors and officers—including retired directors—had their remaining policy limits depleted. 

My notes say the IRMI article called the “Final Adjudication” language a “minefield”, but I wouldn’t go that far (seriously IRMI?).  However, it is one of the most preferential provisions an insured can secure in a D&O policy – and be careful out there because while it is becoming *more* common it should certainly not be considered the default. While such language may provide for sub-optimal circumstances – such as a “guilty” director getting defense coverage they “shouldn’t” have – the benefit of preserving coverage for alleged fraudulent acts, which are ultimately baseless, far outweighs such consequences. 

But there’s a second consideration to all of this as well.  What if instead of “guilty”, Andrew Fastow had pleaded no contest?  Is a plea of nolo contendere a “Final Adjudication”?  The short answer is… “No!”  But do bear in mind that jurisdictions vary. This “Policyholder Advisor Alert” from the law firm Anderson Kill (NY) does a great job of explaining how the variations on the “Final Adjudication” clause in policy can play out, both theoretically and practically:

The most advantageous conduct exclusions are triggered only by a final and non-appealable adjudication against the policyholder. Conversely, insurance companies may interpret references to “determinations in fact,” “adverse admissions,” or other potentially non-final determinations as giving them license to adopt an earlier trigger. Triggers like “written admission by the Insured” or “plea of nolo contendere or no contest regarding such conduct” make it more likely that the insurance company will apply the exclusion. An insurance company might attempt to latch onto a statement by the policyholder’s representative at deposition or a preliminary finding of fact by the court. Even an exclusion that lacks only the “non-appealable” component could be fodder for an insurance company to argue against coverage, even if an incorrect result is overturned on appeal.


Final, non-appealable adjudication language ensures the policyholder gets its full “day” in court and pushes the coverage decision further into the future, increasing the likelihood of a settlement that avoids the conduct exclusion altogether.

You will note that they specifically mention some provisions which state “an admission by the insured” or similar – this is because carriers are inserting these into “Final Adjudication” clauses with regularity, though not always. Again, it’s important to know how your particular provisions work.

Another topic to discuss, which the above Anderson Kill article touches on, is severability. This is the portion of your policy, usually hidden in the “warranty” and “state conditions” and similar pages that people tend not to read. In short, severability determines whether one insured’s actions impute/affect another insured’s coverage. For example if one director is found guilty of fraud what happens to the coverage for the other directors? What happens to the coverage for the corporation? What happens if the CEO knowingly falsified and signed the coverage application – will that exclude coverage for other individuals?

This, again, is something that is going to be unique to each carrier. However, I am happy to say that many offer decently advantageous “severability” clauses either in their base form or via endorsement. When you’re looking at these you want to pay attention to two key areas:

1. What happens if one director is found guilty – is coverage preserved for “innocent” insureds?

In this case I would say most policies I’ve personally dealt with do preserve coverage. Some very small D&O policies, or add-ons you might get with other coverage, very well may not be as generous but my experience shows this isn’t a contentious ask.

2. What happens if the application is falsified?

This scenario is typically more complex as, while many carriers will provide details in this situation, they vary widely in to whom the falsification is “imputed” to. The more generous provisions will state something along the lines of “if an application is falsified by [C-Level Executives/Directors] it’s imputed to the corporation but not to other directors and officers”. In such a situation, a CEO falsifying an application would remove coverage for the corporate entity, but not for other executives. This is also why D&O carriers often insist that applications be signed by particular individuals.

D&O policies are some of the most complex beasts out there, and such complexity isn’t often known until the crisis arrives. So if you have the time, I would highly suggest you look at not only Enron data (I picked that simply because of its fame and the info is plentiful), but anything else you can get your hands on. These types of policies, being “relatively” new to the scene and non-standard are also going to be highly sensitive to jurisdictional changes (jurisdiction itself being a concern when you have a policy for a national or international client!).

Personal Methods for Servicing an Account

Below are the “First Steps” I personally take when attempting to understand and present an account. These are not concrete in any fashion but simply methods I’ve developed and which have received positive feedback. If you can be an expert on your own clients then you can present them much more holistically to your carriers, and any sort of give-and-take will be far, far easier because of it.

Create a Profile

Without exception, every single one of you clients should have a profile. Think of these as “sell sheets” – they are the highlights of your client and provide a basic overview of history and operations.

Profiles will be the first thing most carriers review and, as such, help to frame the discussion. Think of it this way: if you were to simply rely on ACORDs for information you would know very little about an actual company and anything that “stood out” to you, say seeing an extra heavy fleet, will do so in the worst possible way. You would start to ask yourself why they’re on there, think about the huge risk associated with extra heavy units rather than PPT, etc.

