Commercial General Liability Coverage Part

Overview

Every business firm has certain legal liability exposures that must be covered under General Liability Policies. This chapter will examine the Commercial General Liability Coverage Part of the Commercial Package Policy

Areas of General Liability Exposure to a Business

Premises and Operations Exposure

1. A building owner or tenant may be held legally liable in the event of bodily injury and/or property damage arising out of conditions on or away from the premises, including a job site or vacant land.
2. The General Liability Coverage Part to the Commercial Package Policy, which provides premises and operations coverage, automatically covers liability assumed under the insured contracts which include: lease of premises, sidetrack agreements, elevator maintenance agreements, and easements agreements.

Example: A customer slips and falls on an icy sidewalk on the insured’s property; or has their stereo damaged by the insured while the insured is at their house, installing carpeting.

Products Exposure

1. A manufacturer, wholesaler, or retailer has potential legal liability that may arise based on negligence, breach of warranty, or strict liability associated with a product. Common Law declares that the seller of a product makes an implied warranty that the product is safe.
2. Medical Expense Coverage, which will be discussed later, isn’t included in Products Coverage because the coverage doesn’t commence until care custody, and control of the product has been relinquished to the purchaser.
3. Coverage applies to bodily injury or property damage the product causes, but not to loss to the product itself, and the injury or damages must occur away from the premises the insured owns or rents.
Example: An aircraft manufacturer builds an aircraft altimeter that fails and causes an aircraft to crash.

 

Completed Operations Exposure

1. Persons or firms doing installation work, construction, servicing, or repair have a potential legal liability from their completed operations. Image or damage must occur away from the premises the insured owns or rents.
2. This coverage will pay for bodily injury and/or property damage caused by negligent of faulty work by the insured, but won’t pay for the cost of replacing the work that caused the loss.

Example: A walk ramp the insured built and completed at a customer’s business later collapse, causing an injury. If the ramp had collapsed while being built, Operations would apply, but since it collapsed after completion, Completed Operations applies.

Note: Products and Completed Operations can be combined together, and then be called ‘Products and Completed Operations”.

Contractual Liability Exposure

1. Persons or firms sometimes assume liability for the negligent acts of another through an oral or written contract. Effectively, one party agrees to hold the other harmless for claims arising from a lease, easement, or the performance of their work.
2. These contracts are sometimes called “Hold Harmless Agreements”.

Example: A contractor agrees to assume the liability of a landowner while a building is being constructed.

Contingent Liability Exposure (Independent Contractors Liability)

1. Persons contracting with contractors or subcontractors to make repairs, construct, or alter have possible contingent exposure because of the negligent acts of the contractor or subcontractor.
2. A certificate of Insurance is used by the insurer to provide evidence of coverage to such person that the contractor is covered.
3. When this coverage is purchased as a stand – alone policy, it is called an Owners and Contractors Protective Liability policy.
Example: A building owner may become vicariously liable for the actions of a painting contractor or subcontractor they’ve hired because they didn’t give adequate instructions and the contractor painted the wrong building or property.

Commercial General Liability Coverage Forms

The Commercial General Liability Coverage Part of the Commercial Package Policy is offered in two coverage forms:
1. Occurrence Form.
2. Claims-Made Form.

The tow 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 the claim is made or submitted.

Occurrence Form

This form provides for the defense and payment of claims, for which the insured is legally liable, that occur during the policy period, regardless of when a claim is made, even if the claim is made after the policy has expired.

Example: An insured owns an Occurrence Form that runs 9/1/04 through 9/1/05, but doesn’t renew the policy. A customer slips and falls on the insured’s wet floor on 7/4/05, and sues the insured for injuries sustained from the fall on 1/1/06. Presuming the insured was negligent, the policy will pay damages since it was in force when the loss occurred on 7/4/05 even though the policy expired on 9/1/05.

Claims-Made Form

This form provides for the defense and payment of claims, for which the insured is legally liable, that occurs after the retroactive date and before the end of the policy period, and that are likewise made during the policy period or during an extended reporting period provided. The Claims-Made Form offers essentially the same coverage as an Occurrence Form, but is of particular significance to risks that have the potential to generate claims years after an occurrence that caused injury or damage.

Example: In the previous example, under a Claims-Made Form, the loss wouldn’t be covered even though it occurred during the policy period because the claim wasn’t also made during the policy period.

