general provisions of the cgl

The Insurance Coverage Law Information Center

The following article is from National Underwriter’s latest online resource, FC&S Legal: The Insurance Coverage Law Information Center.

GENERAL PROVISIONS OF THE CGLThis article describes the general provisions found on the CGL form, including

supplementary payments, limits of insurance, and CGL conditions.

November 4, 2013

Supplementary Payments, Who Is an Insured, Limits, ConditionsSummary: The provisions for coverages A, B, and C of the commercial general liability coverage forms are discussed earlier in this section. The pages that follow describe the remaining policy provisions, most of which have general applicability to coverages A and B and in some cases to coverage C as well. These provisions include the supplementary payments, the extended definition of who is an insured, the limits of insurance provisions, and the commercial general liability conditions.

Topics covered:

• Supplementary payments

• Defense and indemnitees of the insured

• Who is an insured

• Employees as insureds

• Real estate managers/custodians

• Newly acquired organizations

• Undesignated joint ventures or partnerships

• Limits of insurance

• Other limits

• Application of limits

• Conditions

• Other insurance

• Other conditions

Supplementary Payments

There are seven supplementary payments, which are the same in both the claims-made and the occurrence versions of the CGL coverage form. The payments apply to both coverage A and coverage B.

We will pay, with respect to any claim we investigate or settle, or any “suit” against an insured we defend:

a. All expenses we incur.

b. Up to $250 for cost of bail bonds required because of accidents or traffic law violations arising out of the use of any vehicle to which the Bodily Injury Liability Coverage applies. We do not have to furnish these bonds.

c. The cost of bonds to release attachments, but only for bond amounts within the applicable limit of insurance. We do not have to furnish these bonds.

d. All reasonable expenses incurred by the insured at our request to assist us in the investigation or defense of the claim or “suit”, including actual loss of earnings up to $250 per day because of time off from work.

Call 1-800-543-0874 | Email [email protected] | www.fcandslegal.com ©2013. All Rights Reserved.

e. All court costs taxed against the insured in the “suit”. However, these payments do not include attorneys fees or attorneys expenses taxed against the insured.

f. Prejudgment interest awarded against the insured on that part of the judgment we pay. If we make an offer to pay the applicable limit of insurance, we will not pay any prejudgment interest based on that period of time after the offer.

g. All interest on the full amount of any judgment that accrues after entry of the judgment and before we have paid, offered to pay, or deposited in court the part of the judgment that is within the applicable limit of insurance.

These payments will not reduce the limits of insurance.

Analysis

The insurer promises to pay, with respect to any claim or suit it defends, the following: 1. All expenses incurred by the insurance company. 2. The cost of bail bonds, up to $250. These bonds must be required because of accidents or traffic law violations arising out of the use of a vehicle to which the general liability policy’s bodily injury liability coverage applies; in other words, a vehicle such as one defined as mobile equipment on the CGL form, and not one defined as an auto, which would be more properly insured under an auto policy. The provision for this payment states that the insurer does not have to actually furnish the bonds. 3. The cost of bonds to release attachments. This payment is limited to the cost of bonds whose amounts are within the applicable limit of insurance. Again, the policy states that the insurer is not required to furnish the bonds. 4. All reasonable expenses incurred by the insured at the insurer’s request to assist the insurer in investigating or defending the claim or suit. This includes actual loss of earnings up to $250 a day to compen-sate the insured for time off from work. The insured should note that the insurer will pay reasonable expenses and, since that is not a defined term on the CGL forms, the amount paid will be subject to the insurer’s agreement. 5. All court costs taxed against the insured in the suit. The provision also makes the point that these payments do not include attorneys’ fees or expenses taxed against the insured. This means that the attorneys’ fees and expenses of opposing counsel that may be taxed against the insured are not covered as supplementary payments. 6. Prejudgment interest awarded against the insured on that part of the judgment the insurer pays. The provision states that if the insurer makes an offer to pay the applicable limit of insurance, it will not pay any prejudgment interest for the period of time after the offer is made. 7. All interest on the full amount of any judgment that accrues after entry of the judgment and before the insurer has paid or offered to pay or deposited in court the part of the judgment that is within the applicable limit of insurance. This clause is telling the insured that, if the insurer decides to appeal a judgment against the insured, any interest on that judgment that accrues will be paid by the insurer and not the insured.

The CGL coverage forms state that “these payments will not reduce the limits of insurance”. In other words, the payments are in addition to the policy limits.

Defense and Indemnitees of the Insured

If we defend an insured against a “suit” and an indemnitee of the insured is also named as a party to the “suit”, we will defend that indemnitee if all of the following conditions are met:

a. The “suit” against the indemnitee seeks damages for which the insured has assumed the liability of the indemnitee in a contract or agreement that is an “insured contract”;

b. This insurance applies to such liability assumed by the insured;

c. The obligation to defend, or the cost of the defense of, that indemnitee, has also been assumed by the insured in the same “insured contract”;

d. The allegations in the “suit” and the information we know about the “occurrence” are such that no conflict appears to exist between the interests of the insured and the interests of the indemnitee.

e. The indemnitee and the insured ask us to conduct and control the defense of that indemnitee against such “suit” and agree that we can assign the same counsel to defend the insured and the indemnitee; and

f. The indemnitee:

(1) Agrees in writing to:


(a) Cooperate with us in the investigation, settlement or defense of the “suit”;

(b) Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the “suit”;

(c) Notify any other insurer whose coverage is available to the indemnitee; and

(d) Cooperate with us with respect to coordinating other applicable insurance available to the indemnitee; and

(2) Provides us with written authorization to:

(a) Obtain records and other information related to the “suit”; and

(b) Conduct and control the defense of the indemnitee in such “suit”.

