Businesses are faced with numerous types of liability exposures. Since businesses vary in their operations and activities, so too will their exposures vary. 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 requiring the event occur and be reported during the policy period or on a “claims-made” basis.
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 as well for an extra premium. This tail may not be terminated (ever) by the insurer once purchased. Its purpose is to lengthen the claim submission period but not the policy term.
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:
Premises and Operations
Products and Completed Operations
Premises and Operations Liability Coverage is for normal operations occurring at locations specified on the Declarations page, newly acquired property if insurer is notified within 30 days of acquisition, ways immediately adjoining the insured premises and for 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 can be based on the following:
Negligence - which can be caused by one of the following:
Improper product design
Improper assembly of the product
Failure to inspect or test the product
Failure to warn of inherently dangerous characteristics
Deceptive advertising
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
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 involves liability for work that has been completed for others such as 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 on the part of 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. Do not 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.
Coverage C
This section of coverage functions in a similar fashion to medical payments under an HO policy. However, it will pay 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. Therefore, 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:
Accidental
On premises (owned or rented)
Result of the insured’s operations
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:
Insured must give prompt notice of claim, including names and addresses of injured people or witnesses
Insured must send notices of suits to the insurer
Give insurer authorization to obtain records and other information
Cooperate with the insurance company in any manner
Assist the company in the enforcement of any subrogation rights
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 which 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
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 is essential for businesses to protect them against various 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
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