8.1 - Insuring Agreements and Their Exclusions in the CGL Policy

Question 1

5 Sections of the CGL policy

Answer 1

1. Coverages
2. Who is Insured
3. Limits of Insurance
4. Conditions
5. Definitions

Question 2

Section I - Coverages

Answer 2

-There are 4 distinct insuring agreements under Section I - Coverages to handle typical liability exposures for businesses:

A. Bodily Injury and Property Damage Liability
B. Personal and Advertising Injury Liability
C. Medical Payments
D. Tenants Legal Liability

-insuring agreements explain what the policy intends to cover by defining the scope of coverage
-having the general terms of coverage described helps insureds determine whether a claim is covered
-each of the insuring agreements carries its respective exclusions

Question 3

Definition - “compensatory damages”

Answer 3

A sum of money to which a plaintiff is entitled that makes amends for an actual loss sustained and nothing more

-compensatory damages are those that compensate the TP for the injury sustained
-the policy coverage does not extend to any penalty sum, the cost of complying with a mandatory injunction (a court order that the insured is to do something or stop doing something), or the cost to prevent future losses
-to consider whether compensatory damages are being sought, consider this question: ‘Are the costs related to making the TP financially whole with respect to the injury?’
-those sums that solely represent a means to punish the insured, such as punitive or exemplary damages, do not fall within the scope of coverage

Question 4

Definition - “bodily injury”

Answer 4

A term used in auto and lability policies meaning physical injury, including sickness, disease, mental injury, shock or death

-the policy defines bodily injury as bodily injury, sickness, or disease sustained by a person, including death resulting from any of these at any time

Question 5

Definition - “property damage”

Answer 5

Injury to real or personal property through another’s negligence, willful destructions, or by some acts of nature

-the policy defines property damage as physical injury to tangible property including all resulting loss of use of that property
-the loss of use of tangible property that is not physically injured is also covered
-claims for subsequent loss of use are deemed to have occurred at the time of the physical injury that caused it

Question 6

Definition - “occurrence”

Answer 6

A happening or event. Liability policies are usually written on either an accident or occurrence basis. For coverage on an accident basis, the loss or damage must be due to accident, whereas on an occurrence basis, all that is required is the happening or the continual or repeated exposure to an unfavourable situation, neither intended nor expected to cause injury or damage. In reinsurance and insurance, it is also the grouping of related losses into a single loss situation

-coverage was broadened when the term ‘occurrence’ was introduced to the wording
-occurrence was defined as an accident including any continuous event or exposure to substantially the same general harmful conditions
-the term “accident” was restrictive because it implied that suddenness and definiteness were part of the criteria needed to establish coverage

Question 7

Coverage A. Bodily Injury and Property Damage Liability

Answer 7

-under the bodily injury and property damage liability insuring agreement, the insurer agrees to pay those sums that the insured becomes legally obligated to pay as compensatory damages because of bodily injury or property damage to a TP
-the insurer has a duty to defend the insured only if a claim falls within the terms of coverage
-when the policy does not provide coverage for an occurrence, the insurer has no duty to defend
-the bodily injury or property damage must occur during the policy period, must be caused by an occurrence, and must take place in the coverage territory

Question 8

Phrase “legally obligated to pay”

Answer 8

-signifies there must be a legal obligation for the insured to pay a claim before coverage is triggered
-coverage is primarily intended for tort liability, but coverage can extend to some contractual and statutory liability
-the policy defines the conditions under which contracts will be insured and only certain contract as insurable
-statutory liabilities are only considered if payment is for compensatory damages
-arbitration proceedings or alternative dispute resolution (ADR), if agreed to by the insurer, will also qualify for coverage
-just because an insured is sued does not mean that the CGL policy will be triggered
-all of the defining elements of the insuring agreement must be met
-a sympathetic insured seeking to make a gratuitous payment to a third party would not qualify for coverage
-a policy payment is made only when the insured has a legal obligation to do so (except under Coverage C. Medical Payments)

Question 9

Definition - “occurrence policy”

