Commercial general liability insurance (CGL) used to be known as comprehensive general liability coverage. The insurance industry decided that use of the word “comprehensive” was too broad. As such we have the word “commercial”.
Structure
The basic structure of the policy is to provide protection for bodily injury and property damage. It also provides coverage for personal injury claims such as defamation or trespass and also what is called “advertising injury” wherein the insured disparages the product of a competitor through advertising.
So long as the insured did not intend to harm the claimant and did not engage in a criminal act producing the injury, then there probably is coverage.
CGL policies include not only a duty to defend but also a duty to indemnify.
The basic thrust of coverage is founded upon the word “occurrence”. The triggering event used to be an accident. But now it is based upon an occurrence. This is an accident, including injurious exposure to conditions that results during the policy period in bodily injury or property damage neither expected nor intended from the standpoint of the insured.
A fundamental requirement is that the injury occurs during the policy period.
These policies are not designed to guarantee the quality of the policyholder’s work or the successful completion of its activity.
Organization of the Commercial General Liability Insurance Policy
The face page of the policy is called the “Declaration page”. It declares who the insured is, who the insurer is, the limits of coverage, the policy period, and the premiums. Within Section One, Coverage A is for bodily injury or property damage. Coverage B is for personal and advertising injury. Coverage C is for medical payments.
Within Section Two, the insured is defined.
Within Section Three, the limits of insurance are defined. The limits involve claims for monetary relief, not for injunctive relief.
Within Section Four are the conditions such as notice and cooperation.
If the text of the policy is not clear and easily read, then the court may look to extrinsic evidence for interpretation. The principle that applies is that if there is ambiguity, it will be construed against the insurer i.e., contra proferentem.
Occurrence v. Claims Made
The triggering event for coverage is an occurrence. Once the policy is triggered, then the insurer remains on the risk, even if the injury is ongoing and extends outside the policy.
In contrast, a claims-made policy is not triggered until a claim is made and reported to the insurer. Insurers avoid unlimited retroactive coverage by including a retroactive date. This provides that the insurance will not cover claims caused in whole or in part by occurrences taking place prior to that date.
The main difference between these policies is their treatment of late notice. Under an occurrence policy, late notice must result in prejudice and be a basis for denial of coverage. The opposite is true in a claims-made policy. There is no requirement of prejudice.
These policies may be split-limit policies. There may be multiple persons injured as a result of one occurrence. The split limit may be applied in that type of case.
Sometimes there may be multiple occurrences. In that case, the court may look at what was the cause in order to determine how many occurrences there were. The cause test is the majority rule. If a shooter kills someone at Location A and then proceeds onto Location B and kills someone else and the allegation is made that the parents are negligent for not controlling the shooter, there is one cause. Likewise, there is one occurrence.
Excess carriers may try to argue that there are multiple occurrences. Multiple occurrences mean more underlying coverage and therefore less excess exposure.
Property Damage
For the property damage coverage to be triggered, there must be some tangible physical injury to the property.
Commercial General Liability Insurance-Exclusions
There are multiple exclusions that may apply to a CGL policy.
- Expected or intended injury;
- Liability assumed in a contract;
- Injury induced by alcohol;
- Workers’ Comp;
- Aircraft, auto, or watercraft claims;
- Claims arising from transportation of mobile equipment;
- Claims for damage to the policyholder’s own property, product, or work;
- Loss of electronic data;
Personal Injury and Advertising Injury
The policy defines personal and advertising injury as an injury that arises out of such things as false arrest, malicious prosecution, wrongful eviction, oral or written publications, invasion of the right of privacy, or infringing on another’s copyright in your own advertising. Where the loss arises out of one of these offenses, then emotional injury is covered.
For advertising injury, there has to be some selling, promotion, or marketing of a product.
