Lesson 4 CGL Other Provisions Introduction This, our last lesson on the CGL Policy, provides an overview of additional provisions that apply to the liability policy. The provisions are important because they: give additional coverage, or they restrict coverage, or they set forth the rules governing the insured and the insurer. You will find similar provisions in most liability policies, regardless of what type of liability coverage is involved. Our discussion of these provisions are centered around the following topics: a. Supplementary Payments-Coverage A and B b. Limits of Insurance c. Conditions Learning Objectives After completing this lesson, you will be able to: 1. Give examples of Supplementary Payments included in the CGL Policy. 2. Identify the different limits of insurance of the CGL Policy. 3. Determine the amount of limits available under a CGL Policy for specific loss examples. 4. Briefly describe the provisions found in the CGL Conditions studied in this course. Forms you have printed that you will need for this lesson: CG 00 01 Commercial General Liability Policy Rev. 03/10 91
Lesson 4 Topic A - Supplementary Payments: Coverage A and B Learning Objective: Give examples of Supplementary Payments included in the CGL Policy. The CGL Policy includes coverage for Supplementary Payments in addition to coverage for damages assessed in a claim. Supplementary payments are related to the insurance company's expenses for handling claims and for defending suits. The policy provides this coverage as additional limits of insurance that is over and above the limits shown on the Declaration Page and outlined Topic B-Limits of Insurance. Note: Refer to the bottom of page 8 of the CGL Policy. The 7 types of expenses or costs that the insurance company will pay as supplementary payments are: 1. All expenses the insurance company incurs, such as investigation costs, legal costs, and court costs. 2. The costs of bail bonds up to $250 if the bonds are required because of accidents or traffic law violations arising out of the use of covered vehicles. 3. The cost of bonds to release any attachments placed against an insured. 4. All reasonable expenses that an insured incurs at the insurance company's request, when they assist in the investigation or defense. There is a sub-limit of $250 per day for actual loss of earnings (including salary, commissions, and fees) if the insured misses work. 5. All court costs assessed against the insured because of a covered loss. This does not include attorneys' fees or attorneys' expenses. 6. Any prejudgment interest the court awards against the insured because of a judgment. Prejudgment interest is the interest (usually set by the court) that the injured party is allowed to collect from the day of the loss until the day of the judgment. 7. Post-judgment interest (usually set by the court) is interest that accrues from the date of the judgment until the date the judgment is paid. Any discussion relating to the second part of the Supplementary Payments condition is beyond the scope of this course. Rev. 03/10 92
Lesson 4 Topic B - Limits of Insurance Learning Objective: Identify the different limits of insurance of the CGL Policy. All policies set a maximum limit on the amount the insurer will pay in the event of a loss. The CGL Policy is unique in that it sets forth several different limits depending on the type of loss. The Limits of Insurance shown in the Declarations and the rules described in this section set the maximum amount of coverage payable, regardless of the number of insureds, claims, suits, or people making claims or suits. Six Limits of Insurance Found in the CGL 1. Each Occurrence Limit 2. Damage to Premises Rented to You Limit 3. Medical Expense Limit 4. Personal and Advertising Injury Limit 5. General Aggregate Limit 6. Products/Completed Operations Aggregate Limit Aggregate Limit vs. Occurrence Limit The word aggregate means the total sum that will be paid during a policy period. The occurrence limit is the most that will be paid for all "bodily injury," "property damage," and medical payments arising from one occurrence. It makes no difference how many people or organizations suffer a loss under the occurrence. Each limit is indicated on the Declarations page of the CGL Policy. See the picture in Lesson 4 Topic B CGL Limits p2 to see how these limits work. In order to understand how these limits are applied in the policy, let s take a closer look at each one. Rev. 03/10 93
