CAIB 3 Ch 2 - Nov 2024 Commercial General Liability Policy PDF

CAIB 3: Chapter 2 The Commercial General Liability Policy CAIB 3  CAIB 3 Section 1 Developing the Policy Form Challenges for Liability Insurers in the 1980s 1980s liability insurance crisis: claims exceeded pre...

CAIB 3: Chapter 2 The Commercial General Liability Policy CAIB 3  CAIB 3 Section 1 Developing the Policy Form Challenges for Liability Insurers in the 1980s 1980s liability insurance crisis: claims exceeded premiums Key issues impacting profitability: High court awards in the U.S. Environmental and aviation disasters Inadequate risk assessment by insurers Rise in latent bodily injury claims CAIB 3 Major Factors Driving Insurer Losses Environmental Disasters Example: 1984 Bhopal gas leak tragedy Aviation Disasters Notable event: 1985 Air India crash Inadequate Risk Assessment Underpriced premiums for high-risk industries Latent Bodily Injury Claims Asbestos-related diseases Cases against medical device manufacturers CAIB 3 Insurer Response and Development of the Commercial General Liability Policy (CGL) Insurer responses: Premium hikes for high-risk sectors (e.g., daycares, hospitals) Evaluation of policy forms for commercial liability Introduction of the Commercial General Liability (CGL) Policy Developed in the U.S., adopted in Canada in 1986 Shared structure and intent with the U.S. version CAIB 3  IBC 2100: Commonly used CGL policy in Canada Overview of the No legislated standard form, but widely adopted Addresses liability exposures for diverse entities: individuals, corporations, partnerships, Commercial societies, and government bodies General Liability Key Policy Component: The Declarations General information on the insured risk Policy (IBC 2100) Includes insured's name and address, policy period, insurance limits, and business description CAIB 3 Structure of the CGL Policy (IBC 2100) Five Sections of the IBC 2100 CGL Policy: Section I - Coverages: Details four coverages (A-D), each with an Insuring Agreement and Exclusions Coverage A: Bodily Injury and Property Damage Liability Coverage B: Personal Injury and Advertising Injury Liability Coverage C: Medical Payments Coverage D: Tenants' Legal Liability Section II: Defines “Who Is An Insured” Section III: Sets the Limits of Insurance Section IV: Outlines Commercial General Liability Conditions Section V: Provides Definitions CAIB 3 Section I - Coverages Details four coverages (A-D), each with an Insuring Agreement and Exclusions Coverage A: Bodily Injury and Property Damage Liability Coverage B: Personal Injury and Advertising Injury Liability Coverage C: Medical Payments Coverage D: Tenants' Legal Liability CAIB 3 Coverage A: Bodily Injury and Property Damage Liability Overview Purpose of Coverage A: Protects against legal obligations to pay for bodily injury or property damage Insuring Agreement Key Features: Covers compensatory damages for bodily injury or property damage Definitions: Bodily Injury: Physical harm, sickness, or disease leading to death Property Damage: Physical injury to tangible property or loss of use of tangible property CAIB 3  Bodily Injury Coverage Details Bodily Injury: Limited to physical harm; excludes mental anguish (e.g., nausea, emotional distress) Covers diseases originating within the body, from minor ailments to severe illnesses like cancer Death Coverage: Covers claims for deaths resulting from bodily injury, sickness, or disease, regardless of timing CAIB 3  Property Damage Defined: Physical injury to tangible property Loss of use of tangible property even without physical injury Property Scope of Coverage: Damage Tangible property only (real or personal) Coverage and Excludes intangible assets (e.g., goodwill, intellectual property) Loss of Use Loss of Use Coverage: Covers consequential losses due to business interruption or income loss from property damage Includes scenarios where there is no direct physical injury but loss of utility (e.g., power outages) CAIB 3 Payment Obligations Legal Obligation Policy Coverage: Settlements: Defined: Responds only Obligation Insurers often when the insured is established by court assess likelihood of legally obligated to decision liability to avoid pay damages Moral obligations court not covered by Out-of-court policy settlements based on legal precedents may be pursued CAIB 3  Tort Liability: Coverage extends beyond negligence to include other civil wrongs (e.g., nuisance, trespass) Types of Liabilities Contractual Liability: Covers specific obligations assumed through Covered by contracts (e.g., tenants’ liability for landlords, manufacturer’s indemnification for retailers) the Insuring Agreement Statutory Liability: Covers liability imposed by law (e.g., compliance with safety standards like the Occupiers Liability Act) CAIB 3 Criminal Acts Exclusion Criminal Liability Not Covered: Policy excludes any liability related to criminal actions by the insured Civil Actions Following Criminal Acts: Victims may pursue civil claims against offenders, but policy does not cover such claims Reason for Exclusion: Liability policies are designed for civil obligations, not criminal penalties CAIB 3  Insurer's Liability Limited to Compensatory Damages Compensatory Damages Only: Covers only monetary compensation for actual injury or damage Aims to place a monetary value on the harm caused Excludes Punitive Damages: Punitive/exemplary damages, fines, and penalties are excluded Insured is responsible for any non- compensatory