8.1 CGL Policy Overview

What Commercial General Liability Covers

Commercial General Liability (CGL) insurance protects a business against third-party claims for bodily injury (BI), property damage (PD), and personal and advertising injury (P&AI). It pays sums the insured becomes legally obligated to pay as damages, and it defends suits seeking those damages. The standard contract is Insurance Services Office (ISO) form CG 00 01 (occurrence) or CG 00 02 (claims-made); the current edition tested is CG 00 01 04 13.

CGL covers liability to others — not damage to the insured's own property, which belongs on a commercial property policy. A frequent exam trap: the CGL is third-party coverage, so the injured claimant is always someone other than the named insured.

The Six Insuring Agreements / Sections

Occurrence vs. Claims-Made Trigger

The single most-tested distinction in this chapter is the coverage trigger.

Occurrence example: A 2024 policy. A customer slips in December 2024 but sues in 2026 — the 2024 occurrence policy responds because the injury occurred in 2024.

Claims-made example: A 2024 policy with a retroactive date of 2020. A claim filed in 2024 for a 2021 injury is covered; a claim for a 2019 injury (before the retro date) is not.

Extended Reporting Periods (Claims-Made Only)

• Basic ERP (the "mini-tail"): automatic, free, reports certain claims for 60 days plus 5 years for occurrences reported during the policy.
• Supplemental ERP ("full tail"): purchased by endorsement, unlimited reporting time; must be requested within 60 days of cancellation/non-renewal.

Who Is An Insured

The named insured in the Declarations and certain automatic insureds are covered:

• Individual — and the spouse, for business conduct.
• Partnership/Joint Venture — partners, members, and their spouses (business only).
• LLC — members (ownership role) and managers (management role).
• Corporation — officers, directors, and stockholders (in their capacity), plus employees and volunteer workers acting within scope.
• Newly acquired/formed organizations — covered automatically for 90 days (or to policy end if sooner).
• Real estate managers and a legal representative if the named insured dies.

Not automatic insureds: independent contractors, subcontractors, and additional insureds — each requires an endorsement (e.g., CG 20 10).

The Two Insurer Duties

1. Duty to defend — the insurer provides and pays for legal defense, even if the suit is groundless, false, or fraudulent. Defense costs are supplementary (outside the limits) and the duty ends when the applicable limit is exhausted by payment of judgments or settlements.
2. Duty to indemnify — pay damages the insured is legally liable for, within the limits.

Trap: the duty to defend is broader — triggered if any allegation in the complaint could be covered, even if most are not.

Supplementary Payments (Paid In Addition To Limits)

Common Exam Confusions to Avoid

First-party vs. third-party. The CGL never pays the named insured for damage to its own property or its own injuries — those need property and health/workers-comp coverage. If an exam scenario describes the insured repairing its own equipment, the CGL does not respond.

"Legally obligated" is the dividing line for Coverage A. Coverage A pays only when the insured is legally liable. Coverage C, by contrast, ignores liability. A favorite test question pairs a no-fault payment of a customer's small medical bill (Coverage C) against a negligence judgment (Coverage A) to see whether you can separate them.

Defense ends at exhaustion. Once the applicable limit is used up by paying judgments or settlements, the insurer's duty to defend ceases. Memorize that defense is unlimited in dollars while the limit lasts but stops the moment the limit is exhausted.

How Occurrence and Claims-Made Premiums Differ

On a claims-made policy, the first-year premium is low because few prior years are exposed; each renewal "steps up" toward a mature premium (often year five) as more prior years are covered. An occurrence premium is comparatively level because each policy stands alone for the injuries that happened that year.

Why occurrence is generally better for the insured: built-in tail means no gap when switching carriers, and a single occurrence policy can pay claims decades later as long as the injury occurred in its period. Claims-made is used where the cost of long-tail exposure must be controlled (professional and products lines), but it demands careful management of retroactive dates and ERPs to avoid coverage gaps.