Commercial General Liability Coverage Guide, 12th Edition

Donald S. Malecki

• Publisher: The National Underwriter Company
• Year: 2017
• ISBN:
  9781945424342
• Topic: Business
• Subtopic: Insurance
• Index: Business

The ISO Commercial General Liability form is the backbone of most commercial insurance programs. That's why virtually every insurance professional must be able to navigate it confidently. Commercial General Liability Coverage Guide is the only professional resource that traces the coverage provisions of the ISO CGL form from the 1986 (in some cases earlier editions) to the mostly recently released form. With a focus on real-world application, the Commercial General Liability Coverage Guide has been a perpetual best seller since the first edition was published in 1985. Now in its 12th edition, this singular reference extends the long-standing tradition of continuous improvement with the inclusion of significant new material and updates: » Case summaries of some of the most important court decisions that directly affect the CGL policy interpretation from the past year » An in-depth analysis of several issues that have recently arisen in the CGL, including: » The Care Custody and Control Exclusion » The Pollution Exclusion » The "Your Product" and "Your Work" Exclusions » The Expected or Intended Exclusion » Additional Insureds » Property Damage » Professional Liability and General Liability Insurance| » Separation of Insured » State-by-State Analysis of Dram Shop Laws » Legal Status of Punitive Damages Insurability and Premises Liability » In-depth Analysis of the Liquor Liability Provision and the 2017 Changes to the Endorsement » Coverage Checklists for General Liability and for Commercial Umbrella and Excess Liability Commercial General Liability Coverage Guide also includes the Umbrella Form and Excess Form themselves, along with fully updated case law and a revised case law index. In addition to the all-new material, expert authors Donald S. Malecki and David Thamann have fully reviewed and revised (where necessary) the entire book. The 12th edition contains everything you've come to expect from this industry-standard CGL resource, including: » Original discussion and expert analysis supported by up-to-date multi-jurisdictional case law » The real-life examples that make this book the most practical CGL resource » Analyses of endorsement that may be used to tailor coverage » Highlights of the major changes seen in the 2013 ISO CGL form and analysis of how they affect coverage Only Commercial General Liability Coverage Guide enables you to master the Commercial General Liability form, navigate all the major policy provisions, correctly interpret policy language, and keep your focus on practical applications to real-world situations. Chapter by chapter, this plain-English guide dedicates its coverage to providing small businesses with options for having their auto exposures covered.

Chapter 1

Coverage A—Bodily Injury and Property Damage Liability

Bodily injury and property damage liability coverage is provided as Coverage A of the commercial general liability (CGL) coverage forms. Coverage A consists of two sections: insuring agreement and exclusions.

Insuring Agreement

Under the Coverage A insuring agreement, the insurer agrees to pay those sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage to which the insurance applies. In addition, the bodily injury or property damage must be caused by an occurrence that takes place in the coverage territory. Each of the italicized terms above is discussed in more detail in this chapter.

The insuring agreement also sets forth the coverage trigger that applies to each form. Form CG 00 01 contains an occurrence trigger, and CG 00 02 contains a claims-made trigger. The coverage triggers of the CGL coverage forms are described briefly in this chapter; a more detailed explanation of the coverage triggers is in Chapter 4.

While there are liability policies that are only activated when the legal obligation to pay is determined by a court, such is not the case with the standard CGL forms. Yet, there are differences of opinion. In insurance custom and practice, the phraseology “legally obligated to pay” does not mean that adjudication can only be resolved by a court. In fact, many insurers would prefer not to get involved in litigation because the cost of defense often can far exceed the cost of indemnity. On the other hand, there are cases, such as Bacon v. American Insurance Co., 330 A.2d 389, (1974) where it was held that the policy term “legally obligated to pay” required the presentation of proofs in a court of competent jurisdiction and a finding by the court or jury of liability.” The answer, therefore, is not definitive.

Finally, the insuring agreement expresses the insurer’s duty to defend the insured. Accordingly, this chapter describes the defense coverage provided by Coverage A. Because of their logical relationship to defense coverage, the supplementary payments section of the CGL coverage forms is also described in this chapter. The supplementary payments also apply to Coverage B, the subject of Chapter 2.