Answer 9

A liability policy that responds to claims for losses that took place during the policy period, regardless of when claims are made. As a result, claims can be filed years after the time the policy was in effect

Question 10

Definition - “claims-made policy”

Answer 10

Refers to an insurance policy that provides coverage when a claim is made against the policy, regardless of when the claim event took place. A claims-made policy is most likely to be purchased when there is a delay between when claims occur and when they are filed

Question 11

Liability policy coverage triggers

Answer 11

-liability policy wordings are also differentiated with respect to when coverage is triggered
-the standard ‘occurrence policy’ wording now in effect triggers coverage when damage occurs during its policy term
-this differs from a ‘claims-made’ policy wording that triggers when the TP first makes a claim against the insured
-for a claims-made policy, the timing of the event that caused the damage does not wholly determine coverage
-furthermore, underwriters may have modified the policy wording
-regardless of whether a policy is labelled as an occurrence policy or claims-made policy, the policy wording must be reviewed to determine what triggers coverage
-when advising a client on the perils of switching between an occurrence policy and a claims-made policy, or allowing a policy to lapse, the client needs to understand that they might be left with a gap in coverage

Question 12

Coverage Territory

Answer 12

-coverage territory includes Canada, the US and its territories or possessions, and international waters or airspace if the injury or damage occurs in the course of travel or transportation between these two countries
-it provides coverage anywhere in the world for the travelling salesperson who is away for a short time on business
-goods or products made or sold by the insured in Canada or in the US and its territories or possessions are also covered anywhere in the world
-insurers require that actions be brought or merited in North America because UWs are presumably more familiar with their own legal environment and feel more confident that they can reasonably predict the outcome of such cases
-although such settlements are likely to be higher than in most other areas of the world, it is presumed that the environment is relatively more stable than elsewhere

Question 13

occurrence limits

Answer 13

-the standard CGL policy intends to limit coverage for an occurrence to one policy term
-it deems that the insured knows about an occurrence prior to the policy period for losses reported under the current term that are really continuations, changes, or resumptions of a previous loss
-this prevents one occurrence from being considered a claim under successive policies
-this limitation was necessary to curb the trend in court decisions to extend coverage for one occurrence to multiple policies and, therefore, multiple limits
-a ruling in the ON Court of Appeal in the case ‘Alie et al. v. Bertrand et al.’ established a trend to trigger coverage on successive policies even though the damages stemmed from one occurrence
-In this case, Bertrand & Frere Construction supplied concrete that ended up having latent defects, all home foundation would have to be replaced. Defect traced to fly ash, a component in the cement supplied by Lafarge, another defendant. Bertrand and Lafarge were found 20% and 80% liable. In its decision, the ON Court of Appeal divided the significant defence costs between the 7 policy periods, and then equally apportioned them between the primary and excess insurers during each period

Question 14

Exclusions for Bodily Injury and Property Damage:
a.

Answer 14

-the ‘expected or intended injury’ exclusion prevents the insured from recovering for outcomes that are expected or intended from the standpoint of the insured.
-When willful or reckless actions on the part of the insured cause harm to another party, the actions will be deemed as intentional on the part of the insured
-the application of the exclusion can be seen in the following situation:
> a home builder does not like the trees on the neighbour’s property because they obstruct the lake views of the homes the builder wants to sell. The builder hires a contractor to remove the trees. Since this is an intentional action that causes damage to the property of others, there is no coverage under the CGL policy.

-the insured must only use reasonable force in such circumstances in order to qualify for coverage
-the application of this exception to the exclusion can best be seen by contrasting situations in which the insured uses or fails to use reasonable force - situations in which the insured is thus covered or not covered under the policy:
> The proprietor of a restaurant must remove a troublesome patron from the premises to protect other customers and property. The proprietor uses reasonable force to accomplish his goal. When the patron sues the proprietor, the CGL policy will respond
> a store employee is unhappy with a customer after he makes a complaint. The next time the employee sees the customer at the store, he intentionally punches the customer in the face. Since this is an intentional act the employee knows will cause harm to another, there is no coverage under the CGL policy

Question 15

Exclusions for Bodily Injury and Property Damage:
b.