Provisions that are unique to the Claims-Made Form are:

1. Retroactive Date
   1. A dates specified in the Declarations, after which an occurrence can take place and be covered under the Claims-Made Form, even though the claim is made during the policy period.
   2. Any claim arising from an occurrence taking place before such specified date won’t be covered by the current policy.
   3. If the insurer doesn’t agree to a retroactive date, coverage begins on the effective date shown in the Declarations.
      Example: An insured owns a Claims-Made Form with a policy period of 7/1/04 through 7/1/05. The policy has a retroactive date of 4/1/04. If a claim is made on 1/1/05 for an injury that occurred after 4/1/04, the insurer is responsible. If the claim would’ve occurred prior to 4/1/04, the insurer isn’t responsible.
2. Basic Extended Reporting Period – This period is provided automatically, without charge, and consists of the following two parts:
   1. 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, but that haven’t been reported to the insurer.
   2. Midi Tail – This tail provides a five year period for a claim arising from an occurrence that took place after the retroactive date and before the end of the policy period, provided the insurer was notified of that occurrence either during the policy period or within 60 days of the policy ended. Any unreported or unknown occurrence, not reported to the insurer during the policy period or during the 60 day mini tail, wouldn’t be covered.
3. Supplemental Extended Reporting Period – An optional reporting of unlimited duration that may be purchased by endorsement if requested within 60 days of the end of the policy period.
   1. Covers claims arising from occurrences that took place after the retroactive date and before the end of the policy period, regardless of when the claim was filed.
   2. Subject to the policy aggregate limit for the entire period.
   3. Has a one time charge for this optional reporting period that my not exceed 200% of the original premium for the expiring policy.
   4. Premium for this optional coverage is a one time charge and is fully earned at inception.
   5. This optional coverage may not be cancelled.

Section I – Coverages

Coverage A – Bodily Injury and Property Damage Liability

1. Insuring Agreement – The insurer will pay those sums the insured becomes legally responsible to pay as damages because of bodily injury and/or property damage to which coverage applies, provided the occurrence took place during the period and in the coverage territory.
   1. The coverage territory includes the U.S. including its territories and possessions, Puerto Rico, and Canada.
   2. In the case of Products Liability, if the insured’s products are or sold in the coverage territory and the suit is brought in the coverage territory described above, the policy would then respond to a product related claim worldwide.
   3. The insurer has the right and duty to defend the insured against any suit seeking damages. There is no duty to defend any suit seeking damages to which the insurance doesn’t apply.
2. Exclusions – Coverage A doesn’t cover bodily injury or property damage arising from:
   1. Expected or Intended Injury.
   2. Contractual Liability – The assumption of liability in a contract or agreement, other than those identified as insured contracts under Premises and Operation discussed earlier in this chapter.
   3. Liquor Liability – Necessary for those who manufacture, distributes, sells, 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 doesn’t apply to a building owner who leases space to a bar. Host Liquor Liability is provided for those who only have incidental exposure.
   4. Workers’ Compensation – Provided by a separate Workers’ Compensation policy discussed in a previous chapter.
   5. Employer’s Liability – Provided under Part II of a Workers’ Compensation policy in previous chapter.
   6. Pollution Exclusion – Applies to bodily injury and/or property damage as well as expense of clean up. Coverage may be purchased with a Pollution Extension Endorsement (no clean up) or a separate Pollution Liability Form.
   7. Aircraft, Automobile, and Watercraft – Provided by the representative separate policies or coverage parts.
   8. Transportation of Mobile Equipment – Provided by the Commercial Automobile Part of the Commercial Package Policy.
   9. War Exclusion
   10. Damage to Property – 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 Island Marine Part of the Commercial Package Policy would provide this coverage.
   11. Damage to Insured’s Product – Applies to property damage to the insured’s own product.
   12. Damage to Insured’s Work – Doesn’t apply to a subcontractor working on the insured’s behalf.
   13. Damage to Impaired Property or Property Not Physically Injured
   14. Product Recall – Applies to any damage, costs, or expenses, associated with a recall and is sometimes called the Sistership Exclusion.
   15. Personal and Advertising Injury – Provided under coverage B.

Coverage B – Personal and Advertising Injury Insuring Agreement

The Policy provides protection for liability arising out of certain offenses, such as libel and slander, committed in the coverage territory and during the policy period. In addition to libel and slander, Personal Injury, as distinguished from Bodily Injury, includes: false arrest, detention, or imprisonment; malicious prosecution; wrongful entry, eviction, or invasion of privacy. Advertising Injury includes: misappropriation of advertising ideas or style of doing business; infringement of another’s copyright, title, or slogan in the insured’s advertisement; violation of privacy and libel or slander.

