What is Commercial General Liability?
Businesses need general liability insurance to cover their exposure to liability losses that can result from their business operations.
CGL Comes in 2 Forms:
1. Occurrence Form
Triggered by WHEN the event happened
2. Claims-Made Form
Triggered by WHEN the claim is reported
1. Basic Hazards
Premises and Operations Hazard
Includes the ownership, maintenance, or use of the insured's premises and all business operations.
What It Covers:
- All liability losses from the insured's operations
- All liability losses from the insured's premises
Excludes: Products and completed operations hazard (separate coverage)
Products and Completed Operations Hazard
Covers injuries or damage that occur after the insured has:
- Completed its job and left the site, OR
- Relinquished control of a product it manufactured or sold
When Is This Coverage Included?
AUTOMATIC (Included):
- Manufacturers
- Distributors
- Retailers
- Contractors
- Restaurants
OPTIONAL (May be excluded):
- Some service businesses
- Office professionals
- Consultants
- Low product-risk operations
Important: Most commercial CGL policies INCLUDE this coverage automatically. It's typically built into the standard policy for businesses that sell products or complete work for customers.
Independent Contractors
An individual or entity that:
- Agrees to perform specific work for the insured
- Is responsible for completing the work
- Is NOT subject to the direction of the insured
- Is NOT an employee
Understanding "Control" vs "Hiring"
This confuses many people. Here's the key distinction:
You DON'T Control:
HOW they do the work
Methods, tools, schedule, approach
You DO Control:
WHAT work they do
You hired them for a specific job
Example:
You hire a plumber to fix a leak in your building. You tell them "fix the leak in the bathroom" (WHAT to do) but you don't tell them which wrench to use or what technique to apply (HOW to do it).
The plumber is independent because you don't control their methods. But if the plumber floods your building causing damage to a tenant, you might still be liable for hiring them. This is the gap the OCP endorsement covers.
Important:
Independent contractors are only covered under the insured's General Liability policy with an endorsement.
OCP Endorsement
The Owners and Contractors Protective Liability (OCP) endorsement may be added to provide coverage for claims caused by the negligence of a contractor or subcontractor hired by the insured.
Insured Contracts (6 Types CGL WILL Cover)
The General Rule:
CGL excludes bodily injury or property damage that the insured has assumed under any contract or agreement.
HOWEVER, the exclusion does NOT apply to these 6 types of contracts:
1. Contracts for Lease of Premises
When you rent a space like an office, warehouse, or store.
2. Sidetrack Agreements
Agreements about railroad tracks that branch off to serve your business.
3. Easement or License Agreements
Except in connection with construction or demolition within 50 feet of a railroad.
4. Obligations to Indemnify a Municipality
Except in connection with work FOR the municipality.
5. Elevator Maintenance Agreements
When you agree to maintain/service elevators.
6. Liability You'd Have Anyway by Law
Liability the insured assumes that would have been imposed by law even without the contract.
Exception: Does NOT include contracts to indemnify a railroad, architect, engineer, or surveyor.
Understanding Item 4 vs Item 6: What's the Difference?
Item 4: Lease of Premises
You contractually agree to assume liability
Example:
You lease an office building. The lease contract says you will "hold the landlord harmless" for any slip-and-falls on the property. A customer slips on ice you should have cleared. The CGL WILL cover this because lease agreements are an insured contract.
Item 6: Liability by Law
You already have this liability automatically
Example:
Your employee injures someone while working. You are vicariously liable by law for employee actions (no contract needed). Even if you sign a service agreement saying you're responsible for employee actions, the liability was already yours anyway. CGL covers it.
Key Difference:
Item 4: Contract creates new liability (you agree to protect the landlord)
Item 6: Contract just confirms existing legal liability (you'd be liable anyway)
Example: Hold Harmless Agreements
"Hold harmless" = An agreement to assume the financial consequences of another person's liability.
Scenario:
John hires Thompson to renovate his building. The contract says Thompson will hold John harmless for any public injuries. Thompson then hires Baker with a similar hold harmless agreement.
A member of the public is injured (no one's fault) and sues John. John seeks recovery from Thompson, and Thompson's insurer pays.
Thompson's insurer then tries to recover from Baker...
Result: Baker's CGL will NOT cover this because Thompson's liability only exists because of the agreement with John - it wouldn't have been "imposed by law in the absence of any contract."
2. CGL Coverage Forms (A, B, C)
Coverage A: Bodily Injury and Property Damage Liability
Provides protection for BI and PD suffered by third parties due to the negligence of the insured, arising from:
- Insured's premises
- Operations
- Product or completed operations
...that occur within the coverage territory and time frame described by the policy.
The Insuring Agreement (What the Insurer Promises):
- Pay sums the insured is legally obligated to pay as damages
- Right and duty to defend the insured in a suit
- May investigate any occurrence
- Will pay no more than the policy limits
- Right and duty to defend ends when limits are exhausted
Coverage B: Personal Injury and Advertising Injury
Covers specific acts that result in a non-physical injury to a third party.
