General Liability Coverage and Underwriting

Underwriting Boot Camp | October 25-28, 2021

General Liability Coverage and Underwriting

Chris Behymer, CPCU, ASLI, CIWDirector of Client Education – Markel Specialty

Marcela ConnorAssociate Vice President, Branch Manager – Jencap Insurance Services

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Agenda

I. Liability loss exposuresII. Basic elements of the CGL policyIII. Part A exclusionsIV. Part B and C exclusionsV. Supplementary paymentsVI. Limits of coverageVII. Who is an insured?

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Agenda

VIII. ConditionsIX. Occurrence vs. claims madeX. Additional insured and certificate of insurance issues and

challengesXI. Surplus lines endorsementsXII. Other liability coverage formsXIII. Summary, conclusions, and final thoughts

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Liability Loss Exposures

Definition: All costs to a person or an organization due to legal claims or suit against that person or organization for damages.

This first section deals with the EXPOSURE. Values exposed to lossCause of lossFinancial consequences

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Civil Law & Criminal Law

Civil Law• A body of rules that delineate private rights and remedies and govern

disputes between individuals in such areas as contracts, property and family law distinct from criminal or public law.

Criminal Law• A body of rules and statutes that defines conduct prohibited by the

government, because it threatens and harms public safety and welfare, and that establishes punishment to be imposed for the commission of such acts.

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Sources of Legal Liability

Legal Liability

Torts

Strict Liability

Intentional Torts

Negligence

Contracts

Breach of Contract

Hold-Harmless Agreements

Statutes

Workers’ Comp.

Other statutes defining legal duties and standards of care

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Types of Damages

Compensatory• Special – out-of-pocket costs like medical expenses or lost earnings• General – intangibles like pain and suffering

Punitive – to punish or make an example of a wrongdoer

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Major Exposure Categories

Premises LiabilityOperations LiabilityProducts LiabilityCompleted Operations LiabilityOthers Personal and Advertising Injury Contractual Liability

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Premises Liability

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Operations

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Products Liability

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Completed Operations LiabilityCompleted Operations covers damages occurring after operations have been completed or abandoned, or after an item is installed or built and released for it’s intended purpose.

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Completed Operations LiabilityOne of northern China’s longest bridges collapsed.

• Four trucks plunged 100 feet to the ground.

• Three people were killed. • The bridge had been

opened only nine months.

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Commercial General Liability Policy

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Insurance Services Office (ISO) www.iso.com Advisory organization Insurance industry's leading supplier of statistical, actuarial,

underwriting and claims data Develops policy language Develop rules needed to write and rate insurance policies File rates & forms with state regulators

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Rating CGL Coverage

Formula: Rate X Exposure = Premium

Premium Base:The unit in which the rate exposure is measured like gross sales or payroll• Retail – gross sales• Contracting – Payroll or sales• Special Events – Number of Admissions• Apartments – Number of units

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Commercial General Liability Policy

Common Declarations Common Conditions General Liability Coverage Part

• CGL declarations• CGL coverage forms

• Occurrence form• Claims-made form

• Endorsements

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CGL Coverage Form Section I - Coverages

• Coverage A – BI & PD Liability• Coverage B – Personal & Advertising Injury• Coverage C – Medical Payments• Supplementary Payments – Coverage A & B

Section II – Who is an Insured Section III – Limits of Insurance Section IV – CGL Conditions Section V – Definitions

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CGL Coverage Form

Three Basic Coverages

• Coverage A – Bodily Injury & Property Damage Liability

• Coverage B – Personal & Advertising Injury Liability

• Coverage C – Medical Payments

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Coverage A – BI / PD Liability

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

“Property Damage” – Physical injury to tangible property, including resulting loss of use of that party and loss of use of tangible property that is not physically injured.

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BOOM!

Someone doing storm sewer work with a backhoe cut through the gas main. The natural gas leaked into the basement of a nearby strip plaza and apartments and ignited. The plaza was reduced to rubble and, unfortunately, six people were killed.

