Commercial General Liability Insurance Policy - Definition, Coverage, Benefits and Claims Process

A Commercial General Liability Insurance (also known as CGL Insurance Policy) is a type of an Insurance Policy which reimburses the Insured Person for the Legal Expenses and Compensatory Damages that the Insured becomes legally liable to pay on account of the Bodily Injury or Property Damage suffered by a Third Party by a Company’s Operations, Products or Injuries that occur within the Insured Person’s Business Premises. A CGL Policy is a combination of a Public Liability and a Product Liability Insurance Policy. A Commercial General Liability Insurance Policy is also known as Comprehensive General Liability Insurance Policy.

Bodily Injury under a Commercial General Liability Insurance Policy is defined as bodily injury, sickness or disease sustained by a person, including death. It is important to read the Commercial General Liability Insurance Policy Wording to ascertain the exact definition of Bodily Injury.

Property Damage under a Commercial General Liability Insurance Policy means

a) 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

b) 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.

Property Damage under a CGL Policy specifically covers only tangible property and does not include any damage to electronic data.

A Commercial General Liability Policy normally covers Defence costs and Compensatory Damages occurring on account of the following:

1. Coverage A: Bodily Injury and Property Damage – Bodily Injury and Property Damage Section of a CGL Insurance Policy provides coverage for Bodily Injury caused to other people or damage caused to a Third-Party Property. Bodily Injury or Property Damage can happen on the Insured’s Business Premises or on account of Insured’s Business Operations or even because of use of the Insured’s Products
2. Coverage B: Personal and Advertising Injury Liability – Section B of a CGL Policy provides coverage for Personal and Advertising Injury Liability which includes cover for claims of Libel, Slander, False Arrests, Malicious Prosecution, Copyright Infringement etc. You can read our detailed Blogpost on Personal and Advertising Injury in a CGL Policy to learn more.
3. Coverage C: Medical Payments – The Medical Payments Section of a CGL Policy pays for the medical bills of bodily injury suffered by third parties on the Insured’s Premises or as a result of Insured’s Business Operations or Products. The Medical Payments are made regardless of the Insured’s fault or negligence.

There are 2 types of Commercial General Liability Insurance Policies available in India:

Claims Made Policy: A Claims Made CGL Policy requires that the Covered Incident happens within the Policy Period and the Notification of the Incident also has to happen within the Policy Period. As long as the Covered Incident happens after the Policy’s Retroactive Date, the Insurance Company has to provide coverage.

Consider an example where a Company has a CGL Policy with a Policy Period of 1^st Jan 2019 to 31 December 2019. A customer of the company suffers a bodily injury because of a defective product on 1^st March 2019 and a claim was reported on 10th March 2019. This means that the Incident happened within the Policy Period and the Notification of the claim also happened within the Policy Period. This is a Covered Claim under the Comprehensive General Liability Insurance Policy. Now, if the injured individual reported the incident 1 year later on 10 March 2020, the claim would be covered only if the company had continued its CGL Policy Coverage by renewing its Policy and if the Company had opted for a Retroactive Date Cover.

This means that the Insured Company has to renew its CGL Policy with a Retroactive Date Cover to keep its coverage active under the Policy.

Occurrence Based Policy: An Occurrence Based Policy provides coverage if the Covered incident happens within the Policy Period regardless of when the Claim was filed. This means that an Occurrence Based Policy will provide coverage even if the Claim was filed after Policy Expiry as long as the Covered Incident happened within the Policy Period. An Occurrence Based Policy is more expensive than a Claims Made CGL Policy.

Consider an example of a Company which has an Occurrence Based CGL Policy with a Policy Period of 1^st Jan 2019 to 31 December 2019. A customer of the company suffers a bodily injury because of a defective product on 1^st March 2019 and a claim was reported on 10th March 2022. An Occurrence Based Policy will provide coverage since the Incident happened within the Policy Period.

The Bodily Injury and Property Damage Section of a Commercial General Liability Insurance covers the Defence Costs and Compensatory Damages that the insured Person or the Insured Company becomes legally liable to pay on account of the Bodily Injury or Property Damage suffered by third parties.

Bodily Injury means any injury, sickness or disease sustained by a person while Property Damage implies any physical injury to tangible property resulting in its loss of use. 

Several businesses have multiple risk exposures from their clients and customers suffering from Bodily Injury and Property Damage. Consider the case of this guest who died in the swimming pool of a hotel. The hotel was liable for the liable for damages on account of the death of guest. Businesses have numerous such exposures to bodily injury and property damage which make them potentially liable.

