PRC 112 General Liability

GL Module 1 & 2

A family was hosting a picnic in their backyard. A wooden deck completed a few weeks earlier by a contractor collapsed under some of the guests, who were injured. These guests sued the decking contractor for payment of their resulting medical expenses and loss of income. What type of liability is this an example of?

This is an example of products and completed operations liability because it arose from the contractor's completed work.

Automobile liability

This is the legal responsibility for bodily injury or property damage arising out of the ownership, maintenance, or use of automobiles.

Workers compensation and employers liability

Various state and federal laws require employers to provide a financial remedy for occupational injury or illness to employees.

Employment practices liability

An organization, its management, and employees can be held liable for damages stemming from wrongful employment practices, such as harassment, wrongful termination, and discrimination.

Cyber liability

This stems from bodily injury and property damage generated by technology-related activities, such as collecting and transmitting electronic data, and failing to protect that data.

Professional liability

Rendering professional services (or failing to do so) opens many different occupations up to various claims that their actions harmed those they purport to serve. Three general categories of professional liability include healthcare professionals liability (also known as medical malpractice); financial and legal professionals liability (also known as legal malpractice); and architects and engineers liability (also known as architects and engineers malpractice).

Premises and operations liability exposures and products and completed operations liability exposures can be covered under a CGL form. What's used to provide coverage for automobile, workers compensation, employment practices, cyber, and professional liability loss exposures?

These exposures are covered using other commercial coverage forms—for example, the Business Auto Coverage Form (BACF), the Workers Compensation and Employers Liability Insurance Policy (WC&EL policy), an employment practices liability (EPL) form, a cyber coverage form or endorsement, and one or more of the various professional liability forms developed by individual insurers. Such forms can be combined with property and CGL coverage in a commercial package policy.

Liability Loss Exposure

Any condition or situation that presents the possibility of a claim alleging legal responsibility of a person or business for injury or damage suffered by another party.

Strict Liability (Absolute Liability)

Liability imposed by a court or by a statute in the absence of fault when harm results from activities or conditions that are extremely dangerous, unnatural, ultrahazardous, extraordinary, abnormal, or inappropriate.

Hold Harmless Agreement (or indemnity Agreement)

A contractual provision that obligates one of the parties to assume the legal liability of another party.

Mobile Equipment

Various types of vehicles designed for use principally off public roads, such as bulldozers and cranes.

General liability declarations forms contain spaces for showing these common items of information, EXCEPT

The names of additional insureds

What’s On A General Liability Coverage Form?

Coverages, Who Is An Insured, Limits of Insurance, Conditions, and Definitions

What are the two versions of the CGL Form?

There are two versions of the CGL coverage form: one with an occurrence coverage trigger, the other a claims-made coverage trigger.

One type of damages a court can award is special damages. What sort of expenses do these damages cover?

Special damages are awarded to cover out-of-pocket costs like medical expenses and loss of earnings.

The Coverage A insuring agreement of the CGL coverage form consists of two distinct insurer promises

• The promise to pay damages on behalf of the insured, and the promise to defend the insured against claims or suits seeking damages covered under the policy

Occurrence coverage trigger

The event that triggers coverage under an occurrence coverage form: injury or damage that occurs during the policy period.

Claims-made coverage trigger

The event that triggers coverage under a claims-made coverage form; the first making of a claim against any insured during either the policy period or an extended reporting period.

Art Gallery, whose business is limited to selling contemporary art, served complimentary alcoholic beverages at the opening night of an exhibition. One of the guests became intoxicated and caused an auto accident while driving home.

The other motorist injured in the accident made a claim against Art Gallery for his injuries, alleging that Art Gallery was negligent in serving alcoholic beverages to the guest who caused the accident. Would the Liquor Liability exclusion in Art Gallery’s CGL policy apply to this claim?

No. The Liquor Liability exclusion applies only if the named insured is “in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages.” Because Art Gallery’s business is limited to selling contemporary art, the Liquor Liability exclusion does not apply to Art Gallery.

