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Lesson 1 part I: introduction to the CGL form.

Objectives

* Explain how liability may be assessed against a business or commercial enterprise

* Discuss how the CGL form protects against various liabilities

* Compare the coverage triggers of the two ISO commercial general liability forms, occurrence and claims-made

* Name the particular sections of the CGL form

* Define relevant policy terms

Key Terms

Claims-made form--A commercial general liability form that applies to claims for injury or damage that are first made during the policy period.

Coverage A--The first coverage in Section I of the CGL policy. The bodily injury and property damage liability section deals with bodily injury to others and damage to property of others for which the insured is liable.

Coverage B--The second coverage in Section I of the CGL policy. The personal and advertising injury liability section deals with injuries that arise out of named offenses, such as libel, slander, or false arrest.

Coverage C--The third coverage in Section I of the CGL policy. The medical payments section pays medical expenses without regard to liability.

Employee--A person employed by the named insured; employee includeds leased workers, but not temporary workers. Employees of the named insured have insured status in certain circumstances.

Insured contract--Defines what contracts are covered by the policy as contractual liability coverage.

Leased worker--Person leased by the named insured from a labor-leasing firm.

Occurrence form--A commercial general liability form that covers injury or damage that occurs during the policy period, regardless of when the claim is brought.

Temporary worker--A short-term substitute employee, other than a leased worker.

Liability, according to the dictionary, is the quality or state of being liable. Liable, by the same dictionary, is to be obligated according to law or equity. Simply put, to be liable to another is to owe something to that other.

Commercial Enterprises

Commercial enterprises face liability from many sources. A business can become liable to another party due to negligence, or from strict liability (which arises through law or statute) or through contract. A business's products may give rise to liability, such as power tools, medicines, food products, etc., (and hence, the carefully-worded warnings carried on such products).

A business's processes or operations can also create liability, products such as a service business employees' damaging a customer's property while on the customer's property to perform work.

Liability damages can be in the multi-millions of dollars, like the awards being assessed against tobacco manufacturers. Defense costs--the expense to defend against an allegation of liability--can often be as much, if not more, than any eventual judgment.

Commercial General Liability Coverage Form (CGL)

Liability needs to be protected against, where it can be. One of the primary tools in a corporation risk manger's arsenal is the commercial general liability coverage form--the basic insuring form developed to cover the insurable liabilities of a business or enterprise.

The commercial general liability coverage form, or CGL form as it is widely known, is an extremely important building block in any company's insurance program.

Smaller businesses often are eligible for an insurance product called the Business Owners Package policy (BOP) that packages property and liability coverage together in one document.

Larger enterprises carry a freestanding general liability policy, which is the subject of this training course. However, it is worth noting that the liability portion of the BOP policy is based upon the provisions of the commercial general liability form.

Current CGL Coverage Form

The current CGL coverage form evolved from the "comprehensive general liability" form of the 1960s, which was in use well into the 1970s.

However, it was the all-inclusiveness of the policy's title--the COMPREHENSIVE general liability policy--that provided the reason for the name-change to COMMERCIAL general liability coverage form when courts began holding that a policy called COMPREHENSIVE should be just that--all encompassing in coverage, regardless of any exclusionary clauses contained.

Commercial General Liability (CGL)

Shortly after this line of legal thought was established, the Insurance Services Office (ISO) the major provider of insurance policy forms, changed the name from COMPREHENSIVE general liability to COMMERCIAL general liability, and the policy in use today was born.

The form has gone through several versions. There was the 1973 comprehensive general liability form, the 1986 commercial general liability form, the 1990 CGL forms, the 1993, 1996 CGL forms, and the 1998 form. In 2001 and 2004, the CGL form was again revised, and today, minor revisions in December 2007 led to the most current version of the CGL form. This is the form that makes up the subject matter of this course on CGL coverage.

Today's commercial general liability or CGL coverage forms offer bodily injury and property damage liability, personal and advertising injury liability, and medical payments for business or commercial enterprises.

Occurrence Form (CG 00 01)

The principal coverage forms of the current program are commercial general liability coverage forms CG 00 01 (occurrence form) and CG 00 02 (claims-made form).

The two coverage forms differ from each other with respect to the coverage triggers. A coverage trigger is the event that activates coverage under the CGL.

Form CG 00 01 has an "occurrence" trigger. This means that coverage is triggered by bodily injury, commonly referred to in the industry as BI or property damage (called PD) that occurs during the policy period, regardless of when the claim is reported.

Claims-Made Form (CG 00 02)

Form CG 00 02 has a "claims-made" trigger. This means that coverage is activated by BI or PD that occurs during the policy period if the claim is first made during the policy period. The "claims made" policy offers two extensions of the reporting period.

