General Liability Insurance Explained in 10 Minutes
The most common form of business insurance is the Commercial General Liability (CGL) policy. Although widely adopted as the ‘backbone’ of a company’s protection, CGL is often misunderstood.
To understand why, watch the best 10-minute CGL explainer video you’ll find! See below.
Before we get into the details of Commercial General Liability, here’s a warning: I will state the following throughout this video and blog post: READ YOUR POLICY!
Reading an insurance policy is as dull as watching paint dry. I get it. But as a hard-working business owner, you need to understand the protection your CGL policy provides, and NO TWO POLICIES ARE THE SAME. Many insurance companies adopt policies and policy forms written by ISO (Insurance Services Office), but others use proprietary (manuscript) forms that differ from ISO forms. You must also be aware of endorsements used to modify the CGL coverage form. Endorsements may be used to broaden coverage and limit or exclude coverage.
A Commercial General Liability (CGL) Policy may be written as a monoline (single line of insurance) or included as part of a multi-line policy, such as a Commercial Package Policy or Business Owners’ Policy. The makeup (structure) of the policy does not change whether monoline or packaged.
We will review the policy structure and discuss the Declarations and all five sections, starting with the Commercial General Liability Declarations.
Commercial General Liability Declarations
When reviewing your CGL policy, you will first arrive at Commercial General Liability Declarations—sometimes referred to as a ‘Dec Page,’ this part of the policy specifies the named insured, address, policy period, location of premises, policy limits, and other essential information that varies from insured to insured. Such information includes the form of business (i.e., sole proprietor, partnership, LLC, or corporation) and the business description. It is crucial when reading your policy that accurate information is listed on the Dec Page. If not, your coverage can be at risk.
Next, let’s jump into The Commercial General Liability Coverage Form
SECTION I – COVERAGES
Section I of the CGL Coverage Form describes the ‘coverages’ under Coverages A, B, and C.
- Coverage A – Bodily Injury and Property Damage Liability
- Coverage B – Personal and Advertising Injury Liability
- Coverage C – Medical Payments
You must read the Insuring Agreement and Exclusions written under each Coverage. For the sake of this blog, keep in mind the following liability exposures covered under a CGL policy:
- Coverage A: Bodily Injury and Property Damage
- Premises, Operations, Products, Completed Operations, Contractual, Contingent
- Coverage B: Personal and Advertising Injury
- Operations, Contingent
- Coverage C: Medical Payments
- Premises, Operations
To expand upon these exposures, here are definitions to consider.
Premises Liability: applies to owners, landlords, and tenants and arises from the ownership, maintenance, or use of the named insured’s premises.
- A customer of a retail store slips and falls on the named insured’s premises.
- A hotel guest drowns in the named insured’s swimming pool.
Business Operations Liability: Consider this a liability arising from your ‘ongoing operations.’ In other words, operations liability arises from activities involved in an organization’s operations, including service and repair activities, and usually on the premises of others while the activity is being conducted.
- A named insured contractor accidentally cuts utility lines while digging a trench.
- A named insured contractor accidentally starts a fire while welding.
Product liability arises from a named insured selling, distributing, or manufacturing products.
- A named insured distributor can be held liable if a consumer is injured by products sold by the named insured. Common occurrences include food and pharmaceutical items.
- A named insured manufacturer can be held liable if a defective product causes property damage or bodily injury.
Completed Operations Liability arises from an organization’s operations, such as service and repair activities. The activities are generally performed on the premises of others, and completed operations liability arises after completion.
- A named insured plumbing contractor installs a new water heater. After completion, the water heater leaked, causing damage to the home.
- A named insured carpentry contractor repairs stairs and balconies at an apartment community. Two months after completion, one of the balconies collapses, causing injury to the tenant.
Contractual Liability arises from one party assuming the responsibility of another party.
Examples include lease agreements and construction contracts.
Contingent liability arises out of work performed for the named insured by someone else.
EXCLUSIONS APPLY UNDER COVERAGES A, B, AND C. READ YOUR POLICY TO BECOME FAMILIAR WITH THE EXCLUSIONS. I WILL NOT REVIEW THEM IN THIS video or blog post.
This concludes my summary of Section I of The Commercial General Liability Coverage Form.
Now, let’s move to Section II – Who Is an Insured
SECTION II – WHO IS AN INSURED
I can’t overstate the importance of reading this section of your policy!
