CommercialGeneralLiabilityInsurance

AsofOctober15,2010

WhatIsCommercialGeneralLiabilityInsurance?
CommercialGeneralLiability(CGL)insurance
Forinformationaboutourvariousbond
protectsbusinessownersagainstclaimsof
resources,visitBondResources.
liabilityforbodilyinjury,propertydamage,and
personalandadvertisinginjury(slanderandfalse
advertising).Premises/operationscoverage
paysforbodilyinjuryorpropertydamagethatoccursonyourpremisesorasaresultofyourbusiness
operations.Products/completedoperationscoveragepaysforbodilyinjuryandpropertydamagethat
occursawayfromyourbusinesspremisesandiscausedbyyourproductsorcompletedwork.
ExcessliabilityinsurancepaysforcoveredlossesthatexceedyourCGLpolicy'sdollarlimit.
Umbrellaliabilityinsuranceisexcessliabilityinsurancecoverageabovethelimitsofautomobileliability
andCGLpolicies.Theumbrellapolicyalsoprovidesliabilitycoverageforexposuresnotcoveredunder
theprimaryCGLinsurancepoliciesandnotexcludedbytheumbrellaliabilityinsurancepolicy.

ClaimsMadeVersusOccurrencePolicies
Occurrencepoliciescoverclaimsarisingfrominjuryordamageoccurringwhilethepolicyisinforce,
regardlessofwhentheclaimisfirstmade.
Claimsmadepoliciescoverclaimsthatarisefrominjuryordamageoccurringduringthepolicyperiod
andreportedtotheinsurerduringthepolicyperiod.Claimsarisingfromeventsoutsidethepolicyperiod
orclaimsreportedtotheinsureroutsidethepolicyperiodarenotcoveredunlessspecialcoverageis
purchasedorarrangedwiththeinsurer.Thisspecialcoveragecomesintwoforms:
1. Prioracts("nose")coveragecoversclaimsthatarisefrominjuryordamageoccurringbefore
thepolicyperiod,butreportedtotheinsurerafterthepolicyperiodbegins.
Prioractscoverageisprovidedbyestablishinga"retroactivedate"coveringinjuryordamage
occurringaftertheretroactivedate.Theretroactivedateusuallyappearsinthedeclarationspage
accompanyingyourpolicy.Itmaybetheeffectivedateofthepolicyoranearlierdate.Prioracts
coveragedoesnotcoverclaimsthatwereknownatthetimeyourpolicybegan.
2. Runoff("tail")coverage,alsocalledextendedreportingperiod,paysforresidualclaimsmade
afteryourpolicyexpires.Atypicalclaimsmadepolicyprovidesashortreportingperiodof30or
60daysafterthepolicy'sexpirationdatetofileclaimsthatarosetoolatetoreportbeforethepolicy
expired.Runoffcoveragestartswhenthe30or60dayperiodendsandisprovidedforan
additionalpremium.Theextendedreportingperiodmaybeone,three,orfiveyears,oreven
unlimited.
Ifaclaimsmadepolicydoesnotcontinue(expires,cancels,ornonrenews),youshouldpurchaseeither

runoffcoveragefromyourpreviousinsurerorprioractscoveragefromyournewinsurertoprevent
coveragegaps.Generally,claimsmadepoliciesmaybelessexpensiveintheirearlyyearsasthe
potentialforclaimsincreasesaspolicyyearsaccumulate.
Thedifferencesbetweenclaimsmadeandoccurrencepoliciesarebestillustratedbythefollowing
examples:
Assumeyouoperateabusinesslocatedinabuildingthatyouown.Yourcustomersmayenterthe
buildingandshopformerchandiseinashowroom.OnApril15,2010,acustomerslipsandfallsinyour
showroom.Thecustomerreportstheincidenttoyoubutsayshedoesnotbelieveheisinjured.On
December15,however,youreceivenoticethatthecustomerhasfiledaclaimforinjuriessustainedin
thefall.
OccurrencePolicy:AnoccurrencepolicywithapolicyperiodfromJune1,2009,toMay31,2010,will
covertheclaimbecausetheincidentoccurredduringthepolicyperiod.
ClaimsMadePolicy:AclaimsmadepolicywithapolicyperiodfromJune1,2009,toMay31,2010,will
notprovidecoveragebecausetheclaimwasmadeafterthepolicyexpired.If,however,youpurchased
anextendedreportingperiodfromyourinsurerwhenyourpolicyexpired,theclaimmaybecovered.

