Study 8 – Liability Insurance
1. What general types of exposures are covered by the Commercial General Liability policy? (p. 2)
The commercial general liability policy covers exposures that arise from business pursuits and business premises.
2. What is the key point to remember about the protection offered under a liability policy? (p. 2)
Liability insurance protects insureds against legal liability imposed upon them because of an injury or damage to a third-party. This coverage is not intended to cover damage or injury to insureds under the policy.
3. What types of things are compensated to an entitled third party? (p. 2)
The coverage compensates the entitled third party for such things as medical and funeral expenses, repair bills, loss of income, pain and suffering, loss of property and the loss of use of such property.
4. What vital questions must be asked when a liability claim occurs and how does this differ from the questions asked in a property claim? (p. 2)
When a liability policy is involved there are two vital questions asked:
1. Does the policy cover the damage or injury?
2. Is the insured legally liable?
5. What are the benefits of liability coverage to an insured? (p. 3)
The important benefits of this coverage to insureds include:
· An investigation and assessment of claims;
· An analysis of the legal liability;
· A defence of the insured again third party claims.
6. What are the three methods used to trigger insurance coverage under liabilities policies? (p. 3)
Liability policies are written to trigger cover on:
· An occurrence basis;
· A claims-made basis; or
· Some other formula
The occurrence based policy covers those accidents that occur during the term the policy is in force.
The claims-made triggers coverage when a claim is made against the insured.
7. What does a retroactive date accomplish in a claims-made policy? (p. 3)
A retroactive date limits coverage to accidents that occur within the prescribed period.
8. What is the usual test of liability at law? (p. 3)
Negligence.
9. What contracts are covered under the standard CGL wording? (p. 4)
a) A lease of premises;
b) A sidetrack agreement;
c) An easement or licence agreement in connection with vehicle or pedestrian private railroad crossing at grade;
d) Any other easement agreement;
e) Indemnification of a municipality as required by ordinance, except in connection with work for a municipality;
f) An elevator maintenance agreement;
g) Any contract when tort liability of another is assumed.
10. If an individual is named as the insured in a CGL policy who is automatically covered? (p. 4)
If an individual is named as the insured, his/her spouse is automatically included in the coverage for the business.
11. Who is covered when a joint venture or partnership is named as insured? (p. 5)
Coverage applies to the members and partners of the group and their spouses for their activities in the business described.
12. What are the limitations applicable to employees as insureds under a policy? (p. 5)
Employees are considered insureds when their action falls within the scope of their employment.
There are certain circumstances that are not covered:
· One employee causing injury or damage to another employee in the course of employment;
· Persons eligible for workers’ compensation benefits;
· An employee providing professional health-care services
13. What costs are covered under the CGL policy further to compensatory damages to be paid to third parties? (p. 5)
The expense of handling the claim and defence costs are usually covered.
14. What is said about limits of insurance generally? (p. 5)
The insured should choose the limit of coverage desired. The decision on how much insurance to buy will be influenced by:
· How the insured will be affected by a loss;
· How probably it is that a loss will occur;
· A review of awards and an estimate of the amounts of loss that have occurred;
· An analysis of the clients assets must be protected
15. Given an example of the all-risks coverage in a CGL policy. (p. 6)
The CGL policy covers all legal liability for bodily injury or property damage except what is excluded, in other words, the all-risks method.
16. Given an example of the named perils coverage in a CGL policy. (p. 6)
Personal injury insurance, on the other hand, is generally written on the named perils basis.
17. Describe how occupiers’ liability risk exposures can be managed. (p. 6)
Customers or others who visit the insured’s premises might be injured and the legal liability of the insured is covered by the CGL policy.
Lease agreements must be verified for hold harmless agreements. The insured should have a maintenance program in place and if a maintenance is contracted to an outside firm, the insured has an obligation to choose a responsible and competent company to do the work. Proper lighting and use of the right products in maintaining the premises are important.
18. Review the typical exclusions to a CGL policy. (p. 7-8)
Commonplace exclusions:
· Injury to employees
· Automobiles, watercraft and aircraft.
· Care, custody or control (does not cover personal property no matter whom it belongs to)
· Products: damage caused by the insured’s product is covered.
· Being worked upon
· Pollution
19. How must a producer handle policy exclusions under a liability policy? (p. 9)
Exclusions are a warning flag. If any of them relate to the insured’s activities carefully review it to consider its effects. Warn the insured about the uninsured risk and suggest an action plan.
