Lesson 3 Commercial General Liability Coverage Parts

Transcription

1 Lesson 3 Commercial General Liability Coverage Parts Introduction The Commercial General Liability (CGL) Policy comprises the bulk of our Insuring Commercial Casualty Exposures course. As stated in lesson 2, we have split the discussion into three separate lessons for ease of study. In this lesson, Commercial General Liability Coverage Parts, we study the main coverages found in the CGL Policy and their corresponding exclusions. You will find three coverage parts in the CGL Policy, each with its own insuring agreement and exclusions. These three coverage parts are: 1. Coverage A - Bodily Injury and Property Damage Liability 2. Coverage B - Personal and Advertising Injury Liability 3. Coverage C - Medical Payments This lesson will consist of five topics: Coverage A - BI & PD Insuring Agreement Coverage A - BI & PD Exclusions Part I Coverage A - BI & PD Exclusions Part II Coverage B - Personal and Advertising Injury Coverage C - Medical Payments Learning Objectives After completing this lesson, you will be able to: 1. Give a brief description of the coverage found under Coverage A - Bodily Injury and Property Damage Liability. 2. Recognize the exclusions for Bodily Injury (BI) and Property Damage (PD) under Coverage A of the CGL. 3. Define "insured contract." 4. List the types of pollution coverage included in the CGL Policy. 5. Given a loss, determine whether or not the CGL Policy provides liability coverage for an insured. 6. List and briefly describe the coverages found under Coverage B-Personal and Advertising Injury Liability. Rev. 03/10 57

2 7. Recognize the exclusions for Personal and Advertising Injury Liability coverage under the CGL. 8. List and briefly describe the coverages found under Coverage C-Medical Payments. Forms to print from the Forms Library CG Employment Related Practices Exclusion Forms you have printed that you will need for this lesson CG Commercial General Liability Policy Rev. 03/10 58

3 Lesson 3 Topic A - Coverage A: Bodily Injury and Property Damage Learning Objective: Give a brief description of the coverage found under Coverage A - Bodily Injury and Property Damage Liability. There are three coverage parts contained in the CGL Policy, the first of which we discuss in this topic. Coverage A-Bodily Injury and Property Damage Liability gives an insured protection for injuries and damage that arise out of the insured's legal liability to others. The very broad insuring agreement for Coverage A includes two important coverages for an insured: 1. Liability Coverage 2. Defense Costs Coverage The policy begins by stating that the company will pay for damages that the insured becomes legally obligated to pay because of "bodily injury" or "property damage." The coverage is triggered by an "occurrence" that occurs in the "coverage territory" resulting in "bodily injury" or "property damage" which occurs during the policy period. If an insured is legally obligated to pay for "bodily injury" and/or "property damage," this coverage part will pay for the monetary damages due. Note: Please navigate back to Lesson 1, Topic B if you need to review any of these defined terms. Knowledge Check Yes or No: If a tenant were injured as a result of the owner's negligence would Coverage Part A: Bodily Injury Liability and Property Damage be applicable? The correct answer, Yes. Rev. 03/10 59

4 Learning Objective: Give a brief description of the coverage found under Coverage A - Bodily Injury and Property Damage Liability. Defense In addition to providing coverage, the company, at its own expense, will defend an insured against any "suit" seeking damages. However, the company has no obligation to defend an insured for damages that are not covered by the CGL Policy. The insurance company may investigate any "occurrence" and the company may settle any claim or "suit" they choose. The company will pay for covered damages limited to the amount as described in Limits of Insurance. Once the company has paid the applicable limit of insurance, their right and duty to defend an insured ends. We will discuss limits in Lesson 4, Topic B. Let's look at a simple example of a claim that includes defense costs. Example An insured has a Commercial General Liability Policy with an Each Occurrence Limit of $100,000. A claimant is awarded $100,000 for "bodily injury" covered by the policy. The cost of the Named Insured's defense was $200,000. What is the total amount that will be paid by the insured's CGL Policy. (Ignore any deductible.) The answer is $300,000, since defense cost is paid in addition to the Limits of Insurance of a covered claim: $100,000 for the bodily injury $200,000 for the defense costs Rev. 03/10 60

5 Insuring Agreement Summary The insuring agreement for the CGL represents a very broad scope of coverage. In the next two topics, we will study how the CGL Policy's exclusions limit or eliminate this broad coverage. Rev. 03/10 61

6 Lesson 3 Topic B - Coverage A: BI and PD Exclusions I Learning Objective: Recognize the exclusions for Bodily Injury (BI) and Property Damage (PD) under Coverage A of the CGL. It is not the intent of the CGL Policy to pay for all "bodily injury" and/or "property damage" losses for which an insured is legally liable. As a rule, injury and damage are covered if an insured is legally liable and if they are not excluded. The exclusions in the CGL Policy are specifically named. Some exclusions eliminate coverage, some limit coverage, and some even give coverage by making exceptions to the exclusion. Because the list of exclusions is long and sometimes complex, we will study them in two separate topics. The first group of exclusions are: Expected or Intended Injury Contractual Liability Liquor Workers Compensation and Similar Laws Employer's Liability Pollution Note: Please look at page 2 - item 2 of your CGL Policy where the exclusions begin. Rev. 03/10 62

