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:

  • Do not assume that your CGL policies covers "everything else."
  • Make sure that your agent or broker walks you through each of the exclusions. 
  • Be sure that your agent or broker goes over any additional coverage that you may need to plug any gaps.
  • Do not accept the insurance company's determination that a claim is not covered. See a coverage attorney.