4-B COMMERCIAL GENERAL LIABILITY Flashcards
Commercial General Liability Insurance (CGL)
protects business from a wide variety of financial hazards associated with normal business operations.
CGL covers liability for:
● Bodily injury/ property damage resulting from a business premises and its
operations
● Damage to a premises used or rented by the insured
● Products and completed operations
● Acts of others: employees, agents, contractors acting on behalf of business
● Contracted responsibilities: insured agreed to take on liability
● Personal and advertising injury: injury other than bodily injury resulting from
actions of the insured
Two forms of CGL policies:
● Occurrence: triggered by occurrence or accident
● Claims-made: triggered by claim
Trigger:
what initiates coverage
Occurrence Form:
● Triggered by when the actual injury or damage occurred
● Covers events that happened during policy period, no matter when claim is
made
Occurrence Example
If an occurrence form CGL has a policy period from January 1st, 2008 to January 1st, 2009, then the policy will cover any accident that occurred between those two dates. Even if a claim is made on May 30, 2013 for an accident that occurred during 2008, an occurrence triggered CGL will still protect the insured. This is true, even if the insured no longer has the policy in force.
Claims-Made
● Triggered by when the claim is filed
● Covers any claim filed during the policy period, no matter when the damage or
injury occurred
● Insurers can price premiums to reflect current risks of lawsuit awards
Retroactive Date:
insurers will specify a retroactive date which says how far back an occurrence will be covered.
Claims-Made Example
If a claims-made CGL has a policy period from January 1, 2008 to January 1, 2009, it will cover any claim filed between those two dates.
So if an accident occurred sometime in 2006, and the injured party files a claim on July 1st, 2008, the claims-made CGL would be triggered, because the claim was filed during the policy period.
Claims-Made & Reported:
● Insured must report claim or possibility of a claim within the policy period
Pure Claims-Made:
● Insured must inform insurer of a claim as quickly as possible (not necessarily within the policy period)
Occurrence vs. Claims-Made: Example
- Sally injures her knee when her GoFit exercise machine breaks, but it seems to
heal. - Two years later, her knee collapses and requires surgery; her doctor says the
earlier injury caused it. - Sally files a claim against GoFit.
If GoFit had an occurrence policy at the time the original accident occurred, it would cover the claim.
If GoFit had a claims-made policy, and a retroactive date before the day of the original injury, it would cover the claim.
If the accident had happened before the retroactive date, it would not.
Pros & Cons
Occurrence Form:
● Lower risk for businesses
● Higher risk for insurer
● Higher premiums
Pros & Cons
Claims-made form:
● Higher risk for businesses
● Lower risk for insurer
Claims-made coverage can be extended by ____, or tail cover.
tails
Difference between Tails and Occurrence Form:
● Occurrence coverage lasts forever for damage or injury during the policy period. Tails last only for a relatively short period.
● Tails require premiums from the insured as long as the policy is extended.
Two kinds of tails:
Basic Extended
● Supplemental Extended
Basic Extended Reporting Period:
● Automatically applies to every cancelled or expired claims-made policy
● Extends coverage for occurrences 60 days past policy period
● Extends window for making a claim for 5 years past policy period
Supplemental Extended Reporting Period:
● Extends coverage for occurrences 60 days past policy period
● Extends window for making a claim forever
● Insured must request coverage and pay the premium within 60 days of the
policy period
Example
If the insured causes someone an injury 45 days after his claims-made CGL policy expires, the basic extended reporting period means the insurer will cover it, as long as the third party files the claim within five years of the injury. The Supplemental Extended Reporting Period, or “supplemental tail,” covers occurrences during the same 60-day period as the basic tail, but it does not have the 5-year limit on when a claim may be filed. Once added, this coverage extends forever and cannot be cancelled by the insurer or the insured. The insured must request this extended coverage and pay the additional premium within 60 days of the policy’s expiration.
4 Elements of a CGL Policy
- Declarations Page/Definitions
- Insuring agreements/Coverage Forms
- Conditions Page
- Exclusions
CGL Declarations Page lists:
● Named insured
● Address of every premises the insured owns, rents, or occupies
● Policy period
● Policy premium
● Limits of insurance
● Retroactive date (if policy is a claims-made form)
_____ page specifies who is covered.
Declarations
CGL will usually cover:
● Executives ● Partners ● Employees ● Managers ● Volunteers ● Agents ● Representatives ...but only if they are engaged in business activities of the insured.