awards CAIB 3 Coverage Limited to Losses During the Policy Period CAIB 3 Requirement for Injury or Damage to Result from an Occurrence Definition of Types of Covered Exclusion for Occurrence: Occurrences: Known Losses: An “occurrence” Sudden, Excludes known includes accidents unexpected events damages or or continuous Gradual conditions injuries that exposure to leading to harm predate the policy harmful conditions period, even if ongoing CAIB 3  Territorial Limits of Coverage Coverage Territory Defined: Applies only to losses occurring within Canada and the United States (including U.S. territories like Guam, Puerto Rico, and the Virgin Islands) Extends to international waters/airspace for travel between these locations Limited World-Wide Coverage for Products Liability: Protects against claims if product sold or made in Canada/US and later causes harm abroad Example: A Canadian product purchased in Canada but consumed abroad (e.g., Jay Juice bought in Toronto and consumed in Tokyo) would be covered CAIB 3 Conditions for International Claims and Coverage Conditions for Products Liability Coverage: Product must be made or sold in Canada/US Legal action must be filed within Canada or the US Example: A beverage made in Canada but sold in a foreign market can be covered if a claim is filed in a Canadian or American court Purpose of Conditions: Ensures claims align with Canadian/American legal standards, offering consistency in legal interpretation and liability CAIB 3 Additional Coverage Extensions for Overseas Business Activities Worldwide Coverage for Business Activities: Covers short-term overseas business trips for employees based in Canada or the U.S. Applies to injury or damage claims that arise from these business activities abroad Personal and Advertising Injury Coverage: Extends to internet-based activities (e.g., website use) outside the coverage territory Includes non-advertising businesses that still use online advertising or customer websites CAIB 3 Insurer's Right and Duty to Defend Insurer’s Right to Defend: Insurer can defend any civil action that may lead to a payout under the policy Ensures all facts are properly presented in court, protecting the insurer’s interest Duty to Defend: Insurer must defend against any claim covered by the policy, even if allegations are groundless, false, or fraudulent No duty to defend claims clearly outside policy coverage (e.g., intentional acts like assault) Limits on Duty to Defend: Duty ends once coverage limits are exhausted Insurer is not required to defend for potential damages that exceed policy limits CAIB 3 Insurer's Right to Investigate and Settle Claims Right to Investigate: Insurer can investigate any claim for firsthand information Investigations by experienced adjusters aid in assessing liability accurately Right to Settle at Insurer’s Discretion: Allows insurer to settle claims out of court to save time and costs Avoids costly court processes, especially when liability is clear or likely Benefits: Reduces legal expenses and court time Ensures efficient claim resolution, even if the insured prefers to contest CAIB 3  Coverage Scope: Applies only to bodily injury and property damage. Legal Obligation: Payment is only for damages the insured is legally obligated to pay. Key Features Compensatory Damages Only: Covers only compensatory, not punitive, damages. of Coverage A: Policy Period Requirement: Losses must occur Bodily Injury during the active policy period. Occurrence Requirement: Injury or damage must and Property result from an occurrence (e.g., accident). Damage Territorial Limits: Coverage applies within Canada, Liability the U.S., and specified territories. Insurer’s Duty to Defend: Insurer has the right and duty to defend against covered claims. Investigation and Settlement: Insurer can investigate and settle claims at its discretion. CAIB 3 Exclusions - Intentional Acts and Expected Consequences Intentional Harm Exclusion: No coverage for bodily injury or property damage intentionally caused by the insured Examples of exclusions: Deliberate assault or arson by the insured Expected Consequences: Excludes injuries or damage reasonably expected due to the insured's actions Example: Injuries during forcible ejection of a patron if harm is expected Exception for Reasonable Force: Coverage applies when reasonable force is used to protect persons or property, provided: Force is deemed reasonable under the circumstances Force is solely to protect people or property from harm CAIB 3 Exclusions - Contractual Liability Assumption of Liability Exclusion: Excludes bodily injury or property damage for which the insured assumes liability under a contract or agreement Exceptions to Exclusion: Coverage applies if: 1.The liability is assumed under an insured contract (e.g., leases or service contracts) and the injury or damage occurs after the contract’s execution 2.Liability exists independent of the contract, meaning the insured would be liable even without the contract CAIB 3 Liability Assumed Under Contract - Overview Voluntary Assumption of Liability: Liability can be transferred from one party to another by contract (e.g., building owner assumes contractor’s liability) Exclusion Purpose: Protects insurer from unexpected liability assumptions that increase risk exposure without appropriate premium adjustment General Exclusion: Policy excludes coverage for bodily injury or property damage assumed by the insured through a contract, unless exceptions apply CAIB 3 