Commercial General Liability (CGL) Insurance
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Liability Insurance Basic Coverage
Intentional Wrongdoing vs. Unintentional Acts
Voluntary Payments
CGL Structure
Bodily Injury and Property Damage
Personal Injury
Payment of Medical Bills
Premises Operation
The CGL vs. the Business owners' Program
CGL Exclusions
What to do after an incident that might be covered by a policy
Proof of Missing Policies
Insurance and the Commercial Lease
Residential Tenants insurance
Liability Insurance Basic Coverage Commercial general liability (CGL) insurance is "third party" coverage. It reimburses property owners if they are responsible for compensating another's losses. However, it is crucial to understand that the policy will not cover certain situations in which the property owner would ask someone else to take over his or her liability. Or where the property owner voluntarily assumed responsibility before liability is established. to top Intentional Wrongdoing vs. Unintentional Acts. Liability insurance will not cover intentional wrongdoing such as arson or assault, but it will cover negligence and strict liability. to top Voluntary Payments.
If any incident occurs that might become the subject of a liability insurance claim, property owners must be sure not to make any payments to anyone (except to pay for necessary first aid) without consulting their liability insurance company. Liability insurers have no duty to reimburse for voluntary payments made before liability is established.
to top CGL Structure.
The essence of the CGL policy is the insurer's promise to pay, on behalf of the insured, all bodily injury and property damages that the insured is legally obligated to pay because of an "occurrence" (see below), up to the limits of the policy. The structure of the CGL includes three main coverages A, B and C - and other coverage provisions.
to top Bodily Injury and Property Damage. Coverage A relates to bodily injury and property damage. Bodily injury is defined to include physical injury and disease. In some cases, Coverage A will include damages for emotional distress. Coverage A also encompasses claims made by family members alleging that a breadwinner's injury or death caused them economic harm. The property damage part of coverage A involves physical injury to tangible property. to top Personal Injury. Coverage B relates to personal injury (non-physical injuries such as damage to reputation and false imprisonment). to top Payment of Medical Bills. Coverage C relates to payment of medical bills for a person whose body is injured in a manner covered by the policy. Coverage C applies to bodily injury, caused by accident, occurring on premises owned or rented by the insured, on the "ways" next to the premises, or as a result of the insured's operations. This is "no fault" coverage; it doesn't matter whose fault caused the bodily injury. The theory is that an injured person whose medical bills are paid will be much less likely to bring a liability lawsuit, so fewer claims will be made under Coverage A.
The coverage extends to first aid at the site, plus medical, surgical and dental services, plus ambulance, hospital, nursing, and, if necessary, funeral costs. Coverage C does not extend to any insured person, any situation covered by workers' compensation, anyone working for the insured or any tenant of the insured, anyone injured while participating in athletics, or under any circumstances excluded under Coverage A. to top Premises Operation. The most important part of the CGL is the premises-operation segment, which covers liabilities arising out of ownership or operation of business premises. to top The CGL vs. the Business owners' Program.
Although most businesses use a CGL policy to meet their need for liability protection, ISO has drafted a Business owners' program, including both property and liability coverages, for the needs of small business. The Business owners Program is a more limited than the regular CGL. Foe example: it excludes liability for arising out of performance of certain professional services, but it is also less expensive.
to top Occurrence vs. Claims-Made Policies
Liability insurance is available in two versions: occurrence and claims-made. An occurrence policy covers events occurring during a specific policy period (for instance, calendar year 1998), no matter when the claim is made.
On the other hand, a claims-made policy covers claims that are made during the policy term, no matter when the actual incident occurred. A "tail" or extended reporting period, can be added to a claims-made policy in exchange for an extra premium. The tail covers claims that arose during the regular policy period but were not reported to the insurer or asserted against the insured until the extension.
