THE COMMERCIAL GENERAL LIABILITY POLICY: A Brief Introduction for Clark Wilson LLP Clients

Transcription

1 THE COMMERCIAL GENERAL LIABILITY POLICY: A Brief Introduction for Clark Wilson LLP Clients by Nigel Kent Clark Wilson LLP tel npk@cwilson.com

2 TABLE OF CONTENTS APPLICABLE LEGISLATION...1 ANATOMY OF A STANDARD CGL POLICY...2 WHO IS INSURED...2 WHAT IS INSURED: BODILY INJURY AND PROPERTY DAMAGE LIABILITY...3 Grant of Coverage...3 Exclusions From Bodily Injury/Property Damage Coverage...4 WHAT IS INSURED: PERSONAL INJURY COVERAGE...5 WHAT IS INSURED: ADVERTISING INJURY LIABILITY...5 LITIGATION EXPENSE INSURANCE: THE DUTY TO DEFEND CLAIMS POTENTIALLY WITHIN COVERAGE...6 OTHER CGL TERMS AND CONDITIONS...7 OTHER FORMS OF LIABILITY POLICIES...7

3 THE COMMERCIAL GENERAL LIABILITY POLICY: A Brief Introduction for Clark Wilson LLP Clients APPLICABLE LEGISLATION As a result of extensive cooperation between provincial insurance regulators (under the auspices of the Association of Superintendents of Insurance founded in 1917), every common law province has developed reasonably uniform legislation (the Insurance Act) governing the form and content of various types of insurance contracts. However B.C. s Insurance Act has little or no application to commercial liability insurance except for certain general provisions with respect to issuing policy wording, relief against forfeiture, limitation of actions and the like. (NB: the Insurance Act does contain separate parts specifically addressing life insurance, accident and sickness insurance, fire insurance and automobile insurance). Automobile liability insurance in B.C. is essentially governed by the Insurance (Motor Vehicle) Act and Regulations and represents a statutory form of policy. Some self-regulation of the insurance industry is effected through organizations such as the Insurance Bureau of Canada (IBC) (most casualty insurers in Canada are members) which, in addition to formulating certain agreements of guiding principles between overlapping insurers and standardization of claims forms and practices, has also generated standard form policy wordings for most forms of insurance. Such standard forms include, inter alia,: aircraft liability; boiler and machinery liability; commercial general liability (CGL); employer s liability; farmer s personal liability; garage liability; manufacturers and contractor s liability; owner s, landlord s and tenant s liability; storekeepers liability. While the use of such standard wordings is widespread (particularly the CGL wordings), most casualty companies have incorporated their own minor changes. As well, major businesses are often insured under manuscript wordings put together by brokers and subscribed (issued) by one or more casualty companies.. such policies occasionally provide markedly different coverage from the standard forms. The exact wording of the specific policy must therefore be scrutinized in each case.

4 p. 2 ANATOMY OF A STANDARD CGL POLICY The CGL policy comprises three discrete forms or series of forms: the declaration page(s); the policy wording; and the endorsements, if any. The Declarations: identify the Named Insured, describe the business organization, the policy period, which coverages have been selected (often identifying the insurer s specific policy form), the limits of liability for each type of coverage, the endorsements attached to the policy (again, usually identified by the insurer s specific policy form number) and the premium paid. The Endorsements: amend or supplement the coverage afforded by the standard policy wordings eg. adding insureds, enlarging or restricting certain coverages, etc.; The Policy Wordings: comprises several distinct sections, namely, 1. coverages/insuring agreement, including bodily injury liability property damage liability personal injury liability advertising liability tenants legal liability no-fault medical expense coverage the defence of lawsuits presenting claims within coverage; 2. exclusions (both general and specific to separate coverages); 3. general conditions; and 4. definitions. Any term or condition of an insurance contract which is not set out in full in the written policy documents, when issued, is not valid or admissible in evidence to the prejudice of the Insured: section 14(1) Insurance Act. WHO IS INSURED See definition of Insured in policy wording together with any applicable endorsements but generally: - the Named Insured (in the Declarations), his spouse and partners;