A retroactive date shown on the declarations page--and arranged at the time of policy negotiation--is actually prior to the effective date of the policy. It allows the current policy to cover BI or PD that occurred since the retroactive date, but before the end of the policy term.

For example, the policy period might be January 1, 2011 to December 31, 2011. However the "retro date" might be set to January 1, 2010. Incidents of BI or PD occurring anywhere from January 1, 2010 until December 31, 2011 would be covered under a policy written like this.

The insured may also purchase an "extended reporting period." During this period that extends beyond the end of the policy, the insured may make a claim for BI or PD that occurred during the policy period.

For example, the incident of BI or PD occurred during the policy period (for example, exposure to hazardous materials), but the claim is not made until after the policy period expires. If the claim is brought during the extended reporting period, the coverage is triggered.

This is the opposite of a "retro date," it lengthens the period during which a claim can be made to include a specific period after the policy expires.

CGL Coverage Form

At this point, let's take up the physical arrangement of the CGL policy. The CGL occurrence form is divided into five sections.

Section I is made up of:

* Coverage A, bodily injury and property damage liability

* Coverage B, personal and advertising injury liability, and

* Coverage C, medical payments

Section I also contains the insuring agreements and related provisions, such as exclusions, for these coverages.

Finally, this section contains supplementary payments provisions applicable to Coverages A and B.

Section II of the CGL defines who is an insured. As will be seen in more detail later, there can be numerous persons or entities covered under the CGL form, owners of businesses, partnerships, limited liability companies (LLCs), employees of the business, officers, directors, and others--all with respect to the conduct of the business.

Section III describes how the various limits of insurance apply, while Section IV contains commercial general liability conditions.

Section V contains the policy definitions for the Occurrence Form. Section V of the Claims Made Form discusses extended reporting period provisions, which are a feature of claims-made coverage only. Section VI of the claims-made form is where the definitions are found.

Coverage Part

Next we'll discuss the various components of a CGL "coverage part." A coverage part is the combination of forms that make up a policy. Note that the CGL alone is a "coverage form." The CGL combined with a declarations page, common policy conditions, and any applicable endorsements is the "policy."

An ISO "coverage part" consist of the combination of either the Occurrence Form or the Claims-Made Form with a declarations page, a common policy conditions form, and any applicable endorsements. An insurer may issue a coverage part by itself as a monoline policy; or it may combine with one or more coverage parts from other commercial lines. A commercial property and crime policy is an example of a multi-line package.

Definitions

Let's turn to definitions for a moment. The exact meaning of words in an insurance policy, such as the CGL, is extremely important. Courts are very often called upon to interpret the exact meaning of a word or phrase.

In the CGL policy certain words and terms have a contractually defined meaning that applies throughout the form. A contractually defined meaning supercedes a common or lay meaning of a word or term.

In this lesson we will be focusing on select terms that have special meanings in the CGL policy, while other definitions will be covered in appropriate lessons.

The first two definitions--named insured and insurer appear at the beginning of the CGL form, instead of in the definitions section.

The named insured is shown on the declarations page. Anywhere the words "you" or "your" appear, the policy is referring to the named insured. This definition is simple enough, but it does have special significance within the body of the CGL form.

For example: When an exclusion applies to "you," that means that only the named insured is affected by the exclusion. This is true also when an insuring agreement or condition refers to "you" or "your." It does not refer to every person or the organization that qualifies as an insured under the CGL form--it refers only to the named insured.

As in many insurance forms, the words "we," "us," and "our" refer to the company providing the insurance.

The CGL says an "advertisement" is print or broadcast material whose purpose is to "attract customers or supporters."

This definition now includes material placed on the Internet or on similar electronic means of communication, and also that part of a Website that is about the named insured's goods, products, or services.

This definition was put on the CGL form in an attempt to define the scope of advertising activities and what triggers coverage under the personal and advertising injury insuring agreement. The CGL form added the part about the Internet and Websites to reflect the fact that many companies today advertise via electronic media.

The definition of "auto" is quite broad. It encompasses any land motor vehicle, trailer, or semi-trailer. Therefore, mopeds and motorcycles, three-wheelers, motor homes, cars, trucks, and tractor-trailer combinations can all come under the term "auto." For CGL purposes, an auto is a vehicle designed for travel on public roads.

An auto is also defined as any land vehicle that is subject to a compulsory or financial responsibility law or other motor vehicle insurance law in the state where it is licensed or principally garaged.