Most CGL policies are in occurrence form. The claims-made form is more typically for professional liability insurance (such as policies held by doctors, lawyers, architects and other professionals). In fact, some state insurance commissions have not approved the sale of claims-made CGLs in their state.
to top Duty to Defend
Under a liability policy, the insurance company also has a duty to defend - to provide an attorney and handle the defense of the case. Usually the attorneys will be extremely experienced, with insight into defenses available to the property owner. The insured does not have to interview or select lawyers, or pay legal fees, so the duty to defend is a very valuable feature of insurance that also helps to prevent frivolous claims and law suits.
The insurer has a duty to defend against any allegation covered by the policy (including claims that seem to be covered by the policy but turn out not to be), and even if the allegation turns out to be worthless or even fraudulent.
to top CGL Exclusions
The CGL also includes "exclusions" (circumstances under which insurance benefits will not be payable) and "conditions" that the insured must meet in order to get coverage.
Standard Exclusions.
The following are excluded from CGL coverage:
(a) Bodily injury or property damage that the insured either expected or intended— in other words, deliberate malicious acts. However, if the insured has to use reasonable force to protect persons or property (for instance, a security guard using reasonable force to apprehend a criminal), the consequences of the reasonable force, such as any resulting injuries a criminal might receive, will be covered under the CGL.
(b) Automobile, boat and aircraft risks;
(c) Workers' compensation claims and other forms of liability to your own employees;
(d) Director and officer liability (i.e., personal liability of the company's directors or officers for things they do or neglect to do in the course of managing the company);
(e) Pollution.
Separate coverages are sometimes available to cover most of these risks.
Pollution Exclusion. Starting in 1970, the CGL has contained a "pollution exclusion." According to the current language, the policy excludes coverage of liability arising out of actual alleged, or threatened discharge, dispersal, seepage, migration, release or escape of pollutants. The current version of the CGL defines pollutants as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste (including recyclable materials)." As with other exclusions, it may be possible to obtain supplemental coverage for pollution risks.
The "Own Property" Exclusion. Another bar to collecting CGL policy benefits is the exclusion of damage to real property owned, rented or occupied by the insured.
CGL Supplementary Forms and Endorsements. Situations excluded from the basic terms of the CGL can be built into coverage by purchasing supplementary policy forms or adding an endorsement to the policy.
to top What to do after an incident that might be covered by a policy:
(a) Create a written chronology of the significant facts and events;
(b) Assemble all policies and insurance documents that might provide either first or third party coverage;
(c) Notify all insurance companies who might have a duty to provide benefits. Make sure to notify the insurers within the time limits set by the policy. It is better to notify a company that says it is not responsible than to wait past the deadline to contact an insurer who really is responsible;
(d) Cooperate with the insurance company in its investigation of the incident;
(e) If necessary, contact an attorney who specializes in insurance work. If advised that there is a sustainable case, bring a bad faith lawsuit against any insurance company that fails to meet their obligations.
to top Proof of Missing Policies In the event that policies are missing, there are many techniques that can be used to demonstrate coverage:
- Produce copies of the standard policy for the relevant period.
- Provide proof of payment of premium (e.g., canceled checks payable to the insurer, with a memo "Premium for CGL 1/1/98-12/31/98").
- Locate your internal business records and correspondence about the policy.
- Get testimony from your own employees and especially from the insurer's employees about your coverage.
- Provide proof that you had coverage in other years; a court might presume that you had comparable coverage in other years.
- Prove that the insurer paid a claim, or carried out its duty to defend, under the missing policy with respect to another incident.
to top Insurance and the Commercial Lease In addition to carrying their own insurance, commercial property owners should insist that all tenants insure the premises and their liability. This is accomplished by including an insurance clause in the commercial lease. The clause should contain the following terms:
- The tenant will maintain insurance at its own expense.
- The insurance should be carried in an amount not less than the full replacement value of the premises.
- The policy should include liability, all-risk property, and business interruption coverage.
NOTE. The property owner may wish to require the commercial tenant to include the owner on the policy as additionally insured.
to top Residential Tenants insurance. Landlords and property managers should clearly state in any lease, and in other written reminders to tenants, that they do not insure a tenants personal property. Many residential tenants do not realize that they must purchase their own "Tenant's Insurance" to cover damage or loss to their property. See the Tenant's Insurance page in this Web. to top
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