Commercial General Liability (CGL)
Businesses face many types of liability exposures. Because businesses differ in what they do, their liability exposures differ too. 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 (the event must occur during the policy period, regardless of when the claim is reported) or on a “claims-made” basis.
With a claims-made form, the trigger is the date 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 retroactive date is shown, the policy applies to all covered injury and damage for a claim made during the policy period, no matter when the injury or damage occurred.
Extended Reporting Periods (ERPs) apply only to the claims-made form. Two ERPs are built into the policy; these are 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 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.
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:
- Premises and Operations
- 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
Under the CGL, insured contracts tested on the exam follow the L.E.A.S.E. acronym:
L - Lease of premises
E - Easement agreements
A - Agreement to indemnify a municipality
S - Sidetrack agreement
E - Elevator maintenance agreement
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 negligence that may be based on the following:
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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
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Breach of Warranty - there is an implied warranty that the product is safe for use
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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 causes injuries to children who play with it, the policy can protect the business.
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 the work, as well as warranties or representations regarding that work.
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 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:
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Intentional damage or injury caused by the named insured
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Contractual liability except for insured contracts as defined by the policy
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Liquor liability if the insured is in the business of manufacturing, selling, serving, or distributing alcohol (Host Liquor Liability for non-business events IS covered.)
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Injuries to employees eligible for Workers’ Compensation benefits
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Pollution. There is no coverage for clean-up costs or for any BI or PD that might arise from the discharge of pollutants
(Exception: smoke from a hostile fire is covered.)
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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
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BI or PD arising from mobile equipment when it is being transported by an auto or when it becomes subject to motor vehicle laws. Mobile equipment used in its intended off-road manner IS covered. -
BI or PD to an insured. Damage to property in the insured’s care, custody, or control is not covered
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Damage to an insured’s product
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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
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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 personal injury with bodily injury. Personal injury includes:
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False Arrest, Detention or Imprisonment
- The unlawful detention of a person
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Malicious Prosecution
- When one person sues another person without cause and loses the case, the person who won may sue for malicious prosecution. The idea is that the first party sued without a valid basis and did so out of malice.
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Wrongful Eviction
- Wrongful eviction from a room, dwelling, or premises a person occupies.
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Defamation of Character
- The spreading of untruths about a person by slander (orally) or libel (in writing)
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Invasion of Privacy
- Everyone has a right to privacy; invading that privacy (for example, illegally searching someone’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 also covers 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
Coverage C functions similarly to medical payments coverage under an HO policy. It pays reasonable medical expenses incurred within one year of the date of the accident. This covers the insured for responsibility for injury to others, so it does not cover injuries sustained by anyone who is a named insured under the policy. As with an HO policy, negligence does not have to be established for the policy to pay under this 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
- No one may bring the insurance company into a suit asking for damages from an insured, and no one may sue it under the policy unless all of the policy’s terms have been complied with. A person may sue the insurance company to recover on an agreed settlement, or on a final judgment against an insured, up to the policy’s limits. The condition sets no time limit of its own.
Other Insurance Clause
- The CGL is primary insurance, except in listed cases where it is excess: for example, over fire, builder’s risk or installation coverage on the insured’s work, or over other primary insurance on which the insured is an additional insured. When the CGL and another policy are both primary, they share the loss by equal shares if every policy allows that method, and otherwise by limits, each insurer paying in proportion to its limit.
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
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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.
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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.
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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 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, and the coverage trigger differs between the two.
- Extended reporting periods apply only to the claims-made form: the 60-day “Mini” tail and the five-year “Midi” tail are built in, and a supplemental “Maxi” tail may be purchased.
- 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 manage risk and protect their operations.