COVERAGE UNDER A CGL POLICY I. Type of coverage provided by CGL coverage.
A. CGL coverage is “Commercial General Liability” Coverage.
B. Generally, a CGL policy provides coverage for the insured’s liability for the following types of risks:
1. Property damage caused by an occurrence (Coverage Part A). 2. Bodily injury caused by an occurrence (Coverage Part A).
3. Advertising injury caused by a covered offense (Coverage Part B). 4. Personal injury caused by a covered offense (Coverage Part B).
5. Medical expenses for bodily injury caused by an accident on or next to the insured’s premises or due to the insured’s operations (Coverage Part C). II. Analysis of coverage under a CGL policy.
A. Coverage analysis is normally a three-step process:
1. Is the potentially liable person an insured under the policy?
2. Does the injury or damage fall within the coverage grant of the insuring agreement?
3. If so, is the injury or damage excluded from coverage under one of the exclusions enumerated in the policy?
III. Who is an insured? Section II.
A. The named insured (referred to as “you”) – the person or entity named in the declarations as the insured.
B. Officers, members, partners of organizations with respect to their duties as such. C. Employees of the insured business, with respect to acts within the scope of their
employment.
D. Additional insured entities as specified by an endorsement.
2. Some endorsements provide coverage for any person or entity the named insured is required to name as an additional insured in a written contract or agreement.
3. Coverage for additional insureds can be very broad or very narrow. (a) Under a standard CG 2010 endorsement, coverage extends to the
additional insured’s liability “arising out of” the named insured’s work or ongoing operations. This coverage is very broad, requiring only “but for” causation between the named insured’s work or ongoing operations and the additional insured’s liability. The named insured does not have to be negligent to trigger coverage for the additional insured.
(b) Other endorsements limit coverage for the named insured to liability due to the named insured’s negligence, and in some cases to the named insured’s “sole negligence.” This is very narrow coverage.
IV. Coverage grants – Coverage A.
A. Coverage A provides coverage for the insured’s liability for “bodily injury” or “property damage” caused by an “occurrence” during the policy period. B. “Bodily injury” is defined in the policy as “bodily injury, sickness or disease
sustained by a person, including death resulting from any of these at any time.”1
1. Generally, this definition of “bodily injury” does not include emotional or mental damages that are unaccompanied by physical injury. E.g., University of Illinois v. Continental Casualty Co., 234 Ill. App. 3d 340, 362 (4th Dist. 1992); O’Dell v. St. Paul Fire & Marine Ins. Co., 223 Ga. App. 578, 579-580, 478 S.E.2d 418, (1996).
2. Mental anguish or emotional distress resulting from physical injury is covered. Allstate Ins. Co. v. Melton, 482 F. Supp. 2d 775, 782 (S.D.Miss. 2007) (emotional or mental injury resulting from physical injury is covered, but physical manifestations of emotional injury are not covered.)
C. “Property damage” is defined as:
1. “Physical injury to tangible property, including all resulting loss of use of that property” or
2. “Loss of use of tangible property that is not physically injured.”
3. Damage must be to “tangible property.” Therefore, purely economic loss is not covered. Travelers Insurance Co. v. Eljer Manufacturing, Inc., 197 Ill. 2d 278, 312 (2001); Rock v. State Farm Fire & Cas. Co., 395 Ill. App. 3d 145, 1 Unless otherwise indicated, quotes to policy language are taken from the standard Insurance Services
150 (3d Dist. 2009); Stoneridge Dev. Co. v. Essex Ins. Co., 382 Ill. App. 3d 731, 753 (2d Dist. 2008).
4. Some policies use only the first element of the definition of “property
damage,” or use a definition that “property damage” means physical injury to tangible property including loss of use of that property. In either case, the lost use must be caused by the physical injury to the property. E.g., Mutlu v. State Farm Fire & Cas. Co., 337 Ill. App. 3d 420, 431 (1st Dist. 2003).
D. “Occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful condition.”
1. By using the term “occurrence”, which is defined as an “accident” the policy introduces the element of fortuity. In other words, the damages cannot be something that the insured intended.
