Introduction to the General Liability Policy
The ISO CGL is the Industry Standard for Liability Coverage
A general liability policy provides basic liability coverages that most businesses need. It is a generic policy that can be used to insure a broad range of businesses.
Many insurers issue general liability policies on standard forms published by the Insurance Services Office (ISO). One reason is convenience. Insurers that use standard forms can avoid the time and effort of drafting forms themselves. A second reason has to do with risk. When an insurer drafts its own policy language, it faces a risk that courts might interpret the wording differently than it intended. The insurer could find itself paying claims it never expected to cover.
ISO forms have been widely used for decades so much of the language they contain has already been interpreted by the judicial system. Courts have analyzed specific words and phrases and decided what they mean. Thus, from a legal standpoint, ISO forms are more predictable than proprietary forms and may present fewer risks to insurers.
The backbone of the ISO liability policy is the Commercial General Liability Coverage Form or CGL. This form provides three separate coverages:
- Coverage A, Bodily Injury and Property Damage Liability
- Coverage B, Personal and Advertising Injury Liability
- Coverage C, Medical Payments
The insuring agreement under Bodily Injury and Property Damage Liability provides a broad description of the coverage afforded. It states that the insurer will pay sums that you (the named insured) are legally obligated to pay as damages because of bodily injury or property damage. That is, the insurer will pay damages that result from third-party claims against your company for bodily injury or property damage caused by your firm’s negligence.
Coverage A is relatively broad. It covers virtually any claim alleging bodily injury or property damage if the injury or damage is caused by an occurrence and isn't subject to an exclusion. You must be legally responsible for the injury or damage. The CGL will not cover payments you make voluntarily.
Coverage A covers bodily injury or property damage that:
- Occurs on your premises;
- Arises from operations you are performing on or off your premises
- Arises from work you have completed; or
- Arises from products you have made or sold
On Your Premises
Coverage A applies to claims that arise out of injury or damage that occurs on your premises. Here is an example.
Frank owns Fancy Foods, an upscale grocery store. Bill, a customer, enters the store. He is heading to the produce aisle when he slips and falls on a wet floor and injures his knee. Bill files a claim against Fancy Foods, demanding $20,000 in compensation for his knee injury. Fancy Foods' liability policy covers the claim.
Coverage A covers claims that arise out of work or operations you perform at your location. For example, Crown Cabinetry fabricates custom-made cabinets in its shop. One day, a worker is operating a table saw when a wood fragment flies off and hits a customer in the eye. The customer sustains an eye injury and sues Crown Cabinetry for bodily injury. The claim should be covered by the cabinet shop's liability policy.
Coverage A also covers claims that arise out of work or operations you perform away from your premises. For example, Crown Cabinetry has fabricated cabinets for Harriet, a homeowner, and is preparing to install them. Two Crown employees are installing a cabinet at Harriet's home when they accidentally punch a hole in a wall. If Harriet demands compensation for the property damage, Crown Cabinetry's liability policy should cover the claim.
Completed Work or Operations
In the previous example, Crown Cabinetry's employees caused property damage while they were performing ongoing operations (cabinet installation) at a job site. Work or operations the employees have completed could also cause bodily injury or property damage if the completed work is defective.
For example, suppose that Crown Cabinetry installs the cabinets at Harriet's home. Unfortunately, the workers fail to hang the cabinet doors properly. Six months after the work has been completed, Harriet is reaching for an item in a cabinet when the door suddenly falls off. The door strikes Harriet in the head, causing an injury. If Harriet sues Crown Cabinetry for bodily injury, Crown's general liability insurer should pay the claim. The policy includes coverage for products-completed operations.
Some claims arise from faulty products. For instance, Fancy Foods (in the first example) operates an in-house bakery that makes cherry pies. Stuart, a customer, buys a pie and takes it home. He takes a bite of pie and breaks a tooth on a cherry pit. Stuart's tooth can't be repaired so it is removed and replaced with a dental implant. Stuart sends Fancy Foods his dental bills and demands reimbursement. The store's liability policy should cover the claim. Claims for injury or damage caused by faulty products are insured under products-completed operations coverage.
If a lawsuit covered by Coverage A is filed against your firm, your insurer will provide an attorney to defend you. Covered costs include attorneys’ fees, court costs, premiums on certain bonds, and interest charged on the judgment. These charges are included under a coverage called Supplementary Payments. They are covered in addition to the policy limits.