Commercial General Liability Insurance
Commercial General Liability (“CGL”) insurance protects businesses from claims brought by third-parties involving bodily injury, property damage, and personal and/or advertising injury. CGL policies generally impose on the insurer a duty to defend suits seeking damages covered by the policy even if the suit is groundless, false, or fraudulent. Unlike certain other types of policies, amounts incurred by the insurer in connection with the policyholder’s defense generally do not reduce the policy limits available to cover a settlement or judgment against the policyholder.
Determining the Duty to Defend
Generally, an insurer’s obligation to defend is determined by comparing the allegations of the underlying complaint against the policy provisions and determining whether any allegations potentially fall within coverage. If so, an insurer in a state like California must defend the entire action immediately, although it can reserve its right to seek reimbursement of amounts incurred solely in defense of an uncovered claim, which is often a difficult burden for an insurer to meet. If an insurer reserves the right to disclaim an indemnity obligation, a conflict of interest may be created that entitles a policyholder to retain independent defense counsel paid for by the insurer under case law or, in California, under Civ. Code section 2860. Such counsel is often referred to as “Cumis” counsel.
The Duty to Indemnify
Coverage A provides coverage for allegations of bodily injury and property damage caused by an “occurrence.” Coverage for a bodily injury or property damage claim may depend on whether the injury/damage or the occurrence happens during the policy period, and how “occurrence” is defined. Importantly, a CGL policy is not an errors and omissions policy and is not intended to cover defective product or work; rather it is a liability policy intended to cover injury or damage resulting from the defective work. For example, if a contractor improperly builds a wall that collapses and injures someone who sues for bodily injury, such suit should be covered. However, if the wall collapses without causing bodily injury or property damage and the owner sues for damage to the wall itself, such suit will most likely not be covered due to certain exclusions.
Coverage B provides coverage for allegations of personal and/or advertising injury arising out of specified offenses. Such offenses generally include (1) libel and slander ; (2) disparagement of a goods, products or services; (3) false arrest, detention or imprisonment, (4) malicious prosecution; (5) violations of the right to privacy; (6) wrongful eviction, wrongful entry, and invasion of the right of private occupancy; (7) misappropriation of advertising ideas; and (8) infringement of copyright, trade dress, or slogan in advertising. Policyholders sued by business competitors should be particularly vigilant for allegations amounting to defamation and disparagement that may trigger a potential for coverage under Coverage B even if there is no specific cause of action for defamation or disparagement.
Under certain circumstances an insurer must not only defend but must pay for the prosecution of a counterclaim. For example, policyholders accused of defaming a competitor based on a statement the the competitor infringed the policyholder’s intellectual property rights should have an experienced coverage attorney evaluate the possibility of coverage for prosecuting a lawsuit for intellectual property infringement.
Supplementary Payments Coverage – Coverages A and B
The supplementary payments section of the policy sets out the types and amounts of expenses, costs and interest the insurer will pay with respect to any claim or suit it defends. These generally include (1) the expenses the insurer incurs; (2) the cost of bail bonds under certain circumstances; (3) the cost of bonds to release attachments for bond amounts up to the applicable limit of insurance; (3) reasonable expenses (generally up to $250/day) incurred by the insured at the insurer’s request to help in the investigation or defense of any claim or suit, including loss of earnings if the insured is required to take time off from work to assist the insurer in investigating and defending the claim; (4) costs taxed against the insured; and (5) prejudgment and post-judgment interest.
Coverage C provides Medical Payments coverage.
Coverage C provides a small amount of coverage (generally $5,000 or $10,000) for medical expenses for bodily injury. This coverage is available regardless of the insured’s fault.
In general, policy exclusions either (1) exclude coverage because other policies provide such coverage (e.g., employer’s liability and aircraft, auto or watercraft exclusions); (2) exclude coverage for public policy reasons (e.g., expected or intended injury and dishonest or criminal acts exclusions); or (3) exclude coverage for activity that significantly increases the insurer’s exposure but for which the average insured is not willing to pay the additional premium (e.g., pollution and terrorism exclusions).
An important exclusion found in the typical CGL policy and often relied on by insurers in denying coverage for a commercial dispute is the contract exclusion. A policyholder that receives a denial based on the contract exclusion should not automatically assume the exclusion applies. First, some contract exclusions are written more broadly than others, yet insurers do not always appreciate this distinction. Second, insurers may ignore applicable case law supporting the conclusion that the exclusion does not apply to the facts of the claim before it. Third, an insurer may ignore the important exceptions for liability the insured would have had absent the contract and for liability assumed in an “insured contract.” Policyholders who have been denied coverage based on a contract exclusion should have an experienced coverage attorney review such denial and not assume such denial is correct simply because the underlying lawsuit contains breach of contract allegations.
The attorneys at Franklin | Soto LLP have experience convincing CGL insurers to defend, to pay amounts associated with intellectual property infringement claims that are intertwined with covered allegations of defamation, to provide Cumis counsel, and to settle within policy limits without the need for litigation. We also have experience suing CGL insurers who have wrongfully breached the duty to defend or indemnify. Contact us at 619.872.2520 to discuss your CGL claim.