Coverages and Exclusions of a Typical Commercial General Liability Insurance Policy: Practice Questions and Solutions

This section of the study guide is intended to provide practice problems and solutions to accompany the pages of Commercial Insurance, cited below. Students are encouraged to read these pages before attempting the problems. This study guide is entirely an independent effort by Mr. Stolyarov and is not affiliated with any organization(s) to whose textbooks it refers, nor does it represent such organization(s).

Some of the questions here ask for short written answers based on the reading. This is meant to give the student practice in answering questions of the format that will appear on Exam 5. Students are encouraged to type their own answers first and then to compare these answers with the solutions given here. Please note that the solutions provided here are not necessarily the only possible ones.

Source:
Arthur L. Flitner, Jerome Trupin, and Martin J. Frappoli. Commercial Insurance. (Second Edition). 2007. Chapter 8, pp. 8.9-8.33.

Original Problems and Solutions from The Actuary's Free Study Guide

Problem S5-127-1.

(a) In the insuring agreement pertaining to typical commercial general liability (CGL) insurance policy coverages for bodily injury and property damage liability (Coverage A), as well as for personal and advertising injury liability (Coverage B), what are the two fundamental promises made by the insurer to the insured?

(b) What seven conditions must be met in order for an insurer to pay for damages under Coverage A of a typical occurrence-based CGL policy?

(c) If the CGL policy is claims-made, rather than occurrence-based, which of the conditions in your answer to part (b) would be different?

Solution S5-127-1. This problem is based on the discussion on pp. 8.9-8.10 of Commercial Insurance.

(a) In the insuring agreement for Coverages A and B of a CGL insurance policy, the insurer promises to (1) pay damages on the insured's behalf and (2) defend the insured against lawsuits or claims where damages that would be covered under the policy are sought.

(b) The following seven conditions must be met in order for an insurer to pay for damages under Coverage A of a typical occurrence-based CGL policy (Commercial Insurance, p. 8.10):

1. The insured must have legal liability for the damages;

2. "Bodily injury" or "property damage" - as defined in the policy - must have resulted in the damages;

3. The policy must cover the "bodily injury" or "property damage";

4. The "bodily injury" or "property damage" must have resulted from an "occurrence" as defined in the policy;

5. The "occurrence" must have occurred within the "coverage territory", as defined in the policy;

6. The "bodily injury" or "property damage" must have taken place during the policy period;

7. Prior to the policy period, the "bodily injury" or "property damage" must not be known to the insured or other persons described in the policy.

(c) If the CGL policy is claims-made, rather than occurrence-based, then the requirement that the "bodily injury" or "property damage" must have taken place during the policy period (requirement 6 in part (b) above) does not apply. Rather, the claim for the "bodily injury" or "property damage" must have been initiated during the policy period.

Problem S5-127-2. Name ten exclusions that are found in Coverage A of a typical commercial general liability (CGL) insurance policy.

Solution S5-127-2. This problem is based on the discussion on pp. 8.13-8.24 of Commercial Insurance.

The following ten exclusions that are found in Coverage A of a typical commercial general liability (CGL) insurance policy:

1. Expected or Intended Injury;

2. Contractual Liability (if the liability would not have existed in the absence of the contract);

3. Liquor Liability (for insureds in the business of manufacturing, distributing, or serving alcohol);

4. Workers' Compensation;

5. Employers' Liability;

6. Pollution;

7. Aircraft, Auto, or Watercraft;

8. Mobile Equipment (exclusion applies in narrow circumstances, when such equipment is being transported or used in racing, demolition, or stunt activities);

9. War;

10. Damage to Property (applies mostly to property owned, rented, or occupied by the insured and several other circumstances);

11. Damage to Your Product;

12. Damage to Your Work;

13. Damage to Impaired Property or Property Not Physically Injured;

14. Recall of Products, Work, or Impaired Property;

15. Personal and Advertising Injury (covered under Coverage B);

16. Electronic Data.

Any ten of the above suffice as an answer. Other valid answers may also be possible.

Problem S5-127-3.