2. An accident means “an unforeseen occurrence, usually of an untoward or disastrous character or an undesigned sudden or unexpected event of an inflictive or unfortunate character.” Country Mutual Insurance Co. v. Hagan, 298 Ill. App. 3d 495, 507 (2d Dist. 1998).
3. The term “occurrence” can include intentional acts where the insured did not intend the damages that resulted. Lyons v. State Farm Fire & Cas. Co., 349 Ill. App. 3d 404, 409 (5th Dist. 2004) (“The focus of the inquiry in
determining whether an occurrence is an accident is whether the injury is expected or intended by the insured, not whether the acts were performed intentionally.”)
V. Coverage B – Personal and Advertising Injury
A. Coverage B provides coverage for the insured’s liability for “personal and advertising injury” caused by an offense arising out of the insured’s business. B. “Personal and advertising injury” is defined as “injury” arising out of one or more
of the following offenses:
1. False arrest, detention or imprisonment; 2. Malicious prosecution;
3. The wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor;
4. Oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person or organization’s goods,
5. Oral or written publication, in any manner, of material that violates a person’s right of privacy;
6. The use of another’s advertising idea in your “advertisement”; or 7. Infringing upon another’s copyright, trade dress or slogan in your
“advertisement”.
C. This part of the policy provides coverage for many torts, including trademark or trade dress infringement, invasion of privacy, etc.
D. Examples of personal and advertising injury:
1. Sending out faxes in violation of the Telephone Consumer Protection Act. Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 223 Ill. 2d 352 (2006) (violated right to privacy).
2. Gasoline leaking onto adjoining property from gas station. Millers Mut. Ins. Ass’n v. Graham Oil Co., 282 Ill. App. 3d 129 (2d Dist. 1996) (held to be wrongful entry onto land).
VI. Coverage exclusions – coverage A.
A. CGL policies include numerous exclusions. Some of the more important are: 1. Expected or intended injury. Excludes coverage for bodily injury or property
damage “expected from the standpoint of the insured.” In other words, like the definition of occurrence, if the insured intends injury, then it is excluded. Generally, if there is an occurrence, this exclusion will not apply.
2. Contractual liability. This exclusion precludes coverage where the insured assumes liability in a contract or agreement, but does not exclude coverage where:
(a) The insured would be liable in the absence of the contract.
(b) Where the assumption of liability occurs in an “insured contract.” An insured contract includes any contract pertaining to the insured’s business where the insured assumes the tort liability of another for bodily injury or property damage.
• The insured contract must be executed before the injury.
4. Pollution. Excludes coverage for bodily injury, property damage arising out of the discharge of pollutants.
(a) In Illinois, exclusion only covers traditional environmental pollution – indoor air pollution, such as a release of carbon monoxide, is not covered by this exclusion. American States Ins. Co. v. Koloms, 177 Ill. 2d 473 (1997)
5. Aircraft, auto or watercraft – excludes coverage for bodily injury or property damage resulting from the ownership, maintenance, use or entrustment to others of an auto, aircraft or watercraft.
6. Damage to property:
(a) Property the insured owns, rents or occupies.
(b) Premises the insured sells, gives away or abandons if the damage arises out of the premises. (This does not apply if the property was the named insured’s work and was never occupied by the named insured.)
(c) Property loaned to the named insured.
(d) Property in the care, custody or control of the insured.
(e) Real property on which the named insured or contractors or subcontractors are working, of the property damage arises out of those operations.
(f) Property that must be restored, repaired or replaced because the named insured’s work was incorrectly performed on it. This does not apply if the property damage is included in the products-completed operations hazard. 7. Property damage to the named insured’s product arising out of it.
8. Property damage to the named insured’s work, arising out of the work and included in the products-completed operations hazard. This does not apply if the work was done by a subcontractor.
VII. Coverage Exclusions – Coverage B
A. The important exclusions under Coverage B, Personal and Advertising Injury, are: 1. Knowing violation of the rights of another – personal and advertising injury
caused by the insured with knowledge that the act would violate another’s rights.
