9 Commercial General Liability Coverage OVERVIEW The Commercial General Liability (CGL) policy provides businesses with coverage against a full range of commercial risk exposures. General liability is the industry term for comprehensive liability coverage that includes most common business risks. It does not include professional liability, commercial auto insurance, or workers compensation, which must be purchased as separate policies. The CGL may be purchased as a coverage part of a commercial package policy, or it may be written as a standalone policy. Upon the completion of this chapter, you will be able to: Identify the main bodily injury and property damage liability exposures Differentiate between the Occurrence Form and Claims-Made Form Recognize the highlights of: Section I Coverages Section II Who is an Insured Section III Limits of Insurance Section IV Commercial General Liability Conditions Section V Definitions Identify the 3 options available under Pollution Liability Coverage 9.1 Liability Exposures The Commercial General Liability policy insures against the following exposures. Premises and Operations A business owner may be held legally liable in the event of bodily injury and/or property damage arising out of conditions on or (in the case of operations liability) away from owned or rented premises. Example At a retail location, a box falls off a high shelf and injures a shopper (Premises). A painting company prays paint onto a parked vehicle, causing damage (Operations). Depending on the nature of the business, an insured may need one or both of these coverages. 118 A.D.Banker&Company
Products and Completed Operations Products COMMERCIAL GENERAL LIABILITY COVERAGE Common Law declares that the seller of a product makes an implied warranty that the product is safe and capable of performing its intended use. A manufacturer, wholesaler, or retailer is liable for any negligence, breach of warranty, or strict liability associated with a product. Products coverage does not commence until care, custody, and control of the product has been given to the purchaser. A customer who is injured by a product under the insured s care, custody and control would be compensated out of the insured s Premises Liability coverage. Coverage applies to any bodily injury or property damage the product causes, but not to loss to the product itself. Completed Operations Persons or firms doing installation work, construction, servicing, or repair are exposed to potential legal liability from their completed operations. Injury or damage under this coverage must occur away from the premises the insured owns or rents. Coverage will pay for bodily injury and/or property damage caused by negligent or faulty work by an insured, but will not pay for the cost of replacing the work that caused the loss. Example A walk ramp the insured has built and completed at a customer s business later collapses, causing injury. If the walk ramp had collapsed while being built, Operations coverage would apply, but since it collapsed after completion, Completed Operations applies. Retention Question 1 Products liability is based on what common law principle? a. Estoppel b. Implied warranty c. Rescission d. Fiduciary duty Retention Question 2 A customer in a housewares store is cut while handling a broken piece of glassware. Which type of liability would apply? a. Premises b. Products c. Operations d. Completed Operations A.D.Banker&Company 119
CHAPTER NINE 9.2 Commercial General Liability Coverage Forms The Commercial General Liability Coverage Part of the Commercial Package Policy may be written on an Occurrence Form or a Claims-Made Form. The 2 forms of the policy are identical in all respects, except the point at which coverage is activated. This main difference is called the coverage trigger. The coverage trigger for an Occurrence Form is the date of the loss, whereas the coverage trigger for a Claims-Made Form is the date the claim is submitted. Occurrence Form The occurrence form provides for the defense and payment of claims for damages that occur during the policy period, regardless of when a claim is made. Under this form the policy will pay claims made at any time, even long after the policy has expired, as long as the damage or injury occurred during the policy period. The word occurrence in the name of this form may lead to confusion over the nature of the trigger, since technically damages can occur long after an occurrence. For the purposes of this form, we are concerned with the occurrence date of bodily injury, property damages, personal injury, or advertising injury, not the underlying accident that may have caused them. Claims-Made Form To reduce the insurer s claims exposure, a claims-made form may be written. This form offers essentially the same coverage as the occurrence form, except that claims are only covered if both the damages and the notice of the claim take place while the policy is in force. The claims-made form pays for damages occurring between the retroactive date and the end of the policy period, provided the claim is made either during the policy period or during an extended reporting period. Because the coverage period of the claims-made form is more restricted, it provides a more affordable option for many insureds as the trade-off for a significantly reduced period of coverage. Retroactive Date The retroactive date is the earliest date an occurrence of injury or damage can take place and be covered under the claims-made form. Claims from an occurrence taking place before the retroactive date will not be covered. If when there is no retroactive date, coverage begins on the effective date of the policy. The main purpose of a retroactive date is to prevent a legally liable party from purchasing insurance after learning of an incident of injury or damage (a form of adverse selection). Retention Question 3 The occurrence form and claims-made form are identical in all respects except which of the following? a. Limit of liability b. Number of insureds c. Length of reporting period d. Coverage Trigger 120 A.D.Banker&Company
