Chapter 26

Public Liability : I

Presented by:
U Lwin Oo
General Manager
Myanma Insurance
 Public Liability

v The term public liability is intended to encompass all the liability

exposures of an individual or business firm other than that to
employees or that arising out of the ownership or use of automobiles,
airplanes, or watercraft.
v Within the insurance industry, this subset of liability insurance
usually is referred to as General Liability Insurance.

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 The Negligence Exposure
vBefore considering liability policies, it will be well to classify the
coverage offered under general liability policies.
vThese are:
(1) direct liability,
(2) contingent liability,
(3) contractual liability, and
(4) medical payments.
vAs we shall see, medical payments insurance is not a logical part of
this area but is included because it facilitates the discussion of public
liability and because medical payment coverage frequently is included
in liability policies.
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 Direct Liability

v One is said to have direct liability when a claim arises out of one’s
own personal acts or out of property owned or controlled by the one
being held responsible.

v For direct liability to be present, there must be an unbroken

relationship between the person performing the negligent act and
the resulting injury or loss, or between the property within the
ownership or control of the one alleged to be negligent and the
damage or loss.

v Typically, liability contracts are designed to protect the negligent

party for direct liability.
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 Contingent Liability
v One may have an indirect or contingent liability exposure.
v The most frequent examples arise out of independent contractor
relationships.
v You hire an independent contractor to remove a tree.
v In the process of blasting the stump, injury occurs to another or to
another’s property.
v You may be successful in proving to the court that you have no
responsibility, but the process of proving this may be expensive, or
you may not be successful because:

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 Contingent Liability
(1) it was an unlawful activity,
(2) it was a situation that does not permit delegation of
responsibility,
(3) the work was inherently dangerous, or
(4) you supervised too closely.
v In such situations, specific contingent liability insurance is
usually necessary to provide for the cost of defending suits
brought against you, even if the claim proves to be false or
groundless.

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 Contractual Liability
v Contractual liability is liability that, in the absence of a contract,
would fall on another.
v For example, assume you rent some property and the lease
specifies that the property owner is to be held harmless for any
liability arising out of the property.
v By the terms of the contract, you have assumed potential liability
that might not have fallen on you by operation of the negligence
law.
v Such assumed liability would not be covered by a basic liability
policy unless such risks are specifically included.
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 Medical Payments
v It has become common practice to make available medical expense
benefits in many liability insurance contracts covering bodily injury.
v When included in the contract, the medical expenses of the injured
party will be paid (within the policy limits) without regard to legal
liability, as long as there is a clear relationship between the
activities or property of the insured and the resulting injury to a
third party.
v Obviously, this cannot be blanket accident insurance protection for
the entire population.
v Its primary purpose is to discourage lawsuits by making prompt
payment of the injured party’s medical costs.
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 Form of the Liability Policy
v Conceptually, the liability policy, like most insurance contracts, is
divided into four major parts: (1) declarations, (2) insuring
agreements, (3) exclusions, and (4) conditions.
v In addition, endorsements are often added to modify the coverage
provided by the underlying contract.
v Physically, the Commercial General Liability Policy (CGL)2 consists
of:
1. Common Policy Declarations;
2. Common Policy Conditions;
3. Commercial General Liability Declarations;

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 Form of the Liability Policy (C0nt’d)
4. A Commercial General Liability coverage form; and
5. Amendatory endorsements as needed.
v The listed documents can be used alone to provide a mono-line
liability policy or attached to other forms to provide a commercial
multiple-line policy.

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Declarations
v The declarations pages identify the insurer, the insured, the type of
policy, the period of coverage, the amount(s) of coverage, and the
premium to be charged; they also list any forms or endorsements
attached.

Insuring Agreements
v The insurer agrees to pay on behalf of the insured all sums that the
insured shall become legally to pay as damages because of the perils
insured against.
v Although the trend is to combine into one insuring agreement both
bodily injury and property damage, some liability policies repeat the
insuring agreement once for bodily injury liability-------injury to
another’s person, and once for property damage liability-----damage
to property of others including loss of use.
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Time of loss
v Liability policies may be written to cover the period when the
negligent act occurs or when the claim is brought against the
insured.
v Both approaches are discussed later.

