15. Commercial General Liability Insurance

A claims-made policy covers claims that are: A) triggered by an incident that took place during the policy period, if the claim is made within 2 years of the incident. B) first reported during the policy period, provided the event occurred after the retroactive date (if any) stated in the policy. C) first reported during the policy period, provided the event occurred before the retroactive date (if any) stated in the policy. D) triggered by an incident that took place during the policy period, regardless of when the claim is made.

Answer: B There are 2 CGL policy programs: occurrence and claims made. The claims-made policy's coverage is triggered by the actual filing date or receipt of the claim, in addition to the date (period) the loss occurred. Any covered loss or claim filed within the policy period is handled by that policy regardless of when the actual loss or injury occurred. The occurrence policy provides protection for covered losses when the actual injury itself occurred during the policy period, regardless of when notification of the loss or claim happened.

Which of the following coverages would protect a policyholder for assumed liability under a construction contract to install water lines for a city? A) Incidental contracts. B) Completed operations. C) Contractual liability. D) Independent contractors.

Answer: C A business may assume liability for the negligent acts of another through a contract. When such a contract exists, the business has taken upon itself another's liability. The CGL excludes liability the insured assumes under contract unless the contract fits the policy's definition of an insured contract. A contract with a municipality required by ordinance is considered an insured contract.

Harold owns a sports bar. As a promotion, he offers customers tastings of new German beers. One customer, after several samples, drives off and injures another person. The injured party sues the driver and Harold. Harold's commercial general liability policy will: A) cover the loss under the products/completed operations insuring agreement. B) cover the loss under host liquor liability because Harold did not actually sell the beer. C) not cover the loss because of the liquor liability exclusion. D) cover the loss under the bodily injury and property damage insuring agreement.

Answer: C The CGL excludes liability arising out of the sales or service of alcoholic beverages. The exception is for the casual host who simply serves alcoholic drinks. An example would be a clothing store that serves champagne to its customers. The clothing store is in the clothing business and not the business of selling alcoholic beverages, hence it is a casual host. Because Harold owns a bar and is using the beer samples as a promotion for the bar, he could not be considered a casual host.

If an insured has a claims-made commercial general liability policy with the basic extended reporting period, the insurer will pay for losses after the policy has been cancelled as long as the occurrence is reported within 60 days of cancellation and the claim is filed within how many years? A) Three. B) Ten. C) Five. D) One.

Answer: C The basic extended reporting period (basic tail) is included in the CGL policy form. It covers claims made up to five years after the end of the policy period as long as an occurrence is reported to the insurer no later than 60 days after the end of the policy period. The basic tail does not extend the period of time in which occurrences may take place, merely the time frame for reporting the claims. The bodily injury or property damage must have occurred before the end of the policy period and after the retroactive date. In addition, coverage applies to all other claims reported to the insurer within 60 days after the policy period. This means that coverage exists for unknown or unreported claims first made in the 60 days following policy expiration.

Which one of the following situations would most likely be covered by a commercial general liability (CGL) policy? A) An employee drives his auto into his employer's garage door. B) An office worker's finger is injured in an electric pencil sharpener. C) A surfboard falls off a shelf and injures a shopper. D) Manufacturing exhaust kills a crop of tomatoes in a nearby field.

Answer: C The shopper's injuries would be covered under Coverage A or Coverage C, depending on whether the insured is found to be liable for the injuries. The CGL policy does not cover work-related bodily injury to any employee, which would be covered by workers compensation insurance. It specifically excludes property damage arising out of the discharge or escape of pollutants. Property damage due to the negligence of an employee operating his own auto would be covered by that person's personal auto policy (PAP), not by the CGL policy.

Coverage C of the commercial general liability policy will cover reasonable medical expenses incurred within how many years of the accident? A) Three. B) Five. C) One. D) Two.

Answer: C Under Coverage C--Medical Payments Coverage of the CGL, the insurance company pays reasonable expenses for bodily injury to a third party caused by an accident on the premises that the insured owns or rents, on ways next to the premises the insured owns or rents, and because of the insured's business operation. These medical expenses are paid regardless of fault and must be incurred within the coverage territory and reported to the insurer within 1 year from the date of any accident.

The purpose of the extended reporting period in a commercial general liability policy is to provide: A) coverage for events that happen up to 5 years after a claims-made policy has expired. B) coverage for events that have happened before the policy became effective. C) additional time for the insured to make monthly reports of information for rating purposes. D) coverage for claims made after the policy expires.

Answer: D An extended reporting period is a period of time during which coverage will be provided for claims made after the expiration date of the policy if certain conditions are met.

