1. Forms
2. CG
3. CG-02-01

Form CG 02 01: Suspension Or Reinstatement Of Insurance

1. What the Form Is

The CG 02 01, titled "Suspension Or Reinstatement Of Insurance," is an endorsement to the Commercial General Liability (CGL) policy, typically the CG 00 01. Its primary purpose is to formally suspend coverage, in whole or in part, or to reinstate coverage that was previously suspended using this same endorsement or a similar mechanism. This endorsement provides a documented agreement between the insurer and the insured regarding the temporary cessation or resumption of coverage, often for a specific exposure, operation, location, or the entire policy. When coverage is suspended, the insurer is not liable for losses that occur during the suspension period related to the suspended coverage. Conversely, when reinstated, coverage is restored as of the effective date of the reinstatement, subject to the policy's original terms and conditions unless otherwise specified in the endorsement.

2. Classes of Business It Applies To

This endorsement is versatile and not limited to specific industries. It can be applied to virtually any business with a CGL policy where a temporary change in exposure warrants a suspension or subsequent reinstatement of coverage. Common scenarios include:

• Seasonal Businesses: A business that operates only during certain times of the year, such as a summer amusement park or a winter ski resort, might use this endorsement to suspend certain coverages during their off-season to potentially reduce premiums. Example: A beachside water sports rental company might suspend its liability coverage for watercraft operations during the winter months.
• Businesses with Fluctuating Operations: Companies that undertake specific high-risk projects or operations for limited durations. Coverage for those specific operations might be suspended upon completion and reinstated if similar operations resume. Example: A manufacturing plant that temporarily undertakes a specific chemical processing operation might have coverage related to that specific process suspended once the project is complete and the associated risk is eliminated.
• Vacant or Unoccupied Buildings: If a commercial property becomes vacant for an extended period, the insurer might require a suspension of certain coverages or the attachment of this endorsement to reflect the change in risk. Reinstatement would occur if the building becomes occupied and operational again.
• Specific Excluded Activities: If an insured temporarily ceases an activity that was previously excluded or carried a significant surcharge, this endorsement could be used to reflect that suspension. If the activity resumes, a reinstatement would be necessary.
• Regulatory or Financial Reasons: Sometimes, external factors might necessitate a temporary suspension of operations and, consequently, insurance coverage.

3. Special Considerations

• Clear Documentation is Crucial: The endorsement must clearly state what coverage is being suspended or reinstated, the effective date and time of the suspension or reinstatement, and any specific conditions or changes to premium. Ambiguity can lead to disputes at the time of a claim.
• No Coverage During Suspension: It is critical for the insured to understand that no coverage is provided for occurrences that take place during the period of suspension for the exposures that have been suspended. Claims arising from events during this period for the suspended coverage will be denied.
• Premium Adjustments: Suspension of coverage typically results in a return premium to the insured for the period of suspension. Reinstatement will involve a charge for the restored coverage. The method of premium calculation should be understood by both parties.
• Impact on Continuous Coverage: While this endorsement formalizes a temporary break, insureds should be aware of any potential implications for "prior acts" or "nose" coverage if the policy is claims-made, or for maintaining continuous coverage history, which can affect future insurability or pricing.
• Underwriting Approval: Both suspension and reinstatement are subject to underwriter approval. The insurer will assess the risk at the time of reinstatement to ensure conditions haven't materially changed in a way that would make the risk unacceptable. Example: If a building's sprinkler system was suspended along with coverage and a fire occurs due to an unrelated cause, the insurer might deny the claim if the suspension endorsement broadly suspended property damage coverage for the location without specific exceptions.
• Minimum Earned Premium: Policies often have a minimum earned premium. Even with a suspension, the insured might not receive a pro-rata return for the entire suspension period if it brings the earned premium below this minimum.
• Mortgagee or Loss Payee Rights: If there are mortgagees or loss payees on the policy, their interests must be considered. They typically need to be notified of any suspension of coverage that affects their interests.

4. Key Information for Agents and Underwriters

• Risk Assessment at Reinstatement: Underwriters must carefully assess the risk upon a request for reinstatement. Has the nature of the insured's operations changed? Are there new, unaddressed exposures? A new inspection or updated operational information may be warranted. Example: A contractor suspends coverage for a specific high-risk activity like pile driving. Before reinstating, the underwriter should confirm if safety protocols are still in place and if the scope of such work has changed.
• Pricing Implications:
  • Suspension: Calculate return premiums accurately, considering any minimum earned premium requirements. Ensure the basis for the calculation (e.g., pro-rata) is clear.
  • Reinstatement: The premium for the reinstated coverage should reflect the current exposure. If the risk has increased since the suspension, a higher premium may be justified.
• Potential Coverage Gaps: Agents should counsel insureds about potential gaps. If an operation is suspended, are there any residual liabilities (e.g., completed operations) that still need coverage? Ensure the suspension is narrowly defined if only a portion of coverage is affected.
• Administrative Process: Implement a clear administrative process for tracking suspensions and reinstatements, including diarizing for follow-up if a reinstatement is expected by a certain date.
• Alternatives to Suspension: In some cases, rather than a full suspension, it might be more appropriate to use other endorsements to restrict coverage or adjust deductibles based on the changed risk profile.
• Clarity of Wording: The specific operations, locations, or coverages being suspended or reinstated must be described with utmost clarity in the endorsement schedule to avoid any misinterpretation. Reference to the specific parts of the CG 00 01 or other policy forms being modified is essential.