7 Expected or Intended Injury Exclusion The CGL Policy does not provide insurance for "bodily injury" or "property damage" that was expected or intended from the standpoint of an insured. Every intentional act is not automatically excluded. If the insured did not expect or intend for the "bodily injury" or "property damage" to occur, coverage will be provided even if the insured intended to do the activity that led to the "bodily injury" or "property damage." Example 1 A clerk shoots an armed robber who threatened customers in the store. The clerk meant to shoot the robber and intended to cause bodily injury to the robber. If the robber sues, then the policy would respond, provided it was deemed to be reasonable force for protection of persons or property. Example 2 An insured is burning scrap-building materials and inadvertently burns good material belonging to another subcontractor. Note that the exclusion gives back coverage for bodily injury resulting from the use of reasonable force to protect persons or property. The term reasonable force is not described. Learning Objective: Recognize the exclusions for BI and PD under Coverage A of the CGL. Contractual Liability Exclusion This exclusion takes away coverage for liability that the insured assumes in a contract, and then gives back coverage for liability assumed in an "insured contract." An "insured contract" is defined on page 13 of your CGL Policy. The definition actually describes six types of contracts or agreements where an insured can assume liability for damages and the CGL Policy will pay. (We have a memory tool for these 6 categories, LEASE+.) It is important to remember that the CGL does not cover breach of contract or failure to perform under a contract. Rev. 03/10 63

8 Learning Objective: Define "insured contract". The following are considered to be "insured contracts" by definition, and therefore liability assumed under these contracts will be covered. Another way of thinking about these types of contracts is that they represent an exception to the exclusion. We have given you an easy way to remember them: LEASE "PLUS." Learning Objective: Define "insured contract". These types of contracts are covered under the CGL. Lease of Premises Most building owners require insureds to hold them harmless for damage or injury, when the insured signs a lease. Example: Your agency is a tenant in an office building. A policyholder comes to the agency to make a payment, slips on a wet floor in the building entryway, and is injured. The policyholder sues the building owner and the building owner looks to the agency for coverage, since the agency held the owner harmless when the lease was signed. The agency's CGL Policy would provide coverage for this loss. Rev. 03/10 64

9 If the lease requires the insured to reimburse any person or organization for damage caused by fire to premises rented to them or temporarily occupied by them, then that part of the contract is not considered an "insured contract." Easement Agreement An easement involves the right to use land that belongs to others. These agreements often contain assumptions of liability that will be covered by the CGL Policy. Note: There is an exception in the definition. An "insured contract" does not mean an easement or license agreement in connection with construction or demolition operations, on or within 50 feet of a railroad. Agreement with a Municipality (other than doing work for the municipality) Example: A city may require a shop owner to hold the city harmless for any incidents arising out of the existence of a sign hanging over the sidewalk. This type of contractual assumption will be covered by the CGL Policy. Sidetrack Agreement with a Railroad Sidetracks are special railroad spurs branching from the main railroad line to provide access for rail cars to specific locations. Whenever an insured requests a sidetrack, the railroad owning the main line imposes certain requirements before they allow the spur or sidetrack to be connected to their line. Liability assumed under this sidetrack agreement is covered under the CGL Policy. Elevator Maintenance Agreement Public elevators must be inspected and maintained to minimum standards. Many building owners contract for this service with an outside vendor. The vendor will require the building owner to hold them harmless because of the agreement to perform the service. This contractual liability is covered by the CGL Policy. Plus Plus" includes that part of any business contract where the insured assumes the tort liability of another to pay for "bodily injury" or "property damage" to a third person or organization. In business contracts, most insureds must assume the liability of others. The CGL Policy gives coverage for the assumption of the tort liability that the other contracting party may have to a third person. Rev. 03/10 65

10 Learning Objective: Define "insured contract". As you can see, many business contracts fit this definition of insured contract. However, please note that coverage for liability assumed under an insured contract is still subject to all of the terms, conditions and exclusions of the CGL Policy. Remember, failure to perform, and breach of contract are not covered by the CGL Policy. Knowledge Check An "insured contract" is best defined in the Commercial General Liability Coverage Form by which one of the following statements? A. Lease of premises B. Contract to deliver a product by the contract delivery date C. Contract to do work for a city governmental department D. Contract for the construction of a railroad bridge The correct answer is A, Lease of premises. Rev. 03/10 66

