Recap of Chapter Ten

Businesses face several liability exposures arising from their daily operations. Protection against many of these liability claims is commonly provided by a Commercial General Liability (CGL) policy. A premises exposure is the possibility that a business may be held legally liable for bodily injury or property damage that occurs at the insured’s place of business. An operations exposure is the possibility of liability arising from the insured’s work or business activities conducted away from the insured’s premises. A completed operations exposure begins after the insured has finished work or services at an off-premises job site and has left the location. This exposure involves possible liability for bodily injury or property damage caused by defective or improper workmanship. A products exposure begins after the insured has sold goods or merchandise and those products have left the insured’s premises and control. This exposure includes claims arising from defective products, inadequate instructions, or improper warnings.

Businesses may also face contractual liability when they assume responsibility for certain actions, failures to act, losses, or damages under the terms of a contract or agreement. A CGL policy provides limited coverage for contractual liability when the liability arises from certain contracts that qualify as insured contracts. Examples of insured contracts include a lease of premises, an easement agreement, an agreement to indemnify a municipality, a sidetrack agreement, and an elevator maintenance agreement. However, not all contracts qualify as insured contracts. For example, a contract that indemnifies a railroad for liability arising out of construction or demolition operations affecting a railroad bridge, tunnel, or crossing is not considered an insured contract under the CGL policy.

A CGL policy may be written on one of two coverage forms. These forms differ based on the coverage trigger, which is the event that activates coverage under the policy. Under the Occurrence Form, coverage is triggered by the date the bodily injury or property damage occurs. If the occurrence takes place during the policy period, the policy may respond to a covered claim, even if the claim is made or reported after the policy has expired.

Under the Claims-Made Form, coverage depends on two timing requirements: when the occurrence takes place and when the claim is made. First, the occurrence must take place on or after the retroactive date and before the policy expiration date. The retroactive date may be the policy inception date, an earlier date agreed to by the insurer, or it may be removed entirely through Prior Acts coverage. Second, the claim must be made during the policy period or during an applicable extended reporting period. The Claims-Made Form automatically provides a basic extended reporting period. The basic extended reporting period includes a 60-day mini-tail, which allows claims involving previously unreported occurrences to be reported within 60 days after the policy expires, as long as the occurrences took place during the required coverage period. It also includes a 5-year midi-tail, which allows new claims arising from previously reported occurrences to be reported within 5 years after the policy expires. A separate reporting period of unlimited duration, known as the supplemental extended reporting period, may also be added by endorsement.

Both CGL coverage forms provide the same coverages under Section I – Coverages. Coverage A – Bodily Injury and Property Damage Liability pays damages the insured becomes legally obligated to pay because of covered bodily injury or property damage. This coverage also includes the insurer’s duty to defend the insured against suits seeking those damages. For Coverage A to apply, the occurrence must take place during the policy period and within the coverage territory. The coverage territory includes the United States, its territories and possessions, Puerto Rico, and Canada.

Coverage A also includes liability arising from the insured’s products and completed operations. This exposure is known as the products-completed operations hazard. Coverage may apply when the insured’s product or completed work causes bodily injury or property damage after the product or work is no longer in the insured’s care, custody, or control. However, Coverage A does not cover recall-related expenses when the insured’s product or work is withdrawn from the market because of a known or suspected defect, deficiency, inadequacy, or dangerous condition. This exclusion is commonly known as the Sistership Exclusion. Coverage A may also provide host liquor liability coverage when alcohol is furnished incidentally by an insured that is not in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages. Examples include a building owner leasing space to a bar or a business providing alcohol at a company party, fundraiser, or similar event. In addition, Coverage A may cover the insured’s fire legal liability and certain other property damage to premises rented to the insured, subject to the policy’s conditions, exclusions, and applicable limit of insurance.

Coverage A may also apply to liability arising from certain limited auto and watercraft exposures. For example, coverage may apply to watercraft while ashore on premises owned by or rented to the insured. Coverage may also apply to non-owned watercraft less than 26 feet long, as long as the watercraft is not being used to carry people or property for a fee. The CGL policy may also provide coverage for liability arising from the use of mobile equipment, such as bulldozers, forklifts, and power cranes. However, coverage does not apply to liability arising from the transportation of mobile equipment by an auto that is owned or operated by the insured. That exposure is intended to be covered under Commercial Auto insurance.

Coverage A contains several exclusions that limit when bodily injury or property damage liability coverage applies. Some of these exclusions are common to liability policies, including exclusions for expected or intended injury, injury or damage arising from war, and property damage to the insured’s own property or products. Contractual liability is also limited. Coverage applies only when the contract qualifies as an insured contract, or when the insured would have been legally liable even if the contract did not exist. Liquor liability is excluded when the insured is in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages. Those insureds generally need separate liquor liability coverage for that exposure.

Coverage A does not provide coverage for bodily injury to the insured’s employees when the injury arises out of the employee’s work duties. It also excludes claims made by the employee’s relatives as a consequence of the work-related injury. These exposures are intended to be covered under separate policies, such as Workers’ Compensation and Employers Liability insurance. Coverage is also excluded for liability arising out of actual, alleged, or threatened pollution. Pollution-related liability generally requires a separate pollution liability policy or an appropriate endorsement. In addition, except for the limited vehicle and watercraft exposures specifically covered by the CGL, liability arising out of aircraft, autos, and watercraft is excluded. These exposures are generally insured under separate policies, such as Commercial Auto, Aircraft Liability, or Watercraft Liability coverage.

