Lesson 2 - Commercial General Liability. The structure of the Commercial General Liability Policy is typically composed of the following:

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1 Lesson 2 - Commercial General Liability Lesson 2 CGL Intro p1 (1IC) Introduction - Part 1 The Commercial General Liability (CGL) Policy forms a foundation for most business liability coverages. It is designed to provide liability coverage for a variety of business liability exposures. The structure of the Commercial General Liability Policy is typically composed of the following: Common Policy Declarations Common Policy Conditions Commercial General Liability Declarations Commercial General Liability Coverage Form Endorsements Lesson 2 CGL Intro p2 (1IC) Lesson 2: Topics of Discussion Our purpose in this lesson is to lay the foundation for our discussion of the Commercial General Liability Policy. By way of orientation to the CGL Policy. This lesson consists of the following three topics: 1. Overview of Liability Exposures Covered by CGL Coverage Form 2. Definitions 3. Who Is An Insured Lesson 2 CGL Intro p3 (1IC) Lesson 2: Learning Objectives After completing this lesson, you will be able to: 1. Identify the exposure areas that may be covered by the Commercial General Liability Coverage Form. 2. Determine whether or not a given land vehicle is "mobile equipment" as defined in the CGL 31

2 Coverage Form. 3. Define the terms: coverage territory, "bodily injury" and "property damage". 4. Determine Who Is An Insured under the provisions of the CGL Coverage Form for specific situations. Forms to print from the Forms Library: CG Commercial General Liability Coverage Form Note: The CGL Coverage Form is 16 pages long and may take a few minutes to print. 32

3 Lesson 2 Topic A - Overview of Liability Exposures Covered Lesson 2 Topic A CGL Overview of Coverages p1 (1IC) Learning Objective: Identify the exposure areas that may be covered by the Commercial General Liability Coverage Form. In general, a policyholder can easily understand the exposure they have when they operate automobiles, tractor-trailer trucks, watercraft or aircraft. They also understand the exposure they have from job-related injuries or disease to their employees. When it comes to the exposures covered by the CGL Policy, most understand the "slip and fall" type of exposure from a customer in their building, office, or store. They may, however, be unaware of other exposures they may have. As a customer service representative, you may have more communication with the policyholder than any other individual in the agency. For that reason, you should be familiar with the various types of exposures covered by the CGL Policy. In this topic we review: Exposures Covered by the CGL Policy Vicarious Liability Lesson 2 Topic A CGL Overview of Coverages p2 (1IC) Exposures Covered by the Commercial General Liability (CGL) Coverage Form Learning Objective: Identify the exposure areas that may be covered by the Commercial General Liability Coverage Form. Some exposures discussed in Lesson 1 Topic D - Liability Exposures, are covered by the CGL Policy. The following is a summary of exposures covered by the CGL: Premises Operations Products Completed Operations Contractual Contingent Personal Injury Advertising Injury 33

4 Lesson 2 Topic A CGL Overview of Coverages p3 (1IC) Vicarious Liability Learning Objective: Identify the exposure areas that may be covered by the Commercial General Liability Coverage Form. As stated, the CGL Policy will afford coverage to the named insured for vicarious liability imposed because of those who may be acting on behalf of the named insured. Example: The named insured's subcontractor causes an injury to a third party, who then brings a claim against the named insured. The CGL Policy can cover the named insured. We will see how the CGL Policy covers these exposures for your insureds. Remember that not every exposure will be covered - either in whole or in part - by the CGL Policy. Note: If you would like to review our previous discussion regarding vicarious liability, please navigate back to Lesson 1, Topic B. 34

5 Lesson 2 Topic B CGL Definitions p1 (1IC) Lesson 2 Topic B Definitions Refer to SECTION V - DEFINITIONS on page 12 of the CGL Coverage Form. Throughout the CGL Coverage Form, defined words or terms are set apart by quotation marks. Before beginning a discussion of the CGL Coverage Form insuring agreements, exclusions, limits and conditions, you need to understand these defined words or terms. SECTION V DEFINITIONS 1. "Advertisement" means a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters. For the purposes of this definition: a. Notices that are published include material placed on the Internet or on similar electronic means of communication; and b. Regarding web sites, only that part of a web site that is about your goods, products or services for the purposes of attracting customers or supporters is considered an advertisement. 2. "Auto" means: a. A land motor vehicle, trailer or semitrailer designed for travel on public roads, including any attached machinery or equipment; or b. Any other land vehicle that is subject to a compulsory or financial responsibility law or other motor vehicle insurance law where it is licensed or principally garaged. However, "auto" does not include "mobile equipment". 3. "Bodily injury" means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time. 4. "Coverage territory" means: a. The United States of America (including its territories and possessions), Puerto Rico and Canada; b. International waters or airspace, but only if the injury or damage occurs in the course of travel or transportation between any places included in Paragraph a. above; or c. All other parts of the world if the injury or damage arises out of: (1) Goods or products made or sold by you in the territory described in Paragraph a. above; (2) The activities of a person whose home is in the territory described in Paragraph a. above, but is away for a short time on your business; or (3) "Personal and advertising injury" offenses that take place through the Internet or similar electronic means of communication; provided the insured's responsibility to pay damages is determined in a "suit" on the merits, in the territory described in Paragraph a. above or in a settlement we agree to. 5. "Employee" includes a "leased worker". "Employee" does not include a "temporary worker". 6. "Executive officer" means a person holding any of the officer positions created by your charter, constitution, bylaws or any other similar governing document. 7. "Hostile fire" means one which becomes uncontrollable or breaks out from where it was intended to be. 8. "Impaired property" means tangible property, other than "your product" or "your work", that cannot be used or is less useful because: 35