11 Learning Objective: Recognize the exclusions for BI and PD under Coverage A of the CGL. Liquor Liability Exclusion The CGL Policy excludes coverage for liability imposed by reason of: Contributing to the intoxication of any person Furnishing alcohol to underage people, or those already under the influence Statutes regulating the sale, distribution, etc. of alcoholic beverages The exclusion applies only if the insured is in the business of manufacturing, distributing, selling, serving or furnishing alcohol to others. An insured that serves complimentary wine at an open house for the business would probably not be considered to be in the business of serving alcohol. This exposure is often referred to as host liquor, and is covered by the CGL Policy. Example: Deb's Nails hosts a Christmas party for her nail customers. One of her customers leaves the party in an intoxicated state and has an accident. Deb's unendorsed Commercial General Liability (CGL) Coverage Form will respond if the injured customer sues Deb because Deb is not in the liquor business, this is considered a "host liquor" exposure. Endorsements may be attached to the CGL Policy that limit or expand the coverage found in this exclusion. If these endorsements are attached to a CGL Policy, they should be discussed with the insured to be sure they are understood. Employer's Liability This exclusion applies to job related bodily injury covered by the Employer's Liability Part of the Workers Compensation Policy. Workers Compensation and Similar Laws The CGL Policy does not give coverage for obligations imposed by workers compensation or unemployment compensation law or any similar law. The insured must buy Workers Compensation, Disability Benefits, or similar policies to cover these exposures. Rev. 03/10 67

12 Learning Objective: Recognize the exclusions for BI and PD under Coverage A of the CGL. Pollution Exclusion The CGL Policy excludes almost all "bodily injury" and "property damage" arising out of the pollution exposure, including the actual damage or harm caused by the pollutants and all costs to clean up and/or test for pollutants. By means of exceptions found in this exclusion, the CGL Policy gives coverage for "bodily injury" and "property damage" arising out of a pollution incident under four circumstances. We'll look at those four exceptions now. Note: Any greater in-depth discussion of this exclusion is beyond the scope of this course. Exceptions to the Pollution exclusion under Coverage A of the CGL: Exception 1 On Premises The pollution was caused by smoke, fumes, vapor or soot produced by or originating from equipment that is used to heat, cool or dehumidify the building, or equipment that is used to heat water for personal use, by the buildings occupants or their guests. For those added as Additional Insureds under certain circumstances. Exception 2 Arising out of the Insured's Operations When: Insured did not bring pollutants to the job site, and is not there to work on pollutants Fluids or fuels used to operate the mobile equipment escape A contractor working for the insured releases pollutants under certain circumstances Exception 3 Arising out of the Insured's Product Products can be defined simply as goods that are made or produced. If an insured manufactures dumpsters, each dumpster is a product. Rev. 03/10 68

13 If a dumpster leaks toxic material onto land or water, the CGL will respond to the damage because the pollution arose out of the insured's product. Exception 4 Arising out of a Hostile Fire The CGL Policy defines a "hostile fire" as one that becomes uncontrollable or breaks out from where it was intended to be. Knowledge Check Which one of the following would be covered for pollution in the unendorsed Commercial General Liability Coverage Form? A. Bodily injury caused by a pollutant the insured is removing from a work site. B. Bodily Injury caused to customers by carbon monoxide coming from the insured's air conditioning system. The correct answer is B, Lease of premises. Bodily Injury caused to customers by carbon monoxide coming from the insured's air conditioning system. Rev. 03/10 69

14 Summary of Coverage A: BI and PD Exclusions I Expected or Intended Injury Exclusion No coverage for bodily injury or property damage that was expected or intended from the standpoint of an insured. There IS coverage for: Bodily injury or property damage if the insured did not expect or intend for it to occur, even if the insured intended to do the activity that led to the injury or damage. Bodily injury resulting from the use of reasonable force to protect persons or property Contractual Liability This exclusion takes away coverage for liability the insured assumes in a contract, and then gives back coverage for liability assumed in an "insured contract." Remember LEASE+ There is NO coverage for: breach of contract failure to perform under a contract Rev. 03/10 70

15 Liquor Liability The exclusion applies only if the insured is in the business of manufacturing, distributing, selling, servicing or furnishing alcohol to others. The CGL Policy excludes coverage for liability imposed by reason of: Endorsements may be attached to the CGL Policy that limit or expand the coverage found in this exclusion. There IS coverage for: Host liquor liability Workers Compensation and Similar Laws The CGL does not give coverage for obligations by any insured to provide workers compensation or unemployment compensation law or any similar law. The insured must buy other policies to cover these exposures. Employers Liability This exclusion applies to job related bodily injury covered by the Employer's Liability Part of the Workers Compensation Policy. The insured must buy other policies to cover these exposures. Pollution The CGL excludes almost all "bodily injury" and "property damage" arising out of the pollution exposure, including the actual damage or harm caused by the pollutants and all costs to clean up and/or test for pollutants. Be sure to know the exceptions to the Pollution exclusion: Caused On Premises (under certain conditions) Arising out of the Insured's Operations (under certain conditions) Arising out of the Insured's Product Arising out of a Hostile Fire Please refer to the end of Lesson 3 Topic B to complete Self Quiz 5. Rev. 03/10 71