As we will see later in this course, the CGL does not cover BI or PD arising out of an "auto." The definition emphasizes that an "auto" is not "mobile equipment." Mobile equipment is a separately defined subject in the policy. Auto liability should be covered under an auto policy, while mobile equipment liability is covered under the CGL form.

Note that "any attached machinery or equipment" is considered to be part of the auto. Therefore, the CGL will not cover a loss arising out of attached equipment.

The definition of "bodily injury" or BI is fairly straightforward. The CGL says that it is "bodily injury, sickness, or disease" that a person sustains, including death that results.

While much of the policy applies only in the United States, Puerto Rico, and Canada, it is important to note--for when we get to the section on products coverage--that the territory is worldwide for products liability coverage. However, also note that the worldwide territory does not extend to "completed operations" coverage.

The CGL form differentiates between an employee or leased worker and a temporary worker, for coverage purposes. The CGL emphasizes that the term "employee" includes a leased worker.

If the insured leases an employee from an employee leasing service, that leased employee is treated as an "employee" for CGL coverage purposes.

Temporary workers are not considered employees of the insured, and can include substitute, short-term or seasonal workers.

The use of leased workers and temporary workers by many U.S. employers makes this definition important.

The CGL does not cover injuries to an employee--or a leased worker--in the course of his employment. As we'll see, there is an exclusion for any damages compensable under workers compensation or employers liability insurance.

However, if the insured hires a temporary worker to substitute for an employee on leave or a short-term or seasonal worker and the temporary worker is injured on the job and sues the employer, the CGL form will respond to the claim, since the temporary worker is not considered an employee.

In insurance language (although not in the CGL form itself), a "friendly fire" is defined as one that stays where it is supposed to stay--such as in a fireplace.

Once that fire leaps from the fireplace and sets the carpet ablaze, it has become a "hostile fire."

In the CGL form, this definition is important when applying the "pollution exclusion." This concept will be covered in more detail later.

The definition of "insured contract" tells the types of contracts that are considered "insured." Insured contracts include lease of premises; sidetrack agreements, easements, the obligation to indemnify a municipality, and an elevator maintenance agreement.

There is often a misunderstanding about contractual liability coverage under the CGL. For our purposes here, suffice it to say that not all contractual liability is covered, but only contractual liability arising out of insured contracts.

If a business contracts to provide services to another, and simply breaches the contract, there is no contractual liability coverage. If, however, there is liability arising out of an elevator maintenance agreement, there is coverage.

Another "insured contract" is a contract or agreement under which the insured assumes the liability of another party for bodily injury or property damage to a third party, which is commonly known as a hold harmless agreement.

For example, if by written agreement a contractor agrees to "hold harmless" or assume the liability of a building owner for injury arising out of construction activities, that would qualify as an insured contract under the CGL, and liability arising out of the agreement would be covered by the CGL.

Just as importantly, the definition of insured contract also tells what the policy does not consider an insured contract:

* An agreement to reimburse a railroad for work done within 50 feet of any railroad property (such as tracks running close to the insured business).

* Liability of the insured to an architect, engineer, or surveyor in performing or not performing their duties.

* Any professional liability on the part of the insured if the insured is an architect, engineer, or surveyor.

The insuring agreement of Coverage A-Bodily Injury and Property Damage Liability states that coverage applies to BI or PD only if the BI or PD is caused by an "occurrence." This makes the definition of occurrence important to coverage decisions. So, what is an occurrence? Suppose the insured purposely damages property of another out of an act of revenge?

The occurrence definition makes it clear that coverage under a CGL form is meant for accidental bodily injury or property damage. In order for the coverage to apply, the events or circumstances that lead to the injury or damage must be unforeseen and unintended, from the standpoint of the insured. So a purposeful act of revenge would not be a covered occurrence.

Use of the phrase "continuous or repeated exposure" in the definition of occurrence eliminates the need to prove the exact moment damage or injury is sustained. An "occurrence" is not limited to a single event.

For example: an insured restaurant's employee repeatedly (but unintentionally) shoots gravel from the tires when parking customers' cars in the parking lot. These rocks repeatedly hit the side of the neighboring business. Each time the wall is lightly hit, a small mark is made in it, until finally it is all pock-marked--without an apparent single occurrence. Such damage falls within the scope of "continuous or repeated exposure" wording.

Unlike previous editions of the CGL which discussed "personal injury or advertising injury," the current form combines the terms, so that now the reference is to "personal and advertising injury."

But, with reference to "Advertising injury" arises out of the insured's use of another person's idea in advertisements. The injury must be connected with the advertising activity of the named insured.

The definition also includes "infringing upon another's copyright, trade dress or slogan" in the insured's advertisement.

