The ISO Commercial General Liability Coverage Form can seem like a map that starts you out on a main road, takes you smack into a dead end, but offers a right turn you can take if you meet certain conditions. It begins with a broad promise and a hint that the promise isn't quite that broad, then continues with a list of items that narrow that promise. Somewhere in that twisting road lies the answer to whether the insurance will cover your business's legal liability for an accident.
The form actually has three coverages, but the one most business owners are concerned with is Coverage A, Bodily Injury and Property Damage. The first part of Coverage A is the Insuring Agreement, which states that the insurance company will cover the insured person or organization's legal liability for bodily injury or property damage to others. A key phrase, however, is that the company will pay amounts for occurrences “to which this insurance applies.” How do you know when the insurance applies? That's where the list of exclusions and exceptions comes in.
Right after the Insuring Agreement is a section labeled Exclusions. This section begins with the sentence, “This insurance does not apply to: ... ” and goes on to list several categories of occurrences. The exclusions include things like pollution; injuries to the insured's employees; ownership and use of motor vehicles, aircraft and watercraft; causing or contributing to a person's intoxication; damage to property the insured owns or possesses; and loss of electronic data. For businesses that operate vehicles or provide towing services, specialized programs such as Tow Truck Program Garage Liability Insurance may address exposures that the standard CGL excludes.
While these exclusions narrow coverage considerably, some contain clauses that add a little coverage back in. For example, while the policy generally excludes property damage arising from a contractor's completed work, the exclusion may give back coverage if the property damage arose from work a subcontractor performed on the contractor's behalf. Understanding those carve-outs can make the difference between a covered claim and an uncovered loss.
In a claim, different burdens of proof apply to the insurer and the insured, depending on what each is asserting. The insured has the initial burden of proving that an accident falls within the Insuring Agreement by showing that an “occurrence” during the policy term caused bodily injury or property damage to someone else. The policy defines “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
Once the insured meets that burden, the insurance company must prove that one of the exclusions applies. If the insurer cannot show an applicable exclusion, the policy applies and the company must pay for the damage. If the insurer proves an exclusion, the burden shifts back to the insured to show that an exception to the exclusion applies; sometimes higher limits or additional layers of coverage such as Excess Liability (Commercial) are useful when standard limits are insufficient.
Contractors should talk to an agent who is knowledgeable about the CGL policy and can answer complex coverage questions. This policy can provide millions of dollars in protection for a business, so it is important for the business owner to understand how insuring agreements, exclusions, and exceptions work together.
Frequently Asked Questions
What does Coverage A of the CGL policy cover?
Coverage A generally pays amounts the insured is legally obligated to pay for bodily injury and property damage to others caused by an occurrence during the policy period.
How is an "occurrence" defined?
An "occurrence" is defined as an accident, including continuous or repeated exposure to substantially the same harmful conditions, that causes bodily injury or property damage.
What role do exclusions play in a coverage decision?
Exclusions identify categories of losses the policy does not cover, and the insurer has the burden of proving an exclusion applies once the insured shows a loss falls within the Insuring Agreement.
When should a business consider excess or umbrella coverage?
A business should consider additional layers of liability when potential losses could exceed primary policy limits or when contractual obligations require higher limits.