CGL does not cover “autos”:
● Vehicles designed for travel on public roads
● These require a Business Auto Policy
CGL does cover “mobile equipment”:
● Designed for use principally off public roads
● Primary purpose is the machinery attached, not transportation
● Examples include bulldozers and forklifts
If a small truck is used exclusively within warehouse or factory premises, it may qualify as mobile equipment.
“Your Product”:
what the insured makes, sells, handles, distributes
“Your Work”:
operations done by insured, includes:
● Parts, materials, and equipment used in work
● Warranties and instructions (or the lack thereof)
“Advertisement”:
Anything shown or said to the public to attract new customers
“Occurrence”:
an sudden accident, or the repeated exposure to something that
causes injury or damage
“Impaired property”:
items damaged by defects in insured’s product or work
● Example - stereo destroyed by defective CD
● Includes unfinished contracts or agreements
“Leased Worker”:
worker hired through a labor leasing firm
“Temporary Worker”:
temporary fill-ins and seasonal workers
“Volunteer Worker”:
donates labor without compensation from insured
“Employee”:
works for insured under contract
● Includes leased workers
● Does not include temporary workers
CGL Coverage Forms: A, B, & C
- CoverageA-
a. Bodily Injury and Property Damage
b. Premises and Operations Liability
c. Products and Completed Operations Liability
d. Contractual Liability for Insured Contracts - Coverage B - Personal and Advertising Injury Liability
- Coverage C - Medical Payments to Others
- Damage to Premises Rented By You
Coverage A
Protects the insured from liability for bodily injury and property damage.
Coverage A
Covers 3 Kinds of Hazard:
● Premises and Operations
● Products and Completed Operations
● Contractual Liability for Insured Contracts
Premises and Operations
Premises liability covers bodily injury and property damage on:
● Premises owned, rented, or leased by insured.
● Ways immediately adjoining, i.e. sidewalks, etc.
Example
If a beauty shop is located on the second floor of a mall, and someone slips on the stairwell, the beauty shop’s coverage would not apply, since the stairwell is not directly connected to the business.
Operations Liability
● Covers bodily injury and property damage when working outside premises
● Important for companies like plumbers, contractors, etc.
Product Liability:
the insured’s liability for bodily injury (BI) and property damage
(PD) caused by the use of products made or sold by insured.
3 Types of Product Liability Claim:
- Strict Liability: any defect in safety is manufacturer’s fault
- Negligence: manufacturer did not exercise a reasonable amount of caution
- Breach of warranty: insured failed to notify public of a known safety hazard,
or failed to deliver the quality of item advertised.
Completed Operations Liability:
the insured’s liability for work completed away from the insured premises.
Work is “complete” the moment that:
● The insured has fulfilled the terms of an agreement, OR
● Any portion of the work is used for its intended purpose
● Whichever is earlier
Completed Operations Liability Example
Let’s say an insured contractor completes a staircase for a client, then packs up and returns home. Three days later, the staircase collapses as the client is walking up the stairs. The client is injured and files a claim. In this case, the contractor is covered under Completed Operations Liability.
“Insured contracts” include:
● Lease of premises
● Sidetrack agreements
● Easement or license agreements
● An obligation to indemnify a municipality
● Elevator maintenance contracts
● Any contract in which the policyholder assumes the tort liability of another party for bodily injury or property damage.
Example of Insured Contracts
Mae’s Cafe wants to hang a sign over a city sidewalk. To do so they will need to sign a contract holding the city blameless for any injury the sign might cause. Liability insurance covers this contractual liability.
Exclusions to Coverage A Liability:
● Expected or intentional injury by the insured, unless in self-defense or protection of property
● Injuries to employees (covered by worker’s compensation)
● Automobiles, aircraft or watercraft (unless parked on the insured premises)
● Contractual Liability (except for “insured contracts”)
● Liquor Liability
● Transportation of mobile equipment
● Pollutants
● War and terrorist attacks
● Property of the insured, property in the care, custody and control of the
insured, and property loaned to the insured
● Property damage to insured’s work or products
● Electronic data
● Recall of products or work
Coverage B protects insured against claims of Personal Injury in the form of:
Libel & Slander
Libel:
written words that falsely damage another’s reputation
Slander:
spoken words that falsely damage another’s reputation
Coverage B “Personal Injury”:
● False Arrest, detention, or imprisonment: e.g., a store detaining someone unjustly because of suspected shoplifting.
● Malicious Prosecution: Suing someone without probable cause. Such a claim
can only be filed after the insured loses the original lawsuit.
