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3. CU-21-42

What the form is

The CU 21 42 is an endorsement to the ISO Commercial Liability Umbrella Coverage Form. Its primary function is to exclude coverage for liability claims related to 'bodily injury' or 'property damage' arising from Exterior Insulation and Finish Systems (EIFS). These systems, while economical for insulating buildings, have been associated with significant defects, often leading to moisture intrusion, mold, rot, and structural damage. This endorsement ensures that such EIFS-related risks are not covered under the umbrella policy, mirroring exclusions that may be present in the underlying general liability coverage.

Classes of business it applies to

This endorsement is relevant for a variety of businesses, particularly those in the construction industry or those that own or manage properties with EIFS. Examples include:

• General contractors and subcontractors involved in the installation, maintenance, or repair of EIFS on residential or commercial buildings.
• Building owners or property managers of structures that have EIFS installed.
• Architects and engineers who design projects incorporating EIFS.
• Distributors or manufacturers of EIFS products.

For instance, a construction company building a new housing development using EIFS on all homes would likely see this exclusion attached to their umbrella policy if their primary CGL policy also excludes EIFS.

Special considerations

Key considerations for the CU 21 42 endorsement include:

• Underlying Coverage: This endorsement should typically be attached to the commercial liability umbrella coverage form whenever the corresponding exclusion (CG 21 86 – Exclusion–Exterior Insulation and Finish Systems) is attached to the underlying Commercial General Liability (CGL) Coverage Form. This maintains consistency in coverage between the primary and umbrella layers.
• Scope of Exclusion: The exclusion applies broadly to losses due to the design, manufacturing, construction, fabrication, preparation, distribution, installation, application, maintenance, or repair of any EIFS, including any new or replacement EIFS. It also extends to the named insured's product or work related to EIFS.
• Intent: The intent is to treat EIFS-related losses similarly to those involving faulty or defective workmanship, rather than as fortuitous, covered loss exposures.
• Potential for Large Losses: EIFS-related claims can be substantial, involving costs for remediation of water damage, mold, structural repairs, and even rebuilding.

Key information for agents and underwriters

Agents and underwriters should be aware of the following when dealing with the CU 21 42:

• Risk Assessment: It's crucial to identify if an insured's operations involve EIFS in any capacity. This includes not just installation but also design, manufacturing, or distribution.
• Consistency with Underlying Policy: Ensure that if the underlying CGL policy excludes EIFS, the umbrella policy follows suit with the CU 21 42 to prevent a situation where the umbrella might drop down to cover something excluded by the primary layer, or to provide coverage excess of a risk not contemplated by the CGL.
• Coverage Gaps: Clearly communicate the implications of this exclusion to the insured. They need to understand that there will be no umbrella coverage for claims stemming from EIFS.
• Pricing and Underwriting: The presence of EIFS exposure, even with this exclusion on the umbrella, might still influence underwriting decisions and potentially pricing for other coverages, given the potential severity of EIFS-related issues. The exclusion itself is a risk management tool for the insurer.