What Damages Are Covered by a CGL Policy?

A Commercial General Liability (CGL) policy serves as a foundational protection for businesses against the financial repercussions of common third-party claims. This type of insurance is designed to cover liabilities arising from a business’s operations, products, or incidents occurring on its premises. It provides a financial safeguard, helping companies manage potential legal and settlement costs.

A CGL policy helps mitigate risks associated with unexpected events that could otherwise lead to significant financial strain or even business failure. While it does not cover all risks a business might face, it addresses a broad spectrum of general liability exposures.

Types of Covered Liabilities

A standard CGL policy categorizes its coverage into three main areas, each addressing specific types of third-party claims. These coverage parts ensure a comprehensive shield against various incidents that can arise during normal business operations.

Bodily Injury and Property Damage Liability (Coverage A)

Coverage A protects businesses from claims involving bodily injury or property damage to others. Bodily injury encompasses physical harm, sickness, disease, or death sustained by a person. Property damage refers to physical injury to tangible property, including the resulting loss of its use, or the loss of use of tangible property that has not been physically harmed. For example, a customer slipping and falling in a retail store, or an employee accidentally damaging a client’s equipment, would fall under this coverage.

This coverage extends to medical expenses, lost wages, and repair or replacement costs for the injured party or damaged property. Coverage A also includes legal defense expenses incurred if the business is sued, regardless of whether the business is ultimately found liable. Litigation costs can accumulate, even for unsubstantiated claims.

Personal and Advertising Injury Liability (Coverage B)

Coverage B addresses non-physical injuries, protecting businesses against claims arising from specific offenses such as false arrest, wrongful eviction, slander, or libel. Advertising injury includes offenses like copyright infringement or the misappropriation of advertising ideas in promotional materials. For instance, if a business is accused of defamation due to a statement by an employee, or if an advertisement inadvertently uses copyrighted material, Coverage B would respond.

This policy part covers legal defense costs and any settlement amounts or judgments awarded for these types of claims. Unlike Coverage A, which requires an “occurrence” or accident, Coverage B covers a list of “offenses,” some of which may involve intentional acts like disparagement.

Medical Payments (Coverage C)

Coverage C, known as “no-fault” coverage, handles minor bodily injuries sustained by third parties on the insured’s premises or due to the insured’s operations. This coverage pays for immediate medical expenses, such as emergency room visits or minor treatment, without requiring a determination of legal liability. It aims to promptly address smaller medical claims.

The coverage applies per person and has a lower limit compared to Coverage A. It covers necessary medical, surgical, ambulance, and hospital expenses, and in some cases, funeral expenses, for individuals injured or killed in an accident.

Common Exclusions

A CGL policy contains specific exclusions that define the boundaries of its coverage. These exclusions prevent overlap with other specialized insurance policies or exclude risks that are not accidental.

Damages resulting from intentional harmful acts by the insured are excluded from CGL coverage. If a business owner or employee intentionally causes bodily injury or property damage, the CGL policy will not cover the resulting claims. The policy covers accidental occurrences, not deliberate misconduct.

Professional errors or omissions, known as malpractice, are excluded from CGL policies. Businesses providing professional advice or services need separate professional liability insurance, also known as Errors and Omissions (E&O) insurance, to cover these specific risks.

Damages arising from the use of owned, non-owned, or hired automobiles, aircraft, or watercraft are also excluded. These exposures require separate, specialized policies, such as commercial auto insurance, aviation insurance, or marine insurance.

Environmental pollution and contamination damages are excluded from standard CGL policies. Claims related to the discharge, dispersal, or release of pollutants into the environment necessitate specialized environmental liability insurance.

Injuries sustained by employees are covered under workers’ compensation insurance. Claims related to employment practices, such as discrimination or wrongful termination, are excluded and require separate employment practices liability insurance (EPLI).

Liabilities assumed by a business under a contract, beyond what would exist without that contract, may be excluded unless specifically endorsed. The costs associated with recalling defective products from the market are not covered by a CGL policy and require specific product recall insurance. Punitive damages are often excluded by policy terms or state law.

Policy Limits and Deductibles

The financial extent of damages covered by a CGL policy is defined by its policy limits and deductibles. These parameters establish the maximum amount the insurer will pay and the initial financial responsibility of the policyholder.

A “per occurrence limit” represents the maximum amount the insurer will pay for all damages arising from a single incident or occurrence. This limit applies individually to each separate event that triggers coverage.

An “aggregate limit” is the maximum total amount the insurer will pay for all covered occurrences within a specific policy period. Regardless of the number of individual claims, payments from the insurer will not exceed this overall cap.

A “deductible” is the amount the policyholder must pay out-of-pocket before the insurance coverage begins for covered damages. Choosing a higher deductible can result in lower insurance premiums. Some policies may also feature a “Self-Insured Retention” (SIR), which functions similarly to a deductible.

Reporting a Claim

When an incident occurs that could result in covered damages, promptly reporting a claim is important for a policyholder. The process requires timely notification and thorough documentation to ensure the claim is handled efficiently.

Businesses should immediately notify their insurance carrier or agent about any incident that has the potential to lead to a claim. This prompt communication is important, as delays can affect coverage.

Gathering and preserving all relevant information and documentation related to the incident is important. This includes incident reports, photographs of the scene and damages, statements from witnesses, and any medical bills or repair estimates received from the third party.

The policyholder is expected to cooperate fully with the insurer’s investigation. This involves providing any requested information, allowing access to relevant records, and participating in interviews if necessary.

After the initial steps, the insurer will conduct its investigation. Based on their findings, the insurer will determine if the incident is covered under the policy terms. The insurer will then settle the claim by paying covered damages or defend the business against a lawsuit.