Commercial General Liability Insurancan Overview Of Underwriting Considerations

Commercia Genera Liabiity Insurancan Overview Of Underwriting Considerations COMMERCIAL GENERAL LIABILITY INSURANCE AN OVERVIEW OF UNDERWRITING CONSIDERATIONS R. C. Guria Facuty Associate, Nationa Insurance Academy, Pune Introduction Overview of Lega Liabiity Though a individuas and organizations both commercia and non-commercia face iabiity exposures for their activities, commercia organizations are exposed more to iabiity osses than others. A iabiity oss is an amount that a person is required to pay as a resut of ega caim against him for his wrongfu acts causing injury or damage to others. Wrongfu acts causing ega iabiity or caim may arise from any of the foowing bases:1. Torts or Common Law 2. Statutes 3. Contracts. Each of the above genera ega iabiities being the foundation of commercia genera iabiity is examined briefy before CGL is discussed. Lega Liabiity Exposure on Torts or Common Law: A tort is a wrongfu act or omission-causing harm to others (negigence) or invading other s protected rights (nuisance). If someone s acts of negigence or nuisance cause harms to others, the aw provides for remedy to the victim through an action for damages or compensation. This is the ega iabiity exposure. Each and everyone in the society do have such ega iabiity exposure and the degree of exposures varies with the nature and voume of socia or economic activity of the individua. An individua or organization can transfer such iabiity exposure (ony civi) to an insurance company through an appropriate iabiity poicy. The ega iabiity exposures may be grouped under the foowing major categories: Pubic Liabiity or Premises and Operation Liabiity Products iabiity or products and Competed Operations Liabiity Motor or Automobie Liabiity Marine or Watercraft Liabiity Workmen Compensation and Empoyers Liabiity Bimaquest - Vo. VII Issue II, Juy 2007 q 5

Commercia Genera Liabiity Insurancan Overview Of Underwriting Considerations Professiona Liabiity Commercia genera Liabiity Cinica Tria Liabiity Directors and Officers Liabiity In a the above iabiity exposures torts are fundamenta origins of ega iabiity. Torts are many, but commony cassified into i) Negigence, ii) Intentiona Torts and iii) Strict Liabiity Negigence or Unintentiona Torts: Negigence is a tort or a civi wrong determined under common aw. Negigence is an unintentiona tort invoving the faiure of a person to exercise the degree of care that a reasonabe person woud have exercised under simiar circumstances to avoid doing harm to others. If a person does something that a reasonaby prudent person woud not have done or if a person fais to do something, that a reasonaby prudent person woud have done, such act of commission or omission is considered negigence under common aw. As decided by Byth V Birmingham Waterworks co. (1856), negigence is an omission to do something, which a reasonabe person, guided by those considerations, which ordinariy reguate the conduct of human affairs, woud do, or doing something, which a prudent and reasonabe person woud not do. Each has a duty to his feows so to reguate his actions the condition of his property and the activities, as not to cause injury or damage to others. Donoghue V. Stevenson. (1932). In order to succeed in an action against negigence the paintive i,e the victim must prove the foowing three aspects: a) The defended owed a duty of care to the victim (the paintiff) b) There has been a breach of duty, and c) He has sustained an injury or damage as a resut of the breach Negigence is the most common base for ega iabiity insurabe under iabiity poicy. The onus of proof for negigence generay rests on the paintiff. As mentioned earier existence of ega duty of care may arise from common aw, statutes or contract. Here our discussion is confined to negigence under common aw ony. The third part of the action for negigence is damages, which are again two types Compensatory Damages and Punitive Damages. Again Compensatory damages are divided into two categories- Specia damages and Genera damages. 6 q Bimaquest - Vo. VII Issue II, Juy 2007

