Insurance companies routinely adopt standard insurance endorsements written by The Insurance Services Offices, Inc. (ISO). By using these forms, the insurance companies can save the expense of writing policies and standardized language that is thought to present less risk of adverse interpretation.
The CG 20 10 11 85 is one of the most ubiquitous ISO endorsements in the construction industry. Endorsements CG 22 94 10 01 and CG 22 95 01 have been around over a decade ago but they have largely flown under the radar until recently. Lately, insurance companies have started adding these Endorsements into policies as a means to temper rising insurance costs. While the addition of these Endorsements may save the insured in premiums costs, their net effect is an evisceration of completed operations coverage for property damage.
Endorsements 22 94 and 22 95 tie to Exclusion (l), which precludes coverage for damage arising out of the insured’s completed work. Exclusion (l) falls under the umbrella of exclusions known as the business risk doctrine. The rationale is that insurance companies are not insurers of faulty workmanship. A critical component to exclusion (l) is the exception for work performed by a subcontractor. Thus, while the insured cannot get coverage for its completed work, the subcontractor exception retains property damage coverage for work performed by the insured’s subcontractor. Endorsement 22 94 essentially writes out the subcontractor exception entirely, whereas Endorsement CG 22 95 does so on a project-specific basis.
This insurance does not apply to:
"Property damage" to "your work" arising out of it or any part of it and included in the "products-completed operations hazard."
This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.
If added to the policy, the Endorsements are problematic for both general contractors and subcontractors. For general contractors, an Endorsement on its own liability policy would bar completed operations coverage, even if the defective work is by a subcontractor. If the subcontractor’s policy has a CG 22 94 Endorsement not only will it preclude coverage for the general contractor, it would also preclude coverage if the subcontractor subbed out its work to another contractor.
Both general contractors and subcontractors should keep an eye out for these Endorsements. The benefit gained by lower insurance costs will be offset by the risk of virtually nonexistent coverage in the event of a post-completion property damage claim.