A restaurant uses its own employees to provide valet parking to customers. When an employee was parking a customer’s auto on its premises, the employee accidentally ran the auto into a pedestrian, who sued the restaurant for her bodily injury resulting from the accident.

Because the restaurant did not have a commercial auto policy, it asked its CGL insurer to cover the claim. Would the Aircraft, Auto or Watercraft exclusion in the restaurant’s CGL policy eliminate coverage for the claim against it?

No. Although the exclusion applies to bodily injury or property damage arising out of the ownership, maintenance, or use of an auto operated by an insured (in this case, the employee), the exclusion specifically does not eliminate coverage for parking an auto on the named insured’s premises, provided the auto is not owned by or rented or loaned to an insured.

A steam boiler in an apartment building exploded because of a defect in the boiler. The explosion destroyed the boiler and damaged the apartment building.

The building owner made a claim against the boiler manufacturer for property damage to the boiler and the building. Would the Damage to Your Product exclusion in the manufacturer’s CGL policy eliminate coverage for this claim?

The Damage to Your Product exclusion in the manufacturer’s CGL policy would eliminate coverage only for the damage to the boiler because the exclusion applies only to property damage to “your product,” not property damage to other property, such as the apartment building.

Which one of the following is not an exclusion under Coverage A of the CGL coverage form?

Tort Liability

Rond-A-Bot is sued by an electrician, Ron, who applied for a job with the company but was not hired. Ron sues the company, alleging that it engaged in illegal discrimination in not hiring him. He is seeking $1 million in damages.

The alleged discrimination occurred in the United States during the current policy period. If the court rules that the company is liable to pay damages to the electrician, does this claim meet the conditions for being covered under the Coverage B insuring agreement?

No. The only offense alleged against the company is discrimination, and discrimination is not listed in the policy definition of personal and advertising injury.

Coverage B Insuring Agreement

The Coverage B insuring agreement stipulates that the insurer will pay damages (subject to policy limits) that the insured becomes legally obligated to pay because of personal and advertising injury.

Rond-A-Bot is sued by an electrician, Ron, who applied for a job with the company but was not hired. Ron sues the company, alleging that it engaged in illegal discrimination in not hiring him. He is seeking $1 million in damages.

The alleged discrimination occurred in the United States during the current policy period. If the court rules that the company is liable to pay damages to the electrician, does this claim meet the conditions for being covered under the Coverage B insuring agreement?

No. The only offense alleged against the company is discrimination, and discrimination is not listed in the policy definition of personal and advertising injury.

Coverage B Exclusions

The Coverage B insuring agreement is subject to 16 exclusions, labeled a. through p.

Rond-A-Bot erroneously advertises online that a certain e-bike is on sale for $99.99 instead of its actual sale price of $999.99. Because of this error, it honors the advertised price and sells out its entire stock of the sale model at a net loss of $250,000. Because Rond-A-Bot views the loss as having resulted from "personal and advertising injury," it makes a claim under Coverage B of its CGL policy. Would any of the Coverage B exclusions apply to this claim?

Yes, the Wrong Description of Prices exclusion would apply to this claim.

CGL Coverage C

Coverage C—Medical Payments of the Commercial General Liability (CGL) Coverage Form is designed to pay, on a no-fault basis, minor medical expenses of someone who's injured either on the insured’s premises or away from it, but because of the insured’s operations.

Think back to Elise's scenario in the video. Assuming that Elise's injury occurred in the coverage territory and during the policy period and that no exclusions or other provisions eliminated coverage for the claim, would the circumstances of her claim meet the conditions of the Coverage C insuring agreement? Why or why not?

Yes. Elise's medical expenses qualify, having resulted from bodily injury caused by an accident on premises owned or rented by the named insured. Additionally, the expenses were incurred and reported to the insurer within one year after the accident. As long as Elise submits to a medical examination if requested by the insurer, her claim will meet the conditions of the Coverage C insuring agreement. Elise does not have to prove that the store was negligent in stocking the shelves or any other way to recover under Coverage C.