Commercia Genera Liabiity Insurancan Overview Of Underwriting Considerations Defenses to Negigence Actions: In a negigence action for compensation, the paintiff has to prove a the three basic aspects or eements of Negigence. The defendant again may take foowing defenses to avoid his ega iabiity for negigence: Inevitabe Accident (Hidden defect in machinery) Act of God (Storm, earthquake, ightening) Emergency (out of eminent danger but not negigence) Contributory Negigence /Comparative Negigence (Bame to each other/ Atkins Law) Assumption of Risk (other than PLI Act Poicy or Motor TP Poicy providing nofaut iabiity) Contracting Out (Discaimer Notices) Limitation (Barred by aw of imitation) Intentiona Torts: In contrast to negigence there coud be many torts, which may be intentiona. Some of the intentiona torts are exempified beow: 1. Tort against Property: Nuisance, Trespass, 2. Tort against person: Libe, sander, defamation, battery, assaut, fase arrest etc. 3. Invasion of right of privacy 4. Misuse of Lega Process Nuisance It is aso a tort impying a wrong done by one to a person by unawfuy disturbing him in the enjoyment of his property or in some cases in the exercise of the common right. Nuisance is one area of aw where the iabiity can arise even though one has taken a reasonabe care. As decided in Greenwood V Portwood, encroachment/ enargement of tree roots in two neighbouring property woud cause iabiity of nuisance and once damage was proved by the paintive, the defended woud automaticay incur iabiity. Simiary escape of dust, fumes, Bimaquest - Vo. VII Issue II, Juy 2007 q 7

Commercia Genera Liabiity Insurancan Overview Of Underwriting Considerations and smes may bring ega iabiity nuisance of the offender. Importanty, if this activity does not give rise to physica harm to the paintive or to his property, there wi be no indemnity under the poicy even though the defended may suffer financia oss by compying with injunction if any. Commercia Genera Liabiity CGL poicy covers a wide range of iabiity oss exposures of commercia organizations. The oss exposures come under foowing broad categories: 1. Premises and Operation Liabiity Risks 2. Products and competed operations Liabiity Risks 3. Limited Contractua iabiity 4. Persona and Advertising injury iabiity 5. Medica payments 6. Suppementary Payments The origins of iabiity in CGL Poicy are i) Common Law, ii) Contract and iii) Statute. Common forms of Torts that are covered in CGL Poicy are as usua Negigence, Nuisance Trespass, Strict Liabiity, Libe and Sander, Liabiity for occupier s premises CGL poicy first introduced in USA in 1941 has become the most trusted iabiity poicy a over the word because of its we-tested definitions, wordings, causes etc. The first CGL poicy introduced in 1941 by the casuaty insurers in USA was comprehensive in nature and known as comprehensive genera iabiity poicy. In 1986 the comprehensive genera iabiity poicy was repaced by the simpified CGL poicy. In 1996 The American Association of Insurance fied revised version of CGL poicy on behaf of its member insurers with two distinct version of the CGL forms- Occurrence Version and Caim-made Version. They differ from each other with respect to the coverage of caim ony in the foowing ines. 1. The occurrence version covers a bodiy injuries or property damages that occur during the poicy period. 2. The caim-made version covers a bodiy injuries or property damages that occur during the poicy period provided caims are made against the insured during the poicy period. 8 q Bimaquest - Vo. VII Issue II, Juy 2007

Commercia Genera Liabiity Insurancan Overview Of Underwriting Considerations Except above difference in respect of coverage of caims, the two versions of CGL poicy are the same containing foowing main 6 sections in the poicy. Section I Coverages 1. Coverage A- Bodiy Injury and Property Damage Liabiity 2. Coverage B- Persona and Advertising Injury Liabiity 3. Coverage C- Medica payments 4. Suppementary Payments Section II Who is an insured? 1. Individua Named Insured and his spouse 2. Partnership Partners and their spouses (ony to the conduct of business) 3. Limited Liabiity Co. Members of the company Section III Limits of Insurance Section IV Conditions Section V Extended Reporting Period Section VI Definitions Coverages (Section I) 1. Insuring Agreement for Coverage A; Bodiy Injury and Property Damage: The provisions for coverage A consist of an insuring agreement and severa excusions. If a caim made against the insured meets the entire criterion in the said insuring agreement and does not come within purview of the specified excusions, it is admissibe subject to poicy terms and conditions. Again the Insuring Agreement has distinct parts; i) An agreement to pay damages on behaf of the insured and ii) An agreement to defend the insured against caims for damages under poicy Bimaquest - Vo. VII Issue II, Juy 2007 q 9

