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Are You Applying the MOST Basic CGL Coverage Rule?

Author: Chris Boggs

Coverage provided by the CGL can never be any broader than the grant of coverage in the insuring agreement. This is the most basic CGL coverage concept and is likewise true of every insurance policy.

If the injury or damage isn't contemplated in the insuring agreement, there is no need to go any further in investigating coverage. Ignoring this basic concept and jumping directly into the middle of the policy leads to coverage misinterpretations and incorrect coverage decisions.

Moral – begin at the beginning! Confirm the loss even qualifies for coverage in the insuring agreement.

For this study we review the insuring agreement found in Coverage A - Bodily Injury and Property Damage Liability found in the 04 13 edition of Insurance Services Office's (ISO's) commercial general liability (CGL) policy. In the 04 13 edition, the specified insuring agreement reads:


1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. We may, at our discretion, investigate any "occurrence" and settle any claim or "suit" that may result. But:

(1) The amount we will pay for damages is limited as described in Section III - Limits Of Insurance; and

(2) Our right and duty to defend ends when we have used up the applicable limit of insurance in the payment of judgments or settlements under Coverages A or B or medical expenses under Coverage C.

No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under Supplementary Payments - Coverages A and B.

b. This insurance applies to "bodily injury" and "property damage" only if:

(1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory"

(2) The "bodily injury" or "property damage" occurs during the policy period; and

(3) Prior to the policy period, no insured listed under Paragraph 1. of Section II - Who Is An Insured and no "employee" authorized by you to give or receive notice of an "occurrence" or claim, knew that the "bodily injury" or "property damage" had occurred, in whole or in part. If such a listed insured or authorized "employee" knew, prior to the policy period, that the "bodily injury" or "property damage" occurred, then any continuation, change or resumption of such "bodily injury" or "property damage" during or after the policy period will be deemed to have been known prior to the policy period.

c. "Bodily injury" or "property damage" which occurs during the policy period and was not, prior to the policy period, known to have occurred by any insured listed under Paragraph 1. of Section II - Who Is An Insured or any "employee" authorized by you to give or receive notice of an "occurrence" or claim, includes any continuation, change or resumption of that "bodily injury" or "property damage" after the end of the policy period.

d. "Bodily injury" or "property damage" will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1.of Section II - Who Is An Insured or any "employee" authorized by you to give or receive notice of an "occurrence" or claim:

(1) Reports all, or any part, of the "bodily injury" or "property damage" to us or any other insurer;

(2) Receives a written or verbal demand or claim for damages because of the "bodily injury" or "property damage" or

(3) Becomes aware by any other means that "bodily injury" or "property damage" has occurred or has begun to occur.

e. Damages because of "bodily injury" include damages claimed by any person or organization for care, loss of services or death resulting at any time from the "bodily injury".

Within this insuring agreement there are six defined terms and 10 specific limitations/requirements designed to regulate the protection initially provided by this coverage part. Each limiting definition is reviewed, and the 10 specific limitations are explored in the follow section.  

Defined Terms Limiting Coverage

When the insurance industry desires or needs to limit a term's meaning, the word or phrase is specifically defined in the policy. When a word or phrase is not defined, it is given its “everyday" meaning. If it is a term of art specific to an industry, it is given its technical meaning. ISO specifically defines and controls the application of six terms within the Coverage A insuring agreement:

  • Bodily injury": bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.
  • Property damage": Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it.
  • Suit": A civil proceeding in which damages because of "bodily injury", "property damage" or "personal and advertising injury" to which this insurance applies are alleged. "Suit" includes: a. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.
  • Occurrence": An accident, including continuous or repeated exposure to substantially the same general harmful conditions.
  • Employee": Includes a "leased worker." "Employee" does not include a "temporary worker."
  • Coverage territory": a. The United States of America (including its territories and possessions), Puerto Rico and Canada; b. International waters or airspace, but only if the injury or damage occurs in the course of travel or transportation between any places included in Paragraph a. above; or c. All other parts of the world if the injury or damage arises out of:

(1) Goods or products made or sold by you in the territory described in Paragraph a. above;

(2) The activities of a person whose home is in the territory described in Paragraph a. above, but is away for a short time on your business; or

(3) "Personal and advertising injury" offenses that take place through the Internet or similar electronic means of communication;

provided the insured's responsibility to pay damages is determined in a "suit" on the merits, in the territory described in Paragraph a. above or in a settlement we agree to.