So long as the above conditions are met, attorneys’ fees incurred by us in the defense of that indemnitee, necessary litigation expenses incurred by us and necessary litigation expenses incurred by the indemnitee at our request will be paid as Supplementary Payments. Notwithstanding the provisions of paragraph 2.b.(2) of Section I—Coverage A—Bodily Injury And Property Damage Liability, such payments will not be deemed to be damages for “bodily injury” and “property damage” and will not reduce the limits of insurance.

Our obligation to defend an insured’s indemnitee and to pay for attorneys’ fees and necessary litigation expenses as Supplementary Payments ends when:

a. We have used up the applicable limit of insurance in the payment of judgments or settlements; or

b. The conditions set forth above, or the terms of the agreement described in paragraph f. above, are no longer met.

Analysis

Expenses involved in the defense of an indemnitee of the insured are also covered under the CGL’s supplementary payments. The insured and the indemnitee must be named in the lawsuit, and several conditions must be met: the insured must have assumed the liability of the indemnitee; the insurance must apply to the liability assumed by the insured; the insured’s obligation to defend the indemnitee must have been assumed in the same contract; there must be no apparent conflict of interest between the insured and the indemnity; and the insured and the indemnitee must request the defense and agree that the same counsel can be appointed to represent both. It is important to note that all the conditions set forth in the Supplementary Payments part of the CGL form must be met if the defense costs for an indemnitee are to be paid as supplementary payments so as to not reduce the policy’s limits of insurance. If any one of the conditions is not met, defense costs for an indemnitee under an insured contract will be paid subject to the CGL form’s limits of insurance.

For more analysis on the payment of defense costs for indemnitees, see CGL Coverage Form—Coverage A; the discus-sion of the contractual liability exclusion also deals with defense payments for indemnitees.

Who Is an Insured

SECTION II - WHO IS AN INSURED

1. If you are designated in the Declarations as:

a. An individual, you and your spouse are insureds, but only with respect to the conduct of a business of which you are the sole owner.

b. A partnership or joint venture, you are an insured. Your members, your partners, and their spouses are also insureds, but only with respect to the conduct of your business.

c. A limited liability company, you are an insured. Your members are also insureds, but only with respect to the conduct of your business. Your managers are insureds, but only with respect to their duties as your managers.


d. An organization other than a partnership, joint venture or limited liability company, you are an insured. Your “executive officers” and directors are insureds, but only with respect to their duties as your officers or directors. Your stockholders are also insureds, but only with respect to their liability as stockholders.

e. A trust, you are an insured. Your trustees are also insureds, but only with respect to their duties as trustees.

2. Each of the following is also an insured:

a. Your “volunteer workers” only while performing duties related to the conduct of your business, or your “employees”, other than either your “executive officers” (if you are an organization other than a partnership, joint venture or limited liability company) or your managers (if you are a limited liability company), but only for acts within the scope of their employment by you or while performing duties related to the conduct of your business. However, none of these “employees”, or “volunteer workers” are insureds for:

(1) “Bodily injury” or “personal and advertising injury”:

(a) To you, to your partners or members (if you are a partnership or joint venture), to your members (if you are a limited liability company), to a co-”employee” while in the course of his or her employment or performing duties related to the conduct of your business, or to your other “volunteer workers” while performing duties related to the conduct of your business;

(b) To the spouse, child, parent, brother or sister of that co-”employee” or “volunteer worker” as a consequence of paragraph (1)(a) above;

(c) For which there is any obligation to share damages with or repay someone else who must pay damages because of the injury described in paragraphs (1)(a) or (b) above; or

(d) Arising out of his or her providing or failing to provide professional health care services.

(2) “Property damage” to property:

(a) Owned, occupied or used by,

(b) Rented to, in the care, custody or control of, or over which physical control is being exercised for any purpose by you, any of your “employees”, “volunteer workers”, any partner or member (if you are a partnership or joint venture), or any member (if you are a limited liability company).

b. Any person (other than your “employee” or “volunteer worker”), or any organization while acting as your real estate manager.

c. Any person or organization having proper temporary custody of your property if you die, but only:

(1) With respect to liability arising out of the maintenance or use of that property; and

(2) Until your legal representative has been appointed.

d. Your legal representative if you die, but only with respect to duties as such. That representative will have all your rights and duties under this Coverage Part.

3. Any organization you newly acquire or form, other than a partnership, joint venture or limited liability company, and over which you maintain ownership or majority interest, will qualify as a Named Insured if there is no other similar insurance available to that organization. However:

a. Coverage under this provision is afforded only until the 90th day after you acquire or form the organization or the end of the policy period, whichever is earlier;

b. Coverage A does not apply to “bodily injury” or “property damage” that occurred before you acquired or formed the organization; and


c. Coverage B does not apply to “personal and advertising injury” arising out of an offense committed before you acquired or formed the organization.

