How Does a CGL Policy Work?

Commercial liability policies provide coverage for the named insured and may extend to certain others, such as employees of the named insured. The policy coverage may also include additional insured(s), as specified in the policy through endorsement(s).

The purpose of a commercial liability policy is to provide coverage for the possibility of the named insured becoming legally responsible for injury or harm to a third party. The most frequent types of injury or harm include bodily injury and property damage.

Liability loss exposure in commercial liability policies generally arises from the physical condition of the commercial property. For example, an uneven step or an icy walkway may result in a slip and subsequent bodily injury to business invitees.

When a liability claim is reported, typically a claim examiner will analyze several elements for coverage, such as whether the date of loss falls within the effective dates of the policy and if the loss occurred at a named location on the policy. The examiner also looks at whether the policy matches the business description provided in the loss notice. Say, for example, the policy indicates that the named insured is a roofer. However, upon the submission of a liability claim, the loss description states that the named insured actually is framing a house. This may mean that the named insured was operating outside their policy classification, which could affect coverage.

Commercial liability policy exclusions are reviewed upon receipt of a claim (and during the course of a claim investigation). If coverage appears intact, a scene investigation is usually conducted. This includes insured and claimant interviews, risk inspection with photographic documentation of the alleged injury site, medical record review, and review of local authority reports such as police and fire.

The investigation is designed to determine whether the named insured is legally liable or responsible for the injury suffered by another. Usually four elements are considered in a liability claim. These elements are:

  • If a duty was owed (a commercial property owner has a duty to keep the premises safe for business invitees).
  • Was there a breach of that duty? In other words, did the insured fail to exercise a reasonable duty of care expected in that situation? Getting back to the uneven step mentioned previously, we would look at why the step was uneven, were any warnings posted, was this step the only or primary ingress/ egress to the property, was the step construction grandfathered into the building code due to the age of the property, and more.
  • Was there an injury or damage to the third party claimant?

There must be an unbroken chain of events from the breach of duty owed by the insured and the resulting alleged injury or damage (proximate cause).

The best way to avoid commercial liability claims that involve the physical location of the property is to regularly inspect the premises. Are there any defects that require correction? If something spills on the floor, clean the area immediately. If the affected area takes longer to repair (such as a leaky roof that is allowing water onto the floor), barricade the affected area and post warning signs. Being proactive and aware may be your best protection against liability claims.