Each definition limits coverage in some way by narrowing the term's scope. By limiting a term's scope, the carrier controls the amount of coverage granted in the insuring agreement. For instance:

  • “Bodily injury" excludes, or rather does not extend coverage to, injuries such as mental anguish and personal injury (which is defined separately in the CGL).
  • “Property damage" limits coverage to tangible property.
  • “Suit" limits coverage to civil actions with no mention of or allowance for criminal actions. Coverage exists only when legal liability flows from a civil action.
  • “Occurrence" limits protection to injury or damage caused by unintended and unexpected events occurring at a specific time or over a long period of time.
  • “Employee" is unique because the term is not really defined. The definition simply expresses who is not considered an employee. Thus the term employee is ultimately given its everyday meaning (either legal or accounting).
  • “Coverage territory" limits coverage to premises in or products made in the US, its territories or possessions, Puerto Rico and Canada. This definition also requires the suit to occur in one of these locations.

Some insurance carriers may apply proprietary wording to these definitions to alter the meaning. For example, some carriers may expand the definition of “bodily injury" to include mental anguish (and some courts have done this). Carriers may also expand the “coverage territory" be redefining the term.

Any limitations created by these defined terms directly affect the 10 specific coverage limitations contained within the Coverage A insuring agreement.

Ten Coverage Limitations

Ten conditions or limitations exist within the Coverage A insuring agreement that MUST be satisfied before any possibility of coverage exists. Until all these conditions are satisfied, there is no reason to review any exclusions, exceptions or conditions. The applicable limitations and requirements are:

  1. The person or entity causing the injury or damage must be an insured.
  2. There must be “bodily injury" (BI) or “property damage" (PD) as defined and limited by the definitions;
  3. The insured must be legally obligated to pay;
  4. Legal liability must arise out of a civil suit;
  5. The legal liability for BI or PD must arise out of a defined “occurrence;"
  6. The BI or PD must occur during the policy period;
  7. The “suit" must seek money damages;
  8. The BI or PD must occur in, arise out of or be tried in the “coverage territory;"
  9. No insured (as defined in the policy) or “employee" authorized by the named insured has received notice of any “occurrence" or claim or knew that BI or PD had occurred. Such “occurrence" is deemed to be known when:
    1. Any BI or PD is reported to any applicable insurance carrier (past or current);
    2. A written or verbal demand or claim for damages for BI or PD is received; or
    3. Any of the parties (insureds or “employees") become aware by ANY means that BI or PD has begun to occur; and
  10. If BI or PD begins in a prior policy period and was not known, the prior policy responds. Likewise, if the BI or PD begins during the current policy period and continues into the next, the current policy responds.

Remember, EVERY condition must be met for coverage to exist within the insuring agreement. Once an initial determination of coverage is made, the facts of the injury or damage are compared to the exclusions, exceptions and conditions in the remainder of the policy to make the ultimate coverage determination.

Three concepts within these limitations require greater explanation: “insured," “legally obligated" and “occurrence."

Insured Status

Status as an insured must exist before ANY question of coverage can be tackled – if the individual or entity is not an insured, there is no reason to go any further. The best-designed insurance program does little good if the person or entity being held financially responsible for the loss is not an “insured." When a liability loss occurs, the very first question asked is, “Is the person or entity causing the injury or damage an insured?" If the answer is, “No," stop, don't go any further - there is no coverage.

Four types or levels of “insureds" exist within and by addition to the CGL. Each level is granted a different “amount" of protection:

  1. Named Insureds: Granted the greatest amount of protection. These are the “You" in the policy.
  2. Extended Insureds: These insureds are listed in the policy and differ based on the entity type of the named insured (“You") – so the entity types must be correct. Extended insureds are granted the same level of protection as the “you" - for activities related to the business.
  3. Automatic Insureds: These insureds are “related" to the named insured. In essence, the named insured needs these people to conduct operations. Automatic insureds are listed in the policy, examples include “employees," volunteer workers and real estate managers.
  4. Additional Insureds: These are always added by endorsement. Additional insured are not generally “related" to the insured, they have a business relationship with the insured. Additional insureds are usually given the least amount of protection.

Before anything else, make sure the person or entity causing the injury or damage is an insured. Once insured status is confirmed, continue applying the remaining requirements.

Space does not allow for a full explanation of insured status. The VU offered a webinar detailing insured status in 2017. Click here to link to the session and here to access the transcript.

Legally Obligated

Legal obligation is the second key requirement within Part A's insuring agreement. The policy reads, in part, “a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies."

An insured (correctly named) can be found “legally obligated" in at least one of three ways; legal obligation can result from the insured's:

  • Direct actions or inactions of an insured;
  • Vicarious liability for the actions of another; or
  • Contractually assumed liability.