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Coverage A – BI / PD Liability

Two distinct duties of the insurer:

• Pay damages on behalf of the insured

• Defend the insured against suits seeking damages covered under the policy

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Coverage A – BI / PD Liability

Insurer’s Duty to Pay Damages Legally Obligated to Pay Damages BI/PD Injury/Damage to which Insurance Applies Caused by an “Occurrence”

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Occurrence

Definition: An accident, including continuous or repeated exposure to substantially the same general harmful conditions.

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Coverage A – BI/PD Liability

Insurer’s Duty to Pay Damages (continued) “Coverage Territory” Injury or Damage Occurring During the Policy Period

• Occurrence Coverage Trigger• Continuous Injury Trigger - Montrose Provision

Injury or Damage Not Known Before the Policy Period

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Duty to Defend

The insurer has the right and explicit duty to defend the insured against any suit seeking damages for BI/PD. This “Duty” is broader than the duty to indemnify the insured for

legal liability associated with BI/PD.• As long as at least one of the alleged acts or omissions is possibly

covered, the insurer defends the insured against the entire complaint.

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Liability vs. Coverage An insured may be liable or responsible for damages, but the

policy may not provide coverage. Examples:• An auto loss submitted to the general liability carrier• A liquor related loss occurs, and the insured does not carry liquor

liability coverage• A certificate of insurance requires 60-day notice of cancellation

but the policy has not been endorsed Before you determine coverage, you must assess

the liability issue first

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Exclusions Eliminate Claims that are…

Uninsurable

Catastrophic

Covered under other policies

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Coverage A – Exclusions

a. Expected or Intended Injury• Difference between intended

injury and intended act• Exception for the use of

reasonable force• Note: some surplus lines carriers

will remove this exception to the exclusion

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Coverage A – Exclusions

b. Contractual Liability• Definition of “Insured Contract”

• L• E• A• S• E• R

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Coverage A – Exclusions

b. Contractual Liability• Definition of “Insured Contract”

• Lease of premises• Easement• Agreement to assume tort liability of another• Sidetrack agreement• Elevator maintenance agreement• Requirement by ordinance to indemnify a municipality

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Coverage A – Exclusions

b. Contractual LiabilityTwo commonly used endorsements amend the definition of an “insured contract” by addressing Agreement to assume tort liability of another (paragraph f.):

• CG 2139 Contractual Liability Limitation removes paragraph f. and therefore, liability assumed under any other contract.

• CG 2426 Amendment of Insured Contract amends f. to require: caused, in whole or in part, by you or by those acting on your behalf.

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Coverage A – Exclusions

c. Liquor Liability• The exclusion only applies

if the insured is in the business of:• Manufacturing,

distributing, selling, serving or furnishing alcoholic beverages

• Host liquor coverage• BYOB establishments

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Coverage A – Exclusions

d./e. Workers' compensation and employers' liability• Why is employers' liability

coverage needed?• Dual capacity claims• Third party over-action claims

• Intent it to make workers compensation primary source of recovery for work related injuries

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Coverage A – Exclusions

f. Pollution• The old exclusion contained an

exception for “sudden and accidental”• Current exclusion provides some

limited protection for:• Off premises• Smoke, fumes or vapors from HVAC

system• Hostile fire• Material brought on site by a contractor

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Coverage A – Exclusions

g. Aircraft, watercraft, autos• Some limited protection for parking

of cars (liability only)• Owned watercraft on the insured

premises and some rented watercraft off premises

• Negligent entrustment and negligent hiring

• Including “loading and unloading”• Exception for “mobile equipment”

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Coverage A – Exclusions

h. Mobile Equipment • Exclusion applies to

• Transportation of mobile equipment. Insurable under the auto policy

• Used in a prearranged racing, stunting, speed or demolition contest

• Definitions are key here! Know what you are writing, “auto” or “mobile equipment.”

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Coverage A – Exclusions

i. War• Defined as:

• Including undeclared or civil war• Warlike action• Insurrection, rebellion,

revolution, etc.

