3.2 Arkansas Liability Insurance

Commercial General Liability (CGL): Three Coverages

The ISO Commercial General Liability (CGL) policy is the backbone of business liability. It has three insuring agreements:

Defense costs under Coverage A/B are paid in addition to the limits — a defining CGL feature. Once the policy limit is exhausted by settlements/judgments, the duty to defend ends.

Duty to Defend vs. Duty to Indemnify

This distinction is heavily tested in Arkansas:

• Duty to defend is broader. The insurer must provide a defense if the allegations could possibly fall within coverage, even if the suit is groundless, false, or fraudulent.
• Duty to indemnify is narrower. The insurer only pays a covered judgment or settlement once liability is actually established.

Arkansas courts apply the "eight corners" rule — compare the four corners of the complaint against the four corners of the policy. If any covered allegation appears, the insurer must defend.

Occurrence vs. Claims-Made Triggers

When a claims-made policy is non-renewed, the insured buys tail coverage (an Extended Reporting Period) to cover claims reported after expiration for prior acts. A new claims-made policy may instead grant nose coverage (a prior-acts/retroactive date).

Who Is an Insured

The CGL automatically insures the named insured plus, depending on entity type, members/managers (LLC), partners (partnership), executive officers and stockholders (corporation), and employees acting within the scope of employment. Additional insureds (landlords, contractors) are added by endorsement and are key in contract scenarios.

Professional Liability (Errors & Omissions)

The CGL excludes liability arising from rendering or failing to render professional services. Therefore accountants, agents, lawyers, architects, and medical providers need separate professional liability / E&O coverage. It responds to economic loss from negligent advice or service, not just physical injury, and is almost always written claims-made with a retroactive date.

Umbrella and Excess Liability

An umbrella policy provides limits above underlying CGL, business auto, and employers liability (workers' comp Part B).

• Excess function: pays after the underlying limit is exhausted.
• Drop-down function: covers some claims the underlying policy excludes, subject to a self-insured retention (SIR) (often $10,000-$25,000) the insured pays first.
• Requires the insured to maintain stated underlying limits or the umbrella treats the gap as self-insured.

Key CGL Exclusions

The exam tests the major CGL exclusions because they decide whether a claim is covered at all. The standard ISO CGL excludes:

• Expected or intended injury — harm the insured meant to cause (with a self-defense exception for bodily injury).
• Contractual liability — liability the insured assumes by contract, except an "insured contract" or liability the insured would have anyway.
• Workers' compensation and employers liability — injuries to the insured's own employees belong under workers' comp, not the CGL.
• Auto, aircraft, and watercraft — covered by separate auto/aviation/marine policies.
• Pollution — the broad absolute-pollution exclusion.
• Damage to your own product / your work / impaired property — the "business risk" exclusions; the CGL is not a warranty on the insured's own work.

When a scenario names an injured employee, the answer is workers' compensation, not the CGL — that is one of the most repeated trap setups.

Employers Liability (Workers' Comp Part Two)

The employers liability portion (Part Two of the workers' compensation policy) fills the gap the CGL employee exclusion leaves. It pays for employee-injury suits that fall outside the exclusive remedy of workers' comp — for example, third-party-over actions, consequential injury to a family member, or dual-capacity claims. It does not pay scheduled comp benefits; those come from Part One. On the exam, distinguish Part One (statutory comp benefits, no dollar limit) from Part Two (liability suits, with stated limits such as $100,000/$500,000/$100,000).

Limits: Per-Occurrence vs. Aggregate

The CGL contains layered limits a producer must explain to a business client:

Because defense costs are paid outside the limits, an insured can exhaust the policy limit through judgments while the insurer still funds the defense up to that point — but once limits are paid out, the defense duty ends.

Exam Tip: When a scenario asks where a claim belongs, ask four questions in order: (1) Who is the injured party? (2) What act caused the harm? (3) Was the policy trigger met (occurrence date or claim date vs. retroactive date)? (4) Does an exclusion apply? Professional acts go to E&O, advertising offenses to CGL Coverage B, employee injuries to workers' comp, and amounts above underlying limits to the umbrella.