Comprehensive or Commercial General Liability (CGL) Insurance: Coverage A for “Bodily Injury” or “Property Damage” Liabilities
§ 5.01 Overview of CGL Insurance
CGL, which stands for comprehensive or commercial general liability, is a form of third-party insurance that is commonly known as “litigation insurance.”1 CGL insurance deals with insurance coverage for situations in which a third party has suffered a loss in the form of bodily injury,2 property damage,3 or injuries related to a list of enumerated intentional torts known as personal or advertising injuries,4 and is seeking monetary or other damages from the policyholder by way of a civil action or other demand. The policyholder then uses the CGL insurance (in particular, the defense and indemnity provisions) to protect himself, herself, or itself against third-party litigation costs and damages awarded, or amounts paid to settle claims, for bodily injury, property damage, or personal or advertising injury.5 CGL insurance contains two principal coverage parts, one for “bodily injury” and “property damage” liabilities, known as “Coverage A,” and one for “personal and advertising injury” liabilities, known as “Coverage B.” Both Coverage A and Coverage B have separate, albeit similar, insuring agreements and exclusions and are subject to similar terms and conditions.6
This chapter focuses on the insuring agreement under Coverage A, along with General Conditions applicable to Coverage A.7 In particular, this chapter concentrates on the CGL Coverage A insuring agreement issues most relevant to businesses.
Most of the relevant exclusions for Coverage A are the primary focus of the next chapter.8 The pollution exclusion of Coverage A (and of almost any other insurance policy) is discussed in a subsequent chapter.9 Coverage B, which deals with “personal and advertising injury” liabilities, including the insuring agreement, exclusions, and conditions applicable thereto, is the subject of yet another subsequent chapter.10
§ 5.02 Coverage A Insuring Agreement
In Coverage A, CGL insurance policies generally contain promises by the insurance company to defend and indemnify the policyholder for certain “bodily injury” or “property damage” claims asserted by third parties. A typical provision states as follows:
“a. We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit’ seeking those damages.
“b. This insurance applies to ‘bodily injury’ and ‘property damage’ only if:
(1) The ‘bodily injury’ or ‘property damage’ is caused by an ‘occurrence’ that takes place in the ‘coverage territory’;
(2) The ‘bodily injury’ or ‘property damage’ occurs during the policy period.” 11
Thus, the Coverage A insuring agreement issues are as follows:
(1) the identity of the insurance company (“we” or “the company”); 12
(2) allocation (“all sums” or “those sums”); 13
(3) the identity of the policyholder (“you” or “the insured”); 14
(4) “legally obligated to pay as damages”; 15
(5) “bodily injury” or “property damage”; 16
(6) “occurrence”; 17 and
(7) the duty to defend. 18
Within each of these issues are a myriad of subissues, which are discussed herein.
§ 5.03 Coverage A Issues
—Identity of the Insurance Company—Meaning of “We” or “The Company”
“We” or “the company” as used in the Coverage A insuring agreement of CGL policies means the insurance company providing the insurance. This is usually identified in the policy or in the declarations pages attached to the policy.
The identity of the insurer is particularly relevant to long-tail claims, claims where damage commences years before it becomes manifested. For instance, in the environmental, toxic tort, and construction liability areas, latent defect problems often are hidden with the damage first becoming apparent years after the happening of initial conditions or conduct that caused, and/or is continuing to cause, the damage to take place. This results in litigation that often may take place years after the occurrence of the precise conduct that ultimately is proven to be the cause of the third-party damage.19
In these latent injury cases, courts generally hold that, among others, policies purchased near in time to the injury-causing conduct provide coverage for the loss.20 Consequently, a policyholder with latent injury exposures may very well need insurance it purchases today to pay for future liabilities and costs of third-party litigation. In the same vein, a policyholder may need insurance policies it, or its predecessors, purchased years ago to cover litigation commenced today. Accordingly, a policyholder will want to consider carefully the insurance company’s financial rating, as well as the rating of all affiliated companies, before deciding whether to purchase the policy in the first place. If the policyholder purchases insurance from an entity that later fails, the policyholder might be in the unenviable position of having no insurance capable of responding, forcing the policyholder effectively, to self-insure itself at a time after knowledge that a claim will be made and therefore too late to purchase other, alternative insurance.
