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3. CG-20-28

CG 20 28: Additional Insured – Lessor Of Leased Equipment

The CG 20 28 Additional Insured – Lessor Of Leased Equipment endorsement is a standard Insurance Services Office (ISO) form used with the Commercial General Liability (CGL) policy. Its primary purpose is to provide additional insured status to the owner (lessor) of equipment that is leased to the named insured (lessee). This means that the lessor is protected under the lessee's CGL policy for liability arising from the lessee's maintenance, operation, or use of that specific leased equipment. The coverage for the additional insured is specifically for 'bodily injury', 'property damage', or 'personal and advertising injury' caused, in whole or in part, by the named insured's activities with the leased equipment.

Classes of Business It Applies To

This endorsement is crucial in any business or industry where equipment leasing is a common practice. Examples include:

• Construction: Contractors frequently lease heavy machinery like cranes, bulldozers, excavators, or scaffolding. The equipment leasing company (lessor) will typically require the contractor (lessee) to add them as an additional insured on their CGL policy. For instance, if a contractor leases a crane and an accident occurs due to the contractor's improper operation, injuring a third party or damaging property, this endorsement would provide coverage to the crane lessor for their vicarious liability.
• Manufacturing: Companies might lease specialized manufacturing equipment, forklifts, or other machinery.
• Retail and Hospitality: Businesses may lease items like point-of-sale (POS) systems, kitchen equipment, or audiovisual equipment for events.
• Technology and Office-Based Businesses: Leasing of servers, copiers, or other significant office machinery can also necessitate this endorsement.
• Events and Entertainment: Companies renting out sound systems, lighting rigs, or staging equipment for events will often require this protection.

Essentially, any scenario where an entity leases equipment to another and wants protection from liability stemming from the lessee's use of that equipment is a candidate for the CG 20 28.

Special Considerations

There are several important factors to consider when utilizing the CG 20 28:

• Scope of Coverage: Coverage for the lessor is specifically tied to liability "caused, in whole or in part, by your [the named insured's] maintenance, operation or use of equipment leased to you by such person(s) or organization(s)." This language is critical as it implies that the named insured's actions must be a contributing cause of the injury or damage.
• Contractual Requirement: Often, the requirement for this endorsement is stipulated in the lease agreement between the lessor and lessee. The endorsement itself states that if coverage provided to the additional insured is required by a contract, the insurance afforded will not be broader than what is contractually required, nor will the limits be higher than those required by the contract or the policy limits, whichever is less.
• "To the Extent Permitted by Law": The coverage afforded to the additional insured only applies to the extent permitted by law. This acknowledges that certain state laws might restrict the extent to which one party can be indemnified or insured for another's negligence.
• Lease Expiration: The endorsement explicitly states that coverage for the additional insured does not apply to any "occurrence" which takes place after the equipment lease expires. It's crucial to ensure the lease terms are clear and the endorsement is in place for the entire lease period.
• Sole Negligence of the Lessor: While older versions of this endorsement may have contained an exclusion for the lessor's sole negligence, current standard ISO versions (e.g., 07 04 and 12 19 editions) typically do not explicitly exclude coverage for the lessor's sole negligence if the incident was still "caused in whole or in part" by the named insured's maintenance, operation, or use. However, the practical application can be complex, and some insurers might use proprietary versions with different wording. It's important to review the specific edition date of the form being used.
• No Coverage for Lessor's Own Operations: This endorsement does not cover the lessor for their own independent operations or for liability arising from the equipment itself if unrelated to the lessee's maintenance, operation, or use (e.g., a manufacturing defect in the equipment solely attributable to the lessor).

Real-World Example: A landscaping company leases a wood chipper. The lease agreement requires the landscaping company to name the equipment rental company as an additional insured. An employee of the landscaping company improperly operates the chipper, causing injury to a bystander. The CG 20 28 would provide coverage to the equipment rental company for their liability in this incident, subject to the policy terms and limits.

Key Information for Agents and Underwriters

Agents and underwriters should pay close attention to the following when dealing with the CG 20 28:

• Risk Assessment:
  • Nature of Leased Equipment: High-risk equipment (e.g., cranes, heavy machinery) warrants more scrutiny than lower-risk items (e.g., office copiers).
  • Named Insured's Experience and Controls: The underwriter should assess the lessee's experience in operating the leased equipment and their safety protocols.
  • Contractual Obligations: Review the lease agreement to understand the extent of coverage required for the lessor. Ensure the endorsement meets these requirements without inadvertently providing overly broad coverage.
• Pricing: While adding an additional insured might sometimes involve a nominal charge, the premium impact often depends on the underwriter's assessment of the increased risk exposure, which is influenced by the type of equipment and the lessee's operations.
• Potential Coverage Gaps:
  • Completed Operations: The CG 20 28 typically applies to ongoing operations. If the lessor requires coverage for completed operations exposures related to the lessee's work with the equipment, a separate endorsement (like CG 20 37 for other types of additional insureds, though not specifically for lessors of equipment in the same direct way) or a broader contractual liability coverage might be necessary.
  • Lessor's Direct Negligence: While the "caused by" wording provides some protection, situations where the lessor is solely and directly negligent (e.g., providing faulty or poorly maintained equipment that directly causes an accident without improper use by the lessee) might fall outside the intended scope or lead to disputes.
  • Maintenance Responsibilities: The lease agreement should clearly define responsibilities for equipment maintenance. If the lessor is responsible for maintenance and their failure to maintain leads to an incident, coverage interpretations can become complex.
• Underwriting Guidelines:
  • Verify that the entity requesting additional insured status is indeed the lessor of equipment leased to the named insured.
  • Ensure the equipment is specifically identifiable or described in the schedule if required by the underwriter or if the exposure is significant.
  • Confirm that the underlying CGL policy provides appropriate coverage for the types of operations involving the leased equipment.
  • Be aware of any state-specific regulations or legal precedents that might affect additional insured status or indemnification.
• Alternatives: For situations where the named insured frequently leases equipment from various lessors and is contractually obligated to provide additional insured status, the CG 20 34 (Additional Insured - Lessor Of Leased Equipment - Automatic Status When Required In Lease Agreement With You) might be a more efficient "blanket" option, though it carries its own set of underwriting considerations.

Agents should counsel their clients (lessees) on the importance of fulfilling contractual obligations to add lessors as additional insureds and explain the scope of coverage provided. Underwriters need to assess the added exposure and ensure the policy is priced and structured appropriately. Clear communication and thorough review of lease agreements are paramount.