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CGL Insurance: The Basics

A previous post discussed why Commercial General Liability (CGL) Insurance policies typically do not cover the costs of intellectual property (IP) rights infringement claims. However, CGL Insurance is still an essential component of any ongoing business operation because it protects the assets of the business against claims of injury or damage caused to others by owners or employees.

CGL Insurance shields a business from two different sources of expense that stem from such claims. First, a CGL policy legally obligates the insurer to defend any lawsuit that seeks covered damages from the insured business. This is known as an insurer’s “duty to defend” the insured. The courts construe this duty broadly, which makes the defense obligation extremely valuable for policyholders.

To determine whether the insurer is required to defend the business, the courts will examine the allegations in the complaint and compare them with the coverage stated in the policy documents. As a general rule, if even one claim being alleged might be covered by the policy, the insurer must defend the entire lawsuit. That duty to defend persists even when the claims or their supporting evidence are false, fraudulent, or groundless. In these cases, a CGL policy can save small or early-phase entities from being overwhelmed by litigation costs that might otherwise jeopardize the life of the business. The legal fees avoided might be anywhere from a few thousand dollars for a single, simple claim to tens of millions of dollar for a large-scale product liability suit, regardless of whether the business is ultimately found liable.

The second expense shield that a CGL policy creates is against financial liability in the event of a judgment or settlement. This is known as an insurer’s “duty to indemnify” and applies more narrowly than the duty to defend. The specific facts built on the underlying record in the dispute will control whether the duty to indemnify attaches to a particular occurrence.

Under either duty, only a certain universe of business liability falls within the ambit of CGL policies. The traditional coverage areas are bodily injury and property damage, although policies often will also cover advertising injuries and personal injuries. Careful examination of the policy terms is important in order to understand the per claim and aggregate limits, the scope of coverage, and the conditions and duties imposed on the business holding the policy. Often, CGL policies will have strict requirements that circumscribe when and how the policyholder must provide notice to the insurer of occurrences or claims; policy endorsement language is similarly salient to the interests of the business and merits equally careful review. Proper review now will ensure your business is adequately shielded for whatever the future brings.

For a consultation regarding your individual business issues, please contact San Diego Corporate Law today!

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