Answer 15

-contractual liability is excluded under the CGL except for compensatory damages arising from liability the insured would have had whether there was a contract or not, as well as for compensatory damages arising from liability in an “insured contract” (known as ‘incidental contracts’ in earlier CGL wordings) as described in the policy
-an insured can assume liability in a contract as long as it merely reflects how the law would treat the situation in the ordinary legal sense

Question 16

Exclusions for Bodily Injury and Property Damage:
c.

Answer 16

-Obligations of the insured under workers’ compensation legislation, disability benefits, or unemployment or employment compensation laws or any similar laws are not covered

Question 17

Exclusions for Bodily Injury and Property Damage:
d.

Answer 17

-Employers liability arising from bodily injury to an employee during the course of employment is not covered
-nor does the policy cover any obligation of the insured to share compensatory damages or repay someone else who must pay them because of such an injury

-This exclusion does not apply to liability assumed under an insured contract or to a claim brought by an employee who was denied coverage or benefits by a provincial or terr. workers’ compensation authority even though contributions to the plan were required
-this contingent employers liability coverage would be subject to all the other terms and conditions of the policy
-the employer would have to be found legally liable and the loss would have to qualify for coverage

Question 18

Exclusions for Bodily Injury and Property Damage:
e.

Answer 18

-Aircraft and Watercraft are excluded whether they are owned, maintained, used, or entrusted to others
-the exclusion extends to any aircraft landing area and all incidental operations
-former CGL wordings covered maintenance for airports, runways, and hangars, but this is now excluded
-the exclusion also extends to any loading or unloading of such craft

-the following exceptions apply to the aircraft and watercraft exclusion:
> Watercraft on shore at premises the insured owns or rents
> Non-owned watercraft less than 8 meters long and not being used to carry people or property for a fee
> Contingent employers liability with respect to employees on whose behalf contributions are required to be made to a prov. or terr. workers’ compensation board but where the board denies coverage and does not pay benefits

Question 19

Exclusions for Bodily Injury and Property Damage:
f.

Answer 19

-the ownership, maintenance, use, or entrustment of others of any automobile, and loading or unloading of any automobile owned or operated by or on behalf of the insured, is excluded
-garage operators may require alternate coverage for faulty repairs resulting in injury and damage
-any motorized snow vehicle, its trailers, any vehicle while being used in any speed or demolition contest, or in any stunt or in practice, and preparation for any such contest or activity are excluded
-negligent supervision, hiring, employment, training, or monitoring of others by that insured in regard to claims involving automobiles are excluded

-the following exceptions to the automobile exclusions apply:
> bodily injury to an employee on whose behalf contributions are required to be made by the insured under the provisions of any prov. or terr. workers’ compensation law
> bodily injury or property damage arising out of a defective condition in, or improper maintenance of, any automobile owned by the insured while leased to others for a period of 30 days or more provided the lessee is obligated under contract to insure it
> ownership, use, or operation of machinery, apparatus, or equipment mounted on or attached to any vehicle while at the site of the use or operation of such equipment, but this exception does not apply when such equipment is used for loading or unloading
&raquo_space;examples:
&raquo_space;an insured leases an auto to a lessee on a long-term basis and the contract between them obligated the lessee to insure the automobile. An automobile accident ensues as a result of the defective condition of the automobile. The CGL policy provides coverage for the insured under these circumstances
&raquo_space;A cherry picker with a hydraulic elevator mounted on a flatbed is used to change roadside lamp standards. During the light-changing operation, a pedestrian is injured. Coverage under the CGL applies

Question 20

Exclusions for Bodily Injury and Property Damage:
g.