Coverage B “Personal Injury”:
Wrongful Entry
Wrongful Eviction
Wrongful Entry:
when a landlord uses improper means to repossess real estate or rented space. This may also involve invasion of privacy
Wrongful Eviction:
when a landlord or shop-owner evicts a person from public space without cause
Wrongful Eviction Example
A mall owner may choose to have a patron removed from the premises because the mall owner “doesn’t like the look of the patron’s pants.” The patron may then sue for the violation of her civil rights under a wrongful eviction.
Coverage B:
protects insured from claims of advertising injury.
An ______ means a third party suffered damages as the result of the insured party advertising their goods and/or services in a public arena.
“Advertising Injury”
Advertising injury may take the form of:
● Libel and slander
● Copyright Infringement
● Stealing advertising ideas
Exclusions to Coverage B Liability:
● Knowingly publishing, disseminating, or spreading false information to the public
● Knowingly violating the copyrights of another
● Infringing on copyright, patent, trademark, or intellectual property rights outside of advertisements, whether criminally or not
● Failing to adhere to price, quality, and performance claims
● Acts committed prior to the current policy period
● Advertising liability by contract, or assumed liability
● All claims if the insured is in an advertising, broadcasting, or publishing
business, or involved in the design of websites or operation of internet search
services
● Electronic chatrooms or bulletin boards
Supplementary Payments - Coverages A and B
● Assist policyholder with a variety of claim or lawsuit expenses
● Not subject to liability limits
Supplementary Payments - Coverages A and B
may include:
● Lost wages: up to $250/day
● Expenses due to insurer’s request such as retrieving official reports or records,
copy fees
● Bail bonds: up to $250
● Accrued interest after a judgment is entered
● Premiums on appeal bonds and attachment bonds
Supplementary Payments - Coverages A and B cont’d
● Covers litigation expenses for a third party named in the same suit as the insured
Supplementary Payments - Coverages A and B Conditions
● Insured must have assumed liability for the other party through an insured contract
● That liability is covered under the policy
● There is no conflict of interest
● The third party must agree in writing to cooperate with the insurer
Coverage C: Medical Payments is no-fault coverage that pays:
● Medical ● Dental ● Hospital ● Nursing ● Funeral costs resulting from an occurrence on insured's premises, or from its business operation.
Exclusions to Coverage C Liability:
● Any “insured”
● Employees of the insured (covered by worker’s compensation)
● Tenants of the insured
● Athletic contests, games, physical challenges, or sporting events
● Injuries resulting from completed operations
Insurer can require the injured party to see a physician chosen and paid for by the insurer.
Damage to Premises Rented by You
● Coverage A usually excludes loaned or rented properties.
● Damage to Premises Rented by You lifts this exclusion (i.e it adds coverage).
● It applies to properties that the insured rents for 7 or fewer consecutive days.
Look closely! This form covers fire differently than other perils.
● Fire: damage to rented premises only
● Other perils: damage to rented premises and contents
CGL Conditions Page
● Contains provisions the policyholder must meet as a condition of coverage.
● Highlights the rights and duties of insured and insurer.
● States the rights of each re: cancellation, changes, lawsuits, etc.
Policy Territory
● CGL policies cover occurrences in US, Puerto Rico and Canada, their airspace, and territorial waters
● Products Liability is worldwide, as long as the product was made or sold in US, Puerto Rico or Canada
Duties of Insured in the Event of an Occurrence
● Reporting details to the insurer promptly, including:
○ who was hurt, when, and how
○ names of relevant witnesses
● Notifying insurer promptly of lawsuits filed against insured
● Cooperating with the insurer in any matter involving a claim, including:
○ forwarding legal papers
○ authorizing the insurer to obtain all relevant materials
● Assisting the insurer in enforcing subrogation rights
● Not making voluntary payments upon a claim on behalf of the insurer without the insurer’s authorization
Other Insurance
● Divides responsibility for claims among all applicable policies.
● Claims-made form pays after any non-claims-made form
Limits of Insurance:
the maximum amount the insurer will pay in total over a single policy period to satisfy liability claims.
Limits of Insurance Example
If a contractor cuts a cable that brings power to several restaurants, and each makes a claim against him for damaged goods and loss of business, the insurer will not cover every claim if damages exceed the policy limit.
Aggregate Limit:
the maximum amount a policy will pay for certain specified types of claims over the course of the policy period
- Products-Completed Operations Aggregate Limit:
the maximum amount the policy will pay to satisfy claims regarding Products and Completed Operations only.
- General Aggregate Limit:
the maximum amount the policy will pay out over the policy period for Coverage A, B, and C except for Products and Completed Operations.
