Chapter 8 CGL Flashcards
Commercial General Liability
General liability ins covers business liability hazards that are not covered under more specialized forms of insurance such as auto, marine, workers comp, and others. Businesses need protection to cover themselves for liability arising from premises, general ops, and products manufacture or sale.
The primary policy form covering these general business hazards is the Commercial General Liability (CGL). In this section, we cover the following forms of CGL:
- Professional Liability
- Product Liability
- Premises Liability
- Professionals are expected to have extensive technical knowledge or training in their area of expertise. They are also expected to perform the services for which they were hired, according to the standards of conduct in their profession.
If they fail to use the degree of skill expected of them, they can be held responsible in a court of law for any harm they cause to another person or business.
When liability is limited to acts of negligence, pro liability insurance may be called E&O liability.
i.e Insurance Agents/Adjusters - protects an insurance agent or adjuster against claims made against them because of negligent acts, errors or omissions on the part of the agent/adjuster.
Physicians, surgeons & dentists - covers claims alleging malpractice out of:
- professional acts or omissions; or
- acts of person for which the physician, surgeon, or dentist is responsible.
- Product liability is the area of law in which manufacturers, distributors, suppliers, retailer, and other who make products available to the public are held responsible for the injuries those products cause. The most common cause of action in a products liability claim is:
Negligence - which can be caused by the following:
- improper product design;
- improper assembly of the product;
- failure to inspect or test the product; or
- failure to warn of dangerous characteristics.
- The status of the plaintiff - under the premises liability law of most jurisdictions it is necessary to determine if the plaintiff was an invitee, a licensee, or a trespasser. The defendant’s duty to the plaintiff can vary significantly depending upon how the plaintiff is classified. In the definitions below, premises should be read broadly to include land, premises, or places of business. The possessor is the person in possession of the premises.
Invitee - A person who is invited to enter or remain on the premises for a commercial benefit to the possessor, or for a purpose directly or indirectly connected with business dealings with the possessor. An invitation may be either express or implied. I.e. a customer in a dept store is an invitee, as the dept store actively invites the public to come into the premises and shop. A premises owner owes the highest duty of care to an invitee.
Typically, a possessor has a duty to use ordinary care or warn or otherwise protect an invitee from risks of harm from a condition on the possessor’s premises if:
- the risk of harm is unreasonable; and
- the possessor knows or in the exercise of ordinary care should know of the condition, and should realize that it involves an unreasonable risk or harm to an invitee.
The processor may have a duty to periodically inspect the premises for the introduction of hazards to invitees. I.e. a grocery store may be obligated to periodically check its floors for the presence of spilled or broken merchandise, and make sure that its products are not likely to fall from shelves.
Licensee - a person who is invited to enter or remain on the premises for any purpose other than a business or commercial one with the express or implied permission of the owner . A social guest is considered to be a licensee, not an invitee.
Typically, a possessor is liable for physical harm caused to a licensee by a condition on the premises if the plaintiff establishes the following:
- The processor knew or should have known of the condition and realized it posed an unreasonable risk of harm to licensee, and should have expected that the licensee would not discover or realize the danger;
- The possessor failed to exercise reasonable care to resolve the unsafe condition, or to warn the licensee of the condition/s and risk involved; and
- The licensee did not know or have reason to know of the conditions and the risk involved.
Trespasser - a person who goes upon the premises without an express or implied invitation, for their own purposes, and not in the performance of any duty to the possessor. Typically isn’t necessary for a defendant to establish that the trespasser had unlawful intent making such an entry.
Where premises owners are not aware of the presence of trespassers, they typically have no duty to warn of any danger or make their premises safer for the benefit of a trespasser. If the possessor is aware of the presence of trespassers, they may be obligated to exercise ordinary care in relation to the safety of a trespasser.
Typical of Commercial General Liability Policies
Occurrence policies cover claims arising from injury or damage occurring while the policy is in force, regardless of when the claim is first made.
Claims made policies cover claims that arise from injury or damage occurring during the policy period and reported the insurer during the policy period. Claims arising from events outside the policy period or claims reported to the insurer outside the policy period are not covered unless special coverage is purchased or arranged with the insurer.