Roberta sprained her ankle when she stepped off a forklift on her employer’s premises. A visit to the emergency department of a nearby hospital resulted in medical expenses of $2,250—for which Roberta now seeks reimbursement under Coverage C—Medical Payments of the facility’s CGL form. How will Roberta's case likely be resolved?

As an employee of the named insured, Roberta will find her injuries excluded under Coverage C (which asserts that employees of the named insured are also insureds under the CGL policy). However, she will likely be entitled to workers compensation benefits instead.

David is a self-employed janitor who is not covered by or subject to a workers compensation or similar law. He incurred $900 of medical costs when he suffered a deep gash in his hand from moving a paper cutter while working on the premises of a printing company. David is now seeking reimbursement for his medical costs from the printing company. Would the company’s CGL Coverage C—Medical Payments apply?

No. David's medical costs are subject to the CGL exclusion precluding coverage for anyone hired to do work for a named insured.

Coverage C

Coverage C of the CGL policy provides no-fault coverage for medical treatment of injuries resulting from minor accidents on or adjacent to the insured’s premises or as a result of the insured’s operations. It is subject to several exclusions.

How are supplementary payments paid in regard to the CGL limits of insurance?

The supplementary payments are payable in addition to the limits of insurance. However, the insurer’s obligation to pay these supplementary payments ends as soon as the applicable limit of insurance has been exhausted in paying damages for judgments or settlements.

Carol sued a wholesaler for damages resulting from bodily injury she sustained while visiting the wholesaler’s premises. The wholesaler was insured under a CGL policy. The wholesaler’s insurer defended against the suit in accordance with the Coverage A insuring agreement in the CGL policy. The court awarded Carol a judgment for $490,000, and the insurer paid the full amount of the judgment because the each occurrence limit of insurance in the wholesaler’s CGL policy was $500,000. In addition, the court awarded prejudgment interest of $5,000 against the wholesaler, and the insurer’s cost of defending the wholesaler totaled $35,000. How much of these two additional items will the insurer pay in accordance with the supplementary payments provisions in the CGL policy?

The wholesaler’s insurer will pay the prejudgment interest and defense costs in full, for a total of $40,000. Both of these items are covered as supplementary payments, and they are payable in addition to the limit of insurance.

Bail bond

A bond that guarantees that the accused insured will appear in court at the time designated for the trial or hearing.

Release of attachment bond

A bond that guarantees that the insured will pay any damages and court costs if the court should decide in the claimant's favor.

Indemnitee

Party in a hold-harmless agreement whose legal liability is assumed by the indemnitor.

Hazel, an employee of a business insured under a CGL policy, received third-degree burns at work when Hal, a co-worker, accidentally spilled coffee on her arm. Hazel sued Hal for damages. Would Hal be an insured for Hazel’s claim under the employer’s CGL policy?

Hal is not an insured for this claim. Even though he is an employee of the named insured, a provision in Who Is an Insured states that no employee is an insured for bodily injury to a co-employee while in the course of his or her employment.

Individual

If the named insured is an individual, his or her spouse also is an insured, but only for claims arising from the conduct of a business owned solely by the named insured.

Partnership or joint venture

If the named insured is a partnership or joint venture, the named partnership or joint venture and all partners or members and their spouses also are insureds, but only for claims arising out of the conduct of the partnership or joint venture.

Limited liability company (LLC)

If the named insured is an LLC, its members are insureds, but only with respect to the conduct of the company's business, and its managers are insureds, but only with respect to their duties as such. An LLC's members are its owners, like the stockholders of a corporation. An LLC's managers perform the same role as the directors of a corporation.

Other organization

If the named insured is any other type of organization (such as a corporation, a municipality, or an association), its executive officers, directors, and stockholders also are insureds, but only with respect to their liability in these roles.

Trust

If the named insured is a trust (a legal entity created for the benefit of designated beneficiaries), its trustees are also insureds, but only with respect to their duties as trustees.

Byron is a volunteer worker for a food bank. While operating a forklift outside the food bank’s warehouse, Byron accidentally ran into and damaged the car of a donor who had just delivered canned goods. The donor (who was not a volunteer worker or employee of the food bank) sued Byron for the damage to her car. Would Byron be an insured under the food bank’s CGL? Explain why or why not.