Answer 20

-property that is owned, rented, or occupied by the insured, including any cost for repairs, replacement, enhancement, restoration, or maintenance, are not covered
-this excludes any expenses incurred by an insured to prevent or correct a dangerous condition caused by, for example, debris removal or pollution releases
-damage to property owned by the insured does not constitute a liability claim
-to determine whether the ‘damage to property exclusion’ (formerly known as the ‘care, custody, or control exclusion’) applies, the relationship of the property to the insured must be assessed. Such property is more appropriately covered under a first-party property policy

(2) Property damage to premises that are sold, given away, or abandoned by the insured is excluded
> formerly, the term ‘alienated premises’ was used to describe such property. Because such premises pose a potentially high liability exposure, the risk exposure remains with the insured.
-the exclusion does not apply to premises that were never occupied, rented, or held for rent and are the work of the insured. This exposure is a completed operations hazard

(3) Property that is loaned to the insured is excluded because it would more properly be covered by property insurance. For example, a backhoe loaned to a contractor should be insured under a contractor’s floater policy extended to cover property of others

(4) Personal property that is in the insured’s care, custody, or control is excluded. Such property can be covered under other types of policies. For example, a shoe repairer needs a bailee’s lability policy to cover customer’s shoes

(5) That particular part of any real property on which the insured or any contractor or subcontractor is working is excluded whether the insured or a contractor on the insured’s behalf is working on the property.
> under earlier CGL forms, this coverage was provided under the broad-form property damage endorsement. It applies, for example, when a roofing contractor is doing repairs to a building
> If the contractor accidentally spills hot tar on the building, the contractor’s insurer will pay the TP for the building damage less the value of any repairs to that part of the roof being worked on. Disputes about how coverage is to be applied have arisen over how to interpret the term “that particular part” in the policy wording.

(6) That particular part of any property that must be restored, repaired, or replaced because the insured’s work was incorrectly performed on it is excluded

Question 21

Exclusions for Bodily Injury and Property Damage:
h.

Answer 21

-‘property damage to the insured’s product’ arising out of it or any part of it is excluded
-damage to the insured’s product is considered a business or trade risk and is not eligible for liability insurance

-eg. a chair is sold to a consumer that is defective. The business’s CGL policy covers the obligation to pay for the bodily injury, however, the CGL does not respond to the property damage to the chair

Question 22

Exclusions for Bodily Injury and Property Damage:
i.

Answer 22

-‘property damage to the insured’s work’ included within the completed operations hazard is not covered
-guarantee coverage is used for this exposure
-this exclusion does not apply if the damaged work or the work out of which the damage arises was performed by the insured’s subcontractor

Question 23

Exclusions for Bodily Injury and Property Damage:
j.

Answer 23

-also not covered is ‘property damage to impaired property or property that has not been physically injured, arising out of’
> a defect or deficiency in the product or work; or
> a delay or failure to perform a contract or agreement in accordance with its terms

-this exclusion does not apply to loss of use of other property arising out of sudden and accidental physical injury to the insured’s product or work after it has been put to its intended use

-eg. insured supplies a defective wheel to an auto manufacturer. The auto becomes “impaired” when the wheel is installed. Its replacement will return the auto to its desired condition. Physical injury to the auto resulting from the defective wheel has not occurred. LOU of the auto pending replacement of the wheel is not covered. The product fails to perform as promised and, in fact, was never capable of doing so
-eg. the insured sells a generator to a factory owner. The generator is warranted to perform at a rated kilowatt per hour but does not. Coverage does not apply to claims that arise from the lack of power

Question 24

Exclusions for Bodily Injury and Property Damage:
k.

Answer 24

-‘product recall’ is the cost of recalling the insured’s product or work or any product or work of which the insured’s product or work forms a part, and it is not covered
-in practice, some insurers come to an agreement with the insured and may assist with the expense of recalling a product
-it may be in the best interest of the insurer to get a faulty product off the shelf or out of the hands of the consumer before is causes a loss
-take, for example, recalling a child’s car seat because the child can loosen the seat’s harness when in the car seat. This could lead to an increased injury to the child in the even of a collision
-product recall insurance is required to cover this exposure

Question 25

Exclusions for Bodily Injury and Property Damage:
l.