16 Lesson 3 Topic C - Coverage A: BI and PD Exclusions II In this topic, our study of CGL exclusions continue with the review of: 1. Aircraft, Auto, or Watercraft 2. Mobile Equipment 3. War 4. Damage to Property 5. Damage to your Product 6. Damage to your Work 7. Damage to Impaired Property or Property Not Physically Injured 8. Recall of Products, Work, or Impaired Property 9. Personal and Advertising Injury 10. Electronic Data 11. Distribution of Material in Violation of Statutes 12. Damage to Premises Liability 13. Employment Related Practices Exclusion (CG 21 47) Note: Please turn to page 4 of your CGL Policy now, and follow along with the policy. Learning Objective: Given a loss, determine whether or not the CGL Policy provides liability coverage for an insured. Aircraft, Auto, or Watercraft Exclusion There is no coverage for "bodily injury" or "property damage" arising out of the ownership, maintenance, use, or entrustment to others of any aircraft, auto, or watercraft. This includes the loading and unloading of aircraft, auto, or watercraft. It makes no difference if the aircraft, auto, or watercraft is owned by, rented to, or loaned to any insured. There are exceptions to this exclusion, which means coverage is provided for specific situations involving the ownership, maintenance, use, or entrustment of aircraft, auto, or watercraft. Rev. 03/10 72

17 Learning Objective: Given a loss, determine whether or not the CGL Policy provides liability coverage for an insured. Five exceptions to the Aircraft, Auto, or Watercraft Exclusion The five exceptions to this exclusion are "bodily injury" or "property damage" that arise out of: 1. Any watercraft while it is on land at a site or premises that is owned or rented by the insured 2. Watercraft the insured does not own that is less than 26 feet long and is not used to carry persons or property for a fee 3. Parking an auto on, or next to, premises the insured owns or rents, provided the auto is not owned by, rented to, or loaned to any insured; the CGL Policy will give coverage for "bodily injury" and "property damage" caused by the use of the auto, but there will be no coverage for damage to the auto itself 4. Liability assumed in any "insured contract" for the ownership, maintenance, or use of only aircraft or watercraft 5. "Bodily injury" or "property damage" arising out of the operation of machinery or equipment that is attached to, or part of a land vehicle that would qualify under the definition of "mobile equipment" if it were not subject to compulsory or financial responsibility law or other motor vehicle insurance law in the state where it is licensed or principally garaged; or arising out of the operation of equipment listed in the last part of the definition of "mobile equipment" Five Exceptions to the Aircraft, Auto, or Watercraft Exclusion - 4 Examples Let's study 4 examples these exceptions. Remember, under the following circumstances, the CGL can provide coverage: Exception 1 First Exception to Aircraft, Auto, or Watercraft Exclusion Any watercraft while it is on land at a site or premises that is owned or rented by the insured. Rev. 03/10 73

18 Example: Ted's Trimmings owns a boat that is stored out of doors at the business location. Some children play a jumping game in the boat, and one child is injured. The CGL can respond to a claim for that child's injury. Exception 2 Second Exception to Aircraft, Auto, or Watercraft Exclusion Watercraft the insured does not own that is less than 26 feet long and is not used to carry persons or property for a fee. Example Ted borrows an 18 foot boat to take some of his clients out on a nearby lake for a fishing trip. The boat capsizes and one of the clients drowns because he failed to wear a lifejacket. The CGL can respond to a bodily injury claim made on behalf of the client. Exception 3 Third Exception to Aircraft, Auto, or Watercraft Exclusion Parking an auto on, or next to, premises the insured owns or rents, provided the auto is not owned by, rented to, or loaned to any insured; the CGL Policy will give coverage for "bodily injury" and "property damage" caused by the use of the auto, but there will be no coverage for damage to the auto itself, as we will soon see. Example A restaurant owns a valet service that parks customer's autos. The autos are parked by a restaurant employee on the restaurant premises. The employee hits a pedestrian while parking a customer auto. The restaurant's CGL can respond to the bodily injury claim made on behalf of the pedestrian. Note: The policy does not provide property damage coverage for the auto being parked or property in the care, custody, or control of the insured. Exception 4 Fourth Exception to Aircraft, Auto, or Watercraft Exclusion Liability assumed in any "insured contract" for the ownership, maintenance, or use of only aircraft or watercraft. Example Ted's Trimming signs a rental contract that includes a hold harmless agreement that he is responsible for any liability caused by a pontoon boat that he is renting for a fishing trip for his employees. One of the employees drove the pontoon boat into the dock, causing significant damage to the dock. The property damage will be taken care of by the CGL Policy, because of the "insured contract" signed by Ted. Rev. 03/10 74