No person or organization is an insured with respect to the conduct of any current or past partnership, joint venture or limited liability company that is not shown as a Named Insured in the Declarations.

Analysis

The persons and organizations that qualify as insureds under the CGL coverage forms are set forth under section II of the forms, entitled “who is an insured.”

If the named insured is designated in the declarations as an individual, that individual and his or her spouse are insureds, but only with respect to the conduct of a business of which the named insured is the sole owner. No other family mem-bers are mentioned in this provision regardless of any possible involvement in the conduct of the business.

If the named insured is designated in the declarations as a partnership or joint venture, the designated partnership or joint venture is an insured. Also insured are members or partners of the named insured and the spouses of such members or partners, but, of course, only with respect to the conduct of the named insured’s business.

If the named insured is designated as an organization other than a partnership or joint venture (e.g., a corporation), the following are insureds: the named insured; executive officers (a term defined as a person holding any of the officer positions created by the named insured’s charter, constitution, by-laws, or any other similar governing document) and directors, with respect to their duties as such; and the named insured’s stockholders, with respect to their liability as stockholders.

Trusts and volunteer workers were added as insureds under the October, 2001 version of the CGL forms. Both classes are insureds only with respect to their duties as trustees or while performing duties related to the conduct of the named insured’s business as volunteers, respectively. It was possible to add trustees and volunteers as insureds under the general liability coverage through the use of endorsements; this revision now makes trustees and volunteers insureds automatically.

Employees as Insureds

Employees other than executive officers (who are covered as described above) are also insured, with respect to acts within the scope of their employment by the named insured. ISO has added the following phrase, which did not appear in previous editions, to this part of the provision: “or while performing duties related to the conduct of the named insured’s business”. This phrase is meant to encompass a leased employee’s activities since the term “employee” now includes leased workers; ISO has attempted to clarify the point that leased workers are to be considered as equal to and treated the same as regular employees under the commercial general liability coverage forms.

It should be noted that there are some exceptions when employees (and volunteer workers) are not insureds (in addition, of course, to regular policy exclusions). The following paragraphs reflect the exceptions.

The first of the exceptions is for bodily injury or personal and advertising injury to the named insured, partners or members (if the named insured is a partnership or joint venture), or to a co-employee or to other volunteer workers while in the course of his or her employment or while performing duties related to the conduct of the named insured’s business. It is notable that this exclusion applies not only to injuries to a co-employee but to injury to the named insured. If, for example, a sole proprietor is injured by one of his employees while the employee is acting in the course of his employment, the named insured’s policy is intended not to cover a resulting claim against the employee by the named insured. Note that in the case of Lariviere v. New Hampshire Insurance Group, 413 A.2d 309 (N.H. 1980), the New Hampshire supreme court held that a fellow-employee exclusion like that found in the broad form general liability endorsement did not apply to (i.e., there was coverage for) a named insured’s claim against one of his employees, despite the fact that the named insured was working with the employee at the time of the accident. Under the current CGL language, the same claim would seem clearly to be excluded. It should also be noted that this exception now clearly applies when injury occurs to partners or members of joint ventures; prior to the change that includes these parties in the exception, a case could have been made that, since partners and members of joint ventures were not mentioned, an employee who injured one of them could be considered an insured for coverage purposes under the CGL forms.

Other exceptions preclude coverage for third party actions involving co-employees and for consequential damage actions so as to track with the employer’s liability exclusion. Thus, no employee is an insured for injuries to the spouse,


child, parent, or sibling of a co-employee (note that partners or members of joint ventures are not mentioned), or for which there is any obligation to share damages with or repay someone else who must pay damages because of the injuries. If such injuries occur while the employee is in the course of employment by the named insured, such injuries are to be considered within the province of a workers compensation and employers liability insurance policy, and not the CGL coverage forms.

Another exception relating to employees’ status as insureds is bodily injury or personal injury arising out of the employ-ee’s providing or failing to provide professional health care services. This exclusion, which applies to employees of the named insured (and volunteer workers), does not eliminate the need for adding an endorsement to exclude professional acts of the named insured if the named insured is a hospital, physician, or other professional whose classification calls for exclusion of professional acts under general liability coverage.

By way of illustration, a nurse employed by a manufacturer to administer first aid to other employees would not be covered for liability arising out of her providing of health care services. As long as the policy is not amended with a professional liability exclusion that applies to the named insured, the named insured would be covered for liability arising out of the employed professional’s liability, provided no other exclusions applied, such as (in the case of an employee’s claim) those relating to injury to employees of the insured and to workers compensation obligations. If, for example, an employed nurse injured a visitor to the premises in administering first aid to the visitor, the policy would not cover a claim against the nurse but presumably would cover a claim against the employer.

The final exception pertaining to employees (and volunteer workers) as insureds is for property damage to property owned, occupied or used by the named insured or by any of the named insured’s employees or volunteer workers. Furthermore, no employee or volunteer worker is an insured for property damage to property rented to, in the care, custody, or control of, or over which physical control is being exercised for any purpose by the named insured or any employee or volunteer worker. The exception also applies when damage occurs to property of partners or members of joint ventures, if the named insured is a partnership or joint venture. So, an employee is not covered under the CGL forms for damage to his own property, to the property of other employees, or to the property of a partner or member of a joint venture. Coverage for property damage to property owned or occupied by the named insured is excluded by exclusion (j), of course, but this exception is meant to clarify that no employee is to be considered an insured if he damages property belonging to the named insured. For example, if an employee negligently damages the office furniture of the named insured employer, the named insured’s CGL form is not going to consider that employee an insured for the purpose of providing any coverage or defense costs should the named insured sue the employee for the damage.

