Like many small businesses your company has probably purchased a commercial liability policy. Many insurers that issue liability policies utilize standard forms published by an organization called the Insurance Services Office or “ISO”. In addition to policy forms, ISO provides statistical and technical information to insurers.
There are two main reasons why insurers use ISO forms. One is convenience. Developing policy forms is a time-consuming task that many insurers prefer to avoid. The second reason has to do with risk. When an insurer drafts its own policy language, a court may interpret it differently than the way the insurer intended. The insurer may have to cover claims it didn’t intend to cover. ISO forms tend to be less risky because much of the language they contain has already been analyzed by the courts.
The ISO Commercial Liability Coverage Form or CGL is the basis of an ISO liability policy. The most important coverage afforded by the CGL is Coverage A, which covers bodily injury and property damage.
Coverage A: Bodily Injury and Property Damage Liability
For the purposes of this discussion we’ll assume that your firm is covered under an ISO liability policy as the named insured, meaning the person or entity listed in the policy declarations. The CGL covers sums your firm is legally obligated to pay as damages because of bodily injury or property damage. That is, it covers claims or suits against your company by a person or organization that has sustained bodily injury or property damage as a result of your firm’s negligence.
For Coverage A to apply you must be legally responsible for the injury or damage. The CGL will not cover payments you make voluntarily. Coverage A is broad, covering all bodily injury or property damage caused by an occurrence, unless the injury or damage is precluded by an exclusion. The exclusions found under Coverage A will be explained in a subsequent article.
Covers Your Premises, Work or Operations
Coverage A applies to claims that arise out of injury or damage that occurs on your premises, or that arises out of your work or operations. Here is an example of an injury that occurs on-premises.
Doris operates Divine Delights, a coffee shop that sells cakes and cookies made on the premises. Bill, a customer, enters the store and is heading to the counter when he trips over a chair. Bill injures his knee in the fall. Three months after the accident he files a claim against Divine Delights, demanding reimbursement of his medical expenses related to his knee injury. The shop’s liability policy covers the claim.
Covers Work Off-premises and Completed Work
Some firms perform work or operations at customers’ homes or places of business. For example, Capital Construction has been hired to refurbish wall paneling in the interior of an office building. A Capital employee is moving a table saw at the job site when he accidentally drops it. The saw falls to the floor, damaging several tiles. If the building owner later sues Capital Construction for the cost to repair the floor tiles, Capital’s liability policy should cover the suit.
In the previous example the damage to the floor was a result of work in progress. That is, the damage occurred while Capital Construction was performing ongoing operations. Bodily injury or property damage may also arise from completed work or operations. In other words, injury or damage may result from faulty or defective work that has been finished.
Suppose that Capital Construction builds an eight foot fence around a tasting room at a winery. During construction Capital employees fail to install the proper footings. Two years after the fence has been completed it collapses, injuring a winery customer. The customer sues Capital Construction for bodily injury. Capital’s general liability insurer pays the claim because Capital’s policy includes completed operations coverage.
Also Covers Faulty Products
Some claims arise from faulty products. Divine Delights (in the first example) sells baked goods to the public. Suppose that Divine sells cherry pies. Stuart buys one of the pies and takes it home. Later that day he is eating a piece of pie when he breaks a tooth on a cherry pit. Stuart’s tooth can’t be repaired so it is removed and replaced with a dental implant. Stuart sends Divine Delights his dental bills and demands reimbursement. Again, Divine’s CGL policy should cover the claim.
If a lawsuit covered by Coverage A is filed against your firm, your insurer will provide an attorney to defend you. Covered costs include attorneys’ fees, court costs, premiums on certain bonds, and interest charged on the judgment. All of these charges are included under a coverage called Supplementary Payments. They are covered in addition to the policy limit.