Meaning of Legally Obligated

The expression legally obligated connotes legal responsibility that is broad in scope. It is directed at civil liability, rather than criminal liability, the latter being against public policy to insure. Civil liability can arise from either unintentional (negligent) or intentional tort, under common law, statute, or contract.

The Coverage A insuring agreement does not contain the statement, found in the 1973 general liability policy, that the insurer will “pay on behalf of the insured.” The absence of that language should not, however, be taken to mean that the CGL coverage forms are indemnity policies, that is, policies that pay the insured only after the insured has paid the injured party. The current insuring agreement does not use the word indemnify, nor does it express any requirement that the insured must pay the injured party first. The insurer’s promise to “pay those sums that the insured becomes legally obligated to pay” requires only that the insured have an obligation to pay.

“Damages Because of”

Damages comprise those sums of money that the law imposes as compensation, such as medical and funeral expenses, loss of services, lost wages, and pain and suffering resulting from bodily injury, and repair bills and other forms of retribution for damage to property or its loss of use. Unless otherwise prohibited by law, damages may also include punitive damages. The fact that “damages” is not defined in CGL policies has made it the focal point in litigation dealing with environmental cleanup costs. Insureds have maintained that the costs associated with remediating contamination damage to property constitute damages. Insurers, on the other hand, have maintained that the term in question embraces any legal damages, or, in other words, the costs associated with actions at law, rather than actions in equity. An action in equity seeks an equitable remedy. For example, injunctive relief proceedings, one form of action in equity, deal with the required performance or prohibition of an act and therefore do not directly involve money damages, but these proceedings do involve costs and expenses in litigating them.

Yet the courts have interpreted damages in insurance policies independently of the legal and equitable distinction that has been asserted by insurers. Examples are nuisance actions, situations involving the mitigation of damage to restore property, and actions that have alleged a combination of injunctive relief and damages in an otherwise covered claim or suit.¹

The phraseology “damages because of,” as used in the CGL policy insuring agreement, conveys a broad promise that is sometimes overlooked. The pertinent part of the insuring agreement in which this phraseology appears reads: “We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.”

In light of this wording, all damages flowing as a consequence of bodily injury or property damage would be encompassed by the insurer’s promise, subject to any applicable exclusion or condition. This includes purely economic damages, as long as they result from otherwise covered bodily injury or property damage.

For example, absent some allegation of physical bodily harm potentially covered by a liability policy, there may be no coverage for allegations of emotional distress or mental anguish, depending on the law of the jurisdiction involved. In fact, the debate over whether emotional distress or mental anguish equates with bodily injury in the absence of physical bodily harm has long persisted. However, if a claimant sustains bodily injury or personal injury that is deemed to be covered by the policy, there should be no question that all damages for emotional distress or mental anguish flowing as a consequence from the bodily injury or personal injury should also be covered.

Likewise, loss of investments or profits and goodwill are not considered to be property damage, because the definition of property damage requires physical injury to tangible property. However, these damages, when associated with and flowing as a consequence of otherwise covered property damage, would also be covered.

“Bodily Injury” and “Property Damage”

“Bodily injury,” as defined in the CGL coverage forms, remains relatively unchanged from predecessor forms. It means:

Bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.

It has been said that when “bodily injury” is stated to mean bodily injury, it is an attempt to use words that need no further explanation, and it would be an imposition on insurers to require them to provide insureds with “an unnecessary lexicon” [Cotton States Mutual Ins. Co. v. Crosby, 260 S.E.2d 860 (Ga. 1979)]. In its usual sense of the word, however, bodily injury means hurt or harm to the human body by contact of some force and any resulting pain and suffering, sickness or disease, as well as death.

A definite uncertainty is whether bodily injury encompasses mental or emotional harm. Some courts have held that the term “bodily injury” is ambiguous and, therefore, includes emotional distress, whereas others courts have rejected such arguments. Much will depend on the facts. One thing for certain, however, is that there is no consensus. But, if, as a result of bodily injury, mental or emotional injury follows as a consequence, the liability policy generally covers such injury.

The definition of property damage has changed since introduction of the 1986 forms. To understand the transition of this definition, it is helpful to restate the definitions as they appeared in the 1986 forms and again with the 1990 and subsequent editions.

1986 CGL Policy Definition

a. Physical injury to tangible property, including all resulting loss of use of that property; or

b. Loss of use of tangible property that is not physically injured.

