Common Types of Insurance: Part 2, Liability Coverages

There is a difference between an insurance policy and an insurance coverage.  A policy is a group of documents forming the contract of insurance.  Within any policy, there may be numerous different kinds of coverages.  In this series, we discuss some of the most common types of policies, and the different coverages each policy typically provides.  Part 1 addressed property coverages.  This second installment discusses different kinds of liability coverages.

Liability coverages cover the insured’s liability to third parties for damages.  Because a claim against the insured by a third party is what triggers liability coverage, liability coverages are often referred to as “third-party coverages.”  As mentioned in the last post, avoid using this nomenclature as it can be misleading; referring more precisely to the specific type of coverage is preferred.

Commercial General Liability (CGL).  CGL coverage typically provides defense and indemnity (discussed below) for personal injury or property damage.  Some CGL policies also provide coverage for “personal and advertising injury,” which typically covers liability arising out of advertising and not personal injury or property damage.  Typical exclusions include auto/aircraft exclusions, exclusions for professional services, and pollution/mold/environmental exclusions.  As discussed below, additional coverages can usually be purchased to cover these gaps in coverage.

Commercial Auto.  Commercial auto liability coverages provide coverage for the insured’s use of cars and other transportation.  Note that most commercial auto policies provide both property and liability coverages, because to the extent the policy covers damage to the insured’s own vehicles, that is a property coverage.

Professional Liability.  This coverage covers the insured’s liability for third parties arising out of professional services.  Professional services typically include services rendered by doctors, lawyers, architects, waterproofing consultants, surveyors, and other professionals.

Pollution/Environmental.  We previously discussed pollution and environmental coverages as a property coverage; that is, it can cover damage to the insured’s own property.  In the liability context, a pollution/environmental coverage provides insurance for the insured’s liability to third parties for pollution and remediation expenses.

In the next and final installment of this series, we’ll address excess and umbrella coverages, and package policies.

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