19 Learning Objective: Given a loss, determine whether or not the CGL Policy provides liability coverage for an insured. Exception 5 - Aircraft, Auto, or Watercraft Exclusion: Operation of Mobile Equipment First, let's go back to the language of the last part of the definition of mobile equipment: This equipment includes self-propelled vehicles with permanently attached air compressors, pumps and generators, and cherry pickers or similar devices mounted on an automobile or truck chassis and used to raise or lower workers. Do you recall that these pieces of equipment are to be considered "Autos and not Mobile Equipment?" (You may review this information in Lesson 2 Topic B p9). Exception 5 to the Aircraft, Auto, or Watercraft Exclusion states that the CGL Policy covers the operation of this attached equipment. This means that while this equipment is being used at the job site, the CGL Policy provides liability coverage. The Business Auto Policy gives coverage while the auto with its attached equipment is being driven to, between, and from job sites. Tip: If an insured has this type of equipment, consider placing both the CGL Policy and the Business Auto Policy with the same insurance company, and for the same limits of liability. Knowledge Check Ted Tree Trimming owns a truck with a "cherry picker" to raise workers up to trim trees. While the truck is driven from one work site to another there is an auto exposure and the BAP would cover it. While in the process of raising or lowering the bucket or trimming trees, this operation exposure would be provided liability exposure under: A. Ted's Commercial General Liability Policy B. Ted's Business Auto Policy The correct answer is A, Ted's Commercial General Liability Policy. Rev. 03/10 75

20 Learning Objective: Given a loss, determine whether or not the CGL Policy provides liability coverage for an insured. Quick Summary - 5 Exceptions to the Aircraft, Auto, or Watercraft Exclusion 1. Watercraft while it is on land at a site or premises, which is owned or rented by the insured 2. Watercraft the insured does not own that is less than 26 feet long and is not used to carry persons or property for a fee 3. Parking an auto on, or next to, premises the insured owns or rents, provided the auto is not owned by, or rented to, or loaned to any insured 4. Liability assumed in any insured contract for the ownership, maintenance, or use of only aircraft or watercraft 5. Operation of equipment that is attached to or part of a land vehicle that would qualify as mobile equipment if it was not subject to a compulsory or financial responsibility law or other motor vehicle insurance law in this state where it is licensed or principally garaged Mobile Equipment Exclusions There are two exclusions that apply to "bodily injury" or "property damage" arising from "mobile equipment": The transportation of the "mobile equipment" by an auto owned, operated, rented, or loaned to any insured. This exposure would be covered by the insured's Business Auto Policy. The use of "mobile equipment" in, practicing for, or preparing for any pre-arranged racing, speed, demolition, or stunting activity. War Exclusion This exclusion only applies to "bodily injury" or "property damage" due to war including undeclared or civil war; warlike action by a military force; insurrection, rebellion, revolution or action taken by governmental authority in hindering or defending against any of these. Rev. 03/10 76

21 Learning Objective: Given a loss, determine whether or not the CGL Policy provides liability coverage for an insured. Exclusion for Damage to Property The CGL Policy will not provide coverage for six types of "property damage" that the insured causes. This exclusion language has generated extensive writings, explanations and debate. What you need to know for purposes of this course is summarized on the next few pages. Exclusion for Damage to Property - Six Types of Property Damage No Coverage for Damage to: 1. Property owned by, rented to, or occupied by the named insured Example: An insured, who is a contractor, rents a trencher. In process of digging a trench, he strikes a concrete sidewalk destroying the blade. 2. Premises the named insured sells, gives away, or abandons arising out of any part of those premises Example: An insured sells a building it has occupied to another company. After the sale, a faulty plumbing connection results in water damage. 3. Property loaned to the named insured Example: While using it on a construction site, an insured overturns a bulldozer borrowed from another contractor. 4. Personal property in the care, custody, or control of the insured Example: A dry cleaner applies the wrong cleaning fluid to a customer s suede suit, resulting in complete ruin; a restaurant employee damages a customer s auto while she is valet parking it. 5. That particular part of real property on which a named insured or any contractor or subcontractor working for the named insured is performing operations, if the damage arises out of those operations Example: An insured is cleaning an office building floor. The cleaning solution discolors the stone floor. This property damage is excluded, since that was the part of the building the insured was working on. Rev. 03/10 77

22 However, if a buffer used to scrub the floor shorts out and causes a fire that damages the entire building, the loss to the building, other than the stone floor, will be covered. The insured was not working on the entire structure at the time of the loss. 6. That particular part of any property that must be restored, repaired, or replaced because your work was incorrectly performed on it Example: An insured paints the room he should have wallpapered and wallpapered the room he should have painted. Learning Objective: Given a loss, determine whether or not the CGL Policy provides liability coverage for an insured. Exceptions to the Damage to Property Exclusion There are several exceptions to parts of this exclusion, resulting in coverage for the insured. Most of them are beyond the scope of this course. However, one exception gives "property damage" coverage from perils other than fire to premises (including contents) which are rented to the named insured for seven consecutive days or less. Example An insured rents a hotel meeting room for five days to conduct demonstrations of a new product. During one demonstration, the insured drops the product and damages the hotel's conference table, chairs, and wood floor. There is coverage, because the rental is for fewer than seven consecutive days. There is a separate limit of insurance that applies to these covered losses and that will be discussed as part of Damage to Premises Rented To You in Lesson 4 Topic B Limits of Insurance. Rev. 03/10 78

