Everything You Wanted to Know About Commercial General Liability Insurance … But, Well, You Know the Rest
If you're considering forming a captive insurance company as part of your overall risk management strategy, you probably have a lot of questions. In this webinar we look at:
1.) Risk -- what it is; what it isn't; how we can pay for it
2.) Insurance -- what it is; what it isn't
3.) Forming and running the captive
We'll be hosting this on January 11 at noon. You can sign up at this link.
The commercial general liability policy is “the” workhorse business insurance policy, providing coverage for millions of businesses around the country. Over the next few posts, I’ll be taking a look at it from a lawyer’s perspective, looking at key policy language to see what exactly what's covered.
Here is an upload of the front page of the latest CGL. Please use it for reference.
First, a few general observations. An insurance policy is a contract between two parties – the insurance company and the insured. Courts use standard interpretation maxims to determine the contact’s meaning. There are two key rules to keep in mind about this process. First, an insurance policy is an adhesion contract – a contract written entirely by one party. To overcome the inherent advantage this gives the insurer, courts interpret the contract’s terms and conditions against the drafter (the insurance company). From a practical perspective, this means judges will try to find coverage, under the assumption that the insured wouldn’t have purchased the policy to remain uninsured. Second, courts will use a word’s plain meaning to determine what a term means. On that matter, I’ll be using the dictionary (actually several dictionaries) – a lot. Specifically, I’ll reference the American Heritage Dictionary © 1985 (a gift from my Dad a long time ago), the Concise Oxford English Dictionary ©2004, and the online Merriam-Webster Dictionary.
Let’s begin with the policy name (number (1) on the CGL above), which actually contains a fair amount of important data. “Commercial” means, “of or pertaining to commerce,” which, in turn, is “the buying and selling of goods.” -- a remarkably limiting definition. Several dictionaries add that “commercial” also means, “the intent to make a profit.” The word “general” might seem odd at first. I would argue the key definition for this word is “not specialized or limited” and then use this phrase as a way to compare the CGL to far more specific policies like Pollution, Employment Practices, and Cyber-Liability. Each of the latter three policies covers specific risks and none others. Compare those to the CGL which covers “non-specific” risks. “Liability” means, “the quality of being liable” a legal term meaning, “Obligated according to law.” In other words, a court says you’re responsible, which implies a lawsuit. Let’s wrap this up by translating the policy name into “plain English.” The policy covers the costs of court-imposed general liability arising from business operations.
Using the above form as a guide, let’s move onto number (2), which states; “”you” and “you’re” refer to the Named Insured shown in the Declarations. Here’s a tip: when you get your policy, make sure the named insured is the correct insured. Be very specific: for example, if your company’s name is Acme, LLC, but the declarations say “Acme, Inc.,” ask the insured to change the name.
Number (3): “we” and “us” refer to the insurer providing coverage. This usually isn’t an issued. But, as with the named insured observation, make sure it’s the right company.
Number (4): The word “insured” actually covers a much wider number of people than you’d think. There is an entire page and a quarter of potential insureds later in the policy.
So, that’s it for this blog post. Think of this as the “intro” piece. Next time, I’ll start in on the far more complex issues of “occurrence,” “bodily injury,” and “property damage.”