GENERAL LIABILITY INSURANCE

Commercial General Liability (CGL) insurance protects business owners against claims of liability for bodily injury, property damage, and personal and advertising injury (slander and false advertising). Premises/operations coverage pays for bodily injury or property damage that occurs on your premises or as a result of your business operations. 

Products/completed operations coverage pays for bodily injury and property damage that occurs away from your business premises and is caused by your products or completed work.

Excess liability insurance pays for covered losses that exceed your CGL policy's dollar limit.

Umbrella liability insurance is excess liability insurance coverage above the limits of automobile liability and CGL policies. The umbrella policy also provides liability coverage for exposures not covered under the primary CGL insurance policies and not excluded by the umbrella liability insurance policy.

Occurrence policies cover claims arising from injury or damage occurring while the policy is in force, regardless of when the claim is first made.

Claims-made policies cover claims that arise from injury or damage occurring during the policy period and reported to the insurer during the policy period. Claims arising from events outside the policy period or claims reported to the insurer outside the policy period are not covered unless special coverage is purchased or arranged with the insurer. This special coverage comes in two forms:

1. Prior acts ("nose") coverage covers claims that arise from injury or damage occurring before the policy period, but reported to the insurer after the policy period begins.Prior acts coverage is provided by establishing a "retroactive date" covering injury or damage occurring after the retroactive date. The retroactive date usually appears in the declarations page accompanying your policy. It may be the effective date of the policy or an earlier date. Prior acts coverage does not cover claims that were known at the time your policy began.
2. Run-off ("tail") coverage, also called "extended reporting period," pays for residual claims made after your policy expires. A typical claims-made policy provides a short reporting period of 30 or 60 days after the policy's expiration date to file claims that arose too late to report before the policy expired. Run-off coverage starts when the 30- or 60-day period ends and is provided for an additional premium. The extended reporting period may be one, three, or five years, or even unlimited.

If a claims-made policy does not continue (expires, cancels, or nonrenews), you should purchase either run-off coverage from your previous insurer or prior acts coverage from your new insurer to prevent coverage gaps. Generally, claims-made policies may be less expensive in their early years as the potential for claims increases as policy years accumulate.

The differences between claims-made and occurrence policies are best illustrated by the following examples:

Assume you operate a business located in a building that you own. Your customers may enter the building and shop for merchandise in a showroom. On April 15, 2010, a customer slips and falls in your showroom. The customer reports the incident to you but says he does not believe he is injured. On December 15, however, you receive notice that the customer has filed a claim for injuries sustained in the fall.

Contractual Liability - CGL policies exclude coverage for bodily injury or property damage that you are obligated to pay because you assumed liability in a contract or agreement. The exclusion contains the following two exceptions:

1. Liability for damages that you would have assumed in the absence of the contract or agreement; and
2. Liability assumed in a contract or agreement defined in the policy as an insured contract, if the bodily injury or property damage occurs after the contract or agreement is executed.Example 1: You sign a contract to complete the construction of a building within a specified amount of time. The contract requires you to pay damages if you breach the contract. Your CGL policy will not provide coverage for any damages you have to pay because you failed to meet the deadline.
   Example 2: You sign a contract to hold harmless and indemnify another party for the other party's negligence if that negligence results in bodily injury or property damage. Your CGL policy may provide coverage to indemnify the other party depending on the wording of the indemnity agreement.

Recall of Products, Work, or Impaired Property - CGL policies will not pay the cost to recall faulty products, work, or impaired property. However, this coverage may be added to the policy by endorsement for an additional premium charge.

Workers' Compensation and Employer's Liability - CGL policies are not intended to provide coverage for workers' compensation or employer's liability. This exclusion prohibits such coverage.

Most CGL policies are auditable policies and contain a condition commonly called "Premium Audit." The premium that is paid at the inception of the policy is a deposit (estimated) premium. Auditable policies usually use estimated payroll, sales, or units sold as the premium base to calculate the deposit (estimated) premium.

The insurer is entitled to examine your books and records to determine whether the actual payroll, sales, or units sold are greater or less than what was estimated. This is usually done after the expiration of the policy, but may also be done during the policy period. If the actual payroll, sales, or units sold is greater than was estimated, you may owe additional premium. If the actual payroll, sales or units sold is less than what was estimated, you may be due a return premium. Therefore, it is important to provide an estimate of the payroll, sales, or units to be sold that is as accurate as possible to avoid having to pay an additional premium.

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