Exceptions to Contractual Liability Exclusion Standard Insured Contracts: Some contracts are so common that they’re automatically covered under the policy, including: Lease of Premises: Lessees may assume liability for injuries on rented property Sidetrack Agreements: Agreements for use and maintenance of sidetracks for rail transportation Easements and Licenses: Rights to use land belonging to another (e.g., for utility lines) Municipal Indemnification: Liability assumed as required by ordinance, excluding work performed for a municipality Elevator Maintenance Agreements: Liability assumed in agreements to maintain and operate elevators CAIB 3  General Business Contracts: Policy covers tort liability assumed in contracts directly related to business operations if: Liability is partially due to the insured’s Assumption of actions or negligence Tort Liability for Liability is assumed before any claim arises Business Operations Limitation: Excludes coverage if the liability is solely due to a third party’s negligence or breach of contract CAIB 3 Professional Liability Exclusion Exclusion of Professional Liability: Policy does not cover professional liability assumed for architects, engineers, or surveyors Purpose: Keeps the focus on general liability coverage, as professional liability often requires specialized insurance CAIB 3 Exclusion for Statutory Obligations (e.g., Workers' Compensation) Statutory Obligations Not Covered: Excludes liability under workers' compensation, disability, unemployment, or employment compensation laws Employer’s Responsibility: Insureds are expected to comply with statutory requirements independently CAIB 3 Employee Injury Exclusion and Recommendations Employee Injury Exclusion: Policy excludes coverage for bodily injury to employees arising out of their employment Exceptions: Covers liability for employee injuries only under an “insured contract” or if covered by workers' compensation Recommendations for Employers: Option 1: Purchase Employer’s Liability Coverage or Voluntary Compensation Endorsement Option 2: Enroll employees in provincial workers' compensation plans where available CAIB 3 Contingent Employer's Liability Coverage Coverage When Workers' Compensation Denies Claims: Protects employers if an employee’s injury claim is denied by workers' compensation Applicability: Covers liabilities when assumed under an insured contract or when required by workers' compensation law Example: If an employee sues a project owner (like Ms. Smart) due to an injury on-site, and liability is shared with the contractor, the policy covers the contractor’s responsibility, provided they are partially at fault CAIB 3  Automobile Liability Exclusion Automobile Exclusion: Excludes liability for injury or damage from the use, maintenance, or operation of: 1.Automobiles (vehicles that require a separate motor vehicle policy) 2.Motorized snow vehicles and trailers 3.Vehicles used in races or stunts Rationale: Automobile-related liabilities are typically insured under separate auto liability policies CAIB 3 Exceptions to Automobile Liability Exclusion Exceptions for Attached Equipment: Coverage applies to vehicles with attached machinery or equipment at a job site Example: Welding trucks or mobile cranes are covered for their on-site operations but not for public road use Loading and Unloading: Coverage for loading/unloading activities if they’re not covered by provincial motor vehicle regulations CAIB 3 Key Takeaways for Contingent and Automobile Liability Contingent Employer's Liability: Provides coverage for employer liabilities when workers' compensation denies claims and liability is shared Automobile Liability Exclusion and Exceptions: Excludes typical automobile exposures but covers certain job-site equipment operations Important to have separate auto liability policies for vehicles used on public roads Broker Recommendations: Ensure clients have appropriate automobile and employer’s liability coverage based on their operations CAIB 3 Automobile Exclusion - Owned and Non- Owned Vehicles Exclusion Scope: Excludes liability for any automobile, whether owned or non-owned Non-Owned Automobile Exposure: Businesses may have liability exposure from rented/leased vehicles or employees using personal vehicles for business Standard Non-Owned Automobile Policy: Available to cover liability from non-owned vehicles Attached to the business’s liability policy, not to an owned automobile policy CAIB 3 Types of Automobiles and Heavy Machinery Non-Automobile Vehicles Covered: Certain machinery (e.g., front-end loaders, forklifts, road graders) not classified as automobiles under the policy Liability for injury or damage from these machines is covered by the CGL policy Jurisdictional Licensing Requirements: Some provinces may require licensing for machinery if used on public roads Brokers should verify local licensing requirements to ensure compliance CAIB 3 Watercraft Exclusion and Exceptions Watercraft Liability Exclusion: Excludes liability for watercraft-related activities (e.g., operation, loading/unloading, or maintenance) Aims to avoid risks associated with watercraft use and transfer of responsibilities Exceptions to the Exclusion: Ashore Watercraft on owned/rented premises Non-owned watercraft under 8 meters in length, not used commercially CAIB 3 Non-Owned Watercraft Liability Coverage for Non-Owned Watercraft: Automatically includes liability for non-owned watercraft under 8 meters Limited to pleasure use; excludes