1. Finance 431: Property-Liability Insurance Lecture 14: Commercial Liability Insurance – 3 (Now for the really fun part!)

2. Announcement On Thursday, March 6, Bob Conger will lecture on Workers Compensation. The lecture should be posted later this week. For class, read Chapter 12 – Workers’ and Unemployment Compensation in the textbook.

3. Commercial General Liability (CGL) Continued Coverage A - Bodily Injury and Property Damage Liability Coverage B - Personal and Advertising Injury Liability Coverage C - Medical Payments Limits Triggers - Occurrence vs. Claims Made Extended Reporting Periods Additional CGL Provisions

4. Limits of Insurance General Aggregate Limit Most insurer will pay in total for: Coverage A except products-completed operations Coverage B and Coverage C Products-Completed Operations Aggregate Each Occurrence Limit Coverage A andCoverage C Personal and Advertising Injury Limit Fire Damage Limit Medical Expense Limit Coverage C - per person

5. Example of CGL Limits General Aggregate Limit$1,000,000 Products and Completed Operations Limit 1,000,000 Per Occurrence Limit for Coverages A and C 500,000 Personal and Advertising Injury Limit 500,000 Fire Damage Limit 100,000 Medical Expense Limit (per person) 25,000

6. Given the limits from the prior slide, assume each of the following covered claims occurs in the order presented. Indicate how much the CGL insurer will pay for that claim. The policyholder is an electrical contractor that rents a building for its operations.

7. #1 - While an electrician is installing a new fuse box is a customer’s home, he causes a short circuit that starts a fire that burns the home down. The contractor is held liable for $600,000. A)0 B)$100,000 C)$500,000 D)$600,000 E)None of the above

8. #2 - An electrician installed a new electric outlet in a customer’s living room. Several days later the customer plugs something into the outlet and receives a serious electric shock. He is hospitalized for burns. The contractor is held liable for $1,000,000. A)0 B)$25,000 C)$500,000 D)$1,000,000 E)None of the above

9. #3 - One of the contractor’s employees disposes of a lighted cigarette improperly, starting a fire that damages the building the contractor rents. The contractor is held liable for $500,000. A)0 B)$100,000 C)$400,000 D)$500,000 E)None of the above

10. #4 - The contractor calls itself the Allstate Electric Contractor. Allstate, the insurance company, sues the contractor for copyright infringement and wins an award of $750,000. A)0 B)$400,000 C)$500,000 D)$750,000 E)None of the above

11. #5 - An electrician installed an electric line to a shed on a customer’s property. The following week, after a rainstorm floods the area, a short circuit burns the shed down and destroys all the tools the customer stored there. The contractor is held liable for $300,000. A)0 B)$100,000 C)$300,000 D)$500,000 E)None of the above

12. Triggers Occurrence Bodily injury or property damage must occur during the policy period Claims-Made Claim must be first made during the policy period or extended reporting period Injury or damage must not have occurred before the policy’s retroactive date (if any) or after the end of the policy period

13. Extended Reporting Periods Basic Extended Reporting Period (BERP) Automatic if policy is canceled or not renewed Renewal has later retroactive date or is occurrence policy Covers claims reported within 5 years if occurrence reported within 60 days of end of policy period Supplemental Extended Reporting Period (SERP) Must be purchased within 60 days of end of policy period Extends reporting period for unknown occurrences indefinitely and for known occurrences if claim develops after 5 years Cost can be up to 200% of policy premium Reinstates policy aggregate limits

14. Claims-Made Examples Policy Effective 1/1/93-12/31/93 Retroactive Date 1/1/93 Premium $40,000 Policy Limits $500,000 per occurrence $500,000 aggregate Policy not renewed No new policy is available Insured purchases SERP for $80,000 in January 1994

15. #1 -Customer injured on 7/10/93 Claim filed 2/15/94 Claim settled for $200,000 on 6/14/95 A)Not covered B)Covered under the basic policy for $200,000 C)Covered under the BERP for $200,000 D)Covered under the SERP for $200,000 E)None of the above

16. #2A Customer injured on 8/15/93 Incident reported to insurer on 12/18/93 Claim filed 6/10/97 Claim settled for $400,000 on 2/28/99 Covered under what policy? A)Not covered B)Covered under the basic policy C)Covered under the BERP D)Covered under the SERP E)None of the above

17. #2B Customer injured on 8/15/93 Incident reported to insurer on 12/18/93 Claim filed 6/10/97 Claim settled for $400,000 on 2/28/99 Covered for how much? A)0 B)$200,000 C)$300,000 D)$400,000 E)None of the above

18. #3A Customer injured on 5/1/93 Incident not known by insured until claim filed on 8/1/99 Claim settled for $700,000 on 3/10/02 Covered under what policy? A)Not covered B)Covered under the basic policy C)Covered under the BERP D)Covered under the SERP E)None of the above

19. #3B Customer injured on 5/1/93 Incident not known by insured until claim filed on 8/1/99 Claim settled for $700,000 on 3/10/02 Covered for how much? A)0 B)$200,000 C)$500,000 D)$700,000 E)None of the above

20. Additional CGL Provisions Exclusion of specific accidents, products, work or locations Laser beam endorsement Special claims-made conditions Notice of an occurrence is not notice of a claim Coverage is excess over occurrence policy with earlier effective date Insured’s right to claim information Claims-made versus occurrence premiums