Commercia Genera Liabiity Insurancan Overview Of Underwriting Considerations i) Duty to pay damages: Insurer s duty to pay damages for the iabiity caims made against the insured depends on the satisfaction of the foowing conditions Insured must be egay iabe to pay damages The damages must resut from bodiy injury or property damage The bodiy injury or damages must resut from an occurrence of accident The accident must occur during poicy period and in coverage territory The caim must be made against the insured during poicy period (Caim-made version). Damages must be with in the terms and conditions Liabiity as per imits of insurance The CGL poicy contains an excusion of bodiy injury or Property damages intended by the insured. For exampe;.if a buiding is set on fire on purpose by the insured, CGL poicy wi not over any caim against him. It is very important to note the difference between intentiona acts and intentiona torts. ii) Duty to Defend: Coverage A Insuring Agreement aso expresses the insurer s right and duty to defend the insured against any suit seeking damages for bodiy injury or property damage. In determining whether the insurer has a duty to defend, consideration woud be based on the findings from the aegations expressed in the compaint or petition of the paintiff. The insurer sha not have any duty to defend if the aegations against the insured are not covered by the poicy. In USA, CGL form revised in 1996 contains the amended insuring agreement to State that the insurer has no duty to defend the insured against any suit seeking compensation for injury or damage to which the insurance does not appy. Premises and Operations Liabiity (Pubic Liabiity) Coverage A It is the basic and common component of genera iabiity. Before introduction of CGL cover Pubic iabiity poicy has been popuar covering premises and operation iabiity. CGL cover is sti divided into two broad consideration for risk anaysis and rating purposes; i) Premises and Operation Liabiity and ii) Products and Competed Operation Liabiity. Generay a separate rate is considered for each category. As we know, underwriting of premises iabiity insurance is much more critica than property insurance. For underwriting this iabiity insurance, an 10 q Bimaquest - Vo. VII Issue II, Juy 2007

Commercia Genera Liabiity Insurancan Overview Of Underwriting Considerations exhaustive CASE (Circumstances, Activity, Security and Events) study is required to be done to assess the iabiity exposures. The critica aspect of premises iabiity can be appreciated from the foowing comparative study between property insurance and premises iabiity insurance. 1. In property insurance iabiity of insurer is determined by terms and conditions of poicy whie in iabiity insurance the amount payabe by the insurer is determined primariy by the iabiity of the poicy hoder to compensate the third party suffering oss, injury, or damages due to his wrongfu act and then by the terms and conditions of the poicy covering the ega iabiity of the insured. 2. In property insurance maximum iabiity of the insurer is determined on the basis of sum insured aong with the operation of the principa of contribution and subrogation whie in a iabiity poicy provides an indemnity in respect of insured ega iabiity to the third party. 3. The ega iabiity may arise from the three principe causes namey, a) The common aw as decided by the courts over many years in view of the socio-economic cuture, conditions, and deveopment. b) Statutory iabiity as aid down by the Acts of Pariament. c) The contractua obigation between the two parties (the insured and third party). But the contractua iabiities as mentioned above in (c) are specificay excuded from the covered afforded by most of the iabiity poicy. 4. The pubic iabiity poicy covers the ony civi wrong either under common aw (aw of torts) or under statutes due to breach of duty by the poicyhoders, which may arise in the forms of negigence, nuisance, trespass, strict iabiity causing bodiy injury or damage to the property of third party. The above basic eements of iabiity poicy are being discussed hereinafter. A commercia genera iabiity aso covers ibe, sander or fase imprisonment over and above forms of iabiities. Poution Excusions in Premises / Pubic Liabiity: CGL poicy provides for Absoute Poution Excusions. Bodiy injuries or property damages resuting from the reease of poutants are not admissibe. But in many cases it is very difficut to excude a poution incidents from the CGL cover under this cause. This Excusion contains some expicit exceptions as mentioned beow: Bimaquest - Vo. VII Issue II, Juy 2007 q 11

