In the 1986 commercial property program, Insurance Services Office (ISO) renamed the Fire Legal Liability Coverage form to reflect the expanded coverage scope. This coverage is now known as the Legal Liability Coverage form, CP 00 40 10 12.

The importance of legal liability coverage has grown in almost direct relation to the increased use by insurers of the subrogation clauses in their contracts. At one time there was reluctance on the part of insurers, after paying a landlord for a building fire loss for instance, to take up the matter of the tenant's possible responsibility for the loss and his common law obligation to make restitution. This is no longer the case. Insurers are increasingly alert to subrogation possibilities. Moreover, the courts and even the insurance buying public are generally sympathetic to the notion that the guilty should pay, even when the loss is covered by the property owner's insurer.

Topics covered:

Development

Scope of the legal liability coverage form

Insuring agreement/coverage

Additional insureds, newly acquired organizations

Newly acquired property

Perils, exclusions

Method

Development

 Fire legal liability insurance has not always been readily available. Prior to passage of the multiple line laws, a strict separation between fire and casualty insurers prevailed, and the development of fire legal liability coverage was impeded because neither side felt comfortable with the line. (See Fire Legal Liability Insurance for a discussion of protective options developed to fill the void created by the absence of such insurance.) Fire underwriters could measure burnability but not the negligence factor. Casualty underwriters, on the other hand, did not routinely write the high property damage liability limits that were often required. Fire underwriters eventually devised a rating method—a percentage of the fire rate—to reflect the reduced exposure between first and third party liability and gradually came to dominate the writing of the coverage. The rules for fire legal liability coverage as a form of property insurance are under the jurisdiction of ISO and are included in the Commercial Lines Manual (CLM), division five, Fire and Allied Lines.

 But, coverage remains available under ISO rules in liability policies. Fire legal liability was a feature of the 1973 CGL broad form endorsement and is written directly into the Commercial General Liability policy. However, fire legal liability under the CGL covers only damage to premises caused by the fire peril and cannot be written to include other causes of damage. (See CGL Coverage Form—Coverage A for a review of fire damage liability coverage under the commercial general liability program.)

 The remainder of this discussion is devoted to legal liability coverage as provided by the Legal Liability Coverage Form, CP 00 40.

Scope of the Legal Liability Coverage Form

 The legal liability coverage form covers the insured's legal liability for loss or damage to real and personal property of others in the insured's care, custody, or control caused by a peril insured against, including coverage for loss of use and defense expenses. The loss to covered property must be "caused by accident," thus eliminating coverage for intentional damage brought about by the insured.

 The coverage can be applied to commercial property—mercantile or manufacturing, building or contents—in the care, custody or control of the insured. However, form CP 00 40 cannot be used for a contractor while working on a building. Manual rules state that the declarations (or legal liability coverage schedule form CP DS 05) must include a definite description of the insured's business operation and location and a description of the property of others for which the insured may be legally liable. In actual practice, it is most often written for the tenant of a commercial building.

 Buildings usually represent the largest single exposure of this type faced by the insured. For business personal property, there is another method of obtaining adequate protection against this exposure; the insured can buy optional direct insurance on personal property of others under form CP 00 10 10 12 (Building and Personal Property Coverage Form). The insurance is for the benefit of the owner of the property, not the named insured. Since this optional coverage is direct coverage and not liability coverage, the insured need not be legally liable for the loss before coverage applies. This is not to imply that this direct coverage is preferable to fire legal liability. In fact, the fire legal liability coverage may often be more suitable (economical) when values are substantial and legal liability protection encompasses all of the insured's coverage needs.

Insuring Agreement/Coverage

 A.  Coverage

     We will pay those sums that you become legally obligated to pay as damages because of direct physical loss or damage, including loss of use, to Covered Property caused by accident and arising out of any Covered Cause of Loss. We will have the right and duty to defend any "suit" seeking those damages. However, we have no duty to defend you against a "suit" seeking damages for direct physical loss or damage to which this insurance does not apply. We may investigate and settle any claim or "suit" at our discretion. But:

(1)     The amount we will pay for damages is limited as described in Section C. Limits of Insurance; and

(2)     Our right and duty to defend end when we have used up the Limit of Insurance in the payment of judgments or settlements.

