Business Premises, Products, and Contracts

Premises and Ongoing Operations Liability

Commercial General Liability (CGL) policies protect businesses against claims for bodily injury and property damage. Premises, operations, products, and completed operations represent the four primary physical liability exposures addressed by the CGL policy. The first two exposures, premises and ongoing operations, address harm linked to a business location or active work.

Premises liability covers bodily injury or property damage arising from physical conditions on owned, rented, or occupied real property. These exposures can arise at buildings, temporarily occupied spaces, parking lots, and walkways when the business may be legally responsible for an injury or property damage there. For example, a customer slipping on a wet floor inside a retail store is a classic premises liability claim. Similarly, a loose stair railing in a leased business office that injures a visitor represents a premises liability exposure.

Ongoing operations liability can arise from work that has not been completed or abandoned, including an injury at a job site while workers are temporarily away. Unlike premises liability, operations liability applies to work performed either on the insured's own premises or away at a customer's job site. For instance, a roofing contractor dropping tools onto a pedestrian's car while actively repairing a roof is an operations liability loss. Likewise, a plumber accidentally breaking a water pipe while actively installing a fixture inside a client's home is an ongoing operations exposure.

Under the standard Insurance Services Office (ISO) CGL form, covered premises and ongoing operations losses generally count toward the General Aggregate limit and are also subject to the Each Occurrence limit.

Products and Completed Operations Hazards

The products liability exposure involves bodily injury or property damage caused by goods manufactured, sold, handled, distributed, or disposed of by the insured. Under the standard ISO CGL products-completed operations hazard, injury or damage arising from a product generally qualifies only after the product has left the insured's physical possession and occurs away from premises the insured owns or rents. For example, a manufactured toaster catching fire in a consumer's kitchen three months after purchase is a products liability claim.

Location matters when distinguishing products from premises losses. If a restaurant meal causes food poisoning while the customer is on the restaurant's premises, the injury is generally treated as a premises and operations exposure rather than a products-completed operations exposure. Conversely, a packaged food item purchased at a grocery store and consumed off premises causing illness falls under the products hazard. Notably, the products hazard does not cover damage to the defective product itself, only the resulting harm to other persons or property.

Completed operations liability covers bodily injury or property damage arising from work that has been completed or abandoned by the insured. To qualify under this hazard, injury or damage arising from completed work must occur away from premises the insured owns or rents. An electrical fire that ignites two weeks after a contractor finishes rewiring a commercial building is a completed operations claim. Similarly, a deck collapsing several months after a carpenter built it, causing injury to party guests, represents a completed operations exposure.

Under the standard ISO CGL form, work can qualify as completed when it meets the policy's completion rules; the contractor does not have to leave the job site. Work is deemed completed when all operations called for in the contract have been finished. Under the standard ISO CGL form, work is also deemed completed when all work at a job site is finished if the insured's contract calls for work at more than one job site. Additionally, work is deemed completed when the part of the work done at a job site is put to its intended use by someone other than another contractor or subcontractor working on the same project. CGL coverage generally does not pay to correct the contractor's defective work itself, but coverage for resulting damage can depend on what was damaged and whether a subcontractor performed the work.

Occurrence Timing Across Policy Periods

Under an occurrence-based CGL policy, the date bodily injury or property damage occurs determines which policy period may respond, not the date a product was made or work was performed.

Consider a contractor who installs wiring: if an electrician finishes work in May and a resulting fire first causes damage in December, an occurrence-based policy covering December may respond, subject to its terms. The May policy is not triggered merely because the work occurred during that term.

A similar rule applies to manufacturing. If a manufacturer makes a toy in one policy year and it injures a child in the next, the occurrence-based policy covering the date of injury may respond, subject to its terms. Knowing the date of the resulting harm is essential for determining which policy applies.

Contractual Liability and Insured Contracts

Contractual liability can arise when one party agrees by contract to assume another party's liability. However, a party can also be legally liable for another party's acts without assuming that liability by contract, such as when an employer is liable for an employee's work-related negligence.

Businesses often use specific contractual clauses to manage risk. A hold harmless agreement generally requires one party to protect another against specified claims; an obligation to provide a defense depends on the agreement's wording. An indemnity agreement requires one party to compensate another for specified losses, which may include covered damages or legal costs. A certificate of insurance provides evidence of a policy but does not establish that a particular contractual liability obligation is covered.

The standard ISO CGL form excludes bodily injury or property damage liability assumed in a contract. However, this exclusion makes two critical exceptions: it does not apply to liability the insured would have had in the absence of the contract, and it does not apply to liability assumed under an insured contract. CGL contractual liability coverage can apply to third-party bodily injury or property damage liability assumed under an insured contract, subject to policy terms; it does not cover the cost of fulfilling a contract or economic loss from breach alone.

The standard ISO CGL policy defines six specific categories of agreements as an insured contract. These are: (1) a lease of premises, except for the portion that indemnifies another party for certain fire damage to the leased premises; (2) a sidetrack agreement with a railroad company; (3) an easement or license agreement, except one connected with construction or demolition operations on or within 50 feet of a railroad; (4) an obligation to indemnify a municipality as required by an ordinance, except in connection with work for a municipality; (5) an elevator maintenance agreement; and (6) the part of another agreement pertaining to the insured's business under which the insured assumes another party's tort liability, subject to the definition's exclusions. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.

Under that sixth category, a subcontractor's agreement to assume a general contractor's tort liability for a third party's job-site injury may qualify as an insured contract, subject to policy terms and applicable law. However, the standard ISO CGL insured contract definition excludes certain agreements to indemnify an architect, engineer, or surveyor for injury or damage arising from specified professional services. It also restricts certain agreements involving construction or demolition near a railroad, so a contractor should check whether an endorsement or separate coverage is needed. Finally, defense costs for an indemnified party under an insured contract can be covered within the policy limits or as supplementary payments if specific conditions are met.