by Wilton H. Strickland

Liability insurance is often forefront in the minds of both plaintiffs and defendants, and with good reason: plaintiffs want the security of knowing that any settlement or judgment they procure will be paid, and defendants want the security of knowing that their insurers will be the ones paying. While this yearning is understandable, it must be tempered with the knowledge that liability insurance is not a thick, impenetrable security blanket. A more apt analogy is a suit of armor — protective, but also with various gaps through which the occasional sword might slip.

Liability insurance comes in many sizes and shapes. For purposes of this article I will discuss the Commercial General Liability (“CGL”) insurance policy, a standard type of coverage used by many businesses to protect themselves against third-party lawsuits. As always, I do this solely for educational purposes and encourage you to contact me or another attorney licensed in your jurisdiction if you have a specific question.

Establishing Coverage

The mere filing of a complaint against an insured does not obligate the insurer to provide a defense or to pay an eventual settlement or judgment. Instead, one must look to the policy and ask whether it offers coverage, taking into account the complaint (treating the allegations as true) and any known facts that might also satisfy the policy’s terms. Policies are interpreted strictly against the insurer and in favor of the insured, meaning that coverage will be found if possible under any reasonable reading.

All that being said, CGL coverage is somewhat narrow and requires establishing an “occurrence” that causes either “bodily injury” or “property damage.” Some CGL policies offer additional, even narrower types of coverage, but the foregoing coverage is the most prevalent.

Establishing An “Occurrence”

The “occurrence” is the root from which sprout the branches of coverage for “bodily injury” and “property damage.” A poorly drafted complaint could strike the root and leave no CGL coverage regardless of how serious the plaintiff’s harm might be, so it makes good sense to pause and consider what this word means.

CGL policies typically define “occurrence” as an accident. Though the word “accident” receives no policy definition of its own, courts treat it in a common-sense manner. For example, a slip and fall on the insured’s premises is an accident and thus covered. By contrast, if the insured punches the plaintiff or otherwise willfully orchestrates the plaintiff’s harm, this is not an accident and thus not covered. I have seen many complaints that allege willful and malicious conduct throughout, a manner of pleading that greatly endangers the likelihood of coverage.

Things get murky when the complaint alleges intentional conduct but no intentional harm. For example, what if a general contractor intentionally builds a house but did not intend for the house to violate the building codes or other standards of quality? What if an attorney intentionally offers legal advice but did not know that the advice was grossly inaccurate? These do not appear to be accidents, but courts differ on whether such intentional but ignorant conduct qualifies as such. An argument can be made either way, so the safest bet is to review decisions from the specific jurisdiction or court where you are litigating.

Establishing “Bodily Injury”

Assuming that you have sufficiently established an “occurrence,” your task remains incomplete, for now you must establish that the occurrence caused a specific type of harm covered by the policy. One such harm is “bodily injury,” whose typical policy definition is slightly redundant: “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.”

While it’s often easy to ascertain whether a plaintiff suffered a bodily injury, what happens if the plaintiff alleges emotional distress or other intangible harm? Courts typically require a physical manifestation of harm to qualify as a “bodily injury,” and they sometimes also require medical findings rather than the plaintiff’s mere say-so. For example, tremendous grief likely does not qualify as a bodily injury; tremendous grief that requires treatment for nausea, migraines, sleep loss, or gastrointestinal problems likely does.

While this might seem like splitting hairs, a failure to allege a physical manifestation of harm can have devastating consequences. In 2011, I made various arguments for summary judgment against a complaint seeking CGL coverage for a consent judgment worth almost $4 million, and the one argument the court accepted was that the complaint’s generic allegations of grief and anxiety didn’t cut it — if the complaint simply had alleged a physical manifestation of harm, the outcome likely would have been different. (This was the Conley case referenced in my personal bio.)

Establishing “Property Damage”

Perhaps the plaintiff did not sustain an injury, but rather alleges “property damage.” Most CGL policies define this to mean harm to the property or the loss of its use, and courts generally require a showing of some physical, tangible alteration — mere economic harm does not suffice. For example, the allegation that a demolition crew leveled the wrong building likely triggers coverage, but the allegation that a nearby adult movie theater has diminished property values likely does not.

Moreover, a product that damages only itself is often regarded as mere economic harm, such as a defective roof that needs replacement but has not damaged the house or its contents. Many courts treat such allegations as concerning contract and warranty, thus falling outside the realm of torts that CGL policies are designed to cover. If the product damages itself and other property belonging to the plaintiff, however, coverage is more likely triggered.

Avoiding Exclusions

Even if a complaint establishes an “occurrence” along with either “bodily injury” or “property damage,” the journey hasn’t ended yet. Now it becomes necessary to examine the policy’s exclusions, which can remove coverage even if it otherwise exists.

Exclusions are interpreted even more strictly against the insurer, and they can be highly variable depending on the number of endorsements tacked onto the policy. A typical CGL policy will exclude coverage for the following types of claims and harms:

• Injury expected or intended by the insured
• Contractual claims
• Liquor liability
• Claims coverable by worker’s compensation
• Employment-related claims
• Professional services
• Pollution
• Aircraft, automobiles, watercraft
• War
• Damage to the insured’s own property, own work, or own products
• Product recalls
• Crimes

Searching For Exceptions To The Exclusions

Do not despair if your claim falls into an exclusion, for the standard CGL policy also sets forth exceptions that can re-activate coverage. The most frequent exception is for “insured contracts” that are defined in the policy and override several of the exclusions listed above, and there are various other exceptions that you should examine carefully to ascertain whether coverage indeed still exists.

Lessons

The purpose of liability insurance is to provide peace of mind, but plaintiffs as well as defendants should not be lulled into thinking that such insurance will shield them from all the slings and arrows of outrageous fortune. If you have CGL or some other type of liability insurance, become familiar with the policy’s terms, discuss them with an attorney if you have doubts about their scope, and report any incidents or claims to your insurer immediately.