As a volunteer worker of the named insured, Byron is an insured under the Who Is an Insured section of the CGL. No related exclusion applies.

Real estate managers

Any person (other than an employee or a volunteer worker) or organization acting as real estate manager for the named insured is an insured while serving in this role for the named insured.

Legal representatives

If the named insured dies, any person or organization with temporary custody of the named insured’s property is an insured until a legal representative is appointed. The coverage for a temporary custodian applies only to liability arising out of maintenance or use of the property. The appointed legal representative is also an insured, but only with respect to his or her duties as such.

Newly acquired organizations

To be covered by the CGL, any subsidiary or affiliated organization of the named insured that is in existence when the coverage period begins must be named in the declarations. If the named insured acquires or forms a new organization during the policy period, the new organization qualifies as a named insured and is covered for 90 days after its formation or until the end of the policy period, whichever comes first. This provision does not extend to partnerships, joint ventures, or LLCs that are not named in the policy.

Properties, LLC, the owner of several apartment buildings, hired an independent contractor to serve as the LLC’s real estate manager. A tenant in one of the apartment buildings sued the real estate manager for damage allegedly caused to some of the tenant’s personal property through the real estate manager’s negligence. Would the real estate manager be an insured under the LLC’s CGL policy?

The independent contractor, as the LLC’s real estate manager, is an insured under the CGL's Who Is an Insured section.

Damage to premises rented to you limit

The damage to premises rented to you limit is the most the insurer will pay under Coverage A for damage to any one premises while rented to the named insured or, in the case of fire damage, while rented to or temporarily occupied by the named insured. The basic amount for this limit is $100,000.

Medical expense limit

The medical expense limit is the most the insurer will pay under Coverage C to any one person. The basic amount for this limit is $5,000.

General aggregate limit

This limit is the most the insurer will pay for the sum of damages under Coverage A (except those that arise out of the products-completed operations hazard) and Coverage B, and medical expenses under Coverage C.

Products-completed operations aggregate limit

This limit is the most the insurer will pay under Coverage A for bodily injury or property damage included in the “products-completed operations hazard.” The CGL defines this hazard to include bodily injury and property damage occurring away from premises owned or rented by the named insured and arising out of the named insured’s product or work.

Becky owns a small toy-manufacturing company. She has a CGL with these limits:

• General aggregate limit: $2,000,000

• Products-completed operations aggregate limit: $2,000,000

• Each occurrence limit: $1,000,000

• Personal and advertising injury limit: $1,000,000

• Damage to premises rented to you limit: $100,000

• Medical expense limit: $5,000

All of the events and claims described occur within the same one-year policy period.

Becky leases premises in a factory complex, where the toys are manufactured. One night, an employee tosses a cigarette into a trash can on his way out. A fire starts in the building and spreads to another building in the complex. The damage to the premises Becky leases is $100,000. The damage to the other building, where the fire caused an explosion, is $600,000. Apply the damages to the appropriate limits.

The $100,000 damage to the premises Becky leases is applied to the damage to premises rented to you limit, and that limit is now exhausted. The $600,000 damage and the $100,000 damage are applied to the each occurrence limit and are within that limit of $1,000,000. The sum of $700,000 applies to the general aggregate limit, leaving $1,300,000 available.

Becky develops a new toy oven. She leases a store in a mall, where she sells her toys. A fire starts in one of the toy stoves at the store. Three children sustain burns. Their bodily injury claims are $1,000,000. Apply the damages to the appropriate limits.

The $1,000,000 damage applies to the each occurrence limit and is within the $1,000,000 limit. The damage also applies to the general aggregate limit. There is $1,300,000 remaining of the general aggregate limit of $2,000,000. After this loss is applied, $300,000 remains.

A second toy oven purchased by a customer catches fire and causes damage to the customer’s home and injury to the child playing with the oven. The damages awarded are $600,000. Apply the damages to the appropriate limits.

