New Mexico General Liability and Casualty Insurance

Commercial General Liability (CGL) Policy

Purpose of CGL Coverage

The Commercial General Liability (CGL) policy protects businesses against:

• Third-party bodily injury claims
• Third-party property damage claims
• Personal and advertising injury claims
• Medical payments to others (no-fault)

What CGL Does NOT Cover:

• Professional liability (requires E&O policy)
• Employee injuries (requires Workers' Comp)
• Auto liability (requires commercial auto policy)
• Intentional acts
• Pollution (requires environmental policy)

CGL Coverage Parts

Coverage A: Bodily Injury and Property Damage Liability

Bodily Injury Liability:

• Injuries to third parties (customers, vendors, visitors)
• Medical expenses, lost wages, pain and suffering
• Legal defense costs
• Examples: Customer slips on wet floor, visitor injured by falling merchandise

Property Damage Liability:

• Damage to property of others
• Includes loss of use of damaged property
• Examples: Contractor damages client's building, tenant damages landlord's property

Defense Costs:

• Insurer provides legal defense
• Defense costs paid in addition to policy limits (occurrence policies)
• Duty to defend even if allegations groundless

Coverage B: Personal and Advertising Injury Liability

Personal Injury:

• False arrest, detention, imprisonment
• Malicious prosecution
• Wrongful eviction
• Libel, slander, defamation
• Invasion of privacy

Advertising Injury:

• Copyright infringement in advertisement
• Misappropriation of advertising ideas
• Infringement of trade dress or slogan

Example: Restaurant falsely accuses customer of theft → Personal injury claim

Coverage C: Medical Payments

No-Fault Medical Coverage:

• Pays medical expenses for injured third parties
• Regardless of legal liability
• Typical limits: $5,000 or $10,000 per person
• Intended to reduce lawsuits for minor injuries

Covered Expenses:

• Medical, surgical, dental, ambulance
• Hospital and nursing care
• Prosthetic devices
• Funeral expenses

Timing: Within 1 year of accident

Occurrence vs. Claims-Made Coverage

Occurrence-Based CGL

Coverage Trigger: Injury or damage must OCCUR during policy period

Reporting: Claim can be reported ANY TIME after occurrence, even years later

Advantages:

• Permanent coverage for incidents during policy period
• No need for tail coverage when switching insurers
• Simpler claims administration

Example:

• Customer injured in your store on June 15, 2024
• You had occurrence CGL June 1, 2024 - June 1, 2025
• Customer files lawsuit on March 1, 2027 (after policy expired)
• Coverage applies - occurrence was during policy period

Claims-Made CGL

Coverage Trigger: Claim must be MADE during policy period for incidents on or after retroactive date

Key Dates:

• Policy Period: When claim must be reported to trigger coverage
• Retroactive Date: Earliest date for which incidents are covered
• Extended Reporting Period (Tail): Optional coverage for claims made after policy expires

Advantages:

• Lower initial premiums
• Insurer knows exposure more quickly
• Common for professional liability

Example:

• Customer injured in your store on June 15, 2024
• You have claims-made CGL June 1, 2024 - June 1, 2025 with June 1, 2024 retroactive date
• Customer files lawsuit on March 1, 2027 (after policy expired)
• NO coverage - claim not made during policy period (need tail coverage)

Critical Difference: Occurrence = when incident happened; Claims-Made = when claim reported. Claims-made policies require continuous coverage or tail coverage to avoid gaps.

