7.3 Commercial General Liability (CGL) Coverages & Occurrence vs. Claims-Made Triggers

Commercial General Liability (CGL) Coverages & Occurrence vs. Claims-Made Triggers

Quick Answer: The Commercial General Liability (CGL) coverage part protects a business against third-party liability claims through three insuring agreements: Coverage A (Bodily Injury and Property Damage Liability), Coverage B (Personal and Advertising Injury Liability), and Coverage C (Medical Payments), plus Supplementary Payments paid in addition to limits. It is written on either an Occurrence Form (CG 00 01) or a Claims-Made Form (CG 00 02).

For the Michigan Claims Adjuster exam, the highest-yield CGL topics are the exceptions to Coverage A exclusions (especially "insured contracts", Host Liquor, Damage to Premises Rented to You [7-day rule], and the Subcontractor Exception to "Damage to Your Work"), the 1-year reporting rule in Coverage C, and the exact mechanics of the Basic Extended Reporting Period (BERP) vs. Supplemental Extended Reporting Period (SERP).

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1. CGL Coverage A: Bodily Injury and Property Damage Liability

A. Insuring Agreement & the "Known Loss" (Montrose) Rule

Under Coverage A, the insurer pays those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" (bodily injury, sickness, or disease sustained by a person, including death) or "property damage" (physical injury to tangible property, including all resulting loss of use, or loss of use of tangible property that is not physically injured; electronic data is NOT tangible property).

• Two Major Hazard Exposures Covered by Coverage A:
  1. Premises and Operations Liability: Bodily injury or property damage arising out of the insured's ownership, maintenance, or use of the insured premises, or ongoing business operations in progress.
  2. Products-Completed Operations Hazard (PCOH): Includes all "bodily injury" and "property damage" occurring away from premises you own or rent and arising out of "your product" (after you have relinquished physical possession) or "your work" (after the work has been completed or abandoned).
• Conditions for Coverage: The "bodily injury" or "property damage" must be caused by an "occurrence" (an accident, including continuous or repeated exposure to substantially the same general harmful conditions) that takes place in the coverage territory, and the BI or PD must occur during the policy period (plus a Claim first made during the policy period if written on CG 00 02).
• "Known Loss" / Montrose Provision: Coverage A does NOT apply if, prior to the policy period, any insured (or any employee authorized by the insured to give or receive notice of an occurrence or claim) knew that the "bodily injury" or "property damage" had occurred, in whole or in part. Any continuation, change, or resumption of that known BI or PD during or after the policy period is deemed to have been known prior to the policy period.

B. Coverage A Exclusions & Crucial Exam Exceptions

Every PSI CGL question on Coverage A exclusions tests whether you know the exception that puts coverage back into the policy:

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2. CGL Coverage B, Coverage C, Supplementary Payments, Insureds & Limits

A. Coverage B — Personal and Advertising Injury Liability

• Covers legal liability for non-physical/intentional offenses arising out of the insured's business:
  1. False arrest, detention, or imprisonment (e.g., detaining a suspected shoplifter without probable cause);
  2. Malicious prosecution;
  3. Wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling, or premises by or on behalf of its owner, landlord, or lessor;
  4. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products, or services;
  5. Oral or written publication of material that violates a person's right of privacy;
  6. The use of another's advertising idea in your "advertisement";
  7. Infringing upon another's copyright, trade dress, or slogan in your "advertisement".
• Key Coverage B Exclusions: Knowing violation of another's rights; publication of material with knowledge of its falsity; material whose first publication took place before the beginning of the policy period; criminal acts; breach of contract (except an implied contract to use another's advertising idea); failure of goods to conform to advertised quality/performance; wrong description of the price of goods in an advertisement; infringement of patent or trademark (only copyright, trade dress, and slogan in an advertisement are covered!); and insureds in the media/publishing/advertising/Internet business.

B. Coverage C — Medical Payments

• Pays reasonable medical, surgical, X-ray, dental, ambulance, hospital, professional nursing, prosthetic device, and funeral expenses WITHOUT regard to fault (goodwill coverage) for bodily injury caused by an accident on premises you own or rent, on ways next to premises you own or rent, or because of your operations.
• Mandatory 1-Year Rule: The expenses must be incurred AND reported to the insurer within 1 year of the date of the accident!
• Key Coverage C Exclusions: Coverage C does NOT pay medical expenses for: (1) Any insured (except "volunteer workers"), (2) A person hired to do work for or on behalf of any insured or a tenant of any insured, (3) A person injured on that part of your premises that the person normally occupies (a tenant!), (4) A person eligible for Workers' Compensation benefits, (5) A person injured while taking part in athletics (athletic participants), or (6) Any injury included within the "products-completed operations hazard".

