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Part of General liability coverage: what counts as third party, and what does not
General liability examples: what the wording tests in each scenario
General liability examples: six invented scenarios run through four tests in the standard ISO wording to show which part of the policy decides each one.
Every situation below is invented. None of them is a real claim, a real dispute, or a real outcome, and none of them ends with a number. These general liability examples exist to show something more useful than a war story: the order in which a coverage question actually gets taken apart, and which piece of the wording does the work at each step.
Because that order never changes. Whatever the incident, the same four tests run in the same sequence, and one of them usually turns out to be doing all the work.
What to take away
- Invented situationsomeone who is not an employee falls in a part of your building during business hours and is injured.
- Invented situationyou install or build something, you leave, and months later the installation fails.
- Invented situationa customer's equipment is at your premises for service, or you are working on a section of their building, and that specific item is damaged.
- Invented situationa rival business complains that your marketing copies theirs or disparages them.
- Invented situationa subcontractor's employee injures a member of the public on your site, and everyone is named in the complaint.
- Invented situationa claim arrives about work you completed years ago, after you had already changed insurers.
The four tests
1. Is there an insured here? The named insured on the declarations page is the obvious one. Beyond that, the policy defines who else counts: employees acting in the course of their work, certain owners or partners, and anyone added by an additional insured endorsement. On the standard ISO forms those endorsements are numbered, and the two that keep turning up in service and construction contracts are CG 20 10, for work in progress, and CG 20 37, which continues the status after the work is complete. Somebody connected to your business is not automatically an insured under your policy.
Four Tests In Sequence
- Is there an insured here?
- Is this the kind of event?
- Does an exclusion apply?
- What does the policy owe?
2. Is this the kind of event the policy responds to?
3. Does an exclusion apply, and does an exception give it back?
4. What does the policy actually owe?
Now run the tests against some invented situations.
Hypothetical: a visitor is hurt on your premises
Invented situation: someone who is not an employee falls in a part of your building during business hours and is injured.
Which test does the work: test one, unexpectedly. The single most important fact is who the person was. If they were an employee injured in the course of their job, this is not a general liability question at all. Injured employees run through the workers' compensation system, and the liability form answers them with the workers' compensation and employer's liability exclusions rather than with coverage. Both routes are explained under workers compensation.
What else would move the answer: whether the location is one the policy actually covers, whether the injury falls inside the policy period on the timing rule the form uses, and whether the person's status is genuinely settled, a worker supplied by an agency, a volunteer, or a contractor's employee are all different problems with different answers.
Hypothetical: your finished work fails and damages the customer's property
Invented situation: you install or build something, you leave, and months later the installation fails. The customer's surrounding property is damaged and the installation itself is ruined.
Which test does the work: test three, and it splits the loss in two. Liability forms are generally not designed to pay for redoing your own defective work, that is a business cost, not a fortuity, and the exclusion for damage to your work says so. "Your work" is itself a defined term, covering work you or your subcontractors performed. Damage the failure causes to other property is a separate question with a different answer, and where nothing but impaired property has been harmed, a further exclusion addresses that too.
What else would move the answer: whether a subcontractor performed the work rather than your own crew, which several wordings treat differently; whether the damage counts as property damage under the policy's definition or as pure economic loss; and which policy period the damage falls into, since the failure and the installation may be years apart.
Hypothetical: property belonging to a client is damaged while you have it
Invented situation: a customer's equipment is at your premises for service, or you are working on a section of their building, and that specific item is damaged.
Which test does the work: test three again, through the exclusion for damage to property, which lists personal property in the care, custody or control of the insured. Liability coverage is generally built around damage to other people's property that you are not handling, and property you have taken charge of is frequently carved out.
What else would move the answer: whether the right home for this exposure is a different policy altogether. Coverage for goods in your custody is usually written elsewhere, which is one reason it pays to think about your operation in terms of exposures rather than product names, see insurance by industry.
Hypothetical: a competitor objects to your advertising
Invented situation: a rival business complains that your marketing copies theirs or disparages them.
Which test does the work: test two. Personal and advertising injury is a closed list of named offenses, not a general promise about marketing disputes: libel, slander or disparagement of goods, products or services; violation of a person's right of privacy; use of another's advertising idea; and infringement of copyright, trade dress or slogan. The complaint either describes an offense on that list or it does not.