Learning Objective: Identify the different limits of insurance of the CGL Policy. Each Occurrence Limit This is the most that will be paid for all "bodily injury," "property damage," and medical payments arising from ONE occurrence. The limit applies regardless of the number of individuals or organizations who suffered a loss due to that occurrence. Damage to Premises Rented to You: This limit is the most that will be paid under Coverage A for all "property damage" to a premises rented to an insured if covered by the CGL Policy. Recall the exceptions noted to the Damage to Property exclusion in Lesson 3. Medical Payments: This limit is the most that will be paid per person under Coverage C Medical Payments for all covered medical expenses resulting from "bodily injury" to that person. Rev. 03/10 94
Learning Objective: Identify the different limits of insurance of the CGL Policy. How is a Sublimit Applied? Each of the limits, Damages to Premises Rented by You and Medical Payments, is considered a sub-limit of the Each Occurrence Limit. The sum of payments made to all persons under, Medical Expenses, for example, for a particular loss would be subtracted from the Each Occurrence Limit available for that loss. Example: A customer is injured when she slips and falls on the business insured premises. She is paid $5,000 for medical payments. A lawsuit is filed and an award of $100,000 is granted. How much of the award will be paid by the CGL Policy? General Aggregate Limit $1,000,000 Personal & Advertising Injury Limit $500,000 Damage to Premises Rented to You $100,000 Completed Products Aggregate Limit $1,000,000 Each Occurrence Limit $500,000 Medical Payments (Per Person) $5,000 Answer: Since the Each Occurrence limit is $500,000, there is enough left to pay the $100,000 judgment. The Each Occurrence limit is now reduced to $395,000. Rev. 03/10 95
Learning Objective: Identify the different limits of insurance of the CGL Policy. General Aggregate A General Aggregate Limit is shown on the Declarations Page. Think of it as a bucket of dollars to pay for losses. All losses during a policy period (other than Products- Completed Operations losses) are paid from this bucket. Losses paid for an occurrence or to a person or organization are subtracted from the General Aggregate. Once the money runs out, there are no more dollars to pay for any other losses during that policy period. One large loss could deplete the total coverage available for any policy period. The General Aggregate Limit is the most that will be paid for all of the following during a policy period: Coverage A-Bodily Injury and Property Damage Liability (Other than Products- Completed Operations claims) Coverage B-Personal Injury and Advertising Liability Coverage C-Medical Expenses Damage to Premises Rented to You Personal and Advertising Injury This limit is the most that will be paid for all damages to any one person or organization arising from a Personal and Advertising Injury offense. Dollars paid for covered losses of this type are subtracted from the General Aggregate limit. Products-Completed Operations Aggregate Limit This limit is the most that will be paid during a policy period for "bodily injury" and "property damage" arising from the products/completed operations hazard. The Each Occurrence Limit applies to products/completed operations, and claims paid from products/completed operations hazards are subtracted from this aggregate. Rev. 03/10 96
Knowledge Check General Aggregate Limit $500,000 Personal & Advertising Injury Limit $500,000 Damage to Premises Rented to You $100,000 Products/Completed Operations Aggregate Limit $500,000 Each Occurrence Limit $500,000 Medical Payments $5,000 (Per Person) A Premises claim is presented for $50,000. Three persons are able to receive $5,000 each for Medical Payments under this occurrence. How much is available for any other claims that are presented as a result of this occurrence? (Disregard deductibles.) A. $450,000 B. $435,000 C. $50,000 D. $35,000 The correct answer is B, $435,000. Rev. 03/10 97
How are Limits Applied? Imagine at policy inception the Occurrence, Aggregate, and Product/Completed Operations Aggregate buckets are full of water representing their limits. As the claims are paid, the buckets of water will be reduced. Claims are paid on the policy until the (Occurrence, Aggregate, or Product/Completed Aggregate) bucket is empty in which case the bucket is exhausted and nothing is left. Be sure to complete the Knowledge Check in Lesson 4 Topic B CGL Limits p12 of the course. Rev. 03/10 98
