1. Forms
2. CG
3. CG-21-86

What the Form Is

The CG 21 86 Exclusion – Exterior Insulation and Finish Systems is an endorsement used with the Commercial General Liability (CGL) Coverage Part. Its primary function is to eliminate coverage for liability claims related to 'bodily injury', 'property damage', or 'personal and advertising injury' that arise from any operations or activities involving Exterior Insulation and Finish Systems (EIFS). EIFS, as typically defined in the endorsement, are multi-layered exterior wall claddings that include insulation board, a reinforcing mesh, a base coat, and a finish coat. The exclusion also often extends to components of the EIFS, such as flashing, caulking, or sealants used with the system.

Classes of Business It Applies To

This exclusion is predominantly applied to businesses in the construction industry. Specific examples include:

• General contractors involved in residential or commercial building
• Subcontractors specializing in exterior work, plastering, or stucco (if EIFS are used)
• Developers of residential or commercial properties.
• Manufacturers or distributors of EIFS products.

Essentially, any insured whose operations involve the design, manufacture, sale, installation, repair, or inspection of EIFS could see this exclusion attached to their CGL policy.

Special Considerations

The introduction of the CG 21 86 was largely a response by the insurance industry to the significant number of construction defect claims associated with EIFS. Key considerations include:

• Moisture Intrusion: EIFS have been prone to problems with water and moisture intrusion behind the cladding, leading to rot, mold, and structural damage to the building, as well as damage to the EIFS itself.
• Broad Scope: The exclusion is typically broad, aiming to remove coverage for a wide range of issues stemming from EIFS. Contractors should be aware that even if they only perform a small part of an EIFS installation or repair, this exclusion could negate coverage for claims arising from that work.
• Prevalence: Due to the historical loss experience, this exclusion is very common, and in some cases, mandatory for contractors, particularly those working on residential projects or in states with high rates of construction defect litigation.
• Contractual Obligations: Contractors should carefully review their contracts, as they may be required to have coverage that this endorsement would otherwise exclude. This exclusion can create a significant uninsured exposure.

Real-world example: A condominium developer hires a contractor to install EIFS on a new building. Several years later, residents discover widespread water damage and mold resulting from improperly installed EIFS. If the contractor's CGL policy includes the CG 21 86 endorsement, the insurer would likely deny coverage for the resulting property damage and any bodily injury claims related to mold, citing this exclusion.

Key Information for Agents and Underwriters

• Risk Assessment: For underwriters, the presence of any EIFS exposure is a significant red flag. The CG 21 86 is a tool to mitigate this exposure. Underwriters will scrutinize applications from contractors to determine the extent of their EIFS-related operations.
• Pricing: While the exclusion removes coverage, the underlying risk of a contractor's operations still influences pricing. However, for risks with significant EIFS exposure, this exclusion might be non-negotiable for an insurer to offer terms.
• Coverage Gaps: Agents must clearly communicate the impact of this exclusion to their construction clients. It creates a substantial coverage gap for any EIFS-related liability. Agents should discuss potential risk management strategies or the possibility (though often limited and expensive) of manuscripted coverage or specialized EIFS policies, if available.
• Alternatives/Supplements: In rare cases, some insurers might offer specific, limited EIFS coverage buy-back endorsements, but these are uncommon and usually come with lower limits and higher deductibles. Generally, the CG 21 86 signifies a clear intent to exclude EIFS claims.
• State Variations: While the ISO form is standard, its application and the availability of alternatives can vary by state and insurer. Agents and underwriters should be aware of their specific jurisdiction's stance on EIFS claims and coverage.