5 p. 3 - the corporation s officers and directors (but only with respect to their duties as such) and its shareholders (but only with respect to their liability as such); - the Named Insured s employees, for acts within the scope of their employment as such; - the Named Insured s real estate manager (while acting as such); - any newly-acquired organization (automatic coverage for 90 days or expiration of the new policy whichever is earlier); - (some policies) any person for whom the Named Insured has agreed to obtain liability insurance. NB: Severability of insureds/cross liability: the insurance afforded under the policy applies separately to each person insured. A breach by one insured will not necessarily affect another insured s coverage. Similarly, exclusions may apply to one insured but not another. WHAT IS INSURED: BODILY INJURY AND PROPERTY DAMAGE LIABILITY Grant of Coverage This coverage extends to the insured s, - liability imposed by law, to pay compensatory damages, because of bodily injury or, - property damage ( physical injury to tangible property or loss of use of tangible property ) occasioned by an occurrence ( accident, including continuous exposure to harmful conditions ), in the policy territory (usually Canada and USA), and during the policy period. Implications arising from above policy language: - legal liability is not necessarily restricted to negligence or even tort liability (though see exclusions relating to contractual liability); - compensatory damages do not include injunctive relief, rescission of contracts, punitive damages, etc.;

6 p. 4 - physical injury generally requires actual physical damage.. does not generally include mere risk of future injury; - tangible property does not include mere economic or other intangible interests (eg. pure economic loss); - accident does not include intentional consequences, egregious courting of the risk of certain business risks (eg. repairing poor workmanship); - policy period.. this is occurrence not claims-made coverage and gradual damage over several years may trigger previous coverages in place during the relevant times. Exclusions From Bodily Injury/Property Damage Coverage Each exclusion must be read carefully as many contain exceptions. The primary exclusions include: - intentionally caused injury or damage ( expected or intended from the standpoint of the insured ); - an obligation to pay compensatory damages by reason of an assumption of liability in contract (except for certain limited identified contracts and such liability as would arise in the absence of a contract in any event); - liability arising out of the ownership or use of an automobile, watercraft or aircraft; - damage to property owned/occupied/rented to, used by or in the care, custody or control of the Insured; - damage to the Named Insured s own products or work/operations arising out thereof; - loss of use of undamaged tangible property arising out of the insured s breaches of quality/workmanship warranties or the insured s failure to perform a contract; - expenses arising from the withdrawal of the insured s products from the market due to suspected defects; - liability arising from actual or threatened discharge of pollutants, including remediation expenses; - liability arising out of the rendering or failure to render of professional services.

7 p. 5 WHAT IS INSURED: PERSONAL INJURY COVERAGE This insurance applies to personal injury caused by certain specified offences arising out of the conduct of the Named Insured s business, excluding advertising.. broadcasting... Coverage is for injury (undefined) arising out of any of: (a) (b) (c) (d) (e) false arrest, detention or imprisonment; malicious prosecution; wrongful entry into, or eviction of a person from, a room, dwelling or premises that the person occupies; oral or written publication of material that slanders or libels a person or organization or disparages a person s or organization s goods, products or services; or oral or written publication of material that violates a person s right of privacy. The primary exclusions relate to the publication of material which the insured knows to be false and liability assumed in a contract. In the USA, there are a number of peripheral claims which policyholders have argued to fall under the personal injury coverage including discrimination and harassment claims, unfair competition claims, antitrust claims (similar to breaches of Canada s Competition Act) and even pollution claims. While many of these cases have not succeeded, there are nevertheless several rulings from various states indicating coverage under this aspect of the policy may be broader than the insurers intended. WHAT IS INSURED: ADVERTISING INJURY LIABILITY Unlike its USA equivalent, the standard CGL policy wording issued by IBC does not include advertising injury coverage. Although some Canadian insurers have indeed incorporated advertising injury coverage into their policy wordings, this coverage is more usually extended by way of an endorsement to the policy. The coverage is for legal liability to pay compensatory damages because of advertising injury which, like personal injury, is defined to mean injury arising from certain specified offences resulting from or in the course of the Named Insured s advertising activities. The term advertising activities is not generally defined in most policies. The precise language defining the offences varies widely but includes some or all of the following: - libel, slander, defamation;