Note: Among other exclusions, the coverage doesn’t 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.

Coverage C – Medical Expense

1. Insuring Agreement – The insurer will pay for medical expenses, due to the bodily injury of customers, caused by an accident on the insured’s property or because of the insured’s operations. The accident must take place in the covered 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 one year of the date of the accident. These payments are made regardless of fault.
2. Exclusions – The policy won’t pay for bodily injury:
   1. To any insured.
   2. To the person hired to do work on behalf of any insured.
   3. To a person normally occupying the premises, such as a renter.
   4. To a person covered by Workers’ Compensation or any disability law.
   5. A person participating in an athletic event.
   6. Included within the products completed operations hazard.
   7. Excluded under Coverage A
   8. As a result of war.

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:

1. All claim related expenses incurred by thee insurance company.
2. The cost of bail bonds, up to $250.00
3. All reasonable expenses incurred by the insured, at the insurer’s request, including actual loss of earnings up to $250.00 per day to the insured for time off from work.

Section II – Who is Insured

1. Anyone named in the Declarations, including an individual, partnership, joint venture, limited liability company, corporation or trust, and their executive officers, directors, stockholders, and trustees.
2. 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.
3. Operators of mobile equipment, registered in the insured’s name under any motor vehicle registration law.
4. Any person or organization acting as the insured’s real estate manager.
5. The insured’s legal representative if the insured dies.
6. Any organization that the insured 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 comes first.

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 isn’t shown as a Named Insured in the Declarations.

Section III – Limits of Insurance

1. 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.
2. The General Aggregate Limit shown 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.
3. 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.
4. Subject to item 2. above, 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.
5. Subject to items 2.or 3. above, whichever applies, 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.
6. Subject to item 5. above, the Fire Damage Limit is the most the insured will pay under Coverage A for damages because of property damage to any one premises while rented to the insured, or temporarily occupied by the insured with the owner’s permission.
7. Subject to item 5. above, 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 Declarations.

Section IV – Commercial General Liability Conditions

These conditions apply in addition to the Common Policy Conditions.

1. Bankruptcy – Neither bankruptcy nor insolvency of the insured or of the insured’s estate will relieve the insurer from its obligations.
2. Duties in the Event of Occurrence, Claim, or Suit – The insured must see that the insurer is notified as soon as 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.
3. Legal Action Against the Insurer – The insured can’t sue the insurer until all terms have been fully complied with, such as notice of occurrence, etc.
4. 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.
5. 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 complete the premium, as premiums are based on sales, receipts, payroll, or some combination thereof. An additional premium is required if the earned premium is greater that the premium deposit.
6. 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.
7. Separations of Insureds (Severability) – The term insured is used severally and not collectively in the policy, and it’s 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 don’t increase the amount of insurance for that occurrence or policy period.
8. 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 in behalf of the insured.
9. When the Insurer Doesn’t Renew – If the insurer decides not to renew, the first named insured is to be notified, in writing, 30 days before the expiration date.
10. 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 clams.

Section V – Glossary

1. 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.
2. Employee – Employee includes a leased worker, but not a temporary worker.
3. Impaired Property – Tangible property, other than an insured’s product or work, which can’t be used because it’s thought or know to be defective, inadequate, deficient, or dangerous.
4. Leased Worker – A person leased to the insured by a labor leasing firm to perform duties related to the insured’s business, but doesn’t include a temporary worker.
5. 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.
6. 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.
7. Volunteer Worker – A person who isn’t an employee of the insured, and who donates their work and acts at the direction of the insured, but isn’t paid a fee, salary, or other compensation by the insured for their work performed for the insured.

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 of escape of pollutants. Insurers have three options available that they may use at their discretion, on an individual account basis, to provide “Buy Back” coverage to insured’s.

1. Pollution Liability Coverage Form (Designated Sites) – This form 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 property. 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.
2. Limited Pollution Liability Coverage Form (Designated Sites) – This form is identical to the Pollution Liability Coverage Form; except that it doesn’t include clean up.
3. Pollution Extension Endorsement – This endorsement deletes the Pollution Exclusion for bodily injury and property damage liability, but continues to exclude clean up costs.

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