CGL insurance is an important

coverage for any business.

Understanding this coverage is

an important first step in

managing CGL risks.

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U n d e r s t a n d i n gU n d e r s t a n d i n gY o u rY o u rD e s i g n O n eD e s i g n O n eC o v e r a g e :C o v e r a g e :

C o m m e r c i a lC o m m e r c i a l

G e n e r a lG e n e r a l

L i a b i l i t yL i a b i l i t y

I n s u r a n c eI n s u r a n c e

This publicationwas created as a special service to policyholders in the

CNA/Schinnerer DesignOne insurance program. It is for

general information only. It is not legal advice and should not

be construed to define the coverage of the CNA/Schinnerer

DesignOne commercial general liability insurance policy.

Consultation with local legal counsel is recommended.

IntroductionIntroduction

Commercial general liability (CGL) insurance isintended to provide coverage primarily forliability arising out of non-professional acts(violations of the personal, business, or propertyinterests of private citizens) that result in bodilyinjury, property damage, or personal andadvertising injury. CGL insurance is designed tocover an insured’s liability arising out of incidentson the insured’s premises or from the non-professional aspects of the insured’s practice.

Since CGL coverage covers non-professionalnegligent acts, it is important to remember thedefinition of negligence. “Negligence” is a civilwrong that is not based on a contract and maybe defined as the failure to exercise the properdegree of care required by a prudent or ordinaryperson under similar circumstances. There arefour basic requirements that must exist fornegligence to be established:

(1) there must be a legal duty of the insured toact or not act;

(2) breach of this duty must be committed; (3) the act (breach) must be the proximate

cause of the injury; and(4) there must be actual damages.

CGL insurance is designedto cover an insured’s liabilityarising out of incidents onthe insured’s premisesor from the non-professional aspects of theinsured’s practice.

What’s Covered?What’s Covered?

There are three basic coverage areas thatcomprise a CGL policy: (1) bodily injury andproperty damage (BI/PD); (2) personal andadvertising injury; and (3) medical paymentscoverage.

Property Damage

Bodily injury/property damage providescoverage for the legal liability of insureds forbodily injury or property damage to othersarising out of non-professional negligent acts orfor liability arising out of their premises orbusiness operations. The CGL policy definesproperty damage as “physical injury to tangibleproperty, including all resulting loss of use ofthat property.”

Bodily Injury

Bodily injury is defined as “bodily injury, sicknessor disease sustained by a person, includingdeath resulting from any of these at any time.”Death that results after a period of time from anearlier injury will be covered by the policy ineffect at the time the injury was sustained.

The meaning of “bodily injury” is open to judicialinterpretation. Some courts have held thatmental injuries and emotional distress can beconsidered bodily injuries, even in the absenceof physical bodily harm.

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The CGL policy definesproperty damage as“physical injury to tangibleproperty, including allresulting loss of use of thatproperty.”

What is an example of a BI/PD claim?What is an example of a BI/PD claim?

An example of a BI/PD incident involved asurveyor working on an airport runway. Thesurveyor left his tripod and prism standingupright on the side of the runway when he leftfor lunch. A small Falcon 900 airplane came infor landing and the leading edge of the rightwing, which was extended over the edge of therunway, clipped the equipment. The surveyingequipment created a dent in the leading edge,but there were no injuries. However, the repairsto the plane and other expenses, such as downtime, parts, and labor, totaled more than$114,000.

This claim illustrates the importance of havingan established risk management program. Muchlike procedures that should be followed whendesign professionals visit a construction site,procedures should be established and followedwhenever staff are engaged in employmentactivities, professional or otherwise.

This claim possibly could have been avoided ifthe surveyor had not left the tripod unattendedon a job sight. Any equipment used on a job siteshould be secured before leaving the site toavoid causing possible bodily injury or propertydamage.

Procedures should beestablished and followedwhenever staff are engagedin employment activities,professional or otherwise.

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Design professionals...shouldconsider the advantages anddisadvantages of having theirCGL and PL policies withthe same carrier.