How do each apply to the insured:

  1. Direct actions or inactions: Either the named insured or any person qualifying as an insured in Section II of the policy must participate in the activity resulting in BI or PD.
  2. Vicarious liability: To become vicariously liable and thus legally obligated, an insured must have the right or responsibility to control the actions of another party who causes BI or PD. If the insured has no right or duty to control the actions or activities of the at-fault party, there is no vicarious liability and no legal obligation owed by the insured. Common examples of vicarious liability (the Latin term is: “respondeat superior") include the employer/employee relationship; the upper tier/lower tier contractor relationship (but only for the operations contracted); principal/agent; and parent/child.
  3. Contractual liability: The insured can be legally obligated because it assumed the liability of another party via a contract (oral or written). Contractually accepted liability is specifically excluded in the policy; however, there are limited exceptions to the exclusion. If the contract qualifies as an “insured contract" (as defined in the policy), coverage for contractually accepted liability may be given back. 

Unless the insured is legally obligated to pay based on these conditions, the CGL does not respond. Courts often decide when an insured is legally obligated.

What is Legal Liability

Legal liability is liability imposed by the courts on the person or entity responsible for the injury or damage suffered by another party or individual. Such legal obligations (or liability) can arise from intentional acts, unintentional acts or contracts (express or implied) and generally deals with civil wrongs rather than criminal wrongs.

Do not confuse legal liability with negligence. Legal liability and negligence are not synonymous; a person can be found negligent (or rather guilty of negligent conduct) without ultimately being legally liable, but in negligence torts - which is the focus of this article - that person cannot be legally liable unless first found negligent (or found to have engaged in negligent conduct) or is held vicariously responsible for the negligent actions of another person. The requirement of first proving negligence does not apply to strict liability torts. In strict liability torts (defective products, ultrahazardous operations and the care and keeping of animals) negligence is presumed simply because of the injury (res ipsa loquitor). (In effect, the section discussing "negligent conduct" can be skipped in the presence of a strict liability tort.)

What is Required to be Found "Legally Liable"?

"Legal liability" exists when:

  • The wrongdoer is found guilty of "Negligent Conduct;" 
  • The injured party suffers actual damages; and
  • The wrongdoer's "Negligent conduct" is the proximate cause of the injury or damage.

"Negligent Conduct"
Negligence and "negligent conduct" are somewhat synonymous. Negligent conduct is created by the failure of the person to act or behave in the manner that a reasonably prudent person would act in the same situation. To be guilty of negligence or negligent conduct, there must be:

  • A duty to act or not act in a certain way; and
  • A breach of that duty. 

"Negligent Conduct," as the first test towards proving "legal liability," revolves around duty. If there is no duty, then cannot be negligence; if the conduct is not negligent, there can be no legal liability. Six tests applied by the courts aide in deciding if a duty is owed (based on all the facts, the answer to just one question):

  1. Was the harm foreseeable? The more foreseeable the harm, the greater the duty owed;
  2. What was the degree of certainty the harm would result? The greater the certainty that harm would result, the greater the duty owed;
  3. What was the proximity between the conduct and the resulting harm? This is a function of geography, elapsed time and cause and effect. Was the action in close proximity to the injury, within a reasonable time of the action, and is there a reasonable cause and effect relationship? Basically, setting off an explosive next to a house and it catching fire immediately is reasonable proximity. However, setting off an explosive 10 miles outside of town and a building catching fire three days later is outside of reasonable proximity;
  4. Is there a need to deter this type of conduct in the future? If the action is one that could be detrimental to the public if others engaged in it, there is a duty owed;
  5. Is there a burden placed on the community as a whole if liability is imposed on those who engage in this type of conduct? Is it reasonable or unreasonable to hold everyone to a certain standard? If reasonable, there is a duty owed; if unreasonable, no (or a limited) duty is owed; and
  6. How easy is it to avoid this type of conduct? The easier it is to avoid the action, the more likely a duty is owed.

Once a duty is established, the injured party must prove that a breach of that duty occurred. Without a breach of duty owed, there is no negligent conduct and ultimately no legal liability. Whether or not a duty is breached is a function of the degree of care owed to the injured party by the wrongdoer. 

The degree of care owed to an injured party is based on the relationship between the wrongdoer and the victim. The greater the degree of care required or expected, the lower the threshold for breaching a duty owed (it is easier to breach a duty when greater care is required). The four degree of care "levels" based on relationships are:

  • Slight Negligence: A high degree of care is required;
  • Ordinary Negligence: Requires "reasonable" care such as would be provided by a reasonable and prudent person;
  • Gross Negligence: Very little care beyond slight care (not to be confused with slight negligence) is required; and
  • Negligence per se: A breach of duty because the law says it is. Negligence per se requires: 1) the at-fault party to violate the law, 2) the law to pertain to public safety, 3) the violation of the law be the cause of the injury, and 4) the injured person be a part of the class of persons the law was designed to protect.