COMMERCIAL GENERAL LIABILITY COVERAGE Extended Reporting Periods Extended Reporting Periods allow for occurrences to be reported after the end of the policy period, provided that the occurrences themselves took place while the policy was still in effect. The reporting period itself begins only when the policy period ends (either by cancellation or nonrenewal). No changes to coverage are provided by the extended reporting period only the ability to report an occurrence after the policy ends is provided. Basic Extended Reporting Period (BERP) This period is provided automatically, without charge, and consists of the following two parts: Mini Tail This tail provides a 60-day period for the reporting of claims that result from occurrences that took place after the retroactive date and before the end of the policy period. Midi Tail This tail provides a 5-year period for a claimant to present a claim arising from an occurrence that took place after the retroactive date and before the end of the policy period, the mini-tail and midi-tail reporting periods run concurrently, and the insured must have reported the occurrence to the insurer before the end of the 60-day period for coverage to remain in effect throughout the tail. Supplemental Extended Reporting Period (SERP) The SERP is an optional reporting period of unlimited duration that may be purchased by endorsement if requested within 60 days of the end of the policy term. The unlimited duration of the tail of this reporting period is also known as a maxi tail. The SERP covers claims arising from occurrences that took place after the retroactive date and before the end of the policy term, regardless of when the claim is made. The SERP is of particular value for insureds switching coverage from a claims-made CGL to an occurrence CGL, because of the resulting gap in coverage. There is a one-time charge for this optional reporting period that may not exceed 200% of the original premium for the expiring policy. Retention Question 4 Which type of policy reporting tail may be added to a claims-made form? a. Maxi b. Midi c. Multi d. Mini A.D.Banker&Company 121
CHAPTER NINE 9.3 Section I Coverages Coverage A Bodily Injury and Property Damage Liability Insuring Agreement The insurer will pay those sums the insured becomes legally obligated to pay as a result of damages because of bodily injury and/or property damage to which coverage applies, provided the occurrence took place during the policy period and in the coverage territory. The coverage territory includes the United States, its territories and possessions (including Puerto Rico), and Canada. In the case of Products Liability, if the insured s products are made or sold in the coverage territory and the suit is brought in the coverage territory, the policy would then respond to a product-related claim worldwide. The insurer has the duty to defend the insured against any suit seeking damages. However, there is no duty to defend any suit seeking damages to which insurance does not apply. Exclusions Coverage A does not cover bodily injury or property damage arising from the following: Expected or Intended Injury the insured knew, or should have known, would occur Contractual Liability The assumption of liability in a contract or agreement, other than those identified as insured contracts under Premises and Operations. Liquor Liability This coverage is necessary for those who manufacture, distribute, sell, or furnish alcoholic beverages and is available under Liquor Legal Liability or Dram Shop Liability Insurance. (Dram Shop Liability is for those who sell liquor by the drink.) This exclusion does not apply to a building owner who leases space to a bar. Host Liquor Liability is provided for those who only have incidental exposure. Workers Compensation Employer s Liability Pollution Exclusion This exclusion applies to bodily injury and/or property damage as well as expense of clean up. This coverage may be purchased with a Pollution Extension Endorsement (no clean up) or a separate Pollution Liability Form. Aircraft, Auto, and Watercraft This coverage is provided by the separate policies or coverage parts. Transportation of Mobile Equipment War/Terrorism Damage to Property This exclusion applies to the insured s own property and any property in the care, custody, and control of the insured. The Commercial Property Part and the Commercial Inland Marine Part of the Commercial Package Policy would provide this coverage. Damage to Insured s Product Damage to Insured s Work Damage to Impaired Property or Property Not Physically Injured Product Recall This exclusion applies to any damage, costs, or expenses associated with a recall and is sometimes called the Sistership Exclusion. Personal and Advertising Injury This coverage is provided under Coverage B. Electronic Data 122 A.D.Banker&Company
