Duty to Indemnify – Bodily Injury and Property Damages – New Appleman on Insurance Law Library Edition, Chapter 18

   By Martha Kersey, Esq. 

This chapter addresses an insurer’s obligation to indemnify its insured for damages for “bodily injury” and “property damages” under Coverage A of a commercial general liability policy.  Coverage A of a standard commercial general liability (“CGL”) policy covers damages an insured is obligated to pay as a result of “bodily injury” or “property damage” because of an “occurrence” subject to the terms, conditions and exclusions of the policy.

This chapter begins with Section 18.01[1] containing  an analysis of the scope of the duty to indemnify.  An insurer’s duty to indemnify its insured is routinely recognized as narrower than its duty to defend.  Although, as explained in Chapter 17, an insurer may have a duty to defend any claim against its insured which arguably or potentially falls within the terms of the policy, an insurer is only obligated to indemnify its insured for claims that actually fall within the terms of the policy.  Section 18.01[2] addresses the shifting burdens of proof in establishing the right to indemnity.  In the majority of jurisdictions in order to be entitled to indemnity the insured has the initial burden of proving that the claim falls within the terms of the Coverage A insuring agreement.  If that is established, the burden then shifts to the insurer to prove the application of an exclusion or policy provision that would bar coverage.  If the insurer does so, the burden then shifts back to the insured to prove that the claim falls within an exception to the applicable exclusion.  In a minority of jurisdictions, the burden is on the insurer to prove that the claim does not fall within the insuring agreement or is barred by an exclusion.  If the insurer does so, the burden then shifts to the insured to prove that an exception to an applicable exclusion applies.

Section 18.02 addresses what the insured must establish to prove that the claim falls within the insuring agreement.  In the typical Coverage A insuring agreement, an insurer agrees to indemnify its insured for “damages” that the insured is legally obligated to pay because of “bodily injury” or “property damage” that are caused by an “occurrence.” The definition of these terms, and how they apply to particular situations, have been heavily litigated across the country, frequently with different results.   Section 18.02[3] addresses the definition of “bodily injury” typically included in the CGL policy.  Common issues that arise under the definition of “bodily injury,” such as whether emotional distress constitutes “bodily injury,” are examined.

“Property damage” in the CGL policy is usually defined as: (1) damage to tangible property and loss of use thereof, and (2) loss of use of tangible property that has not been physically injured.  Section 18.02[4][b] addresses the definition of “property damage” and the subsequent sections  address a number of issues that have arisen under that definition such as whether diminution in value of property constitutes “property damage” and whether electronic data is “tangible property.”

In order to fall within the insuring agreement the “bodily injury” or “property damage” must be the result of an “occurrence.”  “Occurrence” is typically defined as “an accident, including continuous repeated exposure to substantially the same general harmful conditions.”  Section 18.02[6] addresses the definition of an “occurrence.”  Several issues concerning the definition of “occurrence” have arisen including: (1) whether the act or the resulting injury have to be an accident in order to constitute an occurrence; (2) the number of occurrences, such as whether mass-tort claims resulting from the failure of a product, are the result of a single or multiple occurrences; and (3) when does an “occurrence” take place, at the time of the act causing damage or at the time of the actual damage?  These issues are addressed in Section 18.02[5].

The final issue addressed under the insuring agreement is the definition of “damages” which is usually undefined in a CGL policy.  Section 18.02[7] addresses how courts have generally interpreted it, and addresses common disputes involving the interpretation of the term, such as whether it includes fines or penalties.  Section 18.02[8] addresses the requirement that the insured be “legally obligated to pay” damages and whether the provision actually requires a judicial determination of liability, and if not, how much less is required.

If the insured is able to establish that the claim against it falls within the Coverage A insuring agreement, the burden then shifts to the insurer to prove that an exclusion or other policy provision applies to bar coverage. Section 18.03 addresses the 12 typical exclusions found in Coverage A. The purpose of these exclusions is to eliminate three basic types of exposures under the CGL. The first type of exposure not meant to be insured under the CGL is for risks that are specialized or insured under separate policies such as:

Workers’ compensation and similar laws;

Employers’ liability;

Aircraft, auto and watercraft;

Mobile equipment; and

Personal and advertising injury (which would be covered under Coverage B of the CGL insurance).

The second type of exposure meant to be eliminated is exposure for intentional actions or business activities and includes the following:

Expected or intended injury;

Contractual liability;

Damage to property;

Damage to your product;

Damage to your work;

Damage to impaired property or property not physically injured; and

The recall of products, work or impaired property.

Finally the third type of exposure not intended to be covered is for risks that are often perceived as being too difficult to underwrite and includes the following exclusions: pollution, war, and electronic data.

The specific exclusions discussed in Section 18.03 are:

Expected or Intended Injury;

Contractual Liability;

Workers’ Compensation and Similar Laws;

Employer’s Liability;

Pollution;

Aircraft, Auto or Watercraft;

Mobile Equipment;

War;

Damage to Property;

Damage to Your Product;

Damage to Your Work;

Damage to Impaired Property or Property Not Physically Injured; and

Recall on Products, Work or Impaired Property.

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