Nobody Ever Said That Life or the CGL Policy Was Fair!

I was recently teaching a seminar dealing with the details of the Commercial General Liability Policy, and a participant attending the seminar made a very interesting observation. We had just focused on one of the more complicated exclusions of the CGL Policy. She said, “Well, that hardly seems fair to the insured.”

To be candid, her response caught me off guard, and my spontaneous response to her was, “Well, who ever said the CGL Policy was fair in the first place?” And then my follow-up comment to the class was something similar to, “But at least there’s enough unfairness to go around to everybody.”

At one of the breaks, I was then asked what I had meant by my follow-up comment. Let me explain.

Unfair to the insured
First of all, and in fairness to the CGL Policy, the policy is an extremely broad contract and provides much needed protection for business insureds. I’m one of its biggest fans. In fact, in many ways it’s an awesome policy. And yet at the same time, accidents happen, which result in lawsuits against businesses that are not covered by the CGL Policy and which the insured would have every reason to believe would be covered. Quite frankly, it doesn’t seem fair.

As an example, consider the business that has purchased a large piece of raw land on the outskirts of town in order to build a new building. Then assume that the business decides to clear the land of trees and brush and chooses to burn the debris themselves on the site as opposed to having it hauled away. Assume further that smoke from the burning debris is blown by heavy winds across an adjacent highway, thus causing an automobile accident and serious injury.

If the injured motorist sues the business owner, there would be no liability protection provided by the CGL Policy. This is because smoke is considered a “pollutant” under the policy, and there is no coverage for injury caused by pollution arising from the insured’s premises. Huh? Doesn’t sound too fair to the insured, does it?

And just to make matters worse (or to emphasize the “irony” here), the claim described above would be covered if the fire had become “uncontrollable” and then caused smoke to migrate across the highway. This would then be referred to as a “hostile fire,” and the policy does provide coverage for damage or injury caused by smoke from a “hostile fire.” Seem crazy? Go figure.

As a second case in point, consider a business that relocates and sells its previous building. After a few years, let’s assume that the building that was sold has a portion of the structure collapse. Because of the collapse, there is obviously damage to the building, damage to contents located inside the building and bodily injury to occupants. If sued, the CGL Policy for the business that once owned the building would cover their liability arising from damage to the contents and arising from injury to the occupants–just not their liability arising from damage to the building itself. You ask, “Why not?” Again, go figure.

Unfair to the carrier
The insurance companies themselves are also dealt an “unfair hand” from time to time.

Consider the general contractor who has been insured with the ABC Insurance Company for the past 10 years. During those 10 years, the general contractor built any number of new buildings and, of course, paid ABC Insurance Company a pretty premium. Then, assume on January 1 the general contractor changes insurance carriers and moves their CGL Policy to the XYZ Insurance Company. On January 2, assume that one of the buildings completed five years ago then collapses and causes significant bodily injury to its occupants. Do you want to guess who’s got the claim?

That’s right. It’s the XYZ Insurance Company. Doesn’t seem fair, does it? But that’s exactly how the policy works. The policy in effect at the time the bodily injury or property damage occurs is the policy that’s triggered–regardless of when the building was constructed.

As a second case in point, consider the many times that CGL carriers are forced by the courts to pay claims that clearly are not “intended” to be covered by the policy. In a case in Missouri involving damage caused by the fumes of a solution of muriatic acid applied to a concrete floor, the CGL carrier denied coverage claiming that the muriatic acid was a “pollutant” and therefore the damage excluded by the policy. The court decided otherwise and, in essence, said that the “technical” definition found in the policy had no bearing. The court ruled that the “lay” definition of a pollutant should prevail in the case. Huh? That was obviously good for the insured, but it doesn’t sound too terribly fair to the insurance carrier.

Unfair to the agent
And finally, let’s not overlook how unfairly insurance agents are oftentimes treated by the CGL Policy. This is primarily because it’s the agent’s responsibility to try and explain to the business owner why in the world a liability lawsuit is not covered by their policy. While you would like to think that most people are reasonable enough not to shoot the messenger (i.e. their insurance agent), that rule is sometimes thrown out the window.

Of course, it’s the Insurance Services Office that should take the heat, as they’re the ones who actually write the contract language. But since ISO is located “who knows where,” agents are the likely target! Like I said, who ever said the CGL Policy was fair in the first place?