How Does Commercial General Liability Work?

What do the business insurance coverages mean?

Well, obviously entire textbooks are devoted to these very questions, but in order to give you a better (and quicker) understanding I’ve put together some basic information that I think will be of help. As mentioned in other posts, it’s nearly impossible to compare a policy apples to apples based on coverage limits and price alone since every carrier imposes their own limitations and exclusions. Some carriers use ISO (International Standards Organization) coverage forms, others use their own proprietary coverage forms.

Under a commercial general liability (CGL) insurance policy, the insurance company is only obligated to pay the legal costs of a claim if it is discovered to be a covered liability claim or lawsuit. Covered liability claims can include bodily injury, property damage, and/or personal injury and advertising injury (for example: damage from slander or false advertising). The insurance company also covers compensatory and general damages. Punitive damages aren’t covered under general liability insurance policies because they are considered punishment for intentional acts (for example a contractor knowingly takes the cheap route and uses subpar materials, or cuts corners against manufacturer’s recommendations to save money and increase profit margin). The Personal and advertising injury limit and products and completed operations limit may be excluded in general liability policies in professions such as consulting, architectural, engineering, legal professions, security guards, dental professions, realtors, tax professionals etc. That is because these professions are best served by having an additional policy for professional liability, also known as Errors and Omissions Insurance. For certain professions, the majority of risk for an insurance company lies in the professional services and contracts, not trip and fall type claims.  For a brief description of coverages I’ve compiled the following, by no means is this a comprehensive compilation, please read your policy and consult with your broker regarding your specific coverages:

Bodily Injury and Property Damage

The insurance company (company) agrees to pay the sums for damages, up to the limits stated in Section III, Limits of Insurance, for covered occurrences of "bodily injury" and "property damage" that the insured becomes legally obligated to pay. An insurance company has the right and the duty to defend the insured against any "suit" for those damages. However, the company has no duty to defend the insured for any "suit" for bodily injury and property damages that the insurance does not cover. It is important to read your exclusions since exclusions such as expected or intended injury, asbestos related illnesses, mold and fungus related illnesses, bodily injury to employees, war, aircraft, property damage due to pollution etc are all going to be excluded. Property damage" to the insured’s work arising out of it or any part of it, which is also covered in the “products/completed operations hazard,” is excluded. An exception to this exclusion exists for such work that a subcontractor performs on behalf of the insured.

Contractual Liability

The Damages for "bodily injury" or "property damage" resulting from liability assumed by the insured under a contract or agreement are excluded. Exceptions and limitations do exist within your policy, for instance an exception exits if the loss involves an "insured contract" and the "bodily injury" or "property damage" occurs after the contract or agreement was executed. Another exception would relate to a loss for which an insured would have been liable, even if the contract or agreement was never executed. In this situation, a contract does not affect the CGL policy’s coverage obligation. The exclusion is intended to avoid handling loss obligations specifically created by a contract with an outside party. Subcontractor contracts are extremely important to maintain records for, you’ll be grateful in the rare instance where a claim arises.

Products and Completed Operations

Includes all "bodily injury" and "property damage" that occurs away from any premises owned by or rented to the insured that results from the product or work of the insured. It does not include those products still in the insured’s physical possession or work that has not yet been completed or abandoned.

Work is considered completed when either all the work called for in the insured’s contract has been completed, all of the work at one site has been completed (if the contract calls for work at more than one site) or that part of work done at a site has been put to its intended use by any party other than a contractor or subcontractor still working on the same project. Work is considered completed, even if it may still need service, maintenance, correction, repair or replacement.

Excluded items are:
Transportation of property, unless injury or damage is caused by a condition in or on a vehicle not owned or operated by any insured, and is created by the "loading or unloading" of that vehicle by any insured;
Existence of tools, uninstalled equipment or abandoned or unused materials; or
Products or operations for which the classification listed in the declarations or policy schedule states that the products/completed operations are subject to the general aggregate limit.

Personal and Advertising Injury Liability

The insurance company agrees to pay the sums for damages, up to the limits stated in Section III, Limits of Insurance, for covered offenses of "personal and advertising injury" that the insured is legally obligated to pay. The company has the right and duty to defend the insured for any "suit" for covered damages.

The company may, at any time and at the its discretion, investigate or settle any claim or "suit." However, there is no duty for it to defend against a "suit" that does not qualify for coverage under this section of the CGL policy. Exclusions would include knowingly violating the rights of another, knowingly publishing false material, material published before the policy period, criminal acts, wrong descriptions of product, and other exclusions outlined in your policy. "Personal and advertising injury" due to infringement of copyright, patent, trademark, trade secret or intellectual property rights, unless covered under "advertisement," is not covered.

The company obligation to respond to or defend against a suit ends when the limit of insurance is spent in payments of either judgments or settlements. "Personal and Advertising Injury" is covered for offenses resulting from the insured’s business operations.The insurance applies only to those offenses that take place in the "coverage territory" and during the policy period for an occurrence policy or with the proper timing of the notification of a claim for a claims-made policy.

Medical Payments

Medical expenses include first aid administered at the time of the accident, necessary medical, surgical, x-ray and dental services, including prosthetic devices and ambulance, hospital, professional nursing and funeral services. This does not include expenses for the insured, employed workers, volunteers, as these would be covered by workers comp. Medical expenses sustained while participating in sports activities or an injury by a tenant occupying a rented premises would not be covered.

A Brief Synopsis on Limits

The general aggregate limit is the most the policy will pay for the total accumulation of all losses for Coverage A (bodily injury and property damage), Coverage B (personal and advertising liability) and Coverage C (medical payments), within the specified policy period. The general aggregate limit does not include the "products/completed operations hazard," which has its own separate aggregate limit. When the general aggregate limit is exhausted by payment of claims during a policy period, coverage ceases.

The products/completed operations aggregate limit is the maximum that the policy will pay within that policy period for the total of all "products/completed operations hazard" occurrences. When this limit is exhausted by payment of such claims during a specific policy period, coverage ceases.

The "personal and advertising injury" limit is the most the policy will pay for the covered occurrence of that specified type of loss, subject to the general aggregate limit.

Each occurrence limit is the maximum the policy will pay for any one occurrence of an event, regardless of the number of claims that result from that occurrence.

The Damage To Premises Rented To You Limit is the most the insurance company will pay under Coverage A for all covered "property damage" losses to any single premises while rented to an insured. It is also the maximum available to pay for any single fire loss to premises rented to or temporarily occupied by the insured (with the owner’s permission). The Damage To Premises Rented To You Limit payments are subject to the each occurrence limit.

The medical expense limit is the maximum amount paid for each person, and is subject to the general aggregate limit.

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