TWFG Commercial Business School Commercial 102

TWFG Commercial Business School – Commercial 102

Commercial Insurance Policy Coverages – Detail View

Commercial General Liability (CGL)

Coverage A: Bodily Injury and Property Damage

·  Definitions:

o  Bodily Injury- Bodily Injury, Sickness and Disease

o  Property Damage- Physical injury to tangible property, including loss of use of tangible property that is not damaged

o  Occurrence- Means accident, including repeated exposures to substantially the same conditions

·  Premises-Review

·  Operations-Review

·  Completed Operations-Review

·  Products- Note that your work and your product are excluded, as are product recalls

·  Contractual-The assumption or transfer of risk through a contract.

o  Common example would be a lease agreement where the owner of the building transfers the premises risk to the tenant by contract.

o  The policy excludes contractual liability, but then goes on to make a number of broad exceptions making most contracts covered.

·  Contingent (responsible for the acts of others)

o  An example would be a store that hires a contractor to do some renovations and a customer is injured by the contractor’s faulty work. The customer may sue the store as being responsible for the acts of the contractor (through their responsibility to select a competent one).

·  A word About Liquor Liability –The liquor liability exclusions is intended to exclude liability for those in the business of manufacturing, selling or distributing alcohol. Host liquor liability is covered. For example, a business throws an office party and serves alcohol. One of the employees drinks too much and gets in a fight and injures someone on the way home. The employer gets sued by the injured party for serving the employee too much alcohol, leading to their injuries. Liability in this case would not be excluded.

Coverage B: Personal and Advertising Injury Liability

·  Specifically listed offenses—Named perils.

o  False Arrest (Wrongful detention-a big exposure for retail stores that employ security to detain and apprehend suspected shoplifters)

o  Malicious Prosecution (When filing a suit against someone in anger or retaliation and is shown to be baseless of frivolous. The act of filing the suit becomes a tort offense)

o  Wrongful Eviction (Significant exposure for both commercial and residential landlords.)

o  Slander/ Liable (False public statements, either verbal or written)

o  Violation of Privacy Rights

o  Copyright Infringement

·  Separate limit under the policy

Coverage C: Medical Payments

·  No-fault or goodwill coverage

·  Separate limit under the policy, usually $5,000 or $10,000

·  For Bodily Injury only

Supplementary Payments

·  Defense Costs

·  These costs are outside the policy limit, meaning that they do not reduce the policy limit.

Policy Limits (See sample Dec page)

·  Occurrence Limit

o  Max paid out on any one occurrence for coverage A or C ( not including Products/Completed Operations)

o  Each loss diminishes the associated Aggregate limit

o  Aggregate limit replenishes if the policy renews

o  Separate Limits

§  Premises Rented to You, Personal & Advertising Injury and Medical expenses have separate limits.

·  Aggregate Limit

o  Max paid out during a policy period for all losses associated with the aggregate

o  The aggregate can be exhausted, leaving the insured without coverage limits for the remainder of the policy term

o  General Aggregate applies to all Premises, Operations, Personal & Advertising, Medical Expense and Premises Rented to You losses.

o  Products/Completed Operations has a separate Aggregate Limit. These losses do not reduce the General Aggregate.

Exposure Classifications

·  Premium Base

o  For each type of business, the General Liability rate is based on a particular Premium Base. This premium base must be something that is easily counted, and it should be the best measure of the businesses activity (payroll or gross sales, for example).

·  Business Classification

o  All business risks are broken down into 5 major business classifications. The businesses in each classification share common exposure and risk factors, and usually are measured by the same premium base.

·  Putting It Together

o  Here are the 5 business classes and the associated Premium Bases:

  1. Manufacturing or Processing
  2. Premium base: Gross Sales or Total Units (250M tons of iron)
  3. Common Exposures: Products
  4. Contracting or Servicing
  5. Premium Base: Payroll, Total Cost of Sub-contractors
  6. Common Exposures: Operations/Completed Operations
  7. Mercantile (Stores, Wholesalers, Distributors)
  8. Premium Base: Gross Sales or Units
  9. Common Exposures: Premises
  10. Building or Premises (LRO, Offices)
  11. Premium Base: Area (square footage)
  12. Common Exposures: Premises
  13. Miscellaneous
  14. Premium Base: Varies
  15. Common Exposures Varies

Premium Audit

·  Often times you will hear that the GL premium is auditable. What does that mean?

·  The premium charged for CGL is based on premium exposure units (area, total units, payroll, and sales). With the exception of area, these exposure units are estimated at the policy inception, and will likely be different at the end of the year from the estimated amount. In order for the premium charged to be accurate and fair, the final amount charged needs to be based on the actual sales, payroll, etc. Therefore, at the end of the policy period (one year later) the insurance company audits the actual payroll or sales figures and adjusts the premium charged accordingly. This usually results in a returned premium (RP) or an additional premium (AP).

·  Therefore, it is very important that the estimated figures have some basis in reality, and not be “estimated” in order to achieve a lower initial premium. You can bet that the insured will not the surprise of a large AP at the end of the policy period.

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