Could this have been covered by aCould this have been covered by aprofessional liability policy?professional liability policy?

The claim example on the previous page alsoillustrates another interesting point. A designfirm’s professional liability (PL) policy providescoverage for that firm’s professional negligence.As previously noted, a design firm’s CGL policyprovides coverage for the firm’s non-professionalnegligence. In the surveyor’s claim example, acompelling argument could have been made thatthe damage arose out of the surveyor’sprofessional services and, therefore, shouldhave been covered by the PL policy.

It is unfortunate, but occasionally, insurancecarriers will challenge whether a particular claimis covered by their policy or by a policy fromanother carrier. The surveyor’s claim exampleillustrates a situation where the CGL insurancecarrier could argue that the claim should havebeen covered by the surveyor’s PL policy. ThePL carrier could have made the same argumentagainst the CGL carrier.

In these situations, it is the insured that iscaught in the middle while the insurance carriersdebate over which policy should respond to theclaim. A way to minimize the risk of this situationis to have both the CGL and PL policies with thesame insurance carrier. The focus would thenshift to resolving the claim instead of debatingwhich policy should respond to the claim. As arisk management practice, design professionals,and their insurance brokers, should consider theadvantages and disadvantages of having theirCGL and PL policies with the same carrier.

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This example illustrates theimportance of maintainingsafe building premises,proper warning signs forhazards, and promptattention to hazardoussituations that may increasethe likelihood of an accident.

Premises and Operations LiabilityPremises and Operations Liability

There are several coverages included underBI/PD that provide protection for an insuredagainst loss from legal liability arising out of the(1) operation, maintenance, or use of thepremises and (2) liability arising out of businessoperations. This liability involves the insured’s (1)legal responsibility for bodily injury or propertydamage to others on the insured’s premises, or(2) liability arising out of the insured’s businessoperations or work performed by independentcontractors on the named insured’s behalf.

What is an example of a claim that wouldWhat is an example of a claim that wouldarise out of premises or businessarise out of premises or businessoperations?operations?

An example of a liability claim would be if avisitor walks into an insured designprofessional’s office lobby and slips on themarble flooring after a rain storm and breaks herankle. The injury occurred on the namedinsured’s premises and the injured woman wouldmake a claim against the insured for her medicalexpenses resulting from her broken ankle.

This example illustrates the importance ofmaintaining safe building premises, properwarning signs for hazards, and prompt attentionto hazardous situations that may increase thelikelihood of an accident.

It is also important to note that this coveragedoes not provide BI/PD coverage for the insuredor the insured’s employees. Such claims willlikely be covered by workers’ compensationinsurance.

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An example of a business operations claimwould be if a manufacturer accidentally flushesflammable liquids into a city’s sewer system. Anexplosion in the sewer results and city streetsare torn up, utility services are suspended, anddozens of businesses in the vicinity of theexplosion must close because access to theneighborhood has been cut off. The businesseshave sustained a loss of use of that property,even though the explosion did not damage theproperty of these businesses. Themanufacturer’s CGL coverage will respond toloss of use claims of this kind, just as it will toclaims of direct physical injury.

Is there coverage for contractual liabilityIs there coverage for contractual liabilityunder the CGL policy?under the CGL policy?

Yes, the CGL policy provides broader contractualliability coverage than professional liability. Thiscoverage is for specific contractual agreements.(Under the CNA/Schinnerer PL policy, as well asmost PL policies, obligations under a contractare excluded from coverage unless suchobligations would have existed in the absence ofthe contract. This is commonly referred to aslimited form contractual liability coverage.)

The following contractual agreements arecovered under the CGL policy:

● contract for a lease of premises;● sidetrack agreement (related to railroad

deliveries);● easement or license agreement;● an agreement, as required by ordinance, to

indemnify a municipality; and● elevator maintenance agreement.

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The CGL policy provides abroader contractualliability coverage thanprofessional liability.

What does personal and advertisingWhat does personal and advertisinginjury cover?injury cover?

