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What Are All Of These Limits on My General Liability Policy?

If you are having problems understanding the limits on your general liability policy, don’t worry, you’re not alone. We have had plenty of people walk into our offices with no idea as to what their limits actually were. So, to prevent further confusion we decided we would break down a few of those limits for you. But first! A brief description of what commercial general liability policy limits you should be aware of.

When one looks at the declarations page of a commercial general liability policy (CGL) , one normally sees six different limits of insurance listed.  It’s not uncommon for the holder of such a policy to be confused about how much coverage he actually has. Listed below are the six different limits.

The 6 Limits on a Commercial General Liability Policy

  1. Medical Expense Limit

A commercial general liability policy will (most of the time) include Medical Payments Coverage.  This coverage pays the medical expenses of many non-employees injured on the Named Insured’s premises or during the Named Insured’s operations.  Coverage applies whether or not the Named Insured is at fault for the injury.  The limit applies per injured person, and is often $5,000 or $10,000, although some companies include higher limits.

  1. Damage to Premises Rented to You Limit

This limit is sometimes referred to by its former name, Fire Damage Legal Liability Limit.  It is the most that will be paid for covered damage to a premises rented by an insured.  For all but the shortest rentals (7 days or less), coverage applies only to damage by fire.  Limits of $100,000 are common, although some companies include higher limits.

  1. Each Occurrence Limit

This is, for most purposes, the most important limit on the policy.  It is the most that will be paid for one occurrence of bodily injury or property damage, in other words, one accident.  The limit is shared by all Insureds involved in the loss, and applies regardless of the number of people injured or bringing suit.  If the claim also involves Medical Payments or Damage to Premises Rented to You coverage, those limits are part of the Each Occurrence limit, not paid in addition to it. Most insurers offer limits up to $1,000,000, although $2,000,000 policies are becoming more common.

  1. Personal and Advertising Injury Limit

This limit is the most that will be paid under the Personal and Advertising Injury Coverage for damages sustained by one person or organization.  This coverage applies to such offenses as libel and slander and is commonly written with a limit equal to the Each Occurrence limit.

  1. General Aggregate

This limit is the most that will be paid annually for all claims other than Products and Completed Operations claims.  Often the General Aggregate limit is written at two times the Each Occurrence limit.   In addition, it is not uncommon and is highly recommended to add an endorsement to the policy that provides for a separate General Aggregate for each covered location or for each project being worked on.

  1. Products-Completed Operations Aggregate

This limit is the most that will be paid annually for bodily injury and property damage claims that involve Products Liability or Completed Operations Liability. As was the case with the General Aggregate, this limit is often written at two times the Each Occurrence limit.

Understanding how the six commercial general liability limits apply is key in determining whether adequate protection is available for a covered loss.

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No, You Go First – The Primacy of Coverage Issue

You hire a subcontractor to work on a new project.  You’ve required the sub to sign a contract, holding you harmless and indemnifying you for bodily injury and property damage claims. You’ve also required that the subcontractor carry a $1,000,000 Commercial General Liability (CGL) Policy and a $5,000,000 Umbrella, and that the sub include you as additional insured on both policies.  After a serious accident at the jobsite, you try to submit the claim against you to the sub’s insurer and leave your own insurance policies untouched.

The sub’s carrier tells you that you have coverage under the sub’s CGL, but that your own CGL must respond before the sub’s Umbrella pays anything.   Surely this can’t be right?!

The problem could be the Other Insurance clauses in your policies.  If your and the sub’s policies are written using industry standard forms, the sub’s CGL will pay first and your own CGL second.  But what if the claim is a large one, involving the Umbrella limits?  Most Umbrellas say they provide excess coverage.  Your CGL includes language making itself excess of other primary coverage, such as the sub’s CGL.  The sub’s Umbrella, though, isn’t primary coverage.