The Bodily Injury and Property Damage Section of a CGL Insurance Policy covers the following risk exposures:

• Premises Liability – The Bodily Injury and Property Damage Section of a CGL Insurance Policy pays for Third Party Claims for Bodily Injury or Property Damage that occurs on the Company Premises on account of business operations.
• Products Liability – This Section of the Commercial General Liability Insurance Policy will respond if the Company is sued for Bodily Injury or Property Damage suffered when a Consumer uses the Company's Products.
• Completed Operations Liability – The Bodily Injury and Property Damage Section of a CGL Insurance Policy also provides cover for Products-Completed Operations. This means that the CGL Policy covers liability arising out of Bodily Injury or Property Damage occurring away from premises owned or rented by the Insured and arising out of Insured’s product or Insured’s work (other than products) that a Company has finished and/or has been accepted and put to its intended use by the Customer. You can read our detailed blogpost on Product-Completed Operations Coverage in a CGL Insurance Policy to know more.

The Personal and Advertising Injury Liability Section of the CGL Insurance Policy pays for the Defence Costs and Damages that the Insured Party becomes legally liable to pay on account of Personal and Advertising Injury caused in the course of advertising Products or Services.

For example, if a Company publishes an Advertisement that disparages your Competitor’s Products, this may result in the Competitor losing customers which results in Loss of Revenues and Profits.

Consider this famous case of HUL suing Amul over the latter’s Advertisements relating to HUL’s Ice-Creams where Amul disparaged HUL’s products. This is a good example of Advertising Injury.

Personal Injury implies Injuries arising out of offenses other than Advertising.

The Coverages under the Personal and Advertising Injury Liability Section of the Commercial General Liability Policy are as follows:

• Invasion of Right to Privacy
• Slogan or Copyright Infringement in the Insured’s Advertisements
• Libel, Slander
• Using someone else’s idea in the Insured’s Advertisements
• False Arrests, Detention or Imprisonment
• Malicious Prosecution

The Medical Payments Section of a CGL Insurance Policy pays the Medical Expenses for a Bodily Injury caused by an Accident on the Insured’s Premises or because of Insured’s Operations. This is a No Fault Liability Cover and covers emergency medical expenses to Third Parties who suffer a Bodily Injury or Property Damage within the Insured's Premises. This is called a No Fault Liability Cover as this section does not require the Third Party who has suffered Bodily Injury to make a Claim against the Insured. However, the Insured Party will directly notify a Claim to the Insurance Company. The Insurance Company will pay the Claim under this section (without the requirement of a Legal Notice). This Section does not have any dedutible.

Also, note that this Section will not cover the complete medical expenses for the Insured Party but it will pay only the Emergency First Aid Expenses which the Insured had to incur on account of the Third Party's Injury in order to mitigate loss which might arise due to the Injury.

The Key Components of a Commercial General Liability Insurance Policy are as follows:

1. Limits of Liability: Limit of Liability in a Commercial General Liability Insurance defines the maximum amount that the Insurance Company would pay in case of a Claim. Companies should choose their limits of liability prudently so that their risk exposures are adequately covered.
2. Deductible: Deductible in a CGL Insurance Policy is the amount that the Insured must pay out of his own pocket before an Insurance Company starts paying out the loss.
3. Terms and Conditions: It is important to thoroughly read through the Terms and Conditions of the Policy by going through the Commercial General Liability Insurance Policy Wordings in detail. The exclusions should be carefully read to avoid any gaps in coverage in case of a claim.

A Commercial General Liability Insurance Policy specifies different types of limits of liability and it is important to understand these:

General Aggregate Limit

General Aggregate Limit in a CGL Policy is the maximum amount that the Insurance Company will pay in case of a CGL Claim.

Premises and Operations Limit:

Premises and Operations Limit in a CGL Policy specifies the amount that the Insurance Company will pay in case of a claim alleging Bodily Injury or Property Damage within the Insured’s Business Premises or because of the Insured’s Operations.

Products and Completed Operations Limit:

Products and Completed Operations Limit in a CGL Policy specifies the amount that the Insurance Company will pay in case of a claim alleging Bodily Injury or Property Damage because of using the Insured’s Products or because of the Insured’s Faulty Work.

Personal and Advertising Injury Limit:

Personal and Advertising Injury Limit in a CGL Policy specifies the amount that the Insurance Company will pay in case of a claim alleging Personal Injury or Advertising Injury such as Libel, Slander, Breach of Privacy etc.

