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Dottie Perry
Dottie Perry
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Understanding a Small Business Commercial General Liability Policy: Break Out Your Legal Dictionary

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Small and large businesses, alike, carry Commercial General Liability ("CGL") policies. Understanding those policies is necessary to developing corporate governance, risk management policies, and compliance systems to avoid the conduct to which CGLs apply, because, as the name suggests, that conduct exposes businesses to legal liability. It is also necessary to understand your particular CGL policy language in order to know what conduct is not covered, but that may create liability, regardless.

A common type of CGL is the "occurrence" based policy, under which coverage is triggered by an event. A "covered event" is usually briefly described in he policy, and is more specifically carved out by the policy's exclusions. Another type of CGL is the "claims-made" policy, which is triggered when an insured reports an incident and makes a claim for coverage. It is imperative under both policies that coverage claims are made in a timely fashion. Failing to report an event can give the insurer a legal basis for refusing coverage, regardless of whether the claim is expressly covered by the policy language.

Two types of coverage under a CGL are indemnification and litigation. A duty to indemnify the insured is the duty to compensate for damages or for a legal judgment rendered against the insured when it's been found liable for harming someone or something. The litigation duty is the insurer's duty to defend the insured if it is sued, which includes hiring and covering the cost of legal representation, and the cost of defending against the suit itself.

To determine whether coverage is afforded by a policy, insurers sometimes employ lawyers to review the policy and the claim in order to prepare a Coverage Opinion, which provides the legal basis for either the extension of coverage, or denial of it. Insured companies who receive coverage opinions should be wary of the insurer's intentions, as a coverage opinion is a sign that the insurer is doubtful that a duty to cover a claim exists. Even more concerning is the Reservation of Rights letter, which is typically a pre-cursor to a formal denial letter.