1. Forms
2. CG
3. CG-21-36

What the form is

The CG 21 36, titled "EXCLUSION – NEW ENTITIES", is an endorsement to the standard Commercial General Liability (CGL) Coverage Part. Its primary function is to remove a specific paragraph within Section II – Who Is An Insured. This deleted paragraph typically grants automatic liability coverage for a limited period (commonly 90 days) to any new organization that the named insured acquires or forms during the policy period, provided certain conditions are met. By attaching the CG 21 36, this automatic extension of coverage to new entities is eliminated.

Classes of business it applies to

This endorsement can be applied to a wide range of commercial enterprises, irrespective of their specific industry. Insurers might choose to use this endorsement in situations such as:

• Businesses with frequent mergers, acquisitions, or formations: For companies that regularly acquire other businesses or form new subsidiaries, an insurer might use this endorsement to ensure they have the opportunity to underwrite each new entity individually before extending coverage. For example, a rapidly expanding private equity firm or a real estate development company constantly creating new LLCs for different projects.
• Insureds with complex ownership structures: If an insured's organizational chart is intricate or involves various partnerships and joint ventures, the insurer may prefer to explicitly list all covered entities rather than providing automatic coverage for new, potentially unknown, entities.
• High-risk industries or operations: For businesses engaged in activities perceived as higher risk, insurers may be reluctant to automatically cover new ventures without a thorough risk assessment. An example could be a manufacturing company that might acquire a new entity involved in a more hazardous production process.
• Underwriting preference: Some insurers may have a general underwriting guideline to use this endorsement to maintain tighter control over the entities they insure, requiring specific addition of any new organization to the policy.

Special considerations

• Potential for Coverage Gaps: The most significant consideration is the potential for a coverage gap. If this endorsement is attached, the named insured must remember to promptly notify their insurer of any newly acquired or formed organization and request that it be specifically added to the policy. Failure to do so means the new entity will not have CGL coverage under that policy.
• Communication is Key: Agents must clearly communicate the effect of this endorsement to their clients. The insured needs to understand that they lose the automatic temporary coverage for new ventures and must proactively seek coverage for them.
• Impact on Umbrella/Excess Policies: If an umbrella or excess liability policy is in place, it's crucial to ensure that its terms align with the underlying CGL. A similar endorsement, such as the CU 21 04 (Exclusion - New Entities for umbrella policies), might be necessary on the umbrella policy to avoid inconsistencies or coverage disputes.
• Administrative Procedure: The insured should establish an internal procedure to ensure that the risk manager or insurance buyer is immediately informed of any plans to acquire or form new entities so that insurance arrangements can be made in a timely manner.

Key information for agents and underwriters

• Pricing: The use of this endorsement might result in a nominal premium credit for the insured, as it reduces the insurer's exposure to unknown risks. However, it is often used more as an underwriting tool for risk control rather than for significant premium impact.
• Risk Assessment: For underwriters, the CG 21 36 provides a mechanism to manage and control exposures. It ensures that each new entity is individually evaluated for its specific risks and underwritten accordingly before coverage is granted. This prevents the automatic assumption of risks that were not contemplated when the policy was initially underwritten.
• Underwriting Guidelines: Insurers may have specific underwriting guidelines dictating when this endorsement should be used, for instance, based on the insured's size, loss history, industry, or expansion plans.
• Alternative to Non-Renewal or Stricter Terms: In some cases, an insurer might use this endorsement as an alternative to declining coverage or imposing more restrictive terms on the entire policy, particularly if the concern is primarily about future, un-vetted acquisitions.
• Documentation: It is important for both agents and underwriters to document that the implications of this endorsement have been explained to the insured.