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.Read More »

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Common Types of Insurance: Part 1, Property 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.  This first installment discusses different kinds of property coverages.Read More »

Anatomy of An Insurance Policy

A typical insurance policy is not a single, cohesive document that can be read start to finish. Instead, it is a grouping of independent documents that all work together to define the insurer’s and the insured’s obligations under the insurance contract.  Understanding an insurance policy requires an understanding of all the different pieces that make up the policy, and how those pieces relate.Read More »

Presenting Damages To Insurers: 3 Simple Steps

Getting the most out of your insurance claim requires a clean and clear presentation of covered costs and expenses.  Adjustors and even coverage lawyers have dozens of claims to sort through each day, and if the adjustor can’t understand each dollar claimed immediately, it’s much easier for the adjustor to deny that dollar rather than pay it.  Correctly categorizing, itemizing, and backing up each dollar of an insurance claim is critical to a favorable adjustment or settlement of claims.  Here’s how, in 3 simple steps.

1.  Prepare A “Claim Summary” Cover Sheet.  This is a one-page cover sheet, typically a spreadsheet, that sums up your claim with a total at the bottom.  This isn’t where you itemize every invoice; instead, the Claim Summary gives the bigger picture, and shows only the total for each category of damages.  Categories may include Repair Costs to Date, Estimated Costs to Complete Repair, Business Income Losses, Investigation and Design Costs, Attorney Fees and Costs, and Treble/IFCA/Punitive Damages.  Unless your claim is a complicated amalgam of estimates, business losses, sunk costs, and more, the Claim Summary shouldn’t be more than a half page.

 

2.  Prepare An Itemized Listing Of Every Invoice/Cost Item.  Using the same category structure, expand each category to include a line for each and every charge of the claim.  For example, if one of the claim cost categories is Repair Costs To Date, then list each repair invoice under this heading.  If there are multiple invoices from 3 different contractors, then create a subheading for each contractor and list each of that contractor’s invoices under its subheading.

3.  Include Organized Backup.  Now that the claim is presented, it must be substantiated.  To do this, attach backup documentation for each and every line item of damages prepared in no. 2 above, in the same order as the list prepared in the last step.  Sometimes, where damages are estimated or not yet incurred, the backup will consist of written estimates or expert reports; regardless, it’s critical to have some sort of backup for each and every dollar claimed.

When presenting claims and damages, don’t forget the importance of psychology.  Pie-in-the-sky claims are likely to shut the insurer’s decion-maker down.  On the other hand, including some wiggle room in claims allows the decision-maker on the other side to look good when she negotiates the claim down, but still pay out a reasonable amount on the claim, creating a win-win for both sides.
Photo Credit: GotCredit

CGL Coverage Limits: How Do They Apply?

If you look at the first few pages (the Declarations) of a standard commercial general liability insurance policy, also called a “CGL policy,” you’ll see a number of different policy limits listed.  For those not familiar with insurance, it is not always clear which policy limits apply in which situations.  It may surprise some businesses to know that their CGL policy does not always provide coverage up to the policy’s “limit,” and that different limits may apply in different situations.  This article will explain some of the common policy limits you may find in a CGL policy, and how those limits frequently relate to one another.


The Declarations of a standard CGL policy will generally list at least four different kinds of policy limits.  The first is the General Aggregate Limit.  This general aggregate limit is the most the insurance company will pay out for the policy period, regardless of how many different accidents or events are at issue (called an “occurrence” in insurance policy lingo) or individuals are involved.  As an example, say that a business’s aggregate limit is $2 million, and the business experienced three different accidents in one policy period: (1) a customer slips and falls on business property, claiming $600,000 in damages; (2) a product sold or installed by the business causes a fire and damages a customer’s building, causing $1,100,000 in damages; and (3) an article on the business’s website and a series of commercials for the business are defamatory of a competitor’s business, and the competitor’s damages are $500,000.  In this situation, assuming no exclusions or other limits apply, the aggregate limits would be enough to cover the first two accidents, which together total $1,700,000, since this is less than your $2 million aggregate limit.  By the time the third accident occurs with a price tag of $500,000, however, there is only $300,000 left in the aggregate limit to cover additional claims.  So, coverage for the third claim would be limited to $300,000, and there would be no coverage for subsequent claims.[1]  Graphically, the coverage is as follows:

 
 