Learning Objective: Determine the amount of limits available under a CGL Policy for specific loss examples. Example 1 In this exercise we determine how three separate occurrences impact the limits available under a CGL Policy. First, let's assemble the facts for the exercise. Limits of Insurance Imagine a CGL Policy with the following limits: Each Occurrence Limit: $500,000 Damages to Premises Rented to You Limit: $100,000 (Any One Premises) Medical Expenses Limit: $5,000 (Any One Person) Personal & Advertising Injury Limit: $500,000 (Any One Person or Organization) General Aggregate Limit: $1,000,000 Products/Completed Operations Aggregate Limit: $1,000,000 3 Claims (each a separate occurrence) Three separate occurrences result in the following claims during the policy year: $125,000 Property Damage arising from the operation of mobile equipment $500,000 Bodily Injury arising from a premises slip and fall $400,000 Personal Injury None of these claims arise out of the products-completed operations hazard, so all will be paid under the General Aggregate Limit. Rev. 03/10 99
Example 1: Claim 1 - $125,000 Property Damage arising from the operation of mobile equipment General Aggregate Limit: S1,000,000 Each Occurrence Limit: $500,000 Since the $125,000 claim amount does not exceed the $500,000 limit, the entire amount is paid. What is the effect of Claim 1 on Each Occurrence Limit? What is the effect of Claim 1 on the General Aggregate Limit? Rev. 03/10 100
Example 1: Claim 2 - $500,000 Bodily Injury arising from a premises slip and fall. General Aggregate Limit (after Claim 1): $875,000 Each Occurrence Limit: $500,000 Recall that all 3 claims involve separate occurrences. Since the $500,000 claim amount does not exceed the $500,000 limit, the entire amount is paid. What is the effect of Claim 2 on the Each Occurrence Limit? What is the effect of Claim 2 on the General Aggregate Limit? Rev. 03/10 101
Example 1: Claim 3 - $400,000 Personal Injury General Aggregate Limit (after Claim 1 and Claim 2): $375,000 Each Occurrence Limit: $500,000 Personal and Advertising Injury Limit: $500,000 Even though the Personal and Advertising Injury Limit is $500,000 per claim, there is not enough money left in the General Aggregate to pay all of this claim. The CGL Policy will pay S375.000 of this $400,000 claim. What is the effect of Claim 3 on the General Aggregate Limit? What is the effect of Claim 3 on the Personal and Advertising Injury? Rev. 03/10 102
Learning Objective: Determine the amount of limits available under a CGL Policy for specific loss examples. Summary of Example 1 None of these claims arise out of the products completed operations hazard, so all will be paid under the General Aggregate Limit. Claim Type Claim Amount Amount Paid Revised Occurrence Limit $500,000 Revised Aggregate Limit $1,000,000 1 2 Property Damage arising from the operation of mobile equipment Bodily Injury arising from a premises slip and fall $125,000 $125,000 $375,000 $875,000 $500,000 $500,000 $0 $375,000 3 Personal Injury $400,000 $375,000 Not applicable as the General Aggregate is exhausted $0 Rev. 03/10 103
Learning Objective: Determine the amount of limits available under a CGL Policy for specific loss examples. Example 1 In our second exercise, we will include a loss that involves the Products/Completed Operations Aggregate Limit. First, let's assemble the facts for the exercise. Click on each heading below. Limits of Insurance Imagine a CGL Policy with the following limits: Each Occurrence Limit: $500,000 Damages to Premises Rented to You Limit: $100,000 (Any One Premises) Medical Expenses Limit: $5,000 (Any One Person) Personal & Advertising Injury Limit: $500,000 (Any One Person or Organization) General Aggregate Limit: $1,000,000 Products/Completed Operations Aggregate Limit: $1,000,000 3 Claims Three separate occurrences result in the following claims during the policy year: $110,000 Covered Property Damage to Rented Premises $10,000 Medical Payments for One Injured Person $780,000 Bodily Injury Arising from a Defective Product Rev. 03/10 104
Example 2: Claim 1 - $110,000 Damage to Premises Rented to You General Aggregate Limit: $1,000,000 Each Occurrence Limit: $500,000 Limit for Damage to Premises Rented to You: $100,000 What is the effect of Claim 1 on the Damage to Premises Rented to You Limit? What is the effect of Claim 1 on the Each Occurrence Limit? Continued on next page Rev. 03/10 105
Example 2: Claim 1 continued What is the effect of Claim 1 on the General Aggregate Limit? Rev. 03/10 106
Example 2: Claim 2 - S10.000 Medical Payments for One Injured Person General Aggregate Limit (after Claim 1): $900,000 Each Occurrence Limit: $500,000 Medical Payments Limit for One Person: S5.000 The CGL Policy will pay the S5.000 limit for one person. What is the effect of Example 2 Claim 2 on Each Occurrence Limit? What is the effect of Example 2 Claim 2 on the General Aggregate Limit? Rev. 03/10 107