• In the wake of 9-11-2001, new endorsements have been introduced to exclude terrorism

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Coverage A – Exclusions

j. Damage to Property (CCC)• Property you own• Premises you sell or give away• Property loaned to you• Personal property in CCC• Part of real property where you

or your contractors are working• Part of real property that must

be repaired because of your work

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Coverage A – Exclusions

k. Damage to Your Product• Applies to products

manufactured or sold by you• Does not exclude real property• Property includes warranties or

representations

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Coverage A – Exclusions

l. Damage to Your Work• Work performed by you or on

your behalf and includes materials and parts

• Basic CGL exclusion has an exception for work performed by a subcontractor

• Applies to work within the definition of the products completed operations hazard

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Coverage A – Exclusions

m. Damage to Impaired Property• Failure to perform exclusion• Due to a defect or deficiency in

the insured’s product or the insured’s work

• Exclusion does not apply if physical damage occurs

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Coverage A – Exclusions

n. Recall of Products, Work or Impaired Property• Referred to as the sistership exclusion• Excludes the costs to recall and repair

faulty products• Applies to products and work

performed by the insured• Includes loss of use

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Coverage A – Exclusions

o. Personal and Advertising Injury• More than just bodily injury and

property damage• There is a separate section in the

policy for this coverage• This exclusion eliminates duplication

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Coverage A – Exclusions

p. Electronic Data• Applies to loss of, loss of use,

damage to or corruption of electronic data

• Very, very broad exclusion• Coverage can be purchased for

an additional charge

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Coverage A – Exclusions

q. Distribution of Material in Violation of Statutes• Applies to provisions of the

TCPA, CAN-SPAM acts• Regulates the sending,

transmitting, communicating or distribution of material or information

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Coverage A – Exclusions

r. Fire damage coverage• Applies to premises rented to

you• Formerly called fire legal liability• Exclusions c through n do not

apply• Separate limit of coverage

listed on the dec page applies• Basic limit is $100,000

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Section I – Coverages

Coverage A –Bodily Injury & Property Damage Liability

Coverage B –Personal & Advertising Injury Liability

Coverage C –Medical Payments

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Coverage B: PI and AI Liability

Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "personal and advertising injury" to which this insurance applies…

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“Personal and advertising injury"

a. False arrest, detention or imprisonment;b. Malicious prosecution;c. The wrongful eviction from, wrongful entry into, or invasion of

the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor;

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“Personal and advertising injury”

d. Oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;

e. Oral or written publication, in any manner, of material that violates a person's right of privacy;

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“Personal and advertising injury”

f. The use of another's advertising idea in your "advertisement"; or

g. Infringing upon another's copyright, trade dress or slogan in your "advertisement".

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2. Exclusions

This insurance does not apply to:

a. Knowing Violation of Rights of Another"Personal and advertising injury" caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict "personal and advertising injury".

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2. Exclusions

b. Material Published With Knowledge of Falsity"Personal and advertising injury" arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity.

c. Material Published Prior to Policy Period"Personal and advertising injury" arising out of oral or written publication of material whose first publication took place before the beginning of the policy period.

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2. Exclusions

d. Criminal Acts"Personal and advertising injury" arising out of a criminal act committed by or at the direction of the insured.

e. Contractual Liability"Personal and advertising injury" for which the insured has assumed liability in a contract or agreement. This exclusion does not apply to liability for damages that the insured would have in the absence of the contract or agreement.

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2. Exclusions

f. Breach of Contract"Personal and advertising injury" arising out of a breach of contract, except an implied contract to use another's advertising idea in your "advertisement".

g. Quality or Performance of Goods – Failure to Conform to Statements"Personal and advertising injury" arising out of the failure of goods, products or services to conform with any statement of quality or performance made in your "advertisement."

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2. Exclusions

h. Wrong Description of Prices"Personal and advertising injury" arising out of the wrong description of the price of goods, products or services stated in your "advertisement".