COMMERCIAL GENERAL LIABILITY COVERAGE Even though Terrorism Risk Insurance does cover property damage resulting from an act of terrorism, it will not cover bodily injury or property damage claims that are a result of war, nor will it cover damages resulting from nuclear, biological or chemical weapons. Coverage B Personal and Advertising Injury Liability Insuring Agreement Personal Injury is defined as any non-physical injury (not to be confused with bodily injury, which constitutes bodily harm) caused by the insured s business, and includes: Defamation, libel and slander Invasion of privacy False arrest, detention, or imprisonment Malicious prosecution Wrongful entry, eviction Personal injury caused by an insured s advertisement is called Advertising Injury and includes: Defamation, libel and slander Invasion of privacy Misappropriation of advertising ideas or style of doing business Copyright infringement Also included in this coverage is bodily injury resulting from a personal injury. For example, a person who developed a stress disorder after suffering invasion of privacy would be able to file a claim under Coverage B for both the stress disorder (bodily injury) and the invasion of privacy (personal injury). Among other exclusions, the coverage does not include: the wrongful description of the price of goods, products, or services; insureds in the media, or as an internet search, access, content, or service provider; and loss arising out of an electronic chat room or bulletin board the insured hosts or owns. Retention Question 5 Damages from libel would be covered under which type of coverage? a. Professional liability b. Bodily injury and property damage c. Personal and advertising injury d. Medical payments A.D.Banker&Company 123
CHAPTER NINE Coverage C Medical Expense Insuring Agreement The insurer will pay for medical expenses, due to the bodily injury of customers, caused by an accident on the insured s premises or because of the insured s operations. The accident must take place in the coverage territory and during the policy period. Expenses include first aid administered at the time of the accident, and expenses that have been incurred and reported within 1 year of the date of the accident. These payments are made regardless of fault. Exclusions The policy will not pay for bodily injury: To any insured To a person hired to do work on behalf of any insured To a person normally occupying the premises, such as a tenant To a person covered by Workers Compensation or any disability law Retention Question 6 Coverage C of the CGL provides which type of coverage? a. Professional liability b. Bodily injury and property damage c. Personal and advertising injury d. Medical payments Retention Question 7 All of the following are true of medical payments, except: a. The injury must be reported within one year of its occurrence b. They pay for personal injury, not bodily injury c. They include first aid expenses d. They are paid regardless of fault Supplementary Payments Coverages A and B Supplementary Payments apply only to Coverages A and B, are paid in addition to any applicable limit of liability, and primarily include: All claim-related expenses incurred by the insurance company The cost of bail bonds, up to $250 All reasonable expenses incurred by the insured, at the insurer s request, including actual loss of earnings up to $250 per day to the insured for time off from work The Supplementary Payments Part does not include personal or advertising injury. Retention Question 8 All of the following are true of supplementary payments, except: a. They are paid in addition to the limit of liability b. They apply to coverages A, B, and C c. They cover all claim-related expenses d. They cover loss of earnings up to $250 a day 124 A.D.Banker&Company
9.4 Section II Who is an Insured COMMERCIAL GENERAL LIABILITY COVERAGE Anyone named in the Declarations, including an individual, partnership, joint venture, limited liability company, corporation or trust, and executive officers, directors and stockholders Volunteer workers, and employees, other than executive officers or managers, for acts within the scope of their service or employment of or by the insured Operators of mobile equipment, registered in the insured s name Any person or organization while acting as the insured s real estate manager The insured s legal representative if the insured dies Any organization that the insured newly organizes or forms, other than a partnership, joint venture, or limited liability company, is covered automatically for 90 days, or to the expiration of the policy, whichever is earlier No person or organization is an insured with respect to the conduct on any current or past partnership, joint venture, or limited liability company that is not shown as a Named Insured in the Declarations. 