What is the “Sistership” Exclusion?

The bodily injury and property damage liability insurance provided in coverage A of the current commercial general liability (CGL) form is subject to an assortment of exclusions. One of those is exclusion n., also known as the “sistership” exclusion (or “sistership” clause). It was in 1966 that insurance companies began to add to the standard form CGL liability policy exclusions such as the sistership exclusion, which sought to eliminate coverage for activities insurance professionals believed to be risks of developing and marketing a product.

The standard ISO form's sistership exclusion precludes coverage for “[d]amages claimed for any loss, cost or expense incurred by you or others for the loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of” the named insured's “product,” “work” or “impaired property” “if such product, work, or property is withdrawn or recalled from the market or from use by any person or organization because of a known or suspected defect, deficiency, inadequacy or dangerous condition in it.”

Typically, the exclusion bars coverage for the cost incurred when a product is recalled due to a known or suspected defect or deficiency that may cause injury or damage; and it applies only to costs incurred in order to prevent future damage/injury, not to damage/injury that has already taken place. If the exclusion is applicable, it does not eliminate coverage for all damage incurred because of the need to replace a product. Rather, it eliminates coverage only for damages incurred for the replacement.