The standard Commercial General Liability (“CGL”) policy provides insurance coverage to a company when the company causes personal injury or property damage to a third party.
For example, if a company is sued by an individual who claims that he was injured while using the company’s product, then the likely answer is that the insurance company will defend the lawsuit on the company’s behalf under the terms and conditions of the CGL. This means that the insurance company will provide the company with a lawyer and will pay any settlement or court judgment that is ultimately rendered. This is a simple example of how CGL insurance coverage works in everyday situations.
With increasing frequency, there are also times when a company’s business customers request that the company defend and indemnify the customer against personal injury or property damage caused by the company’s products. This usually arises in arrangements where the customer supplies the company’s products (or goods) to the general public. The company may agree to the customer’s request, believing that its own CGL policy will cover any loss that is suffered by the customer as a result of the company’s product. However, whether the company’s CGL policy and insurance company will in fact pay for this defense and indemnification of the customer depends on the language, exclusions, and endorsements in the actual CGL policy.
The standard CGL has a provision that is known as the “contractual liability exclusion.” This exclusion bars coverage for obligations assumed by the company through contract. However, this standard exclusion can also have two (2) major exceptions. The first exception is for damages that the company would pay in the absence of the contract. The second exception is for damages assumed under an “insured contract” entered into before the injury or damage took place. There are also times when the CGL excludes all coverage for all “contractual liability” and provides no exceptions for insured contracts or liabilities otherwise assumed.
The intricacies of a CGL policy, and particularly, the impact of the contractual liability exclusion can be difficult to decipher. The answer to whether a company has insurance coverage under its CGL is principally dependent on the facts of each case and the precise language in the CGL, including its endorsements and exclusions. Before agreeing to indemnify any customer, it would be prudent to contact your attorney or insurance broker to determine if insurance coverage would be available in the event of a loss.