6 a. It incorporates "your product" or "your work" that is known or thought to be defective, deficient, inadequate or dangerous; or b. You have failed to fulfill the terms of a contract or agreement; if such property can be restored to use by the repair, replacement, adjustment or removal of "your product" or "your work" or your fulfilling the terms of the contract or agreement. 9. "Insured contract" means: a. A contract for a lease of premises. However, that portion of the contract for a lease of premises that indemnifies any person or organization for damage by fire to premises while rented to you or temporarily occupied by you with permission of the owner is not an "insured contract"; b. A sidetrack agreement; c. Any easement or license agreement, except in connection with construction or demolition operations on or within 50 feet of a railroad; d. An obligation, as required by ordinance, to indemnify a municipality, except in connection with work for a municipality; e. An elevator maintenance agreement; f. That part of any other contract or agreement pertaining to your business (including an indemnification of a municipality in connection with work performed for a municipality) under which you assume the tort liability of another party to pay for "bodily injury" or "property damage" to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement. Paragraph f. does not include that part of any contract or agreement: (1) That indemnifies a railroad for "bodily injury" or "property damage" arising out of construction or demolition operations, within 50 feet of any railroad property and affecting any railroad bridge or trestle, tracks, road-beds, tunnel, underpass or crossing; (2) That indemnifies an architect, engineer or surveyor for injury or damage arising out of: (a) Preparing, approving, or failing to prepare or approve, maps, shop drawings, opinions, reports, surveys, field orders, change orders or drawings and specifications; or (b) Giving directions or instructions, or failing to give them, if that is the primary cause of the injury or damage; or (3) Under which the insured, if an architect, engineer or surveyor, assumes liability for an injury or damage arising out of the insured's rendering or failure to render professional services, including those listed in (2) above and supervisory, inspection, architectural or engineering activities. 10. "Leased worker" means a person leased to you by a labor leasing firm under an agreement between you and the labor leasing firm, to perform duties related to the conduct of your business. "Leased worker" does not include a "temporary worker". 11. "Loading or unloading" means the handling of property: a. After it is moved from the place where it is accepted for movement into or onto an aircraft, watercraft or "auto"; b. While it is in or on an aircraft, watercraft or "auto"; or c. While it is being moved from an aircraft, watercraft or "auto" to the place where it is finally delivered; but "loading or unloading" does not include the movement of property by means of a mechanical device, other than a hand truck, that is not attached to the aircraft, watercraft or "auto". 12. "Mobile equipment" means any of the following types of land vehicles, including any attached machinery or equipment: a. Bulldozers, farm machinery, forklifts and other vehicles designed for use principally off public roads; 36

7 b. Vehicles maintained for use solely on or next to premises you own or rent; c. Vehicles that travel on crawler treads; d. Vehicles, whether self-propelled or not, maintained primarily to provide mobility to permanently mounted: (1) Power cranes, shovels, loaders, diggers or drills; or (2) Road construction or resurfacing equipment such as graders, scrapers or rollers; e. Vehicles not described in Paragraph a., b., c. or d. above that are not self-propelled and are maintained primarily to provide mobility to permanently attached equipment of the following types: (1) Air compressors, pumps and generators, including spraying, welding, building cleaning, geophysical exploration, lighting and well servicing equipment; or (2) Cherry pickers and similar devices used to raise or lower workers; f. Vehicles not described in Paragraph a., b., c. or d. above maintained primarily for purposes other than the transportation of persons or cargo. However, self-propelled vehicles with the following types of permanently attached equipment are not "mobile equipment" but will be considered "autos": (1) Equipment designed primarily for: (a) Snow removal; (b) Road maintenance, but not construction or resurfacing; or (c) Street cleaning; (2) Cherry pickers and similar devices mounted on automobile or truck chassis and used to raise or lower workers; and (3) Air compressors, pumps and generators, including spraying, welding, building cleaning, geophysical exploration, lighting and well servicing equipment. However, "mobile equipment" does not include any land vehicles that are subject to a compulsory or financial responsibility law or other motor vehicle insurance law where it is licensed or principally garaged. Land vehicles subject to a compulsory or financial responsibility law or other motor vehicle insurance law are considered "autos". 13. "Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. 14. "Personal and advertising injury" means injury, including consequential "bodily injury", arising out of one or more of the following offenses: a. False arrest, detention or imprisonment; b. Malicious prosecution; c. The 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 or libels 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. The use of another's advertising idea in your "advertisement"; or g. Infringing upon another's copyright, trade dress or slogan in your "advertisement". 15. "Pollutants" mean 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. 37