1.  Covered Property And Limitations

     Covered Property, as used in this Coverage Form, means tangible property of others in your care, custody or control that is described in the Declarations or on the Legal Liability Coverage Schedule.

Covered Property does not include electronic data. Electronic data means information, facts or computer programs stored as or on, created or used on, or transmitted to or from computer software (including systems and applications software), on hard or floppy disks, CD-ROMs, tapes, drives, cells, data processing devices or any other repositories of computer software which are used with electronically controlled equipment. The term computer programs, referred to in the foregoing description of electronic data, means a set of related electronic instructions which direct the operations and functions of a computer or device connected to it, which enable the computer or device to receive, process, store, retrieve or send data. This paragraph does not apply to electronic data which is integrated in and operates or controls the building's elevator, lighting, heating, ventilation, air conditioning or security system.

2. Covered Causes Of Loss

     See applicable Causes of Loss form as shown in the Declarations.

3. Additional Coverage

     SUPPLEMENTARY PAYMENTS.

We will pay, with respect to any claim or "suit" we defend:

a.All expenses we incur.

b.The cost of bonds to release attachments, but only for bond amounts within our Limit of Insurance. We do not have to furnish these bonds.

c.All reasonable expenses incurred by you at our request, including actual loss of earnings up to $250 a day because of time off from work.

d.All costs taxed against you in the "suit."

e.Prejudgment interest awarded against you on that part of the judgment we pay. If we make an offer to pay the Limit of Insurance, we will not pay any prejudgment interest based on that period of time after the offer.

f.All interest on the full amount of any judgment that accrues after entry of the judgment and before we have paid, offered to pay, or deposited in court the part of the judgment that is within our Limit of Insurance.

These payments will not reduce the applicable Limit of Insurance.

 Analysis

 The insuring agreement of form CP 00 40 binds the insurer to "pay those sums that the insured becomes legally obligated to pay as damages because of direct physical loss or damage, including loss of use, to covered property caused by accident and arising out of any covered cause of loss." Covered property is defined as "tangible property of others in your care, custody or control that is described in the Declarations or on the Legal Liability Coverage Schedule."

 The 2002 edition of the form added electronic data as property not covered. The section explains what constitutes electronic data and clarifies what is meant by computer programs within the meaning of electronic data.

 The phrase "legally obligated" is used to emphasize that the insurance is in no way direct coverage. The policy does not cover damage to the property; it covers the insured and his or her responsibility as imposed by law following the damage. Naturally, the insurer will use whatever legal defenses are available to the insured in resisting the assessment of responsibility. The policy reserves the insurer's right to investigate and settle any claim or suit.

 This leads to the second—and often equally important—aspect of legal liability coverage. The insurer has "the right and duty" to defend any "suit" seeking damages and will bear the cost of defending a suit against the insured. A "suit" is defined as including an arbitration proceeding to which the insured must submit or to which the insured submits with the consent of the insurer. Payment of legal expenses is in addition to the limit set forth in the policy. The insurer agrees to pay the cost of defense attorneys and court costs. The amount payable for these expenses is limited by the provision that the insurer's obligation to defend ends when the insurer has expended the limit in payment of judgments or settlements. In other words, the insurer must pay whatever the insured's legal expenses are (even if they exceed the policy limit) until a judgment or settlement is reached and the amount of the limit has been paid out in the judgment or settlement.

 In the 2012 revision, ISO added a statement that the exclusion of electronic data from covered property does not apply to loss or damage to electronic data that is integrated in and operates or controls the building's heating, lighting, security, air conditioning, ventilation, or elevator systems

  Additional Insureds, Newly Acquired Organizations

 4.Coverage Extensions