Coverage B – Personal and Advertising Injury Liability provides coverage for damages the insured becomes legally obligated to pay because of covered personal and advertising injury. This coverage also includes the insurer’s duty to defend the insured against covered suits seeking those damages. Coverage B contains several exclusions. Coverage is not provided when the insured knowingly violates another person’s rights, knowingly publishes false material, or is liable for injury arising from electronic chat rooms or bulletin boards that the insured hosts, owns, or controls. Coverage is also excluded for incorrect price descriptions in advertisements and for the failure of the insured’s goods, products, or services to conform to statements made in advertisements. Coverage B is subject to the Personal and Advertising Injury Limit, which is the most the insurer will pay for all personal and advertising injury sustained by any one person or organization.

Because Coverages A and B include the insurer’s duty to defend, the CGL policy also provides Supplementary Payments for those coverages. These payments are made in addition to the applicable limit of insurance. Supplementary Payments may include claim-related expenses incurred by the insurer, the cost of bail bonds, the cost of bonds to release attachments, prejudgment and postjudgment interest, and reasonable expenses the insured incurs at the insurer’s request to assist in the defense. This includes up to $250 per day for the insured’s loss of earnings.

Coverage C – Medical Payments provides coverage for medical expenses incurred by others because of bodily injury caused by an accident. The accident must occur on the insured’s premises or arise out of the insured’s operations. Medical payments are made regardless of fault, meaning the insurer may pay covered medical expenses even if the insured is not legally liable. To qualify for coverage, the expenses must be incurred within 1 year of the date of the accident. Coverage C may apply to persons such as customers and volunteer workers. The Medical Expense Limit is the most the insurer will pay for medical expenses incurred by any one person.

Coverage C does not apply to all bodily injury expenses. Medical payments are not provided when the bodily injury is excluded under Coverage A, such as an injury that should be covered by Workers’ Compensation or a similar law. Medical payments are also not provided to any insured, employees of the insured, or persons who normally occupy the insured premises. In addition, Coverage C does not apply to bodily injury included in the products-completed operations hazard or bodily injury resulting from athletic activities.

Section II – Who Is An Insured explains which persons or organizations qualify as insureds under the CGL policy. Some parties are insureds based on how the named insured is designated on the Declarations page. For example, if the named insured is a corporation, the corporation is an insured. Its executive officers and directors are also insureds, but only with respect to their duties for the corporation. Stockholders are insureds only with respect to their liability as stockholders. In addition to these parties, certain others may also qualify as insureds while performing duties related to the insured’s business. These may include the insured’s volunteer workers, employees, real estate manager, and legal representative.

Section III – Limits of Insurance explains the different limits that apply under a CGL policy. These limits determine the maximum amount the insurer will pay for covered claims. The CGL policy includes two aggregate limits. An aggregate limit is the most the insurer will pay for certain coverages during the policy period. The Products-Completed Operations Aggregate Limit is the most the insurer will pay for damages under Coverage A that are included in the products-completed operations hazard. The General Aggregate Limit is the most the insurer will pay for other Coverage A damages, Coverage B damages, and Coverage C medical expenses during the policy period.

In addition to the aggregate limits and the separate limits that apply to Coverage B and Coverage C, the CGL policy also includes an Each Occurrence Limit. This limit is the most the insurer will pay for the combined total of damages under Coverage A and medical expenses under Coverage C arising out of any one occurrence. The Damage To Premises Rented To You Limit is a sublimit that applies to property damage to premises rented to the insured. It is the most the insurer will pay for property damage to any one rented premises, subject to the policy’s terms and applicable limits.

Section IV – Commercial General Liability Conditions explains the duties and responsibilities that apply under the CGL policy. The insured must notify the insurer as soon as practicable of any occurrence or offense that may result in a claim. Prompt notice allows the insurer to investigate the matter and respond appropriately. The premium paid at the beginning of the policy period is only a deposit premium. The final earned premium is determined by a premium audit conducted at the end of the policy period. CGL coverage may also apply on either a primary or excess basis. When the policy is written on a primary basis and other collectible primary insurance also applies, the insurers generally share the loss on a contribution by equal shares basis.

Section V – Definitions contains the policy definitions used throughout the CGL coverage form. These definitions help determine how coverage, exclusions, and conditions apply. One important distinction is the difference between an auto and mobile equipment. In general, an auto is designed for use on public roads or is subject to financial responsibility laws. Mobile equipment, by contrast, is generally designed for use off public roads and is often used to perform work rather than to transport people or property. The distinction can depend on whether the vehicle is self-propelled and the type of equipment attached to it. For example, a self-propelled vehicle with permanently attached equipment such as a cherry picker, generator, or similar equipment may be treated as an auto under the policy. However, a vehicle that is not self-propelled and is used to provide mobility for permanently attached equipment may qualify as mobile equipment.

Under the CGL policy, employees include leased workers. However, temporary workers are not considered employees.