Personal Injury includes:
- False arrest, detention, imprisonment
- Malicious prosecution
- Wrongful eviction/entry
- Invasion of privacy
- Slander or libel
- Defamation of character
Advertising Injury includes:
- Copyright infringement in ads
- Trade secret infringement
- Using another's advertising idea
- Libel/slander in advertising
- Privacy violations in advertising
Coverage C: Medical Payments
Provides necessary medical, surgical, ambulance, hospital, professional nursing, or funeral expenses for injuries to third parties.
This is "Good Will" Coverage!
Payments are made without regard to fault or negligence of the insured.
Requirements:
- Medical expenses must be incurred and reported within 1 year (12 months) of the accident
- Injury must occur on premises owned/rented by insured, OR
- On ways next to the premises, OR
- Due to the operations of the insured
Understanding the 12-Month Timeline
The clock starts from the DATE OF THE ACCIDENT, not from when the policy was issued.
Timeline Example:
Jan 1, 2024
Accident occurs
Clock starts
Throughout 2024
Medical treatment
Bills accumulate
Dec 31, 2024
Deadline
Must be reported
Key Point: All medical expenses must be both incurred (treatment received) AND reported to the insurer by December 31, 2024 - exactly 12 months from the accident date.
Quick Reference: CGL Coverages
| Coverage | What It Covers |
|---|---|
| A: BI & PD | Physical injury to people and property of third parties |
| B: PI & AI | Non-physical injuries (reputation, privacy, false arrest) |
| C: Medical | Medical expenses for third parties (no-fault) |
Occurrence vs. Claims-Made Forms
Coverage Trigger = What makes a policy respond to a claim
The essential difference is how coverage is triggered.
Occurrence Form
Pays for BI and PD that occurs during the policy period, even if the loss is not discovered or reported until months or years later.
Example:
Herbacure Remedies sold a hair product in 1990. In 2004, it was discovered the product caused heart damage. Even though the claim was made in 2004, the 1990 policy responds because that's when the product was sold.
Claims-Made Form
Pays for BI or PD reported during the policy period (as long as the loss occurred on or after the retroactive date).
Example:
Policy: March 2009 - March 2010. Loss occurs September 2009 but isn't reported until June 2013.
NOT covered - claim wasn't reported during the policy period.
Retroactive Date (Claims-Made Only)
A coverage limitation that provides coverage only for claims:
- Reported during the policy period, AND
- Arising from events that occur on or after the retroactive date
Initially, the retroactive date = the inception date of the first claims-made policy. Renewals keep the same retroactive date to provide continuous coverage.
Warning: If the retroactive date is advanced, a gap in coverage is created!
Extended Reporting Periods (Tails)
60 Days
Mini-Tail
Automatic - included free
Claims that occurred during policy and are reported within 60 days after expiration are covered.
5 Years
Midi-Tail (Basic ERP)
Automatic - included free
If potential loss is reported within mini-tail, coverage applies for claims filed within 5 years of incident.
Unlimited
Supplemental ERP
Costs 200% of premium
Converts claims-made to occurrence-type. Subject to aggregate limit (never renews).
Exam-Style Question
The insured has a claims-made policy (1/1/11 - 1/1/12) with retroactive date 1/1/11. They switch to occurrence form without buying extended reporting period. On 5/15/12, they learn of a claim that occurred on 3/17/11. Which policy covers it?
Answer: NO COVERAGE under either!
- Claims-made: Claim not reported within 60 days of expiration
- Occurrence: Loss didn't occur during the occurrence form policy period
Who Is An Insured?
Depends on how the business is designated in the Declarations:
Individual (Sole Proprietor)
The individual insured and their spouse (for conduct of the business only)
Partnership or Joint Venture
Named insured, members, partners, and their spouses (for business conduct)
Limited Liability Company (LLC)
Named insured, members (for business activities), and managers (for manager duties)
Corporation or Other Organization
Named insured, executive officers, directors, stockholders (for their duties only)
Trust
Named insured and trustees (for trustee duties only)
Also Considered Insureds (All Entity Types):
- Employees and volunteers (for acts within scope of employment)
- Any person/agent acting as insured's real estate agent
- Anyone with temporary custody of insured's property if insured dies
- Newly acquired organizations (up to 90 days or policy expiration)
Supplementary Payments
Amounts the insurer pays in addition to the stated policy limits (for Coverages A and B):
Bail Bonds
Up to $250
Lost Income
Up to $250/day for reasonable expenses
Court Costs
Taxed against insured (not attorney fees)
Interest
Prejudgment and post-judgment interest
Note: The insurer's duty to defend ceases when total claims paid reaches the aggregate limit.
Limits of Liability
Per Occurrence Limit
Maximum payable per occurrence/accident, regardless of number of claimants. Same for premises/operations and products/completed operations.
General Aggregate Limit
Most the insurer will pay for ALL losses during a policy period for Coverages A, B, and C. Separate aggregate for products/completed operations.
Fire Damage Legal Liability
Specific coverage for fire damage to property the insured leases or temporarily occupies, caused by insured's negligence. Limit shown on declarations page.
Key Numbers to Memorize
60 days
Mini-tail reporting period
5 years
Midi-tail coverage period
200%
Cost of supplemental ERP
12 months
Medical expenses reporting (Cov C)
90 days
Newly acquired org coverage
$250
Bail bond / daily lost income
50 feet
Railroad easement exception
36 months
Books/records audit period