Commercia Genera Liabiity Insurancan Overview Of Underwriting Considerations Bodiy Injury or property Damage by heat, smoke fumes emanating from a fire at the premises where insured or contractor is working. Thus, smoke and fumes from a hostie fire at the insured s premises infitrated a neighboring warehouse and caused damage to the goods in the warehouse. The Insured s CGL poicy woud cover caim for such damages. Another express exception to such poution Excusions is coverage for bodiy injury or property damage resuting from the escape of ubricants or fue needed for norma function of mobie equipment. Third express exception to such absoute excusion may be bodiy injury caused by smoke, fumes, vapor, or soot from equipment used to heat a buiding provided such bodiy injury must be sustained within buiding. Another exception to such excusion may be reating to bodiy injury or property damage resuting from the reease of poutants at any pace away from the named insured s premises where the named insured or his contractor is performing. Products and Competed Operations Coverage It is a component of Coverage A. It can be aso purchased as a stand aone coverage. This cover responds to caims for bodiy injury or property damage arising out of the named insured s products or competed operations. Product Liabiity and Competed Operations Liabiity are so simiar that they are treated as components of one exposure. It is the ega responsibiity of the manufacturers, distributors, and retaier to ensure that the use of product wi not harm customers or users of the products. Product Liabiity awsuits are based on negigence or strict iabiity in tort or both. Under strict iabiity in tort, the conduct of the manufacture, distributor or retaier is irreevant and the focus is on the product itsef and whether it was unsafe. They coud have used utmost care in making, designing the product.. However the paintiff must prove the foowing eements to succeed in against the defendants: Products 1. The product was defective when it eft the manufacturer s or suppier s pace 2. The defective condition made the product dangerous 3. The defective product caused the paintiff s injury. 12 q Bimaquest - Vo. VII Issue II, Juy 2007

Commercia Genera Liabiity Insurancan Overview Of Underwriting Considerations Competed Operations 1. Injury or damage from work 2. Injury/damage must occur away from premises 3. Work causing injury competed or abandoned Excusions Work not yet competed or abandoned Products sti in possession of the insured Coverage Territory: The overage territory depends on the poicy definition. If it is wordwide the internationa waterways and internationa air space are aso incuded in the coverage territory. In this regard foowing two aspects deserve a specia mention in respect of products and competed operations: 1. Products made and sod by the insured in the basic coverage territory. 2. Activities of a person having home in the basic coverage territory are away from that on his named business. 3. Extension of the coverage territory for the goods or products sometimes refer to as wordwide product coverage. For exampe, suppose Mr. X had brought some medicine made by a company in India before he eft for Austraia on business tour. After arriving at Austraia, Mr. X took medicine and became i. After competing the tour and returning India, he sued the pharmaceutica Co. Y Ltd. for damage causing bodiy injuries for the use of medicine. Wi the CGL poicy of Y Ltd. cover the caim of Mr. X? Yes, since Y Ltd. sod the medicine in India provided it has taken extension for word wide product coverage. Premises Liabiity or Product Liabiity? Sometimes, confusions arise as to the scope of iabiity in some cases and appication of insurance. To dea with the case, the underwriter needs to anayze situation very carefuy. Bimaquest - Vo. VII Issue II, Juy 2007 q 13

Commercia Genera Liabiity Insurancan Overview Of Underwriting Considerations For exampe, whie shopping in a furniture-store, Mr. X sat on a chair to discuss his requirement. Due to defect in the chair, the back of the chair went out and Mr. X fe down and got injury. The question that arises Is the injury of Mr. X a Product Hazard? Does a CGL poicy cover the damages? Even if the chair was a product of the Furniture Shop, the injury was not within the products hazard as defined in CGL Poicy for foowing two reasons: The chair was in the physica possession of the insured. The accident occurred at the named insured s premises. So Mr. X s bodiy injury wi be covered under Premises and Operation of Coverage A. The amount payabe by insurer for such damages wi reduce the Genera Aggregate imit, but not the Products-Competed Operations aggregate Limit. 2. Persona and Advertising Injury (Coverages B) This is under coverage B. This is considered to be a basic coverage under CGL. Those who do not need this cover can get it excuded by endorsement. Under this cover the insurer agrees to pay the sums that the insured becomes oyay iabe to pay as damages. The insurer aso agrees to defend the insured against any suit. This cover wi not respond to any caim for bodiy injury or property damage. This cover appies to persona injury if the injury is caused by an offense arising out of the named insured s business excuding advertising, pubishing, broadcasting or teecasting done by the named insured. Coverage B appies to advertising injury ony if the injury is caused by an offense committed in the course of advertising the named insured s goods, products and services. This cover is not appropriate for insuring the advertising injury iabiity exposure of an advertising agency or other firm invoved in providing advertising services. Exampes of Persona injury: Fase arrest, detention or imprisonment; Maicious prosecution; The wrongfu eviction or wrongfu entry Defamation ibe or Sander/ Product Disparagement Ora/ written pubication damaging person s privacy 14 q Bimaquest - Vo. VII Issue II, Juy 2007