Conflict of Laws
There can arise some choice of law issues that may be tricky. The first thing to consider is what jurisdiction the coverage action could be brought in. The law of that state must be analyzed to determine how the issue would be resolved. If the named insured resides in Virginia, the person seeking coverage resides in Virginia, the claim arose in Virginia, then Virginia law is probably going to be applied. A contract is deemed to be made when the last act to complete it is performed. In terms of an insurance policy, the last act is delivery of the policy to the insured. Resource Bank Shares Corp. v. St. Paul Mercury Insurance Co., 407 F.3d 631, 635 (4th Cir. 2005)
Denial of Claim
In looking at the timeliness of notice, the court will look at the entire circumstances. For instance, you slip in the front hall of your neighbor’s house, and at the time you don’t think there’s any injury. Back pains and headaches subsequently develop. At that point, a claim is asserted. Notice is given to the carrier. Under that circumstance, the notice is probably not late.
Virginia Code § 38.2-2226 requires an insurer to give notice of an intention to rely on certain defenses. If the carrier discovers a breach of the policy, the insurer must notify the claimant or the claimant’s counsel. Failure to give the notice within the time required results in a waiver of that defense.
Virginia Code § 38.2-510(A)(14) states that it may be an unfair claim settlement practice for a carrier not to provide a reasonable explanation of the basis for denial of a claim.
Duty to Defend
The duty to defend is broader than the duty to indemnify. The court will look at all of the allegations made, even though they may be groundless. What the court will look at is the “four corners” of the pleadings. The court may look at outside evidence that is necessary to prevent the claimant from artificially creating coverage simply through its pleading. In addition where negligence is pled but it is apparent that the conduct is really intentional, then the “four corners” rule may not be strictly applied.
The “eight corners rule” is what applies. AES v Steadfast 283 Va 609, 616 (2012). This is a reference to the four corners of the complaint and the four corners of the policy.
Attorneys’ Fees
Where the insured has to sue the insurer to invoke coverage, attorneys’ fees may be awarded. The attorneys’ fees may not only include the declaratory judgment action but also the fees incurred in the actual defense.
The Innocent Co-Insured
A teenager is insured under his parents’ homeowners policy. The teenager attacks a neighbor. The parents are sued, alleging negligence on their part. The teenager committed a criminal act and therefore there may not be any coverage for him. There may be coverage however for the parents since they did not commit a criminal act. The criminal act exclusion however can depend on whether it is a criminal act of any insured. In this case, if it was a criminal act of any insured that defined the exclusion, then there would be no coverage for the parents. CGL policies however may have a severability clause. This provides separate coverage for each insured. It is as if they were each separately insured with a distinct policy.
However if the policy language excludes all coverage for the criminal act of any insured, then there may not be any coverage for anyone. This applies even if there is a separation of insureds clause or what is called a “severability clause”.
Emotional Injury
Where the coverage is defined by bodily injury, then emotional injury will not fall within that definition. Bodily suggests something physical.
Faulty Workmanship
Defects in the work of the insured are not covered. However, if that defect causes property damage to something other than the insured’s work, then there is coverage.
Commercial General Liability Insurance-Indemnification
A subcontractor’s contractual indemnification obligation is likely covered. Coverage however for indemnification of an indemnitee’s own negligence first must be looked at from the point of view of whether it is allowed under state law. In Virginia, it is not. These types of indemnification provisions are frowned upon because they discourage due care. In addition, they are a product of a general contractor’s unequal bargaining power.
Where these types of coverage are invoked, you must also look at whether or not the policy requires that the general contractor be a named insured on the policy. If that is so, then the indemnification language may be moot.
Latent Injury
Claims for latent injury or exposure to hazardous substances are covered. The tricky question becomes, when does coverage begin? There are multiple trigger theories. The manifestation theory says that coverage begins when the damage is discovered or should have been discovered. The exposure trigger means that coverage begins at the time of exposure. The injury in fact trigger means that the coverage begins when the actual injury can be shown. The continuous trigger means that the coverage begins from the date of exposure until manifestation.
Punitive Damages
Virginia law does not bar coverage for punitive damages. Where the policy provides coverage for “all sums” which the insured may become legally obligated to pay as damages”, then indeed there is coverage for punitive.
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Call, or contact us for a free consult. For more info on commercial general liability insurance see the Wikipedia pages. Also, see the post on this site dealing with auto insurance issues.