Damages are Suffered
Once negligent conduct (negligence) is proven, the second requirement towards proving legal liability is showing that the injured party suffered actual monetary damages. Monetary damages are divided into two broad categories: 1) compensatory damages and 2) punitive damages. Compensatory damages are further sub-classed as either special damages or general damages.

  • Compensatory Damages are so named because the intended purpose is to compensate those who have been injured. A more legally precise definition of compensatory damages is: Payment for actual injury or other economic loss intended to compensate the victim. Readily measurable damages, known as special damages, and difficult-to-measure damages, known as general damages, are included in compensatory damages.
    • Special damages are easily measured and include medical bills, lost wages, the value of damaged property (real and personal), and additional expenses incurred by the harmed party.
    • General damages are somewhat difficult to measure and include such "costs" as pain and suffering, mental anguish, and loss of consortium. 
  • Punitive Damages are meant to punish the wrongdoer whose actions were egregious, willful, wanton, or malicious. One goal of punitive damages is to deter others from committing the same wrongful acts.

"Negligent Conduct" is the Proximate Cause of the Injury or Damage
Once negligence and actual monetary damages are proved, the last step towards establishing legal liability is determining that the act is the actual cause of the harm. Several legal theories combine to judge causation and establish legal liability: 1) cause in fact, 2) proximate or legal cause, and 3) intervening acts and superseding events.

  • Cause in Fact: The basic premise of cause in fact is: without the actions of the supposed at-fault party there would be no injury or damage. To qualify as the cause in fact there must be a reasonable relationship between the breach of duty and the injury. In essence, the act or omission must precede the injury or damage; and there must be an unbroken chain of events between the act/omission and the injury. Once cause in fact is established, the injured party must prove that this initial act is proximately close enough to the injury to qualify as the legal cause of the harm. 
  • Proximate or Legal Cause is the legal theory used to limit the scope of cause in fact. Proximate cause applies when there is no question that the injury or damage would not have occurred but for the actions or inactions of the wrongdoer. But a question exists regarding whether the resulting harm is proximately close enough to the initial event in geography and time such that any punishment or consequences laid upon or charged to the at-fault party are fair and just. For the cause in fact to qualify as the proximate or legal cause, there must be foreseeability and reasonable proximity. 
  • Intervening Acts and Superseding Events relate directly to the determination of the cause in fact and proximate cause. An intervening act is one that is or should be reasonably foreseeable and thus does NOT relieve the original wrongdoer of his liability for the injury. In fact, the intervening act is often considered part of the chain of events leading to injury or damage. Conversely, a superseding event breaks the chain of causation or is not reasonably foreseeable, and is, itself, able to cause the resulting injury. Superseding events relieve the original wrongdoer of liability for any injury or damage following such an event.

If the act is shown to be the cause-in-fact and the proximate cause of the injury or damage because there was no superseding event, all three requirements of legal liability are met:

  • The wrongdoer was guilty of negligent conduct;
  • The victim suffered actual monetary damages; and
  • The wrongdoer's negligent conduct was the proximate (legal) cause of the injury or damage.

Disclaimer: This is not to be construed or applied as legal advice. This is but a brief explanation of legal liability and how a "person" (natural or legal) becomes legally liable for injury or damage.


“Occurrence" attempts to define or limit the date of injury or damage to a particular policy period. When did the accident “occur" or when did the exposure to injury begin? Once the date of a defined “occurrence" is established, the policy or polices in effect respond(s). Simply put, the policy or policies in effect when the injury or damage “occurs" defends and/or pays the loss.

Assigning the date of the “occurrence" is easy when the date of the act and the date of the injury are the same. But pinpointing the “occurrence" date is not as easy when/if there is a time lag between the act and the result, or when injury or damage occurs over a long period of time (repeated exposure to substantially the same general harmful conditions).

Based on the type of loss and the facts surrounding the injury or damage, courts may apply one of four legal theories to identify when bodily injury or property damage occurred (the date of the “occurrence") in “time lag" claims:

  1. The “Injury-in-Fact Theory;"
  2. The “Manifestation Theory;"
  3. The “Exposure Theory;" or
  4. The “Continuous Trigger Theory"

Understanding the “occurrence" theories is as important as understanding the concept of “legally obligated to pay." Four of the 10 requirements within the insuring agreement relate to the occurrence – either directly or indirectly.

Is There Coverage Still?

Does the claim for injury or damage meet all the requirements of the insuring agreement? If so, move on to the exclusions, exceptions and conditions to ultimately confirm or deny coverage. If the loss falls outside the insuring agreement, stop – there is no coverage.

Begin at the beginning - always!

Last Updated: April 27, 2018

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