23 Learning Objective: Given a loss, determine whether or not the CGL Policy provides liability coverage for an insured. Damage to Your Product Exclusion There is no "property damage" coverage to an insured's "product" arising out of it or any part of it. Damage done by "your product" would be covered, but not damage to the product itself. Example A named insured sells commercial air conditioners. One of them shorts out, causing extensive fire damage. There is no coverage for the air conditioner, but the other damage arising from the fire is covered. Damage to Your Work Exclusion There is no "property damage" to "your work." "Property damage" done by "your work" is covered, but not damage to "your work." There is an exception if the damaged work or the work out of which the damage arises is caused by a sub-contractor. Example While erecting an office building, a contractor improperly installs the framing. A month after completion, due to this faulty installation, a ceiling collapses causing extensive damage to the tenant s business property. The building is not covered because it is the contractor s work, but the resulting damage to the occupant s business property is covered by the CGL Policy. Rev. 03/10 79

24 Learning Objective: Given a loss, determine whether or not the CGL Policy provides liability coverage for an insured. Exclusion for Damage to Impaired Property or Property Not Physically Injured There is no "property damage" to property that is impaired because of your product or your work. "Impaired property" means tangible property that cannot be used or is less useful because: It incorporates your product or work, which is known or thought to be defective, deficient, inadequate, or dangerous, or You have failed to fulfill the terms of a contract. Remember that the tangible property has not suffered any physical damage itself; it just cannot be used or is less useful. Example ABC is contracted to manufacture and install an air conditioning system in a highrise hotel. ABC guarantees that the system would maintain a temperature of 72 degrees at all times and that the job would be completed in time for the Fourth of July holiday. The system failed to cool the hotel below 87 degrees, and as result the hotel lost income for the entire holiday week. This is an "impaired property" loss, not covered by ABC's CGL Policy. Exclusion for Recall of Products, Work, or Impaired Property There is no coverage for any expenses the insured incurs to recall defective products, work or impaired property. The newspapers are full of real world examples of product recalls. An insured must purchase special policies to cover these exposures. Personal & Advertising Injury Exclusions Personal and Advertising Injury is not covered under the Bodily Injury and Property Damage Section of the CGL Policy. We will study this coverage in Topic D. Rev. 03/10 80

25 Learning Objective: Given a loss, determine whether or not the CGL Policy provides liability coverage for an insured. Electronic Data Exclusion To reinforce that the CGL coverage form and other General Liability coverage parts are not intended to provide coverage for loss of electronic data, an electronic data exclusion was introduced into the form. There is an Electronic Data Liability endorsement and a newly-introduced coverage form to provide some liability coverage created by loss of electronically stored data. Exclusion for Distribution of Material in Violation of Statutes No coverage for liability resulting from violation of statutes that govern s, fax, phone calls, or other methods of sending information. Exception to Damage to Premises Liability Note: Read the short paragraph preceding Coverage B on page 6 the policy. Most of the CGL exclusions do not apply for damage to a premises (not personal property) caused by a fire, if: The premises is rented to an insured, or the insured is occupying the premises with the owner's permission The damage was not intended Legal liability applies because the insured has negligently caused the damage Example: The insured negligently starts a fire in the office she is renting. Remember that exclusion j. (1) takes away coverage for damage to premises rented to the insured. Fire legal coverage gives back (to the insured) the coverage for fire damage, subject to the sub-limit we will discuss in Lesson 4 Topic B Limits of Insurance. Rev. 03/10 81

26 Learning Objective: Given a loss, determine whether or not the CGL Policy provides liability coverage for an insured. Employment Related Practices Exclusion This exclusion, or a modification of this exclusion, is added by endorsement to most CGL Policies. It excludes coverage for such claims as wrongful termination, sexual harassment, and discrimination of all types. A separate Employment Practices Liability Policy is needed to properly provide coverage for these types of losses. Lesson 3 Topic C - Summary of Group II Exclusions Our second group of exclusions contained quite a few concepts of coverage! Coverage A: BI and PD Exclusion II Aircraft, Auto, or Watercraft There is no coverage for "bodily injury" or "property damage" arising out of the ownership, maintenance, use, or entrustment to others of any aircraft, auto, or watercraft, including loading and unloading. There IS coverage for: Five specific situations involving the ownership, maintenance, use, or entrustment of aircraft, auto, or watercraft. Mobile Equipment There is no coverage for "bodily injury" or "property damage" arising out of: The use of "mobile equipment" in, practicing for, or preparing for any pre-arranged racing, speed, demolition, or stunting activity. The transportation of the "mobile equipment" by an auto owned, operated, rented, or loaned to any insured. This would be covered by the Business Auto Policy. Rev. 03/10 82