commercial activities Situations Covered: Insured’s occasional use of non-owned watercraft (e.g., renting a small boat for client recreation) Broker’s Role: Inform clients of coverage restrictions to prevent unexpected gaps CAIB 3 Checkpoint Challenge  No Coverage for Damage Excludes property owned, rented, or occupied by the to Insured’s insured Property: Exclusion for Exclusion Damage to for Care, Custody, or No coverage for personal property in the insured’s care, Property in Control: custody, or control Insured’s Tenant’s Legal Liability can be Possession Exceptions purchased to cover rented Available: premises, included in policy with extra premium Exclusion for Damage to Sold, Loaned, or Abandoned Property Premises Sold, Given Away, or Abandoned: Excludes property damage claims arising after the insured sells or abandons the premises Example: Excludes liability if a repair made before selling causes later damage Property Loaned to Insured: Excludes coverage for property loaned to the insured or entrusted for repair/storage Coverage for borrowed property needs a separate bailees policy Exclusion for Damage from Defective or Faulty Work Damage to Real Property from Operations: Excludes damage to specific parts of property being worked on if damage arises from faulty operations Defective Work Exclusion: Excludes repair costs for any property needing restoration due to defective work Resultant Damage Covered: Only damage to surrounding areas not directly worked on is covered  Exclusion for Damage to Products and Work Broad Form Completed Damage to Insured’s Workmanship Operations Product: Exclusion: Endorsement: Excludes coverage for No coverage for Optional endorsement damage to the damage to the available to cover insured’s own insured’s work due to specific parts of defective products defects within the work completed work, rather sold to others itself than excluding all work-related damage  Exclusion Exception for Work by Subcontractors Exception for Subcontractor Work: Exclusion for damage to insured’s work does not apply if the work was done by a subcontractor Benefit for General Contractors: Protects general contractors from liability for subcontractors’ work-related damages (e.g., faulty wiring, plumbing) Claims Process: Insurer may cover the claim and pursue subrogation against the subcontractor  "Impaired Property" Exclusion: Excludes coverage for loss of use of undamaged property due to a defect in the insured’s product or Exclusion work for Restorable Property: Property that can be restored to use by repairing or "Impaired replacing the defective work/product is not considered damaged Property" Exception for Sudden/Accidental Injury: Loss of use resulting from sudden and accidental physical damage to insured’s product/work is covered Recall and Withdrawal Exclusion Product Recall Exclusion: No coverage for costs related to recalling, inspecting, repairing, or replacing defective products/work Examples of Recall Actions: Recall: Locating and removing faulty products from the market Inspection/Repair: Checking remaining stock and repairing defects Disposal: Removing defective items to prevent further issues Specialized Coverage: Some insurers offer separate recall insurance for businesses needing this protection Additional Key Exclusions Electronic Data: Excludes coverage for damage claims arising from electronic data, as it’s not tangible property Personal and Advertising Injury: No coverage for bodily injury claims stemming from personal or advertising injury (covered under a separate section) Professional Services: Excludes bodily injury or property damage due to professional services (e.g., consulting, medical services) Abuse Exclusion: Excludes claims related to abuse allegations, including failure to supervise or report Coverage B: Personal and Advertising Injury Liability Purpose of Coverage B: Covers personal and advertising injury liability exposures for businesses Protects against damages for offenses impacting personal rights or reputation Definition of Personal Injury: Includes injuries such as false arrest, malicious prosecution, wrongful entry, defamation, and privacy violations Scope of Coverage: Applies to business activities, with exclusions for advertising done by or for the insured, unless covered under a separate endorsement Key Offenses Covered under Personal Injury Liability False Arrest, Detention, or Imprisonment: Covers wrongful detention claims, such as store employees wrongfully accusing customers of theft Malicious Prosecution: Protects businesses from claims when wrongful criminal accusations are made without probable cause Wrongful Entry or Eviction: Covers claims arising from wrongful eviction or unauthorized entry into leased premises Additional Offenses Covered: Defamation and Privacy Violations Defamation (Slander and Libel): Covers claims for damages from false statements that harm reputation, whether written (libel) or spoken (slander) Example: Publicly calling a competitor a “thief” without proof Privacy Violation: Protects against claims for publishing material that violates an individual’s right to privacy Example: Publicly discussing a customer’s private debts without permission Exclusions and Limitations under False Publication: Intentional Law Violation: Contractually Assumed Liability: Additional Exclusions: Coverage B: No coverage for publication of material known to be false at the No coverage for injuries resulting from deliberate legal Excludes coverage