9.5 Section III Limits of Insurance The Limits of Insurance shown in the Declarations are the most the insurer will pay regardless of the number of insureds, claims made, suits brought, or persons or organizations making claims or bringing suits. The General Aggregate Limit is the most the insurer will pay, during the policy period, for medical expenses under Coverage C, damages under Coverage A (except damages that are included in the Product and Completed Operations Hazard), and damages under Coverage B. The Products-Completed Operations Aggregate Limit is the most the insurer will pay, during the policy period, for losses payable under Coverage A included in the Product and Completed Operations Hazard. The Personal and Advertising Injury Limit is the most the insurer will pay under Coverage B for the sum of all damages because of all personal and advertising injury sustained by any one person or organization. The Each Occurrence Limit is the most the insurer will pay for damages under Coverage A and medical expenses under Coverage C because of bodily injury or property damage arising out of any one occurrence. The Medical Expense Limit is the most the insurer will pay under Coverage C for all medical expenses because of bodily injury sustained by any one person. The Limits of Insurance of this Coverage Part apply separately to each consecutive annual period and to any remaining period of less than 12 months, starting with the beginning of the policy period shown in the Declaration. A.D.Banker&Company 125
CHAPTER NINE 9.6 Section IV Commercial General Liability Conditions These conditions apply in addition to the Common Policy Conditions: Bankruptcy Neither bankruptcy nor insolvency of the insured or of the insured s estate will relieve the insurer from its obligations. Duties in the Event of Occurrence, Claim, or Suit The insured must see that the insurer is notified as soon as is reasonably possible, in writing, of an occurrence or an offense which may result in a claim. The notice should include when and where the occurrence or offense took place, the names and addresses of injured persons and witnesses, and the nature of any injury or damage. Legal Action Against the Insurer The insured cannot sue the insurer for breach of contract or other torts unless he/she has reasonably attempted to satisfy all terms and conditions of coverage and notice requirements. Other Insurance Coverage may be written as primary or as excess. When written on a primary basis and other collectible primary insurance is also available, the loss is shared either on a contribution basis or by limit of liability. Premium Audit The advance premium is only a premium deposit, and the earned premium will be based on an audit at the end of the policy period. The insured must maintain records necessary for the insurer to compute the premium, as premiums are based on sales, receipts, payroll, or some combination. An additional premium is required if the earned premium is greater than the premium deposit. Representations The named insured agrees that all statements made in the application are accurate and complete, that the statements are based on representations made by the named insured to the insurer, and that the insurer has issued the policy based upon such representations. Separations of Insureds (Severability) The term insured is used severally and not collectively in the policy, and it is to be applied as meaning the insured against whom claim is made or suit is brought. The insurance afforded applies separately to each insured. Multiple suits against multiple insureds do not increase the amount of insurance for that occurrence or policy period. Transfer of Rights of Recovery Against Others to the Insurer (Subrogation) The insured agrees to transfer to the insurer any rights to recover any payment the insurer has made on behalf of the insured. When the Insurer Does Not Renew If the insurer decides not to renew, the First Named Insured is to be notified, in writing, 60 days before the expiration date. The Insured s Right to Claim Information (Claims-Made Form only) The insurer will provide, upon cancellation, nonrenewal, or written request of the First Named Insured, a summary of paid claims, claims for which the insurer has established reserves, and notices received by the insurer of occurrences that could give rise to claims. 126 A.D.Banker&Company
9.7 Section V Definitions COMMERCIAL GENERAL LIABILITY COVERAGE Advertisement A notice broadcast or published to the general public or specific market segments about the insured s goods, products, or services to attract customers or supporters. Impaired Property Tangible property, other than an insured s product or work, which cannot be used because it is thought or known to be defective, inadequate, deficient, or dangerous. Leased Worker A person leased to the insured by a labor-leasing firm to perform duties related to the insured s business, but does not include a temporary worker. Pollutant 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. Temporary Worker A person whose services are furnished to the insured to substitute for a permanent employee on leave or to meet seasonal or short-term workload conditions. Volunteer Worker A person who is not an employee of the insured, and who donates his/her work and acts at the direction of the insured, but is not paid a fee, salary, or other compensation by the insured for work performed for the insured. Insured Contract This is a policy that describes the liability assumed by the insured and included for coverage in the policy. There are 5 basic