27 Coverage A: BI and PD Exclusion II continued War This exclusion only applies to "bodily injury" or "property damage" due to war including: Undeclared or civil war Warlike action by a military force Insurrection, rebellion, revolution or action taken by governmental authority in hindering or defending against any of these. Damage to Property There is no coverage for six types of "property damage" that the insured causes. There IS coverage for several situations, including: "Property damage" from perils other than fire to premises (including contents) which are rented to the named insured for seven consecutive days or less. Damage to Your Product There is no "property damage" coverage to an insured's "product" arising out of it or any part of it. Damage done by "your product" would be covered, but not damage to the product itself. Damage to Your Work There is no "property damage" to "your work." "Property damage" done by "your work" is covered, but not damage to "your work." There IS coverage if: The damaged work or the work out of which the damage arises is caused by a subcontractor. Damage to Impaired Property There is no "property damage" to property that is impaired because of your product or your work. "Impaired property" means tangible property that cannot be used or is less useful. Remember that the tangible property has not suffered any physical damage itself. Rev. 03/10 83

28 Coverage A: BI and PD Exclusion II continued Recall of Products, Work, or Impaired Property There is no coverage for any expenses the insured incurs to recall defective products, work or impaired property. An insured must purchase special policies to cover these exposures. Personal & Advertising injury Personal and Advertising Injury is not covered under the Bodily Injury and Property Damage Section of the CGL Policy. Electronic Data To reinforce that the CGL coverage form and other General Liability coverage parts are not intended to provide coverage for loss of electronic data, an electronic data exclusion was introduced into the form. There is an electronic data liability endorsement and a newly-introduced coverage form to provide some liability coverage. Distribution of Materials in Violation of Statutes No coverage for liability resulting from violation of statutes that govern s, fax, phone calls, or other methods of sending information. Damage to Premises Liability Read the short paragraph preceding Coverage B on page 6 the policy. Most of the CGL exclusions do not apply for damage to a premises caused by a fire. Be sure you know the exceptions to the Damage to Premises Liability exclusion. Employment Related Practices This exclusion, or a modification of this exclusion, is added by endorsement to most CGL Policies. It excludes coverage for such claims as wrongful termination, sexual harassment, and discrimination of all types. A separate Employment Practices Liability Policy is needed to provide coverage. Rev. 03/10 84

29 Knowledge Check Choose Covered or Not Covered for each question. 1. Property damage done to a customer's window by your employee while they are carrying a ladder 2. Failure of an air conditioner system to cool, because the insured installed the wrong compressor 3. The loss of use of a machine that cannot be used because it was damaged by the insured's defective product 4. Loss of use of a machine that cannot be used because it contains your defective product 5. Property damage to the business owner's personal property 6. An employee files suit for a work related injury 7. A roof of a newly constructed office building collapses damaging office furniture and equipment 8. Recall of your defective product The correct answers are: 1. Covered 2. Not Covered 3. Covered 4. Not Covered 5. Not Covered 6. Not Covered 7. Covered 8. Not Covered Please refer to the end of Lesson 3 Topic C to complete Self Quiz 6. Rev. 03/10 85

30 Lesson 3 Topic D - Coverage B: Personal and Advertising Injury Learning Objective: List and briefly describe the coverages found under Coverage B - Personal and Advertising Injury Liability. The business-insured has many exposures to loss other than "bodily injury" and "property damage." It may be sued for libel, slander, wrongful eviction or other similar intentional torts. In addition to "bodily injury" and "property damage," the CGL Policy includes coverage for Personal and Advertising Injury. This topic addresses CGL coverage for Personal and Advertising Injury offered in the: Insuring Agreement Exclusions Note: Refer to page 6 and 7 of the CGL Policy. Insuring Agreement: Coverage Part B - Personal and Advertising Injury Personal and Advertising Injury has its own insuring agreement, which is triggered by a committed offense. It requires that an insured be legally responsible for damages because of Personal and Advertising Injury, and imposes a duty on the insurance company to defend the insured against any suit seeking those damages. As we studied in Coverage A, there is no duty to defend if there is no coverage. The company also has the right to investigate and settle any claim or suit. This coverage is subject to the following: The amount of coverage is limited as described in Limits of Insurance, and is covered in Topic H. The offense that triggers legal liability for Personal and Advertising Injury must be committed in the coverage territory and during the policy period, and the offense must arise from an insured's business. Note: Remember, Personal and Advertising Injury is defined by specific named perils. If you need to review this definition, refer back to Lesson 2, Topic B. Rev. 03/10 86