Under the CGL form, insured contracts include all of the following EXCEPT: A) contracts for the lease of the premises. B) assumption of an architect's liability for any injury or damage arising out of the insured's rendering or failure to render professional services. C) obligations required by local ordinance to indemnify a municipality (except in connection with actual work done for that municipality). D) elevator maintenance agreements.

Answer: B The definition of an insured contract specifically excludes certain parts of contracts that might otherwise be insured such as contract provisions that indemnify architects, engineers, or surveyors for any injury or damage arising out of their professional work. Under the CGL, insured contracts include (1) contracts for lease of premises; (2) sidetrack agreements (for sidings or spurs of rail off main rail lines); (3) easement or license agreements; (4) obligations required by local ordinance to indemnify a municipality (except in connection with actual work done for that municipality); (5) elevator maintenance agreements; and (6) other contracts pertaining to the insured's business under which the insured assumes liability (of another) that would be imposed by law in absence of the contract.

A person is injured after slipping on a wet floor in a grocery store. Insurance against which of the following exposures would provide coverage? A) Premises. B) Products liability. C) Completed operations liability. D) Operations.

Answer: A A businessowner can be held liable if a third party is injured or suffers property damage when using the business premises. Under products liability exposure, a manufacturer or distributor of a faulty product can be held liable if the product injures someone. Completed operations liability exposure arises when a business, such as a contractor, completes operations off its own premises and someone is injured or property is damaged at the site of its operations. Operations exposure involves liability that arises in the course of a business's daily operations if someone is injured or his property is damaged either where the business is conducted or by an activity of the owner or an employee.

Which of the following occurrences would be included under the definition of a personal injury? A) A tenant is evicted by his landlord and sues the landlord for invasion of privacy and wrongful eviction. B) A customer is injured in a department store when a sign falls on her, and she sues the store for medical costs and pain and suffering. C) An employee is injured lifting a heavy carton and sues his employer for costs. D) An individual is fired from her job and sues her employer for unemployment benefits.

Answer: A A personal injury is one other than bodily injury arising out of false arrest, detention, or imprisonment; malicious prosecution; wrongful entry or eviction; publications that slander or libel a person or an organization or that disparage a person's or an organization's goods, products, or services; and publications that violate a person's right of privacy.

All of the following can be designated as an insured under a commercial general liability policy EXCEPT: A) family members of the insured for their personal activities. B) employees of the named insured, as it relates to the business. C) a real estate management firm. D) the insured's legal representative.

Answer: A Commercial general liability insurance is designed to pay on behalf of an individual, a business, or an organization the actual damages that the insured becomes legally obligated to pay when damages are sustained in connection with that business. It protects against claims by third parties for injury to persons or property arising out of, or in the course of, doing business. Obviously, the personal activities of the insured's family members would not be covered.

The retroactive date of a claims-made professional liability policy is which of the following? A) The earliest date an event or loss may occur and be eligible for coverage under the policy. B) The date the policy expires. C) The inception date of the policy. D) The date that no claims can be submitted.

Answer: A The retroactive date is the first date on which an event may occur and be covered by the policy if a claim is filed.

In a claims-made liability policy, the specific date shown in the declarations indicating the first date events are covered by the policy is called its: A) retroactive date. B) inception date. C) reporting period. D) policy period.

Answer: A The retroactive date on a claims-made liability policy is the date that triggers the beginning of insurance coverage. A retroactive date is not required. If one is shown on a policy, any claim made during the policy period will not be covered if the loss occurred before the retroactive date.

A tavern owner has a CGL policy. A patron who claims he was injured when the bartender forcibly removed him from the premises sues both the tavern owner and the bartender. Under the CGL's duty to defend provision, the policy would: A) have no duty to defend because the damages are not covered. B) defend the insured in the lawsuit, even if it is groundless. C) defend the insured in the lawsuit only if it has merit. D) have no duty to defend the bartender because he is not an insured.

Answer: A Under the CGL policy, the insurer has an obligation to defend the insured in a suit brought by a third party. The duty to defend is triggered by a lawsuit demanding damages against an insured for bodily injury, property damage, or personal and advertising injury covered by the CGL policy. However, if the damages being sought are clearly not covered by the CGL policy, the insurer will have no duty to defend. In this case, the CGL specifically excludes liquor liability for businesses that manufacture, distribute, sell, serve, or furnish alcohol.

Marcus, an employee at the Beautiful Home Gift Store, dropped and broke a customer's purchase while carrying it to the customer's car. The resulting loss would be considered which of the following under the store's commercial general liability policy? A) Products-completed operations. B) Premises-operations. C) Personal injury. D) Products liability.

Answer: B A businessowner can be held liable if a third party is injured or suffers property damage on the premises where the business is conducted. This liability arises in the course of the business's daily operation and is known as premises-operations exposure. Under products-completed operations liability exposure, a manufacturer or distributor of a faulty product can be held liable if the product or other result of operations injures someone.