types of insured contracts: A contract for a lease of premises This does not include that portion of the contract that indemnifies any person or organization for fire damage to premises he/she is renting or temporarily occupying with the owner s permission. A sidetrack agreement This is between a railroad and a business the railroad may service by means of a spur or access track from the main track. Under this agreement, the business holds the railroad harmless if an accident occurs while the railroad is using the sidetrack to deliver goods to the business. Any easement or license agreement, except in connection with construction or demolition operations on or within 50 feet of a railroad. An obligation to indemnify a municipality, except in connection with work for a municipality. An elevator maintenance agreement Retention Question 9 Which of the following is not a type of insured contract? a. Sidetrack agreement b. Elevator maintenance c. Lease of premises d. Employment contract A.D.Banker&Company 127
CHAPTER NINE 9.8 Pollution Liability Coverage The Pollution Exclusion incorporated in the policy excludes bodily injury or property damage arising out of the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of pollutants. Insurers have three options they may use at their discretion, on an individual account basis, to provide Buy Back coverage to insureds: Buy Back Option Pollution Liability Coverage Form (Designated Sites) Limited Pollution Liability Coverage Form (Designated Sites) Pollution Extension Endorsement Coverage Provided Provides coverage on a claims-made basis with its own limit of liability. Coverage includes a leak from a waste disposal facility located on the premises. The form provides coverage for clean up imposed by governmental direction if the cost is incurred because of environmental damage caused by a pollution incident. This form is identical to the Pollution Liability Coverage Form, except that it does not include clean up. This endorsement deletes the Pollution Exclusion for bodily injury and property damage liability, but continues to exclude clean up costs. 9.9 Employment Practices Liability Insurance (EPLI) This type of policy has been created in response to major legal changes regarding employee rights. The laws affecting the establishment and evolution of EPLI include: Title VII of the Civil Rights Act of 1964 The Age Discrimination in Employment Act The Rehabilitation Act of 1973 The Equal Pay Act The Civil Rights Act of 1991 The Americans with Disabilities Act The Family and Medical Leave Act The Immigration Reform Control Act of 1986 The Older Workers Benefit Protection Act The Model Employment Training Act This policy can be written as a stand-alone, or as an endorsement to either a Commercial General Liability Policy, or a Business Owners Policy. It s also often written into a Directors and Officers endorsement. These policies are not uniform and can be tailored to a specific business. Who Is An Insured? All EPLI policies cover claims against the insured company (typically including its subsidiaries) and its directors, officers and employees. Policies vary, though, in describing covered employees. The broadest definition includes full-time, part-time, temporary and seasonal employees. Some policies do not cover part-time, temporary or seasonal employees because such employees are not likely to receive the same training and education regarding appropriate employment-related behavior as full-time employees. A few policies also include stockholders of the company and spouses of insureds. 128 A.D.Banker&Company
COMMERCIAL GENERAL LIABILITY COVERAGE EPLI policies with the most comprehensive coverage contain language specifying coverage for each insured as separate and distinct, and that no act committed by 1 insured shall be attributed to any other insured. In addition, coverage should continue until and unless a court determines the defendant acted intentionally. That way, a settlement of the claim will not eliminate coverage. Claims Under EPLI, a claim may include: The filing of a civil lawsuit or arbitration proceeding The filing of a criminal lawsuit or the institution of criminal proceedings An Equal Employment Opportunity Commission (EEOC) or Department of Fair Employment and Housing (DFEH) proceeding or other similar federal, state or local administrative proceeding A written demand for monetary damages or non-monetary relief A written notice that an employee intends to hold you responsible for a Wrongful Employment Practice An administrative or regulatory investigation Claims made by third-party, non-employees (customers, for example) can be covered by specific endorsement and extra premium. Wrongful Acts Wrongful acts for which claims are made include: Wrongful Termination This has the greatest potential for litigation. EPLI policies cover claims by former employees alleging that he/she was wrongfully terminated. Some policies also cover claims of constructive discharge by employees who claim the employer maintained (or failed to correct) a hostile work environment and they were work environment and were compelled to resign or retire. Discrimination Policies can also cover claims by current, former or prospective employees who charge they were the victim of employment-related discrimination on the basis of any federal, state or local law that prohibits discrimination by employers on the basis of: Race, color, creed, or national origin Age, gender, sexual orientation, gender identity, and/or gender expression Marital status, pregnancy or handicap Military service, disability or religion The definition of discrimination must include any future changes in those laws that result in any additional categories of discrimination against employees. Claims by employees who charge they were discriminated against for exercising their rights under Workers Compensation, COBRA or other similar laws also can be covered. A.D.Banker&Company 129