This special coverage comes in two forms:
- Prior acts (nose) coverage
– Covers claims that arise from injury or damage occurring before the policy period, but reported to the insurer after the policy period begins. Prior acts coverage is provided by establishing a “retroactive date” covering injury or damage occurring after the retroactive date. The retroactive date usually appears in the declarations page accompanying your policy. It may be the effective date of the policy or an earlier date. Prior acts coverage does not cover claims that were known at the time your policy began. - Run-off (tail) coverage
–also called extended reporting period, pays for residual claims made after your policy expires. A typical claims-made policy provides a short reporting period of 30-60 days after the policy’s expiration date to file claims that arose too late to report before the policy expired. Run-off coverage starts when the 30 or 60 day period ends and is provided for an additional premium. The extended reporting period may be one, three, five years, or even unlimited.
Examples of Exclusions in a CGL policy
Following are some examples of exclusions commonly contained in a CGL policy. Coverage varies by insurer and will include additional exclusions other than these examples.
Damage to your work - generally CGL policies exclude coverage for property damage to your work. There is an exception to the exclusion for damaged work if a subcontractor working for you caused the damage.
i.e. you own a home building business that recently constructed an ew residence with a garage. After the home is sold and the homeowner moves in and parks their vehicle in the garage the roof on the garage collapses because of faulty construction. The collapsed roof damages the homeowner’s vehicle. The policy may provide coverage for the repair or replacement of the vehicle but may not pay to repair the collapsed roof because the roof is your work.
Example 2 - same situation, except the work to construct the roof was performed by subcontractors working on your behalf. The policy may cover damage to the vehicle and may also pay to repair or replace the roof constructed by your subcontractor.
Damage to your product - CGL policies don’t cover property damage to your product arising out of the product or any part of the product.
I.e. If you install propane-powered appliance that malfunctions and causes a fire that damages a home, your CGL policy may pay to repair the home. It will not pay to repair or replace the appliance if the malfunction was caused because the appliance was faulty.
Contractual Liability - CGL policies exclude coverage for bodily injury or property damage that you are obligated to pay because you assumed liability in a contract or agreement. The exclusion contains the following two exceptions:
1. Liability for damages that you would have assumed in the absence of the contract or agreement; and
2. Liability assumed in a contract or agreement defined in the policy as an insured contract, if the bodily injury or property damage occurs after the contract or agreement is executed.
Ex1: You sign a contract to complete the construction of a building within a specified amount of time. The contract requires you to pay damages if you breach the contract. Your CGL policy will not provide coverage for any damages you have to pay because you failed to meet the deadline.
Ex2: You sign a contract to hold harmless and indemnify another party for the other party’s negligence if that negligence results in bodily injury or property damage. Your CGL policy may provide coverage to indemnify the other party depending on the wording of the indemnity agreement.
Recall of products, work, or impaired property - CGL policies will not pay the cost to recall faulty products, work, or impaired property. However, this coverage may be added to the policy by endorsement for an additional premium charge.
Workers’ Comp & Employer’s Liability - CGL policies are not intended to provide coverage for WC or employer’s liability. This exclusion prohibits such coverage.
What kind of insurers offer CGL insurance?
Licensed insurers.
CGL policies offered by licensed insurers must contain the following legislatively mandated provisions:
Coverage may not be cancelled by the insurer after 60 days from the effective date of the policy except for the following reasons -
1. fraud in obtaining coverage;
2. failure to pay premiums when due;
3. an increase in hazard within your control that would produce a rate increase.
4. loss of the insurer’s reinsurance covering all or park of the risk covered by your policy; or
5. at any time if the insurer is placed ins supervision, conservatorship, or receivership and the cancellation or nonrenewal is approved or directed by the supervisor, conservator, or receiver.
The insurer must provide at least 60 days notice of nonrenewal and must tell you in writing why it will not renew your policy. PHs obtaining insurance from licensed insurers are protected by the Texas Property & Casualty Insurance Guaranty Association for up to $300,000 per claim if the insurer becomes insolvent.