Note that an employee or volunteer worker is not considered an insured for property damage to property in his care, custody, or control. Because of this point, consequences can develop when an employee damages property of the named insured’s customers. For example, the named insured is a cleaning service. An employee is moving a statue while in the performance of his duties and drops the statue, breaking it to pieces. The employee is not considered an insured under the employer’s CGL policy. If the employer and the employee were to be sued for the property damage, the CGL form would provide coverage and defense for the named insured, but the employee is on his own.

Real Estate Managers/Custodians

Any person or organization—other than an employee or volunteer worker of the named insured—acting as the named insured’s real estate manager is also an insured under the current CGL coverage forms, as was the case under the prior general liability policies.

In addition, there are two provisions relating to persons insured following the death of the named insured. The first of these provisions concerns any person or organization having proper temporary custody of the named insured’s property after his death. Such custodians of the named insured’s property are insured only with respect to liability arising out of the maintenance or use of the property until a legal representative of the named insured has been appointed. The second provision states that once a legal representative has been appointed, the legal representative is an insured, but only with respect to his duties as such. The legal representative has all of the named insured’s rights and duties under the CGL coverage forms.

Newly Acquired Organizations

Another part of section II, similar in most respects to the newly acquired organizations clause of the broad form liability endorsement, provides named insured status to organizations newly acquired or formed by the named insured, subject to certain conditions. The newly acquired or formed organization may not take the form of a partnership or joint venture; the named insured must maintain ownership or majority interest; there must be no other similar insurance available to the


organization; coverage applies only until the ninetieth day after the named insured acquires or forms the organization or, if earlier, until the end of the policy period; coverage A does not apply to bodily injury or property damage that occurred before the named insured acquired or formed the organization; and, coverage B does not apply to personal injury or advertising injury arising out of an offense committed before the named insured acquired or formed the organization.

Undesignated Joint Ventures or Partnerships

The final provision of section II is a statement that no person or organization is an insured with respect to the conduct of any current or past partnership or joint venture that is not shown as a named insured in the policy declarations. This is similar to the joint venture/partnership exclusion of the 1973 liability policy except that the current version clearly ad-dresses both current and past partnerships or joint ventures, while the 1973 version has been interpreted not to exclude partnerships or joint ventures of which the insured was previously, but not at the time of the claim, a partner or member.

The current version of the exclusion makes it clear that if the named insured wants continuing coverage under its current policy for a prior joint venture or partnership of which the named insured was a member or partner, the venture or part-nership must be designated in the current policy. Also, if the named insured wants a new joint venture or partnership to be covered under its policy, the venture or partnership will not have any coverage under the policy until the parties to the insurance contract agree to add it to the policy.

Limits of Insurance

SECTION III - LIMITS OF INSURANCE

1. The Limits of Insurance shown in the Declarations and the rules below fix the most we will pay regardless of the number of:

a. Insureds;

b. Claims made or “suits” brought; or

c. Persons or organizations making claims or bringing “suits”.

2. The General Aggregate Limit is the most we will pay for the sum of:

a. Medical expenses under Coverage C;

b. Damages under Coverage A, except damages because of “bodily injury” or “property damage” included in the “products-completed operations hazard”; and

c. Damages under Coverage B.

3. The Products-Completed Operations Aggregate Limit is the most we will pay under Coverage A for damages because of “bodily injury” and “property damage” included in the “products-completed operations hazard”.

4. Subject to 2. above, the Personal and Advertising Injury Limit is the most we will pay under Coverage B for the sum of all damages because of all “personal and advertising injury” sustained by any one person or organization.

5. Subject to 2. or 3. above, whichever applies, the Each Occurrence Limit is the most we will pay for the sum of:

a. Damages under Coverage A; and

b. Medical expenses under Coverage C

because of all “bodily injury” and “property damage” arising out of any one “occurrence”.

6. Subject to 5. above, the Damage To Premises Rented To You Limit is the most we will pay under coverage A for dam-ages because of “property damage” to any one premises, while rented to you, or in the case of damage by fire, while rented to you or temporarily occupied by you with permission of the owner.

7. Subject to 5. above, the Medical Expense Limit is the most we will pay under Coverage C for all medical expenses because of “bodily injury” sustained by any one person.


The Limits of Insurance of this Coverage Part apply separately to each consecutive annual period and to any remain-ing period of less than 12 months, starting with the beginning of the policy period shown in the Declarations, unless the policy period is extended after issuance for an additional period of less than 12 months. In that case, the additional period will be deemed part of the last preceding period for purposes of determining the Limits of Insurance.

Analysis

The applicability of the limits of insurance of the CGL coverage forms is set forth in section III of the forms. The most significant difference between the current CGL forms and the 1973 general liability policy as regards limits is the presence of a general aggregate limit in the current forms. This limit is the most that the insurer will pay during the policy period for the sum of damages under coverages A and B (other than injury and damage included within the products-completed operations hazard) and medical expenses under coverage C. Damages because of injury or damage within the products-completed operations hazard are subject to a separate products-completed operations aggregate limit.

