Form CG 21 16: Exclusion – Designated Professional Services
1. What the form is
The CG 21 16, Exclusion – Designated Professional Services, is an endorsement to the Commercial General Liability (CGL) policy. Its primary purpose is to exclude coverage for "bodily injury", "property damage", or "personal and advertising injury" that arises from the rendering of, or failure to render, specific professional services listed in the endorsement's Schedule. This means that if a claim is made against the insured for damages resulting from the professional services itemized in the Schedule, the CGL policy, as modified by this endorsement, will not provide coverage for that claim. Importantly, this exclusion applies even if the claim alleges negligence in areas such as supervision, hiring, employment, training, or monitoring of others, provided the underlying incident involved the designated professional service(s).
2. Classes of business it applies to
This endorsement is utilized when an insured performs professional services that are not covered by a more specific professional liability exclusion endorsement. It is broadly applicable across various industries where businesses might offer professional services that fall outside their primary operations or are of a nature that the insurer wishes to exclude from general liability coverage. Examples include:
- Contractors: A construction company that also offers design or engineering services might have this endorsement to exclude liability arising from those specific design/engineering activities, which should ideally be covered under a separate Professional Liability (Errors & Omissions - E&O) policy.
- Consultants: Businesses that provide consulting services (e.g., IT consulting, management consulting, marketing consulting) incidental to their main operations might see this endorsement used if the insurer deems those services to carry a professional liability exposure they are unwilling to cover under the CGL.
- Service Organizations: Organizations that offer specialized services, such as inspection, appraisal, or survey services, could have this endorsement applied if a more specific exclusion for those services isn't available or suitable.
- Businesses with Incidental Professional Exposures: Any business that, in addition to its core activities, provides advice or specialized services that could be construed as "professional" might be subject to this endorsement. For instance, a retailer that also offers interior design advice.
The key is that the services to be excluded are specifically listed in the Schedule of the endorsement.
3. Special considerations
- Specificity is Key: The professional services to be excluded MUST be clearly and specifically described in the Schedule of the endorsement. Vague or overly broad descriptions can lead to coverage disputes.
- Potential for Coverage Gaps: The most significant consideration is the potential creation of a coverage gap. If the services excluded by CG 21 16 are not covered by a separate Professional Liability/E&O policy, the insured will have no coverage for claims arising from those services. It's crucial for agents to ensure clients understand this and secure appropriate E&O coverage if needed.
- Interaction with Other Policies: This endorsement is designed to work in conjunction with Professional Liability policies. The CGL policy, with CG 21 16 attached, carves out the professional services exposure, which should then be picked up by the E&O policy. Agents should review both policies to ensure there are no unintended gaps or overlaps.
- "Rendering or Failure to Render": The exclusion applies to both the actual performance of the professional service and the failure to perform it when there was a duty to do so.
- Supervisory Negligence: The endorsement specifically states that the exclusion applies even if the claim alleges negligent supervision, hiring, etc., if the core issue stems from the rendering or failure to render the designated professional service. This prevents attempts to circumvent the exclusion by framing the claim as a general liability issue.
Real-world example: A general contractor also provides in-house architectural design services for some projects. The insurer, wanting to avoid the professional liability associated with architectural design, attaches CG 21 16, listing "architectural design services" in the Schedule. If a building collapses due to a flaw in the architectural design provided by the contractor, the CGL policy would likely not cover the resulting bodily injury or property damage due to this exclusion. The contractor would need a separate Architects & Engineers Professional Liability policy to cover such a claim.
4. Key information for agents and underwriters
- Risk Assessment: Underwriters use this endorsement to manage exposures they are not comfortable covering under a standard CGL, often because the risk is better suited for a specialized Professional Liability policy. They will carefully scrutinize the nature of the professional services being provided by the insured.
- Pricing: The use of this endorsement might influence the premium for the CGL policy, potentially reducing it by carving out a significant exposure. However, the pricing for this endorsement itself is often on a "refer to company" basis, meaning it's at the insurer's discretion. The overall insurance cost for the insured will depend on the premium for the CGL and any separate E&O policy.
- Coverage Gaps and E&O Necessity: Agents must emphasize to clients that this endorsement creates a specific exclusion and that separate Professional Liability (E&O) coverage is likely necessary to cover the excluded services. Failing to address this can lead to significant uninsured losses for the client and potential E&O claims against the agent.
- Underwriting Guidelines: Insurers will have specific underwriting guidelines regarding when this endorsement is mandatory. For certain classes of business with inherent professional exposures, its use might be a standard requirement.
- Clarity in the Schedule: Both agents and underwriters should ensure the "Description Of Professional Services" in the Schedule is precise and accurately reflects the services being excluded. Ambiguity can lead to litigation. For example, instead of just "Consulting Services," it would be better to specify "Environmental Consulting Services" if that is the specific exposure to be excluded.
- Alternative Endorsements: While CG 21 16 is a broad designated professional services exclusion, ISO has other endorsements that exclude specific professional services (e.g., for architects/engineers (CG 22 43), or for insurance and related operations (CG 22 48)). Underwriters will choose the most appropriate endorsement based on the insured's operations. CG 21 16 is often used when a more specific endorsement is not available or suitable.
In essence, CG 21 16 helps delineate the boundary between general liability and professional liability, ensuring that professional services exposures are either consciously retained by the insured or covered under a more appropriate E&O policy.