Commercia Genera Liabiity Insurancan Overview Of Underwriting Considerations Exampes of Advertising injury: Use of another s advertising idea in advertisement Infringing on other s copyright, trade mark or sogan Ora/ written pubication of materia that vioates a person s right of privacy 3. Medica Expenses Cover (Coverages C) This coverage is not iabiity insurance in true sense. Because the insured pay regardess of whether the insured is egay iabe for that. This coverage is incuded in CGL Poicy to give reief to the insured by providing a sma amount of compensation for setting minor injury cases without having regard to his actua iabiity of the insured. This is viewed as a means of making prompt settement to the potentia iabiity caimant in order to avoid possiby arger iabiity in future. It is inbuit cover and can be deeted by endorsement. The insurer agrees to pay medica expenses for bodiy injury caused by an accident occurring in or on the ways to premises that the insured owns or rents. The accident must take pace in the CGL coverage territory and during poicy period and medica expenses must be incurred and reported to the insurer within one year upto the date of accident. Bodiy injury caused by an accident that occurs away from the insured s premises (exampe job site, where insured s contractor is working) is covered if the accident resuts from the named insured s operations. Payments made regardess of faut. Payments within appicabe imit of insurance. Reasonabe expenses paid for; -First aid administered during accident. -Necessary medica, surgica, x-ray, denta services etc -Necessary ambuance, hospita, nursing professiona and funera services. Medica expenses payabe for bodiy injury caused by an accident: - On premises owned or rented; Bimaquest - Vo. VII Issue II, Juy 2007 q 15

Commercia Genera Liabiity Insurancan Overview Of Underwriting Considerations Provided that - On ways next to premises owned or rented; - Because of operations; (a) The accident in the coverage territory and during the poicy period. (b) The expenses incurred and reported within 30days of the date of accident. (c) Submission for examination by physician as often as reasonaby required. 4. Suppementary Payments The suppementary Payment Section provides for the detais of the cost that insurer wi pay with respect to (1) any caim to be investigated or setted by the insurer or any suit the insurer defends the insured under either coverage A or Coverage B. The suppementary payments may consist of the foowing. a) A ega expenses such defense cance fees. b) Cost of bai bond reated with bodiy injury iabiity coverage c) A reasonabe expenses incurred by the insured at the request of insurer for investigation or defense. d) A court expenses, imposed against the insured e) Prejudgment interest awarded against the insured reating to the judgment the insurer satisfies. Common Excusions to CGL Cover Foowing Excusions define the scope of CGL Poicy for bodiy injury or property damages. Again there are ots of express exceptions to such common excusions: a. Expected or Intended Injury b. Contractua Liabiity c. Liquor Liabiity d. Workmen Compensation and simiar aws e. Empoyers Liabiity f. Poution Liabiity g. Aircraft, Auto or Watercraft 16 q Bimaquest - Vo. VII Issue II, Juy 2007