Surplus Lines Insurers
It is common for surplus lines insurers to retain a significant portion of the premium in the event the insured cancels the policy midterm. Laws regarding notice of cancellation and nonrenewal do not apply to surplus lines insurers. Defense costs should be included within the limit of liability and prior acts or run-off coverage may not be available. In some cases, a surplus lines insurer can cancel before a policy’s renewal date.
Risk Purchasing and Risk Retention Groups
Risk Purchasing Groups are formed under the provisions of the federal liability risk retention act LRRA of 1986. A purchasing group consists of individuals or firms of like characteristics who share similar insurance needs
Risk retention groups are also formed under the provisions of the federal LRRA for the purpose of providing insurance. These groups do not buy commercial insurance policies, but retain the risk within the group.
In effect, the members insure each other against liability claims and lawsuits. However, because a risk retention group is an insurer, it may purchase reinsurance. Reinsurance is a form of insurance that insurance companies buy for their own protection.
Limits of insurance
The CGL has several different coverage limits and sub limits that apply to payments made under the coverage. The limit of liability that is shown on the policy declarations page is the most the insurer will pay. There are two sets of Aggregate Limits:
- Products/Completed operations; and
- Premises/Operational liability
General Aggregate Limit - this is the most that will be paid for the combined totals of Coverages A,B&C
Per Occurrence Limit - this is the most that will be paid for the combined totals of damages under Coverage A and C because of bodily injury, property damage and medical payments arising out of any one occurrence.
Products Completed Operations Limit - this represents the most that will be paid under coverage A because of injury and damage arising out of the products completed operations hazard.
Personal & Advertising Injury Limit 0 this is the most that will be paid under Coverage B for the total of all damages due to personal injury or advertising injury sustained by any one person or organization. This limit is also subject to the overall General Aggregate Limit.
Sub-Limits of Insurance
Fire Damage for Legal Liability Sub-Limit - this is the most that will be paid under Coverage A for liability cause by fire damage to premises rented to the insured or occupied by the named insured with the owner’s permission and arising out of any one fire. The sub-limit is also subject to the per Occurrence Limit and the general aggregate limit.
CGL Coverage Forms & Endorsements
Pollution Liability Coverage Extension Endorsement - this overrides the Coverage A exclusion for bodily injury and property damage claims arising out of pollution losses.
Pollution Liability Coverage Form and the Pollution Liability Limited Coverage - this covers certain pollution losses excluded under the standard form. Each covers pollution incidents, which are emissions of pollutants into or on land, the atmosphere or water that cause environmental damage.
The only difference is the pollution liability coverage extension endorsement does not cover clean up costs.
Liquor Liability Coverage Form - this covers those PHs that are in the liquor business. Coverage can be purchased on either a claims made or occurrence basis. This endorsement covers liability for contributing to a person’s intoxication or for providing liquor in violation of the law for the businesses engaged in the liquor business.
Pollution Exclusions in the CGL Policy
The pollution exclusion eliminates coverage for injuries or damages to a third party resulting from a pollution event arising from your business operations. This exclusion applies to the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of pollutants. A pollutant is typically defined as any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, reconditioned, or reclaimed.
The pollution exclusion included in most general liability policies may contain some of the following exceptions that could provide limited coverage for:
- Injuries sustained within a building and caused by smoke, fumes, or vapors produced by equipment that is used to heat, cool, or dehumidify the building or equipment used to heat water for personal use;
- Your products or completed operations;
- Injuries or damage arising out of heat, smoke, or fumes from a hostile fire. (Hostile fire is defined as a fire that becomes uncontrollable or breaks out from where it was intended to be.);
- Injuries or damage that an insured contractor may be held liable for if the owner of the premises has been added as an additional insured to the contractor’s policy;
- Injuries or damage arising out of the escape of fuels or lubricants necessary for the operation of mobile equipment; and
- Injuries or damage sustained within a building and caused by the release of gases, fumes, or vapors from materials brought into the building in connection with operations performed by you or a contractor or subcontractor working on your behalf.
Total pollution exclusions eliminate all coverage for premises/operations and products/completed operations. Businesses that have a significant pollution exposure, can choose to include a total pollution exclusion and purchase a separate pollution liability policy that may provide coverage better suited to the risk and is easier to rate based on the nature of the business.
