Frequently Asked Questions
What is the definition of negligence?
Since CGL coverage includes non-professional negligent acts, it is important to remember the definition of negligence. Negligence is a civil wrong that is not based on a contract and may be defined as the failure to exercise the proper degree of care required by a prudent or ordinary person under similar circumstances. There are four basic requirements that must exist for negligence to be established:
(1) There must be a legal duty of the insured to act or not act
(2) Breach of this duty must be committed
(3) The act (breach) must be the proximate cause of the injury
(4) There must be actual damages
Is there coverage for contractual liability under the CGL policy?
Yes, the CGL policy provides broader contractual liability coverage than professional liability. This coverage is for specific contractual agreements. Under the CNA/Schinnerer professional liability policy, as well as most professional liability policies, obligations under a contract are excluded from coverage unless such obligations would have existed in the absence of the contract. This is commonly referred to a limited form contractual liability coverage.
The following contractual agreements are covered 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
- Elevator maintenance agreement
What are libel and slander?
Libel is a written statement about someone that is personally injurious to that individual. An example of a libelous situation would be if an architect makes uncomplimentary comments in a letter to a newspaper about a construction contractor's performance or quality of work on a project in general.
Slander is similar to libel in that it is a spoken statement that is injurious to an individual. An example of slander would be if an architect verbally degrades the reputation or past work of another architect to a client in order to secure a project from that client. The act of speaking defamatory words by one architect to sway the client, whether justified or not, affects the other architect's means of livelihood, business, and reputation, which is a personal and advertising injury offense.
What medical payments are covered?
Coverage for medical payments includes payments for injuries sustained by members of the general public caused by an accident that takes place on the insured's premises or when exposed to the insured's business operations. Injuries must be reported within one year of the accident. Medical payments coverage can be triggered without legal action from a third party. This provides for prompt settlement of smaller medical claims without litigation. It is included in the CGL policy and pays for all necessary and reasonable medical, surgical, ambulance, hospital, professional nursing, and funeral expenses for a person injured or killed in an accident arising out of the premises or business operations of the insured, regardless of negligence or liability. There is no defense or legal liability coverage as there is with BI/PD liability and personal and advertising liability since coverage is provided on a no-fault basis.
Are CGL claims made on a claims-made or an occurrence basis?
Commercial general liability coverage is written on an occurrence basis. Professional liability policies are written on a claims-made basis. The basic difference between the claims-made and occurrence forms of coverage is when the coverage is actually triggered or activated.
Occurrence coverage is triggered when the event actually happened, giving rise to the claim. The policy in effect at the time the event or occurrence happened is responsible for the claim even if the claim is not made until years after the policy expires. Claims-made coverage is based on when a claim is actually filed, and the insurance carrier providing coverage on the filing date is responsible for the claim. Claims-made policies include a retroactive date, which is usually the effective date of the first policy the insurance carrier writes for an insured. Generally, the claims-made form will not provide any coverage for claims arising out of events that take place prior to the retroactive date, but usually there is a prior-acts endorsement available on the policy that will cover such events. See an example of claims made vs. occurrence triggers.
Can additional insureds be added to a CGL policy?
An additional named insured is a party that is added to the coverage of an insurance policy with the right of recovery, but without the obligation to pay the premium or meet certain other terms of the policy. Additional insureds cannot be added to a PL policy since the design firm's client usually does not perform professional services and, therefore, does not have the risk that the policy is designed to cover.
On the CGL policy, however, additional insureds can be added through an endorsement. It is important to note that the additional insured endorsement does not add an individual, corporation, or government entity to the list of named insureds. It does, however, afford the named additional insured the same coverage available for the named insured.
Including additional insureds under the CGL policy is permissible under certain circumstances, such as lease agreements, and customer or vendor relationships. Additional insureds are added to the policy by endorsement when the named insured wishes to provide such status or when it is required of the named insured as part of a business contract.
Careful consideration should be given before granting any additional insured request. Ask yourself, "Why is this party asking to be listed as an additional insured?" Similarly, there are times when a design professional will want to be listed as an additional insured on another policy. For example, since design professionals often visit the construction site, it is logical for the design professional to be listed as an additional insured on the contractor's CGL policy. However, because the contractor is rarely, if ever, involved in the design professional's business activities, it is not as logical to list the contractor as an additional insured on the design professional's CGL policy. This is the type of evaluation that should occur when a design professional receives a request for the client or contractor to be listed as an additional insured on the design professional's CGL policy.
Can a sample CGL indemnification be provided?
Unfortunately, because CGL coverage is broader and more complex than PL coverage, it is difficult to draft a sample indemnification clause (as has been done with the PL policy) that would be insurable under the CGL policy. Also, state courts vary in how they interpret and enforce indemnification clauses. Your legal advisor is in the best position to advise you as to an appropriate CGL indemnification clause.
At a minimum, design professionals should insist that the indemnification clause for professional services is separate from any indemnification clause for non-professional services. Also, the CNA/Schinnerer professional liability program will honor a defense obligation as long as it is tied to an indemnification obligation to the extent that the claim arose out of the professional negligent act, error, or omission.
Under the CGL policy, however, a contractual obligation to defend the client may not be honored by the policy. Therefore, design professionals should insist that such contractual obligations are removed. The circumstances of the claim will be a major consideration.
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