for liability assumed in contracts for injuries Excludes injuries from advertising, publishing, or broadcasting done Personal and time of publication violations by the caused by other parties by the insured (unless Excludes claims for insured separately covered) publications made prior Example: A landlord No coverage for content Advertising to the start of the policy who unlawfully enters a posted in chatrooms or period tenant’s apartment is bulletin boards not covered for operated by the insured resulting personal Injury Liability injury claims  Coverage C: Medical Payments Purpose of Medical Payments Coverage: Provides no-fault coverage for medical expenses incurred by third parties injured on or near the insured’s premises Types of Expenses Covered: Includes first aid, ambulance, x-rays, medical and dental services, and funeral expenses if necessary Coverage applies for up to one year from the date of the accident Benefits of Immediate Payment: Reduces chances of permanent disability and lessens severity of injury claims Helps prevent negligence claims under Coverage A by addressing injuries promptly Exclusions in Coverage C: Medical Payments Scope Limited to Accidents: Coverage applies only to injuries caused by accidents Exclusions for Specific Individuals: No payment for medical expenses of: Insureds themselves Employees of the insured, typically covered by workers' compensation Other workers or independent contractors Persons participating in athletic activities (expected injuries in sports)  Paying immediate medical expenses Reduces Legal avoids lawsuits over small costs Confrontations: like ambulance fees and Key Benefits deductibles and Legal Court Sympathies: Quick payment likely favors the insured’s position if future litigation Advantages of arises Coverage C Cost-Effective Risk Early medical payments can prevent larger claims under Management: Coverage A  Purpose: Protects tenants from legal liability for damages to rented premises Applicable Situations: Coverage D: Long-term and short-term rentals (e.g., hotel rooms, event spaces) Tenants' Legal Legal Basis for Liability: Liability Tort Liability: Tenant is liable for damages due to their negligence Contractual Liability: Tenant may assume extra liability by contract, such as agreeing to cover all fire damage Why Tenants' Legal Liability Coverage is Necessary Property damage liability under Coverage Gap in Coverage: A excludes damage to premises rented or occupied by the insured Tenants' Legal Liability covers negligence- based property damage to rented spaces Filling the Gap: Optional coverage based on tenant’s specific exposure Contractual Liability Covers only tort liability; additional property policy required for other Limitations: contractual obligations Selecting Coverage Limits for Tenants' Legal Liability Coverage Limits: Coverage should be at least equal to the value of the rented portion occupied by the insured Policy Structure: Covers damage arising from negligence on an all-risks basis Per location, per occurrence limit applies for each covered incident Common Exclusions for Coverages A, C, and D (Part 1) Asbestos Exclusion: Fungi or Spores Exclusion: Absolute exclusion for all damages, penalties, Absolute exclusion for any costs or damages or legal costs associated with asbestos resulting from fungi or spores (e.g., mold) exposure Exception for products under the products- Applies regardless of any other contributing completed operations hazard if fungi/spores causes to the loss are present in products intended for human/animal use Common Exclusions for Coverages A, C, and D (Part 2) Nuclear Energy Liability Exclusion: Excludes coverage for damages from nuclear energy operations, typically insured by the Nuclear Insurance Association of Canada (NIAC) Coverage applies to non-nuclear uses of radioactive materials (e.g., scientific or medical uses), provided they are not at a nuclear facility Pollution Liability Exclusion: Absolute exclusion for claims related to pollution on premises, at disposal sites, during transport, or at work sites Pollutants broadly defined, though revised to include smoke/fumes from a hostile fire as covered  Additional Exclusions: Terrorism and War Risks Terrorism Exclusion: Absolute exclusion for claims of injury, property damage, or personal/advertising injury arising from terrorism Applies regardless of any other contributing factors to the loss War Risks Exclusion: Excludes injury or damage related to warlike actions While unlikely in most business contexts, this exclusion limits liability for any war-related claims Supplementary Payments for Coverages A, B, and D Purpose: Covers additional costs incurred during the defense of claims, preserving the policy’s primary limits for actual damages Types of Expenses Covered: Legal defense costs, bonds, insured’s reasonable expenses, and court costs Applicability: Supplementary payments apply to Coverages A, B, and D, but not to Coverage C (Medical Payments)  Legal Defense Costs: Covers costs of investigating and preparing a defense, including expert witnesses Bond Costs: Types of Pays for bonds needed to release assets held by Supplementary the court, limited to the policy’s liability amount Payments Insured’s Assistance Costs: Reimburses insured for reasonable expenses incurred to assist in the defense, including: Expenses for investigation or court appearances Loss of earnings up to $250/day if time off work is required  Court Costs and Interest on Judgments: Court