The 1973 liability policy, in contrast, is not ordinarily subject to aggregate limits other than one that applies to bodily injury within the products and completed operations hazards and another that applies to property damage resulting from (1) risks rated on a remuneration basis or contractors equipment rated on a receipts basis; (2) operations performed for the named insured by independent contractors; and (3) the products and completed operations hazards. In cases involving neither of these aggregate limits, the 1973 liability policy is ordinarily subject only to per occurrence limits. Under the current CGL forms, all payments are subject to aggregate limits, in addition to per occurrence (or other) limits.

Consequently, it is possible that the general aggregate limit will eliminate coverage under the current CGL forms that would have existed under the 1973 policy. Say, for example, that the insured today has a CGL coverage form, with a per occurrence limit of $500,000 for coverage A and a general aggregate limit of $1 million. If during the policy period the insurer pays two coverage A claims (neither involving products or completed operations) worth $500,000 each, the policy will provide no more coverage—under any of the policy’s insuring agreements (A, B, and C)—for subsequent claims during the policy period. If the coverage had been arranged under the 1973 policy, the per occurrence limit would still be available for any further claims during the policy period, assuming the claims did not fall under products-completed operations or any of the other categories that are subject to an aggregate limit under the 1973 provisions. What the difference will mean, in many cases, is that the insured’s umbrella or excess liability insurer, if any, will be more likely to become involved in claims that previously would have been handled only by the primary insurer.

Other Limits

In addition to the general and products-completed operations aggregate limits, the current CGL forms are also subject to a per person (or per organization) limit for all personal injury and advertising injury payable under coverage B. Coverage B of the forms is, as stated earlier, subject as well to the general aggregate limit. Thus, it is entirely possible under the CGL coverage forms that a coverage B claim would not be payable, despite a declared sufficient per person limit for the claim, in the event that a number of coverage A claims had extinguished the general aggregate limit. This situation could be true even if there had been no previous coverage B claims during the policy period.

Note also that the per person limit applicable to coverage B does not appear to apply separately for later offenses against the same person. If, for example, a person was slandered by the named insured on one occasion and awarded the full per person limit in damages, a second instance of slander against the same person during the annual policy period would not be covered under that policy. This would be the case even if the aggregate limit had not been exhausted.

Like the 1973 liability policy, the current coverage forms are also subject to an each occurrence limit for bodily injury and property damage liability (coverage A). However, this limit in the current forms also encompasses medical and first aid expenses paid under coverage C. In other words, expenses paid under coverage C are applied to, and therefore reduce, the amount payable per occurrence under coverage A. For example, if one occurrence gives rise to claims under both coverage A and coverage C, the total recovery for all claims could not exceed the per occurrence limit (or, of course, the general aggregate limit). Another limit of liability, it should be noted, restricts the amount payable per person under coverage C.

The current CGL forms also carry a “damage to premises rented to you limit,” applicable to property damage to premises rented to the named insured, or temporarily occupied by the named insured with the permission of the owner. This limit applies in the same manner as the fire legal liability limit of the broad form liability endorsement. The payment of property damage losses under this category reduces the general aggregate limit since a loss here is paid under coverage A, and payment under coverage A reduces the general aggregate limit on the CGL form.



Application of Limits

The final portion of the limits of insurance section is as follows: the limits of insurance of this coverage part apply sepa-rately to each consecutive annual period, and to any remaining period of less than 12 months, starting with the beginning of the policy period shown in the declarations, unless the policy period is extended after issuance for an additional period of less than 12 months. In that case, the additional period will be deemed part of the last preceding period for purposes of determining the limits of insurance.

Although this section is largely self-explanatory, an example may be useful. Say that an insured purchases a policy with a three-year policy period beginning July 1, 2009, and ending June 30, 2012. The above provision makes it clear that even if the stated policy limits are depleted by claims during the first year of the policy period, the full stated limits will again be applicable beginning on July 1, 2010 (and again on July 1, 2011).

The provision also addresses situations where an annual policy period is shortened, as might be the case if the policy described were to be canceled on January 1, 2012, instead of expiring on June 30, 2012. Despite the shortening of the last annual period, the full stated limits would apply to claims covered under that period.

If, however, a policy is extended for a period of less than one year—say the insured requests a one-month extension of the policy, after the regular policy term has expired—the limits will not be renewed for that additional period. That is, if the policy limits had been reduced by claims paid during the preceding annual policy period, the reduced amounts of insur-ance would apply to the extension period, and not the full limits stated in the policy.

Conditions

SECTION IV - COMMERCIAL GENERAL LIABILITY CONDITIONS

1. Bankruptcy

Bankruptcy or insolvency of the insured or of the insured’s estate will not relieve us of our obligations under this Coverage Part.

2. Duties In The Event Of Occurrence, Offense, Claim Or Suit

a. You must see to it that we are notified as soon as practicable of an “occurrence” or an offense which may result in a claim. To the extent possible, notice should include:

(1) How, when and where the “occurrence” or offense took place;

(2) The names and addresses of any injured persons and witnesses; and

(3) The nature and location of any injury or damage arising out of the “occurrence” or offense.

b. If a claim is made or “suit” is brought against any insured, you must:

(1) Immediately record the specifics of the claim or “suit” and the date received; and

(2) Notify us as soon as practicable.

