Last week, two of my partners and I gave a presentation to the Japan-American Society of Georgia on Finding Buried Treasure in your Insurance Resources, a subject covered previously on this blog. The presentation included discussions of the difference between "occurrence" and "claims made" policies, and why decades old occurrence policies may still potentially provide coverage for "long tail" environmental and asbestos claims. We also discussed the potential value of the defense obligation under many liability policies, an obligation that may save insureds hundreds of thousands of dollars or more. The presentation also covered how modern commercial general liability (CGL) policies are not so general any more, due to the ever increasing number of exclusions added by carriers. Therefore, particularly in this age of "a la carte" coverage, it is more important than ever to have an experienced insurance agent who takes the time to understand your business and its risks and to procure the necessary coverage. We also discussed common sense steps policyholders can take to maximize their insurance resources.
The presentation included a very lively discussion, which, unfortunately, cannot be reproduced here. However, you can access the slides here.
In an earlier post, I discussed the growing efforts of insurers to exclude and endorse away coverage under commercial general liability (CGL) policies. Because CGL policies are often marketed as a first line of defense for businesses, policyholders need to make sure that they understand the limitations on their CGL coverage. An experienced agent or broker can often assist in plugging the gaps that often exist in CGL coverage, either by obtaining endosements that limit exclusions or through coverage designed to cover specific risks.
I want to make clear, however, that a policyholder should never accept at face value an insurer's determination that a claim is not covered under a CGL policy (or any other policy for that matter). Because CGL policies are written in general terms, because most courts construe ambiguities against insurers, and because most courts interpret exclusions narrowly, insurers are not always successful in their efforts to limit coverage.
For example, earlier this year, the Supreme Court of Georgia rejected an insurer's argument that negligent construction was not an "occurrence" under a CGL policy. This decision was in the face of a number of prior decisions from the United States District Court for the Northern District of Georgia that had accepted the argument. Because the Supreme Court of Georgia has the last word in interpreting Georgia law, this contentious issue has now been decided in favor of Georgia policyholders. The law in other states varies.
Similarly, notwithstanding the breadth of the so-called "absolute pollution exclusion," it may be possible to obtain coverage under a CGL policy when a carrier denies a claim based on this exclusion. Carriers may have overplayed their hand in some instances in arguing that various substances are "pollutants." For example, the Georgia Court of Appeals declined to apply the pollution exclusion to a claim involving injuries caused by exposure to natural gas.
It goes without saying that every case is different and largely depends on its own facts. The law often differs from state to state. However, despite their efforts to restrict coverage, many carriers have been ordered to pay claims under CGL policies that they tried to deny. As stated, never accept at face value a carrier's determination that a claim is not covered.
The commercial general liability ("CGL") policy has been a staple insurance product and a cornerstone of many companies' risk management programs for many years. Consistent with the name ("general" liability insurance), this coverage is often sold, sometimes in conjunction with "umbrella" policies, as covering "everything else." What is "everything else?" For a small to medium-sized business, this may be interpreted to mean "everything" not covered by worker's compensation, automobile, and perhaps employer's liability coverage.
The reality is that insurance company claims adjusters and coverage attorneys often interpret CGL policies so narrowly that it is difficult to determine what, if anything, would be covered. These narrow interpretations are buttressed by many exclusions that insurance companies add to CGL policies, either in the body of the policy or by endorsements that are stapled to the policy form. I recently reviewed a CGL policy issued by a major insurer that was endorsed with almost 20 exclusions.
Here is what happens in the real world: Insurers are forced to pay for losses under CGL policies that result in substantial losses. After a round of losses, the insurers endorse new or renewed policies to include "absolute" exclusions. Examples of this behavior include the absolute pollution exclusion adopted in the 1980s in response to environmental claims, and, more recently, fungus exclusions adopted in response to mold claims. Insurers are now trying to avoid losses related to electronically stored data and cyber liability (watch for posts on this burgeoning area in coming months).
After restricting coverage under CGL policies, insurance companies will often begin writing "special" coverage to cover the now-excluded losses, but at an additional premium, of course. For example, many insurers now sell environmental impairment liability coverage.
It never ceases to amaze me the lengths that insurance companies will go to in denying claims. With respect to CGL exclusions, one of the favorite exclusions that claims adjusters like to raise is loss "expected or intended" by the insured. It is not surprising that losses that are truly intentionally caused are not covered. However, many carrier representatives seem to believe that if a loss was conceivably foreseeable, it was "expected or intended."
Another favorite is the pollution exclusion. Claims adjusters are often very creative when it comes to arguing that accidents were caused by "pollutants." These arguments are buttressed by the definition of "pollutants," which are defined generally as "irritants" or "contaminants." Because just about any substance can, in the appropriate circumstances, be an "irritant" or "contaminant," the definition encourages claims adjusters to take aggressive positions in denying claims. Unfortunately, some courts have accepted these positions, while other courts have not.
If a carrier denies a claim based on exclusions, do not assume all is lost. Courts often do not uphold the interpretation advanced by the insurance company. Before you accept a denial, see a policyholder's coverage attorney.
Here are the immediate takeaways from this post:
John L. Watkins
John Watkins is a Partner with Thompson Hine LLP in Atlanta, Georgia, who represents business policyholders in claims and disputes with their insurance companies.