10.1 CGL Coverage A: Bodily Injury and Property Damage Liability
Key Takeaways
- ISO form CG 00 01 is the occurrence CGL coverage form; CG 00 02 is the claims-made version, with CG 00 01 04 13 the common current edition.
- Coverage A pays sums the insured is legally obligated to pay as damages for bodily injury or property damage and carries the right and duty to defend.
- Defense costs are paid in addition to the limits and do not erode them, but the duty to defend ends when the limit is exhausted.
- Occurrence forms trigger when injury takes place during the policy period; claims-made forms trigger when the claim is first made and add a retroactive date and ERPs.
- Property damage includes loss of use of undamaged tangible property, but electronic data is expressly not tangible property.
The ISO Commercial General Liability Policy
The Commercial General Liability (CGL) policy is built on standardized ISO forms. The base coverage form is CG 00 01 (Commercial General Liability Coverage Form, occurrence version) and CG 00 02 (claims-made version). The most-tested current edition is CG 00 01 04 13 (April 2013), though 2007 and earlier editions still appear on exams. The CGL is assembled inside a commercial package: a Common Policy Declarations, Common Conditions (IL 00 17), the CGL Declarations, the coverage form, and any endorsements.
The CGL provides three insuring agreements: Coverage A (Bodily Injury and Property Damage Liability), Coverage B (Personal and Advertising Injury Liability), and Coverage C (Medical Payments). This section covers Coverage A, the core liability promise.
What Coverage A Promises
Under Coverage A the insurer agrees to pay sums the insured becomes legally obligated to pay as damages because of bodily injury or property damage to which the insurance applies, and the insurer has the right and duty to defend the insured against any suit seeking those damages. The duty to defend is broader than the duty to indemnify: the insurer must defend even groundless, false, or fraudulent suits, but it has no duty to defend suits seeking damages the policy does not cover.
Defense costs are paid in addition to the limits of insurance (they do not erode the limit), which is a frequently tested distinction. The duty to defend ends when the insurer has used up the applicable limit paying judgments or settlements.
Key Definitions Drive Coverage
- Bodily injury (BI): bodily injury, sickness, or disease sustained by a person, including death that results.
- Property damage (PD): physical injury to tangible property (including resulting loss of use) or loss of use of tangible property that is not physically injured. The CGL states electronic data is not tangible property — a classic trap.
- Occurrence: an accident, including continuous or repeated exposure to substantially the same general harmful conditions.
- Coverage territory: the U.S. (including territories and possessions), Puerto Rico, and Canada, plus worldwide for products in international commerce and for certain travel.
The definitions of BI and PD also fix the timing of a loss. For continuous or progressive damage (think a slow water leak), the occurrence is deemed to take place when the damage first begins, which can implicate multiple policy years — another reason the occurrence-versus-claims-made distinction matters in practice.
The Two Aggregate Limits
The CGL carries two separate aggregate limits, and confusing them is a classic exam error. The General Aggregate Limit is the most the insurer pays for the sum of Coverage A premises/operations damages, Coverage B injury, and Coverage C medical payments combined. The Products-Completed Operations Aggregate is a separate annual cap that applies only to BI/PD arising out of the insured's products or completed work away from the insured's premises.
Because products-completed operations losses draw on their own aggregate, a manufacturer can exhaust the General Aggregate on premises claims yet still have full products coverage available, and vice versa. The Each Occurrence Limit caps any single occurrence and applies before either aggregate is tested.
Occurrence vs. Claims-Made Trigger
The occurrence trigger (CG 00 01) responds when BI or PD takes place during the policy period, regardless of when the claim is reported. The claims-made trigger (CG 00 02) responds when the claim is first made during the policy period (or extended reporting period), provided the injury occurred on or after the retroactive date.
Claims-made forms add features absent from occurrence forms: a retroactive date, Extended Reporting Periods (ERPs), and a laser of the retroactive date. A Basic ERP (a short automatic 'tail,' typically 60 days for reporting plus a 5-year tail for occurrences reported late) is free; a Supplemental ERP is an unlimited tail purchased by endorsement for an additional premium up to 200% of the annual premium.
Why this matters: occurrence coverage can produce long-tail liabilities that surface years after a policy expires (e.g., latent injury), so insurers may prefer claims-made for hard-to-estimate exposures. Claims-made buyers must guard against a coverage gap when switching carriers — either keep the retroactive date intact or buy a tail. Advancing the retroactive date to the new policy's inception ('moving the retro date forward') silently strips coverage for prior acts, a tested pitfall for agents counseling commercial clients.
Worked Example: Aggregate Erosion
A contractor's CGL shows: Each Occurrence Limit $1,000,000, General Aggregate $2,000,000, Products-Completed Operations Aggregate $2,000,000. Three premises/operations claims hit during the policy year: $700,000, $900,000, and $600,000.
| Claim | Loss | Paid (capped at $1M/occ) | General Aggregate Remaining |
|---|---|---|---|
| Start | — | — | $2,000,000 |
| 1 | $700,000 | $700,000 | $1,300,000 |
| 2 | $900,000 | $900,000 | $400,000 |
| 3 | $600,000 | $400,000 | $0 |
Claim 3 is capped by the remaining General Aggregate ($400,000), not the $1M per-occurrence limit, because the aggregate is nearly exhausted. The insured absorbs the uncovered $200,000. Note: products-completed operations losses draw on their separate aggregate, not the General Aggregate.
The Insuring Agreement's Duty to Defend
Coverage A carries a separate, valuable promise the exam isolates: the duty to defend. The insurer must defend any suit seeking covered damages, even if the allegations are groundless, false, or fraudulent, and defense costs are paid in addition to the limits as Supplementary Payments. The duty to defend ends once the applicable limit of insurance is exhausted by payment of judgments or settlements — a critical timing point because a long, expensive defense can continue even on a thin claim until the limit is paid out.
The duty is also broader than the duty to indemnify: if any allegation in a suit is potentially covered, the insurer must defend the entire suit. Watch for stems where part of a claim is excluded (e.g., expected/intended injury) but another part is a covered occurrence — the insurer still owes a defense. Settlements and "reasonable" defense within the insurer's discretion distinguish the CGL from a self-defense arrangement.
Under the ISO CGL occurrence form (CG 00 01), how are defense costs treated relative to the Each Occurrence Limit?
A CGL policy with a General Aggregate of $2,000,000 has already paid $1,800,000 in premises/operations losses. A new covered occurrence results in a $500,000 judgment, with an Each Occurrence Limit of $1,000,000. How much will the insurer pay on the new claim?