You do this because you’re an insurance person and you’re supposed to go off on mental tangents like that. After all, our job is to anticipate the unexpected as best we can and protect our clients from it. But you absolutely do not want a carrier making their own assumptions about what is and is going on.

In essence, the more open ended questions you leave your carrier partner with the more they’re going to assume negatively in your favor. After all they have a limited time frame in the day just like you, so why would you make it hard for them to find relevant information, especially when it’s on something that may be concerning with appetite or capacity.

Profiles are an introduction and, if done right, allow the entire process to proceed with much less resistance and stumbling. It puts both you and your carrier partner on the same page – literally (see what I did there?).

At the very least, these profiles should contain:

  • Name, history, size, employee count
  • Description of operations
  • Safety program/risk management
  • List of operating entities/FEINs

I cannot tell you the number of times simply going through this process has produced new information for me – whether it’s finding a new corporate entity, or finding one that has shut down, or getting details on a service offered I never knew about.

Consider the profile a little research project and treat it accordingly – because any carrier partner is going to do the same thing and you do not want to be the one learning new information about your client when you discuss policy terms.

Review Legal Sources, Review Ownership, Review JVs, and Make an Org Chart

Related to the Profile but important enough that it bears repeating: look up all entities your client has. Domestically, nearly every state will provide you with free access to the Secretary of State business register website where you can search by name, sometimes owner, etc. The number of entities you will find will astound you – I have even had the pleasure of telling the client about an entity that was opened up in their name.

On the flip side, always, always, always ask about Joint Ventures. These often will not show up in searches since they will be under different names, or ownership will be in the name of an executive and not the company. Especially in certain industries (looking at you, construction) JVs are incredibly common and set up almost without thought. However, when it comes to insurance programs, consequences can be dire if you don’t have it set up correctly.

Finally, you need to review ownership – especially if your client has JVs. Never think that something is a subsidiary until you see the stock holdings. Often you will be told something is a subsidiary when it’s really a sister company. And to the client it is – if Martha owns both 100% of Company A and Company B, she basically considers them subsidiaries. However, from an insurance standpoint, they are separate – you will not get “automatic” coverage for one simply because you insure the other.

Get DETAILS on the Operations

The number of industry people I’ve met who know nothing about their client beyond “oh they’re an XYZ maker” is astounding. If someone makes wood products do they also have tree farms or storage areas? Do they take in recycled or treated wood? What machinery do they use and is it a fire or personnel hazard? If someone is a medical office do they use third parties, such as overseas radiologists? Do they moonlight anywhere? If your client is in construction do they also design? Etc. Etc.

Your client is the best source of information for them, so as you’re getting the “basics” down for your profile make a list of questions you have – what kind of equipment is used? What’s your territory of operations? Do you sell overseas?

A great place to review what might be asked are the applications that are ultimately going to need completed anyway. So take a look at those and see what carriers want to know about and then go even a step further. This is because if an application asks “Do you perform XYZ” the question is likely there because of appetite or coverage reasons. So if you get that information beforehand you’re in a much better position than trying to figure it out 2 weeks after you sent in an application and 3 days before you need the quote.

Review Safety Programs

Every client of decent size will (or should) have a safety program. While not all industries will be as critical of these, it’s incredible information to have and to provide with an application even if it’s not specifically asked for. Being able to show a dedicated, robust safety program up front will help allay concerns should they arise later.

If your client requires all your employees to get a certain certification state it loud and proud! If they won awards, provide magazine articles showing such! If they work with very large national/international partners say that as well – those entities have the luxury of being judicious regarding who they use and it’s a definite star on your record if you are in such a trusted network.

Review Claims, Loss Picks, Details/Response

This topic is incredibly important because it’s likely the part your direct carrier partner (underwriter) has the least control over. If someone picks out at $X then it’s hard to bargain around that.

However, what you can do is review everything yourself first. Get 5-10 year loss runs and run a loss pick. For any significantly sized claims get details and, just as importantly, get responses your client made to their operations to prevent that from happening.

This is because anything of concern in claims is going to get kicked upstairs and you’re going to have near-zero influence on it. But what you can do is get all the information beforehand and present a compelling case to your direct partner (underwriter) then *they* will have the tools to advocate on your behalf. This underwriter, and their direct reports, will be the ones interfacing with whichever division is able to make an exception. So if you leave them hanging with imperfect information then you’re sabotaging your own efforts.