Occurrence Basis
v In the past, liability policies were generally written on the basis
that coverage applied to a claim arising out of an incident that took
place while the policy was in force, regardless of when the claim
was presented.
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Claims-Made Basis

v When the liability coverage is written on the basis of claims made, it

will provide that the policy will respond to “any claim made against
the insured during the coverage period”.
v The coverage period is found by combing the present policy period of
the contract with prior policy periods back to some retroactive date
that is also set forth in the policy.
v The retroactive date usually is the inception date of the first policy
written for the insured on a claims-made basis.
v Only claims arising from the negligent acts or omissions that take
place after this retroactive date are covered.

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Structured Settlements

v Historically, bodily injury awards have been settled by a lump-sum

payments.
v The premise has been that once a jury fixes the amount of the
judgment, this entire amount is due and payable.

v The American Bar Association, with considerable encouragement

from the liability insurers, proposed a Model Act providing for the
use of annuity payments in lieu of the lump sum for those suffering
bodily injury.

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Structured Settlements (Cont’d)

v This Model Act provides that structured settlement would take

place if
(1) the nature of the injuries were such that a “large” award was
contemplated, and

(2) either party elects to have the case tried under the Model Act.
v The level of payments would change over the period of settlement to
reflect changes in inflation and in need at the time payments are
made.

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Punitive Damages
v Punitive damages are awarded to the plaintiff in a negligence
liability case to punish the defendant for gross negligence or
wanton disregard for the rights of others.
v Punitive damages are awarded in addition to compensatory
damages, which are intended to reimburse the plaintiff for injuries
or property damage sustained.
v The punitive damages frequently are much greater than the
compensatory damages in the same case.
v A final criticism of the present system is that it is contrary to public
policy for punitive damages to be covered by insurance.

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 Punitive Damages (Cont’d)
v If punitive damages are awarded to punish unacceptable behavior,
the punishment should fall on the perpetrator of the unacceptable
behavior, and not on an insurance company that had no part in that
behavior.
v Also, if the punishment falls on an insurance company, it is likely to
be spread over the insurance-buying public through higher insurance
rates.
v Some insurance companies now exclude punitive damages from
coverage under at least some of their liability policies.
v In the absence of such an exclusion, a legislative prohibition, or a
public policy prohibition, the courts are likely to interpret liability
policies to cover punitive damage awards.
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Accident Versus Occurrence
v Historically, liability policies were written on an accident basis.
v Accident was not defined in the policy but was generally thought to
mean a sudden and unexcepted event.
v Today, most liability policies are being written on an occurrence
basis.
v Typically, this is defined as follows: “Occurrence means an accident,
including continuous or repeated exposure to substantially the same
general harmful conditions”.
v The retention of the term accident is intended to help denote the
time of coverage as well as the application of policy limits.
v If there is a series of events related to one loss cause, then the policy
limits are available only once, regardless of the number of losses.
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Property Damage

v Generally, the policy states that “property damage 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 has not been physically
injured.”

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Personal Injury and Advertising Injury
v In addition to bodily injury and property damage, the CGL also can
cover liability arising out of personal injury and advertising injury.
v “Personal injury” is defined as injury, other than bodily injury,
arising out of one or more of the following offenses:
a. False arrest, detention, or imprisonment;
b. Malicious prosecution;
c. The wrongful eviction from, wrongful entry into, or invasion of
the right of private occupancy of a room, dwelling, or premises
that a person occupies by or on behalf of its owner, landlord, or
lessor;

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Personal Injury and Advertising Injury (Cont’d)
d. Oral or written publication of material that slanders or libels a
person or organization or disparages a person’s or organization’s
goods, products, or services; or
e. Oral or written publication of material that violates a person’s
right of privacy.

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Personal Injury and Advertising Injury (Cont’d)

v “Advertising injury” is defined as injury arising out of one or

more of the following offenses:
a. Oral or written publication of material that slanders or libels
a person or organization or disparages a person’s or
organization’s goods, products, or services;
b. Oral or written publication of material that violates a
person’s rights of privacy;
c. Misappropriation of advertising ideas or style of doing
business; or
d. Infringement of copyright, title, or slogan.
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Personal Injury and Advertising Injury (Cont’d)

v The insuring agreement makes it clear that “advertising injury”

must arise out of the insured’s advertising operations, and
“personal injury” cannot arise out of advertising operations.
v Libel and slander are sometimes classified as intentional torts,
but it should be noted that they are not always intentional.
v The perpetrator may publish the information intentionally but
believe it to be true.
v Publication of true information even if it is unfavorable, is not a
tort.

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Personal Injury and Advertising Injury (Cont’d)

v One should also note that the CGL specifically excludes any claim
arising from the circulation of information known by the insured
to be false.
v Thus, libel and slander may sometimes be intentional torts, but,
if they are intentional, they are not covered by the CGL policy.