ExamplesofExclusionsinaCGLPolicy
FollowingaresomeexamplesofexclusionscommonlycontainedinaCGLpolicy.Coveragevariesby
insurerandwillincludeadditionalexclusionsotherthantheexamplesbelow.Youshouldcarefullyreview
yourpolicyandanyendorsementstoknowexactlywhatyourpolicydoesanddoesn'tcover.Talkto
youragentifyouhaveanyquestionsaboutyourpolicy,itscoverages,orpolicylimits.
DamagetoYourWorkGenerally,CGLpoliciesexcludecoverageforpropertydamagetoyourwork
(seeExampleNo.1below).Thereisanexceptiontotheexclusionfordamagedworkifasubcontractor
workingforyoucausedthedamage(seeExampleNo.2below).
Example1:Youownahomebuildingbusinessthatrecentlyconstructedanewresidence
withagarage.Afterthehomeissoldandthehomeownermovesinandparkshervehiclein
thegarage,theroofonthegaragecollapsesbecauseoffaultyconstruction.Thecollapsed
roofdamagesthehomeowner'svehicle.Thepolicymayprovidecoveragefortherepairor
replacementofthevehiclebutmaynotpaytorepairthecollapsedroofbecausetheroofis
yourwork.
Example2:ThesituationisthesameasinExample1,excepttheworktoconstructtheroof
wasperformedbysubcontractorsworkingonyourbehalf.Thepolicymaycoverthe
damagetothevehicleandalsomaypaytorepairorreplacetheroofconstructedbyyour
subcontractor.
DamagetoYourProductCGLpoliciesdon'tcoverpropertydamagetoyourproductarisingoutofthe
productoranypartoftheproduct.

Example:Ifyouinstallapropanepoweredappliancethatmalfunctionsandcausesafire
thatdamagesahome,yourCGLpolicymaypaytorepairthehome.Itwillnotpaytorepair
orreplacetheapplianceifthemalfunctionwascausedbecausetheappliancewasfaulty.
ContractualLiabilityCGLpoliciesexcludecoverageforbodilyinjuryorpropertydamagethatyouare
obligatedtopaybecauseyouassumedliabilityinacontractoragreement.Theexclusioncontainsthe
followingtwoexceptions:
1. Liabilityfordamagesthatyouwouldhaveassumedintheabsenceofthecontractoragreement
and
2. Liabilityassumedinacontractoragreementdefinedinthepolicyasaninsuredcontract,ifthe
bodilyinjuryorpropertydamageoccursafterthecontractoragreementisexecuted.
Example1:Yousignacontracttocompletetheconstructionofabuildingwithinaspecified
amountoftime.Thecontractrequiresyoutopaydamagesifyoubreachthecontract.YourCGL
policywillnotprovidecoverageforanydamagesyouhavetopaybecauseyoufailedtomeetthe
deadline.
Example2:Yousignacontracttoholdharmlessandindemnifyanotherpartyfortheotherparty's
negligenceifthatnegligenceresultsinbodilyinjuryorpropertydamage.YourCGLpolicymay
providecoveragetoindemnifytheotherpartydependingonthewordingoftheindemnity
agreement.
RecallofProducts,Work,orImpairedPropertyCGLpolicieswillnotpaythecosttorecallfaulty
products,work,orimpairedproperty.However,thiscoveragemaybeaddedtothepolicyby
endorsementforanadditionalpremiumcharge.
Workers'CompensationandEmployer'sLiabilityCGLpoliciesarenotintendedtoprovide
coverageforworkers'compensationoremployer'sliability.Thisexclusionprohibitssuchcoverage.