C. Supplementary Payments (Coverages A and B)

Paid in addition to the Limits of Insurance (do not reduce the policy limits):

1. All defense expenses and claim investigation costs incurred by the insurer;
2. Up to $250 for the cost of bail bonds required because of accidents or traffic law violations arising out of the use of any vehicle to which Bodily Injury Liability coverage applies;
3. The cost of bonds to release attachments (within the applicable limit of insurance);
4. All reasonable expenses incurred by the insured at the insurer's request to assist in the investigation or defense of a claim or suit, including actual loss of earnings up to $250 a day because of time off from work;
5. All court costs taxed against the insured in the suit, plus prejudgment interest and post-judgment interest.

D. Who Is An Insured & the 6 CGL Limits of Insurance

• Who Is An Insured:
  • Individual (Sole Proprietorship): You and your spouse, solely with respect to the conduct of a business of which you are the sole owner.
  • Partnership or Joint Venture: You, your members, your partners, and their spouses, with respect to the conduct of your business.
  • Limited Liability Company (LLC): You, your members (with respect to the conduct of your business), and your managers (with respect to their duties as your managers).
  • Corporation / Organization: You, your executive officers and directors (with respect to their duties as officers/directors), and your stockholders (with respect to their liability as stockholders).
  • Also Insureds: Your "employees" (other than executive officers/managers) and "volunteer workers" for acts within the scope of their employment/duties; your real estate manager; and any Newly Acquired or Formed Organization (other than a partnership, joint venture, or LLC) over which you maintain ownership or majority interest—automatically covered for up to 90 days after acquisition/formation or until the end of the policy period, whichever is earlier (excludes BI/PD that occurred before you acquired or formed the organization).
• The 6 CGL Limits of Insurance:
  1. General Aggregate Limit: Maximum the insurer will pay during the policy period for the sum of Coverage A (except Products-Completed Operations), Coverage B, and Coverage C.
  2. Products-Completed Operations Aggregate Limit: Separate aggregate cap for all Coverage A damages arising out of the "products-completed operations hazard".
  3. Personal and Advertising Injury Limit: Maximum under Coverage B for all offenses sustained by any one person or organization.
  4. Each Occurrence Limit: Maximum for the sum of Coverage A damages and Coverage C Medical Payments arising out of any one "occurrence".
  5. Damage to Premises Rented to You Limit: Sublimit of the Each Occurrence Limit (default $100,000 for any one premises).
  6. Medical Expense Limit: Sublimit of the Each Occurrence Limit for Coverage C Medical Payments for any one person (typically $5,000 or $10,000).
• Separation of Insureds (Severability Condition): Except with respect to the Limits of Insurance, the CGL applies as if each Named Insured were the only Named Insured, and separately to each insured against whom claim is made or suit is brought.

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3. Occurrence (CG 00 01) vs. Claims-Made (CG 00 02) Triggers & Extended Reporting Periods ("Tail" Coverage)

A. Policy Triggers & the Retroactive Date

• Occurrence Form (CG 00 01): Triggered if the "bodily injury" or "property damage" occurs during the policy period, regardless of when the claim is eventually reported or filed (even years after the policy expires).
• Claims-Made Form (CG 00 02): Triggered ONLY if BOTH conditions are satisfied:
  1. The "bodily injury" or "property damage" occurs on or after the Retroactive Date shown in the Declarations (if any) and before the end of the policy period; AND
  2. A claim for damages is first made against any insured (received and recorded) during the policy period (or during an applicable Extended Reporting Period).

B. Extended Reporting Periods (BERP vs. SERP)

When a Claims-Made CGL policy is cancelled or nonrenewed, or when the insurer renews or replaces it with insurance that (a) has a Retroactive Date later than the one shown in the Declarations or (b) does not apply on a claims-made basis (e.g., switching to an Occurrence policy), a coverage gap can arise. ISO CG 00 02 addresses this through two Extended Reporting Periods ("tails"):

C. Your Right to Claim and "Occurrence" Information (CG 00 02)

A claims-made insured who changes insurers must show the new underwriter its loss history, so the claims-made form gives the first Named Insured a right to claim information from the insurer:

• What is provided: a list or other record of each occurrence the insurer was notified of that has not yet been reported to another insurer, plus a summary by policy year of payments made and amounts reserved under the General Aggregate and the Products-Completed Operations Aggregate.
• When the insurer cancels or nonrenews: it must provide the information at least 30 days before the termination date.
• In other situations: it provides the information only if the first Named Insured requests it in writing within 60 days after the end of the policy period, and it must deliver it within 45 days after receiving the request.
• Adjuster takeaway: an occurrence reported under this provision during the policy period (or within 60 days afterward) is what activates the 5-year BERP "midi-tail," so accurate occurrence reporting directly affects later coverage.