Some common Add-On Covers under a Commercial General Liability Policy are as follows:

1. Act of God Perils – This Extension Covers liability arising out of a natural catastrophe affecting the Insured Premises resulting in Bodily Injury and Property Damage of the Third Party
2. Food and Beverages Extension - The Food and Beverages Add-On Cover covers the legal liability arising out of injury/death of the third party which happens on account of consuming food or beverages on the Insured’s premises or after consuming such food products which are sold on the Insured’s premises
3. Swimming Pool, Beauty Clinic, Gyms Extension (and other similar facilities) under Commercial General Liability Policies covers legal liability arising out of bodily injury and property damage because of using the facilities inside the insured premises
4. Care, Custody and Control: This extension covers liability arising out of bodily injury and property damage to third party goods which are handed over to the Insured Party for their custody and control.
5. Valet Parking Liability: This extension covers the liability arising out of damage to the vehicle when the valet parking personnel is driving it and parking it somewhere.
6. 72 Hours Sudden and Accidental Pollution Coverage: The CGL Policy covers sudden and accidental pollution which occurs within 72 hours and has caused damage. That is certainly an accident. Note that this policy will not cover gradual pollution. Gradual Pollution is covered under a separate insurance policy known as Environmental Impairment Liability Policy.
7. Liquor Liability: Liquor Liability covers the liability that arises if the customer consumes excessive liquor beyond his capacity and the hotel/restaurant does not prevent its customer from consuming alcohol beyond his capacity, and after consuming the liquor, the customer causes bodily injury or property damage to third parties. Note that the bodily injury or property damage to third parties can occur even outside the premises.
8. Incidental Medical Malpractice: This is another add-on cover which is important for hotels. Consider a case where a hotel guest falls sick and the hotel doctor treats the guest. However, something goes wrong with the doctor’s treatment as a result of which the guest suffers from illness or injury, the liability will fall on the hotel. This liability will be covered under the Incidental Medical Malpractices Extension of the CGL Policy. This Add-On Cover is more important for places like Malls, Hotels, Cinemas which will have guests.
9. Vicarious Liability covering Contractors, Sub Contractors, Vendors, Suppliers, Agents etc: This Extension covers the liability arising out of Bodily Injury and Property Damage to Third Parties on account of any action of the Contractors, Sub Contractors, Vendors, Suppliers or Agents of the Insured Party.
10. Terrorism Legal Liability: This Add-On Cover covers the liability arising out of Bodily Injury and Property Damage to Third Parties on account of Terrorist Acts.
11. Transportation Extension: Earlier I had shown you the example of a blast resulting in damages. This extension covers liability arising out of bodily injury or damage occurring on account of the product being transported.
12. Lift and Escalator Liability: This extension covers the legal liability on account of Bodily Injury and Property Damage occurring in the lift and escalators of the building.
13. Non-Manual Visits of Employees Overseas: This is another important Add-On Cover. This extension covers the liability arising out of third-party property damage or injury caused by the employee on account of his work when the employee goes overseas on a business tour.
14. Non-owned and Hired Automobiles Liability – This is also a popular Add-On Cover but it is not required in India because a Car Insurance Policy covers the vehicle whereas outside India, Motor Insurance covers the individuals. This Extension covers liability expenses for accidents caused by vehicles which are hired and not owned by a company for its work purposes.

A CGL Insurance Policy offers the following benefits:

1. Coverage against Bodily Injury and Property Damage Claims: Accidents are common and if an injured party sues the company for bodily injury or property damage, the business might have to pay Crores of Rupees in damages. This might put a financial strain on the company.
2. Coverage against Reputational Damage: Apart from Bodily Injury or Property Damage Claims, a CGL Policy also provides coverage if the affected party sues the company for libel and slander for something you or your employees inadvertently said.
3. Coverage against Personal and Advertising Injury: An additional Coverage offered under a CGL Policy is that of Personal and Advertising Injury. For example, if the Insured Company gets sued for Copyright Infringement, such a claim would be covered by a Comprehensive General Liability Insurance.
4. Peace of Mind: A CGL Policy offers Peace of Mind since the Insured is secure in the knowledge that the business is protected against various claims which are increasingly common in everyday scenarios.

Commercial General Liability Insurance Policy provides coverage for a wide range of claims faced by businesses when they are conducting their normal business operations.

Some examples of Commercial General Liability Insurance Claims covered by the CGL Policy are as follows:

Slip and Fall Accidents

If a customer trips and falls on your business premises and sustains injuries as a result, the customer might sue the business owner. A CGL Policy will provide coverage for Defence Costs and Compensatory Damages in such a case. Such kinds of claims are common for restaurants, hotels and malls.

Product Liability Claims

If a product manufactured or sold by the company is defective and causes injury or illness to the product user, the consumer might sue the company in such a case.

A Commercial General Liability Insurance will provide coverage for such claims.

Advertising Injury Claims

A Commercial General Liability Insurance Policy also cover claims alleging Libel, Slander, Copyright Infringement arising in the course of advertising the Insured Company’s products.

Thus, a CGL Policy provides coverage against a wide range of claims likely to be faced by businesses in everyday situations.