8 16. "Products-completed operations hazard": a. Includes all "bodily injury" and "property damage" occurring away from premises you own or rent and arising out of "your product" or "your work" except: (1) Products that are still in your physical possession; or (2) Work that has not yet been completed or abandoned. However, "your work" will be deemed completed at the earliest of the following times: (a) When all of the work called for in your contract has been completed. (b) When all of the work to be done at the job site has been completed if your contract calls for work at more than one job site. (c) When that part of the work done at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project. Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed. b. Does not include "bodily injury" or "property damage" arising out of: (1) The transportation of property, unless the injury or damage arises out of a condition in or on a vehicle not owned or operated by you, and that condition was created by the "loading or unloading" of that vehicle by any insured; (2) The existence of tools, uninstalled equipment or abandoned or unused materials; or (3) Products or operations for which the classification, listed in the Declarations or in a policy Schedule, states that products-completed operations are subject to the General Aggregate Limit. 17. "Property damage" means: a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it. For the purposes of this insurance, electronic data is not tangible property. As used in this definition, electronic data means information, facts or programs stored as or on, created or used on, or transmitted to or from computer software, including systems and applications software, hard or floppy disks, CD-ROMs, tapes, drives, cells, data processing devices or any other media which are used with electronically controlled equipment. 18. "Suit" means a civil proceeding in which damages because of "bodily injury", "property damage" or "personal and advertising injury" to which this insurance applies are alleged. "Suit" includes: a. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent. 19. "Temporary worker" means a person who is furnished to you to substitute for a permanent "employee" on leave or to meet seasonal or short-term workload conditions. 20. "Volunteer worker" means a person who is not your "employee", and who donates his or her work and acts at the direction of and within the scope of duties determined by you, and is not paid a fee, salary or other compensation by you or anyone else for their work performed for you. 21. "Your product": a. Means: (1) Any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by: (a) You; 38

9 (b) Others trading under your name; or (c) A person or organization whose business or assets you have acquired; and (2) Containers (other than vehicles), materials, parts or equipment furnished in connection with such goods or products. b. Includes: (1) Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of "your product"; and (2) The providing of or failure to provide warnings or instructions. c. Does not include vending machines or other property rented to or located for the use of others but not sold. 22. "Your work": a. Means: (1) Work or operations performed by you or on your behalf; and (2) Materials, parts or equipment furnished in connection with such work or operations. b. Includes: (1) Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of "your work"; and (2) The providing of or failure to provide warnings or instructions. The definition section of the CGL Coverage Form, which begins on page 12 of the Coverage Form, defines 22 words or terms as they apply in the Coverage Form. Refer to this section when the meaning of a defined word is unclear. We will not review all of the definitions in this topic. Some will be discussed at the point of their application to the CGL Coverage Form. One example is "insured contract", which we will discuss later in Lesson 3: CGL Coverages and Exclusions. Definitions included in this topic were selected because they are used in more than one section of the Coverage Form. They include: Auto Mobile Equipment Property Damage Coverage Territory Employee Bodily Injury Lesson 2 Topic B CGL Definitions p2 (1IC) Auto Learning Objective: Determine whether or not a given land vehicle is "mobile equipment" as defined in 39

10 the CGL Coverage Form. Refer to SECTION V - DEFINITIONS 2. "Auto" on page 12 of the CGL Coverage Form "Auto" is defined as a land motor vehicle, trailer, or semi-trailer designed for travel on public roads, including any attached machinery or equipment. (In most cases, the CGL Policy does not provide coverage for "autos". The definition of "mobile equipment" is important and will be discussed shortly.) "Auto" is also defined as any other land vehicle that is subject to a compulsory or financial responsibility law or other motor vehicle insurance law where it is licensed or principally garaged. (For example, a golf cart may be required to be licensed and have minimum insurance requirements applicable when it is operated on a public road.) Lesson 2 Topic B CGL Definitions p3 (1IC) Mobile Equipment There are six types of land vehicles that are considered "mobile equipment". Any machinery or equipment attached to any of these vehicles is also considered "mobile equipment". We have summarized the six categories on the next pages. Please refer to definitions 12. a. through 12. f. on page 14 of the Coverage Form as you study this material. Take note of the descriptive phrases that will be key to understanding "mobile equipment". "designed for use off public roads" "used primarily to service premises you own or rent" "moves on crawler treads" "self propelled or not self propelled" "provides mobility to permanently mounted specific equipment" "not otherwise described... maintained for purposes other than transport of persons or cargo" Lesson 2 Topic B CGL Definitions p4 (1IC) 40

