Medical Payments Coverage: A Hedge Against Lawsuits

Medical Payments Coverage Is Not Based On Fault

Midsection of woman wearing a broken arm cast

Medical Payments coverage reimburses third parties for medical expenses incurred to treat injuries sustained in accidents arising from your business activities. The expenses are covered whether or not you are liable for the accident. Medical Payments coverage is automatically included in a general liability policy.

No Lawsuit Is Required

Medical Payments insurance is called Coverage C in the standard ISO commercial general liability form. It covers an injured person's medical expenses whether or not you are responsible for the injury. Coverage C is a no-fault coverage so the injured party can obtain reimbursement for medical expenses without filing any legal action. Because no lawsuit is filed, your insurer need not provide you a defense and can settle claims quickly. 

Because Medical Payments claims are paid promptly, this coverage can serve as a hedge against lawsuits.

Medical Payments insurance is intended to cover expenses incurred by third parties. Consequently, it doesn't cover costs sustained by any insured, including any employee. However, coverage does apply to expenses incurred by volunteer workers.

What's Covered?

Medical Payments coverage pays "reasonable" expenses for first aid rendered at the time of an accident. It also covers necessary medical, surgical, X-ray, dental, and funeral services. These expenses are covered if the bodily injury is caused by an accident that happens at any of the following places:

  • On premises you own or rent. For example, a customer slips and falls in your store or is hit by an object that falls off a shelf.
  • On ways next to premises you own or rent. The phrase "ways next to premises" generally means a public area (such as a sidewalk) that is contiguous or touches the insured's premises.
  • Away from your premises. An injury that takes place off-premises is covered if the accident occurs because of your operations. For example, a worker employed by your janitorial business accidentally drops a vacuum cleaner on a customer's foot.

For expenses to be covered under Coverage C, the accident must take place in the coverage territory and during the term of the policy. The expenses must be incurred and reported to the insurer within one year of the accident date.

Limits

Medical Payments coverage is subject to a limit that applies to each person. Expenses covered under Medical Payments will reduce the Each Occurrence and General Aggregate limits in a liability policy.

The limit provided for Medical Payments coverage may be as low as $5,000 but most insurers will provide a higher limit for an additional premium.

For example, suppose that two customers of your accounting business (Bill and Susan) are injured when some defective tiles suddenly fall from the ceiling in your office. Bill suffers a minor injury to his shoulder while Susan sustains a head injury. Bill incurs $500 in medical costs to treat his injured shoulder. Susan files a lawsuit, which your insurer eventually settles for $15,000.

You submit a $500 claim under your Medical Payments insurance for Bill's expenses. Assuming your Medical Payments limit is $5,000, your insurer should pay all of Bill's expenses as they fall within your limit. Since the injuries sustained by Bill and Susan arose out of a single occurrence, their claim payments will reduce your Each Occurrence limit and your General Aggregate limit by $15,500.

Exclusions

Medical Payments coverage is subject to the exclusions listed below.

  • Injury to an Insured. As noted above, expenses incurred by insureds aren't covered.
  • Anyone Hired by an Insured. No coverage applies to injuries sustained by anyone hired to do work for an insured or an insured's tenant.
  • Injury on Normally Occupied Premises. If someone (such as a tenant or sublessee) normally occupies your premises, that person isn't covered under your Medical Payments insurance.
  • Injuries Covered by Workers Compensation. No coverage will be provided to anyone who is legally eligible for workers compensation benefits or disability benefits.
  • Athletic Activities. No coverage applies to anyone injured while practicing, instructing, or participating in any physical exercises or games, sports, or athletic contests.
  • Products-completed Operations. No coverage applies to injuries to third parties if the injuries are caused by accidents arising out of your products or completed work. Such injuries are covered by products-completed operations coverage, which is included under Coverage A.
  • All Coverage A Exclusions. In addition to the exclusions described above, Medical Payments insurance is subject to all exclusions listed under Coverage A, Bodily Injury and Property Damage Liability.
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Article Sources

  1. IRMI. "Medical Payments, General Liability." Accessed April 21, 2020.

  2. Insurance Information Institute. "Commercial General Liability Insurance." Accessed April 21, 2020.

  3. North Star Mutual. "Commercial General Liability Coverage Form," Page 8. Accessed April 22, 2020.

  4. Case Text. "Zurich V Ainsworth." Accessed April 22, 2020.

  5. IRMI. "How the Limits Apply in the CGL Policy." Accessed April 22, 2020.