Businesses face many types of liability exposures. Because businesses differ in what they do and how they operate, their liability exposures will differ as well. Common business exposures include:

• Ownership of property
• Business operations on and off the premises
• Manufacturing
• Completed operations
• Contractual liability

The Commercial General Liability (CGL) policy may be written on an “occurrence” basis or on a “claims-made” basis.

• An occurrence form is triggered by when the injury or damage happens.
• A claims-made form is triggered by when the claim is made (reported) during the policy period.

The claims-made trigger is the date when the claim is reported by the named insured. There is no coverage for claims that occur before the “retroactive date” shown in the Declarations. If no date is shown, the policy will apply to all injury and damage covered by the policy for a claim made during the policy period, no matter when the injury or damage occurred.

Both claims-made and occurrence policies have three extended reporting periods available. Two are built into the policy itself. These are known as the “basic extended reporting periods.” The basic periods begin when the policy period ends and are activated if there is a break in coverage.

• Claims arising out of occurrences after the retroactive date but before the expiration date of the policy will be covered if they are reported during a 60-day period following the expiration date. This is known as the 60-day or “Mini” tail.
• The policy also covers claims communicated within 5 years of the expiration date of the policy arising out of happenings communicated to the insurer during the policy period OR within 60 days following the expiration date (“Midi” tail).

The insured may also purchase a supplemental “Maxi” tail for an extra premium. Once purchased, this tail may not be terminated by the insurer. Its purpose is to lengthen the claim submission period, but not the policy term.

Sidenote

Know this...

According to students, “Laser Beam Endorsement” has surfaced on the exam. It is an endorsement of the claims-made form that permits the insurer to exclude coverage for specific accidents, products, work, or locations for bodily injury or property damage. Also, note that the maximum an insurer may charge for a “Maxi” tail is 200% of the policy’s annual premium.

Coverage sections

The CGL, whether written on an occurrence or claims-made basis, includes three coverage sections: A, B, and C.

Coverage A

Coverage A provides coverage against two exposures:

1. Premises and Operations
2. Products and Completed Operations

Premises and Operations Liability Coverage applies to normal operations occurring at locations specified on the Declarations page. It also applies to:

• newly acquired property (if the insurer is notified within 30 days of acquisition)
• ways immediately adjoining the insured premises
• incidental operations occurring elsewhere

Premises and Operations Liability Coverage also covers incidental contracts associated with the insured’s business, such as:

• Sub-contracting contracts
• Sidetrack agreements with railroad
• Easement agreements
• Agreements with a civil authority
• Elevator maintenance agreements

Products and Completed Operations Liability Coverage protects the insured for bodily injury and property damage occurring away from premises owned or rented to the insured and arising out of the insured’s products. An injured person can sue manufacturers, wholesalers, and retailers due to their negligence. That negligence can be based on the following:

• Negligence - which can be caused by one of the following:

  1. Improper product design
  2. Improper assembly of the product
  3. Failure to inspect or test the product
  4. Failure to warn of inherently dangerous characteristics
  5. Deceptive advertising
  6. Containers, materials, parts, or other furnished in connection with a product

• Breach of Warranty - there is an implied warranty that the product is safe for use

• Strict Liability - an example would be the improper manufacturing of packaged food

Sidenote

Know this...

The product must have been relinquished to the third party to qualify as a products claim.

Products coverage protects a business that markets a product. For example, if a toy company manufactures a product that is found to be responsible for causing injuries to children who play with it, the business would be protected by the policy.

Completed operations coverage is similar to products coverage, but it involves liability for work that has been completed for others. This includes operations completed away from the premises of the company performing these operations and warranties or representations regarding these operations.

Completed operations claims usually involve negligence by a person performing work or a service. For example, if a water heater is installed improperly by an employee of a business and a leak later damages a customer’s property, the named insured would be protected by the policy against this negligent act.

