CGL Exclusions: The Ultimate Guide
What is a CGL policy?
A commercial general liability (CGL) policy covers two primary things: bodily injury and property damage. Both types of injuries are very broadly defined, so during your initial reading, the policy may seem like it covers everything that could possibly arise. However, the exclusions are what limit the definitions of both bodily injury and property damage. Here’s what you need to know about this important policy and its limitations.
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Bodily Injury
Bodily injury means any injury that happens to a person’s body, including sickness, death, disease, or an actual physical injury. In other words, “bodily injury” can be anything from black lung to a broken arm.
Each CGL policy will include a definition of bodily injury inside the document. The definition can vary slightly by policy, but will generally be similar to the one we provided above.
Property Damage
The definition of property damage can be a little more complicated. Property damage means:
- Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
- Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the occurrence that caused it.
There are a few important things to note about this definition. First, it only covers tangible property—meaning, property you can see and feel. It does not cover electronic data, which is intangible property and covered under a separate policy.
While this definition may seem confusing, it really just means that if items of others are damaged and can’t be used anymore as a result of your actions, they have experienced property damage.
Insuring Agreement
Insurance policies are organized in a predictable manner. First, they broadly state what types of claims are covered. This is called the insuring agreement. Then, the rest of the policy limits the insurance agreement wording through various conditions and
exclusions.
The insuring agreement is deemed to be where coverage is broadest. This is where the CGL policy outlines everything that is covered. BUT, the forthcoming exclusions will limit this broad definition and provide coverage for fewer injuries.
- This agreement establishes the financial obligations of the insurance provider, including:
- Paying for and/or defending lawsuits
- Investigating or settling lawsuits
- damages for different types of claims
- End dates to defend or pay claims (typically when the policy limits or maximum payments are reached)
In a CGL policy, the insuring agreement looks like this:
1. Insuring Agreement 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. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. We may, at our discretion, investigate any "occurrence" and settle any claim or "suit" that may result.
In essence, the policy pays for bodily injury and property damage that you (the business owner) are legally obligated to pay. It is very broad and would cover a wide variety of claims
that we know insurance won’t cover. To find out what the policy covers, you take the insuring agreement and look at the exclusion section.
Here are some of those exclusions:
What is excluded under the CGL policy?
An insurance company can choose to exclude almost anything. We will cover some common exclusions built into the standard coverage form, but your own CGL policy might differ. While it is important to read about these exclusions, there is no substitute for reading your policy word by word and hiring a professional to help you review it.
1. Expected Or Intended Injury
This exclusion applies to expected or intended injuries by the insured. We are not talking about when other individuals intend to harm the property of the insured. This is when the insured acts in a way that indicates they intend to cause injury, or behave in a way that is likely to cause an injury.
One example of this is if the insured throws an item at a customer’s face. When that customer sues the insured, the policy will not cover that lawsuit, even though the damage was bodily injury, which is normally covered under a CGL policy.
This exclusion does not apply when the insured uses reasonable force to protect persons or property. If a customer is trying to physically harm the insured, and the insured throws an item at a customer in a legal attempt to defend themselves, the policy will cover those damages.
2. Contractual Liability
Contracts are legal agreements that create a commitment between two entities or people. Bodily injury or physical damage that an insured is liable for due to an assumption of liability in a contract is excluded.
If you enter a contract accepting liability for something you wouldn’t otherwise be liable for, your insurance will not cover the cost of that liability. The exception to this is when the liability would have existed even without the contract. If you would have been liable regardless of whether you had the contract or not, insurance will cover the damages.
3. Liquor Liability
Insurance will not cover any bodily injury or property damage for which any insured may be held liable by reason of:
- Causing or contributing to the intoxication of a person;
- The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol;
- Any statute ordinance or regulation relating to the sale, gift, distribution, or use of alcoholic beverages.
If you have a claim that derives from a person becoming intoxicated, a general liability policy will not cover the claim. However, this exclusion only applies if you are in the business of manufacturing, distributing, or serving alcohol.
If you are a construction company and one of your employees unknowingly to you, brings alcohol to work and gets drunk and damages property, that occurrence would be covered. Additionally, if you have a company barbecue and serve alcohol to your employees and an
incident occurs, the exclusion would not apply, because you are not in the business of serving alcohol. You are a construction company. This exclusion is intended for businesses that serve alcohol as part of their ordinary business structure.
4. Pollution
A pollutant can be anything that contaminates a product. When we think of pollution, we typically picture chemicals spilling into a water-based product. However, anything can be a pollutant if mixed with a substance it should not be in.
There are five instances where bodily injury or property damage related to pollution is excluded:
- Pollution on any site owned, occupied, rented, or loaned to any insured is excluded, unless it is bodily injury caused by smoke fumes produced by an HVAC system or bodily injury or property damage from hostile fire;
- Pollution at any site used for the storage or treatment of waste;
- Pollutants transported, hauled, stored, and so on;
- Bodily injury or property damage related to pollutants at any site where the insured is performing operations, including pollutants that are not a result of accidental release of fumes or pollutants from equipment, or property damage or bodily injury from fumes brought into a building or from a hostile fire;
- Any site where any insured is mitigating pollution.
5. Aircraft, Auto, Or Watercraft
Any injuries arising from an aircraft, automobile, or watercraft will not be covered with a commercial general liability policy. If you have vehicles for your business, you will need a commercial auto policy in addition to a CGL policy; the same can be said for an aircraft or watercraft.
While there may be some instances where injuries from these vehicles are covered in a CGL, they are so limited that the exclusion is almost certain to apply to any injury you may face.
6. Damage To Your Product Or Work
The CGL policy is designed to cover damage if your product or work causes to another person or entity. It does not pay to re-manufacture your product or pay for the work that you completed that caused the claim.
Let’s say an electrician did a faulty electrical installation on a house, and that faulty installation resulted in the house burning down. The CGL policy should pay for the resulting damage that was caused, but it will not pay for the value of your work in the project.
7. Coverages Found On Other Insurance Policies
As with most commercial insurance policies, there are always exclusions for incidents that are meant to be covered on a separate insurance policy. For example, there are exclusions on the policy stating that there will be no coverage provided for employee injury; coverage for that may be found on a workers compensation policy. Additionally, there are exclusions to electronic data liability, but coverage for this incident is contained in a cyber liability insurance policy.
Insurance companies do this to limit the coverage provided to the correct insurance policy. Furthermore, this avoids a situation where a policyholder can get paid twice for the same claim, since two different policies cover the incident.
The Bottom Line
A commercial general liability policy is designed to cover all bodily injury or property damage. However, there are many exclusions that limit this coverage, and it no longer encompasses all property damage and bodily injury that may arise from your business. It is important to be familiar with the exclusions that apply to your business so you can find an additional policy to cover any gaps in your CGL coverage.
If you have questions about possible gaps in your coverage and want to make sure you are covered for any possible claims, call one of our experts.
About The Author: Austin Landes, CIC
Austin is an experienced Commercial Risk Advisor specializing in property & casualty risk management for religious institutions, real estate, construction, and manufacturing.