Commercial General Liability (CGL) Insurance is the first defense against many common business liabilities, especially in industries with a high risk of physical injuries and property damages. It also plays a vital role in defending against other liabilities for business operations in sectors such as construction, manufacturing, or waste management. Purchasing General Liability Insurance provides crucial financial protection against legal defense costs and peace of mind for companies of all sizes. It allows business owners to focus without the constant fear of lawsuits and claims.
In this article, we will look at what Commercial General Liability Insurance covers, its historical evolution, its role in pollution cleanup, and how insurance archaeologists leverage historical CGL policies to help businesses remediate polluted properties.
What is Commercial General Liability Insurance?
Commercial General Liability Insurance coverage is comprehensive business insurance designed to protect companies against various common liability claims. Its primary purpose is to safeguard businesses from lawsuit damages surrounding the business’s operations, products, or injuries on the business’s premises.
CGL policies can be structured as “occurrence policies” or “claims-made policies.” An occurrence policy covers incidents (or “occurrences”) during the policy period, regardless of when the claim is filed. A claims-made policy depends on when the claim is filed, not necessarily when the incident occurred. The incident could have happened at any time, as long as it’s after the policy’s retroactive date and the claim is made while it is in effect. Occurrence policies have been the traditional form of general liability insurance, dating back to the earlier days of modern insurance. As insurance archeologists, this is excellent news.
What Does Commercial General Liability Insurance Cover and What Does It Exclude?
Modern Commercial General Liability Insurance covers a range of core and additional liabilities while specifically excluding and limiting others. The following is a list of covered, excluded, and limited liabilities.
Bodily Injury and Property Damage Liability
This is the cornerstone of CGL insurance. It covers a business against legal costs and damages if found liable for causing physical harm to a third party or damaging third-party property arising from incidents on the business premises or through its operations.
Personal and Advertising Injury Liability
This covers liabilities arising from offenses such as defamation (slander or libel), false arrest, wrongful eviction, and privacy infringement. It also extends to advertising injury, which includes claims like misleading advertising and copyright infringement in marketing materials.
Medical Payments
CGL policies often cover medical expenses for non-employees injured due to business operations or on-premise injuries. Medical payments coverage is typically offered regardless of fault and aims to settle minor incidents without litigation.
Products-Completed Operations
This coverage protects businesses against claims of bodily injury or property damage caused by products or completed works. This coverage kicks in if products or work causes harm after they have been sold or distributed and left the business’s control or after a job has been completed (like a construction project).
Tenants’ Legal Liability
This is essential for businesses that lease or rent their commercial space. It provides protection in cases when a tenant’s operations or negligence causes damage to the leased property, such as fire, water damage, or structural harm. Tenants’ legal liability is critical because a landlord’s standard property insurance policies do not typically cover damages caused by tenants.
Environmental Liability
This is crucial in modern CGL policies, there are explicit exclusions for environmental liability claims. Most CGL policies written after 1985 contain an absolute pollution exclusion which effectively bars environmental claims.
Contractual Liability
This addresses the liability a business assumes when entering into certain types of contracts. Contract liability typically includes agreements where the company agrees to indemnify another party (like a client or partner) for certain types of liability. It’s vital for businesses that regularly enter into contracts to ensure that they are protected from potential exposure agreed upon in their contractual dealings.
Exclusions and Limitations
Modern Commercial General Liability policies also explicitly state areas of exclusion and limitation that the insurance company will not cover. Some standard exclusions include:
- Intentional acts: CGL policies do not cover liabilities arising from intentional, malicious, or criminal acts committed by the insured business or its employees.
- Employee injuries: Injuries to employees are excluded from CGL policies because they are typically covered under workers’ compensation insurance.
- Professional errors: Professional errors, omissions, or malpractices are not covered under CGL policies because they are typically covered by professional liability insurance, also known as errors and omissions insurance.
- Pollution: Pollution-related incidents are typically excluded from modern CGL policies. This exclusion encompasses air, water, or land contamination caused by gradual pollution events, intentional discharges, and statutory cleanups mandated by environmental laws. For coverage against pollution, businesses often purchase specialized environmental or pollution liability insurance.
- Damage to the business’s own property: CGL policies do not cover damage to property owned, used, or controlled by the insured business because property damage is generally covered by commercial property insurance.
The History and Evolution of Commercial General Liability
Before Commercial General Liability policies existed, businesses relied on separate liability policies that lacked the comprehensive nature of modern CGL policies. These fragmented liability policies covered specific risks, such as property damage or bodily injury.
The first modern policies resembling today’s Commercial General Liability insurance were introduced in the 1940s. These policies consolidated various liability coverages into one policy, making it easier for businesses to manage their insurance needs. Initially, CGL policies focused on direct physical injuries and property damages. Coverage for environmental impacts was not excluded because the awareness of environmental risks and their long-term implications was not fully recognized.
This shifted significantly in 1970 with the creation of the EPA. By the 1980s when events like the Love Canal disaster in the late 1970s were you had hazardous waste caused health problems in a New York community, brought environmental issues to the forefront. These events also prompted the enactment of crucial legislation, such as the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) in 1980, also known as Superfund. Further state legislation complimented CERCLA and made it clear that owners and operator of polluted properties were liable for their remediation, including the hefty costs.
These regulatory developments pushed businesses to tender claims against their CGL policies. This in-turn forced the insurance industry to explicitly exclude environmental liability in their policies. Today, CGL policies have evolved to remove all coverage options for environmental liability, recognizing the complex nature of environmental risks and the costly repercussions of environmental damage and cleanup.
How Historical CGL Policies Are Used to Fund Modern Environmental Remediation
As insurance archeologists, we specialize in discovering and interpreting historical insurance policies, including Commercial General Liability Policies, to help present-day business owners obtain coverage to fund costly environmental remediation and pollution cleanup. As previously mentioned, historical CGL Policies did a poor job of excluding environmental liabilities before the 1970s and in some states 1985.
So, how can we leverage these policies to fund cleanup efforts?
These historical CGL policies contained broad and sometimes vague language regarding the environmental damages. This lack of clarity led to legal debates over whether environmental damages, such as pollution and contamination, fell under the purview of these policies.
As a result, courts often had to interpret the Commercial General Liability policy language and they ruled that these older policies did provide coverage for environmental liabilities because the policy language either did not explicitly exclude such coverage or the exclusion was not properly defined.
In addition, most of these policies were structured as occurrence policies, which, as mentioned earlier, cover incidents (or “occurrences”) during the policy period, regardless of when the claim is filed. This meant that the occurrence structure of these policies allowed claimants to tender claims decades after the environmental damages occurred.
Navigating the Complexities of Commercial General Liability Insurance
As property owners are confronted with increasingly complex risk landscape from contamination, the relevance and adaptability of historical CGL insurance remain more important than ever.
Our role as insurance archaeologists is particularly important in the context of environmental liabilities. Our work highlights the value of these 40+ year old insurance policies. We uncover historical insurance policies and unlock coverage for modern-day property and business owners facing pollution cleanup and remediation challenges.