31 Learning Objective: Recognize the exclusions for Personal and Advertising Injury Liability coverage under the CGL. 16 CGL Personal and Advertising Injury Exclusions Sixteen (16) exclusions apply to Personal and Advertising Injury. These exclusions are designed to eliminate coverage for acts within the insured s control, including at the direction of, with the knowledge of, and willful violation of statutes. The CGL Policy will not cover Personal and Advertising injury when loss arises out of: 1. An offense made at the direction of an insured, with the knowledge that the committed act would violate the rights of another 2. An insured s oral remarks or published written material that they know are false 3. An insured s oral remarks or published written material that first took place before the beginning of the policy period 4. A criminal act committed by or at the direction of an insured 5. Liability an insured assumed in a contract or agreement 6. A breach of contract 7. The insured s products, goods, or services that don t do what an insured s advertising says they will do 8. A misstated price of an insured s products, goods, or services in an insured s advertising 9. The infringement of copyright, patent, trademark, trade secret or other intellectual property rights. However, this does not apply to infringement in your "advertisement" of copyright, trade dress or slogan 10. An insured s business if the business is advertising, broadcasting, publishing, or telecasting; these insureds must buy special policies for their exposures 11. Internet Exclusions: Electronic chartroom or bulletin board the insured hosts, owns, or over which the insured exercises control 12. Unauthorized use of another s name or product in your address, domain name or meta tag, or any other similar tactics 13. Actual, alleged, or threatened pollution caused by pollutants at any time; this exclusion became necessary because pollution claims alleged that the pollution incident was wrongful invasion of the right of private occupancy 14. Pollution-related clean up coverage if the expense was necessary because of a covered property damage loss 15. War - Only applies to bodily injury or property damage due to war including undeclared or civil war; warlike action by a military force; insurrection, rebellion, revolution or action taken by government authority in hindering or defending against any of these 16. Distribution of Material in Violation of Statutes - TCPA, CAN-SPAM Act of 2003, any statute, ordinance or regulation, other than the above that prohibits or limits the sending, transmitting, communicating or distribution of material or information Rev. 03/10 87

32 Knowledge Check Styles R Us Beauty Salon has a Commercial General Liability Coverage Form. Indicate whether each situation is covered or not covered under Coverage Part B - Personal and Advertising Injury. 1. Employee dishonesty in dealing with customers. 2. Emotional trauma suffered by a customer when her hair falls out because the wrong chemicals were used. 3. Styles R Us Beauty Salon is sued for trademark infringement when their advertising agency uses images of a national brand name product in a newspaper ad without their permission. The correct answers are: 1. Not Covered 2. Not Covered 3. Covered Rev. 03/10 88

33 Lesson 3 Topic E - Coverage C: Medical Payments Learning Objective: List and briefly describe the coverages found under Coverage C-Medical Payments. Medical Payments coverage, unlike Bodily Injury and Property Damage or Personal and Advertising Injury, is a no fault coverage. An insured does not have to be legally responsible for the loss before damages are paid. The primary purpose of this coverage is the reduction of bodily injury lawsuits, reduction in the size of claims that are filed, and goodwill. This topic will include a study of Medical Payments: Insuring Agreement Exclusions Note: Refer to page 7 and 8 of the CGL Policy. Insuring Agreement: Coverage Part C Medical Payments Like the previous two coverage parts, Coverage C has its own insurance agreement, which is triggered by an accident. The CGL Policy will pay for medical expenses for "bodily injury" caused by an accident: On premises the named insured owns or rents, or on ways next to premises a named insured owns or rents Because of a named insured's business operations The accident must take place in the coverage territory and during the policy period. Additionally, the medical expenses must be incurred and reported to the insurance company within one year of the accident date. Rev. 03/10 89

34 Learning Objective: List and briefly describe the coverages found under Coverage C-Medical Payments. Exclusions: Coverage Part C - Medical Payments Medical Payments coverage is intended to pay for injuries of the general public. Insureds, people working for insureds, or normal occupants of an insured's premises are not part of this general public, and expenses for their injuries are not included in this coverage. There will be no Medical Payments made for: Any insured. Any person working for an insured or for any tenant of an insured. Any person who normally occupies the premises an insured owns or rents. Any person if workers compensation benefits for bodily injury are payable or must be provided. Any person who is injured while practicing, instructing, or participating in any physical exercises or games, sports or contests. Injuries resulting from the "products-completed operations hazard." Injuries excluded under Coverage A-Bodily Injury and Property Damage Liability. Medical Payments Limits Note: Medical Payments coverage has a per person limit as shown on the CGL Declarations and is considered a sublimit of the Each Occurrence Limit subject to the General Aggregate Limit. We will study how limits of insurance are applied in Lesson 4. Please refer to the end of Lesson 3 Topic E to complete Self Quiz 7. Rev. 03/10 90