What is a general liability manifestation clause?

Summary: General liability manifestation clauses should be reviewed very carefully with your broker before you buy

QUESTION: What is a general liability manifestation clause? Cane


ANSWER: Thank you for the opportunity to answer your question Cane!

First, there is no such thing as a standard general liability manifestation clause. The carriers that sell this use manuscripted language that varies from company to company.

One company I know of uses this language: "The insurance applies to bodily injury or property damage only if it manifests during the policy period.... etc. and that first manifests prior to the effective date of this policy or after the expiration of this policy etc."

So how could this ever be a problem?

Let's say you had this policy and it expired 4/1/08.

You then switched to a standard "occurrence" form policy.

Unbeknownst to you (or anyone else) a claim "occurred" sometime during or after you completed a remodel job that finished 3/1/08.

On June 1, 2008 the building owner notices a strange smell coming from a seldom used storage room in the back. He opens the door to discover a soaked and buckled floor, swollen moldy drywall, and water stained furniture, etc. The ensuing investigation shows that a pinhole leak in a pipe in the wall has been leaking for months.

The 2 questions asked by adjusters will be:

1. When did this claim "manifest" itself? ... and
2. When did this claim actually "occur?

The simple answers are:

1. It "manifested" itself when it was discovered (June 1).
2. It "occurred" when the construction was completed (March 1, 2008). (In construction defect claims most courts deem the occurrence date to be on or before the last date when construction was completed.)

Because your "manifestation" clause policy expired April 1, it won't respond to this claim. The claim "manifested" after the policy expired. Your new "occurrence" policy also won't respond because the claim "occurred" (3/1/08) prior to their policy inception date. Now you've got an uncovered loss and a big problem.

This was a wordy example and I apologize. It may provoke more questions than it answered. If so, please bring the questions to me and we'll tackle them one at at time. By no means is this an exhaustive analysis of the "manifestation" clause, but I think it does illustrate the danger. Since these forms are not standard, there may well be other qualifying language in some policies that broadens the coverage or the definition of the word "manifestation". I just believe these policies should be reviewed very carefully with your broker before you buy.

If you have a specific question, shoot me an email.

Thanks
Gary


Thank you to Gary Oltmanns for the above article. :) Gary is owner and president of Southern California Insurance Brokerage Inc. and specializes in insurance programs and surety bonds for artisan contractors, their suppliers and service providers. Contact Southern California Insurance today for a free quote!

The information in this article is provided for general information, only. Any information or analysis presented in this article is intended solely to educate the reader on general issues. Please do not rely on any part of this article when analyzing any specific situation affecting you or your business. For more information about artisan liability insurance and other insurance programs and surety bonds for California contractors, suppliers and service providers please contact Gary.



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