CGL Policy Limits

Split Limits Structure

Typical CGL Limits:

• $1,000,000 Each Occurrence
• $2,000,000 General Aggregate
• $2,000,000 Products-Completed Operations Aggregate
• $1,000,000 Personal & Advertising Injury
• $5,000 Medical Expense (any one person)
• $100,000 Fire Damage (any one fire)

Each Occurrence Limit:

• Maximum paid for single occurrence (event)
• Includes all injured parties in that occurrence
• Defense costs additional (occurrence form)

General Aggregate Limit:

• Maximum paid for all covered losses during policy period
• Applies to bodily injury, property damage, medical payments (except products-completed operations)
• Resets annually at renewal

Products-Completed Operations Aggregate:

• Separate aggregate for products liability and completed operations
• Applies after product sold or work completed
• Critical for manufacturers and contractors

Exam Tip: Understand that the general aggregate is the maximum the policy will pay for most claims during the policy period, while each occurrence is the maximum per event.

CGL Exclusions

Common Exclusions:

• Expected or intended injury
• Contractual liability (except insured contracts)
• Liquor liability (needs separate coverage)
• Workers' compensation (employee injuries)
• Employer's liability
• Pollution (needs environmental policy)
• Aircraft, auto, watercraft (need separate policies)
• Professional services (needs E&O policy)
• Damage to your product or work
• Property in your care, custody, or control

Workers' Compensation Insurance

New Mexico Workers' Compensation Requirements

Who Must Have Coverage:

• Employers with 3 or more employees (including part-time)
• Construction industry employers (even with 1 employee in some cases)
• Coverage required regardless of employee fault for injury

Exempt Employers:

• Employers with fewer than 3 employees (except construction)
• Sole proprietors (can elect coverage)
• Some agricultural operations (limited exemptions)

Penalties for Non-Compliance:

• Stop-Work Orders issued by Workers' Compensation Administration
• Fines up to $10,000 per violation
• Misdemeanor criminal charges possible
• Personal liability for injured employee's damages
• Inability to defend against employee lawsuits (lose exclusive remedy)

Workers' Comp Coverage

Part One: Statutory Benefits (Unlimited)

Medical Benefits:

• All reasonable and necessary medical treatment
• No dollar limit or time limit
• Covers doctor visits, surgery, hospital, rehab, medications

Disability Benefits:

Death Benefits:

• Survivor benefits for dependents
• Funeral expenses (up to statutory limit)

Part Two: Employer's Liability

Coverage:

• Legal liability for work-related injuries NOT covered by Part One
• Third-party over actions (when third party sues employer)
• Dual capacity claims
• Consequential injuries to others

Typical Limits: $100,000 per accident / $500,000 per disease / $100,000 disease policy limit

New Mexico Workers' Compensation Administration

State Agency: Workers' Compensation Administration (WCA)

• Oversees workers' compensation system
• Adjudicates disputed claims
• Ensures employer compliance
• Maintains claims database

Website: www.workerscomp.nm.gov

Experience Modification Factor (EMod)

Purpose: Adjusts premiums based on employer's claims history

How It Works:

• EMod of 1.00 = average claims experience
• EMod < 1.00 = better than average (premium credit)
• EMod > 1.00 = worse than average (premium surcharge)

Example:

• Standard premium: $10,000
• EMod: 1.25 (25% worse than average)
• Actual premium: $10,000 × 1.25 = $12,500

Improving EMod:

• Workplace safety programs
• Claims management
• Return-to-work programs
• Safety training
• Accident prevention

Professional Liability Insurance

Errors & Omissions (E&O) Insurance

Purpose: Covers professional negligence claims

Who Needs E&O:

• Insurance agents and brokers (strongly recommended/required)
• Real estate agents
• Financial advisors
• Attorneys
• Accountants
• Consultants
• Technology professionals
• Medical professionals (called medical malpractice)

E&O Coverage

Insuring Agreement:

• Covers claims alleging negligent acts, errors, or omissions
• Must arise from professional services
• Provides legal defense
• Pays damages and settlements

Typical E&O Claim Examples:

• Insurance agent fails to procure requested coverage
• Accountant makes error on tax return causing penalties
• Financial advisor gives unsuitable investment advice
• Real estate agent misrepresents property condition
• Consultant provides negligent advice causing financial loss

E&O Policy Features

Claims-Made Basis (most common):