Answer 25

-‘compensatory damages arising out of the loss of, loss of use of, damage to, corruption of, inability to access, or inability to manipulate electronic data is excluded.
-insurers using older versions of the CGL wording disputed that electronically stored data constituted tangible property
-controversy is now eliminated because of this added exclusion
-due to the increase in data corruption and hacking, in the event that insureds would like coverage for their data, they will need to purchase a cyber and data compromise policy

Question 26

Exclusions for Bodily Injury and Property Damage:
m.

Answer 26

-bodily injury arising out of personal and advertising injury is not covered

Question 27

Exclusions for Bodily Injury and Property Damage:
n.

Answer 27

-liability arising out of professional services is excluded except for incidental medical malpractice injury
-the CGL definitions section contains details on professional services

Question 28

Exclusions for Bodily Injury and Property Damage:
o.

Answer 28

-claims arising from abuse committed or alleged to have been committed by an insured (including the transmission of disease) are excluded
-this also excludes employee hiring practices and supervision of any employee alleged to have committed the abuse
-failure to report allegation of abuse to the appropriate authorities is also excluded

Question 29

Definition - “Product Recall Insurance”

Answer 29

Insurance that indemnifies the insured for the cost of recalling products known or suspected to be defective

Question 30

Coverage B. Personal and Advertising Injury Liability

Answer 30

-the personal and advertising injury insuring agreement covers the following circumstances:

a. False arrest, detention, or imprisonment
b. Malicious prosecution
c. Wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling, or premises that a person occupies,
> committed by or on behalf of its owner, landlord, or lessor
d. Oral or written publication, in any manner, of material that slanders (oral) or libels (written) a person or organization or disparages a person’s or organization’s goods, products, or services
e. Oral or written publication, in any manner, of material that violates a person’s right of privacy
f. Use of another’s advertising idea in the insured’s “advertisement”
g. Infringing upon another’s copyright, trade dress, or slogan in the insured’s “advertisement”

-personal and advertising injury liability arises for the most part out of the intentional conduct of the insured
-it means an injury other than bodily injury as defined in the policy
-outside the context of the CGL wording, when the term ‘personal injury’ is used by lawyers and others, it means what the CGL policy terms ‘bodily injury’. People should be aware of the unique definitions assigned to terms in the CGL policy

-advertising injury liability coverage is very broad, as advertising can mean a widely spread broadcast or publications to the public about the insured’s goods, products, or services to attract customers
-it includes part of the insured’s website about its goods, products, or services to attract customers
-the insuring agreement covers offences that arise out of the conduct of the insured’s business but only if the offence was committed in the coverage territory during the policy period

Question 31

Personal and Advertising Injury Exclusions

Answer 31

-Certain exclusions apply to personal and advertising injuries as noted in the following:

a. ‘Knowing violation of rights of another’
> the insured must be aware that the action violated a TP’s rights and that the action would inflict injury in order to be excluded. The policy intends to eliminate coverage for claims involving intentional injury or harm
b. ‘Material published with knowledge of its falsity’ if done by or at the direction of the insured
c. ‘Material published prior to the policy period’
d. ‘Criminal acts’ committed by or at the direction of the insured
e. ‘Contractual liability’ as assumed in a contract agreement, except the liability for compensatory damages that the insured would have had in any case
f. ‘Breach of contract’ except an implied contract to use another’s advertising idea
g. ‘Quality or performance of goods’ when the insured’s work fails to conform to its advertising statements
> The insured’s work is excluded, not the resulting damage
h. ‘Wrong description of price’ used in the insured’s advertisement
i. ‘Infringement of copyright, patent, trademark or trade secret, or other intellectual property rights’
> However, this exclusion does not apply to infringement in the insured’s advertisement of copyright, trade dress, or slogan
j. ‘Insureds in media- and web-related businesses’ except for false arrest, malicious prosecution, and wrongful eviction
k. ‘Electronic chatrooms or bulletin boards’, which insured hosts, owns, or exercises control over
> this type of operation creates high exposure for personal injury losses
l. ‘Un authorized use of another’s name or product’ in the insured’s email, or other media, to mislead another’s personal customers