Personal and advertising injury liability protectsan insured against liability arising out of certainoffenses, such as:

● libel;● slander;● false arrest;● infringing on another’s copyright;● malicious prosecution;● use of another’s advertising idea; or● wrongful eviction, entry, or invasion of

privacy, which is committed during the policyperiod and within the coverage territory.

What is libel and slander?What is libel and slander?

“Libel” is a written statement about someonethat is personally injurious to that individual. Anexample of a libelous situation would be ifuncomplimentary comments are made by anarchitect in a letter to a newspaper about aconstruction contractor’s performance or qualityof work on a project in general.

“Slander” is similar to libel in that it is a spokenstatement that is injurious to an individual. Anexample of slander would be if an architectverbally degrades the reputation or past work ofanother architect to a client in order to secure aproject from that client. The act of speakingdefamatory words by one architect to sway theclient, whether justified or not, affects the otherarchitect’s means of livelihood, business, andreputation, which is a personal and advertisinginjury offense.

“Libel” is a writtenstatement about someonethat is personally injuriousto that individual.

“Slander” is similar tolibel in that it is a spokenstatement that is injuriousto an individual.

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Design professionals need to be cautious aboutmaking comments, either written or verbal, aboutanother professional or member of the projectteam. Truth is always a defense to libel andslander so statements should be based on factsor couched as a professional opinion based onthe facts presented.

This is another area where there is potentialconflict between CGL and PL coverage, asdiscussed on page 4. This often arises in thecontext of a design professional commenting tothe client about the qualifications of a contractor.When the alleged defaming statements aremade, the claim may be excluded under the CGLpolicy. Having CGL and PL coverage with thesame insurance carrier should minimize the riskof a claim being caught between two carriers asthey debate which policy should respond.

What medical payments are covered by aWhat medical payments are covered by aCGL policy?CGL policy?

Coverage for medical payments includespayments for injuries sustained by members ofthe general public caused by an accident thattakes place on the insured’s premises or whenexposed to the insured’s business operations.Injuries must be reported within one year of theaccident. Medical payments coverage can betriggered without legal action from a third party.This provides for prompt settlement of smallermedical claims without litigation. It is included inthe CGL policy and pays for all necessary andreasonable medical, surgical, ambulance,hospital, professional nursing, and funeralexpenses for a person injured or killed in anaccident arising out of the premises or business

Statements should be basedon facts or couched as aprofessional opinion basedon the facts presented.

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operations of the insured, regardless ofnegligence or liability. There is no defense orlegal liability coverage as there is with BI/PDliability and personal and advertising liabilitysince coverage is provided on a no-fault basis.

What are other key differences betweenWhat are other key differences betweenCGL and PL policies?CGL and PL policies?

There are some other differences between theCGL and PL policies in terms of what is and isnot covered. The following are some keydifferences between the two.

Claims-Made vs. Occurrence ClaimsClaims-Made vs. Occurrence ClaimsTriggersTriggers

Commercial general liability coverage is written

Commercial general liabilitycoverage is written on an“occurrence” basis.The PL policy is written ona “claims-made”basis.

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Claims-Made vs. Occurrence TriggerClaims-Made vs. Occurrence Trigger

ABC Engineering has had claims-made policies for the last three years. Nation’sInsurance Co. provided coverage during 2001, XYZ Insurer provided coverage in2002, and Main St. Insurance provided coverage in 2003. In 2003, ABC receivednotice of a claim from a client, even though the event leading to the claim occurred in2002 (see the timeline below).

Question: Assuming that the allegations are within the CGL policy’s coverage, whichcarrier—Nation’s, XYZ, or Main St.—would be obligated to provide defense for ABCand possibly pay the client’s damages?

Answer: Claims-Made—The claim occurred in 2003, while Main St. Insurance’s policywas in effect. Thus, Main St. would respond to the claim.

Answer: Occurrence—The event leading to the claim occurred in 2002, while XYZInsurer’s policy was in effect. Thus, XYZ would respond to the claim.