2. Material published with knowledge that it was false.
4. Personal or advertising injury resulting from a breach of contract. 5. Infringement of a copyright, patent, trademark or trade secret, except
infringement in an advertisement of copyright, trade dress or slogan. 6. Pollution.
VIII. Coverage Conditions. Conditions impose duties on the insured and the insurer. In some cases, the insured’s breach of a condition can result in a lack of coverage. In others, there may be little remedy.
A. Bankruptcy. The bankruptcy of an insured does not eliminate the insurer’s obligations to the insured under the policy.
B. Notice. The insured is required to notify the insurer of: 1. Any occurrence or offense which may result in a claim. 2. Any claim or suit brought against the insured.
3. In some states, failure to give notice as required will preclude coverage. In Illinois, for example, if the insured fails to give notice within a reasonable time, the insurer will be relieved of its duty to indemnify the insured. (a) Factors in determining whether notice was adequate include:
• The language of the policy’s notice provision.
• The insured’s sophistication in insurance matters and commerce.
• The insured’s awareness of an event that might trigger coverage.
• The insured’s diligence in determining whether coverage may be available.
• Prejudice to the insurer. West American Ins. Co. v. Yorkville Nat’l Bank, 238 Ill. 2d 177, 185-186 (2010)
(b) While prejudice to the insurer is a factor to be considered in determining whether notice is late, it is not required.
4. In some other states, the insurer must prove prejudice to escape coverage based on late notice. E.g., East Tex. Med. Ctr. Reg’l Healthcare Sys. v. Lexington Ins. Co., 575 F.3d 520 (5th Cir. 2009)(Texas law); Jones v. Bituminous Casualty Corp., 821 S.W.2d 798 (Ky. 1992)
must be established to avoid coverage on the basis of lack of cooperation. E.g., M.F.A. Mutual Ins. Co. v. Cheek, 34 Ill. App. 3d 209 (5th Dist. 1975).
D. Other insurance. Most policies specify the manner in which the policy will share with other insurance policies which also cover the same loss. The types of
provisions include:
1. Excess clauses. These clauses specify that the coverage under the policy will be excess over other policies available to the insured.
2. Escape clauses. These clauses provide that there will be no coverage under the policy if there is coverage available to the insured under other policies.
3. Primary clauses. These clauses specify that they are primary, and that if there is other primary insurance available, the policy will share on a pro-rata or other basis.
4. In Illinois and some other states, the courts try to reconcile these clauses. (a) A policy with an excess clause will apply only in excess of other policies
that have escape or primary clauses.
(b) A policy with an escape clause will apply before a policy with an excess clause, but will not apply at all if there is a policy with a primary clause. (c) A policy with a primary clause will always apply, but will share with other
primary policies. E.g., Putnam v. New Amsterdam Casualty Co. 48 Ill. 2d 71, 76, 269 N.E.2d 97, 99 (1970).
5. In other states, the courts have ruled that such clauses are always
incompatible, so the clauses will be disregarded and coverage will be shared on a pro rata basis. Lamb-Weston, Inc. v. Oregon Auto. Ins. Co., 219 Ore. 110, 341 P.2d 110 (1959).
E. Separation of insureds. This provision specifies that except with respect to the policy limits, the insurance applies as though each named insured were the only named insured and applies separately to each insured against whom a claim is made.
IX. Duty to defend. CGL policies specify that the insurer will have the “right and duty” to defend the insured in any suit seeking damages covered by the policies.
A. This means that CGL coverage is effectively “litigation insurance.” It pays the cost of litigating claims. E.g., Servidone Constr. Corp. v. Security Ins. Co., 64 N.Y.2d 419, 488 N.Y.S.2d 139 (1985).
Am., Inc. v. Midwest Sporting Goods Co., 215 Ill. 2d 146, 154, 828 N.E.2d 1092 (1995).
C. Also, if any of the theories of the complaint create the potential for coverage, the insurer must defend the entire suit. Id. at 155.