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2. Exclusions

i. Infringement of Copyright, Patent, Trademark or Trade Secret"Personal and advertising injury" arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights. Under this exclusion, such other intellectual property rights do not include the use of another's advertising idea in your “advertisement".

However, this exclusion does not apply to infringement, in your "advertisement", of copyright, trade dress or slogan.

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2. Exclusions

j. Insureds in Media And Internet Type Businesses"Personal and advertising injury" committed by an insured whose business is: 1) Advertising, broadcasting, publishing or telecasting;2) Designing content of websites for others; or3) An Internet search, access, content or service provider

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2. Exclusions

k. Electronic Chatrooms or Bulletin Boards"Personal and advertising injury" arising out of an electronic chatroom or bulletin board the insured hosts, owns, or over which the insured exercises control.

l. Unauthorized Use of Another's Name or Product"Personal and advertising injury" arising out of the unauthorized use of another's name or product in your e-mail address, domain name or metatag, or any other similar tactics to mislead another's potential customers.

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2. Exclusions

m. Pollution

n. Pollution-Related

o. War

p. Distribution of Material in Violation of Statutes

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Section I – Coverages

Coverage A –Bodily Injury & Property Damage Liability

Coverage B –Personal & Advertising Injury Liability

Coverage C –Medical Payments

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Coverage C – Medical Payments

Medical Payments – regardless of fault or liability. A form of third-party no-fault coverage Exclusions

• Insured• Hired individuals• Person injured on part of premises that the person normally occupies• Person entitled to WC benefits for the injury• Person injured while taking part in athletics

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Supplementary Payments

Requires Insurer to Defend claims Payment is in addition to policy limits (in most cases) $250 for bail bonds Cost of bonds to release property $250/day for insured expenses in assisting with defense Court costs assessed against the insured Interest on judgments (pre-judgment/post-judgment, or both)

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Section II – Who Is An Insured

Named Insured• Individual (sole proprietor & spouse)• Partners & spouses• LLC members and managers• Corporate – including executive officers, directors and stockholders• Trust and Trustees. While performing duties of the named insured

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Section II – Who Is An Insured

Employees and Volunteer Workers• Leased workers are employees• Temporary workers are not (usually covered by CGL of the temp

agency that places them)• No coverage for fellow employee injuries or PD• No coverage for employees rendering prof. health care services

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Section II – Who Is An Insured

Real Estate Managers

Legal Representatives

Newly acquired organizations• For 90 days or• End of policy period

Past Partnerships, Joint Ventures or LLCs must be named insureds to have coverage

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Limits of Insurance

Aggregate – the most that will be paid for all covered claims that occur during policy period, usually one yearProducts / completed operations hazard – BI and PD

occurring away from the premises and arising out of the named insured’s product or work• Does not include

• Products still in insured’s possession• Work that has not been completed or abandoned

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Section III – Limits of Insurance

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Section IV - CGL Conditions

Bankruptcy Duties in Event of Occurrence,

Offense, Claim, or Suit Legal action against us Other Insurance Premium Audit

Representations Separation of Insureds Transfer of Rights of Recovery

Against others to usWhen we do not renew

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Duties in event of an Occurrence, Offense, Claim or Suit

Notify the insurer of occurrences that may result in claims Cooperate in investigation and/or settlement Assist in subrogation actions Make no voluntary payment, assume obligation or incur expense without

insurer’s consent

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Other Insurance

Excess or primary• When two or more insurers are primary, they share the loss

if all policies permit, contribution by equal shares will be used, • Each insurer contributes an equal amount until claim is paid or

limit exhausted

Otherwise, contribution by limits• Each insurer pays its pro rate share of loss, but not more than

policy limit

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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.

