The CGL Policy and a Commercial Insurance Agency

Having a Commercial General Liability (CGL) insurance policy provides very important protection for corporate policyholders, in that it broadly provides defense and indemnity coverage against certain claims. The commercial insurance agency will pay on behalf of the insured all sums that the insured becomes legally obligated to pay.

The key is in getting the right limits, covering people within the company who have exposures, and also ensuring that you have specific enhancements or purchase additional policies for liability exposures not covered under a standard commercial insurance policy.

The CGL policy covers liability exposures related to the premises and operational exposures, products produced by the entity, and completed operations exposure, as well as indirect/contingent exposure. Coverage protects a business against claims for bodily injury and property damage related to the ownership and maintenance of the business premises, or as the result of business operations conducted away from the business premises.

The CGL policy, provided by the agency, is triggered by incidents taking place during the policy period. When a policy is triggered, an insurer owes its policyholder two principal obligations: a duty to defend and a duty to indemnify.

The duty to defend

An insurer’s obligation or “duty” to defend is determined by comparing the allegations of the underlying complaint against the coverage provided under the policy. If just one single claim falls within the scope of the coverage, the insurer generally must defend the entire action. The insurer’s duty to defend arises even when the underlying lawsuit or claim is false, groundless, or believed to be fraudulent.

In some instances a policyholder may incur tens of millions of dollars in legal fees if embroiled in large-scale environmental claims or severe product liability claims, even in cases where the policyholder ultimately avoids liability, but fortunately these defense costs typically do not erode primary CGL policy limits.

On the other hand, the insurer’s duty to indemnify generally arises upon the policyholder’s legal obligation to pay damages following a judgment or settlement, and more narrowly turns on the actual facts of the third-party claim as developed in the underlying case. It may seem a bit complicated, which is why working with a commercial insurance agency familiar with the terms and agreements can only benefit companies in need of this coverage.