First and foremost, a person or organization must qualify as insured to have coverage under insurance protection. You may qualify as an insured in three ways:
- Named Insureds (those listed on the Declarations Page) and those who qualify as named insured.
- Automatic insureds. Automatic insureds vary by entity type as follows.
- Named Individual
- Partnership of Joint Venture
- Named Partnership
- Named Joint Venture
- Limited Liability Company
- Named LLC
- Named Entity
- Executive Officers
- Named Trust
- Others included as an automatic insured under the CGL policy are:
- Employees and Volunteer Workers
- Real Estate Managers
- Legal Representative if the named insured dies
- A Person or Organization with temporary custody if the named insured dies
- Newly acquired or newly formed organizations WITH the following considerations:
- Until the 90th day or the end of the policy, whichever is earlier.
- Does NOT include LLCs, joint ventures, or partnerships
With Section II now in mind, let’s move to Section III – Limits of Insurance
SECTION III – LIMITS OF INSURANCE
The CGL policy can provide six limits of insurance. These include:
- General Aggregate Limit
- Each Occurrence Limit
- Products/Completed Operations Aggregate Limit
- Personal & Advertising Injury Limit
- Damage to Premises Rented to You Limit
- Medical Expense Limit
Not all CGL policies provide limits for each item of coverage. For example, carriers will exclude limits based on the named insured’s operations. Check your policy to ensure you understand the limits.
You may reference your Declarations Page to find the Limits of Insurance. It is important to note that the limits listed on the Dec Page are the most paid regardless of the number of Insureds, Persons, or Organizations making the claims (or bringing lawsuits), or claims made, or suits brought.
Section III provides in more detail each limit of insurance. A quick review can provide you with valuable insight.
Next, let’s discuss Section IV – Commercial General Liability Conditions.
SECTION IV – COMMERCIAL GENERAL LIABILITY CONDITIONS
Section IV lists nine conditions in the CGL coverage form. I won’t bore you with this section because the nine conditions are straightforward. The conditions are part of the policy relating to cancellation, audits, claims, inspections, etc.
Regarding the Conditions, I think it’s important to focus on two sections: Duties in the Event of Occurrence, Offense, Claim, or Sut, and Separation of Insureds.
Remember that the insurance policy is a contract, and I have spoken time and time again about the language in the policy (the agreement) relating to claims reporting. I CAN’T STRESS ENOUGH THE IMPORTANCE OF TIMELY CLAIM REPORTING. Here are some critical points in the conditions:
- Notify your insurance company of an occurrence or an offense as soon as practicable.
- Record, record, record. Send specific information via written notice to the insurance company as soon as practicable once a claim or suit is received.
- Cooperate with the insurer. Remember, the insurance company can better protect your interests and theirs if they get ahead of the issue. If the adjuster needs assistance, provide it! And allow them to access your records.
- Other than first aid, do not voluntarily make payment, assume any obligation, or incur any expense without the insurance company’s permission.
You should also read and understand the condition of ‘Separation of Insureds.’ In summary, per this condition of the contract, insurance limits DO NOT apply separately, and it permits insured vs. insured claims/suits (cross-suits liability).
HOWEVER, many CGL policies then add an endorsement to EXCLUDE cross-suits, which is a perfect example of why you must READ YOUR POLICY!
We will now conclude with SECTION V – Definitions.
SECTION V – DEFINITIONS
As you read through the CGL policy, you will find many words in quotation marks.
You may access the definitions section of the CGL policy to read the definition of those words in quotation marks. You may find yourself moving back and forth between section V and others to get a clear understanding of the terminology as you progress.
As I mentioned, insurance companies will add endorsements (sometimes many) to broaden or restrict coverage in the Commercial General Liability Policy. It is essential that you continue past section V and read the endorsements as well.
WHAT CAN Fusco, Orsini & Associates DO FOR YOU?
If you think we covered a lot of information in this video, there is much more to explain regarding the CGL policy. In today’s world of direct-to-consumer offerings, technological advancements, and the rapidly changing business insurance marketplace, it’s imperative that you find sound representation to advise you on your coverage and protection. This could be the difference between a solvent business and one that struggles with claims and lawsuits.
Give us a call at 858-384-1506. We have more than 100 years of combined experience placing CGL for our clients and are happy to assist.