Several exclusions that apply to commercial liability coverage include:

• Intentional damage or injury caused by the named insured

• Contractual liability except for insured contracts as defined by the policy

• Liquor liability, which involves BI or PD to others resulting from the insured furnishing alcohol to any person

• Injuries to employees eligible for Workers’ Compensation benefits

• Pollution. There is no coverage for clean-up costs or for any BI or PD that might arise from the discharge of pollutants

• Autos, aircraft, and watercraft. This involves BI or PD to others if resulting from the use by the insured of any of these items that are owned, operated by, rented to, or loaned to any insured. However, this exclusion does not apply to watercraft of less than 26 feet

• BI or PD arising out of the use of mobile equipment

• BI or PD to an insured. Damage to property in the insured’s care, custody, or control is not covered

• Damage to an insured’s product

• Damage to impaired property. Impaired property is a property that is not actually damaged but is diminished in value in some way. It describes a property that cannot be used or is less useful due to a defect or deficiency

• Product recall. The insurer will not pay for any loss incurred due to the recall, withdrawal, inspection, repair, replacement, or removal of the insured’s product or labor

Coverage B

This section provides protection to a business owner against personal injury and advertising injury losses. Don’t confuse the term “personal injury” with bodily injury. Personal injury would include:

• False Arrest, Detention or Imprisonment

  • The unlawful detention of a person

• Malicious Prosecution

  • When one person sues another person without cause and the person who sued lost the case, the person who won the case, sues based on malicious prosecution because the first party sued when he/she had no case, but sued out of malice.

• Wrongful Eviction

  • The physical eviction of an individual from a public place in violation of his/her civil rights

• Defamation of Character

  • The spreading of untruths of a person by slander (orally) or libel (in writing)

• Invasion of Privacy

  • Everyone has a right to his privacy; invading that privacy by illegally searching one’s house without a warrant is wrong

Advertising injury means injury arising out of oral or written defamation committed during the course of advertising one’s goods, services, or products. It would also cover copyright infringement or the misappropriation of advertising ideas. Under either type of coverage, the injury must occur during the policy period and within the coverage territory.

Sidenote

Know this...

If an insured commits an offense but the insured’s business is advertising, broadcasting, publishing, or telecasting, there is no coverage.

Coverage C

This section functions in a similar way to medical payments under an HO policy. It pays the reasonable medical expenses incurred within one year of the date of the accident. This covers the insured for his/her responsibility for injury to others, so it does not cover injuries sustained by anyone who is a named insured under the policy. Like an HO policy, negligence does not have to be established in order for the policy to pay under this section of coverage.

To be covered, the occurrence must be during the policy period and:

1. Accidental
2. On premises (owned or rented)
3. Result of the insured’s operations

Sidenote

Know this...

Supplementary coverage of a CGL includes reasonable expenses incurred by the insured at the insurer’s request, including loss of earnings of up to $250 per day.

CGL Conditions

Bankruptcy

• If the insured becomes bankrupt or insolvent, the insurer cannot refuse to pay claims that may be covered under this policy.

Duties in the Event of Occurrence, Claim, or Suit:

1. Insured must give prompt notice of claim, including names and addresses of injured people or witnesses
2. Insured must send notices of suits to the insurer
3. Give insurer authorization to obtain records and other information
4. Cooperate with the insurance company in any manner
5. Assist the company in the enforcement of any subrogation rights

Sidenote

Know this...

The insured may not make any voluntary claim payments, unless at his own expense, except first aid, without the insurer’s permission.

Legal Action Against Us

• The insured cannot sue the insurance company unless all conditions of the policy have been met, nor bring the insurance company into a suit later than two years from the alleged grievance.

Other Insurance Clause

• If the insured has more than one CGL policy, the primary policy will respond to a loss until the limits of insurance have been exhausted, and the excess policy will respond after other policies have exhausted their limits of insurance.

Premium Audit

• Premium is based upon payroll, sales, and receipts. Once the policy expires, the insurance company sends an auditor to the insured.

Separation of Insureds

• CGL coverage applies as if each named insured were the only named insured and applies separately to each insured against whom a claim is made.

Policy Limits

• General Aggregate Limit

  • The most that will be paid for the sum of Coverages A, B, and C, except for damages arising out of the products-completed operations hazard.

• Per Occurrence Limit

  • The most that will be paid for the sum of damages under Coverages A and C because of all bodily injury, property damage, and medical payments arising out of any one occurrence. This limit is subject to either the General Aggregate Limit or the Products-Completed Operations Aggregate Limit, whichever is applicable.

• Products-Completed Operations Aggregate Limit

  • Represents the most that will be paid under Coverage A because of injury and damage arising out of the products-completed operations hazard.

The CGL Policy Territory

• United States of America, including its territories and possessions, Puerto Rico, and Canada
• International waters or air space
• Anywhere in the world for injury or damage arising from a product sold or made in the covered territory

Sidenote

Know this...

Injury may occur anywhere (must have Products Liability to be covered) but most companies will require suits to be filed in covered territory.