CHAPTER NINE Sexual Harassment Coverage for sexual harassment claims against the employer, including claims against supervisors and fellow employees, can be included. In addition, the policy covers all categories of sexual harassment as currently defined by the Equal Employment Opportunity Commission and any additional definitions provided under California law. Whistleblower Claims by employees who charge they were the subject of an adverse employment decision solely because they disclosed an unfair or illegal practice by the employer. This is one of the few policies to specifically cover whistleblower claims. Wage and Hour The Dept. of Labor (Wage and Hour Division) sets the minimum wage and maximum hour/overtime requirements. Frequently these types of claims are not covered without specific EPLI insurance policies. Other Employment-Related Claims Other wrongful acts alleged in employment litigation and often covered include: Libel, slander, or other defamation Invasion of privacy, mental anguish, or infliction of emotional distress Loss of consortium, assault, battery or breach of contract Negligent hiring, supervision, promotion or retention Hostile or offensive work environment that interferes with a person s work performance EEOC Charges and Written Demand An employee may report an incident directly to the EEOC. Charges must be written and interviews will be conducted. The agency will contact the employer and demand information regarding the incident. The employer may attempt to settle the issue through the EEOC, rather than report it as a claim under its EPLI policy. By the time the insurer is made aware of the incident, its time frame for reporting may have passed and a late charge will be assessed. Newer EPLI policies are covering this late charge and ensuring policy renewals so continuity of protection is maintained throughout the dispute period. Coverage for punitive/exemplary damages was generally excluded, but is becoming more available today. It is usually provided by endorsement for an additional premium. Other damages and expenses typically covered by EPLI include: Back pay Attorneys fees Compensatory damages Front pay Pre and post-judgment interest Liquidated and multiplied damages up to the limit of liability, where insurable Exemplary damages are synonymous with punitive damages in that they are excess to actual monetary damages and seek to punish the offender. 130 A.D.Banker&Company
COMMERCIAL GENERAL LIABILITY COVERAGE Exclusions EPLI policies typically exclude the following: Matters that were noticed under a prior policy Prior acts or pending legislation Bodily injury, other than mental anguish or emotional distress Breach of contract or fraudulent acts Illegal profit, remuneration or advantage Purposeful violation of law or wrongful acts committed with actual knowledge of their wrongful nature or with intent to cause damage Large layoffs, plant closures, strikes, and in some policies, financial insolvency Matters that can be resolved under specific agencies or legislation such as Workers Compensation, or the National Labor Relations Act EPLI policies with the most comprehensive coverage will carve back exceptions to the bodily injury exclusion so that claims regarding humiliation, defamation or invasion of privacy may be covered. These offenses may be labeled as personal injury. Be advised that under such claims the claimant will be required to show an actual damage or loss. Defense The defense portion of an EPLI policy is critical because often the cost of defending against a claim can be higher than the damages paid. Typically, defense costs are included in the limits of insurance. The policy may require the insurer to defend the claim or reimburse the insured for costs incurred. Most EPLI policies also restrict the employer s choice of defense counsel to a list of counsel preapproved by the carrier. Limits on Indemnification The California Insurance Code precludes indemnity for willful acts of the insured. This means the insured had to know the act was lawfully wrong and his/her intent toward the claimant is irrelevant. Example In the B&E Convalescent Center v. State Compensation Insurance Fund case, the insuredemployer was sued by a former employee claiming a variety of violations, the types of which are the reasons for buying EPLI. The California Supreme Court judged in favor of the insurer on the grounds the law barred coverage of the acts because they were wrong as a matter of law. Whether or not the employer intended to cause harm was not relevant. Retention Question 10 Which of the following is not grounds for a claim under the EPLI policy? a. Sexual harassment b. Plant closure c. Whistleblower status d. Discrimination A.D.Banker&Company 131