Commercia Genera Liabiity Insurancan Overview Of Underwriting Considerations h. Mobie Equipment i. War Warike action or Insurrection, Rebeion j. Damage to owned/ rented/ occupied property k. Damaged own product. Damage to own work m. Damage to Impaired Property or Property not physicay Injured n. Reca of Products, Work or Impaired Property o. Eectronic Data Caims Made vs. Occurrence Based Poicy The most commony accepted form of CGL poicy is written on Caim-Made Basis as opposed to being written on an Occurrence Basis With a caim-made poicy, a caim is covered under the poicy in effect at the time the caim is made provided the injury has occurred during the period of insurance and after retroactive date. In the Caims-made coverage form, Coverage A and Coverage B are both subject a caims-made coverage trigger. The basic requirement of the caim made trigger is that the caim for bodiy injury or property damage (or persona injury or advertising injury) must be first made against any insured during either the poicy period or an extended reporting period provided that the injury or damage must have occurred before the end of the poicy period and after the retroactive date provided in the poicy. In Occurrence based poicy event giving rise to the caim must occur during poicy period and the insurer woud respond whenever the caim is thereafter made on the insured. The occurrence-based poicy covers injury that occurs during poicy period regardess of when caims are made. A caim made today for injury that occurred 30years ago coud be covered under occurrence-based poicy that was in effect in 30yrs before. As this occurrence version of CGL poicy is ong-tai caims oriented, determination of cost and management of caims are the major probems for the insurers. The insurers cannot predict the cost for pricing risks for such iabiity exposures. Occurrence trigger cover has become very costy and difficut for Loyds underwriters for their iabiity cover for industry of asbestos and other harmfu substances in 1980s and onwards. To address such probems insurers deveoped Caim-made poicy. Many underwriters beieve that the occurrence form of CGL poicy is not suitabe for certain type of risks. In many countries both the versions of CGL (Caim-made and Occurrence-based) are in use. Occurrence Based/ Occurrence Trigger Injury or property damage must occur during poicy period Poicy responds to a ega iabiity of the insured for a particuar caim even if made many years after the poicy ends if injury or damage occurs during poicy period. Bimaquest - Vo. VII Issue II, Juy 2007 q 17

Commercia Genera Liabiity Insurancan Overview Of Underwriting Considerations For instance, suppose M/s A & Co had been purchasing insurance poicy from Insurer X since January1, 2000 which was the retroactive date. Thereafter, poicy has been renewed as per foowing detais: On 1.1.04 new poicy was purchased from Insurer Y On 1.1.05 fresh poicy from insurer Z. On Juy 1, 05 a customer against A&Co made a caim for an injury occurred on Oct1, 04 for the use of his product manufactured in December 2003. Which insurer X, Y or Z is to pay the caimant s damage?. Injury occurred in 2004 whie Y s poicy was in force, Y woud respond the caim though caim made in 2005. This Poicy woud respond to caims even many years after poicy period if accident occurred in poicy period. Caims-Made wording mandates that; The event giving rise to the caim shoud have occurred during the period of insurance Caim shoud be made during poicy period Period of insurance is determined as period between the date of inception of the First Caims Made poicy (continued without a break) and expiry of the current poicy Caims-made poicy may be issued with i) No retroactive date or ii) A retroactive date same as the poicy inception date or iii) A retroactive date preceding the poicy inception date. Now if there is no retroactive date, poicy wi cover caims first made during the poicy period regardess of when the injury occurred. When poicy is issued with specific retroactive date, the poicy wi cover caims first made during the poicy period ony if the injury occurred on/after retroactive date. When retroactive date is advanced, the new poicy wi cover caims made during the new poicy period provided the injury has occurred after retroactive date though before inception date. As an exampe, we suppose that Mr. X purchased one-year caim-made product poicy from RI Insurance with an inception date of January1, 2004 being the retroactive date. On Jan. 1, 2005, a fresh poicy was purchased from PI Ins. Co. for one year with retroactive date of Jan.1, 2005. On Juy1, 2005 caim was made against Mr. X for an injury occurred on Oct1, 2004 for the use of product manufactured in December 2003. Now questions come; i) Woud 2005 poicy of PI Insurance cover caim?. No, 2005 poicy of PI wi not respond even though the caim occurred during poicy period as injury occurred before retroactive date. ii)woud 18 q Bimaquest - Vo. VII Issue II, Juy 2007