PollutionExclusionsintheCGLPolicy
Thepollutionexclusioneliminatescoverageforinjuriesordamagestoathirdpartyresultingfrom
apollutioneventarisingfromyourbusinessoperations.
Theexclusionappliestotheactual,alleged,orthreateneddischarge,dispersal,seepage,
migration,release,orescapeofpollutants.
Apollutantistypicallydefinedasanysolid,liquid,gaseous,orthermalirritantorcontaminant,
includingsmoke,vapor,soot,fumes,acids,alkalis,chemicals,andwaste.Wasteincludes
materialstoberecycled,reconditioned,orreclaimed.
Thepollutionexclusionincludedinmostgeneralliabilitypoliciesmaycontainsomeofthefollowing
exceptionsthatcouldprovidelimitedcoveragefor:
Injuriessustainedwithinabuildingandcausedbysmoke,fumes,orvaporsproducedby
equipmentthatisusedtoheat,cool,ordehumidifythebuildingorequipmentusedtoheat

waterforpersonaluse.
Yourproductsorcompletedoperations.
Injuriesordamagearisingoutofheat,smoke,orfumesfromahostilefire.(Hostilefireis
definedasafirethatbecomesuncontrollableorbreaksoutfromwhereitwasintendedto
be.)
Injuriesordamagethataninsuredcontractormaybeheldliableforiftheownerofthe
premiseshasbeenaddedasanadditionalinsuredtothecontractor'spolicy.
Injuriesordamagearisingoutoftheescapeoffuelsorlubricantsnecessaryforthe
operationofmobileequipment.
Injuriesordamagesustainedwithinabuildingandcausedbythereleaseofgases,fumes,
orvaporsfrommaterialsbroughtintothebuildinginconnectionwithoperationsperformed
byyouoracontractororsubcontractorworkingonyourbehalf.
Totalpollutionexclusionseliminateallcoverage,includingcoverageforpremises/operationsand
products/completedoperations.
Ifyourbusinesseshasasignificantpollutionexposure,youmaychoose,inconjunctionwithyour
insurer,toincludeatotalpollutionexclusionandpurchaseaseparatepollutionliabilitypolicythat
mayprovidecoveragebettersuitedtotheriskandiseasiertoratebasedonthenatureofyour
business.

WhatisaPremiumAudit?
MostCGLpoliciesareauditablepoliciesandcontainaconditioncommonlycalled"PremiumAudit."The
premiumthatispaidattheinceptionofthepolicyisadeposit(estimated)premium.Auditablepolicies
usuallyuseestimatedpayroll,sales,orunitssoldasthepremiumbasetocalculatethedeposit
(estimated)premium.
Theinsurerisentitledtoexamineyourbooksandrecordstodeterminewhethertheactualpayroll,sales,
orunitssoldaregreaterorlessthanwhatwasestimated.Thisisusuallydoneaftertheexpirationofthe
policy,butmayalsobedoneduringthepolicyperiod.Iftheactualpayroll,sales,orunitssoldisgreater
thanwasestimated,youmayoweadditionalpremium.Iftheactualpayroll,salesorunitssoldisless
thanwhatwasestimated,youmaybedueareturnpremium.Therefore,itisimportanttoprovidean
estimateofthepayroll,sales,orunitstobesoldthatisasaccurateaspossibletoavoidhavingtopayan
additionalpremium.

WhatKindsofInsurersOfferCGLInsurance?
TheTexasDepartmentofInsurance(TDI)recognizesthefollowingfourtypesofinsurersthatmayoffer
commercialgeneralliabilityinsuranceinTexas.Tocheckonwhetheracarrierislicensed,eligible,or
registeredinTexas,callTDI'sConsumerHelpLineat1.800.252.3439,orusetheCompanyLookup
featureontheTDIwebsiteathttps://apps.tdi.state.tx.us/pcci/pcci_search.jsp.

LicensedInsurers
TDIregulatesthepolicyformsandratesoflicensedinsurers.