Start of services Event leading to claim Claim made

Nation’s - 2001 XYZ - 2002 Main St. - 2003

on an “occurrence” basis. The PL policy iswritten on a “claims-made” basis. The basicdifference between the claims-made andoccurrence forms of coverage is when thecoverage is actually “triggered” or activated.Occurrence coverage is triggered when theevent giving rise to the claim actually happened.The policy in effect at the time the event oroccurrence happened is responsible for theclaim even if the claim is not made until yearsafter the policy expires. Claims-made coverageis based on when a claim is actually filed, andthe insurance carrier providing coverage on thefiling date is responsible for the claim.

Claims-made policies include a retroactive date,which is usually the effective date of the firstpolicy the insurance carrier writes for an insured.Generally, the claims-made form will not provideany coverage for claims arising out of eventsthat take place prior to the retroactive date, butusually there is a prior-acts endorsementavailable on the policy that will cover suchevents.

Additional InsuredsAdditional Insureds

An additional named insured is a party that isadded to the coverage of an insurance policywith the right of recovery, but without theobligation to pay the premium or meet certainother terms of the policy. Additional insuredscannot be added to a PL policy since the designfirm’s client usually does not performprofessional services and, therefore, does nothave the risk that the policy is designed to cover.On the CGL policy, however, additional insuredscan be added through an endorsement.

An additional namedinsured is a party that isadded to the coverage of aninsurance policy with theright of recovery, butwithout the obligation topay the premium or meetcertain other terms of thepolicy.

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It is important to note that the additional insuredendorsement does not add an individual,corporation, or government entity to the list ofnamed insureds. It does, however, afford thenamed additional insured the same coverageavailable for the named insured.

Contractual Liability CoverageContractual Liability Coverage

As previously noted, the PL policy provides alimited form contractual liability coverage only forthose contractual obligations that would haveexisted in the absence of a contract.

The CGL policy provides broader contractualliability coverage for those contract types listedon page 6.

It does, however, afford thenamed additionalinsured the same coverageavailable for the namedinsured.

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How do I manage my risks?How do I manage my risks?

Operating a business is inherently risky and themanagement of the accompanying risks is anessential value-added activity. Designprofessionals need to become aware of the risksthat they face.

Premises: Business OperationsPremises: Business Operations

As the example on page 3 illustrates, it isimportant that design professionals keepcommon areas such as lobbies, hallways,sidewalks, and others clean and safe and avoiddisrepair. Unsafe conditions and areas in needof repair may lead to slips and falls or otheraccidents.

Likewise, care should be given to the dailyoperations of a business. For example, a designfirm that recklessly sets up a model of a projectin the client’s office may cause damage to theclient’s office, leading to a claim. Proceduresshould be established and followed for allbusiness activities.

Personal and Advertising InjuryPersonal and Advertising Injury

Defamation—It was noted earlier that the risks ofa defamation claim can be managed by carefulconsideration of comments regarding theprofessional services or performance of others.Statements regarding these matters should belimited to facts or statements of personalopinions based on known facts.

Copyright Infringement—The risks of copyrightinfringement can be managed by awareness of

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Keep common areas such aslobbies, hallways, sidewalks,and others clean and safeand avoid disrepair.

federal copyright law, protecting your owncopyrights, and obtaining proper licenses orpermission when using the copyrightedmaterials of others. For a more detaileddiscussion on intellectual property risks, pleasesee Schinnerer’s Get Smart About IntellectualProperty at www.PlanetRiskManagement.com/getsmart.html.

Contractual LiabilityContractual Liability

As previously noted, the CGL policy providesbroad coverage for the following types ofcontractual obligations:

● contract for a lease of premises;● sidetrack agreement (related to railroad

deliveries);● easement or license agreement;● an agreement, as required by ordinance, to

indemnify a municipality; and● elevator maintenance agreement.

As with all contracts, review by your legaladvisor is strongly recommended. Specialattention should be given to any risk transfer orlimit of liability provision, such as anindemnification provision.