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Occurrence vs. Claims Made

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Occurrence Trigger

Policy in force when occurrence (BI, PD, Personal or Advertising Injury) happened will respond regardless of when claim is made Claim may be brought many years after initial injury Problem of continuous trigger or stacking of limits Ultimate cost of insurance cannot be accurately determined

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Claims-Made Coverage Form

Not widely accepted; used primarily for professional liability and other specialty coverages such as hazardous products Claim must be made during policy period or extended reporting

period Occurrence which led to the claim must have occurred after

policy’s retroactive date & before policy expiration

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Claims Made Concepts

Coverage is the same, just the trigger is different Most carriers do not use the ISO coverage form (CG 00 02) for

Claims Made policies. They develop their own form(s) and endorsements Retroactive date: date on which coverage for services provided (or

products manufactured or sold) begins Extended reporting period: an option for extending the time in

which a claim can be reported after the expiration date of the policy

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Additional Insureds

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Additional Insured Endorsements

For situations where the named insured is asked or required by contract to add another organization as an additional insured under the named insured’s policy Very common for contracting accounts to require multiple AI

endorsements Can create problems when agents and insureds do not understand

what the form will do and, more importantly, what it won’t do

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Additional Insured Endorsements

ISO form CG 20 10, 04-13 edition date• Who is an insured is amended to include as an AI the person(s)

or organizations shown in the Schedule, but only with respect to liability for BI, PD, PI and advertising injury, caused in whole or in part by:• Your acts or omissions; or• The acts or omissions of those acting on your behalf;• in the performance of your ongoing operations for the AI as

the location(s) designated above

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Additional Insured Endorsements

With respect to the insurance afforded to these AIs, the following additional exclusions apply:

This insurance does not apply to BI, or PD occurring after• All work on the project to be performed has been completed• That portion of your work out of which the injury or damage

arises has been put to it intended use

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Additional Insured Endorsements

However:1. The insurance afforded to such additional insured only applies

to the extent permitted by law; and2. If coverage provided to the AI is required by a contract or

agreement, the insurance afforded to such AI will not be broader than that which you are required by contract or agreement to provide for such AI

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Additional Insured Endorsements

ISO introduced a 12-19 revision that does not change the coverage provided by the endorsement. Clarification change only The CG 2010 applies to ongoing operations only Completed Operations (CG 20 37)

• Both 04-13 and 12-19 versions are available• Adds back coverage for the products completed operations

hazard• Must be used in conjunction with at least one other AI form (CG

20 10 for example)

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Automatic AI endorsement-CG 2033

Used to automatically include persons or organizations as an additional insured:

• Both 04-13 and 12-19 versions are available• To meet written contract or agreement requirements without

having to request on an individual basis• Reduces administrative workload, errors and oversights • Caution! Be careful when you use the term “blanket”

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Automatic AI endorsement-CG 2033

Coverage provided is no greater than that required in the written contract or to the extent permissible by law AI status ends when insured’s operations are complete The CG 2033 only applies to “ongoing operations.” ISO

introduced a new form (CG 2039) in December 2019 that provides automatic completed operations coverage Only gives AI status to person/organization that is a party to the

contract with the named insured

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What about parties other than the AI?

The Jones Company contracts with ABC General Contractors to build a two-story office building on land owned by Jones. ABC signs a written contract with The Shocking Blue Company to do the electrical work and requires that Shocking Blue maintain a CGL policy with the CG 2033 automatic additional insured endorsement included.During the installation of electrical wiring, negligence on the part of a Shocking Blue employee injures a third party and the injured person sues The Jones Company, ABC General Contractors, and Shocking Blue.

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Questions

Will Shocking Blue’s CGL policy cover the insured for the damages caused by the employee? Will the CG 2033 extend to cover any liability on the part of ABC

General Contactors? Will the endorsement extend coverage to The Jones Company?