Question 32

Definition - “trade dress”

Answer 32

The total image and overall appearance of a company or product that may include features such as size, shape, colour or colour combinations, texture, graphics, or even particular sales techniques

Question 33

Definition - “Medical Payments Insurance”

Answer 33

A special clause in an insurance policy that covers medical payments of others, irrespective of the insured’s legal liability

Question 34

Coverage C. Medical Payments

Answer 34

-medical payments insurance covers reasonable medical expenses incurred by a TP regardless of fault
-there is no need to prove negligence or establish any other legal obligation on the part of the insured
-the bodily injury must occur accidentally on premises the insured owns or rents; on the way next to such premises; or as a result of the insured’s operations
-the accident must take place within the coverage territory and during the policy period
-the expenses must be incurred and reported to the insurer within one year of the date of the accident
-the injured party must submit any reasonable medical examinations by a doctor chosen by the insurer
-reasonable expenses are payable for immediate first aid, necessary medical, surgical, x-ray, and dental services, including prosthetic devices, and necessary ambulance, hospital, professional nursing or funeral services
-through this coverage, certain minor TP injury claims can be paid promptly when an insured is not legally liable but feels a moral responsibility towards an injured party
-this reasonable and non-confrontational approach may actually help to avoid costly litigation, and it also permits an insured to behave in a practical financial way toward a friend or neighbour who is injured

Question 35

Medical Payments Exclusions

Answer 35

-the following are not covered under the medical payments coverage:

a. Any insured under the policy except volunteers
b. A person hired to do work for or on behalf of any insured or a tenant of any insured, such as a person brought on the premises to do casual labour. Whether or not the insured or any tenant of the insured invites such persons, there is no coverage available under this section
c. Any person injured on premises normally occupied by the injured party. The tenant of an apartment complex will not be excluded from coverage if the injury takes place outside of the occupied apartment
d. Anyone (employee or not) who is entitled, at the time of the injury, to compensation from a prov. or terr. workers’ compensation plan
e. Persons taking part in athletics, including practicing, instruction, or participating
f. Products-completed operations hazard
g. Exclusions under Coverage A. Bodily Injury and Property Damage

Question 36

Coverage D. Tenants Legal Liability

Answer 36

-tenants have significant liability exposure regarding property they rent
-property owned, rented, or occupied by the insured is excluded under the property damage section under Coverage A.
-If the insured runs a retail store from rented premises in a shopping mall, tenants legal liability coverage protects the insured against liability incurred for damages from all perils (unless specifically excluded) to the rented (real property) premises
-previous versions of the CGL policy only covered specified perils such as fire, explosion, smoke, or leakage from fire-protective equipment
-the operation that negligently starts a fire in its rented office must have tenants legal liability insurance to pay for damage to the premises it occupies
-damage that occurs beyond the space rented falls under Coverage A. Bodily Injury and Property Damage
-damage to the insured’s office contents will be covered under his or her property policy
-tenants legal liability coverage pays for property rented to or occupied by the insured
-the property damage must be caused by an occurrence, take place in the coverage territory, and occur during the policy period

Question 37

Tenants Legal Liability Exclusions

Answer 37

-the following exclusions apply to the tenants legal liability coverage:

a. Property damage expected or intended from the standpoint of the insured
b. Contractual liability except that which
> the insured would have had in the absence of a contract; and
> is assumed in an insured contract

Question 38

Section II - Who is Insured

Answer 38

-the policy automatically extends to cover other persons not named in a particular policy under certain conditions
-the policy wording must be examined to ensure only the entities the UW intends to cover are included
-the wording extends to cover the spouse of the insured with respect to the conduct of business when the insured is an individual, a partnership, or a joint venture
-when an insured is a limited liability company, coverage extends to company members, executive officers, directors, and shareholders with respect to their liability pertaining to their business duties
-volunteer workers or employees are covered while performing duties related to the conduct of the insured’s business
-but coverage does not extend to injury to co-employees, to persons who are entitled to workers’ compensation or similar benefits, or to persons providing or failing to provide professional health-care services
-other persons insured include trustees and real estate managers, and if the named insured dies, his or her legal representative and those having temporary custody of the property are covered
-any newly acquired or formed organization is covered until the 90th day after its acquisition or formation or the end of the policy period, whichever comes first

