1. Forms
2. CG
3. CG-40-07

What the form is

The CG 40 07 is an endorsement to the Commercial General Liability (CGL) policy designed to exclude coverage for operations specifically designated in the endorsement's schedule that are otherwise covered by a controlled insurance program (CIP), commonly known as a "wrap-up" program (e.g., Owner Controlled Insurance Program - OCIP, or Contractor Controlled Insurance Program - CCIP). Its primary function is to prevent duplication of coverage between the named insured's CGL policy and the wrap-up program for those specified operations. A key feature of this endorsement is the 'Limited Exception for Additional Insureds,' which means that under certain conditions, some coverage might still be afforded to additional insureds under the named insured's CGL policy, even for the excluded operations.

Classes of business it applies to

This endorsement is predominantly used for businesses involved in large construction projects where wrap-up insurance programs are common. This includes:

• Subcontractors: When a subcontractor is enrolled in a wrap-up program for a specific project, their individual CGL policy will often have this endorsement to exclude that project, as the wrap-up provides primary coverage for their on-site activities. For example, an electrical subcontractor working on a large commercial building project covered by an OCIP would have CG 40 07 on their policy to exclude work on that specific project.
• General Contractors: In some scenarios, a general contractor might also use this endorsement if parts of their operations are covered under a wrap-up initiated by the owner, while they maintain their own CGL for other risks or projects.

The endorsement helps ensure that the CGL policy responds primarily to exposures outside the scope of the wrap-up program.

Special considerations

• Clarity of Designated Operations: It is crucial that the 'Designated Operations' covered by the wrap-up program are clearly and precisely described in the Schedule of the endorsement to avoid ambiguity about what is excluded.
• Scope of the Limited Exception: The 'Limited Exception for Additional Insureds' needs careful review. This exception does not reinstate full coverage but provides a specific, limited grant of coverage for additional insureds, often related to liability arising out of the named insured's ongoing operations that are otherwise excluded. The exact extent of this exception is detailed in the endorsement language.
• Interaction with Wrap-Up Policy: Understanding the terms and conditions of the specific wrap-up program is essential to identify any potential gaps in coverage that might arise between the wrap-up policy and the CGL policy with this endorsement.
• Alternative to Older Forms: CG 40 07, introduced in 2019, along with CG 40 08 (Limited Exclusion – Designated Operations Covered By a Controlled (Wrap-Up) Insurance Program – Limited Exception for Additional Insureds), provides an updated approach compared to older ISO wrap-up exclusionary endorsements like CG 21 31 and CG 21 54.

Key information for agents and underwriters

• Risk Assessment: Agents must ascertain if their clients, particularly contractors, are involved in projects covered by wrap-up programs. If so, this endorsement (or a similar one) is generally necessary. Underwriters need to evaluate the nature of the designated operations and the potential residual exposure through the limited exception for additional insureds.
• Pricing and Premium Impact: By excluding specific operations covered by a wrap-up, the premium for the CGL policy may be reduced, reflecting the decreased risk exposure for the insurer. However, the limited exception for additional insureds means some residual risk is retained.
• Coverage Coordination: Agents should advise clients on how this endorsement affects their overall insurance protection and how it interacts with the coverage provided by the wrap-up program. It's important to ensure no unintended coverage gaps are created, especially for off-site activities or operations not included in the wrap-up.
• Contractual Requirements: Construction contracts often dictate insurance requirements. Agents and underwriters should review these contracts to ensure the CGL policy, including this endorsement, aligns with the contractual obligations, particularly concerning additional insured status and the hierarchy of coverage.