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Illegal Acts

v Tort liability arising out of the violation of criminal law may be

covered by liability policies.
v The insurer, however, provides no protection against a criminal
action.
v Where a single act results in a civil action as well as criminal action,
the liability policy will not deny liability protection merely because
there was a violation of a criminal law.
v The application of this concept bears out the fact that this is
insurance involving the public interest, and the innocent third party
should be protected.

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Defense

v A supplement to the basic insuring agreement of liability policies

states that the insurer will provide investigation, defense, and
settlement of claims arising under the policy.
v These costs, which may be considerable, are paid in addition to the
policy limits of the contract.
v The insurer agrees to defend, even though the claim against the
policyholder is false or fraudulent.
v As indicated earlier, the insurer must defend the insured when a
complaint has been filed against the insured and the allegations are
considered as being within the policy coverage.
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Policy Limits

v Peculiar problems may arise when judgments or claims in excess

of policy limits are made against the insured.
v The basic proposition is that the policy limits represent the
insurer’s maximum liability regarding a judgment or settlement.

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 Exclusions
v The particular liability policy being considered will largely
determine the specific exclusions, but in general, most of the
exclusions are included to avoid
(1) duplication of coverage with other liability policies;
(2) the catastrophe hazard;
(3) liability arising out of liquor control laws;
(4) liability for damage to property in the care, custody, or control of
the insured;
(5) contractual liability;
(6) liability arising out of contamination or pollution;
(7) business risk exclusion; and
(8) products recall.
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Conditions
v The following are some, but not all, of the conditions usually
contained in general liability policies.

Inspection
v Some general liability policies give the insurer the right, but not the
obligation to inspect the insured’s property or operations.

v The policies point out that neither the existence nor the exercise of
the right shall constitute an undertaking to determine or warrant
that the property or operations are safe.

v Without this latter statement, there is the danger that the insurer
could be found negligent and, therefore, subject to a liability claim
separate and apart from the insured’s liability coverage.
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 Other Insurance

v Older policies provided that losses be divided among insurers in the

proportion that the applicable limit of each policy bore to the total
limits.
v The newer approach, called contribution by equal shares, provides
that a loss will be divided equally among the insurers up to equal
limits of liability.
v If the division is to be made between two policies, one using the
older condition and one using the newer, the older contribution by
limits method will apply.

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 Other Insurance (Cont’d)
v The commercial general liability policy is excess in any claim
involving
(1) property insurance covering the insured’s work;
(2) property insurance covering premises rented to the insured; or
(3) liability arising from the ownership, maintenance, or use of
aircraft, watercraft, or autos.
v Such claims are rare (especially item 3, since aircraft, watercraft, or
autos are excluded under the policy).

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 Insured’s Duties

v The exclusion that stipulates that covered injury or damage neither

be expected nor intended from the insured’s point of view has the
effect of limiting the insurer’s liability and placing a distinct burden
on the insured.

v The practical consequence is that the insured is required to take

reasonable steps, at the insured’s own expense, to prevent bodily
injury and property damage from arising out of conditions that have
produced an earlier liability claim.

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 Financial Responsibility

v As stated earlier, automobiles are usually excluded from coverage in

general liability policies.
v However, coverage is provided for “mobile equipment”
(1) not subject to vehicle registration,
(2) maintained for use exclusively on the insured’s premises,
(3) designed for use principally off public roads, and
(4) designed or maintained for the sole purpose of giving mobility to
certain specified equipment that forms an integral part of the
vehicle.

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 Territorial Limits

v The coverage parts of the general liability policies state that the
insurance applies only to bodily injury or property damage that
occurs within the coverage territory.

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 Time Limits
v The revised general liability provisions contain a condition that
applies to policies issued for a period greater than one year.
v Thisstates: “The limits of this coverage part apply separately to each
consecutive annual period.”
v The intent is twofold:
(1) to indicate that the aggregate limit applies separately to such
consecutive year, and
(2) to avoid doubling the “per occurrence” limit.
v The second point relates to claims that may be incurred in a second
policy term arising out of an occurrence in a preceding year that had
already exhausted the policy limits.
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Contracts For Insuring Business Liability
Exposure

v Business general liability policies can be divided into two

categories:

(1) the Commercial General Liability Policy, and

(2) specialized General Liability policies designed to cover a

single liability exposure.

v Liability coverage provided under commercial multiple-line

policies are very similar to the Commercial General Liability
Policy.