CGLpoliciesofferedbylicensedinsurersmustcontainthefollowinglegislativelymandatedprovisions:
Coveragemaynotbecancelledbytheinsurerafter60daysfromtheeffectivedateofthepolicy
exceptforthefollowingreasons:
1. fraudinobtainingcoverage
2. failuretopaypremiumswhendue
3. anincreaseinhazardwithinyourcontrolthatwouldproducearateincrease
4. lossoftheinsurer'sreinsurancecoveringallorpartoftheriskcoveredbyyourpolicyor
5. atanytimeiftheinsurerisplacedinsupervision,conservatorship,orreceivershipandthe
cancellationornonrenewalisapprovedordirectedbythesupervisor,conservator,or
receiver.
Theinsurermustprovideatleast60daysnoticeofnonrenewalandmusttellyouinwritingwhyit
willnotrenewyourpolicy.
PolicyholdersobtaininginsurancefromlicensedinsurersareprotectedbytheTexasPropertyand
CasualtyInsuranceGuarantyAssociationforupto$300,000perclaimiftheinsurerbecomesinsolvent.

SurplusLinesInsurers
Insurancenotavailablethroughlicensedinsurersmaybeplacedwitheligiblesurpluslinesinsurers.To
beeligibletowritesurpluslinescoverageinTexas,theinsurermustmeetcertainrequirementsandbe
onTDI's"eligiblelist."Beforesellingasurpluslinespolicy,anagentmustmakeadiligentefforttofinda
licensedinsurertoissuethepolicy.
Itiscommonforsurpluslinesinsurerstoretainasignificantportionofthepremiumintheevent
theinsuredcancelsthepolicymidterm.
Texaslawsregardingnoticeofcancellationandnonrenewaldonotapplytosurpluslinesinsurers.
Defensecostscouldbeincludedwithinthelimitofliability,andprioractsorrunoffcoveragemay
notbeavailable.
Insomecases,asurpluslinesinsurercancancelbeforeapolicy'srenewaldate.
SurpluslinesinsurersarenotrequiredtofileratesandpolicyformswithTDI.Policyformsmaybe
morerestrictivethanthosethataresubjecttoTDIreview.
TDIdoesnotauditthefinancesofsurpluslinesinsurers.
Ifasurpluslinesinsurerbecomesinsolvent,itspolicyholdersarenotprotectedbytheTexas
PropertyandCasualtyInsuranceGuarantyAssociation.

RiskPurchasingandRiskRetentionGroups
RiskpurchasinggroupsareformedundertheprovisionsofthefederalLiabilityRiskRetentionAct
(LRRA)of1986.Apurchasinggroupconsistsofindividualsorfirmsoflikecharacteristicswhoshare
similarinsuranceneeds.TheeligibilitycriteriaformembersofapurchasinggrouparesetbyLRRA.
OnceformedandregisteredwiththeStateofTexas,thegroupmayuseitspurchasingpowertoobtain
liabilityinsuranceandbenefitsatpricesthatmaybelowerthanindividualsorbusinessescouldnegotiate

separately.
Ifapurchasinggroupbuysinsurancefromalicensedinsurer,itmaybeprotectedbytheTexasProperty
andCasualtyInsuranceGuarantyAssociationiftheinsurerhascapitalandsurplusof$25millionor
more.IfthepurchasinggroupisnotprotectedbytheTexasPropertyandCasualtyInsuranceGuaranty
Association,thenitmustdisclosethistoitsmembers.
Policyformsofferedtopurchasinggroupsbylicensedinsurersarecurrentlynotrequiredtobefiledwith
TDI.However,thepoliciesmustcontainthelegislativelymandatedprovisionsrequiredtobeinpolicies
issuedbylicensedinsurers.
Policyformsofferedtopurchasinggroupsbysurpluslinesinsurersarenotregulatedastoratesor
formsandarenotprotectedbytheTexasPropertyandCasualtyInsuranceGuarantyAssociation.
RiskRetentionGroupsalsoareformedundertheprovisionsofthefederalLiabilityRiskRetentionAct
(LRRA)forthepurposeofprovidinginsurance.Thesegroupsdonotbuycommercialinsurancepolicies,
but"retain"theriskwithinthegroup.Ineffect,themembersinsureeachotheragainstliabilityclaimsand
lawsuits.However,becauseariskretentiongroupisaninsurer,itmaypurchasereinsurance.
Reinsuranceisaformofinsurancethatinsurancecompaniesbuyfortheirownprotection.
Theratesandpolicyformsofriskretentiongroupsarenotregulated,andpolicyholdersarenotprotected
bytheTexasPropertyandCasualtyInsuranceGuarantyAssociationintheeventtheriskretention
groupbecomesinsolvent.