Do you assume your commercial
general liability policy covers pretty much everything since it says “we will
pay those sums that the insured becomes legally obligated to pay as damages
because of ‘bodily injury’ or ‘property damage’ to which this insurance
applies?” You may be headed for trouble if you don’t keep reading beyond this
broad statement in your policy. Read on to learn more about some of the common
exclusions found in most policies. Armed with this information, you can make
wise decisions about your insurance coverage and add coverage to fill in any
gaps you may have.
Scenario
one—Your product
You manufacture a forklift. During operation, the brakes fail causing it to
collide with a delivery truck. The forklift itself is damaged, as well as the
delivery truck. Any resulting damage to the delivery truck is covered;
however, there is no coverage under the CGL for damage to the forklift (your
product).
Scenario
two—Your work
You are an electrical contractor who has installed the wiring in a new
building for a contract price of $50,000. The building suffers extensive
damage as a result of your completed work. The CGL policy should pay for all
the damage to the building. What won’t be covered is the wiring or the work
that it will take to reinstall the wiring (your work).
Scenario
three—Your impaired property
You are the manufacturer of a part used in X-ray machines at medical clinics.
You install your part in two X-ray machines at two different clinics. After
the parts are installed, one machine is damaged because of your product. The
clinic then checks the other location and discovers the part you installed
could very likely damage the other machine. The CGL policy would fully pay for
any damage, including the loss of revenues for the damage to the first
machine. However, the second machine is considered “impaired property,”
because it has not been physically damaged. What won’t be covered is the
clinic’s loss of revenues while the second machine is repaired (impaired
property).
Scenario
four—Your product recall
You manufacture a backhoe. A rental company derives significant revenues from
the rental of your backhoe. You have to recall this product because of a
dangerous condition. The rental company may have a legitimate suit against you
for loss of revenues from the recall of the backhoe. This is not covered under
the standard CGL (product recall).
Don’t be
fooled—Know your policy’s exclusions
So now you are concerned about your company’s liability exposures. You want to
know what your insurance policy covers. So, you begin to read your entire
commercial liability policy. If you get through the first few paragraphs you
will be very pleased. The CGL states, “We will pay those sums that the insured
becomes legally obligated to pay as damages because of ‘bodily injury’ or
‘property damage’ to which this insurance applies. We have the right and duty
to defend the insured against any suit seeking those damages…” Wow, you think,
I can just stop here, this covers pretty much everything.
That’s where you may run into
problems. The CGL policy starts out giving broad coverage then it restricts
coverage through exclusions, limitations, definitions, and conditions. Four of
the exclusions covered above include: Damage to your product; damage to your
work; property damage to impaired property; and recall of your products, your
work, or impaired property. However, these are only four out of fifteen
ordinary exclusions.
What can you do about potential
losses that fall under these four or under any of the other ordinary liability
exclusions? There are normally three ways to deal with excluded coverage:
-
Avoidance: This means ceasing
the activities that give rise to the risk. This may only be practical on a
limited basis.
-
Self-insure the risk or
retention: This means you continue the activity but plan to pay the
resulting loses out of your pocket. Some keys to properly self-insuring is
to: Consider the odds of an occurrence; b) Don’t risk more than you can
afford to lose and; c) Don’t risk a lot for a little.
-
Transfer the risk: This means
you use insurance and various types of hold-harmless agreements. In the
above examples, your insurance broker may help you find a company willing to
write a separate policy for those specific risks or, help you request that
your current carrier delete the exclusion from your policy.
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