Question 39

Definition - “general aggregate limit”

Answer 39

The maximum amount an insurer will pay for covered losses during a policy period

Question 40

Definition - “each occurrence limit”

Answer 40

The maximum the policy will pay in the event of any one claim or occurrence

Question 41

Definition - “deductibles”

Answer 41

An agreed specified amount that the insured must pay on a claim before the insurance company will cover the rest of the claim. This amount is agreed upon by both the insurer and the insured. An insured’s obligation to pay a deductible is not based on whether the insured is at fault

Question 42

Section III - Limits of Insurance

Answer 42

-the declarations page specifies the limits of insurance for the various coverages purchased
-the policy describes how the limits of insurance are applied
-the amount inserted under each heading is the maximum amount payable regardless of the number of insureds, claims made or actions brought, or persons or organization making claims or brining actions

-a ‘general aggregate limit’ is the total amount payable in any one policy period and it applies collectively to A. Bodily Injury and Property Damage, B. Personal and Advertising Injury, and C. Medical Payments
-however, there is an exception to the general aggregate: products-completed operations hazard (an additional aggregate limit applies to this exposure)
-market conditions influence whether or not an insurer will agree to waive or modify aggregate limits
-when capacity dries up, UWs are likely to write policies with aggregate limits that apply not only to products liability but also to the rest of the policy
-in buoyant “soft market” conditions, when UWs are competing vigorously, less restrictive conditions are likely to prevail
-for example, an insured with a general aggregate limit of $2 mill and a products-completed operations aggregate limit of $2 mill could realize benefits up to $4 mill for claims under insuring agreement A. Bodily Injury and Property Damage

-there is an “each occurrence limit” which is the maximum amount payable for any one occurrence for A. Bodily Injury and Property Damage and C. Medical Payments.
-the personal and advertising injury limit is the max amount payable for any such injury sustained by any one person or organization

-unlike most property policies, there is no automatic reinstatement of the limits of insurance under the CGL. The medical expense limit is the max amount payable for each person

-the tenants legal liability limit is the max amount payable because of property damage to any one premises the insured rents
-the limits of insurance apply to the policy’s annual period
-also, there is a formula to apply to a limit when the period is less than 12 months
-amounts paid under the supplementary payments coverage are not subject to any of the limits under this section
-the deductibles apply only to property damage under Coverage A and tenants legal liability under Coverage D.
-limits of insurance are reduced by the deductible

Question 43

Section IV - Conditions

Answer 43

-although the CGL policy is not subject to the statutory conditions applicable to the common law prov. and terr., it contains conditions similar to most insurance forms
-some conditions are merely general statements that describe how the policy works and others specifically describe what steps the insurer or insured must take should a certain event occur
-in QC, some of the policy conditions are set out in legislation
-for example, Item 1 of the conditions that sets out the insurer’s obligation in the event of the insured’s bankruptcy is made law in Article 2476 of the CCQ. The first named insured is deemed to have POA for all insureds. This applies to the policy in general. The insurer transacts all business with the first named insured

