Insurance Recovery Series: Commercial General Liability Insurance Explained

Policyholder Insurance Recovery Series

While you may have received insurance related emails from us in the past, we are starting a new program of Policyholder Insurance Recovery Alerts intended to benefit policyholders when disputes arise with their insurance carriers. Insurance coverage comes in many forms, and for most companies includes commercial general liability insurance, property insurance, employment practices liability insurance, directors and officers insurance, and more.

Each month we will provide insights on fundamental insurance concepts, as well as report on key case decisions affecting various policyholder rights. Feel free to contact us to discuss any of the issues addressed in our monthly Policyholder Insurance Recovery Alerts. The insurance recovery attorneys at Burke, Warren, MacKay & Serritella are ready to assist you on all of your insurance related needs.

Commercial General Liability Insurance Explained

Commercial general liability insurance provides coverage for third-party property damage or bodily injury claims. It also often provides coverage for alleged misconduct like defamation and copyright infringement.

A CGL insurer has two fundamental duties: (1) a duty to defend; and (2) a duty to indemnify its insured up to its insured’s policy limits. The duty to defend obligates a CGL insurer to appoint, and pay for, an attorney to defend the underlying third-party claim. Importantly, under most CGL policies, the insurer’s duty to defend (i.e. its obligation to pay an attorney to defend the claim) is unlimited such that there is no limit on what an insurer may be obligated to pay for defense costs. The duty to indemnify is subject to the terms and conditions of the policy, and is limited both by the self-insured retention (deductible) and the limits of coverage of the policy. A typical CGL policy may have a single occurrence limit of $1 million and an aggregate limit of $2 million, unless negotiated otherwise, with excess or umbrella coverage purchased with additional limits of liability.

Timely notice of a third-party claim is critical in perfecting coverage under a CGL policy. CGL policies are occurrence based, meaning they insure for accidents or other fortuitous events that occur during the term of a given policy, no matter when a claim is actually made against the insured. Notice typically is required to be given “as soon as practical,” which is a frequent area of dispute when an insurer evaluates whether or not to provide coverage. “Late notice” issues are prevalent in CGL coverage litigation, and need to be guarded against by both insureds and their insurance brokers.

While the general coverage provisions of CGL policies are often derived from form insurance industry templates, based upon the insured’s business and risk exposure, endorsements and exclusions are often added to the policy provisions. It is crucial for an insured to review all coverage provisions, endorsements and exclusions to understand for what types of occurrences they are buying coverage, and not buying coverage, prior to the issuance of the policy.