Products and Completed Operations has separate aggregate limit from all other coverages.
Payments under these coverages are all under one aggregate:
- Coverage A: Premises and Operations Liability only
- Coverage B: Personal and Advertising Injury Liability
- Coverage C: Medical Payments to Others
- Damage to Premises Rented By You
Per Occurrence Limit:
● The amount an insurer will pay for any one occurrence.
● Subject to aggregate limit that precedes it.
Per Occurrence Limit Example
Consider a CGL with a General Aggregate limit of $1,000,000, and a per occurrence limit at $250,000. If an individual makes a claim against the insured for $350,000 arising out of a single occurrence, the most the CGL will pay to satisfy that particular claim is $250,000, or the per occurrence limit.
Per Occurrence Limit
Personal and Advertising Injury Limit:
the maximum amount the insurer will pay for personal and advertising injury to any one person or organization.
Per Occurrence Limit
Medical Payments Limit:
the maximum amount the insurer will pay for bodily injury sustained by any one person
Per Occurrence Limit
Damages to Premises Rented by ____
You
Ron’s Furniture CGL Policy Limits:
● $1,000,000 General Aggregate
● $250,000 per occurrence
● $1,000,000 Products and Completed Operations Aggregate
● $250,000 per occurrence
Scenario 1; Ron’s Furniture CGL Policy Limits:
● Injured customer sues for injury in store.
● Insurer pays for legal defense.
● Customer is awarded $450,000. Insurance pays only $250,000.
● Ron’s Furniture would pay remainder.
● $750,000 left in General Aggregate
Scenario 2; Ron’s Furniture CGL Policy Limits:
● Customer injured by faulty stool, sues.
● Products and Completed Operations Coverage applies.
● Insurer pays for legal defense.
● Customer is awarded $450,000.
● Products Coverage pays $250,000.
● Ron’s Furniture pays the rest.
● $750,000 left in Products-Completed Operations Aggregate
Legal Defense
CGL covers all legal expenses, without limit, up until judgment or settlement.
Owners and Contractors Protective Liability:
responds to all liability claims filed against the hiring business arising out of work performed by the independent contractor.
Owners and Contractors Protective Liability:
● Protects the hiring business from losses due to contractor’s work
● Vicarious liability means a company can be held responsible for the actions of a hired contractor
Owners and Contractors Protective Liability Example
Builders Inc. hires Steven to build a deck. While he is working, Steven accidentally knocks a full can of paint off the deck and onto a pedestrian, who becomes severely injured. The pedestrian has every right to file a claim against Builder’s Inc., even though, technically, it was Steven who caused the injuries, not Builder’s Inc.
This is because of vicarious liability, where one party can be held liable for the actions of another.
Owners & Contractors Protective Liability Continued
● Is purchased by contractor, but hiring business is named as insured
● Is specific to a single project and place
● Expires when project is completed
● Only uses the “occurrence” form
Advantages of Owners and Contractors Protective Liability:
● Contractor cannot cancel coverage without knowledge of hiring business
● Hiring business’ policy limits are not affected by claims against work of contractor
● Provides primary coverage for all claims related to work of contractor
● Can be used on projects likely to produce claims.
● Protects named insured from negligent acts of incompetent contractors
Exclusions to the Owners and Contractors Protective Liability form include:
● Auto/ watercraft ● Contractual liability ● War and terrorist acts ● Liquor liability ● Workers compensation ● Property in the care, custody and control of the insured ● Products ● Completed operations
Laser Beam Endorsement
Allows an insurer to exclude specific types of accidents, products, work, or locations from CGL coverage.
Liquor Liability Coverage Form (or Endorsement)
● Alcohol-related occurrences are excluded in the regular CGL policy,
● An added Liquor Liability Coverage Endorsement fills this gap.
● Includes cases involving over-service or illegal service to minors
Some establishments that may require Liquor Liability include:
● Grocery stores ● Hotels ● Casinos ● Golf courses ● Department stores ● Inns and motels ● Comedy clubs
Pollution Liability Coverage:
● Responds when pollution causes bodily injury or property damage when released into air, water, or land
● Covers pollution excluded by CGL
● Claims-made coverage
● “Pollution incidents” include pollution releases:
○ at insured site
○ off-site due to pollutants emanating from site
○ during transportation
○ at non-owned disposal sites
Pollution Liability Coverage Broad Form:
● Bodily injury and property damage
● Clean-up costs
Pollution Liability Limited Coverage Form:
● Bodily injury and property damage only