The next common policy limit is called the Occurrence Limit.  This is usually a sub-limit within the aggregate limit, and it is often (but not always) less than the aggregate limit.  The occurrence limit is the most that an insurance company will pay for a single “occurrence,” such as one accident or one event, under a CGL policy.  Let’s examine this in the context of our three occurrences above, and assume that our policy has a $1 million per occurrence limit.  In this situation, the first $600,000 would be within the $1 million occurrence limit.  The second occurrence, however, causing $1,100,000 in damages, would exceed the occurrence limit of $1 million.  Accordingly, only the first $1 million of the second occurrence would be covered under the policy.  Thus, after the second occurrence, the insurance company would have paid $1,000,000 + $600,000, or $1,600,000, under the policy, leaving $400,000 available for the third claim.  The difference is as follows:
 
 
Another common policy limit is the Personal and Advertising Injury Limit, it is also usually (but not always) a sub-limit of the occurrence limit.  The personal and advertising injury limit frequently applies to any single person or organization, regardless of the number of “occurrences” involved.  In the example above, where a website article and a series of defamatory commercials damage a competitor’s business, it is possible that the website article is a separate “occurrence” from each of the commercials, and therefore numerous occurrence limits would apply.  However, because there is a separate limit for this specific kind of “personal and advertising injury” claim, and only one organization was damaged, the “personal and advertising injury” limit generally applies to all defamatory “occurrences” causing damage to this competitor.
 
The final common policy limit that we’ll discuss here is the Products/Completed Operations Aggregate Limit.  Unlike the limits discussed in the preceding paragraphs, the products/completed ops limit is not generally a sub-limit of the general aggregate limit, and it may be its own independent limit.  Like the general aggregate limit, the products/completed ops limit applies regardless of the number of occurrences or individuals damaged.  However, instead of applying to all claims generally, the products/completed ops limit only applies to accidents occurring off-premises, and which are caused by a product or service you provided.  For example, this limit frequently comes into play in construction defect actions, where a contractor defectively performs work on someone else’s property, and the owner files suit against the contractor after the work is completed.  Occurrence limits generally apply within the products/completed ops limit.  Consider the accident #2 above, where a product you provide or installed causes a fire at a customer’s building and causes $1,100,000 in damage to the building.  A products/completed ops limit of $2 million would be enough to cover this liability; however, the occurrence limit of $1 million would also apply, and so coverage for this claim would nevertheless be limited to $1 million.
 
These are a few of the limits you may find in a CGL policy.  Not all policies are the same, and these limits may apply differently depending on the wording found in your policy.  In addition, other limits, such as those specifically addressing damage to rented premises or medical expense liability, may also apply, and your insurance agent or insurance coverage counsel can help you determine what policy limits appear in your policy, and how they may apply in any given situation.


[1] There are situations in which an insurance policy’s limits may be exceeded; however, that discussion is outside the scope of this article.

Oregon Statute Limits Contractual Waiver of Subrogation

New law in Oregon would void any provision in a construction contract that waives a party or an insurer’s right of subrogation.  The prohibition only applies where subrogation is waived for death, bodily injury, or property damage, and it must be caused in whole, or in part, by the negligence of another person.  Notably, public contracts and proceeds of property policies are excluded from this prohibition.

The waiver of subrogation can be a valuable tool for all parties involved in a construction contract, and it remains to be seen how this provision will affect those parties.  Among other things, waivers of subrogation frequently help parties settle disputes by bringing finality to a settlement, ensuring that no third parties or their insurers will come back to seek further reimbursement for the same loss in the future.  The waiver of subrogation occurs where parties to a contract waive claims against each other, but only to the extent those claims are covered by insurance.  Frequently, a party to a construction contract will also waive claims against an architect, owner, or general contractor, even where those entities are not a party to the agreement.

The benefits of the law are not entirely clear.  Although the bill was initially introduced in a dramatically different form and touted as an equalizer for subcontractors bargaining with powerful general contractors, the final bill underwent numerous revisions and appears to benefit insurance companies most of all.

Insurance Briefs: Insurer Owes Defense Until It Doesn’t

Nat’l Surety Corp. v. Immunex Corp.
(Wn. App. Div. 1)
Immunex and others were sued in several cases alleging that certain drug manufacturers artificially inflated their wholesale prices.  Immunex notified its umbrella and excess insurer, National Surety, of related issues, but did not notify National of the lawsuits or provide copies of the complaints until approximately five years after the complaints were filed.  National filed a declaratory judgment action, seeking a ruling to determine whether National had a duty to defend Immunex.  The trial court (Judge Steven Gonzalez) held that National had a duty to defend until the trial court ruled that there was no coverage, unless National could prove that Immunex’s late notice of the lawsuits actually prejudiced National.  Division 1, in an opinion authored by Judge Appelwick, affirmed.  The ruling was based on the court’s reasoning that the duty to defend was broader than the duty to indemnify; therefore, where the allegations of the complaint triggered a duty to defend, that duty to defend remained in effect until the court issued its final declaration of no coverage.