Commercial Liability Insurance-Credit and Risk Managment-Lecture Notes, Study notes of Credit and Risk Management

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LECTURE – 40 COMMERCIAL LIABILITY INSURANCE General Liability Loss Exposures • General liability refers to legal liability arising out of business operations other than auto or aviation accidents and employee injuries – Some important exposures include: • Premises and operations liability, arising out of the ownership and maintenance of the premises where the firm does business • Products liability, arising out of the manufacturing and sale of products • Completed operations liability, arising out of faulty work performed away from the premises after the work or operation is completed • Contractual liability, arising out of the assumption of legal liability through a written or oral contract • Contingent liability, arising out of work done by independent contractors Commercial General Liability Policy • The commercial general liability policy (CGL) is widely used by firms to cover their general liability loss exposures – The policy comes in two forms: an occurrence form and a claims-made form • An occurrence policy covers liability claims arising out of occurrences that take place during the policy period, regardless of when the claim is made • A claims-made policy covers only claims that are first reported during the policy period or extended reporting period, provided that the event occurred after the retroactive date, if any, stated in the policy • CGL contains three major parts of coverage and supplementary payments • Coverage A: Bodily Injury and Property Damage Liability – The insurer agrees to pay on behalf of the insured all sums up to the policy limits that the insured is legally obligated to pay because of bodily injury or property damage • The bodily injury or property damage must be caused by an occurrence, I.e., an accident, including continuous or repeated exposure to substantially the same general harmful conditions • Coverage does not apply when a loss is known or is apparent before the policy’s inception date • Coverage includes defense costs, and the insurer has the right to investigate a claim or suit and settle it at its discretion  Coverage A: contains a lengthy list of exclusions, including: • Expected or intended injuries or damages • Contractual liability, with some exceptions • Liquor liability • Workers compensation and employers liability • Pollution, with some exceptions • Aircraft, auto, and watercraft, with some exceptions • Mobile equipment • War • Damage to property owned, rented, or occupied by the insured • Property damage to the insured’s product or work • Damage to impaired property that is not physically damaged • Recall of products – Coverage A includes coverage for fire legal liability docsity.com • Covers fire damage to premises rented to the named insured or temporarily occupied by the named insured with the permission of the owner • A separate limit of coverage applies • Other damage to property rented by the insured is NOT covered Coverage B: Personal and Advertising Liability – The insurer agrees to pay those sums that the insured is legally liable to pay as damages because of personal and advertising injury – The policy covers legal liability resulting from: • false arrest • malicious prosecution • wrongful eviction or entry • slander • violation of privacy • copyright infringement Coverage C: Medical Payments – The insurer will cover the medical expenses of persons who are injured in an accident on the premises or on ways next to the premises, or as a result of the insured’s operations • Expenses must be incurred within one year of the accident • Payments are made without regard to legal liability • Supplementary Payments: Coverages A and B – In addition to the policy limits, coverage includes: • All expenses incurred by the insurer • Actual loss of earnings by the insured • Prejudgment interest CGL indicates the individuals and organizations that are considered “insureds” – If designated in the declarations, insureds include: • Owner and spouse if a sole proprietorship • Partners, members, and their spouses if a partnership or joint venture • Members and managers if a limited liability company (LLC) • Officers, directors, and stockholders if a corporation • A trust and trustees, but only with respect to their duties as trustees Insureds also include persons not named in the policy: • Volunteer workers acting for the organization • Employees acting within the scope of employment • Any person or organization acting as a real estate manager • A legal representative if the named insured should die • Any newly acquired or formed organization, other than a partnership, joint venture or LLC CGL contains the coverage limits – The general aggregate limit is the maximum amount that the insurer will pay for the sum of the following: • Damages under Coverage A (except for amounts paid for products-completed operations hazard), damages under Coverage B, and medical payments under Coverage C – The policy contains a separate products-completed operations hazard aggregate limit – A personal and advertising injury limit is the maximum paid under Coverage B docsity.com • Liability arising out of professional services – The form also contains a list of exclusions for personal injury and advertising liability, including: • Criminal acts • Failure of the product to perform as advertised • Employment-related practices, such as harassment Business-owners Policy • The ISO business-owners policy (BOP) includes liability coverage that is similar to the CGL form – The coverage includes: • Business liability • Medical expenses • Legal defense – Although the BOP excludes professional liability, some professional liability endorsements are available for: • retail drugstores • barbers and beauticians • funeral directors • optical and hearing aid establishments • printers • veterinarians Professional Liability Insurance • Professional liability insurance is available for certain business professionals to provide protection against a lawsuit involving a substantial error or omission • The physicians, surgeons, and dentists liability coverage form covers these professionals for acts of malpractice or omission resulting in harm or injury to patients – Liability is not restricted to accidental acts of the physician or surgeon. The policy also covers the physician for liability arising out of negligent acts of an employee – Current forms permit the insurer to settle a claim without the physician’s or surgeon’s consent – An extended reporting period endorsement can be added to cover future claims arising out of incidents that occurred during the policy period • Errors and omissions insurance provides protection against loss incurred by a client because of negligent acts, errors, or omissions by the insured – This coverage is purchased by professionals who provide advice to clients, such as: • insurance agents and brokers • travel agents • real estate agents • stockbrokers • attorneys • consultants • engineers, and architects – The policies are generally issued on a claims-made basis, covering only claims made in the current policy period – Claims that result from dishonest, fraudulent, criminal or malicious acts by the insured are specifically excluded Directors and Officers Insurance • A directors and officers (D&O) liability policy provides financial protection for the directors and officers and the corporation if the directors and officers are sued for mismanagement of the company’s affairs docsity.com – Typically, the policy agrees to pay damages on behalf of directors, officers, and employees because of a wrongful act – D&O policies are written on a claims-made basis – Common exclusions include bodily injury and property damage, libel and slander, personal profit, deliberate dishonesty by the insured, and illegal discrimination Back to TOC docsity.com