11 Mobile Equipment continued Learning Objective: Determine whether or not a given land vehicle is "mobile equipment" as defined in the CGL Coverage Form. Refer to 12. "Mobile Equipment" a through f on page 14 of the CGL Coverage Form. We will look at each individually, but first consider all six categories of "mobile equipment" identified by the CGL Coverage Form. 1. Bulldozers, farm machinery, forklifts and other vehicles designed for use principally off public roads. 2. Vehicles maintained for use solely on or next to premises you own or rent. (The key words are maintained for use solely on premises you own or rent.) 3. Vehicles that travel on crawler treads. 4. Vehicles, whether self-propelled or not, maintained primarily to provide mobility to permanently mounted specified equipment. (This wording includes trailers.) 5. Other vehicles that are not self-propelled and are maintained primarily to provide mobility to specific types of permanently attached equipment. 6. Vehicles not otherwise described maintained primarily for purposes other than the transportation of persons or cargo. Lesson 2 Topic B CGL Definitions p5 (1IC) Mobile Equipment continued Learning Objective: Determine whether or not a given land vehicle is "mobile equipment" as defined in the CGL Coverage Form. Refer to 12. "Mobile Equipment" a through f on page 14 of the CGL Coverage Form. CGL definition of Mobile Equipment lists six types of land vehicles which meet the definition of "mobile equipment": 1. Bulldozers, farm machinery, forklifts and other vehicles designed for use principally off public roads Example: Think of the forklifts you see in a large lumberyard or the bulldozers you see on a construction site. If these 41

12 are occasionally on a public road, they still may be considered mobile equipment. 2. Vehicles maintained for use solely on or next to premises you own or rent Example: A golf cart is used by apartment managers to drive around a large apartment complex. The key words are maintained for use solely on premises you own or rent. Lesson 2 Topic B CGL Definitions p6 (1IC) Mobile Equipment continued Learning Objective: Determine whether or not a given land vehicle is "mobile equipment" as defined in the CGL Coverage Form. Refer to 12. "Mobile Equipment" a through f on page 14 of the CGL Coverage Form. 3. Vehicles that travel on crawler treads Example: Construction equipment and other commonly seen types of contractor's equipment 4. Vehicles, whether self-propelled or not, maintained primarily to provide mobility to permanently mounted specified equipment Examples Vehicles with attached power cranes, shovels, loaders, diggers or drills OR road construction or resurfacing equipment Lesson 2 Topic B CGL Definitions p7 (1IC) Mobile Equipment continued Learning Objective: Determine whether or not a given land vehicle is "mobile equipment" as defined in the CGL Coverage Form. Refer to 12. "Mobile Equipment" a through f on page 14 of the CGL Coverage Form. 42

13 There are two final types of land vehicles which meet the definition of "mobile equipment" under the CGL: 5. Other vehicles that are not self-propelled and are maintained primarily to provide mobility to specific types of permanently attached equipment: air compressors pumps and generators spraying, welding, building cleaning, geophysical explorations, lighting and well servicing equipment The key words here are not self-propelled, primarily provide mobility to the specified types of equipment. Generally, these vehicles will be a trailer-type of vehicle with the specified equipment attached. 6. Vehicles not otherwise described maintained primarily for purposes other than the transportation of persons or cargo. Part f. of the definition of mobile equipment includes vehicles not described in a. through d. which are maintained primarily for purposes other than transporting people or cargo. Lesson 2 Topic B CGL Definitions p8 (1IC) Mobile Equipment continued Learning Objective: Determine whether or not a given land vehicle is "mobile equipment" as defined in the CGL Coverage Form. Refer to 12. "Mobile Equipment" a through f on page 14 of the CGL Coverage Form. "Autos" Not "Mobile Equipment" The Coverage Form then goes on to define specific self-propelled vehicles as "autos" and not "mobile equipment". The Coverage Form language says: However, self-propelled vehicles with the following types of permanently attached equipment are not "mobile equipment" but will be considered "autos". There are three categories of vehicles that are considered "autos" and not "mobile equipment". We will list them all here, then look at all three individually. 1. Equipment designed primarily for snow removal, road maintenance, (but not construction or 43

14 resurfacing) or street cleaning; 2. Cherry pickers and similar devices mounted on an automobile or truck chassis and used to raise or lower workers; and 3. Air compressors, pumps and generators, including spraying, welding, building cleaning, geophysical exploration, lighting and well servicing equipment. Lesson 2 Topic B CGL Definitions p9 (1IC) Mobile Equipment continued Learning Objective: Determine whether or not a given land vehicle is "mobile equipment" as defined in the CGL Coverage Form. Refer to 12. "Mobile Equipment" a through f on page 14 of the CGL Coverage Form. Self Propelled: Self-Propelled vehicles designed for: Snow Removal Road Maintenance (not road building or repaving) Street cleaning Examples: snowplow, paint striping, street sweeper Mounted Devices: Devices Mounted on an auto or truck chassis and used to raise and lower workers Example: cherry pickers Self-Propelled with Permanently Attached Equipment Self-propelled vehicles with the following types of permanently attached equipment: Air Compressors Pumps and generators Spraying, welding, building, cleaning, geophysical explorations, lighting and well servicing equipment Example: well drilling truck Note: Caution: Even though the CGL Coverage Form defines item 2 and 3 above as "autos", the Coverage Form gives back coverage to these while the attached equipment is being operated. We 44

