Standard commercial general liability policies

Bodily injury

What constitutes bodily injury under a standard CGL policy?

Standard CGL policies define ‘bodily injury’ as a physical injury, and the phrase is commonly understood as requiring a physical component. For example, as a general rule, claims of emotional distress with no evidence of physical injury do not qualify as covered bodily injury. However, emotional distress alone may constitute bodily injury in Alabama if the policy definition or other specific policy language supports that conclusion. Likewise, as a general rule, a claim of exposure to a dangerous substance or medical monitoring claim with no evidence of physical injury will not constitute bodily injury absent supporting policy language.

Property damage

What constitutes property damage under a standard CGL policy?

Standard CGL policies define ‘property damage’ to cover physical damage to tangible property covered under the policy. The resulting loss of use of such property from the physical damage is also covered. Loss of use of tangible property is covered, even when such property is not physically injured or destroyed, if the loss of use is caused by an occurrence.

 

While most CGL policies do not define ‘physical damage’ or ‘tangible property, courts have held that economic loss alone, such as a diminution in property value or a loss caused by a breach of contract, does not qualify as covered property damage. Courts have come to differing conclusions as to whether loss of electronic data or loss of use of computer systems constitutes physical damage under a standard CGL policy.

Occurrences

What constitutes an occurrence under a standard CGL policy?

Standard CGL policies define an occurrence as an accident, commonly understood by courts as an unexpected event that occurs by chance rather than through an intentional action of the policyholder. Because the occurrence must take place during the policy period, disputes often focus on when the triggering accident and the resulting injury or damage occurred.

 

In deciding whether there was a covered occurrence, many courts examine whether the injury or damage was expected or intended by the policyholder. A minority of jurisdictions focus on the nature of the policyholder’s conduct and whether the action or omission was expected or intended, rather than whether the results of that conduct (the injury or damage) were expected or intended. Which analysis is applied can also depend on the facts.

How is the number of covered occurrences determined?

The determination of the number of occurrences affects how many times the policy’s limits are available and how many times the policyholder must pay a deductible or self-insured retention before accessing those limits.

 

The number of occurrences is typically determined by evaluating the causes of the injury or damage at issue in conjunction with the terms of the policy. Some policies provide that events or injuries that are related in some way will be considered one occurrence. Similarly, if there is one proximate cause of multiple injuries, courts typically find one occurrence.

Triggering events

What event or events trigger insurance coverage?

Insurance coverage is triggered when an event covered under the policy occurs. A liability policy that requires an occurrence is triggered when a third party brings a covered claim against the policyholder for injury or damage that occurred during the policy period.

 

Where the manifestation of injury or damage is delayed, determining the applicable policy period can be difficult and is often disputed. Courts typically utilize one of four theories: The exposure theory focuses on when the claimant or property was initially exposed to the injury-causing agent or event. The injury-in-fact theory focuses on when the injury first occurred even if undetected at that time. The manifestation theory focuses on when the injury manifested itself or became known. The continuous trigger theory, applied in cases of progressive damage, triggers all applicable policies from the time of exposure through manifestation.

 

In Alabama, the exposure theory has been applied to bodily injuries allegedly caused by asbestos. The injury-in-fact theory has been applied to a property damage claim, based on the loss-in-progress rule.

Coverage across multiple policies

How is insurance coverage allocated across multiple insurance policies?

CGL policies typically promise to pay ‘all sums’ that the policyholder becomes liable to pay because of bodily injury or property damage covered under the policy. In cases of progressive or continuous injury that span over a number of years and multiple policy periods, courts typically use one of two methods.

 

The ‘all sums’ method of allocation, favored by policyholders, permits recovery of up to the limits of liability under any policy in effect during the periods when bodily injury or property damage occurred. The ‘pro rata’ method of allocation, favored by insurers, limits each insurer’s liability to its pro rata share of the total loss incurred. Jurisdictions across the United States differ as to allocation for years with missing policies or policies issued by insolvent insurers. Certain jurisdictions allocate these years to the policyholder; others do not. Which method applies will likely depend on the specific policy language rather than a blanket rule. For example, courts have held that the inclusion of ‘non-cumulation’ and ‘continuing coverage’ clauses is inconsistent with the pro rata method.

 

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February 28, 2020