Chapter Three - Overview of the CGL Coverage Form We turn now to a brief overview of the CGL coverage form. ISO has actually developed two different CGL coverage forms the Occurrence form, and the Claims-made form. They are the same except for the coverage trigger.!important POINT: Under an occurrence policy, coverage is triggered or activated when the accident resulting in a claim occurred during the policy period (regardless of when the claim is made against the insured). In a claims-made form, coverage is triggered when a claim is submitted or made during the policy period (regardless of when the occurrence took place, as long as it took place after a pre-assigned date, known as the retroactive date). Currently, the occurrence form is used much more often than the claims-made form for most types of businesses. Your sample policy contains the Occurrence type. This form contains five sections: I. Coverages II. Who Is An Insured III. Limits of Insurance IV. CGL Conditions V. Definitions SECTION I -- COVERAGES Section I contains three coverages, each containing its own insuring agreements and exclusions: Coverage A is Bodily Injury and Property Damage Liability. The insuring agreement contains two main promises, which can be summarized as the duty to indemnify and the duty to defend the insured for claims made against it due to bodily injury (BI) or property damage (PD).!IMPORTANT POINT: The Insuring Agreement of Coverage A serves the purpose of describing the promises made by and the obligations of the insurer. To indemnify means to pay on behalf of the insured all sums which the insured is legally obligated to pay the party claiming BI or PD, for claims covered by the policy. The insurer also promises it will defend the insured against claims seeking these sums. 12
The insuring agreement of coverage A includes information about when claims must be filed in order to be covered, and the rights of the insurer to investigate and/or settle claims as it deems fit. Following the insuring agreement are fifteen carefully worded exclusions. They include, among others, exclusions for BI or PD intentionally caused by the insured; liquor liability, pollution liability; liability arising out of automobiles, aircraft or watercraft; PD to the insured s own products or its own work; and claims covered by worker s compensation policies. Coverage B is Personal and Advertising Liability. The framework is the same as in coverage A. First there is an insuring agreement, containing two promises similar to those in coverage A to indemnify and to defend the insured against claims for personal injury (PI) and advertising injury (AI). Personal injuries are losses not involving actual physical harm, but rather may involve embarrassment or loss of reputation to the complaining party. Examples of personal injuries are libel and slander, wrongful eviction, malicious prosecution, and false arrest. Advertising injuries are losses sustained by a person or organization allegedly caused by the insured s advertisements such as copyright infringement or use of another s advertising ideas. Coverage B contains eleven exclusions. They include, among others, PI or AI arising out of: material which the insured knows is false; a criminal act committed by the insured; material that was published before the policy took effect; or AI caused by the wrong price shown in an advertisement. Coverage C is Medical Payments. In the insuring agreement, the insurer promises to pay emergency medical expenses for BI to people other than the insured or its employees resulting from an accident on the insured s premises or worksite. This coverage is unique in that it pays regardless of who is at fault. In other words, legal liability due to negligence does not have to be proven to activate the coverage. There are only eight exclusions under Medical Payments coverage. For example, the insurer will not pay expenses for BI to any insured or for anyone hired to do work for the insured, or to anyone entitled to benefits under a workers compensation or disability benefits law, or to any athletic participants, or for anything excluded under coverage A. Section I of the CGL coverage form also contains a full page worth of Supplementary Payments. These payments come into play when the insurer chooses to settle, investigate, or defend claims falling under coverages A or B. Supplementary payments are paid by the insurance company in addition to the limits shown on the CGL declarations, and include: all of the insurer s expenses (attorney fees, expert witnesses, etc), costs for bail bonds up to $250, expenses incurred by the insured (up to $250 per day) when assisting the insurer in a claim investigation or defense, and interest that has been earned on unpaid legal judgments. 13
SECTION II WHO IS AN INSURED This section designates the individuals who are protected under the policy, depending on the legal form of business stated in the declarations whether the named insured shown on the declarations is a sole proprietorship, partnership, limited liability company, or corporation. Also included as who is an insured are the named insured s employees, and persons or organizations acting as the named insured s real estate manager or having custody of the named insured s property if the named insured is deceased. In addition, anyone driving with the insured s permission an insured-owned piece of mobile equipment (bulldozers, cranes, forklifts, etc) along a public highway is insured under the policy. SECTION III LIMITS OF LIABILITY This section clarifies that the various limits of liability stated on the declarations is the most the insurer will pay for settlements or legal judgments under the policy, outside of payments made under the Supplementary Payments provisions mentioned earlier. SECTION IV CGL CONDITIONS Conditions contain the rules of conduct and the rights of both the insurer and the insured. To activate coverage under the form, the insured must follow all of the applicable conditions in Section IV. The conditions include the duties of the insured in the event of a claim, how the coverage will apply if there is other collectible insurance, the right of the insurer to audit the insured s books and records, and the insurer s rights of subrogation and non-renewal. Subrogation will be dealt with later in the course. SECTION IV DEFINITIONS The twenty-one terms appearing in quotations in the coverage form are defined here. We would recommend reading this section of any policy first, as it will provide you with depth when you read the policy in its entirety. Note the form number near the bottom of each page of every form. The two letters refer to the coverage type. The next four numbers are the actual form number; the last four numbers represent the date the form was published. 14
Chapter Three Review Questions Chapter Three Review Questions 1. Under an occurrence-type CGL policy, which claim would activate or trigger coverage? A. A claim made against the insured during the policy period. B. A claim which occurred during the policy period. C. Neither A. nor B. D. Both A. and B. 2. What two promises are contained in the insuring agreement of Coverage A? A. To pay claims made against the insured and to settle all disputes with claimants. B. To pay all investigation costs and to pay all attorney fees. C. To pay sums the insured is legally obligated to pay claimants and to defend claims made against the insured. D. To pay all sums claimed as damages and to hire the best local attorneys. 3. Which of the following is not an exclusion under coverage A? A. Intentionally caused injuries. B. Liquor Liability. C. Pollution Liability. D. Bodily injury to others due to the insured s negligence. 4. How is Personal Injury different from Bodily Injury under the CGL? A. Personal injury is for more specific damages than bodily injury. B. Bodily injury involves bodily harm, whereas personal injury is for non-bodily harm such as humiliation or embarrassment. C. Bodily injury claims are usually settled more quickly than personal injury claims. D. Bodily injury is not covered on the CGL policy. 5. How is Medical Payments coverage fundamentally different than Coverage A? A. Medical Payments coverage is a no-fault coverage. B. Medical Payments coverage covers completely different injuries. C. There is no coverage for property damage coverage under Medical payments. D. Both A and C. 15
Chapter Three - Review Answers Chapter Three Review Answers 1. B 2. C 3. D 4. B 5. D 16