20. Name the perils insured under the Personal Injury insuring agreement under a CGL policy. (p. 9)
CGL policies usually provide a separate insuring agreement for personal injury in addition to bodily injury and property damage. This is a named perils coverage that typically covers liability arising out of:
· False arrest, detention, or imprisonment
· Malicious prosecution
· Wrongful entry into, or eviction of a person from a room, dwelling, or premises that the person occupies;
· Oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services;
· Oral or written publication of material that violates a person’s right of privacy
21. What perils are typically covered under the Tenants’ Legal Liability section of the CGL policy? (p. 9-10)
Property occupied or rented by the insured is not covered under the main coverage of a liability policy. The CGL policy does provide a separate insuring agreement to cover tenant’s legal liability.
Typically, tenant’s legal liability insuring agreements provide coverage for damage caused by:
· Fire;
· Explosion;
· Smoke;
· Leakage from fire protective equipment
22. Discuss how lease agreements affect insurance. (p. 10)
The landlord usually buys fire or all-risks property insurance to cover the premises. This policy will reimburse the landlord should a loss occur. If X Inc. negotiates with the landlord, it might benefit from the landlord’s insurance. The landlord can have his/her insurer waive subrogation against X Inc., its directors, officers and employees.
Even if the landlord’s policy is amended to protect the tenant, this may not completely eliminate the exposure. If the landlord’s policy only covers named perils; the landlord would still seek restitution from X Inc. if the damage that occurred was not covered under the policy. If the property policy had inadequate limits of insurance, this would represent another area of concern.
23. Given an example of a risk exposure covered by the Non-owned Automobile liability coverage. (p. 10-11)
It is a general rule of law that an employer is responsible for the negligent acts or omissions of an employee in the course of employment. The employee is also responsible but often does not have the resources to pay for damages. General liability insurance provides coverage in these circumstances.
This principle extends to employees driving on their employer’s business even if they are driving their own automobiles. An owner’s automobile policy does not insure his/her employer in such circumstances, and if the employee’s policy does not have a large enough limit to pay the full amount of damages when the case involves a badly injured third person, the employer may be liable for the balance.
Coverage of this exposure can be provided under a non-owned automobile insurance policy. The limit is generally the same as for general liability.
Note that non-owned automobiles does not apply to the insured’s vehicles, whether owned or leased. This requires a separate standard automobile policy.
24. How do EIL policies operate in relation to CGL policies? (p. 11)
Environmental Impairment Liability (EIL) policies are used to cover a broad range of pollution exposures and gradual pollution. These policies cover the pollution exposure not covered by CGL policies.
25. What are other features of coverage generally offered under an EIL policy besides bodily injury and proper damage? (p. 11)
Coverage generally extends beyond the physical damage of bodily injury and property damage to include interference with environmental rights or amenities protected by law and off-site clean-up costs.
26. What are some typical exclusions to an EIL policy? (p. 11)
· Events that occur before the policy inception date if the insured could reasonably have foreseen a claim occurring;
· Routine clean-ups within a waste facility;
· War;
· Non-compliance with a statute;
· Fines or penalties;
· Premises owned, occupied or rented to the insured;
· Intentional illegal dumping of waste;
· Liability imposed under the Nuclear Liability Act
27. What type of companies are likely to need EIL coverage? (p. 12)
· Municipalities, manufacturers, chemical companies, waste managers, service station, gas bars;
· Premises with storage tanks;
· Manufacturing processes that emit airborne particles or gasses or discharge waste material onto land or into water;
· Companies that ship their waste off-site;
· Companies located in areas where natural surroundings are an important part of the economic resource of the community
· Storage of large quantities of materials that might damage the environment.
28. What type of situations represent a pollution exposure? (p. 12)
· Companies that ship their waste off-site: Even when an independent contractor is used to handle waste, your insured still has an obligation to ensure that the contractor chosen is responsible and well-qualified to safely and lawfully carry out the waste disposal.
29. What are some typical characteristics of EIL policies (p. 13)
Policies are generally written on a claims-made basis and are written on specific locations. Site must be inspected and approved, thus automatic coverage is not available.
30. Give an example of possible claim under an errors and omissions policy. (p. 13)
The results of mistakes made by an insured in the exercise of his/her special skill/profession are excluded from general liability policies. E.g. a pharmacist giving the wrong drug for a prescription.
31. What professions have a high potential for loss under errors and omissions policies? (p. 13)
Druggists, beauty parlours, opticians, optometrists, hearing-aid stores and funeral directors.