Within Insuring Agreement 1.c. there is an additional explanation:

“Property damage” that is loss of use of tangible property that is not physically injured shall be deemed to occur at the time of the “occurrence” that caused it.

1990 and subsequent editions of the CGL Policy

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it.

Under the 1986 forms, loss of use of tangible property resulting from physical injury to that tangible property is covered at any time it occurs following the physical injury. So, for example, loss of use of tangible property in 2002 resulting from physical injury to that tangible property in 2000 would be covered by the 2000 policy under the wording of Part (1) of the property damage definition in the 1986 policy. This application is reinforced by the fact that the CGL policy also covers “damages because of” property damage and that loss of use of tangible property physically injured, as a consequence, would fall into that category.

This contrasts with the wording found in Part a. of the property damage definition of the 1990 forms and as it exists today in subsequent policy editions, where loss of use resulting from physical injury to tangible property is deemed to occur at the time of the injury that caused it. It has been said that injury or damage generally is simultaneous with an occurrence, but that is not necessarily the case in every instance. However, not to complicate matters, assume that work was performed on a building in 2000. Defects in the construction cause windows to leak, damaging some contents in 2001. As a result of that physical injury to tangible property, there is loss of use of that part of the building in 2002, while repairs are pending and while repairs are being made. For purposes of applying coverage, loss of use would relate back to the policy year 2001, the date the water damage occurred.

In theory, there should be little difference in the application of coverage between the 1986 and 1990 editions. However, by stating under both of these editions that loss of use and the occurrence causing it must take place during the policy period, coverage may be difficult to ascertain or even be eliminated where the occurrence is in one policy period and loss of use is in another.

Interestingly, the property damage definition wording of the 1986 and 1990 CGL forms, requiring that both the occurrence and the loss of use occur during the policy period, produces a result similar in some ways to the progressive injury exclusion (so-called Montrose endorsements, named after the 1995 case of Montrose Chemical Corp. v. Admiral Insurance Company, 913 P.2d 878) that is now part of the standard CGL insuring agreements. The Montrose case and its consequences will be discussed in more detail in Chapter 4. However, it needs to be mentioned here that the purpose of the progressive injury exclusion is to preclude coverage in future policies for continuous or progressive injury or damage once it is known to exist. This is also the general idea behind the wording of the property damage definition stating that the loss of use of tangible property is deemed to occur at the time of the occurrence that caused it.

Reference to physical injury suggests that the tangible property must sustain some form of visible harm or impairment. However, even if loss or theft of property is not considered to be physical injury to tangible property, the insured may still be able to recover on the ground that there is “loss of use of tangible property not physically injured.” For example, see Travelers Insurance Co. v. De Bothuri and P.L.A. Inc., 465 So.2d 662 (Fla. App. 1985). A major coverage obstacle, however, is the damage to property exclusion j.(4) dealing with property damage to personal property in the care, custody or control of the insured. Depending on the facts, however, coverage is still possible despite the exclusion. See Empire Associates, et al., v. North River Ins. Co., 637 N.Y.S. 2d 417 (A.D. 1 Dept. 1996), where the care, custody or control exclusion was held not to apply to theft of jewelry from insureds’ tenant’s deposit box where the insureds did not maintain duplicate keys to these boxes.

Some insurers now specifically exclude money, securities, and other valuables from coverage under liability policies, or liability for loss to tangible property from theft. If other courts were to follow the decision of Advanced Network, Inc. v. Peerless Ins. Co., 119 Cal. Rptr.3d 17 (2010), these kinds of exclusion might be unnecessary. This was an action for damages for “loss of use” of property within the meaning of a CGL policy. The insurer argued, and the court agreed, that the replacement of cash stolen by the named insured’s employee from one of its clients, a credit union, was not “loss of use” but, instead, “loss of” the property and, therefore, not covered.

The 2001 revision of the CGL policy added the following language to the definition of “property damage”:

For purposes of this insurance, electronic data is not tangible property.

As used in this definition, electronic data means information, facts or programs stored as or on, created or used on, or transmitted to or from computer software, including systems and applications software, hard or floppy disks, CD-ROMS, tapes, drives, cells, data processing devices or any other media which are used with electronically controlled equipme...