The $600,000 damage applies to the products-completed operations limit. The amount of the damages is within the each occurrence limit of $1,000,000. The products-completed operations aggregate limit is reduced by $600,000, and $1,400,000 remains.

The manager of Becky’s store detained a customer, who was shopping with her child, for suspected shoplifting. The child was injured in the process. No evidence was found to support the allegation, and the customer sued the store. The damages awarded were $250,000 for the child’s injury and $100,000 for the false detention. Apply the damages to the appropriate limits.

The $350,000 applies to the personal and advertising injury limit. This is within the each occurrence limit for personal and advertising injury. However, the damages also apply to the general aggregate limit. Only $300,000 remains of the general aggregate limit. Therefore, $50,000 will be Becky’s responsibility.

An insured has a CGL with an each occurrence limit of $1,000,000 and a general aggregate limit of $2,000,000. Four occurrences take place on the insured’s premises during a policy period: $100,000; $300,000; $400,000; and $1,000,000. How much will the insurer pay for all of the losses?

1,800,000

Aggregate limit

The maximum amount an insurer will pay for all covered losses during the covered policy period.

Why do you think insurers do not wish to be included in a suit against the insured?

Insurers believe that allowing third-party claimants to name insurers as defendants in their suits will encourage juries to award higher damages—or even to award damages when they otherwise wouldn't. (Some states permit third-party claimants to sue insurers directly, regardless of this provision.)

How could the Separation of Insureds condition benefit an insured?

As an example, because of the Expected or Intended Injury exclusion, the policy should not provide coverage for an insured who intentionally injures a third party (unless the injury is inflicted with reasonable force to protect a person or property from harm). However, the policy would provide coverage for any other insured, such as an employer or partner that may be held vicariously liable for the injury (because they have some level of control over the person causing the injury but did not personally cause the injury). Also, if one insured sues another insured, coverage is still provided for the insured who has been sued, subject to all the policy's conditions and exclusions.

Transfer of Rights of Recovery Against Others to Us

Commonly known as a subrogation provision, the Transfer of Rights of Recovery Against Others to Us condition stipulates that when the insured has rights to recover all or any part of a claim paid by the insurer from any third party, it must transfer those rights to the insurer. The insured must not impair these rights and, upon the insurer’s request, must assist the insurer in any reasonable manner to enforce them.

When We Do Not Renew

If the insurer decides not to renew the policy, the When We Do Not Renew condition requires it to give written notice of nonrenewal to the first named insured at least 30 days before the expiration date of the policy. If a state has a law or regulation that requires a different notification period, the law or regulation will take precedence over this policy provision.

A company is insured under two CGL policies, both of which are considered primary insurance. The each occurrence limit under Policy A is $500,000. Under Policy B, the each occurrence limit is $2,000,000. The company was held to be legally liable for $1,000,000 in damages arising from one occurrence. Under the contribution by equal shares method, how much would each insurer contribute to fulfill the claim?

Also, given the same set of circumstances, how much would each insurer contribute to fulfill the claim under the contributions by limits method?

Under the contribution by equal shares method, each insurer in this case would pay half of the $1,000,000 claim, or $500,000, an amount that does not exceed either insurer’s limit.

The total of all applicable insurance is $2,500,000 (the sum of the two limits). Policy A’s limit of $500,000 is 20 percent of the total applicable limits of $2,500,000. Policy B’s limit of $2,000,000 is 80 percent of the total applicable limits of $2,500,000. Under the contribution by limits method, Insurer A will pay 20 percent of the claim—but not more than its limit of $500,000. Twenty percent of the $1,000,000 claim is $200,000. Insurer B will pay 80 percent of the claim, but not more than its limit of $2,000,000. Eighty percent of the $1,000,000 claim is $800,000.

CGL Rating Formula

Rate × Exposure =

Premium

Which one of the following types of businesses could be rated based on gross sales?

Mercantile businesses

Premium base

The unit in which the exposure is measured, such as gross sales or payroll.

Class code

A numeric code representing the description in the rating classification table that best fits a particular organization’s operations.