Masonry Magazine June 2004 Page. 44
Insurance Issues
The Commercial General Liability Policy:
Man's Second Best Friend
Kristan M. Cassidy, Esq.
Jackson & Campbell, P.C.
In the construction industry, insurance policies have become a necessary, if not required, part of doing business, and your policies now cover a variety of risks such as worker's compensation, employer's liability, automobile, property and third-party liability. As the proud new owner of a German shepherd puppy, I have concluded that insurance policies are like dogs. You see, like our canine friends, insurance policies come in all shapes and sizes and offer many different types of protection. And, overall, you just feel good at night knowing they are there. You simply must determine what type is most appropriate for your needs, find it, and then give it lots of love and attention so that it doesn't "chew your shoes," so to speak.
Although several different types of policies may ultimately be appropriate for your business, this article will focus on what I like to think of as the "German shepherd" of insurance policies the policy that protects you from third parties, traditionally known as the commercial general liability policy (CGL Policy).
The CGL Policy
The CGL Policy provides defense and indemnity coverage to your business for covered third-party liability claims. It can provide coverage to you for the unexpected and unintended harm allegedly done to others in the course of your business. The typical CGL Policy contains a Declarations Page, Policy Jacket and Endorsements.
The Declarations Page sets forth the name and address of your business, the effective dates of the policy and its limits of liability. The Policy Jacket contains the Insuring Agreement, and the specific conditions, definitions and exclusions of the policy. Endorsements are affixed to the Policy Jacket and represent changes to your policy.
A CGL Policy can provide primary insurance, which will afford defense and indemnity coverage up to the applicable limit of liability for covered third-party claims. Like its name suggests, an umbrella CGL Policy provides coverage over and above the primary CGL Policy upon the exhaustion of the primary CGL Policy's applicable limits of liability, and may, under certain circumstances, provide for a defense obligation in addition to the duty to indemnify. An umbrella CGL Policy frequently affords coverage that is broader than that afforded at the primary level. Finally, an excess CGL Policy provides coverage in excess of and upon the exhaustion of underlying primary and umbrella limits, and typically does not contain a defense obligation, but rather, provides only for indemnification of covered third-party losses.
The Underwriting Process
The discussions and negotiations leading up to the issuance of a CGL Policy are known as the underwriting process, and an insurance broker can assist you with your efforts in this regard. During this process, it is typical for a potential policyholder to be given an application that requests specific information. It is very important that you provide full and complete information on the application, as the failure to do so may afford the carrier a number of defenses (i.e., misrepresentation) that could render the policy void.
Although there are a myriad of factors to consider when negotiating a CGL Policy, one important consideration is who will be the "named insured" on the policy. In addition, you must consider who will be provided coverage as an "additional insured" and/or qualify as a "named insured" based on the definition set forth in the Policy Jacket. Other important considerations include the type of coverage (primary, umbrella and/or excess) and the limits of liability (including aggregate limits, retained limits and deductibles) that best suit your business.
In addition to the above considerations, you should fully review your CGL Policy to determine whether any additional provisions may impact your business. Of interest to the construction industry, the CGL Policy contains specific definitions and exclusions that deal with terms such as "property damage," "bodily injury," "products" "work" and "completed operations," all of which may effect the scope of coverage for certain types of claims. For example, "property damage" generally includes physical injury to tangible property or the loss of use of tangible property, as opposed to claims for merely "lost profits" or other "economic loss." Further, the CGL Policy typically does not respond to claims for "faulty workmanship." Finally, your CGL Policy also sets forth your duties and obligations as an insured under the policy, and these duties will play an important role should a claim or lawsuit arise for which you later seek coverage. Indeed, a number of defenses are afforded carriers based on a failure to comply with these important provisions, and as a result, you should familiarize yourself with them during the underwriting process.
Once the CGL Policy has been negotiated, a Certificate of Insurance will be issued to you. This is not the insurance policy; rather, it memorializes the significant terms and conditions of the policy and is evidence of the coverage that was negotiated. Once the CGL Policy is