15 will discuss this later under Lesson 3 Topic C. Lesson 2 Topic B CGL Definitions p10 (1IC) Mobile Equipment continued Learning Objective: Determine whether or not a given land vehicle is "mobile equipment" as defined in the CGL Coverage Form. Refer to 12. "Mobile Equipment" a through f on page 14 of the CGL Coverage Form. However, mobile equipment does not include any land vehicles that are subject to a compulsory or financial responsibility law or other motor vehicle insurance law where it is licensed or principally garaged. Land vehicles subject to a compulsory or financial responsibility law or other motor vehicle insurance law are considered autos. Please complete the knowledge check found at Lesson 2 Topic B CGL Definitions p11 (1IC). Lesson 2 Topic B CGL Definitions p12 (1IC) Coverage Territory Learning Objective: Define the terms: coverage territory, "bodily injury" and "property damage". Refer to 4. "Coverage Territory" on page 13 of the CGL Coverage Form. Because our economy has become global, "Coverage Territory" is a most important concept and is defined by three categories: 1. US, Puerto Rico & Canada Part a. of the definition lists specific geographic locations that make up the "coverage territory": the United States of America (including its territories and possessions), Puerto Rico, and Canada. Tip: Because of its proximity and because of the North American Free Trade Agreement, some individuals think Mexico would be included in the coverage territory. Mexico is not automatically included in the coverage territory. 2. International Waters or Airspace 45

16 The "coverage territory" also includes international waters or airspace during the course of transportation, provided there is no transportation between points outside the listed geographic locations in part a. of the definition. A plane going from New Orleans, Louisiana to San Juan, Puerto Rico is considered to be in the "coverage territory". However the same plane flying between New Orleans and Mexico City would not be in the "coverage territory". Lesson 2 Topic B CGL Definitions p13 (1IC) Coverage Territory continued 3. All Parts of the World Under Certain Circumstances All parts of the world are considered as being in the "covered territory" if the injury or damage arises out of goods or products made or sold by the named insured in the territory described in the first part of this definition. Example: The named insured makes a product in St. Louis and ships it directly to their customer in Europe. The product was made in the "coverage territory". Business activities of persons whose home is located in the geographic location listed in part a. of the definition but are away from home for a short time (not defined) on the named insured's business. Example: A factory representative who lives in Boston causes a covered loss while attending a 10 day business show in Paris, France. Lesson 2 Topic B CGL Definitions p14 (1IC) Coverage Territory continued Learning Objective: Define the terms: coverage territory, "bodily injury" and "property damage". Refer to 4. "Coverage Territory" on page 13 of the CGL Coverage Form. 46

17 Worldwide Coverage The concept of worldwide coverage requires further explanation. Due to the Internet's ability to cross all national boundaries, ISO has found it appropriate to expand the worldwide section in the "coverage territory" to include many Internet activities such as Personal and Advertising Injury offenses that occur through the Internet or other electronic means of communication. However, a second condition that must be met in order for the limited worldwide coverage to apply is that the insured's responsibility must be determined in a "suit" filed and decided in the geographic location listed in part a. of the definition or determined in a settlement the insurance company agrees to. Requirements that must be met before worldwide coverage applies: Goods must be made or sold in part a. of the definition or caused by a covered person residing in part a. of the definition while traveling on business or be a Personal and Advertising Injury offense that occurs through the internet or other electronic means of communication. and Legal action brought in part a. of the definition or in a settlement agreed to by the insurance company. Lesson 2 Topic B CGL Definitions p15 (1IC) Coverage Territory Learning Objective: Define the terms: coverage territory, "bodily injury" and "property damage". 4a. The first part of the definition lists specific geographic locations: The United States of America, (including its territories and possessions), Puerto Rico and Canada. 4b. The "coverage territory" also includes international waters or airspace during the course of transportation, provided there is no transportation between points outside the listed geographic locations in part a. of the definition. 4c. All parts of the world are considered as being in the "coverage territory" if two conditions are met. 1) The first condition is that the injury or damage arises out of either of: Goods or products made or sold by the named insured in the territory described in the first part of this 47

18 definition. OR Business activities of persons whose home is located in the geographic location listed in part a. of the definition, but are away from home for a short time on the named insured's business. OR Personal and advertising offenses that take place through the Internet or similar electronic means of communication. AND 2) The second condition that must be met is that the insured's responsibility must be determined in a "suit" filed and decided in the geographic location listed in part a. of the definition or in a settlement the insurance company agrees to. Please complete the knowledge check found at Lesson 2 Topic B CGL Definitions p16 (1IC). Lesson 2 Topic B CGL Definitions p17 (1IC) Bodily Injury Learning Objective: Define the terms: coverage territory, "bodily injury" and "property damage". Refer to 3. "Bodily Injury" on page 13 of the CGL Coverage Form. Bodily injury means bodily injury, sickness, or disease, including resulting death. The intent of the CGL Coverage Form is that "bodily injury" is defined as some type of physical manifestation that must be sustained by an injured person. However, "bodily injury" has been expanded by case law in some states to include things such as mental anguish, emotional trauma, loss of companionship, and other claims where there is no actual physical harm to the body. Lesson 2 Topic B CGL Definitions p18 (1IC) Property Damage 48

