Saturday, January 24, 2009

Structure of Commercial General Liability CGL Policy

The general structure of a CGL policy is that it begins with a broad grant of coverage in a clause called the "insuring agreement." The insuring agreement lists the types of losses covered by the policy and may define those losses.

The insuring agreement is immediately followed by a list of exclusions. Exclusions negate coverage otherwise granted under the insuring agreement. There are two reasons for exclusions. First, the loss may not be insurable because coverage would be either contrary to the principles of insurance, illegal, or in violation of public policy. All three objections would apply to providing insurance coverage for an insured murderer. Similarly, a simple breach of contract action by a subcontractor seeking to get paid for work it had performed may not be the type of claim for which a contractor may expect coverage (unless the breach of contract action arose out of property damage or bodily injury).

Second, and of more importance, exclusions preclude the CGL policya general liability form of insurancefrom providing coverage for types of losses that are covered by other, narrower forms of insurance policies. This second purpose of exclusions, then, is to preclude redundant coverage and to compel the insured to purchase the type of policy intended to cover the specific kind of loss.

Some exclusions contain exceptions. The purpose of exceptions is to return coverage to a subset of losses otherwise excluded by the exclusion. One must remember, however, that an exception, in and of itself, does not create coverage unless that coverage would otherwise first exist by means of the insuring agreement.

An important point to understand about exceptions and the coverage they generate relates to the concept of "ambiguity." The function of an exception is to narrow the scope of an exclusion. Exceptions are read seriatim and do not modify any other exclusion. Thus, an exception in one exclusion may not be read together with another exclusion to generate an ambiguity in the contract.

The analysis of a coverage issue, then, follows the following format:

Is the type of loss included within the insuring agreement? If yes,

Is the type of loss covered by an exclusion? If yes,
Does that exclusion contain an applicable exception?

If the answer to the final question is "yes," then there is coverage for that type of loss.

Note that this three-step analysis determines only whether the type of loss is covered. All sorts of "generic" reasons may exist for denying coverage, even if there is coverage for the type of loss; for example, the claimant is not an "insured," or the insured failed to give timely notice of the claim to the insurance company. As a general rule, these generic reasons for denial of coverage apply to any insurance claim and do not raise questions unique to the issue of insurance of construction worksite personal injury claims. Accordingly, these generic reasons for denial of coverage will not be discussed in this book.

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