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2. CU
3. CU-21-04

What the form is

The CU 21 04 Exclusion – New Entities endorsement is an Insurance Services Office (ISO) form used with the Commercial Liability Umbrella Coverage Part. Its primary function is to amend Section II – Who Is An Insured. Specifically, it removes the provision (often paragraph 1.c. in the standard umbrella form) that automatically grants insured status, typically for a limited time (e.g., 90 or 180 days), to new organizations, other than joint ventures, that the named insured forms or acquires during the policy period. By attaching this endorsement, insurers ensure that coverage does not automatically extend to these new entities without their explicit knowledge, underwriting, and acceptance.

Classes of business it applies to

This endorsement can be applied to virtually any class of business that carries a Commercial Liability Umbrella policy. It is particularly relevant for:

• Businesses with a history of mergers, acquisitions, or frequent formation of new subsidiaries or LLCs (e.g., real estate development, investment holding companies, rapidly expanding franchises).
• Organizations where the risk profile of newly acquired or formed entities could differ significantly from the named insured, and the insurer wishes to underwrite each new exposure individually.
• Insureds for whom the insurer wants to maintain tighter control over the scope of coverage and avoid unintentional exposure to unforeseen risks from new ventures.

For example, a manufacturing company that frequently acquires smaller competitors or a technology firm that often spins off new ventures would be scenarios where an underwriter might consider using this endorsement.

Special considerations

Key considerations for the CU 21 04 include:

• Coverage Gap Potential: If this endorsement is attached, the named insured must be diligent in promptly notifying the insurer of any newly formed or acquired entities and requesting they be added to the policy. Failure to do so will result in no umbrella coverage for these new entities.
• Contrast with Standard Form: The standard ISO Commercial Liability Umbrella Coverage Form (CU 00 01) typically provides some automatic temporary coverage for new entities. This endorsement explicitly removes that automatic extension.
• Underlying Coverage: It's important to ensure consistency with underlying policies. If underlying general liability or auto liability policies also restrict coverage for new entities, this umbrella endorsement aligns the excess coverage.

For instance, if a company acquires a new subsidiary mid-term and this endorsement is on their umbrella policy, that subsidiary has no coverage under the umbrella until the insurer is notified and agrees to add them, likely via a separate endorsement and potentially additional premium.

Key information for agents and underwriters

For Agents:

• It is crucial to clearly explain the impact of this endorsement to the insured. Emphasize that new businesses or acquisitions are not automatically covered under the umbrella policy.
• Establish a clear procedure with the insured for reporting new entities promptly to avoid coverage gaps.
• Advise clients who are acquisitive or frequently restructure their business on the importance of this reporting.

For Underwriters:

• This endorsement is a tool to manage exposure and prevent automatic coverage for unknown risks that new entities might present.
• It allows for individual underwriting of each new entity, ensuring the risk profile aligns with the insurer's appetite and that appropriate premium is charged.
• When deciding to use this form, consider the named insured's operational nature, acquisition history, and the potential for changes in their organizational structure.
• The presence of this endorsement can simplify underwriting by removing the uncertainty of automatically covering entities whose operations and risks have not yet been evaluated.