Demystifying the Commercial General Liability Insurance Policy

A Commercial General Liability (CGL) policy protects your business from financial loss stemming from injuries or property damage caused by your operations (or products) or personal injuries to third parties that occur on the company’s premises. It covers non-professional negligent acts, while professional negligent acts (such as malpractice) are covered under a Professional Liability policy. In addition, injuries to employees on company property are covered by workers’ compensation, not the CGL policy.

When issuing general liability policies, many insurers use standard forms published by the Insurance Services Office (“ISO”). In addition to the convenience of using standard forms, insurers are able to reduce their risk because much of the language contained in the forms has already been interpreted by the courts. Indeed, how a court interprets an insurance policy will be based in large part on the policy wording itself.

CGL policies must therefore be read carefully, paying close attention to the specific language used.  Unfortunately, what the policy actually says is not always so straight-forward and clear, and there are certain aspects of CGL coverage that are often misunderstood. This post seeks to demystifies those areas.

Duty to Defend

First, the wording of the ISO CGL will not allow an insurer to simply tender its policy limit and not defend an insured. This may come into play when a catastrophic event occurs involving multiple injuries or losses.  The insurer cannot simply pay the policy limit and refuse to defend the claim. The insured’s duty to defend does not end until the applicable limit has been used in the “payment of judgment or settlement.” In other words, the CGL policyholder has a right to be defended against any suit claiming damages arising out of covered personal injuries or property damages unless and until the full policy limit is paid, either pursuant to a settlement or a judgment for damages. Defense costs will likely be payable by the insurer as well.

It should be noted that the duty to defend only applies to civil proceedings, not criminal actions. 

Punitive Damages

The language of the ISO CGL obligates an insurer to pay “as damages” those sums an insured is legally obligated to pay because of bodily injury or property damage.  Because a damage award may include punitive damages, the CGL does obligate the insurer to pay punitive damages. That said, even if the policy obligates the insurer to pay punitive damages, some states have found that punitive damages are against public policy and may not allow insurers to pay them. For example, Florida prohibits liability insurance coverage for punitive damages assessed against a person because of his own wrongful conduct.  However, insurance coverage for punitive damages based on vicarious liability is permitted in Florida.  Again, it starts with the policy language.  If your CGL policy excludes punitive damages, there is no need to look beyond the policy to issues of legality and enforceability.  Indeed, it is a common practice for insurers to endorse the CGL to exclude punitive damages. 

Newly Acquired or Formed Entities

The coverage provided to new entities formed or acquired is quite limited. Any joint ventures, partnerships or LLCs formed or acquired by a named insured are not automatically included as named insured. Such entities must be listed on the policy as named insureds immediately to be covered. Also, any new entity must have been formed or acquired by a named insured.        

Let a Miami Insurance Law Attorney Evaluate Your CGL Policy

If you have questions concerning the coverage under your CGL Policy, contact a Miami insurance law attorney at Ver Ploeg & Marino, P.A. today. 

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