11.3 Key CGL Exclusions and Endorsements

Why the CGL Excludes So Much

The CGL grants broad liability coverage, then narrows it with exclusions that (1) bar uninsurable conduct, (2) push exposures onto the correct policy (auto, workers compensation, professional liability), and (3) curb moral hazard. Coverage A (bodily injury and property damage) carries roughly 15 lettered exclusions (a through q) in the CG 00 01; Coverage B (personal and advertising injury) has its own list. The exam concentrates on a handful of high-frequency exclusions and their exceptions, because the exceptions are where coverage is quietly preserved.

The big Coverage A exclusions to master:

The Exceptions That Restore Coverage

The exam rarely asks what is excluded; it asks what the exception preserves. Three exceptions appear repeatedly:

• Insured contract exception (exclusion b): the contractual-liability exclusion does not apply to tort liability the insured assumes in an insured contract, namely leases of premises, sidetrack agreements, easement/license agreements, obligations to indemnify a municipality, elevator-maintenance agreements, and the indemnity portion of most other business contracts.
• Subcontractor exception (exclusion l, Damage to Your Work): damage to the insured's completed work is excluded, except when the damaged work or the work causing damage was performed by a subcontractor. This is what lets general contractors carry CGL coverage for faulty subcontractor work.
• Hostile-fire exception (pollution): the pollution exclusion is broad, but coverage survives when a hostile fire (one that escapes its intended place) releases smoke or fumes that cause injury.

Note the difference between 'your product' and 'your work' exclusions: both bar repair/replacement of the insured's own faulty output (that is a business risk, not insurance), but liability for resulting damage to other property or persons is still covered.

The principle is that the CGL is liability insurance, not a performance bond or product warranty. If a contractor installs a faulty water heater, the cost to redo the heater is the insured's business risk and is excluded; but if that faulty heater floods the customer's home, the resulting water damage to the home is third-party property damage the CGL pays. Applicants who confuse the cost to fix the work with the damage the work causes are the ones who miss these questions, so frame every your-work or your-product scenario as 'own output versus resulting damage.'

Coverage B Exclusions and the Personal-Injury Traps

Coverage B (personal and advertising injury) covers offenses such as false arrest, malicious prosecution, wrongful eviction, libel, slander, and copyright infringement in advertising. Its exclusions bar:

• Knowing violation of another's rights (intentional defamation with knowledge of falsity).
• Material published with knowledge of falsity (deliberate lies).
• Criminal acts, breach of contract, and failure to conform to advertised quality.
• Intellectual property infringement other than the named advertising offenses (patent and trade-secret claims are excluded).

A frequent trap: ordinary, unintentional defamation is covered, but a statement the insured knew was false is excluded by the knowing-violation exclusion. Likewise, advertising-injury coverage does not extend to patent infringement, which surprises tech-business applicants on the exam.

Coverage B also responds only to offenses arising out of the insured's business, and it ties advertising-injury offenses specifically to the insured's advertisement. A defamatory remark made in a private dispute unrelated to business may fall outside the grant entirely. Note too that Coverage B has its own $1,000,000 limit and erodes the General Aggregate, so a single large defamation settlement can reduce the room available for premises-operations claims later in the policy period.

Common CGL Endorsements

Endorsements modify the standard form. The most-tested ones:

• Additional Insured (various CG 20 xx): extends coverage to another party (landlord, project owner, lessor) for liability arising from the named insured's work or premises. Required by most commercial contracts.
• Primary and Noncontributory: makes the named insured's policy pay first and waives sharing with the additional insured's own coverage.
• Waiver of Transfer of Rights of Recovery (Waiver of Subrogation): the insurer gives up its right to recover from a designated party, usually required by contract.
• Amendment of Limits / Designated Aggregate (CG 25 03): provides a per-project General Aggregate so one project's losses do not erode limits available to other projects.
• Employee Benefits Liability: adds claims-made coverage for administrative errors in employee benefit programs.

Worked endorsement example

A contractor with a $2,000,000 General Aggregate adds the per-project aggregate (CG 25 03). If Project A suffers $1,500,000 in premises-ops losses, Project B still has its own full $2,000,000 General Aggregate, instead of sharing a single $2,000,000 cap that would have left only $500,000 for all remaining projects.