Question 44

Conditions found in the standard CGL policy

Answer 44

1. The insurer is obliged to perform duties described under the policy even if the insured or the insured’s estate becomes bankrupt or insolvent
2. All premiums, payments, deductibles, and limits of insurance are expressed in Canadian currency
3. The first named insured is authorized to make changes in the terms of the policy with the insurer’s consent. Changes can only be made by issuing a policy endorsement
4. The claims condition outlines the duties of the insured in the event of an occurrence, claim, or lawsuit
5. The insurer has the right to examine the insured’s financial books and records as they relate to the policy. This can be done any time during the policy period and in the succeeding three-year period
   > many liability policies are rated on the basis of revenue generated by the insured. By conducting an audit, the insurer can corroborate the information provided about revenue
6. The insurer has a right to determine the physical characteristics of the risk. An insurer may issue a report based on such an inspection detailing recommendations or coincidentally identifying health and safety risks. Although this condition is designed to allow the insurer to examine the risk, the process serves the best interests of both the insurer and the insured, as risk exposures tend to be identified and thus attempts to eliminate or to reduce their severity can be made. The policy specifically states that such examinations are not safety inspections. The function of the inspection is to make sure the risk meets the insurer’s UW criteria. Should a report be issued, it is normal practice for the insurer to include a disclaimer so that the insured does not rely on the report exclusively for safety reasons. An independent survey firm or other professional may be hired by the insured or such a step may be recommended by the insurer
7. The ‘no action clause’ outlines the circumstances under which the insurer can be sued for coverage. Reference to a specific time limit for commencing an action or proceeding against the insurer was removed from the CGL wording. Currently, the applicable legislation regarding limiting the time for bringing lawsuits applies
8. The ‘other insured clause’ is also known as the ‘contribution clause’. It acknowledges this insurance to be primary unless there is in effect
   > property insurance for the insured’s work or for the insured’s rented premises; or
   > watercraft coverage for loss arising out of the maintenance or use of watercraft
   -this insurance provides excess coverage for the preceding policies.
   -if there is another primary policy in effect, the loss amount will be apportioned between the two primary policies. When policies are to share in a loss, contribution occurs on an “equal share” basis. If the other contributing policy does not permit such sharing, contribution will occur by limits. This method of “sharing by limits” calculates the apportionment based on the ratio of each individual policy’s limit of liability to the total limits of liability
9. Premium shown on the declarations as an advance premium is a deposit premium only. At the close of each audit period, the earned premium for that period will be calculated. Such premiums are due when notice is given to the insured
10. The first named insurance is responsible for payment of all premiums and is the payee for any return premiums owed by the insurer
11. The insured must guarantee the accuracy of statements made to obtain insurance. This condition is further supported by the common law principles of utmost good faith and materiality
12. Where more than one insured is named on a policy, the policy will respond as if each named insured has a separate policy. It is known as the ‘cross-liability clause’. This allows one insured to bring an action against another. All other terms and conditions of the policy are in full effect. The limits of liability are not compounded
13. Certain procedures must be followed in order to cancel the policy. The insurer has the right to cancel the policy for non-payment of premium with 15 days’ notice or 30 days’ notice for any other reason. In QC, cancellation taken effect 15 days after receipt of the notice at the last known address of the named insured
14. If the insured has subrogation rights to recover all or part of any payment made by the insurer, those rights are transferred to the insurer.
15. An insured cannot transfer its rights or duties to another without the written consent of the insurer. If a named insured dies, rights and duties will be transferred to the legal representative but only while acting as such. Until the legal representative is appointed, anyone having proper temporary custody of the insured’s property will have the insured’s rights and duties relative to that property

Question 45

Section V - Definitions

Answer 45

-in the standard CGL policy wording, terms that are assigned a special meaning are in quotation marks
-to properly evaluate coverage under the policy, one must refer to the definitions to understand the coverage.
-one definition that requires further explanation is ‘insured contract’ (known as incidental contract in earlier CGL wordings). The CGL policy specifies that contractual liability is excluded “except for compensatory damage arising from liability the insured would have had whether there was a contract or not, as well as for compensatory damages arising from liability in an insured contract.”

-Insured contract means
> a lease or premises;
> a sidetrack agreement;
> an easement with railroad crossings;
> any other easement agreement;
> an obligation as required by ordinance to indemnify a municipality;
> an elevator maintenance agreement; or
> a hold-harmless agreement

-in order to properly evaluate coverage under the policy, people seeking insurance must refer to the definitions to understand the coverage
-it is important to clearly understand the definitions, especially when interpreting a policy, reviewing a claim, or reviewing a judgement
-it is also important for an insurance professional to be able to communicate with clarity to clients what the coverages are, the exclusions, and the details that they deem necessary to understand