Unlike first-party property policies (which cover an insured’s interest in its own property), liability policies provide coverage for an insured’s liability to a third party. Thus, when a liability claim is submitted to the insurer, or tendered, the insurer should investigate the claim to determine whether there is potential coverage and, therefore, a duty to defend the insured against the claim. This article provides a primer on key terms in a general liability insurance policy affecting an insurer’s investigation and defense obligation for third-party liability claims.
Some Basic Concepts
It is important to know the basics of liability insurance before discussing an insurer’s defense obligations under a liability policy. Although there are several types of liability insurance policies, this article focuses on a subset of liability policies: general liability policies and, more specifically, commercial general liability (CGL) policies. CGL policies are commonly purchased by businesses. Many insurers, but not all, issue CGL policies on forms written by the Insurance Services Office (ISO), which typically cover damages for “bodily injury” or “property damage” caused by an “occurrence.” In addition, CGL policies generally provide “personal and advertising injury” coverage. Usually, the policies provide the insurer with “the right and duty to defend” potentially covered claims or suits against the insured or both.
Analysis of the coverage obligations under a CGL policy also requires a basic grasp of insurance parlance. The third party claiming liability against the insured is often referred to as the “claimant” or, more precisely, the “third-party claimant.” The lawsuit filed by the third-party claimant against the insured is referred to as the “suit,” “lawsuit,” “action,” or “litigation” in which the claimant is also the plaintiff. The term “underlying” generally refers not only to the lawsuit asserted by the third-party claimant but also to the parties involved in that litigation. For example, the third-party claimant is the “underlying plaintiff” in the “underlying lawsuit.” To avoid confusion when discussing the insurer’s defense obligation, this article uses the terms “third-party claimant” and “underlying action” when referring to the action giving rise to the insurance claim. Further, as used in this article, “claim” refers to the insured’s request for coverage for the underlying lawsuit.