Inside the CGL policy: Coverages A, B and C

The ISO commercial general liability form, CG 00 01, has three separate insuring agreements. Coverage A pays for bodily injury and property damage caused by an accident during the policy period. Coverage B pays for a short list of named offenses, such as defamation and copyright infringement in your advertising. Coverage C pays small medical bills without regard to fault. Each has its own trigger, its own exclusions and, in part, its own limit, and a loss that fits one can miss the others.

This guide walks through the form as written in the 04 13 edition (a public copy is here). Carrier forms and endorsements change it, so treat this as the baseline. For the whole policy in plain terms, start with general liability insurance: what it covers and what it does not.

How the form is laid out

Section I holds the three coverages and the supplementary payments. Section II says who is an insured. Section III sets the limits, Section IV the conditions and Section V the definitions. Anything in quotation marks in the coverage grants, such as "occurrence" or "your work," is defined in Section V, and the definition often decides the claim.

Read in this order: the declarations, the insuring agreement, the exclusions, the exceptions written inside each exclusion ("this exclusion does not apply to..."), the definitions, and last the endorsements, which override everything before them.

Coverage A: bodily injury and property damage

The grant. The insurer pays what the insured is "legally obligated to pay as damages because of 'bodily injury' or 'property damage'," and has the right and duty to defend any suit seeking those damages. Coverage applies only if the injury or damage happens during the policy period and results from an occurrence, defined as an accident including continuous or repeated exposure to substantially the same general harmful conditions.

The known-loss provision. Coverage A does not apply if, before the policy began, a listed insured (the named insured, or its partners, members, officers and directors, depending on entity type) or an employee authorized to give or receive notice of claims knew the injury or damage had occurred. A continuation, change or resumption of that injury is deemed known too. This matters when you change carriers: a leak a manager reported last spring does not become a new loss under the new policy. The form treats the loss as known at the earliest of three moments: you report it to any insurer, you receive a demand, or you otherwise become aware of it.

Exclusions that route claims elsewhere. Workers' compensation obligations and injury to your employees (including the spouse, child, parent, brother or sister of the employee) go to workers' compensation and employers' liability. Aircraft, autos and watercraft you own, operate, rent or borrow go to the auto or marine policy. The form has narrow exceptions, such as a watercraft you do not own that is under 26 feet and not carrying people or cargo for a charge. Mobile equipment is excluded while being transported by an auto you own or operate, and while used in prearranged racing or stunting.

The business-risk exclusions. Exclusions j through n are the ones contractors and manufacturers fight over. They keep the CGL from becoming a warranty:

• j: property you own, rent or occupy; property in your care, custody or control; and "that particular part" of real property where you are working or that must be redone because your work was done wrong. The last item does not apply to damage in the products-completed operations hazard.
• k: damage to your own product arising out of it.
• l: damage to your own completed work arising out of it, unless a subcontractor performed the damaged work.
• m: impaired property and property not physically injured, when the cause is a defect in your product or work or your failure to perform a contract. An exception covers loss of use following sudden and accidental physical injury after the product or work is put to use.
• n: the cost of withdrawing or recalling your product, work or impaired property. See product recall insurance for the separate market.

A hypothetical shows the line. Say a roofing contractor replaces the flat roof on a medical office and, eight months later, the roof leaks into the suite below, ruining ceilings, carpet and patient files. The ceilings, carpet and files are other people's property, damaged after the work was complete, so Coverage A responds through the products-completed operations hazard (see products and completed operations coverage). The cost to rip out and replace the roof itself is the contractor's own work, which exclusion l removes unless a subcontractor installed it. The same facts can come out differently by state. The Texas Supreme Court held in Lamar Homes v. Mid-Continent Casualty (2007) that unintended construction defects can be an "occurrence" and that damage to the home itself can be "property damage" that triggers a duty to defend, with any limit on covering the contractor's own work coming from the exclusions, as Insurance Journal reported. Other states read the same form more narrowly. See Texas and the contractor discussion in CGL exclusions: what a general liability policy does not cover.

Other exclusions. Liquor liability (only if you are in the business of making, selling, serving or furnishing alcohol), pollution (with exceptions for building heating equipment, hostile fire and certain additional insured contractor jobs), war, electronic data, and statutory violations such as the TCPA, CAN-SPAM and FCRA. Exclusion b, contractual liability, has a major exception for an insured contract, covered in contractual liability coverage and insured contracts.

