Form CU 21 85: Amendment Of Coverage Territory - Worldwide Coverage With Specified Exceptions
1. What the form is
The CU 21 85, "Amendment Of Coverage Territory - Worldwide Coverage With Specified Exceptions," is an endorsement to the standard Commercial Umbrella Liability Coverage Form (e.g., CU 00 01). Its primary purpose is to modify the policy's defined "coverage territory." While a standard umbrella policy typically limits coverage to occurrences or offenses within the United States, its territories and possessions, Puerto Rico, and Canada (and sometimes international waters or airspace if the injury or damage occurs in the course of travel or transportation between these places), this endorsement expands the territory to "worldwide." However, this worldwide coverage is subject to specified exceptions, meaning certain countries or jurisdictions listed in the endorsement's schedule or in the Declarations will remain excluded from the coverage territory. For offenses or incidents occurring in these expanded, non-excepted territories, the endorsement provides coverage where it might not otherwise exist.
It's important to note that if a "suit" is brought in a part of the expanded coverage territory (outside the standard USA, Puerto Rico, or Canada) and the insurer is prevented by law or otherwise from defending the insured, this endorsement typically requires the insured to initiate their own defense. The insurer will then reimburse the insured for reasonable and necessary defense expenses that the insurer would have paid if it had been able to defend. Similarly, if the insurer is prevented from paying sums the insured becomes legally obligated to pay as damages in these territories, the insurer will reimburse the insured. All payments or reimbursements are generally made in U.S. currency.
2. Classes of business it applies to
This endorsement is crucial for businesses with international exposures. Examples include:
- Manufacturers and Distributors: Companies that sell products or have their products incorporated into other goods that are distributed or sold globally. For instance, a U.S.-based electronics component manufacturer whose parts are used in devices sold in Europe or Asia.
- Consulting and Professional Services: Firms whose employees travel abroad to provide services to international clients, such as management consultants, engineers, or IT specialists working on projects overseas.
- Technology Companies: Software developers or tech companies whose products or services are accessed and used by customers worldwide, potentially leading to liability claims in foreign jurisdictions.
- Companies with International Operations or Sales: Businesses with foreign offices, subsidiaries, or a significant sales presence in countries outside the standard coverage territory. For example, a U.S. retailer with stores in Europe.
- Hospitality and Tourism: Businesses that arrange or are involved in international travel or tours.
- Construction and Engineering: Firms undertaking projects in foreign countries.
Essentially, any business whose operations, products, or employees could lead to a liability claim (bodily injury, property damage, or personal and advertising injury) in a foreign country would benefit from this endorsement. The globalization of operations has increased demand for such umbrella policies.
3. Special considerations
Several important points need consideration when using form CU 21 85:
- Specified Excepted Countries: The endorsement's schedule (or the Declarations) will list specific countries or jurisdictions where coverage does not apply. It is vital to review this list carefully to ensure it aligns with the insured's international operational footprint. Countries subject to U.S. trade or economic sanctions or embargoes are commonly excluded.
- Underlying Insurance: Commercial umbrella policies sit on top of underlying primary liability policies (like Commercial General Liability - CGL, Business Auto, and Employers Liability). It's crucial that the underlying policies also provide adequate international coverage where possible, or at least that the umbrella policy is understood to potentially "drop down" to cover claims not covered by underlying policies due to territorial limitations, subject to a self-insured retention (SIR). However, umbrella policies may not always be broader than underlying coverage in all respects.
- "Suit" Definition and Defense: The policy will define what constitutes a "suit." As mentioned, if a suit is brought in a territory where the insurer cannot directly defend, the insured may need to handle their own defense initially, with subsequent reimbursement by the insurer. This can have cash flow implications for the insured.
- Jurisdictional Issues: Disputes over coverage under the policy are typically required to be filed in U.S. courts (including its territories and possessions), Puerto Rico, or Canada.
- Maintenance of Local Coverage: The insured may be required to maintain any insurance mandated by local laws or authorities in foreign jurisdictions. Failure to do so might not invalidate the umbrella coverage, but the umbrella policy might apply as if such required local coverage was in full effect.
- Exhaustion of Underlying Limits: The umbrella policy generally responds after the limits of the applicable underlying insurance have been exhausted.
- Real-World Example: A U.S.-based software company licenses its product to a firm in Germany. A dispute arises over alleged intellectual property infringement, and the German firm sues the U.S. company in a German court. If Germany is not listed as an "excepted country" on CU 21 85, the umbrella policy, via this endorsement, could provide coverage for the defense and any subsequent judgment, subject to its terms and conditions. If the insurer is barred from defending in Germany, the U.S. company would hire local counsel and seek reimbursement.
4. Key information for agents and underwriters
- Risk Assessment: Underwriters must carefully assess the nature and extent of the insured's foreign operations. This includes understanding which countries the insured operates in, the nature of those operations (e.g., sales, manufacturing, services), the legal and regulatory environments of those countries, and the potential for large liability claims. The list of "Specified Excepted Countries" is a critical underwriting decision.
- Pricing: The premium for this endorsement will reflect the increased risk associated with worldwide exposures. Factors influencing price include the specific countries of operation (some are riskier than others), the volume of foreign sales or activity, and the insured's loss history in foreign territories.
- Coverage Gaps: Agents should work with insureds to identify potential coverage gaps. This includes ensuring the "Specified Excepted Countries" list is appropriate and discussing how claims in non-excepted foreign jurisdictions will be handled, particularly concerning initial defense and payment. It's also important to align this endorsement with any worldwide coverage provided by underlying policies.
- Underwriting Guidelines: Insurers will have specific underwriting guidelines for worldwide coverage. These may include requirements for the insured to have robust risk management practices for their foreign operations. Underwriters will also consider the types of products or services involved and whether they pose a higher risk in certain international markets.
- Relation to CU 00 01: This endorsement directly modifies Section IV – Conditions and the "coverage territory" definition within the CU 00 01 Commercial Liability Umbrella Coverage Form or a similar base umbrella form. Understanding the base form's limitations is key to appreciating the value and scope of CU 21 85.
- Sanctioned Countries: Coverage will almost universally exclude countries under U.S. economic sanctions or embargoes. Agents must ensure clients understand these inherent limitations.
- Claims Handling: Adjusting claims arising from foreign jurisdictions can be complex due to differing legal systems, languages, and customs. Underwriters will consider the insurer's ability to manage such claims effectively.