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What is the need for a Commercial General Liability Insurance?

Business environment and associated risk landscape has changed dramatically over the past few decades. Businesses now face not only new type of risks (example: advertising risks) but also from new sources (example: internet or social media). Combined with increased awareness, there are much higher chances of a business being sued by third parties for property damage, injury or death, arising from the business’ day to day operations.

Commercial General Liability (CGL) insurance has come to be the first line of defence against expenses liabilities and expenses lawsuits. While the ISO form is widely used, there are several similar products also available in the market.

• Scope of Cover: A typical CGL policy covers standard set of risks. Insurance companies may offer them in different combinations with varying depth of coverage.

A CGL policy will cover the following exposures:
• Premises Liability
• Operations Liability
• Products Liability
• Completed Operations Liability

The policy covers liability arising out of:
• Bodily Injury and Property Damage
• Personal and Advertising injury
• Medical Payments
• Supplementary Payments (In respect of covers A & B)

Bodily injury includes humiliation, mental anguish, mental injury and shock resulting from physical injury

Personal injury includes discrimination, harassment and segregation (other than employment-related)

Personal and Advertising Injury include wrongful eviction, entry or invasion of privacy, use of another's advertising idea, plagiarism, Libel and Slander, False Arrest and Malicious Prosecution

Supplementary Payments may include expenses incurred in defending the case, cost of bail bonds (accidents or traffic law violations), cost of bond to release attachments and interest on full judgement.

All coverages are strictly subject to the limit of liability and exclusions stated in the policy.

• Example: Mr. Arora owns an interior design firm. His client Miss Nidhi, gets seriously injured when the wooden floor in her home, installed by one of Mr. Arora’s employees, collapses.

The product 'Completed Operation Liability Coverage' will help Mr. Arora against legal claim filed by Ms. Nidhi.

On the other hand, if the installation had been assigned to a contractor by Mr. Arora, the insurer would not have admitted liability under the policy as contractual liability is an exclusion.

• Extension/Additional Covers: The CGL policy can be customised to suit the requirements and needs of the insured. Insurers offer several extensions, including:
Act of God Perils Extension may include expenses incurred in defending the case, cost of bail bonds (accidents or traffic law violations), cost of bond to release attachments and interest on full judgement.
Sudden and Accidental Pollution Extension - Indemnifies against injuries or damage occurring due to pollution caused in a brief period, due to business operations.
Transportation Liability Extension- Covers liability arising out of transportation of hazardous materials or substances.
Unnamed Vendors Endorsement - Extends the policy coverage to specific vendors and indemnifies them against legal liabilities arising out of accident for usage of the insured's products.
Unnamed Technical Collaborators Endorsement- Indemnifies against liability arising out of accidents occurring due to the defects in the designs or processes supplied by the technical collaborators.
Batch Clause - Provides coverage against accidents due to defective products, from a specific production cycle, over a specific period, referred to as a 'batch'.

• Exclusions: Exclusions will vary per the policy form used and the extensions opted for. A standard list of exclusions will include:
• Aircraft, Auto or Watercraft
• Asbestos, Silica
• Contractual Liability
• Damage to own product
• Damage to own property
• Damage to own work
• Electronic data
• Employer's Liability
• Expected or Intended Injury
• Fines and Punitive Damages Exclusion
• For USA & Canada territory, following conditions apply in addition:
• Absolute Pollution Exclusion
• Failure to Supply Exclusion
• PCB Exclusion
• Inefficacy Exclusion
• Liquor Liability
• Mobile Equipment
• Nuclear
• Pollution
• Professional Liability
• Recall of Products, Work or Impaired Property
• Recording and Distribution of Material or Information in Violation of Law
• War and Terrorism Exclusion
• Worker’s Compensation and similar laws

• Claim: It is important that the insurance company is notified of any potential claim, without delay. This following need to be observed:

• In case of an accident:
• Notify the insurance company is notified in writing, as soon as practicable, of an occurrence or offence which may result in a claim. This notice should include:
• How, when and where the occurrence or offence took place.
• The names and addresses of any injured persons and witnesses.
• The nature and location of any injury or damage arising out of the occurrence or offence.

• In case a legal notice is received by any insured:
• Immediately send copies of any demands, notices, summonses or legal papers received about the claim or a suit to the company
• Co-operate with the insurance company in the investigation or settlement of the claim or defence against the suit

• Triggers: Given the nature of risk covered by CGL policy and the time taken for a claim to manifest or be brought to court, an insurer covers one of the following basis. Liability of the insurer triggers accordingly.

• Occurrence Basis: The accident(s) giving rise to a claim:
• Should have occurred during the current Policy Period
• There is no time limit for reporting the said claim

• Claims Made Basis: The accident(s) giving rise to a claim:
• Should have occurred during the Period of Insurance and after the Retroactive Date
• Should have been intimated to the Insurer in writing before the expiry date of the current Policy Period or
• Within the time limit of xxx days allowed under Extended Claim Reporting Clause when policy is not-renewed/cancelled and/or Insured has not taken a policy with any other Insurer?

• Example:

ABC Company run a retail electronics business in the city and have a large showroom.
They take a CGL policy for this business with InsureX. They have had no previous CGL insurance.
Scenario A Scenario B
ABC purchase a CGL policy on Claims Made Basis with a retroactive period of 1 year They also have an extended notification period of 60 days ABC purchase a CGL policy of Occurrence Basis
ABC Co. receive court summons in a case filed by Mr. Singh who had an unfortunate accident in the shop last year. Apparently, Mr. Singh was fine after the accident but a few months later lost some of his mobility. This disability was traced back to the injury sustained by him in the accident in ABC’s showroom.
ABC Co. inform their insurer of a potential claim.
Scenario A Scenario B
Insurer accepts the notification and proceeds since the accident had happened during the retroactive period and the intimation of claim was received during the policy period. Insurer does not accept the notification as the accident had not happened during the policy period.
Claim will be settled by the insurer Claim will not be settled by the insurer

Buyers of CGL insurance must make sure that they have a policy that is issued on the basis that they require.

Changing of Basis can create some critical gaps in the coverage for which special covers are available.

Choose wisely!

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