Costs: Pays any costs ordered by the court if the plaintiff wins, which can be substantial Additional Post-Judgment Interest: Covers interest on the judgment amount within the policy limit, from the Supplementary judgment date until payment or deposit by the insurer Payments and Unlimited Coverage for Supplementary Payments: Limitations Most supplementary payments are unlimited, except for post-judgment interest, which is capped by the policy’s liability limits Enhances policy value by covering significant defense-related expenses  Determination of Premium – Factors Affecting Rates The premium is influenced by several factors, including industry type, claims history, and geographic location. Higher-risk businesses or locations often have higher premiums. Insurers use sales and payroll data to estimate liability exposure. Coverage A: Bodily Injury and Property Damage Liability Determines the premium based on: Required limits Exposure assessment under Coverage A Covers third-party bodily injury and property damage caused by insured operations Influenced by factors specific to business operations and location Premises and Operations Liability Key Premium Determinants:Square footage Occupancy type Payroll count Geographical location Products Liability Premium based on : Product type and potential risk Sales volume Distribution territories Completed Operations Liability Premium determinants: Type of work Gross receipts and project scale Coverage B: Personal and Advertising Injury Liability Coverage often included at no additional premium Limits usually match Coverage A limits Covers: Defamation Invasion of privacy Misleading advertising claims Coverage C: Medical Payments Typically included without additional premium Coverage limits generally up to $2,500 per person, with an aggregate of $25,000 Can be increased but rarely requested Coverage D: Tenants' Legal Liability Often includes $100,000 coverage at Covers damages to Charges approximately no cost; excess rented property due to 35% of the building rate amounts incur insured’s negligence additional premiums Checkpoint Challenge  CAIB 3 Section 2 Additional Policy Sections  Categories of Insureds: Individuals: Policies can be issued to individuals operating as sole proprietors. Section II - Partnerships, LLPs, Joint Ventures, LLCs: Limited Liability Partnerships (LLPs) and Joint Ventures are included, with Joint Ventures Who is an generally having temporary, project-based relationships. Insured Organizations: Includes corporations, government bodies, business trusts, estates, associations, and other legal or commercial entities. Persons Insured - Coverage Extension Coverage for Key Individuals: Owners, Partners, Spouses, Directors, and Officers: Covered when performing business-related duties Employees and Volunteer Workers: Included as insureds, giving the insurer control over defense in legal actions involving them Additional Insureds: Real Estate Managers: Covered when acting in the capacity of managing the insured’s property Temporary Custodians of Property: Insured following the death of the Named Insured, limited to property maintenance liabilities Legal Representatives: Upon death of the Named Insured, coverage extends to appointed representatives for assumed business duties  Insuring Businesses Formed or Acquired During Policy Period Automatic Coverage for New Corporations: Applies when the Named Insured purchases a majority interest in or forms a new corporation Coverage extends automatically unless the new business has its own separate policy Exclusions for New Partnerships and Joint Ventures: No automatic coverage unless specifically stated in the Declarations Exclusion helps insurers manage risk due to short-term and speculative nature of these arrangements Coverage Duration: Limited to 90 days or until policy expiry (whichever is sooner) Coverage ceases if the policy is not endorsed to include the new business  Understanding Limits of Insurance Aggregate Limit: The maximum amount the policy will pay for all claims during the policy period Example: A $1,000,000 Aggregate Limit means the insurer pays up to this amount total for all covered claims within the policy period, regardless of the number or type of claims Each Occurrence Limit: Maximum amount payable per occurrence for Coverages A (Bodily Injury and Property Damage), C (Medical Payments), and D (Tenants' Legal Liability) Ensures that even with multiple coverages involved in a single incident, the payout cannot exceed the occurrence limit Example and Other Policy Limits Example Scenario: Additional Limits: If a fire causes damages totaling $1,105,000 Personal and Advertising Injury, Tenants' but the Each Occurrence Limit is $1,000,000, Legal Liability, and Medical Expenses: Each the insured must cover the remaining has individual limits as stated in Declarations $105,000 out-of-pocket Claims under these coverages are capped by their respective limits and, where applicable, by the Aggregate and Each Occurrence Limits  Section IV- Commercial General Liability Conditions Bankruptcy or Insolvency of the Insured Insurer Obligations: Insolvency or bankruptcy of the insured does not relieve the insurer of its liability. Legal discharge from debt does not absolve the insurer’s responsibility under the policy. Canadian Currency Clause Currency Payment Requirement: Claims are paid in Canadian dollars unless otherwise agreed. Helps mitigate exchange rate fluctuations for claims originating outside Canada. Changes to the Policy Duties in Event of Occurrence, Offense, Claim, or Action Insured’s Responsibilities: Promptly notify insurer of any incidents. Provide all legal documents received. Cooperate fully in investigations, settlements, and defense.  