• Must maintain continuous coverage
• Retroactive date important
• Extended reporting period (tail) critical when switching carriers

Defense Costs:

• Usually included within policy limits (not in addition to)
• Erodes available coverage for settlement/judgment

Prior Acts Coverage:

• Covers acts before policy inception date if after retroactive date
• Critical when switching insurers

Deductibles:

• Typically higher than CGL ($2,500 to $25,000)
• May apply per claim or aggregate

New Mexico Insurance Agent E&O

Special Considerations for Producers:

Common Producer E&O Claims:

• Failure to procure requested coverage
• Failure to advise of coverage gaps
• Misrepresentation of policy terms
• Failure to process endorsements timely
• Negligent advice on coverage limits
• Failure to communicate policy changes/cancellations

Risk Management:

• Document all client conversations and recommendations
• Use coverage checklists and proposal forms
• Maintain detailed files (5+ years)
• Have coverage declined in writing
• Use disclaimers for opinions
• Complete continuing education
• Obtain signed acknowledgments

Producer Must-Have: Every New Mexico insurance producer should maintain E&O coverage. Even competent producers face claims, and defense costs alone can be substantial.

E&O Limits

Typical Limits:

• $1,000,000 per claim / $1,000,000 aggregate (minimum for most agencies)
• $2,000,000 per claim / $2,000,000 aggregate (better protection)
• Higher limits available for larger agencies

Claims Frequency:

• E&O claims common in insurance industry
• Average cost per claim: $50,000 - $100,000+
• Defense costs can exceed $50,000 even if claim dismissed

Umbrella and Excess Liability

Purpose of Umbrella Coverage

Umbrella Liability Policy:

• Provides additional liability limits above underlying policies
• Covers gaps in underlying coverage (with self-insured retention)
• Broader coverage than underlying policies

Typical Umbrella Structure:

• Underlying CGL: $1,000,000 per occurrence
• Underlying Auto: $1,000,000 combined single limit
• Umbrella: $1,000,000 to $10,000,000 excess
• Self-Insured Retention: $10,000 (for claims not covered by underlying)

Umbrella vs. Excess Liability

When Umbrella Needed

Recommended For:

• Businesses with high liability exposures
• Contractors and manufacturers
• Businesses with significant assets to protect
• High-net-worth individuals
• Anyone with substantial underlying limits already

Cost: $500 to $2,000+ per $1,000,000 of coverage (varies greatly)

New Mexico Tort Liability System

Comparative Negligence

New Mexico follows "pure comparative negligence":

• Injured party can recover damages even if partially at fault
• Damages reduced by plaintiff's percentage of fault
• No bar to recovery regardless of plaintiff's fault percentage

Example:

• Plaintiff injured in accident with $100,000 damages
• Plaintiff 40% at fault, Defendant 60% at fault
• Plaintiff recovers: $100,000 × 60% = $60,000

Contrast with Other States:

• Some states bar recovery if plaintiff 50%+ at fault
• Pure comparative negligence is plaintiff-friendly

Statute of Limitations

Time to File Lawsuit in New Mexico:

• Personal Injury: 3 years from date of injury
• Property Damage: 4 years from date of damage
• Professional Malpractice: 3 years from discovery of injury
• Wrongful Death: 3 years from date of death

Important: Statute of limitations affects claims-made policies—claims can be brought years after incident, making occurrence or tail coverage critical.

Joint and Several Liability

New Mexico Rule:

• Multiple defendants can be held jointly and severally liable
• Plaintiff can collect full judgment from any defendant
• Defendants then seek contribution from co-defendants

Impact on Insurance:

• Even if partially at fault, you may pay full judgment
• Encourages adequate liability limits
• Makes umbrella coverage more valuable

On the Exam: Know that New Mexico uses pure comparative negligence (no bar to recovery) and joint and several liability (defendants can be held fully liable even if partially at fault).