Another interesting issue that arises in the long-tail coverage context concerns settlements under and buyouts of policies. For instance, whenever a policyholder and insurance company get involved in a coverage dispute, even a dispute over a simple non-long-tail claim, the policyholder needs to think carefully when the insurance company offers to pay some amount under the policy in exchange for a release. Policyholders need to be keenly aware and vigilant of attempts by the insurance company to obtain a general release or policy buyout, even where the policy appears to have “expired.” The reason for this, of course, concerns the possibility that unknown and latent damage claims might arise in the future and those latent claims might trigger the policy under which the insurance company had sought to obtain a general release.
Brokers may be helpful in selecting financially sound insurers, although a broker’s loyalties could be divided based on compensation it receives in the form of commissions and bonuses. There are also insurance rating organizations available in libraries and on the Internet. However, reliance on these organizations is no guarantee, because these agencies often do not find the financial difficulties until it is too late.21
Perhaps the best way to deal with insurance company insolvency is through diversification, i.e., purchasing insurance from different companies for different coverages, among various layers in any particular year, and from year to year at all levels.
—Allocation: The Meaning of “Those Sums” or “All Sums”
“Allocation” means apportionment and relates to the meaning of “those sums” or “all sums” in the insuring agreement. The allocation issue arises most acutely in a situation in which a policyholder has an underlying claim or liability that implicates more than one insurance company at the same level. For example, in environmental, asbestos, toxic tort, and construction defect contexts, some courts have determined that multiple policies over the course of several consecutive years are all responsible to defend and indemnify the policyholder.22 In such situations, the issues include: (1) Which insurance companies must pay? (2) How much must each pay? What must be determined in these instances are (a) allocation among all responsible insurance companies; and (b) allocation between the policyholder, on the one hand, and the insurance companies, on the other hand.
[a]—Allocation among Responsible Insurance Companies
[i]—“Other Insurance” Provisions
Allocation among the responsible insurance companies is generally governed by principles of equitable contribution and the “other insurance” provisions in the policies at issue. There are three types of “other insurance” clauses: (1) pro rata; (2) excess; and (3) escape. They provide as follows:
• Pro rata clauses provide that the insurer will pay a prorated share of a loss, usually in the proportion the policy limits bear to the total limits of all valid and collectible insurance.
• Excess clauses provide that the insurer’s liability will be only the amount by which the loss exceeds the coverage of all other valid and collectible insurance.
• Escape clauses provide that the policy affords no coverage when there is other valid and collectible insurance. 23
If the “other insurance” provisions, read in conjunction with each other, provide for an order of payment, courts attempt to effectuate the presumed intent of the parties by following the allocation provisions set forth in the various triggered policies.24 However, “other insurance” provisions might, and often do in fact, conflict. Hence, if these conflicting provisions are construed literally, they would provide no order or would effectively eliminate all coverage for the policyholder. For example, all triggered policies might contain “excess other insurance” provisions, which make the triggered insurance policy excess insurance over all other triggered policies. A sample provision states:
“This insurance shall be in excess of . . . any other valid and collectible insurance available to the insured whether such other insurance is stated to be primary, pro rata, contributory, excess, contingent or otherwise unless such other insurance is written only as specific excess insurance over the limits of liability provided in this policy.”25
When such a conflict among “other insurance” provisions exists, it becomes impossible to effectuate the parties’ intentions without eliminating primary coverage for the policyholder. For example, if all policies contain “excess clauses” and those clauses are all given effect, no policy can possibly be primary because they would...
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