19 Learning Objective: Define the terms: coverage territory, "bodily injury" and "property damage". Refer to 17. "Property Damage" on page 15 of the CGL Coverage Form. This definition includes damage to tangible property as well as the loss of use of that damaged property. It also includes the loss of use to tangible property that does not suffer actual damage. Example: While digging, an insured accidentally cuts an electrical cable. The cost to repair and/or replace the damaged cable is covered as damage to tangible property. The power company loses income because it could not sell electricity while the cable is being repaired and/or replaced. This loss of income is covered as loss of use of that damaged property. Business owners in the area suffered loss of income because they were without power. Although their property did not suffer direct loss to tangible property, the loss of income because they were without electricity is an example of loss of use of tangible property that does not suffer actual damage. Lesson 2 Topic B CGL Definitions p19 (1IC) Employee Refer to the CGL Coverage Form 5. "Employee" on page 13, 10. "Leased Worker" on page 14, 19. "Temporary Worker" on page 15. The CGL Coverage Form does not actually define employee. The definition only tells us that employee does include a "leased worker" (one leased by a labor leasing firm), but does not include a "temporary worker" (a substitute for a permanent employee). If we looked at the dictionary definition of employee, we find that employee is a person hired to work for wages or a salary. Please refer to the end of Lesson 2 Topic B to complete Self Quiz 3 at this time. 49

20 Lesson 2 Topic C Who Is An Insured p1 (1IC) Lesson 2 Topic C - Who Is An Insured Before we proceed further, please read the first three paragraphs of the CGL Coverage Form. COMMERCIAL GENERAL LIABILITY COVERAGE FORM Various provisions in this policy restrict coverage. Read the entire policy carefully to determine rights, duties and what is and is not covered. Throughout this policy the words "you" and "your" refer to the Named Insured shown in the Declarations, and any other person or organization qualifying as a Named Insured under this policy. The words "we", "us" and "our" refer to the company providing this insurance. The word "insured" means any person or organization qualifying as such under Section II - Who Is An Insured. Other words and phrases that appear in quotation marks have special meaning. Refer to Section V - Definitions. The CGL Policy provides coverage for a number of different persons or entities. There are three main types of insureds that may be provided under a Commercial General Liability Policy. 1. Named Insureds 2. Automatic Insureds 3. Additional Insureds This lesson will focus on the named insured and automatic insureds as described in the Who Is An Insured provision of the CGL Coverage Form. In this section of the Coverage Form, you will learn whom the CGL protects (covers) in the event of a lawsuit or claim. Remember that these are the persons and entities that the CGL Policy will defend if a claim occurs. Coverage for Additional Insureds will be discussed in Lesson 5. Named Insured The individual or entity shown on the CGL Policy Declarations. Typically, referred to as the "you" in the Policy. The named insured is provided the broadest coverage. Automatic Insureds Any person or organizations who qualify for automatic coverage as an insured as described in Section II - Who Is An Insured in the CGL Coverage Form. 50

21 Additional Insureds Coverage for these individuals or organizations can only be added by endorsement. Lesson 2 Topic C Who Is An Insured p2 (1IC) Named Insureds Learning Objective: Determine Who Is An Insured under the provisions of the CGL Coverage Form for specific situations. Refer to SECTION II - WHO IS INSURED on pp of the CGL Coverage Form. The CGL Coverage Form gives coverage to the named insured shown in the Declarations. The named insured is defined as "you" or "your". The Named Insured has the broadest coverage of any insured under the Policy. Examples of named insureds include: Individual Partnership or Joint Venture Limited Liability Company (LLC) Organization Trust Lesson 2 Topic C Who Is An Insured p3 (1IC) Named Insureds continued Learning Objective: Determine Who Is An Insured under the provisions of the CGL Coverage Form for specific situations. Now let's learn about automatic insureds. SECTION II WHO IS AN INSURED 1. If you are designated in the Declarations as: a. An individual, you and your spouse are insureds, but only with respect to the conduct of a business of which you are the sole owner. b. A partnership or joint venture, you are an insured. Your members, your partners, and their spouses are also insureds, but only with respect to the conduct of your business. 51

22 c. A limited liability company, you are an insured. Your members are also insureds, but only with respect to the conduct of your business. Your managers are insureds, but only with respect to their duties as your managers. d. An organization other than a partnership, joint venture or limited liability company, you are an insured. Your "executive officers" and directors are insureds, but only with respect to their duties as your officers or directors. Your stockholders are also insureds, but only with respect to their liability as stockholders. e. A trust, you are an insured. Your trustees are also insureds, but only with respect to their duties as trustees. The following named insureds provide automatic coverage for those who are down line. Those down line are considered as automatic insureds. Lesson 2 Topic C Who Is An Insured p4 (1IC) Individuals Learning Objective: Determine Who Is An Insured under the provisions of the CGL Coverage Form for specific situations. Refer to SECTION II - WHO IS INSURED on pp of the CGL Coverage Form. Many businesses consist of one person who owns the operation. When these businesses are not incorporated, they are known as sole proprietorships. You will often see them named on an insurance policy this way: Margie Marvelous d/b/a Margie's Insurance Training Service. The acronym d/b/a stands for doing business as and merely tells us what Margie does. The sole proprietor listed as a named insured is considered an individual. When the named insured is an individual, both the named insured and a spouse (if one exists) are considered insureds, but only with respect to the conduct of a business which is solely owned by the named insured. 52