Note that coverage for advertising injury liability does not include patent infringement. The omission of the term from this list was a deliberate decision to exclude that particular offense. Patent infringement insurance is available from various specialty carriers.

The pollution exclusion will be discussed later in this course, but it is such an important clause in the coverage form--and there are many court cases interpreting the provision--that its mention here is appropriate. Simply put, the CGL does not cover most pollution liability.

The pollutant definition is fairly self-explanatory. It contains a general list of things that the policy says are "pollutants:" Any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste.

The term is broad in scope, including just about anything as a "pollutant." The pollution exclusion may, therefore, apply in many circumstances. However, some courts are now limiting the use of the pollution exclusion to environmental hazards only.

The definition of property damage includes physical injury to tangible property and loss of use of that property. Loss of use coverage applies both to physically damaged and physically undamaged property. The definition states that the loss of use occurs at the same time as the cause.

In addition to what are usually thought of as "lawsuits," this definition includes alternative dispute resolution proceedings. Such proceedings include arbitration and pre-trial mediation. The policy provides defense coverage for arbitration proceedings, even though such proceedings are not viewed "officially" as a lawsuit.

In a broad definition, the policy agrees to cover liability arising out of products that the insured "manufactures, handles, sells, distributes, or disposes of." The definition does not include real property. The policy also automatically covers the products of a newly acquired business.

Finally, the term includes the "providing of or failure to provide warnings or instructions". This means that a suit alleging a failure to adequately warn of the dangers of the use of an insured's product would qualify for coverage under a claim due to product liability.

As with the definition of "your product," the definition of "your work" includes the "providing of or the failure to provide warnings or instructions." It includes both work done by the insured, or on behalf of the insured by someone else. Thus, the policy provides the insured with protection in case a subcontractor damages someone else's property.

Self Review Quiz

1. Which one of the following is not a way in which a business may become liable for bodily injury or property damage to someone else?

a. negligence

b. strict liability

c. admission by an employee

d. contract

2. Which one of the following represents all of the coverages provided by the CGL policy?

a. bodily injury and property damage

b. bodily injury and property damage; personal and advertising injury; and medical payments

c. bodily injury and property damage; and medical payments

d. personal injury; and medical payments

3. The policy provision that brings a CGL into play is called a:

a. coverage gun

b. coverage shot

c. coverage arrow

d. coverage trigger

4. On a "claims-made" CGL, what provision allows claims that occur prior to the effective date of the policy to be covered?

a. coverage trigger

b. tail coverage

c. retroactive date

d. occurrence date

5. Which one of the following represents the type of contractual liability covered by a CGL?

a. liability arising out of an insured contract

b. liability arising out of all contracts

c. liability arising out of employment contracts

d. liability arising out of oral contracts

6. Which one of the following offenses was intentionally omitted from the CGL definition of "advertising injury?"

a. infringement of copyright

b. infringement of trade dress

c. infringement of a slogan

d. infringement of a patent

Self Review Answers

1. Which one of the following is not a way in which a business may become liable for bodily injury or property damage to someone else?

c. admission by an employee

A business can become liable to another party due to negligence, or from strict liability (which arises through law or statute) or through contract.

2. Which one of the following represents all of the coverages provided by the CGL policy?

b. bodily injury and property damage; personal and advertising injury; and medical payments

Commercial general liability or CGL coverage forms offer bodily injury and property damage liability, personal and advertising injury liability, and medical payments for business or commercial enterprises.

3. The policy provision that brings a CGL into play is called a:

d. coverage trigger

A coverage trigger is the event that activates coverage under the CGL.

4. On a "claims-made" CGL, what provision allows claims that occur prior to the effective date of the policy to be covered?

c. retroactive date

A retroactive date is actually prior to the effective date of the policy. It allows the current policy to cover BI or PD that has occurred since the retroactive date, but before the end of the policy term.

5. Which one of the following represents the type of contractual liability covered by a CGL?

a. liability arising out of an insured contract

The CGL policy covers contractual liability arising out of insured contracts. Insured contracts include lease of premises, sidetrack agreements, easements, the obligation to indemnify a municipality, and an elevator maintenance agreement.

6. Which one of the following offenses was intentionally omitted from the CGL definition of "advertising injury?"

d. infringement of a patent

"Advertising injury" arises out of the insured's use of another person's idea in advertisements. The definition includes "infringing upon another's copyright, trade dress or slogan" in the insured's advertisement but does not include patent infringement.
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Publication:Commercial General Liability Explained
Date:Jan 1, 2010
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Next Article:Lesson 2 part I: insuring agreements.

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