You must see to it that we receive written notice of the claim or “suit” as soon as practicable.

c. You and any other involved insured must:

(1) Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or “suit”;

(2) Authorize us to obtain records and other information;

(3) Cooperate with us in the investigation or settlement of the claim or defense against the “suit”; and

(4) Assist us, upon our request, in the enforcement of any right against any person or organization which may be liable to the insured because of injury or damage to which this insurance may also apply.


d. No insured will, except at that insured’s own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.

3. Legal Action Against Us

No person or organization has a right under this Coverage Part:

a. To join us as a party or otherwise bring us into a “suit” asking for damages from an insured; or

b. To sue us on this Coverage Part unless all of its terms have been fully complied with.

A person or organization may sue us to recover on an agreed settlement or on a final judgment against an insured; but we will not be liable for damages that are not payable under the terms of this Coverage Part or that are in excess of the applicable limit of insurance. An agreed settlement means a settlement and release of liability signed by us, the insured and the claimant or the claimant’s legal representative.

4. Other Insurance

If other valid and collectible insurance is available to the insured for a loss we cover under Coverages A or B of this Coverage Part, our obligations are limited as follows:

a. Primary Insurance

This insurance is primary except when Paragraph b. below applies. If this insurance is primary, our obligations are not affected unless any of the other insurance is also primary. Then, we will share with all that other insurance by the method described in Paragraph c. below.

b. Excess Insurance

(1) This insurance is excess over:

(a) Any of the other insurance, whether primary, excess, contingent or on any other basis:

(i) That is Fire, Extended Coverage, Builder’s Risk, Installation Risk or similar coverage for “your work”;

(ii) That is Fire insurance for premises rented to you or temporarily occupied by you with permission of the owner;

(iii) That is insurance purchased by you to cover your liability as a tenant for “property damage” to premises rented to you or temporarily occupied by you with permission of the owner; or

(iv) If the loss arises out of the maintenance or use of aircraft, “autos” or watercraft to the extent not subject to Exclusion g. of Section I—Coverage A—Bodily Injury and Property Damage Liability.

(b) Any other primary insurance available to you covering liability for damages arising out of the premises or operations, or the products and completed operations, for which you have been added as an additional insured.

(2) When this insurance is excess, we will have no duty under Coverages A or B to defend the insured against any “suit” if any other insurer has a duty to defend the insured against that “suit”. If no other insurer defends, we will undertake to do so, but we will be entitled to the insured’s rights against all those other insurers.

(3) When this insurance is excess over other insurance, we will pay only our share of the amount of the loss, if any, that exceeds the sum of:

(a) The total amount that all such other insurance would pay for the loss in the absence of this insurance; and

(b) The total of all deductible and self-insured amounts under all that other insurance.


(4) We will share the remaining loss, if any, with any other insurance that is not described in this Excess Insurance provision and was not bought specifically to apply in excess of the Limits of Insurance shown in the Declarations of this Coverage Part.

c. Method of Sharing

If all of the other insurance permits contribution by equal shares, we will follow this method also. Under this approach each insurer contributes equal amounts until it has paid its applicable limit of insurance or none of the loss remains, whichever comes first. If any of the other insurance does not permit contribution by equal shares, we will contribute by limits. Under this method, each insurer’s share is based on the ratio of its applicable limit of insurance to the total applicable limits of insurance of all insurers.

5. Premium Audit

a. We will compute all premiums for this Coverage Part in accordance with our rules and rates.

b. Premium shown in this Coverage Part as advance premium is a deposit premium only. At the close of each audit period we will compute the earned premium for that period and send notice to the first Named Insured. The due date for audit and retrospective premiums is the date shown as the due date on the bill. If the sum of the advance and audit premiums paid for the policy period is greater than the earned premium, we will return the excess to the first Named Insured.

c. The first Named Insured must keep records of the information we need for premium computation, and send us copies at such times as we may request.

6. Representations

By accepting this policy, you agree:

a. The statements in the Declarations are accurate and complete;

b. Those statements are based upon representations you made to us; and

c. We have issued this policy in reliance upon your representations.

7. Separation Of Insureds

Except with respect to the Limits of Insurance, and any rights or duties specifically assigned in this Coverage Part to the first Named Insured, this insurance applies:

a. As if each Named Insured were the only Named Insured; and

b. Separately to each insured against whom claim is made or “suit” is brought.

8. Transfer Of Rights Of Recovery Against Others To Us

If the insured has rights to recover all or part of any payment we have made under this Coverage Part, those rights are transferred to us. The insured must do nothing after loss to impair them. At our request, the insured will bring “suit” or transfer those rights to us and help us enforce them.

9. When We Do Not Renew

If we decide not to renew this Coverage Part, we will mail or deliver to the first Named Insured shown in the Declarations written notice of the nonrenewal not less than 30 days before the expiration date.If notice is mailed, proof of mailing will be sufficient proof of notice.


Analysis:

Section IV of both the claims-made and the occurrence coverage forms contain general conditions, as summarized below. There are nine in the occurrence form and ten in the claims-made form. These conditions are identical in most instances in both forms. Any differences are noted.