23 Please complete the knowledge check found at Lesson 2 Topic C Who Is An Insured p5 (1IC). Lesson 2 Topic C Who Is An Insured p6 (1IC) Partnership or Joint Venture Learning Objective: Determine Who Is An Insured under the provisions of the CGL Coverage Form for specific situations. Refer to SECTION II - WHO IS INSURED on pp of the CGL Coverage Form. A partnership is an agreement between two or more individuals to combine capital, labor, skill, and effort, in whole or part, for the operation of a business. A partnership is designed to continue for the life of the partners. A rule of general partnership law is that partners share profits and are responsible to pay losses. Partners are individually liable for debts, including those arising from liability losses of the partnership. A joint venture operates like a partnership, with the exception that it has a limited purpose and operates for a limited time. Parties of a joint venture are commonly referred to as members. One example of a joint venture is when two entities go together to build a strip shopping center with the intent of selling it at a specified time. When a partnership or joint venture is the named insured in the Declarations, then the individual partners or members are automatically considered insureds. Spouses, if any, of each partner or member are also automatic insureds with respect to the conduct of that partnership or joint venture. Please complete the knowledge check found at Lesson 2 Topic C Who Is An Insured p7 (1IC). Lesson 2 Topic C Who Is An Insured p8 (1IC) Limited Liability Company (LLC) Learning Objective: Determine Who Is An Insured under the provisions of the CGL Coverage Form for specific situations. Refer to SECTION II - WHO IS INSURED on pp of the CGL Coverage Form. A Limited Liability Company is a type of business ownership that combines the attributes of a partnership and a corporation. Members and managers control its operation. Like a partnership, the members share in 53

24 the profits and are taxed as individuals. Like a corporation, the members are not at risk for corporate debt, including liability losses of the company. Even though members cannot be held individually liable for liability losses suffered by the LLC, they can be named individually as a defendant in any law suit seeking such damages, as can managers, the individuals who "run the business". When the Limited Liability Company is the named insured in the Declarations, the members and managers are automatically considered insureds. Automatic coverage for members and managers applies to their duties as a manager and their liability as a member. There is no automatic coverage for spouses of members or managers of a Limited Liability Company. Please complete the knowledge check found at Lesson 2 Topic C Who Is An Insured p9 (1IC). Lesson 2 Topic C Who Is An Insured p10 (1IC) Organizations (corporations, municipalities, etc.) Learning Objective: Determine Who Is An Insured under the provisions of the CGL Coverage Form for specific situations. Refer to SECTION II - WHO IS INSURED on pp of the CGL Coverage Form. When the named insured is a business organization, other than a partnership, joint venture, or LLC, it is categorized under Other Organizations. Examples include corporations, associations, and municipalities. When the business falls into this category, the following are automatic insureds under the CGL Coverage Form: Executive officers and directors, but only with respect to their duties as officers or directors of the named organization. Stockholders, but only with respect to their liability as stockholders. Please complete the knowledge check found at Lesson 2 Topic C Who Is An Insured p11 (1IC). 54

25 Lesson 2 Topic C Who Is An Insured p12 (1IC) Trusts Learning Objective: Determine Who Is An Insured under the provisions of the CGL Coverage Form for specific situations. Refer to SECTION II - WHO IS INSURED on pp of the CGL Coverage Form. In a Trust, you are an insured. Your trustees are also insureds, but only with respect to their duties as trustees. Lesson 2 Topic C Who Is An Insured p13 (1IC) Other Insureds with Respect to Business Operations Learning Objective: Determine Who Is An Insured under the provisions of the CGL Coverage Form for specific situations. Refer to SECTION II - WHO IS INSURED on pp of the CGL Coverage Form. Before we continue our discussion on automatic insureds, please read paragraphs 2 and 3 of the Who Is an Insured provision. 2.Each of the following is also an insured: a. Your "volunteer workers" only while performing duties related to the conduct of your business, or your "employees", other than either your "executive officers" (if you are an organization other than a partnership, joint venture or limited liability company) or your managers (if you are a limited liability company), but only for acts within the scope of their employment by you or while performing duties related to the conduct of your business. However, none of these "employees" or "volunteer workers" are insureds for: (1) "Bodily injury" or "personal and advertising injury": (a) To you, to your partners or members (if you are a partnership or joint venture), to your members (if you are a limited liability company), to a co-"employee" while in the course of his or her employment or performing duties related to the conduct of your business, or to your other "volunteer workers" while performing duties related to the conduct of your business; (b) To the spouse, child, parent, brother or sister of that co-"employee" or "volunteer worker" as a consequence of Paragraph (1)(a) above; (c) For which there is any obligation to share damages with or repay someone else who must pay damages because of the injury described in Paragraph (1)(a) or (b) above; or (d) Arising out of his or her providing or failing to provide professional health care services. (2) "Property damage" to property: (a) Owned, occupied or used by; (b) Rented to, in the care, custody or control of, or over which physical control is being exercised for any purpose by; 55