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Upstream partyProperty Owner

(Upstream)

General Contractor

Insured Subcontractor

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Coverage for other parties

The CG 2038 endorsement will extend automatic coverage to other parties. In our example this would be the Jones Company Coverage applies to ongoing operations only ISO developed the CG 2040 in December of 2019 that will add

completed operations (automatic status) for upstream parties• Requires a written contact• Not all carriers have adopted this version

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Additional Insured Endorsements

ISO form CG 20 01, 04-13. Primary and Noncontributory• ISO form introduced in April of 2013• Two very important conditions:

• The AI must be a named insured on other insurance available to it

• There must be a written contract between and AI and the insured stating the insurance must apply on a primary and noncontributory basis

Will only work when used with standard ISO forms

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Waiver of Subrogation Required in many construction agreements The CG 2404 (05-09). The insurer will waive any rights of

subrogation for those persons or organizations listed in the schedule This form was updated in 12-19 and can now be used for the CGL

as well as other liability forms• Requires a written contactor agreement• Requires the insured to waive any right of subrogation prior to a

loss CG 2453 (12-19) Automatic Waiver

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Certificates of Insurance

A hotly debated topic! What exactly is a certificate?

• Verification that coverage exists at a specific point in time. They do not alter or change coverage

• Informational document only• Confers no rights

In many instances, additional wording is added to the certificate that is inconsistent with the language in the policy. Be careful!

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THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS ON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE REPORTED BY THE POLICIES DESCRIBED BELOW.

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Certificates of Insurance

Problems• Language on the certificate that is inconsistent with the

language in the policy• Proper listing of the named insured• If additional insured status is requested, the policy must be

endorsed• Use of manuscript certificates can create problems• Insurers typically do not want copies of certificates sent to them

after they are issued

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Surplus Lines Endorsements

Used to tailor the coverage to make the risk acceptable to the underwriter Many forms currently being used in surplus lines are ISO-based.

However, many are not! Need to make sure that the customer is aware of coverage

limitations It is easier to explain why a loss is not covered before you are

invited to a deposition!

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Surplus Lines Endorsements

Class limitation• Limits coverage to the class(es) listed on the declarations page

Designated premises • Limits coverage to the premises listed on the declarations page

Liability deductible

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Surplus Lines Endorsements

Animal exclusion New entities exclusion

• The CGL provides an extension of coverage for new entities acquired by the insured. This form takes that coverage away

Total pollution exclusion or total pollution exclusion with hostile fire exception Defense within limits

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Surplus Lines Endorsements

Combination endorsements• Used by many carriers to group exclusions common to all risks in one

form• Need to carefully review since they are not standardized. • Common exclusions:

• Punitive damages• Cross suits• Professional liability• If a loss is not covered, no coverage for additional insured

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Surplus Lines Endorsements

Unit limitation or exclusion for new residential construction Assault & battery sublimit or exclusion

• Bars, restaurants, and nightclubs• Hotels, motels, and apartments

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Other Liability Coverage Forms

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Owners and Contractors Protective Liability Coverage Form

Purchased by the independent contractor Lists property owner as the named insured Covers:

• Named insured’s liability for operations performed by the contractor at specified location

• Named insured’s own acts or omissions in connection with the general supervision of such operations

Does not cover Completed Operations Is primary to named insured’s own CGL policy

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Construction Project Management Endorsement

Endorses the OCP coverage form Adds coverage for vicarious liability incurred by architect, engineer,

construction manager, etc. Location changed to Designated Construction Project Covers liability of any insured’s (not just owner) supervision of

others

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Railroad Protective Liability Coverage Form

Purchased by contractor performing operations on/adjacent to RR property Similar to OCP Designed to protect railroad owners and not the insured doing the

work Many carriers will not write as part of a package Occurrence form only Includes FELA benefits for injured RR workers

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Other Liability Exposures

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Liquor Liability

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Professional Liability

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Management Liability

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Auto Liability

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Workers’ Comp & Employers Liability

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Environmental Liability

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Marine Liability

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Aircraft Liability

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Summary

Agents and insurers work together to satisfy the needs of the policyholders Insurance is a complicated product, and most people don’t

understand what the policy covers (or, more importantly, what it doesn’t cover) Become a student of our business so you know what you are

selling or underwriting And have some fun along the way!

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Underwriting Boot Camp | October 25-28, 2021

Thank you for your attention!

Chris Behymer, [email protected] Connor, [email protected]

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