Cooperation in Claim Handling Additional Cooperation Requirements: Insured must assist in recovering paid amounts from liable third parties. Avoid voluntary assumptions of liability unless related to first aid. Examination of Books and Records Insurer’s Right to Audit: Insurers can inspect insured’s records anytime within three years of policy expiration. Ensures accurate underwriting by verifying business activities. Inspections and Insurer’s Right to Inspect: Inspections may be conducted to recommend safety Surveys improvements. Not a guarantee of safety or compliance. Legal Action Against the Insurer Time Limit for Legal Action: Claimants must file lawsuits within one year of the right to action. Compliance with policy terms is mandatory before action against the insurer. Checkpoint Challenge Other Insurance Clause Primary vs. Other Insurance: Policy is primary unless stated otherwise. Liability shared if other primary policies cover the same risk. Premium Audit Premium Adjustments: Policy premium is a deposit; final premium is based on actual sales/work. Audit ensures appropriate premium for actual exposure. Premiums Clause Responsibility for Premium Payments and Refunds: First Named Insured is responsible for payments and refunds. Simplifies policy management for multi-insured entities. Representations Clause Accurate Statements Required: False material representations may void the policy. Statements must be factual, not opinion-based. Separation of Insureds (Cross Liability) Individualized Coverage: Policy applies separately to each insured. Breaches by one insured do not impact others. Termination Clause Termination Procedures: Insured must provide a signed request for cancellation. Insurer provides notice to first Named Insured for cancellation. Transfer of Rights and Subrogation  The Commercial General Liability (CGL) Policy includes key definitions that outline coverage and responsibilities. These previously defined terms provide clarity on essential policy elements: Definitions in Automobile the CGL Bodily Injury Policy Coverage Territory Insured Contract Occurrence Personal Injury Property Damage  Products Liability - Definition and Scope Consumer Rights: Under common law, consumers expect products to be safe. If defective products cause injury or damage, consumers can sue for damages. Definition of "Your Product" in CGL Policy: Scope: Covers any goods (excluding real property) that the insured: Manufactures, sells, or distributes Includes containers, materials, parts, or equipment related to the product Warranties Included: Statements about fitness, quality, durability, and performance are part of the product.  Examples of Products Liability Coverage Product Components: Containers & Equipment: Warranties as Product Claims: Unassembled items, such as Packaging materials, bottles, and Any guarantees about a product’s furniture kits or automobile tools sold with the product are also quality or performance made by the engines, qualify as "products." covered. insured fall within the coverage. Completed Operations Exposure Completed Operations Exposure: Liability arises from defects in completed work, allowing lawsuits for resulting injury or damage. Definition of "Your Work": Covers work done by the insured and by subcontractors. Includes materials provided in connection with the work. Covers warranties and representations about the quality, durability, and performance. Key Elements and Example Key Elements: Direct Work: Liability for work done by the insured. Subcontracted Work: Extends to work done by subcontractors, adding to exposure. Materials Supplied: Parts and materials included in the work are covered. Example: Contractors like carpenters or electricians providing materials are covered for defects under completed operations, rather than product liability.  Court awards for similar industries inform Determining recommended coverage Liability Insurance High-risk sectors, like aerospace, chemicals, and pharmaceuticals, face Coverage — substantial liabilities Factor 1: Case Example: Las Vegas hotel fire with Previous damages exceeding $20 million demonstrates the need for substantial Court Awards coverage  Courts increasingly account for inflation’s impact on damages Determining Liability Insurance Higher awards now considered necessary due to reduced Coverage — purchasing power Factor 2: Inflation Ensures adequate compensation despite rising costs Determining Liability Insurance Coverage — Factor 3: Existence of Insurance and the “Deep Pocket” Theory Courts may assign higher awards if they suspect insurance coverage "Deep Pocket Theory": Belief that businesses with more resources should pay more Legal practices prevent direct mention of insurance, but implications still influence judgments  Determining Liability Insurance Coverage — Factor 4: Territory of Operations Operating in litigation-heavy countries, International operations necessitate Local legal climates impact the like the U.S., increases coverage needs evaluating currency exchange rates adequacy of insurance limits Determining Liability Insurance Coverage — LARGE CORPORATIONS MOST SMALL TO MID- TRANSFERRING RISK VIA Factor 5: MAY SELF-INSURE DUE TO THEIR CAPACITY TO ABSORB SIGNIFICANT SIZED BUSINESSES LACK