A CGL covers all of the following as insureds:

• An individual, the named insured, and a spouse are covered only with respect to their conduct regarding the business of which the named insured is the sole owner
• A partnership or joint venture, the named insured and all members and managers are covered only with respect to their conduct within the insured business
• A limited liability company, the named insured and all members and managers are covered only with respect to the insured business and their related duties
• All officers and directors and all stockholders are covered but only with respect to their duties as officers and directors or their liability as stockholders
• Employees are covered but only for acts that fall within the scope of their employment
• Any person or organization while acting as a real estate manager for the named insured
• Appointed legal representatives, upon the death of the named insured, are covered but only with respect to the insured property
• Operators of the insured’s mobile equipment along a public highway with the insured’s permission

Lesson Summary

Commercial Liability Coverage helps businesses protect themselves against a range of liability exposures. Here is a summary of key points related to Commercial General Liability (CGL) policies:

• Businesses face different liability exposures based on their operations and activities.
• The CGL policy can be written on an “occurrence” or “claims-made” basis with differences in coverage triggers.
• There are three extended reporting periods available for both types of policies.
• The CGL policy consists of three coverage sections - A, B, and C.

Key features of each coverage section are outlined below:

• Coverage A:
  • Provides coverage for Premises and Operations and Products and Completed Operations.
  • Includes protection for normal operations, newly acquired properties, and incidental contracts.
  • Products and Completed Operations coverage safeguards against bodily injury and property damage resulting from the insured’s products or completed work.
• Coverage B:
  • Offers protection against personal injury and advertising injury losses.
  • Includes coverage for instances like false arrest, defamation, invasion of privacy, and advertising injury.
• Coverage C:
  • It serves a purpose similar to medical payments coverage under a Homeowners policy.
  • Pays for reasonable medical expenses related to injuries to non-insured individuals.

The CGL policy also contains various exclusions such as intentional damage, contractual liability, liquor liability, and pollution. It covers a wide range of insured individuals and entities, including officers, employees, and legal representatives. It is important to adhere to policy conditions and duties in the event of a claim or suit. The policy territory includes the U.S., its territories, Canada, and international locations for specific scenarios.

Understanding the details of each coverage section, exclusions, policy limits, and insured entities helps businesses effectively manage risks and protect their operations.

Chapter Vocabulary

Definitions

Claims Made Form

A type of liability insurance form that only pays if both the event that causes (triggers)the claim and the actual claim are submitted to the insurance company during the policy term.

Commercial General Liability (CGL)

Flexible & broad commercial liability coverage with two major sub-lines: premises/operations sub-line and products/completed operations sub-line.

Completed Operations Liability

Policies covering the liability of contractors, plumbers, electricians, repair shops, and similar firms to persons who have incurred bodily injury or property damage from defective work or operations completed or abandoned by or for the insured, away from the insured’s premises.

Discovery Period

Condition found in commercial crime forms, which provides the amount of time following the termination of the policy during which losses that occurred during the policy period but were discovered after the termination will be covered.

Elevators and Escalators Liability

Liability coverage for bodily injury or property damage arising from the use of elevators or escalators operated, maintained, or controlled by the insured.

Environmental Pollution Liability

Liability coverage of an insured to persons who have incurred bodily injury or property damage from acids, fumes, smoke, toxic chemicals, waste materials, or other pollutants.

Extended Reporting Periods (Tails)

If a claim is made after the policy expires (but within certain periods), the claim will be paid. The purpose of ERPs is to lengthen the claim submission period but not the policy term.

Liquor Liability

Coverage for the liability of an entity involved in the retail or wholesale sales of alcoholic beverages or the serving of alcoholic beverages to persons who have incurred bodily injury or property damage arising from an intoxicated person.

Premises

The particular location of the property or a portion of it as designated in an insurance policy.

Premises and Operations

Policies covering the liability of an insured to persons who have incurred bodily injury or property damage on an insured’s premises during normal operations or routine maintenance or from an insured’s business operations either on or off of the insured’s premises.

Product Liability

A tort law that determines who may sue and who may be sued for damages when a defective product injures someone. The injured party can hold the manufacturer responsible for damages without the need to prove negligence or fault.

Product Liability Insurance

Insurance coverage protecting the manufacturer, distributor, seller, or lessor of a product against legal liability resulting from a defective condition causing personal injury or damage to any individual or entity associated with the use of the product.

Supplemental Tail (Maxi Tail)

Extends the 60-day tail period indefinitely.

Tails

See Extended Reporting Periods