Other Insurance

The other insurance condition sets forth how the policy will pay damages and defense costs under coverages A and B when other valid and collectible insurance is available to an insured. Coverage C, medical payments, is not affected by other insurance and therefore always applies as primary coverage. How payment under coverages A and B is shared with other insurance depends on whether the policy is primary or excess to the other insurance.

If the policy is primary and the other insurance is excess, the primary policy pays first. If the other insurance is also consid-ered to be primary, the method of apportionment or sharing is contribution by equal shares if the other insurance permits this method of sharing; or contribution by limits if the other insurance does not permit contribution by equal shares.

There are certain situations when the CGL coverage forms are intended to be excess, whether the policy is otherwise a primary policy and whether the other insurance is stated to be primary, excess, contingent, or on some other basis.

One of these situations is when the other insurance is fire, extended coverage, builders’ risk, installation risk, or similar coverage on “your work” (i.e., work performed by or on behalf of the named insured). Say, for example, that the named insured is a general contractor erecting a building with the help of several subcontractors and that the named insured has both a CGL policy and a builders’ risk policy on the structure. If a fire arising out of the work of a subcontractor and dam-aging other portions of the building is covered under both policies, the CGL coverage form is intended to be excess over whatever coverage the builders’ risk policy provides.

A second situation when the CGL is considered excess is when the other insurance is fire insurance on premises rented to the named insured, or insurance purchased by the named insured to cover liability as a tenant. The intent here is to make the damage to premises rented to the named insured coverage of the CGL policy excess over any direct property insur-ance covering damage to the premises.

A third excess situation is when there is other insurance applicable to a loss arising out of the maintenance or use of aircraft, autos, or watercraft, to the extent that the loss is not subject to exclusion (g) of coverage A. For example, exclusion (g) does not apply to the parking of a customer’s car on the insured’s premises, and so, barring application of some other exclusion, if an employee of the insured injures a pedestrian while parking a customer’s car on the insured’s premises, the injury should be covered under the insured’s CGL policy. If the loss is also covered under the insured’s automobile liability insurance, the drafters’ intent is that the CGL policy should pay excess over the automobile policy.

The claims-made CGL form contains the same excess stipulations as above, plus an additional situation in which the claims-made form is always to be considered excess. That situation is when the other insurance is an occurrence type liability policy that has an effective date before the inception date of the claims-made policy and the claims-made policy either has no retroactive date or has a retroactive date earlier than the expiration of the occurrence policy.

To illustrate, say that an insured had an occurrence policy in effect until December 31, 2009, and this policy was replaced on January 1, 2010, with a claims-made policy having a retroactive date of January 1, 2009. If on January 2, 2010, a claim is first made against the insured for bodily injury that occurred on December 30, 2009, the loss will be covered under the occurrence policy, because the injury occurred during its policy period, and it will also be covered under the claims-made policy, because claim was first made during its policy period and the injury occurred after the retroactive date. According to the above stipulation, the claims-made policy will pay excess of the occurrence policy. Note that this stipulation does not address other insurance from the standpoint of coverage under an extended reporting period endorsement.

From the standpoint of defense coverage, neither of the CGL forms will respond for the payment of defense costs when the policy is considered to be excess to another policy’s duty to defend. If no other insurer defends, however, the forms state that the insurer will undertake the defense refused by another insurer, but will then have all the insured’s rights against the insurer that refused to defend.

When insurance under either of the CGL forms is excess over other insurance, the insurer agrees to pay its share of the amount that exceeds the sum of (1) the total that the other insurance would pay in absence of the excess insurance and (2) the total of all deductible and self-insured amounts under the other insurance. The insurer, when excess, will share the


remainder of the loss with other applicable excess insurance that is not intended to apply in excess of the insurance limits shown in the declarations.

Other Conditions

Bankruptcy. The bankruptcy condition states that neither bankruptcy nor insolvency of the insured or the insured’s estate will relieve the insurance company of its obligations under the policy.

Duties in the Event of Occurrence, Offense, Claim, or Suit. This condition specifies what the insured’s obligations are as conditions precedent to the insurer’s duty to settle, defend, or pay damages because of a claim or suit. Basically, the condition requires the named insured to see to it that the insurer is notified as soon as practicable of an occurrence or an offense that may result in a claim. The notice should include details of the occurrence or offense, such as the how, when, and where of the event, the names and addresses of any injured persons and witnesses, and the nature and location of any injury or damage. If an actual claim or suit is brought against any insured, the named insured must immediately record the specifics of the claim or suit and the date received, and notify the insurer as soon as practicable. The insurer must also receive written notice of the claim or suit as soon as practicable.

This condition clause is meant to convey upon the insured the importance of notifying the insurer quickly in the event of a claim, a lawsuit, or even of an occurrence (such as a slip and fall) that may lead to a claim or lawsuit. The use of the term “as soon as practicable” opens the condition to an ambiguity charge, of course, but most courts look at the issue in terms of common sense. Has the insurer received information about a claim or lawsuit early enough to adequately investigate the claim, to see if the coverage form applies, to set up a proper reserve, and, if necessary, to mount a proper defense against the claim or lawsuit? In short, has the insurer’s position been prejudiced or damaged to the degree that it cannot even investigate the claim or present a proper defense to a lawsuit in court? If not, the notice was given to the insurer “as soon as practicable” and the condition has been met by the insured.

