A discussion of the CGL’s insuring clause (where the insurer specifically states it will pay a claim in specific situations) requires a reference to §224 of the Restatement of Contracts, which defines a condition as, “… an event, not certain to occur, which must occur … before performance under a contract becomes due.” Two events must occur before an insurer will pay a claim. The first is an “occurrence,” which the policy defines as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” This is the event that harms the plaintiff, who then initiates the second event by filing a “suit,” which is a “… proceeding in which damages … are alleged.” Once a suit is filed, the insured informs the insurer, who will then perform the following acts:
We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. We may, at our discretion, investigate any "occurrence" and settle any claim or "suit" that may result.
This paragraph contains several key insurer obligations rights. First, the insurer will pay sums “the insured becomes legally obligated to pay.” While a jury verdict is the obvious example, out-of-court settlements are far more common. At minimum, there must be a formal agreement. Second, the insurer has a duty to defend. This is a great advantage for the insured who will not have to pay for an attorney. Third, the insurer may investigate the claim itself, which is reserved to prevent insurance fraud. Finally, the insurer can settle the suit, essentially acting as an agent for the insured.
And this leads us to a discussion of several key GGL concepts: occurrence, bodily injury, and property damage. Let’s begin with "occurrence," which is defined in Texas as …
… a fortuitous, unexpected, and unintended event. ... We have further said that an intentional tort is not an accident and thus not an occurrence regardless of whether the effect was unintended or unexpected. ... But a deliberate act, performed negligently, is an accident if the effect is not the intended or expected result; that is, the result would have been different had the deliberate act been performed correctly (Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex., 2007)).
The three adjectives of fortuitous, unexpected and unintended have one thing in common: a level of randomness so high that an insured cannot plan for the event. For example, a business in Houston, Texas knows that a hurricane will eventually hit the city. But it doesn’t know when; it could be next year or in five years. The high level of unpredictability makes planning impossible and thereby triggers the need for insurance. In addition, an act performed negligently is also a trigger. The legal concept of negligence also contains a random element similar to fortuitousness. In addition, negligence is one of the most common causes of action a third-party will bring against an insured, more or less guaranteeing that the CGL has to cover this cause of action.
And that's it for this post. Next up, I'll look at bodily injury and property damage.