Commercia Genera Liabiity Insurancan Overview Of Underwriting Considerations 2004 poicy of RI Insurance Co. cover caim?. No, 2004 poicy of RI wi not respond even though the injury occurred within retroactive as caim was made in 2005 (after poicy period). Limits of Insurance (Section III) Limits of insurance in CGL Poicy require discussion on the foowing imits and aspects: i) Genera Aggregate Limit for damages payabe i) for bodiy injury or property damage in premises and operation iabiity, but not damages for Products and Competed Operations under Coverage A, ii) for persona and advertising injury iabiity under Coverage B and iii) Medica expenses under Coverage C ii) Product and Competed Operation Aggregate Limit for damages payabe for Products and Competed Operations under Coverage A iii) Each Occurrence Limit specifies the maximum amount of damages payabe under Coverage A and Coverage C. for any one occurrence. iv)persona and advertising injury Limit specifies the maximum amount of damages payabe for persona and advertising injury sustained by any one person or organization under Coverage B for any one occurrence. v) Fire Damage Limit specifies the maximum amount payabe by the insurer for damages resuting from any one fire covered by Fire Lega Liabiity Coverage. vi) Medica Expenses Limit specifies the maximum amount payabe by the insurer under Coverage to any one person. Let us consider the foowing exampe to expain this. CGL Poicy of X Ltd provides the foowing insurance imits. a. Genera Aggregate Rs. 1000000 b. Product Comp. Aggregate Rs. 1000000 c. Each Occurrence Rs. 500000 d. Persona &Adv. Injury Rs. 500000 During the poicy period from 1.1.06 to 31.12.06, X Ltd experienced and paid foowing iabiity caims for damages for seven different occurrences for determining the iabiity of insurers, we need to tabuate the damages against occurrence type. Bimaquest - Vo. VII Issue II, Juy 2007 q 19

Commercia Genera Liabiity Insurancan Overview Of Underwriting Considerations Damages Occurrence Type 1. Rs. 350000 Operations in Premises 2. Rs. 500000 Products 3. Rs. 600000 Persona and Advertising injury 4. Rs. 300000 Persona and Advertising injury 5. Rs. 200000 Products and Competed Operations 6. Rs. 400000 Products and Competed Operations 7. Rs. 3000 Medica Payments Thus, the iabiity of Insurer wi be determined as beow: 1. Rs. 350000 payabe from Genera Aggregate Limit 2. Rs. 500000 payabe from Product and Competed Operation Aggregate Limit 3. Rs. 500000 out of Rs. 600000 payabe from Genera Aggregate Limit (Ba. Rs150000) 4. Rs. 150000 out of Rs. 300000 payabe from Genera Aggregate Limit (Ba. Rs150000) 5. Rs. 200000 payabe from Product and Competed Operation Aggregate Limit. 6. Rs. 300000 out of Rs. 400000 payabe from Product &Competed Operation Aggregate Limit 7. Rs. 3000 not payabe as there is no ba in Genera Aggregate Limit, The above exampe has made the appication of insurance imits very cear and wi hep the underwriters to decide the imits for determination of exposures and determine rates, terms therefore accordingy. Fire Lega Liabiity Coverage Fire Lega Liabiity Coverage is mentioned at the end of excusions for Damage to Property under Coverage A, which states that. Paragraphs of this excusion do not appy to damage by fire to premises whie rented to you or temporariy occupied by you with permission of the 20 q Bimaquest - Vo. VII Issue II, Juy 2007

Commercia Genera Liabiity Insurancan Overview Of Underwriting Considerations owner It is subject to separate imit of insurance as specified in imits of insurance. This imit is generay ower than per occurrence imit. Thus saient aspects of this cover are: Part of Premises and Operation Coverage, but a distinct coverage Rented to or temporariy occupied by the named insured with the owner s permission Subject to Separate imits to be specified in imits of insurance Subject to excusions for expected or intended injury or contractua Foowing exampe wi expain the cacuation of insurers iabiity. X Ltd. eased one room in a big buiding in Dehi for his shop of motor spare parts. Due to negigence of an empoyee the rented premises caught fire and damage occurred for Rs. 200000 for the rented one and Rs. 400000 for other parts. Workers in other shops got injury and Caimed for Rs. 100000. If Fire Damage Limit is Rs. 500000, each occurrence imit Rs. 500000 & aggregate Rs. 20 L. Nature of Loss Loss Caimed Loss payabe 1. Damage to rented premises 200000 50000 2. Damage to rest of buiding 400000 400000 3. Bodiy Injury 100000 50000 CGL Poicy Conditions (Section IV) Tota Rs. 500000 This section addresses various matters, such as the insured s duties in the event of occurrence, caim, or suit, the insured s right to sue the insurer, principe of contribution, subrogation etc. a) Duties of the Insured after occurrence, Offense, Caim or Suit Immediate Notice, Contents in notice time, pace and cause of occurrence, names and address of insured persons and witnesses, nature and ocation of injury or damage etc. Others b) Lega Actions against the insurers providing for procedure and on agreed settement Bimaquest - Vo. VII Issue II, Juy 2007 q 21

