COMMERCIAL GENERAL LIABILITY PRACTICE
Given its ubiquitousness and broad scope, there is no standard CGL form. Rather coverage is as diverse and complex as the businesses buying it. This has
spawned a large body of case law interpreting the intent and range of CGL cover, amplifying the brokers role in identifying and meeting their
clients' needs. As important as coverage design, effectively managing a client's expectations and communicating clearly the function and limitation
of coverage is paramount to the brokers role. Remember the CGL is often your clients only casualty insurance product, and could be called upon
to respond to almost any third party allegation. Plaintiff's bar is always pushing the frontier, crafting new categories of liability
and framing claims so as to trigger cover for otherwise uninsured events. Insurers have responded by adding exclusions in an effort to make their results more finite and
predictable. Investing in thorough disclosure and advice at inception is an investment that will reduce the risk of conflict later. We offer
these notes in the hope of assisting you through the CGL underwriting process. Over time we will add and expand on this initial contribution.
- Start with the basics: Who is Insured? Misstating or omitting a Named Insured can lead to embarrassing delays in claim adjustment, or worse, outright denials. Review the Underwriters' "Who is an Insured" clause to understand how it treats predecessor, acquired and successor entities, and make sure to obtain full disclosure from your client on their organizational structure; past, present and future!
- Don't be afraid of Claims-Made: this form is invaluable, making some otherwise uninsurable classes of business palatable to insurers. By managing retro-dates, negotiating ERP clauses and avoiding gaps between insuring agreements when changing carriers (claims made to claims made and reported, claims made to occurrence) brokers can design claims-made programs matching the value Occurrence cover provides.
- Test your assumptions: if in doubt, ask your Underwriter to clarify the meaning of the key coverage features and clauses affecting your client. If your clients principal hazard is pollution related, for instance, ask the underwriter to describe the cover their form provides or does not provide. If your clients principal risk characteristic is a frequency of incidents that may or may not give rise to a claim, take the time to make sure you, your client and the Underwriter all understand incident reporting criteria and responsibilities. You won't regret this extra effort later!
- Up sell limits: we don't need to remind you that the current market is highly competitive. Encourage your client to invest premium discounts in higher limits; they provide cost efficient protection in an increasingly volatile world, and won't be available forever at this price point.
- Avoid deductible and SIR pitfalls: everyone loves to save money and deductible and SIR clauses deliver. So it seems. These savings are often overshadowed by dissatisfaction when claims occur, especially if the clauses include adjusting expense. If not carefully communicated to the insured and managed through a strong claims handling agreement with the insurer, a deductible or SIR that is financially material to your client creates a classic conflict of interest between parties. The underwriter will almost always retain the ultimate right to negotiate and settle claims, balancing economics with the facts at hand, and using your client's deductible or retention!
- We have noticed a definite trend toward ever more onerous risk transfer language in the sales and service contracts commonly used today. Most businesses assume various contractual liabilities, consciously or not. Counsel your client fully disclose their obligations, especially where they agree to add other parties as additional insureds or provide waivers of subrogation from their insurer.
- Manage expectations: many coverage disputes revolve around what is a "business risk" versus what is an insured loss. Recent case law reinforces that the CGL is neither a performance bond nor a product guarantee. Clearly explaining the limits of cover to an insured is not easy, but is a necessary step in the brokering cycle. Clauses we have witnessed client confusion over include the "Duties in The Event of Occurrence, Claim or Action", "Premium audit" and the "duty to defend". Beyond these, be wary of manuscript exclusions, often eliminating cover for your client's key exposures. Disclose these to your client, negotiate alternative cover, and document the correspondence carefully, especially if the insured ultimately declines cover.
- Given its utility, the CGL form is used broadly by underwriters. It is comprehensive, but by no means a catchall. Keep in mind it is written for typical commercial risks, and as such may be deficient in addressing your client's specific needs. For example, the definition of "Who is an Insured" may not include volunteers critical to a non-profit association, or the athletics exclusion may restrict medical expense cover important to a sports association.