Example 2: Claim 3 - $780,000 Bodily Injury arising from a defective product General Aggregate Limit (after Claim 1 and Claim 2): $895,000 Each Occurrence Limit: $500,000 Products/Completed Operations Aggregate Limit: $1,000,000 What is the effect of Example 2 Claim 2 on Each Occurrence Limit? What the effect of Example 2 Claim 2 on the General Aggregate Limit? Rev. 03/10 108
Learning Objective: Determine the amount of limits available under a CGL Policy for specific loss examples. Summary of Example 2 Claim Type Claim Amount Amount Paid Revised Occurrence Limit $500,000 Revised Aggregate Limit $1,000,000 Revised Products/Completed Operations Aggregate Limit $1,000,000 1 2 3 Covered Property Damage to Rented Premises Medical Payments for One Injured Person Bodily Injury arising from a defective product $110,000 $100,000 $400,000 $900,000 $10,000 $5,000 $495,000 $895,000 $780,000 $500,000 $0 $895,000 $500,000 Rev. 03/10 109
Lesson 4 Topic C - Conditions Learning Objective: Briefly describe the provisions found in the CGL Conditions studied in this course. Like any other insurance policy, the CGL Policy contains a number of policy conditions that govern the responsibilities of the insured and the insurance company. Although we will not examine all the conditions found in the CGL Policy, we will study some of the more important provisions. They include: Duties in the Event of Occurrence, Offense, Claim, or Suit Other Insurance Premium Audit Separation of Insureds Transfer of Rights of Recovery Against Others to Us Note: Note: The CGL Conditions begin on page 10 of your CGL form. Please look at this page now. Duties in the Event of an Occurrence, Offense, Claim, or Suit These duties are similar to those found in other liability policies: Notification The first duty is that of notification. The named insured must see to it that the insurer is notified as soon as is practical of an "occurrence" or an offense. A lack of timeliness can have an adverse effect on the insurer's ability to investigate and settle a claim. If the insured fails to provide notice on a timely basis and the insurer can show that the insured's lack of action prejudiced their settling of the claim, coverage may be denied. Cooperation Another duty is cooperation. The insured must cooperate with the insurer in the investigation, settlement of a claim, or in the defense of any "suit" brought under the policy. Assist the Insurance Company Another important duty is to assist in the enforcement of any rights against any person or organization that may be liable to the insured because of "bodily injury" or "property damage." This provision and the subrogation provision grant the insurer the right to seek recovery from negligent parties. Rev. 03/10 110
Other Insurance This condition states that the CGL Coverage Form is primary, except in specified circumstances when it is excess. The CGL is excess over: Fire, Extended Coverage, Builder's Risk, or similar coverage for "your work." Fire Insurance for premises rented to the named insured or temporarily occupied by the named insured. Insurance purchased to cover your liability as a tenant for "property damage" to premises rented to you. If the loss arises out of the maintenance or use of aircraft, "auto" or watercraft to the extent the CGL Policy covers the loss. Any other primary insurance available for premises or operation or products and completed operations, for which you have been added as an additional insured to another policy by endorsement. Premium Audit In general, CGL policies are written on an auditable basis: estimated payroll, gross sales, etc. The Premium Audit condition states: 1. The insurer will base premiums on the company's rules and rates. 2. The policy premium is a deposit premium only. The company will audit the insured's books to determine the true exposure for the audit period, and then make a premium adjustment. 3. The first named insured must keep records and provide them to the insurer upon request. Separation of Insureds As you will remember, there are many persons and/or entities considered to be insureds under the CGL Policy. This provision deals with how the policy will handle insureds under the limits of liability. Insurance under the CGL Policy applies to each covered entity as though each had its own separate policy. If one insured brings a covered claim against another insured under the same policy, the policy will respond. Rev. 03/10 111
Transfer of Rights of Recovery Against Others to Us (Subrogation) Once an insurer has paid for a loss, they are entitled to recover the money from any other party or entity that might have caused the loss. This concludes our study of the Commercial General Liability Policy. After completing the next self-quiz, you will be ready to begin your study of the Business Auto Policy. Please refer to the end of Lesson 4 Topic C to complete Self Quiz 8. Rev. 03/10 112