Depending on the jurisdiction, a horizontal exhaustion of limits approach could be taken, meaning that all layers of primary coverage, namely your and your sub’s CGL policies, need to be exhausted before any Umbrella is required to pay.   Your CGL policy could be forced to pay, and then you’ll need to file suit against the sub who has agreed to hold you harmless and indemnify you.  Ultimately, your CGL carrier could be reimbursed, but in the meantime, this loss is on your experience and affecting your insurance premiums.

It’s also possible that your sub’s additional insured endorsement isn’t an industry standard form; it could state that it provides excess coverage for additional insureds.  Other non-standard forms give primary coverage, but only if a contract specifically requires coverage on a primary basis.

The best way to ensure that all layers of a subcontractor’s coverage are exhausted before your own policies are called upon to pay a claim, is to include in the contract a requirement for additional insured coverage that is primary and non-contributory.  This requirement should apply not just to the CGL, but to the Umbrella, too.

In addition, you should review your sub’s additional insured endorsement to make certain that coverage for you, as additional insured, applies on a primary basis. It is a good idea to request such an endorsement on the sub’s Umbrella as well as on the CGL.  While not all Umbrella carriers will offer this feature, more are starting to.

Making sure that your contract and your subcontractor’s insurance policies are clear that the sub’s policies will pay before your own is an important step.  It is the only way to be sure that your policies won’t have to pay claims that should be handled by your sub’s insurance company.

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Beware the Residential Exclusion!

Across the country, construction defect litigation is taking a toll on contractors and on their insurance companies. These types of claims are most prevalent in residential construction projects, especially when the completed unit is owned by an individual as opposed to a business. For that reason, many insurance companies, particularly non-admitted insurance companies, add residential exclusions to their Commercial General Liability and Umbrella/Excess Liability policies.

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Completed Operations Coverage – What Does it Really Mean?

Your Commercial General Liability (CGL) policy includes Completed Operations coverage. That must mean that you have coverage if work you complete during the policy term results in a claim at some point in the future. Right? Unfortunately not.

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Commercial General Liability vs Errors and Omissions

Accidents happen. So often, in fact, that we have a phrase that basically allows us to try and convince ourselves that it’s okay. We try and rationalize it to ourselves: “Hey, this accident just happened, and it was totally not my fault, so I’m going to say this in order to try and make this other person not feel.” Or you perhaps even, “That accident was totally my fault… I didn’t mean to hit that support on the deck with a sledgehammer… but accidents happen!” Either way, accidents do happen, and when they come up it pays to have them covered, which is where general liability coverage and errors and omissions coverage can help.

General liability is there for those unexpected accidents that occur on your business premises. Whether someone falls down the stairs, a customer damages his car in your parking lot, or even if someone believes you have slandered or defamed their character; general liability has got you covered.

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If you are a contractor working on a job, and one of your employees falls from a ladder and lands on top of a third party (a neighbor walking his dog, for example), and the third party is hurt in the collision, general liability will cover the injured person’s medical care. It also covers you if one of your employees accidentally smashes a sledgehammer through a wall that was not supposed to be a part of the kitchen re-model.

Errors and Omissions insurance covers those professionals that act as consultants or give specialized advice or care. When they give bad advice, a customer could come back and sue them for damages. However, errors and omissions insurance protects them from having to take care of the litigation and settlements out of pocket.

Contractors who are consulting on a project (accountants, financial planners, interior designers and landscape architects) should more than likely have errors and omissions insurance. Suppose that you are a landscape architect doing a job, and you decide not to get rid of a gigantic willow tree on the property that’s leaning a little bit too close to the house. Next week, when it winds up crashing through your client’s living room, they’ll be looking for someone to blame. Errors and omissions insurance will lower your liability risks and protect you from unnecessary litigation.

A lot can go wrong on a construction site, and the better coverage you have the less you will have to worry about accidents when you are on the job. General liability insurance and errors and omissions insurance can help limit your losses and the risk of serious lawsuits that could damage the future of your company.