Another important part of this condition states that no insureds will, except at their own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without the consent of the insurer. Insureds should be made aware of this condition since a violation of the provisions could prejudice the ability of the insurer to investigate the claim and mount a proper defense; this prejudice could lead the insurer to claim a breach of contract and then, try to make the insurance contract voidable. It makes sense for the insured to not voluntarily make any payments or assume any obligations in the event of an occurrence. After all, the insurer has agreed with the insured to “pay those sums that the insured becomes legally obligated to pay” and to “defend any suit seeking damages”. The insured has paid a premium for these contractual agreements and to ignore them is simply not good risk management.

It should be noted that this particular condition differs between the claims-made and occurrence coverage forms through the different coverage triggers of the two forms. The most significant difference is the statement in the claims-made form that “notice of an occurrence or offense is not notice of a claim”. That is, coverage is not triggered under the claims-made policy simply by the insurer’s being notified of an occurrence or offense; notice of claim, for example, by the injured party must actually be received and recorded by any insured or the insurer in order for coverage to be triggered under the claims-made form. Note, however, that if the insured notifies the insurer, as soon as practicable and no later than 60 days after the policy period, of an occurrence that took place during the policy period, the five year extended reporting period will apply to subsequent claims arising out of that occurrence.

Legal Action Against the Insurer. This condition states that no person or organization has a right under the coverage part “to join the insurance company as a party or otherwise bring the insurance company into a suit asking for damages from an insured”. It also prohibits any person or organization from suing the insurance company under the policy unless all of its terms have been fully complied with. The insured, for example, can sue the insurer for coverage under the policy only after notifying the insurer of the occurrence, forwarding suit papers, authorizing the insurer to obtain records, and performing any duties required of the insured.

The condition also states that a person or organization may sue the insurer “to recover on an agreed settlement or on a final judgment against an insured obtained after an actual trial”, but that the insurer will not be liable for damages that are not payable under the terms of the policy or that exceed the applicable limit of insurance. The condition defines agreed settlement as a “settlement and release of liability signed by us, the insured, and the claimant or the claimant’s legal representative”.

Premium Audit. The premium audit condition says that all premiums are computed with the insurer’s rates and rules; that the advance premium is only a deposit premium, final premium being based on audit at the end of the policy period; and that the first named insured must maintain such records as are deemed necessary by the insurer to compute the premium.


Representations. By accepting the policy, the named insured agrees that (1) all statements made in the declarations are accurate and complete, (2) the statements are based on representations made by the named insured to the insurer, and (3) the insurer has issued the policy in reliance upon such representations. For information on the effect of the insured’s declarations on coverage under insurance forms.

Separation of Insureds. Apart from the limits of insurance and any rights and duties specifically assigned to the policy’s first named insured, the insurance is to apply as if each named insured (if there are more than one) were the only named insured, and separately to each insured against whom claim is made or suit is brought. This condition is the current CGL forms’ version of the so-called severability of interests clause found in previous liability policies. Also, this condition should be read with an eye toward the “who is an insured” clause since it is that section of the CGL forms that defines just who is the insured to whom the insurance applies separately.

Transfer of Rights of Recovery Against Others. This condition is equivalent to the subrogation clause of the 1973 liability policy. The current version states that if the insured has rights to recover all or any part of a payment the insurer has made under the policy, those rights are transferred to the insurer. Moreover, the insured must do nothing to impair whatever rights exist at the time of the occurrence and, at the insurer’s request, must bring suit or transfer the rights of recovery to the insurer and help the insurer enforce them. Note the conditional “if” in this provision. It applies only “if” the insured has rights. If the insured has waived the rights (prior to a loss), for example, as a business person might waive them for a client, the provision is of no application.

When the Insurer Does Not Renew: If the insurer decides not to renew the policy, it must mail or deliver to the first named insured written notice of the nonrenewal no less than 30 days before the expiration date. (Requirements relating to the insurer’s duty to notify the insured of cancellation are in the common policy conditions form.

Right to Claim and “Occurrence” Information: This clause is found only in the claims-made version of the CGL form. The first named insured has the right to obtain insurance company records of reported occurrences and claim payments and reserves relating to any claims-made policy that the insurer has issued to the first named insured in the previous three years. If the insurance company cancels or elects not to renew the policy, it must provide the information no later than 30 days before the date of policy termination. Otherwise, the insurer must only provide the information if it receives a written request from the first named insured within 60 days after the end of the policy period. In that case, the insurer must pro-vide the information within 45 days after receiving the request. The named insured is prohibited from disclosing the claims information to any claimant or any claimant’s representative without the consent of the insurer.

In this clause, the insurer asserts that the claim information compiled is for its own business purposes and that, in providing that information to the first named insured, the insurer makes no representations or warranties to anyone. The information is, no doubt, as accurate as possible since the insurer relies to an extent on this data to keep its financial house in order, but mistakes do happen and this part of the clause is meant to short-circuit any attempt to sue the insurer based on some type of breach of warranty claim.


For more information, or to begin your free trial: •Call:1-800-543-0874

•Email:[email protected]

•Online:www.fcandslegal.com

FC&S Legal guarantees you instant access to the most authoritative and comprehensive insurance coverage law information available today.

This powerful, up-to-the-minute online resource enables you to stay apprised

of the latest developments through your desktop, laptop, tablet, or smart phone

—whenever and wherever you need it.

general provisions of the cgl

Economy & Finance