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3. CG-21-53

Exclusion – Designated Ongoing Operations (CG 21 53)

The CG 21 53, Exclusion – Designated Ongoing Operations, is an endorsement to the Commercial General Liability (CGL) policy that serves to remove coverage for bodily injury or property damage arising out of specific ongoing operations. The endorsement can be tailored to exclude ongoing operations at a particular location, all ongoing operations of the named insured, or specific, scheduled operations regardless of where they are performed. Importantly, this exclusion applies whether the operations are conducted by the named insured or on their behalf by others. A key function of this endorsement is its ability to exclude a contractor's ongoing operations on a wrap-up project, while still preserving completed operations coverage for that project, which is crucial as many wrap-up programs offer limited completed operations coverage.

Classes of Business It Applies To

This endorsement is most commonly used in the construction industry. However, it can be relevant for any business with distinct, high-risk operations that an insurer may wish to exclude from a standard CGL policy. Real-world examples include:

• A general contractor who also performs a high-risk specific trade, like demolition or roofing, which the insurer wants to exclude from the primary CGL and potentially cover under a specialty policy or have the insured retain the risk.
• A contractor working on a large project covered by a Consolidated Insurance Program (CIP or "wrap-up"). The CG 21 53 can be used to exclude the ongoing operations portion of that specific project from the contractor's corporate CGL, as the wrap-up policy should provide primary coverage for ongoing work. This helps avoid coverage duplication and potential conflicts between policies.
• A manufacturing company that also has a small, incidental construction or installation crew whose operations present unique risks the insurer is unwilling to cover under the main policy.
• Businesses with operations in specific, high-risk geographic locations where the insurer does not want to provide coverage for ongoing work. For instance, an insurer might exclude ongoing operations in a state known for particularly challenging legal environments for certain types of work.

Special Considerations

There are several important points to consider when utilizing the CG 21 53:

• Specificity is Key: The description of the "Designated Ongoing Operation(s)" in the endorsement's schedule is critical. Ambiguity can lead to coverage disputes. It should clearly define the exact operations, and if applicable, the specific location being excluded.
• Impact on Completed Operations: While the primary intent is to exclude ongoing operations, it's crucial to understand how this endorsement interacts with completed operations coverage. In the context of a wrap-up, CG 21 53 can be strategically used to exclude only the ongoing operations, thereby preserving the contractor's own CGL for completed operations related to that project, which might be broader or longer in duration than the wrap-up's completed operations coverage. However, if not carefully managed, it could inadvertently create gaps.
• Contractual Requirements: Insureds, particularly contractors, must be mindful of their contractual obligations. If a contract requires coverage for all operations, using CG 21 53 to exclude certain work could put the insured in breach of contract. It's vital to ensure that any exclusions align with contractual insurance requirements.
• Location Specificity: If a specific location is designated in the schedule, the exclusion only applies to the described ongoing operations at that site. If no location is specified, the exclusion applies to the described ongoing operations wherever they are performed by or on behalf of the insured.
• Alternative to Excluding an Entire Premises: While CG 21 00 (Exclusion - All Hazards In Connection With A Designated Premises) excludes all liability related to a specific location (premises, operations, and products/completed operations), CG 21 53 offers a more targeted approach by focusing only on ongoing operations. This allows for more flexibility in tailoring coverage.

Key Information for Agents and Underwriters

Agents and underwriters should consider the following when dealing with CG 21 53:

• Risk Assessment: This endorsement is a tool for managing exposures deemed unacceptable by the underwriter. This could be due to the nature of the work (e.g., high-hazard activities like blasting or work at extreme heights), the insured's loss history with certain operations, or operations in particularly litigious jurisdictions.
• Pricing Considerations: Excluding specific high-risk ongoing operations should, in theory, lead to a premium reduction, as the insurer is shedding a portion of the exposure. The extent of this reduction will depend on the significance of the excluded operations relative to the insured's overall risk profile.
• Identifying Coverage Gaps: Agents must carefully review the endorsement with their clients to ensure they understand what is being excluded and to identify any potential coverage gaps. If a significant operation is excluded, the agent should discuss alternative risk transfer options, such as specialty policies or ensuring the risk is adequately covered elsewhere (e.g., by a principal in a wrap-up).
• Underwriting Guidelines: Underwriters may have specific guidelines for when this endorsement is mandatory. For example, some insurers might require it for contractors involved in residential construction in certain states known for construction defect litigation, or for specific trades with poor loss experience. Some insurers may use this endorsement if an insured has operations that fall outside the insurer's normal appetite or expertise.
• Wrap-Up Projects: When an insured is participating in a wrap-up, underwriters will often use CG 21 53 or a similar endorsement like CG 21 54 (Exclusion - Designated Operations Covered by a Consolidated (Wrap-Up) Insurance Program) to avoid "doubling up" coverage for ongoing operations. It's important to understand the differences; CG 21 54 typically excludes both ongoing and completed operations for the wrap-up project, while CG 21 53 can be used to more selectively exclude only ongoing operations, potentially preserving the insured's own completed operations coverage for that project.
• Clarity in Scheduling: Underwriters must ensure the "Description of Designated Ongoing Operation(s)" and any "Specified Location" on the endorsement schedule are precise and unambiguous to prevent future coverage disputes. Vague descriptions can lead to unintended coverage outcomes.