8 p. 6 - publication of material that disparages a person s goods, products or services; - violation of right of privacy (or publication of material with that effect); - piracy; - unfair competition; - misappropriation of advertising ideas or style of doing business; - infringement of copyright, title or slogan. The coverage requires some (ill-defined) nexus between the advertising activity and the alleged injury and there is little consensus in the extensive American case law respecting both the extent of that connection as well as the breadth of conduct comprising advertising activities. In the Canadian context, there are many intellectual property claims or business torts which may arguably fall within advertising injury liability coverage including: - passing off; - copyright/trademark infringements; - claims under the Competition Act; - libel and slander; - conspiracy or unlawful interference with economic interests; - misappropriation of personality or other invasion of privacy torts under the Privacy Act, etc. LITIGATION EXPENSE INSURANCE: THE DUTY TO DEFEND CLAIMS POTENTIALLY WITHIN COVERAGE the insurer has the right and duty to defend any legal proceedings commenced against the insured claiming damages to which [the] insurance applies ; the insurer s duty to defend is often said to be broader than its duty to indemnify (pay damages) because, - the duty to defend arises regardless of the merit of the claim against the insured (i.e. the insurer must defend frivolous as well as valid claims); - the insurer must defend the litigation even if the matters alleged in the Statement of Claim only possibly fall within coverage (i.e. the insured need

9 p. 7 not prove at the outset that the claims are actually covered.. the mere possibility of coverage triggers the insurer s duty to defend); the insurer controls the defence of the lawsuit including the appointment and instruction of counsel, the investigation and settlement of the claim; the insured must cooperate in the defence of the litigation; in cases of partial or questionable coverage for the claims presented, the insurer may defend the matter on a reservation of rights basis and in these circumstances the insured may be in a position to appoint and instruct counsel to look after the matter at the insurer s expense. Inasmuch as the cost of litigation can be substantial, sometimes, crippling, to a small business and inasmuch as that cost may drive the insurer to effect settlement (and bear in mind that fully 95% of insured claims settle), the availability of this litigation expense insurance is of huge value to most businesses. OTHER CGL TERMS AND CONDITIONS The policy contains a number of standard conditions pertaining to cancellation, other insurance, limitation periods for actions against the insurer to enforce coverage (one year) and so on. The most important of these conditions is entitled Duties in the Event of Occurrence, Claim or Action pursuant to which the insured must, give the insurer prompt notice of any occurrence which may result in a claim, including all details of the same; give the insurer prompt written notice of any claim or lawsuit actually commenced and immediately furnish the insurer with all documents relating to the same. There are many cases where liability insurers have denied coverage for late reporting. While relief from forfeiture is available from the Courts if the delay in reporting has not unduly prejudiced the insurer s ability to defend the claim, the insured s duty to promptly report actual or potential claims to the insurer must be complied with to avoid potentially significant coverage difficulties. OTHER FORMS OF LIABILITY POLICIES There are numerous other forms of liability coverage available in the marketplace including, for example, directors and officers (D&O) liability policies (usually written on a claims-made basis, covering liabilities of directors or officers arising from wrongful acts in their capacity as such);

10 p. 8 professional errors and omissions (E&O) liability policies (again usually on a claims-made basis and covering liabilities arising from the provision of professional services of the sort usually excluded from coverage under the CGL); environmental impairment liability policies (usually on a claims-made basis with widely varying policy language); personal and premises liability coverage under Homeowners and Tenants policies (usually plain English policy wording on an occurrence basis and subject to numerous exclusions including business pursuits and professional activities). Nigel Kent THE COMMERCIAL GENERAL LIABILITY POLICY: A Brief Introduction for Clark Wilson LLP Clients T / npk@cwilson.com CWA32716