July 22, 2013

Insurance Take 5

Take 5

The first installment of a multi-part series in which a group of insurer and policyholder attorneys provide 5 almost-Twitter friendly practical pointers on insurance. This installment addresses the basic structure of a CGL policy and preliminary claims issues.

A publication of the Insurance Coverage Litigation Committee

Dana A. Ferestien
Williams Kastner
Seattle, WA

Jeffrey A. Kiburtz
Shapiro, Rodarte & Forman LLP
Santa Monica, CA

Joshua J. Pollack
Los Angeles, CA

Heather N. Sharp
Lugenbuhl, Wheaton, Peck, Rankin & Hubbard
Baton Rouge, LA

Robert A. Shults
Lugenbuhl, Wheaton, Peck, Rankin & Hubbard
Houston, TX

Steven H. Weisman
McCarter & English, LLP
Newark, NJ

1.  What is a CGL policy and how is it structured?

Commercial general liability (CGL) insurance is the most common form of business liability insurance, and generally covers risks common to all businesses. The “declarations” and “schedule of forms” typically are at the front of the policy, and identify general features of the policy and the forms included. The main policy form generally includes three insuring agreements (Coverages A for “bodily injury” and “property damage,”, B for “personal and advertising injury,” and C for medical payments, discussed below), definitions, exclusions and conditions.  Endorsements which modify the main policy form follow, and each should be separately identified in the schedule of forms (unless issued after the policy’s effective date). 

Practice Pointer:  Make sure you have a complete policy!  Always cross-reference the schedule of forms to the forms you have to ensure that  you have  a complete copy of the policy.  

2.  What is generally covered under a CGL policy?

Subject to a variety of exclusions discussed below, a CGL policy covers claims brought by third-parties against an insured for the risks identified in Coverage A (“bodily injury” and “property damage”) and Coverage B (“personal and advertising injury”).  A CGL policy also provides “no fault” coverage under Coverage C for medical expenses incurred by limited classes of people injured on the insured premises or by the insured’s operations.  When liability coverage under Coverages A or B exists, the insurer is generally required to retain and pay a lawyer to defend the insured against the third-party claim, and to settle the case or pay covered damages awarded against the insured. 

Practice Pointer:  Don’t forget Coverage B!  While “bodily injury” and “property damage” claims are often easy to recognize, Coverage B can be triggered by subtle allegations in a broad variety of business torts.

3.  What types of risks are typically excluded from a CGL policy?

Coverage A typically exclusions generally bar coverage for the cost of repairing or replacing the insured’s own defective work or product; damage to property owned or rented by the insured, or property in the insured’s custody and control; damages and injuries which are expected or intended by the insured; obligations the insured has due to bodily injury to the insured’s employees, including worker’s compensation and disability benefits; damages and injuries arising out the use of automobiles, watercraft, and aircraft; and damages and injuries arising out of pollution. CGL policies also generally contain a “contractual liability” exclusion barring coverage for injury or damage for which the insured is obligated to pay by reason of the assumption of liability in a contract or agreement.

Coverage B exclusions generally bar coverage for liability arising out of offenses committed by the insured when the insured knowingly violates the rights of another, publishes material with knowledge of its falsity, commits a criminal act, breaches a contract, or infringes on another’s copyright, patent or trademark. 

CGL policies may also exclude coverage for professional liability.  Depending on the insured’s business, the insured may wish to secure a separate professional liability or errors and omissions policy.  The application and enforceability of certain exclusions may vary widely by state. 

4.  What should an insured do when it has a claim it thinks might be covered by a CGL policy?

If an insured has a claim it thinks might be covered by  insurance, it should transmit information about the claim to its insurer in a timely manner and pursuant to the conditions of the policy.   Once the insurer has been notified of a claim and if the insurer has a duty to defend, the insured has an obligation, under most CGL policies, to cooperate and assist in the investigation, defense, and settlement of such claim.  In all events, an insured should familiarize itself with the CGL policy’s provisions (including the notice and cooperation provisions) to discern its rights and obligations under the policy.

5.  What should an insurer do when it receives tender of a claim under a CGL policy?

An insurer should promptly acknowledge receipt of a tender, identify and request any additional information needed from the insured or other sources in order to and determine whether the claim is covered.  If the claim is not in litigation, it may be necessary to defer a coverage decision.  On the other hand, if the claim is in litigation, an insurer should evaluate whether it has a duty to defend, and if so, an insurer should appoint counsel to defend the insured. Where appropriate, the insurer should also prepare and deliver a reservation of rights letter that explains any issues that may limit or eliminate coverage for the claim.  The exact timing for these steps varies as each state has its own claims handling regulations that imposes deadlines upon insurers.