32. From what types of things can liability arise for directors and officers of a corporation? (p. 14)
The laws governing corporations, bankruptcy, employment standards, environmental damage, and other issues have put directors at increasing risk.
Corporate and institutional directors and officers can be sued personally for the decisions they make and because they hold the positions they do. Giving unfit or unprofessional advice by authorizing excessive company spending or making unauthorized loans or generally failing to supervise company affairs adequately can lead to lawsuits.
33. Review the list of common circumstances that can lead to lawsuits. (p. 14)
· Mergers, acquisitions or divestiture activity
· Decline in stock price;
· Mismanagement;
· Environmental pollution;
· Bankruptcy or insolvency;
· Employment practices exposures;
· Inaccurate disclosures;
· Making investments in other countries;
· Boardroom disputes;
· Breach of contract.
34. What type of organization is susceptible to directors’ and officers’ liability claims? (p. 15)
When individuals accept the responsibility of being board members, they expose themselves to personal liability. It does not matter how large or how small the organization is.
35. What are indemnification clauses? (p. 15)
Most corporations write indemnification clauses into their bylaws. They permit corporations to pay or reimburse directors and officers for all expenses incurred in litigation arising out of their duties as directors or officers. The law imposes certain restrictions in order to protect the corporation.
36. What is unique of the insuring agreement for directors’ and officers’ liability policies? (p. 15)
Insuring agreements of D&O policies are unique in that they include two payment options:
a) To directors and offices for their personal liability;
b) To corporations when they reimburse directors and officers for liability incurred in (a)
37. Discuss exclusions of directors’ and officers’ liability policies. (p. 15)
Typical dishonesty, bodily injury and property damage are excluded. Fidelity insurance and CGL policies are meant to cover such exposures. If pollution risks are excluded, an EIL policy may be required.
38. How does a Wrap-Up General Liability policy operate? (p. 16)
A wrap-up general liability policy is designed for construction risks. The policy covers all contractors, sub-contractors and the owner while involved in the construction project. The duplication and extra expense of conducting an investigation and mounting a defence separately for each defendant would be saved.
39. How does an excess policy operate to provide coverage? (p. 16)
Excess policies provide extra limits of insurance over the underlying policies that are in place. If the insurance market at the primary level is not prepared to offer anything more, the client may seek greater limits through the purchase of an “excess” policy.
40. What aspects of the excess liability policy must be analyzed to compare to underlying policies? (p. 16)
The coverage must be analyzed for any differences in:
· Policy period;
· Loss reporting features;
· Coverage triggers;
· Whether loss be paid “on behalf of” the insured or the policy is an “indemnification” policy;
· Any additional exclusions that do not appear on the underlying policy.
Limits of insurance must be examined with the following aspects in mind:
· Defense and supplementary costs;
· Aggregate limits;
· The insured’s options if the underlying policy limits are eroded or exhausted by claims;
· The products liability aggregate limit, if there is one.
41. What coverage is offered under umbrella policies? (p. 17)
Umbrella policies are similar to excess policies however they are designed to cover excess coverage over any underlying policies and to cover other perils that are not insured by underlying policies.
42. What list is usually included in the umbrella application for insurance? (p. 17)
Applications for umbrella coverage always include a detailed schedule of the underlying policies. The insurer should be notified if the underlying insurance is modified.
43. Why is it important to have concurrent liability policies? (p. 17)
Generally, it is expected that insureds will purchase the minimum limits required by the umbrella insurer for the underlying policies and then top up coverage with greater limits on the umbrella policy.
Umbrella policies should have the same effective dates as underlying policies to achieve “drop down” of coverage when underlying aggregate limits are exhausted. If this is not possible, then an endorsement should be added to the umbrella policy to protect the insured against being penalized by the reduction of underlying aggregate limits caused by non-current policies.
44. What kind of operation is likely to have sexual harassment claims? (p. 18)
Sexual harassment claims are a concern as most CGL policies have specific exclusions to remove any type of coverage for anything the insured did or failed to do in this regard.
Restaurants have tended to be targets for sexual harassment claims.
45. Discuss loss control measures to manage sexual harassment claims. (p. 18)
The client can take proactive measures to manage such exposures:
· Form a policy on the standards of acceptable behaviour;
· Effectively communicate the standards on all employees;
· Develop a procedure to deal with allegations of unacceptable behaviour;
· Implement loss control measures to screen new employees before they are hired;
· Train supervisors to deal with the concerns raised with such an exposure.
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