THIS FINANCIAL BUFFER INSURANCE ESSENTIAL FOR SMALLER FIRMS TO MANAGE POTENTIAL Business’s LOSSES LIABILITIES Ability to Absorb Losses  Legal Courts do not judgments may consider require Effect of defendant’s ability to pay when awarding liquidation of assets if Judgment for damages insurance is insufficient Damages on Bankruptcy may Possible consequences Business not absolve the defendant from judgment include garnishment of wages and obligations seizure of property  Fraudulent Claims in Liability Insurance Fraudulent claims are common, especially in liability and auto insurance Liability policies help businesses manage fraudulent claims with: Access to professional adjusters skilled in detecting fraud Inclusion of defense costs, which can be substantial Uninsured businesses often pay fraudulent claims to avoid high defense costs Checkpoint Challenge  CAIB 3 Section 3 Miscellaneous Policy Forms Commercial General Liability Policy (Claims Made Form) IBC 2200 Traditional CGL Policy (IBC 2100) serves businesses well overall Insurers face challenges with long-term bodily injury claims spanning multiple years Claims Made Form (IBC 2200): Introduced to manage escalating costs from older claims Latent Bodily Injury: The History of the Problem Occurrence-Based Coverage: Allows claims any time, but insurer pays only if risk was insured at occurrence Challenge: Determining the exact date of injury can be complex Court Theories on Injury Occurrence: Exposure Theory: Injury starts at exposure to harmful substance Exposure in Residence Theory: Injury continues post-exposure Manifestation Theory: Injury occurs when diagnosed or recognized  The Solution: The Claims Made Policy Claims Made Policy: Addresses the "long tail" effect, controlling costs by reducing exposure to latent injury claims. Key Features of Claims Made Policy: Coverage Triggered: When a claim is made, avoiding limit stacking over multiple years. Retroactive Date: Limits coverage for claims before policy inception, maintaining consistency across renewals. Extended Reporting Period: Available for additional premium, covers claims made post-policy period for covered occurrences. Professional Liability Insurance Purpose: Covers damages from the rendering or failure to render professional services. Definition of a Professional: An individual with specialized knowledge and skills in a field. Healthcare Providers: Physicians, pharmacists, veterinarians, etc., who may opt for Malpractice Insurance. Categories of Professionals: Advisors and Counselors: Lawyers, accountants, engineers, and agents, typically covered by Errors and Omissions Insurance. Claims Made Basis: Most professional liability policies are now claims-made due to underwriting challenges.  Basis of Legal Action in Professional Liability Two Legal Grounds for Claims: Duty of Care in Tort: Levels of Performance in Contract: Action in Tort: Focuses on the Higher standards apply to Complete Performance: Full, professional’s duty of care. professionals (e.g., physicians, satisfactory delivery of services. Action in Contract: Based on the lawyers). Substantial Performance: Minor promise to perform services with Standards may vary within a shortcomings, with damages due care. profession (e.g., senior vs. junior deducted. lawyers). Material Breach: Major failure; no right to contract price, potential damages.  Directors' and Officers' (D&O) Liability Insurance Roles in Corporations: Corporations consist of shareholders and a board of directors. Board members are elected by shareholders but have broader duties. Primary Duty of Directors: Duty is owed to the corporation, not just shareholders. Legislation expands responsibility to shareholders, creditors, employees, and the public. Liability Risks for Directors: Directors may be liable for willful neglect, mistakes, or misconduct. Failure to fulfill duties can result in claims from various stakeholders. D&O Liability Insurance: Provides protection for directors and officers against claims for failing to meet legal duties. Can indemnify companies for claims against their directors and officers. Umbrella Policies – Addressing Limitations in Liability Coverage Challenges in Standard Liability Policies: Inadequate limits: Insurers may cap coverage based on risk exposure and reinsurance limitations. Inadequate coverage: Basic policies may miss certain exposures, leaving gaps if risks change or new liabilities arise. Solution: Umbrella Liability Policy Provides both additional limits and broader coverage. Fills gaps left by primary policies and increases coverage for high-risk areas.  How the Umbrella Policy Works Primary Policy Types Covered: Commercial General Liability (CGL) Commercial Auto Professional Liability Umbrella Policy Activation: Inadequate limits in primary policies: Provides excess coverage once primary limits are exhausted. Inadequate coverage: Covers excluded losses in the primary policy unless the Umbrella Policy contains similar exclusions. Self-Insured Retention (SIR): Deductible for losses excluded in primary policy; encourages purchase of adequate primary coverage. Underwriting Umbrella Liability Coverage Application Requirements: Importance of Underlying Policy Details: Comprehensive application form to assess Underwriters assess coverage limits and gaps risk. in existing policies. Brokers cannot bind coverage; insurer Broader primary policies may reduce premium approval required. and Self-Insured Retention (SIR) amount. Checkpoint Challenge Questions?