Coverage B: personal and advertising injury

Coverage B responds to injury arising from one of seven offenses: false arrest or imprisonment; malicious prosecution; wrongful eviction or wrongful entry; publication of material that slanders, libels or disparages; publication that violates privacy; use of another's advertising idea in your advertisement; and infringing another's copyright, trade dress or slogan in your advertisement.

Its trigger differs from Coverage A. There is no "occurrence." The offense must arise out of your business, be committed in the coverage territory and be committed during the policy period. The coverage territory is the United States, its territories, Puerto Rico and Canada, plus international waters in transit and, for internet offenses, anywhere in the world, as long as the suit is decided on the merits in the United States or Canada or settled with the insurer's consent.

The exclusions are the heart of Coverage B: knowing violations, material published with knowledge of falsity, material first published before the policy period, criminal acts, contract and breach of contract, failure of goods to match advertised quality, wrong prices, most intellectual property, media and internet businesses, chatrooms you host, and TCPA-type statutes. Each is explained in personal and advertising injury coverage.

Coverage C: medical payments

Coverage C pays reasonable medical expenses for bodily injury caused by an accident on premises you own or rent, on ways next to them, or because of your operations. It pays regardless of fault, provided the expenses are incurred and reported to the insurer within one year of the accident and the injured person submits to examination by the insurer's physicians. Covered items are first aid, necessary medical, surgical, X-ray and dental services (including prosthetics), and ambulance, hospital, nursing and funeral services.

It excludes:

• Any insured, except volunteer workers.
• A person hired to do work for an insured, or a tenant of an insured.
• A person injured on the part of the premises they normally occupy.
• Anyone entitled to workers' compensation benefits.
• Injury while practicing or playing sports or athletic contests.
• Injury within the products-completed operations hazard, and anything excluded under Coverage A.

Coverage C exists to close small injuries before they become suits, and paying it is not an admission of liability. It also counts against the each occurrence and general aggregate limits.

Supplementary payments

Under the standard form, the insurer pays several costs in addition to the limits for claims it investigates or suits it defends:

• Expenses the insurer incurs, which includes defense counsel.
• Up to $250 for bail bonds.
• Bonds to release attachments, within the limit.
• Reasonable expenses you incur at the insurer's request, including lost earnings up to $250 a day.
• Court costs taxed against you (but not the other side's attorneys' fees).
• Prejudgment interest on the part of the judgment the insurer pays.
• Post-judgment interest until the insurer pays, offers or deposits its share.

These "will not reduce the limits of insurance." The insurer's duty to defend ends, however, once it has used up the applicable limit paying judgments or settlements. A further supplementary payment lets the insurer defend an indemnitee named in the suit, such as a landlord or general contractor you indemnified, if the form's conditions are met. See the insurer's duty to defend: what triggers it and when it ends and defense costs inside vs outside policy limits: why it matters.

Which limit each claim uses

A hypothetical retailer with $1 million each occurrence, $2 million general aggregate and $2 million products-completed operations aggregate has three claims in one policy year. A slip-and-fall settles for $350,000, a disparagement claim for $150,000, and $4,000 of medical payments are made. The general aggregate is down to $1,496,000. Then a defective heater it sold injures a customer, with a $1.2 million judgment. The insurer pays $1 million at most for that occurrence, from the products aggregate, and the remaining $200,000 is the retailer's problem unless an umbrella sits above. The defense costs on all four claims are paid outside the limits. See commercial policy limits: per occurrence, aggregate and sublimits and commercial umbrella insurance.

Where policyholders get caught

• Reading only the grant. The exclusions and their exceptions decide most disputes.
• Waiting to report. The conditions require notice of an occurrence or offense "as soon as practicable," and suit papers forwarded immediately. See notice of claim and late notice: why timing matters.
• Assuming Coverage B covers every "personal injury." It covers seven defined offenses, and discrimination and harassment are not among them.
• Forgetting endorsements. A designated-operations, assault-or-battery or professional services endorsement can remove what the base form grants.

Key takeaways

• Coverage A needs an accident that causes bodily injury or property damage during the policy period; Coverage B needs one of seven named offenses; Coverage C pays medical bills without fault.
• The business-risk exclusions (j through n) separate harm to others from the cost of fixing your own product or work.
• Supplementary payments, including defense costs, sit outside the limits in the standard form, but the duty to defend ends when the limit is paid out.
• Claims under A, B and C all erode the general aggregate except products-completed operations claims, which have their own aggregate.
• Check which edition and endorsements your policy carries; the baseline form is only the starting text.