It is also important that applicable firm staff areaware of the requirements of the contract. Forexample, firm staff should be aware of the termsof the lease agreement to help minimize thechance of a claim arising out of a breach of alease of the premises.

Also, as stated above, there is contractualcoverage for agreements to indemnify a

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Special attention should begiven to any risktransfer or limit ofliability provision, such as anindemnification provision.

municipality when such indemnification isrequired by ordinance. Regardless of whetherthe indemnification is required by ordinance or inanother agreement, it is important that theindemnification be limited to claims that wouldbe covered by the CGL policy.

What is an example of CGLWhat is an example of CGLindemnification?indemnification?

Unfortunately, because CGL coverage is broaderand more complex than PL coverage, it isdifficult to draft a sample indemnification clause(as has been done with the PL policy) that wouldbe insurable under the CGL policy. Also, statecourts vary in how they interpret and enforceindemnification clauses. Your legal advisor is inthe best position to advise you as to anappropriate CGL indemnification clause.

At a minimum, design professionals should insistthat the indemnification clause for professionalservices is separate from any indemnificationclause for non-professional services. Also, theCNA/Schinnerer professional liability programwill honor a defense obligation as long as it istied to an indemnification obligation to the extentthat the claim arose out of the professionalnegligent act, error, or omission.

Under the CGL policy, however, a contractualobligation to defend the client may not behonored by the policy. Therefore, designprofessionals should insist that such contractualobligations are removed. The circumstances ofthe claim will be a major consideration.

State courts vary in howthey interpret and enforceindemnificationclauses.

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Additional InsuredsAdditional Insureds

Including additional insureds under the CGLpolicy is permissible under certaincircumstances, such as lease agreements, andcustomer or vendor relationships. Additionalinsureds are added to the policy byendorsement when the named insured wishes toprovide such status or when it is required of thenamed insured as part of a business contract.Careful consideration should be given beforegranting any additional insured request. Askyourself, “Why is this party asking to be listed asan additional insured?”

Similarly, there are times when a designprofessional will want to be listed as anadditional insured on another policy. Forexample, since design professionals often visitthe construction site, it is logical for the designprofessional to be listed as an additional insuredon the contractor’s CGL policy. However,because the contractor is rarely, if ever, involvedin the design professional’s business activities, itis not as logical to list the contractor as anadditional insured on the design professional’sCGL policy.

This is the type of evaluation that should occurwhen a design professional receives a requestfor the client or contractor to be listed as anadditional insured on the design professional’sCGL policy.

Additional insureds areadded to the policy byendorsement when thenamed insured wishes toprovide such status or whenit is required of the namedinsured as part of a businesscontract.

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The first step in managingCGL risks is tounderstand thecoverage.

ConclusionConclusion

Although typically broader and more complexthan PL coverage, the need to manage the risksof CGL coverage is just as important. The firststep in managing CGL risks is to understand thecoverage.

This publication has attempted to explain thebasic concepts of the various coverage aspectsof the CNA/Schinnerer CGL policy and, whereappropriate, has given examples. It is importantto note that some of the examples illustrateclaim scenarios that could be covered by eitherthe CGL or PL policy. As a risk managementtool, insureds and their advisors should considerhaving their CGL and PL coverage with thesame insurance carrier to avoid conflict betweenmultiple carriers as to which policy shouldrespond to a claim.

Finally, this publication has provided basic riskmanagement information that firms can use tomanage the risks of a CGL claim. For moreinformation on CNA/Schinnerer’s DesignOnecoverages, please go to www.PlanetAEC.com.

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Victor O. Schinnerer & Company, Inc.

Two Wisconsin Circle

Chevy Chase, MD 20815-7022

Phone: 301-961-9800

Fax: 301-951-5444

E-mail: vos.info@Schinnerer.com

www.Schinnerer.com

www.PlanetAEC.com

© 2005 by Victor O. Schinnerer & Company, Inc. Statementsconcerning legal matters should be understood to be generalobservations based solely on our experience as risk consultants andmay not be relied upon as legal advice, which we are not authorized toprovide. All such matters should be reviewed with a qualified advisor.