SDV Insights

Creeping Incrementalism in Downstream Insurance: Carriers are Stretching Standard CGL Concepts to Untenable Limits

In the construction sector, the importance of closely vetting downstream parties’ insurance has never been more critical. The markets have been hardening with no seeming end in sight and carriers are looking for any way to get an edge. Owners and general contractors need to be on the lookout for ever broader carrier-specific expansions of standard insurance provisions that are perilous for risk transfer. We are seeing more and more terms that go against the intent of ISO standard which is what is almost universally required in construction contracts.

 One area where carriers are deviating from standard concepts is within pre-existing injury or damage exclusions in Commercial General Liability (“CGL”) policies. It is almost a universal requirement that downstream parties provide additional insured coverage to owners and general contractors on ISO form CG 00 01. Generally, ISO standard language provides coverage for sums the insured becomes legally obligated to pay as damages because of bodily injury or property damage. One of the few main requirements to trigger coverage is that the injury or damage must occur during the policy period. Over the years, ISO standard language has evolved to exclude injury or damage if an insured or certain persons knew that it had occurred before the policy period. Additionally, injury or damage is deemed to have been known to have occurred under certain circumstances.

Had Reason To Suppose a Loss

Carriers have taken this knowledge concept and are pushing it to extremes that do not follow the intent of ISO standard, stretching the knowledge concept into the impractical. Particularly, one CGL form we have been seeing recently completely bars coverage if any insured has knowledge of a fact, circumstance, or transaction that the insured “had reason to suppose might give rise to any” loss or suit. It is no secret that construction projects are risky. Every entity engaging in real estate development and construction has a reason to suppose a new project might give rise to a loss or suit. That is why insurance is purchased, but under this provision, is purchasing insurance going to become evidence that the insured “had reason to suppose” a loss or suit might arise? The intent is entirely unclear, but parties purchasing CGL policies expect coverage for injury or damage that occurs during the policy period. This provision completely undermines that expectation.

Other variations we have seen include barring coverage for losses which are “at any time presented” to a CGL policy that predates the one containing the exclusion. These types of exclusions present a particular risk for latent defect and continuing loss claims. Often times, when a loss spanning multiple years comes in, the insured does not know when it began. The underlying complaint also may not initially allege the correct time span that injury or damage was occurring. Because CGL coverage requires injury or damage during the policy period, the insured should be free to put any potentially triggered policy on notice without the risk of losing coverage because of how the facts ultimately bare out.

For example, assume a claim against a contractor for water damage stemming from faulty window installation that was performed five years ago. The contractor does not know when the water damage occurred in that time span and provides notice to each policy spanning that time period. If the facts play out that the water damage did not occur until year three, the policy covering that year will not respond if it has the “at any time presented” language in it because the contractor presented the claim to an earlier policy. The earlier policy will not respond because there was no property damage during its policy period. The contractor had CGL coverage for the entire time period but is uninsured because of this non-standard language.

These are just a few examples of deviations from what is expected in the construction industry, but many carriers have their own variations. Because these exclusions are being couched within existing CGL concepts, they may not be as readily recognizable as hot topic problematic terms. This is why vetting downstream parties insurance has to be more than just receiving COIs and keeping them on file. The creeping incrementalism of non-standard policy wording could throw a wrench into intended risk transfer and only get discovered once an accident occurs. However, the extra effort up front to ensure insurance is procured that aligns with industry standards and expectations can easily sift out perilous deviations.

To learn more about this topic, contact Eric M. Clarkson at


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