Elements of Typical Claims-Made Commercial General Liability Insurance Policies, Certificates of Insurance, and Other Liability Coverage Forms: 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 9, pp. 9.15-9.27.

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

Problem S5-130-1. Explain the purpose of an extended reporting period in a claims-made commercial general liability insurance policy.

Solution S5-130-1. This question is based on the discussion in Commercial Insurance, pp. 9.16-9.17.

An extended reporting period is provided to an insured under a claims-made commercial general liability insurance policy in order to provide coverage for claims that (1) pertain to occurrences that took place after the policy's retroactive date and before the policy's expiration but (2) were made after the policy expiration and within the extended reporting period.

An extended reporting period is particularly useful for an insured who used to have a claims-made policy but has now purchased an occurrence-based policy or has no commercial general liability insurance at all. Claims that were made after the expiration of the claims-made policy, but which pertain to occurrences that took place prior to policy expiration, can be covered, where otherwise a coverage gap would exist.

Problem S5-130-2.

(a) What event(s) constitute(s) a claims-made trigger under a typical claims-made commercial general liability insurance coverage form?

(b) Illustrate the difference between notice of an occurrence and notice of a claim by developing a hypothetical scenario pertaining to commercial general liability insurance and providing examples of each kind of notice within the parameters of such a scenario.

Solution S5-130-2. This question is based on the discussion in Commercial Insurance, pp. 9.15-9.16.

(a) A claims-made trigger, i.e., an event that officially determines that a claim has been made, is the earliest of the following two events:
1. Receipt and recording of a notice of the claim by the insurer or by any insured;

2. Settlement of the claim by the insurer.

(b) Many examples are possible. The following is just one such possibility:

Company Γ is insured by Insurer Δ under a commercial general liability policy. A customer of Company Γ purchased a product sold by the company and then began suffering adverse health effects that are closely related to the product's functionality. Company Γ became aware of these effects and informed Insurer Δ that the customer suffered health problems after purchasing Company Γ's product. This was a notice of an occurrence - a notice that an event happened that might give rise to a claim in the future.

Subsequently, the afflicted customer decided to sue Company Γ and submitted papers pertaining to the lawsuit to the company. Company Γ then forwards these papers to Insurer Δ. This was a notice of a claim. Notice of a claim can only occur after some injured party actually and formally asserts that the insured is liable.

Problem S5-130-3. Identify two differences between a typical claims-made commercial general liability insurance coverage form issued by the Insurance Services Office (ISO) and typical claims-made professional liability coverage forms independently developed by many insurers. (Note: It is assumed that the coverages provided would be different. This question focuses specifically on differences in the claims-made aspects of these forms).

Solution S5-130-3. This question is based on the discussion in Commercial Insurance, p. 9.18. The following differences exist (as of the 2007 publication date of Commercial Insurance):

1. The ISO claims-made form provides a basic extended reporting period of five years that is included in the price of the basic coverage form. The independent claims-made forms typically provide a much shorter included extended reporting period - circa 30 to 60 days.

2. The ISO claims-made form allows the insured to purchase a supplemental extended reporting period that lasts indefinitely. The independent claims-made forms typically only allow the purchase of a supplemental extended reporting period lasting three to seven years.

Other valid answers may be possible, depending on the independent forms being considered.

Problem S5-130-4. What is a certificate of insurance, and to whom is it provided? Does a certificate of insurance provide or modify insurance coverage under a commercial liability insurance policy?

Solution S5-130-4. This question is based on the discussion in Commercial Insurance, p. 9.21.

A certificate of insurance is a "brief description of insurance coverage prepared by an insurer or its agent; commonly used by policyholders to provide evidence of insurance". The end user of the certificate is not the insured, but another entity that interacts with the insured and seeks to verify that the insured has coverage. For instance, Business X, prior to entering into a business arrangement with Business Y, may seek to verify that Business Y has commercial general liability insurance. The certificate itself does not provide or modify insurance coverage; it merely summarizes coverage that exists via the policy and any applicable endorsements.

Problem S5-130-5. What kinds of liability coverage forms might business purchase in addition to commercial general liability (CGL) coverage forms in order to cover loss exposures not covered under a typical CGL policy? Briefly describe three examples.

Solution S5-130-5. This question is based on the discussion in Commercial Insurance, pp. 9.25-9.26. The following additional liability coverage forms may be available:

1. Liability coverage forms that cover liquor liability of business that manufacture, distribute, or sell alcoholic beverages;

2. Liability coverage forms for hazardous products or completed operations that would be excluded from coverage by a CGL insurer;

3. Liability coverage forms that protect a property owner against bodily injury liability and property damage liability that results from the contractor's operations and the property owner's errors and omissions in supervising the contractor's operations;

4. Liability coverage forms that protect a railroad against claims that result from a contractor's work on or adjacent to railroad property;

5. Coverage endorsements and liability coverage forms that insure against pollution liability arising out of various circumstances.

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.