What else would move the answer: the timing rule, which for these offenses usually turns on when the material was first published rather than when the complaint arrived. A prior publication exclusion removes coverage for material first published before the policy period began, so material that first appeared before the policy started raises an obvious problem. Beyond that, exclusions in this area are extensive, and disputes framed as breach of contract tend to be treated differently from disputes framed as an offense.
Hypothetical: a subcontractor injures a third party on your site
Invented situation: you are the general contractor, a sub's employee causes an injury to a member of the public, and everyone is named in the resulting complaint.
Which test does the work: test one, in both directions. Whether you are an insured under the sub's policy depends entirely on whether an additional insured endorsement exists there and what it says; the pair that keeps turning up is CG 20 10 for ongoing operations and CG 20 37 for completed operations. Whether the sub is an insured under yours depends on your own wording, and independent contractors usually are not. Being named in a complaint is a separate matter from being answerable for it, and vicarious liability is the doctrine that decides when one business answers for another's people.
What else would move the answer: whether the sub's coverage exists at all and was in force that day; whether the endorsement covers ongoing work only or continues after completion; and which policy is primary, which is a matter of endorsement wording rather than of who is more at fault.
Hypothetical: a claim arrives about work you did years ago
Invented situation: you have changed insurers twice since the job. A claim now lands about work completed under an older policy.
Which Policy Is In Play?
Was the line written occurrence or claims-made?
Occurrence -> the policy in force when the work happened
Claims-made -> check the retroactive date first
Which test does the work: none of the four, until you have answered a prior question, which policy is even in play. That depends on whether the line was written on an occurrence basis, on the CG 00 01 form, or a claims-made basis on CG 00 02, and on the retroactive date if it was claims-made. Get that wrong when switching insurers and you can lose years of protection you already paid for. The mechanics are set out in the policy reading and renewal guide.
The six scenarios side by side
- Visitor injured on the premisesdecided by the insured test, because an employee's injury belongs to the workers' compensation system and the liability exclusions for workers' compensation and employer's liability point there.
- Finished work fails and damages the customer's propertydecided by the exclusion test, split between damage to your work and the exclusion for impaired property.
- Client property damaged while it is in your handsdecided by the exclusion test, through the care, custody or control wording in the damage to property exclusion.
- Competitor objects to your advertisingdecided by the trigger test, because only the enumerated personal and advertising injury offenses respond, and the prior publication exclusion can take even those away.
- Subcontractor injures a third party on your sitedecided by the insured test, on the wording of the additional insured endorsement in the sub's policy.
- Claim about work finished years agodecided before any of the four tests, by whether the form is occurrence or claims-made and by the retroactive date.
Why nobody sensible says "it's covered"
Coverage is a property of one specific contract, read against one specific set of facts, under one state's law. Two businesses in the same trade with policies that look identical from the outside can get different answers, because an endorsement in one of them changed a definition.
Three things follow from that.
An insurer that agrees to defend while reserving its rights is telling you it will fund the defense but has not accepted that it will pay any judgment. That is a normal and important letter. Read it and keep it.
The allegations in a complaint and the facts of the incident are separate inputs. Early in a case the allegations often control what the insurer must do, even where they are wrong.
And an answer given by anyone who has not read your actual policy, including this page, is a guess about a document they have not seen.
When something happens
- Report it the way the policy's notice condition tells you to, and promptly. Late notice is one of the few own goals that can independently sink an otherwise good claim.
- Read the condition covering voluntary payments and assumed obligations before you agree to fix anything or accept responsibility.
- Preserve the evidence while it still existsphotographs, the names of everyone present, the contract, the work order, the maintenance record.
- Keep one incident file per incident, and put the insurer's correspondence in it.
Bottom line
Learn the four tests and you can reason about almost any situation that arises. What you cannot do, and what the invented cases above are designed to demonstrate, is skip to the answer without opening the wording.
Common questions
Why does every situation here end without an answer?
Because the answer lives in one policy, one set of facts, and one state's law, and inventing one would be worse than useless. The purpose of the situations is to show you which part of the wording to open, which is a thing an article can honestly do.
Can two policies respond to the same event?
Frequently, and they can also both decline it. That is why insurers care so much about how an event is described, and why the description you give when you report it matters.
The claim looks obviously groundless. Do I still notify?
Yes, on the terms the notice condition sets. Defending a groundless claim costs money, which is a large part of what the policy is for, and late notice is one of the few problems you can create entirely on your own.
How do I find the four tests in my own policy?
They come out of the insuring agreement, the definitions attached to it, and the exclusions that follow. Read those three together rather than separately, and ask the broker to point at the exact wording where you cannot find it.