Dennis purchased a small manufacturing firm and wants to purchase coverage for the premises-operations and products-completed operations exposures. Which of the following types of insurance should he purchase? A) Comprehensive general liability. B) Commercial general liability. C) Employment practices liability. D) Boiler and machinery.

Answer: B A commercial general liability policy is a commercial lines program covering the premises and operations and products-completed operations exposures.

Which one of the following statements about occurrence liability policies is CORRECT? A) Occurrence policies are only used for products/completed operations exposures. B) Occurrence policies cover events that happen after the policy is in effect but before it expires. C) Occurrence policies do not have a coverage trigger. D) Occurrence policies cover losses that happen after a specified retroactive date.

Answer: B An occurrence policy covers losses that occur while the policy is in force, even if a claim is submitted after the policy has expired. Occurrence policies have a coverage trigger. It is the event or damage that must happen during the policy period for coverage to become available. Occurrence policies are not limited to products-completed operations exposures; they are written to cover other types of losses.

A commercial general liability policy will cover a policyholder for contractual liability arising from all of the following EXCEPT: A) elevator maintenance agreement. B) escrow agreement. C) easement agreement. D) railroad sidetrack agreement.

Answer: B Contractual liability does not cover damages the insured is obligated to pay because he or she assumes liability under a contract, for example, monies accepted under the terms of an escrow contract. Examples of contracts which may be insured for contractual liability include municipal indemnity agreements, easement agreements, elevator maintenance agreements, and railroad sidetrack agreements.

Medical payments coverage in the commercial general liability policy covers: A) injuries to the insured. B) injuries to third parties regardless of liability. C) injuries to third parties for which the insured is legally liable. D) injuries to the insured's employees.

Answer: B Medical payment is no-fault coverage but it applies only to third parties, not to the insured or to employees of the insured. The insurance pays medical expenses for bodily injury to a third party caused by an accident on the premises that the insured owns or rents, on passageways next to the premises the insured owns or rents, or because of the insured's business operations.

Which one of the following situations is covered under a commercial general liability (CGL) policy? A) An insured's customer is killed while traveling in the insured's bus. B) A shopper is injured when a shelf of merchandise collapses. C) An insured car strikes a pedestrian. D) An insured boat rams another boat.

Answer: B The CGL would pay only the reasonable expenses for bodily injury that is caused to a person by an accident on the premises that the insured owns or rents. In the other situations described, the CGL would not apply, though other coverage under other policies (personal auto policy, marine insurance, homeowners insurance) might apply.

Bob's Auto Repair stores its customers' autos inside its building overnight. A fire destroys the building and everything in it. Bob's commercial general liability policy will pay for which of the following? A) Value of Bob's work on the autos but not the damage to the customers' autos. B) Neither the damage to the customers' autos nor the value of Bob's work. C) Damage to the customers' autos and for the value of Bob's work already performed on them. D) Damage to the customers' autos but not the value of Bob's work.

Answer: B The commercial general liability policy contains 2 exclusions that would eliminate coverage for the damage to the customers' autos and for the value of Bob's work already performed on them. The first exclusion applies to property of others in Bob's care, custody, or control. The second exclusion applies to damage to the insured's product, in this case the work performed by Bob.

Pete owns a business that sells alcoholic beverages. A person Pete sold alcohol to injures a third party. Pete is sued by this third party and needs what kind of protection? A) Commercial packaged policy with employers protective endorsement. B) Liquor liability/dram shop liability. C) Commercial general liability with and employers protective endorsement. D) Businessowners policy.

Answer: B The commercial general liability policy contains an exclusion for liquor liability. An endorsement is available to provide coverage, and separate, stand-alone policies are also designed to provide coverage. When a liquor or dram shop liability policy is used, it often is issued on a claims-made basis, although occurrence form policies are also available.

An insured has a CGL policy and hires a contractor to complete some work on a building. Which of the following is the best way to protect the insured from having to personally pay for damages as a result of the contractor's operations? A) Exclude any independent contractors from the insured's CGL policy. B) Add the contractor as a named insured to the insured's CGL policy. C) Purchase a professional liability policy. D) Purchase an owners and contractors protective (OCP) liability policy.

Answer: D Direct coverage for the owner's liability incurred as a result of the contractor's operations may be provided by (1) naming the hiring party (owner or general contractor in the case of a subcontract) as an additional insured (not named insured) on the contractor's (subcontractor's) commercial general liability (CGL) policy or (2) purchasing an owners and contractors protective (OCP) liability policy for the benefit of the hiring party. Owners and contractors protective liability insures the legal liability of contractors and other persons by the negligence of a contractor or subcontractor that they hire.