Anticipate and Provide

A few years into the insurance service game and you should know what is generally required of each client and/or carrier. It’s crazy to think that though we are busy all the time, we actually only “work” on a submission for a very short period of time, just at multiple intervals.

Your carriers work the same way – they want to pick up a file and complete it. If they can’t it gets put back down and you either get to wait another week or you get a 10 word e-mail with a single question. Then another. Then one asking for a copy of financials. Then, then, then….

You can save literal days or weeks off of processing time by eliminating as much of this back and forth as possible – and your carriers will love you for that. Can you imagine the feeling you’d have if you got a piece of new business that had a full copy of all policies, endorsements, applications, and currently valued loss runs – rather than the misspelled name of the business on a cocktail napkin we usually get? You’d be ecstatic – you’d be able to work on that start to finish.

Again, carriers want that to. So if you can anticipate needs – even going so far as to securing supplementals which “may not” be needed but are nice to have – it will make your relationship, and the potential outcome for your client, so much better.



You may look at this and say this is way more work than you’re doing when (e.g.) a piece of new business comes up. And you’re probably right. But I have found that these efforts save so much more time in the future and, in fact, things like the profile become a personal reference for me; I can literally open them up and copy/paste an org chart to someone rather than trying to make one from scratch via 12 screens in a management system.

But caveat emptor: these are things I do personally and they may not transfer to others. But whatever you end up doing I would suggest you track how your carrier partners respond because, ultimately, if they are happy with your work then they will be much better and able to respond to your coverage asks.

Additional Insureds: a Reference (Work in Progress)

As there are already tons of learning opportunities regarding Additional Insured status, this post will instead be a general reference – it already assumes you’re well versed in the world of Additional Insureds. The following notes are especially relevant to construction industry clients as these are the primary drivers of complex AI requests, in my experience.

Since this is a reference it will be updated periodically. I will initially start with the oft-used GL AI forms, found especially in the construction world, and then proceed to review other options and how different lines handle AI. Please excuse any inelegant formatting and such as I’m still debating on how best to organize.

General Liability:

  • CG 20 10 11 85 – the “OG”, first created after the CGL overhaul in 1985.
    • No limitation for Ongoing vs. Completed Ops
    • Has historically been litigated to provide *sole* coverage for the AI (i.e., not limited to vicarious only)
    • Technically out of use for ages but many, many carriers still offer it as market demand (via contracts) is high
    • Still contains “[work] for that additional insured” limitation (see later) which can cause havoc with improper blanket wording
  • CG 20 10 10 01 – Very similar to CG 20 10 11 85, except limited to ONGOING operations only.
  • CG 20 37 10 01 – Very similar to CG 20 10 11 85, except limited to COMPLETED operations only.
    The pair of CG 20 10 10 01 and CG 20 37 10 01 are functionally equivalent to the CG 20 10 11 85.
  • CG 20 10 07 04 & CG 20 37 07 04 – Uses the “10 01” language but adds the restriction that liability which triggers coverage for the AI must arise “in whole or in part” by your actions or those acting on your behalf.  I.e., removes “sole negligence” coverage for the AI.
  • CG 20 10 04 13 & CG 20 37 04 13 – Uses the “07 04” language but adds the further restrictions that coverage is only provided to the AI is permissible by law and, if the AI status/coverage is dictated by contract, only to the extent required by the contract. E.g., if your contract only requires $500K of AI coverage but you have a $1M policy/AI endorsement, the endorsement will be limited to the contractually obligated amount.
  • CG 20 10 12 19 & CG 20 37 12 19 – Functionally equivalent to the “04 13” versions but an administrative clarification was made – the “Limits of Insurance” verbiage was amended to remove the reference to the limits “shown on the Declarations”; rather the endorsement merely states the AI coverage will not increase available limits (rather than “will not increase the limits [shown on the declarations]”. This is in recognition of the fact that limits can be amended by endorsement and thus the “hard” reference to the declarations may be in error. I am not aware of a lawsuit that prompted this but if you know of one please send my way!

The above endorsements are strictly “Scheduled” AI forms – meaning their technical use is limited to name a single, explicit entity to whom AI coverage is given. However it’s very common to have endorsements with manuscripted “blanket” language – for example the schedule might read “All parties with whom you have an executed written agreement to provide Additional Insured Coverage” or similar.

