Form CU 00 01: Commercial Liability Umbrella Coverage Form
The CU 00 01 Commercial Liability Umbrella Coverage Form is a standard insurance policy form developed by the Insurance Services Office (ISO) that provides businesses with an extra layer of liability protection. Its primary purpose is to supplement existing primary liability policies, such as Commercial General Liability (CGL), Business Auto, and Employers Liability. The CU 00 01 kicks in when the limits of these underlying policies are exhausted by a covered claim. Importantly, this form is a "stand-alone" policy, meaning it has its own terms, conditions, definitions, and exclusions, which may differ from the underlying policies. It can also provide coverage for certain exposures not covered by the primary policies, often referred to as "drop-down" coverage, which is typically subject to a self-insured retention (SIR) or a deductible.
Classes of Business It Applies To
The CU 00 01 is versatile and can be utilized by a wide array of businesses across various industries. It is particularly crucial for businesses with significant liability exposures, including but not limited to:
- Contractors: Construction companies often face high-risk environments and contractual obligations requiring substantial liability limits. An umbrella policy can provide necessary excess coverage for worksite accidents or completed operations claims that exceed their CGL limits.
- Manufacturing Companies: Businesses involved in manufacturing products can face significant product liability claims. If a product causes widespread injury or damage, the financial repercussions can be immense, making an umbrella policy essential.
- Real Estate Owners and Property Managers: Owners of commercial properties, such as shopping centers or apartment complexes (e.g., Paramount Real Estate Group, Inc.), are exposed to premises liability claims. A slip-and-fall incident resulting in severe injuries could easily exhaust primary CGL limits.
- Transportation and Trucking Companies: Businesses with a fleet of vehicles have a higher risk of auto-related accidents. An umbrella policy provides additional protection over their business auto liability coverage.
- Businesses with High Public Interaction: Retail stores, restaurants (e.g., a diner with a $1,000,000 CGL and a $5,000,000 umbrella), and entertainment venues often have a large volume of customers on their premises, increasing the likelihood of liability claims.
- Professionals (though often supplemented by professional liability): While professional liability is distinct, some professionals may also benefit from a commercial umbrella for general liability exposures not directly related to their professional services.
Essentially, any business that has the potential for a catastrophic liability loss that could bankrupt the company should consider a Commercial Liability Umbrella.
Special Considerations
Several important factors should be considered when utilizing the CU 00 01:
- Maintenance of Underlying Insurance: The CU 00 01 requires the insured to maintain the scheduled underlying insurance policies. Failure to do so can create a gap in coverage, and the umbrella policy will typically respond as if the underlying coverage was in full force. The Declarations page (related to form CU DS 01) will list these required underlying policies and their limits.
- Self-Insured Retention (SIR): For claims covered by the umbrella but not by an underlying policy ("drop-down" coverage), the insured will typically have to pay a self-insured retention before the umbrella policy responds. This SIR does not apply when the umbrella is acting in excess of exhausted underlying limits.
- "Follow Form" vs. Broader Coverage: While an umbrella can provide broader coverage, it's not always a "follow form" policy that simply mirrors the underlying coverage. The CU 00 01 has its own set of exclusions and conditions that may restrict coverage even if the underlying policy would have covered a loss. For example, the umbrella may have a more restrictive pollution exclusion unless the underlying policy provides specific pollution coverage.
- Exclusions: The CU 00 01 contains various exclusions, such as those for aircraft or watercraft, liquor liability (with exceptions if underlying liquor liability exists), pollution, recall of products, and workers' compensation and employers liability (though it typically sits excess of employers liability). It's crucial to review these exclusions carefully.
- Defense Costs: The policy outlines the insurer's right and duty to defend against suits. This duty may end when the policy's limit of insurance has been exhausted by paying judgments or settlements.
- Worldwide Coverage: Many commercial umbrella policies, including those based on the CU 00 01, may offer worldwide coverage for injury or damage, which can be broader than typical primary policies.
A real-world example of a special consideration: If a business hosts an event and serves alcohol, and an intoxicated guest later causes an accident, the liquor liability exclusion in the CU 00 01 might apply. However, if the business has underlying liquor liability coverage, the umbrella may provide excess coverage, following the terms of that underlying policy.
Key Information for Agents and Underwriters
Agents and underwriters should focus on the following when dealing with the CU 00 01:
- Pricing: Pricing for commercial umbrella policies is often a matter of individual judgment by the insurer and can vary significantly based on the risk profile. Key factors include the limits of underlying insurance (a $1 million underlying limit is common), the type of business and its associated hazards, claims history, and the desired umbrella limit.
- Risk Assessment: Underwriters will scrutinize the nature of the insured's operations, loss history, and the adequacy of their existing primary coverage. Businesses in higher-risk industries (e.g., construction, manufacturing with hazardous products) will face more stringent underwriting and higher premiums.
- Coverage Gaps: It's critical to identify potential coverage gaps between the underlying policies and the umbrella. For instance, if an underlying policy has a sublimit for a particular exposure, the umbrella may not cover that exposure unless the sublimit is specifically declared and contemplated in the umbrella's pricing. Endorsements can be used to modify coverage, so a thorough review of all attached endorsements is essential.
- Underlying Policy Review: Underwriters must carefully review the underlying policies, especially if they are non-standard or heavily endorsed, to understand the scope of coverage the umbrella will sit over. The CU 00 01 is designed to work with standard underlying forms like the CGL (CG 00 01).
- Contractual Requirements: Businesses often face contractual requirements from clients or landlords to carry specific umbrella limits and to provide additional insured status on a "primary and noncontributory" basis. While ISO has introduced endorsements to address the "noncontributory" aspect (e.g., CU 24 78), ensuring the umbrella meets all contractual demands requires careful attention.
- Ultimate Net Loss: The policy pays the "ultimate net loss," which is the total amount the insured is legally obligated to pay as damages, after reductions for recoveries or salvage.
- Declarations Page (CU DS 01): The CU DS 01, Commercial Liability Umbrella Declarations, is a critical related form. It will specify the named insured, policy period, limits of insurance (including aggregate limits), the schedule of underlying insurance, the self-insured retention amount, and any endorsements. The form of business listed on the declarations (e.g., individual, partnership, LLC, corporation) is important for determining who qualifies as an insured.
A practical insight for underwriters: When assessing a contractor, pay close attention to their use of subcontractors and the contractual liability they assume. The standard CGL form provides an exception for liability assumed under an "insured contract," but some endorsements might restrict this, potentially creating a gap that the umbrella might also exclude if it follows form too closely or has its own similar limitations.