John and Mary are a hardworking married couple. They own a sole proprietorship that sells farm produce. John has an additional sole proprietorship where, as an individual, he makes wood kitchen cabinets. John also owns a partnership with his brother, James, in which they make custom furniture. Which of these people is an insured under John's commercial general liability (CGL) policy? A) John only. B) John and James. C) John, Mary, and James. D) John and Mary.

Answer: D For the conduct of any business of which the insured is sole owner, an individual and spouse are insureds. John and Mary are insureds for the produce store and the cabinetry shop. In the carpentry business John owns as a partnership with his brother, both John and James would be named insureds on a separate policy.

Which one of the following is NOT a commercial general liability exposure? A) Owned premises. B) Products manufactured or sold. C) Operations by employees. D) Operation of automobiles.

Answer: D General liability insurance is written to cover two major risk exposures: premises and operations, and products and completed operations. Auto-related liability exposures for businesses are covered under commercial auto policies.

While examining a toy in a manufacturer's warehouse, a child cuts her finger. The toy manufacturer's insurer will cover the claim if the manufacturer carried which one of the following types of insurance? A) Workers compensation. B) Employment practices liability. C) Commercial property. D) Commercial general liability.

Answer: D One of the exposures that the commercial general liability (CGL) policy covers is bodily injury resulting from the premises, operations, products, and completed operations (Section A). It also covers medical expenses for accidental bodily injury on or away from the premises (Section C).

Barbara is demonstrating a floor model of her company's product in its showroom when something goes wrong with the demonstration and the customer is injured. This is an example of what type of loss? A) Completed operations. B) Products liability. C) Personal injury. D) Premises liability.

Answer: D Premises liability protects the insured against injury to third parties that occurs on or arises out of the insured's premises. Products liability begins after the insured has relinquished control of the product and it has left the insured's premises. Completed operations liability covers finished operations by the insured business. Personal injury insurance provides coverage for libel, slander, invasion of privacy, and other intentional torts.

Mark wants to purchase a policy for his manufacturing company to include premises liability, products liability, and completed operations. Which policy would cover all of these losses? A) Contractual liability. B) Products and completed operations liability. C) Personal injury liability. D) Commercial general liability.

Answer: D Section A of the CGL policy covers bodily injury and property damage arising from the premises, operations, products, and completed operations.

The basic extended reporting period included in the commercial general liability (CGL) form covers claims made up to 5 years after the end of the policy period, as long as an occurrence is reported within how long after the end of the policy period? A) 30 days. B) 1 year. C) 5 years. D) 60 days.

Answer: D The basic extended reporting period (basic tail) covers claims made up to five years after the end of the policy period, as long as an occurrence is reported within 60 day after the end of the policy period.

A businessowner purchases a commercial general liability (CGL) policy that includes a supplemental extended reporting period. The effective dates of the policy are December 31, 2007, through December 31, 2008. The businessowner is sued over an incident that occurs on April 15, 2008, but is not discovered or reported until June 30, 2009. What coverage, if any, will the policy provide? A) Coverage is denied because the reporting period expired. B) Coverage is denied because the owner was sued. C) Coverage is granted because the incident occurred during the policy term. D) Coverage is granted because the reporting period has not expired.

Answer: D The basic reporting period (basic tail) included in the CGL policy form covers claims for up to 5 years after the end of the policy period as long as the occurrence is reported to the insurer no later than 60 days after the end of the policy period. The basic tail would have denied coverage to the businessowner for this incident because it was reported on June 30, 2009, more than 60 days after the policy period. However, the supplemental extended reporting period (supplemental tail) continues coverage after the basic tail expires. The supplemental tail does not limit the reporting period.

An insured has a claims-made policy with a 1-year policy period. The policy includes a supplementary reporting endorsement to cover claims filed after the end of the mini-tail. When a $5,000 claim is filed 3 years later for a loss that occurred during the mini-tail, how much will the policy pay? A) $1,000.00 B) $2,500.00 C) $5,000.00 D) $0.00

Answer: D The claim will not be paid. There is a two-step trigger of coverage: (1) the loss must occur during the policy's coverage period; and (2) the claim must be filed during the reporting period. The automatic mini-tail is part of the reporting period but is not included in the coverage period.

A contractor built a home for a family. Four months after the family moved into the home, the kitchen sink fell on a family member's foot and broke it. This is an example of what type of loss? A) Premises liability. B) Insured contracts. C) Personal injury. D) Completed operations.

Answer: D When a business completes operations away from the premises it owns, rents or controls, a completed operations exposure exists. Completed operations liability results when a person is injured or her property is damaged after the business operation has been completed on premises away from the business premises. By contrast, if someone is hurt or suffers property damage before the operation is complete, a business operations exposure exists.