(a) List four types of "personal and advertising injury", as defined under Coverage B of a typical commercial general liability (CGL) insurance policy.

(b) List eight exclusions that apply to Coverage B of a typical commercial general liability (CGL) insurance policy.

Solution S5-127-3. This question is based on the discussion in Commercial Insurance, pp. 8.25-8.29.

(a) The following actions are defined as "personal and advertising injury" under Coverage B of a typical commercial general liability (CGL) insurance policy (Commercial Insurance, p. 8.25):

1. False arrest, false detention, and false imprisonment;

2. Malicious prosecution;

3. Wrongful eviction, wrongful entry, and invasion of privacy;

4. Slanderous or libelous oral or written publication;

5. Oral or written publication that violates a person's right to privacy;

6. Use of another's advertising idea in an advertisement;

7. Infringement on a copyright, trade dress, or slogan in an advertisement.

Any four of the above suffice as an answer. Other valid answers may also be possible.

(b) The following exclusions apply to Coverage B of a typical commercial general liability (CGL) insurance policy:

1. Knowing Violation of the Rights of Another;

2. Material Published With Knowledge of Falsity;

3. Material Published Prior to Policy Period;

4. Criminal Acts;

5. Contractual Liability;

6. Breach of Contract;

7. Quality of Performance of Goods - Failure to Conform to Statements;

8. Wrong Description of Prices;

9. Infringement of Copyright, Patent, Trademark, or Trade Secret (does not apply to infringement in an advertisement of a copyright, trade dress, or slogan);

10. Insureds in Media and Internet-Type Businesses;

11. Electronic Chatrooms or Bulletin Boards;

12. Unauthorized Use of Another's Name or Product;

13. Pollution;

14. Pollution-Related (related to testing for, monitoring, or cleaning up pollutants);

15. War.

Any eight of the above suffice as an answer. Other valid answers may also be possible.

Problem S5-127-4. What kinds of supplementary payments will the insurer make, where necessary, in addition to policy limits, in relation to situations covered under Coverages A and B of a typical commercial general liability (CGL) insurance policy? Give five examples.

Solution S5-127-4. This question is based on the discussion in Commercial Insurance, pp. 8.29-8.30.

The following are supplementary payments that are payable in addition to policy limits in relation to situations covered under Coverages A and B of a typical commercial general liability (CGL) insurance policy:

1. Insurer's expenses - including costs of attorneys, witnesses, and police reports;

2. Cost of bail bonds, up to a certain amount, arising from accidents or traffic violations that involve a covered vehicle;

3. "Cost of bonds to release any property of the insured held by a plaintiff to ensure payment that may be rendered against the insured";

4. Reasonable expenses that the insured incurs at the insurer's request;

5. Court costs and other costs that are not damages and that the insured is required to pay as a result of a suit;

6. Prejudgment interest or post-judgment interest awarded against the insured.

Any five of the above suffice as an answer. Other valid answers may also be possible.

Problem S5-127-5.

(a) To what two kinds of accidents does Coverage C: Medical Payments of a typical commercial general liability (CGL) insurance policy apply?

(b) Name three kinds of persons who would be excluded from coverage under Coverage C: Medical Payments of a typical commercial general liability (CGL) insurance policy.

Solution S5-127-5. This question is based on the discussion in Commercial Insurance, p. 8.31.

(a) Coverage C: Medical Payments of a typical commercial general liability (CGL) insurance policy applies to accidents that either (1) occur on or adjacent to the named insured's premises and adjacent roads and other passages or (2) result from the named insured's operations.

(b) The following kinds of persons who would be excluded from coverage under Coverage C: Medical Payments of a typical commercial general liability (CGL) insurance policy (Commercial Insurance, p. 8.31):

1. An insured;

2. A tenant of an insured or a person hired to do work by an insured;

3. "A person injured on that part of the named insured's premises that the person normally occupies";

4. A person who is entitled to benefits from workers' compensation insurance as a result of the injury;

5. A person whose injury occurs while the person engages in athletic activity.

Any three of the above suffice as an answer. Other valid answers may also be possible.

See other sections of The Actuary's Free Study Guide for Exam 5.