Most business owners are unaware of the type of General Liability Insurance form that their commercial general liability insurance policy is written on, as well as any added limitations or exclusions. Generally, most buying decisions are based primarily on price and payment plan. However, not knowing what your Commercial General Liability insurance policy is made of can be deadly to your business in the event of a loss.
Liability insurance is traditionally written in occurrence-made form. This means that as long as the incident occurred when the policy was in force, the insurer will still handle the resulting claim, even if the policy is no longer in force when the claim is filed. Automobile and most commercial liability policies are still written this way, as of April 2011. However, occurrence-made policies leave insurers vulnerable to long-term exposure, forcing them to handle expensive malpractice claims even if the policy in question expired a decade before the claim arose.
The insurance industry’s answer to the problem of long-term malpractice exposure was the claims-made policy form. This limits insurers’ exposure by requiring that a malpractice incident and the resulting claim both occur while the insurance policy is active. This means that if you make a bad professional judgment in May, switch insurers in August and get sued in December for the May incident, your initial insurer won’t cover the claim. Your new insurer won’t, either, because the incident occurred before your new policy was effective. Claims-made policies limit clients’ ability to switch insurers because it exposes them to uncovered liability claims.
CONTINUOUS AND PROGRESSIVE INJURY OR DAMAGE EXCLUSION
This insurance does not apply to bodily injury or property damage which first occurs before the inception date of this policy regardless of whether such bodily injury or property damage continues or becomes progressively worse during the policy period. Which CGL policy (or policies) will apply in a property damage claim involving continuing, progressive or recurring damages?
Claims involving damages which extend over multiple policy periods present unique and complex coverage issues for policyholders, insurers and courts. Such claims raise a variety of issues, such as: what “trigger theory” should a court apply to determine which policies may apply; how should a court determine the number of “occurrences” under the policies; what method of allocation, if any, between successive insurers is most appropriate; and how should a court deal with periods, if any, during which the policyholder was self-insured? The stakes in such claims are often high.
This type of clause is a provision in a general liability policy which states that the insurer will respond only to losses reported before some predetermined future date (sunset), usually a set period after the expiration of the policy.
So let’s say your GL policy was effective 4/1/07 and expires 4/1/08, and has a 2-year “sunset clause”.
Any claim made against the policy has to have “occurred” during the policy period and must be “made” no later than 4/1/2010. So if a “latent” defect on work performed some time within the year: 4/1/07 to 4/1/08 is not discovered until April 2, 2010 (2 years and 1 day after expiration) or later, there will be NO coverage under the policy.
You might wonder why this claim wouldn’t be covered by the 4/1/10 to 4/1/11 policy? Because a “defective construction” claim is deemed to have “occurred” when the work is done; thus the policy that should respond is the 4/1/07 to 4/1/08 one.
When there is no sunset clause (like the standard CGL policy), the claim can be ‘made’ any time in the future and you could expect to have coverage.
Guess when most construction defect claims are ‘made’??
Therefore, not all Commercial General Liability Insurance policies were created equal, nor are they equally priced. That being said, if a policy is cheaper than another, then it is most likely that it contains one or more of these potentially costly exclusions or limitations.
It is in the business owner’s best interest to have a commercial insurance agent that will take the time to get to know their business and educate them as to what their General Liability and other insurance plans will cover, as well as any limitations or exclusions, in order to make more informed decisions that will result in better protection for the business.
Call Marc Perez at All Contractors Insurance and Bonds at 253-252-2533 for a free, friendly review of your business insurance package to see if there are any coverage gaps that need to be filled.