Commercia Genera Liabiity Insurancan Overview Of Underwriting Considerations c) Other Insurance mentioning Primary Insurance, Excess Insurance and method of sharing d) Premium Audit: Provision for computation of fina premium after audit for adjustment against advance premium and for due return of excess premium if paid in advance and for recovery of the shortage, if any. e) Representations: Statements in the poicy issued are based on the insured s representations. f) Separation of Insured: Appication of insurance to each insured separatey against whom caim is made g) Renewa of Poicy: Providing rue and procedure for non-renewa of poicy (by notice before 30days) h) Transfer of Recovery Rights: The insured wi bring suit or transfer those rights to in surer i) Bankruptcy: Insovency of insured wi reieve insurer of their obigation under coverage part. Extended Reporting Periods (Section V) A caim-made CGL poicy provides for two extended reporting period: I) Basic Extended Reporting Period and ii) Suppementa Reporting Period. i. Basic Extended Period is provided automaticay without any additiona premium if the poicy is canceed or not renewed or the insurer renews the poicy with ater retrospective date or with occurrence base. With such extension poicy wi cover caims made against the insured within 5 years for the occurrence within poicy period and reported within 60 days from expiry. It does not increase Limits of Insurance or appy to caims to be covered by subsequent poicy. 22 q Bimaquest - Vo. VII Issue II, Juy 2007

Commercia Genera Liabiity Insurancan Overview Of Underwriting Considerations Appication: X was insured by a Caim-made CGL poicy issued by P Ins. Co. During renewa X Ltd purchased an Occurrence CGL Poicy from R Ins. Co. 40 days after the caim-made poicy expired, the insured (X) came to know about an injury that occurred one week before the expiry of caim-made poicy. X immediatey reported the occurrence to P Ins.Co. and R Ins.Co. 1 year ater the insured person finay made caim against X. Now question comes as to which insurance co. wi respond to the caim?. As the basic extended reporting period was in effect, because caim-made period was not renewed and caim was for bodiy injury caused by an occurrence reported to P Ins. Co within 60 days of the expiry of the poicy, P s poicy wi respond to the caim. ii. Suppementa Extended Reporting is granted under the same circumstances as above provided the named insured requests in writing within 60 days from the expiry of poicy and pays an additiona Premium specified by the insurer. The suppementa tais begins when basic tais ends and it continues indefinitey for the occurrence reported to the insured within 60 days, but did not resut into caims even after 5 years. Section VI Definitions In this section various terms ike i) Advertisement, ii) Auto, iii) Bodiy Injury, iv) Coverage territory, v) Empoyee, vi) Executive Officer, vii) Hostie fire viii) Impaired property, ix) Insured Contract x) Lease Worker, xi) Loading and Unoading, xii) Mobie Equipment xiii) Occurrence, xiv) Persona & Advertising injury xv) Poutants, xvi) Products &Competed Operations hazards, xvii) Property Damage, xviii) Suit, xix) Temporary Worker, xx) Vountary Worker, xxi) Your Product, xxii) Your Work etc are propery defined. The above terms used anywhere in the poicy wi be interpreted as per the definitions provided in this section. Concusion: This artice has highighted ony a few fundamenta technica aspects of commercia genera iabiity poicy, which is in great demand for arge and mutinationa companies. In view of new dimensions of ega iabiity exposures arising from diversification, technoogy deveopment, sweeping changes in market conditions in market risks and human risks, business organisations prefer CGL poicy to pubic iabiity poicy and product iabiity poicy separatey. This artice wi be a good guide to underwriters as we as business houses for effective transfer of iabiity risks. qqq Bimaquest - Vo. VII Issue II, Juy 2007 q 23