This is usually not a problem – and often the preferred way of writing these endorsements since many contractual parties want to see specific endorsement numbers – but it definitely can be. This is because each of these endorsements, even the “11 85”, has a limitation that states, essentially, coverage is limited to operations performed for the named Additional Insured. Here is the relevant text from the CG 20 10 12 19, emphasis added:

[…] in the performance of your ongoing operations for the additional insured(s) at the location(s) designated above.

Note the explicit reference to both the Additional Insured (and location).  This means that if your blanket language is insufficient, you could be leaving out a LOT of coverage for a LOT of third parties.

This is primarily a concern when the blanket language references only parties with whom you have a direct contractual relationship (privity).  For example, in Westfield Insurance v. FCL Builders, Inc. the insured’s “Blanket” wording read:

“A. Section IIWho Is an Insured is amended to include as an additional insured any person or organization for whom you are performing operations when you and such a 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.”

Reading that via the “four corners” analysis (as insurance courts are designed to do), the only entities to whom that “blanket” AI language applies are those with whom you have a contractual agreement that such person or organization be added as an Additional Insured.

However, contracts require multiple third parties to be named as AI all the time – and an insured signing the contract typically doesn’t have a direct contractual relationship with these parties (say an owner, or bank). Because of this, the above blanket AI wording is limiting – it does not apply to those third parties whom you were obligated to add as AI but with whom you do not have contractual privity.

Because of this you must, must, must negotiate the proper “blanket” wording for AI forms. Simply securing the 10/01 or 11/85 editions is not enough – you must ensure it responds properly to all those entities to whom your insured is obligating themselves.

This privity concern is also a huge issue when ISO attempted to provide a standard “automatic” AI status. Firstly, ISO released such endorsement only for Ongoing Operations, then while they did finally release one for Completed Ops as well both contained the privity issue, necessitating another set of endorsements (automatic status for other parties). When this post is updated in the future we will review those endorsements (CG 20 33, CG 20 38, CG 20 39, CG 20 40). The “TL;DR” of that is that the combination of those will imitate CG 20 10/20 37 12 19, but if you need “old” coverage you’re stuck with the above scheduled forms until the cows come home.

When Outside Defense Isn’t

Defense costs “Outside” the Limit of Insurance is almost taken for granted and it’s becoming a more common feature for policies that have historically been purely “Inside Limits” policies.  Even with policies such as Directors & Officer’s Liability you’re seeing additional limits and – depending on the type of policy (Non-profit, etc.) – full “Outside Limits” Defense coverage. 

Defense is usually paid as “supplemental costs” in a policy, and an insuring agreement will usually say something like, “We will pay all costs we incur, including legal and defense fees.” It is important to highlight, then, that it isn’t *technically* “Defense Costs” that are “outside the limits” on these policies, rather it’s the non-indemnity costs incurred.  This is an important distinction when a policyholder has agreed to indemnify someone via contract. The short version of why is because contractual costs are “indemnity” loses to the policy holder, even if those costs are earmarked in the contract for defense.

The reason for this is because indemnity, even of a third party’s defense costs, are considered “damages” (or similar) by the policy. In fact the CGL expressly says this. In the Contractual Liability exclusion of the CG 00 01 10 01, to which there are many exceptions, we find this language: 

Solely for the purposes of liability assumed in an “insured contract”, reasonable attorney fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages… 

Note there are some provisions you can find under “Supplementary Payments” that allow defense costs “outside” for the indemnitee when various conditions are met, and these typically require the indemnitee to subjugate themselves to handing over all defense options to the insuring carrier – something many won’t wish to do.

I’ve seen contracts that specifically require one party to indemnify another and specifically states that any insurance defense should be “outside” the limits. On the retail side this problem is often met by adding an Additional Insured provision to the policy. But this isn’t a perfect solution either as many Additional Insured provisions are now, themselves, stating that defense costs are specifically “inside” the Limit of Insurance. 

This type of language has not yet made it into ISO forms, as far as I’m aware, but we have seen ISO continue to restrict Additional Insured endorsements. One major recent change being that (e.g.) on the CG 20 10 the coverage afforded to an Additional Insured is specifically limited to that which is required by the contract. This alone could be sufficient for a carrier to say that “outside” defense coverage shouldn’t be assumed as “required by the contract”, hence the AI does not enjoy such. 

Even if not, I imagine we’ll see some of the “Standard” Additional Insured endorsements specify “inside” defense coverage soon enough, though “soon enough” is relative in the insurance industry when changing a comma on an ISO form can take a decade. For now, take a close look at your AI endorsements and any “automatic” provisions to see what is offered; this limitation could already be in place – this is especially the case for proprietary/non-standard/excess lines forms.