26 you, any of your "employees", "volunteer workers", any partner or member (if you are a partnership or joint venture), or any member (if you are a limited liability company). b. Any person (other than your "employee" or "volunteer worker"), or any organization while acting as your real estate manager. c. Any person or organization having proper temporary custody of your property if you die, but only: (1) With respect to liability arising out of the maintenance or use of that property; and (2) Until your legal representative has been appointed. d. Your legal representative if you die, but only with respect to duties as such. That representative will have all your rights and duties under this Coverage Part. 3. Any organization you newly acquire or form, other than a partnership, joint venture or limited liability company, and over which you maintain ownership or majority interest, will qualify as a Named Insured if there is no other similar insurance available to that organization. However: a. Coverage under this provision is afforded only until the 90th day after you acquire or form the organization or the end of the policy period, whichever is earlier; b. Coverage A does not apply to "bodily injury" or "property damage" that occurred before you acquired or formed the organization; and c. Coverage B does not apply to "personal and advertising injury" arising out of an offense committed before you acquired or formed the organization. In addition to the named insured, other people or entities are considered to be insureds under the CGL Coverage Form. Each of the following five groups is also an insured under the Coverage Form. These five groups include: 1. Employees 2. Volunteer Workers 3. Real Estate Managers 4. Temporary Custodian of a Deceased Named Insured's Business 5. Legal Representative if the named insured dies Lesson 2 Topic C Who Is An Insured p14 (1IC) 1. Employees Learning Objective: Determine Who Is An Insured under the provisions of the CGL Coverage Form for specific situations. Refer to SECTION II - WHO IS INSURED on pp of the CGL Coverage Form. "Employees" of the named insured are insureds while working for the named insured, but only for acts related to the conduct of the named insured's business. Example: 56

27 If a passerby is injured at the named insured's construction site, he or she could sue the named insured and the individual "employee" who caused the injury. The CGL Policy will provide coverage for the "employee" in this situation. There are certain times when an "employee" will not be considered an insured for "bodily injury", "personal and advertising injury", or "property damage". Lesson 2 Topic C Who Is An Insured p15 (1IC) Employee continued Learning Objective: Determine Who Is An Insured under the provisions of the CGL Coverage Form for specific situations. Refer to SECTION II - WHO IS INSURED on pp of the CGL Coverage Form. Coverage is not provided for an "employee" who causes: "Bodily injury" or "personal and advertising injury" to the named insured, partners of a partnership, any member of a joint venture, members of a limited liability company, or coemployees while doing their job. "Bodily injury" or "personal and advertising injury" to the spouse, child, parent, brother or sister of that co-employee as a consequence of the "bodily injury" or "personal and advertising injury" in the previous paragraph. "Bodily injury" or "personal and advertising injury" for which there is an obligation to share damages with or repay someone else who must pay damages because the "bodily injury" or "personal and advertising injury" in the previous two paragraphs. "Bodily injury" or "personal and advertising injury" arising out of the employee's providing or failing to provide professional health care services. "Property damage" to property owned, occupied, or used by the named insured, any "employees", or any partner of a partnership, or any member of a joint venture, or any member of a LLC. "Property damage" to property rented to, in the care, custody or control of, or over which the named insured, its "employees", any partner of a partnership, any member of a joint venture, or any member of a LLC are exercising physical control for any purpose. Lesson 2 Topic C Who Is An Insured p16 (1IC) 57

28 2. Volunteer Worker Learning Objective: Determine Who Is An Insured under the provisions of the CGL Coverage Form for specific situations. Refer to SECTION II - WHO IS INSURED on pp of the CGL Coverage Form. Volunteer worker means a person who is not the named insured's employee, and who donates his or her work and acts at the direction of and within the scope of duties determined by the named insured, and is not paid a fee, salary or other compensation by the named insured or anyone else for their work performed for the named insured. The same limitations that apply to employees as insureds apply to volunteer workers. Lesson 2 Topic C Who Is An Insured p17 (1IC) 3. Real Estate Managers Learning Objective: Determine Who Is An Insured under the provisions of the CGL Coverage Form for specific situations. Refer to SECTION II - WHO IS INSURED on pp of the CGL Coverage Form. Persons (other than "employees" or "volunteers" of the named insured) or organizations such as a management company acting as a real estate manager for the named insured are considered insureds under the CGL Coverage Form. Please complete the knowledge check found at Lesson 2 Topic C Who Is An Insured p18 (1IC). Lesson 2 Topic C Who Is An Insured p19 (1IC) 4. Temporary Custodians of a Deceased Named Insured's Business Learning Objective: Determine Who Is An Insured under the provisions of the CGL Coverage Form for specific situations. Refer to SECTION II - WHO IS INSURED on pp of the CGL Coverage Form. When the person who serves as a sole proprietor dies, so does the business. The CGL Coverage Form allows 58