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Commercial General Liability Policy
v The Commercial General Liability Policy (CGL) was designed to
provide most of the general liability protection needed by most
business firms.
v Firms that need more coverage can obtain it by endorsement to the
CGL or by purchasing a specialty policy in addition to the CGL.
v There are two Commercial General Liability Coverage forms:
(1) an occurrence form and
(2) a claims-made form.

v The only differences between the two forms are occurrence and
claims-made triggers, but these differences appear in several places
in the forms.
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Coverage A----Bodily Injury And Property Damage
Insuring Agreement
v Most of the Coverage A insuring agreement is the same in both the
occurrence policy and the claims-made policy. The differences are
noted below.
v In both policies, the insurer agrees to pay on behalf of the insured
the sums that the insured becomes obligated to pay because of bodily
injury and property damage to which the policy applies.
v The insurer also agrees to defend the insured against any suit
alleging bodily injury or property damage that would be covered
under the policy.
v Defense costs are paid in addition to the limits of liability of the
policy.
v However, the insurer’s duty to defend or pay defense costs ends when
it has exhausted its policy limits in the payment of judgments or
settlements. 38
Exclusions
v The exclusions are identical under the two CGL coverage forms.
v Bodily injury or property damage expected or intended from the
standpoint of the insured is excluded.
v This exclusion does not apply to injury or damage resulting from
the use of reasonable force to protect persons or property.
v Liability assumed under contract (principally hold harmless
agreement) is excluded.
v This exclusion does not apply to certain contracts, called “insured
contracts”, in the coverage form.

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Exclusions (Cont’d)
v The term “insured contracts” is defined to include
(1) leases of premises;
(2) sidetrack agreements;
(3) easements or license agreements, except in connection with
construction or demolition operations on or within fifty feet of a
railroad;
(4) an obligation, as required by ordinance, to indemnify a
municipality, except in connection with work being performed for
the municipality;
(5) elevator maintenance agreements; or (6) any contract pertaining
to the insured’s business under which the insured assumes the
tort liability of another to pay damages for bodily injury or
property damages.
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Exclusions (Cont’d)
v Dram shop liability is excluded.
v The CGL does not cover liability of the insured to provide workers’
compensation benefits, disability benefits, or unemployment
compensation benefits.
v There is an extensive pollution exclusion.
v The policy also contains a war exclusion.
v The CGL also excludes claims arising from the operation of “autos,”
aircraft or watercraft.
v Of all of the exclusions in the CGL, exclusion j, popularly known as
the “Care, Custody or Control Exclusion,” is perhaps the most
troublesome.
v There are six parts to the exclusion, all related to “property
damage” losses. 41
Exclusions (Cont’d)
v The first part excludes damage to property owned, rented, or
occupied by the insured.
v However, there is a very important paragraph at the end of the
exclusions section of Coverage A of the CGL coverage form.
v Subject to the limit for fire damage liability shown in the
declarations, the CGL covers the insured’s liability for damage to
rented premises, a coverage historically provided under a fire
insurance policy and known as fire legal liability coverage.
v The second part of the Care, Custody or Control Exclusion eliminates
coverage for any premises sold, given away, or abandoned by the
insured if the damage arises out of any part of those premises.

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Exclusions (Cont’d)
v Part 3 of the Care, Custody or Control Exclusion eliminates
coverage for damage to property loaned to the insured. This part
does not apply to liability assumed under a sidetrack agreement.
v Part 4 gives the exclusion its popular name. It excludes coverage for
damage to “personal property in the care, custody or control of the
insured.”
v Part 5 and 6 of the Care, Custody or Control Exclusion are business
risk exclusions as discussed earlier in this chapter.
v They related to failure of the insured (or contractors working for the
insured) to perform in a satisfactory manner.
v Part 5 refers to real property, and applies only to real property.

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Exclusions (Cont’d)
v On the other hand, Part 6 refers simply to property, and applies to
either real or personal property.
v Neither Part 5 nor Part 6 applies to liability assumed under a
sidetrack agreement.
v Part 6 does not apply to “property damage” included in the
“products-completed operations hazard,” as defined in the policy.
v Exclusion k, l, and m also are business risk exclusions. Exclusion k
eliminates coverage for property damage to the insured’s product if
the damage is caused by the product or any part of the product.
v Exclusion l applies to property damage to “your work” if the damage
is caused by “your work” and is included in the “products-completed
operations hazard.”
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