Form CG 21 54: Exclusion – Designated Operations Covered By A Consolidated (Wrap-Up) Insurance Program
1. What the form is
The CG 21 54 endorsement is used with a Commercial General Liability (CGL) policy to exclude coverage for "bodily injury" or "property damage" that arises from specific operations of the named insured. These operations are those covered by a consolidated insurance program (CIP), often referred to as a "wrap-up" program, at a designated location listed in the endorsement's Schedule. This exclusion applies to both ongoing operations and the products-completed operations hazard. Crucially, the exclusion stands regardless of the scope of coverage, limits of liability, or even the continued existence of the wrap-up program. Its primary purpose is to prevent duplication of coverage, where a contractor's work on a specific project is already insured under a wrap-up policy typically arranged by the project owner or general contractor.
2. Classes of business it applies to
This endorsement is predominantly used in the construction industry. It applies to contractors and subcontractors of any tier who are involved in large construction projects where a wrap-up insurance program is in place. Wrap-ups are common for significant projects like:
- Commercial building construction (office towers, shopping malls)
- Public works projects (bridges, airports, infrastructure)
- Large residential developments
- Industrial or manufacturing facility construction
Real-world example: A plumbing subcontractor is hired to work on a new high-rise office building. The owner of the building has implemented an Owner Controlled Insurance Program (OCIP) that provides general liability coverage for all enrolled contractors on the project. The plumbing subcontractor's own CGL insurer would then add the CG 21 54 endorsement to their policy, specifically naming the high-rise project in the Schedule. This means the subcontractor's CGL policy will not respond to claims arising from their work on that specific high-rise, as coverage is intended to be provided by the OCIP.
3. Special considerations
- Coverage Gaps: A significant concern is the potential for coverage gaps. If the wrap-up program has different terms, lower limits, or is cancelled, the contractor might find themselves uninsured for certain claims related to the designated project, as their own CGL policy will not respond due to the CG 21 54 exclusion. It's vital for contractors to understand the scope and limitations of the wrap-up program.
- "Enrolled" vs. "Involved": Older versions of the CG 21 54 (like the 01 96 edition) had broader language that could be interpreted to apply if the insured was merely "involved" in a project with a wrap-up, even if not formally enrolled. Newer versions (e.g., the 12 19 edition) often narrow the exclusion to apply only if the insured is actually "enrolled" in the wrap-up program for the specific bodily injury or property damage. This distinction is critical.
- Completed Operations: The CG 21 54 excludes both ongoing and completed operations. Since wrap-up programs may offer limited completed operations coverage (e.g., for a shorter duration than the contractor's own policy or statutory requirements), this can leave the contractor exposed years after the project is finished.
- Alternative Endorsement CG 21 31: There is an alternative endorsement, CG 21 31 (Limited Exclusion – Designated Operations Covered By A Consolidated (Wrap-Up) Insurance Program). The key difference is that CG 21 31 may provide coverage if the wrap-up program is cancelled or non-renewed for reasons other than the exhaustion of its limits. CG 21 31 is often considered the preferred endorsement from the contractor's perspective.
- Contractual Requirements: Contractors should carefully review construction contracts, which often dictate insurance requirements related to wrap-up projects. They need to ensure their insurance program, including any exclusions, aligns with these contractual obligations.
Real-world example: A subcontractor is working on a project covered by a CCIP (Contractor Controlled Insurance Program). Their CGL policy includes the CG 21 54. The CCIP provides completed operations coverage for only two years post-project completion. If a defect in the subcontractor's work causes property damage three years after completion, the CCIP will not respond. Furthermore, due to the CG 21 54, the subcontractor's own CGL policy will also deny coverage for this completed operations claim, potentially leaving them with a significant uninsured loss.
4. Key information for agents and underwriters
- Risk Assessment: Underwriters need to identify if an insured contractor participates in wrap-up projects. If so, the specific projects should be listed in the Schedule of the CG 21 54. Understanding the types of projects and the typical scope of wrap-up coverage involved is crucial.
- Pricing: Attaching the CG 21 54 generally results in a premium credit for the contractor, as the insurer is carving out a significant exposure. The amount of credit will depend on the size and nature of the excluded project(s).
- Coverage Gap Analysis: Agents have a critical role in counseling their contractor clients about the potential for coverage gaps when this endorsement is used. This includes:
- Comparing the wrap-up program's coverage (limits, duration of completed operations, exclusions) with the contractor's own CGL.
- Advising on the potential need for Difference in Conditions (DIC) or excess coverage to fill gaps, although manuscripting such coverage can be challenging.
- Clarity of "Enrollment": It is essential to ascertain whether the contractor is formally enrolled in the wrap-up program for the designated project. The newer versions of the CG 21 54 (e.g., 12 19 edition) that specify "enrolled" are generally clearer and may prevent disputes. If older versions are used, underwriters and agents should seek clarity on the insured's status regarding the wrap-up.
- Additional Insured Status: The CG 21 54 exclusion can also impact additional insureds on the contractor's policy. If the exclusion applies broadly to operations on a wrap-up project, it might negate coverage for an additional insured for a claim arising from that project, even if the additional insured isn't part of the wrap-up. Some newer endorsements (like CG 40 07 and CG 40 08) address this by providing limited exceptions for additional insureds not enrolled in the wrap-up.
- Off-site Exposures: Wrap-up programs typically cover job-site risks. The CG 21 54 excludes operations "at the location described in the Schedule." Agents and underwriters should confirm that the contractor's CGL policy still provides adequate coverage for any off-site exposures related to the project that might not be covered by the wrap-up (e.g., fabrication at the contractor's own premises before transport to the job site).