Understanding the Gaps: How CGL Policies May Leave Your Business Exposed
Many business owners believe their Commercial General Liability (CGL) coverage policies automatically extend to every commercial location and all related operations. Yet, ever since the 2017 revisions to the CG0001 form, this assumption can leave businesses exposed to significant risks. Indeed, the International Risk Management Institute (IRMI) has observed a marked narrowing of coverage traditionally offered to general liability insureds—especially regarding premises and operations liability.
Moreover, insurance carriers’ growing reliance on restrictive endorsements in CGL policies has become a troubling trend. These endorsements often limit coverage to certain premises or projects, potentially leaving other operations unprotected. In fact, the situation has become so constrained that some industry professionals now see CGL policies as mainly covering slip-and-fall incidents rather than providing truly comprehensive liability coverage.
In this article, we will discuss the boundaries of CGL coverage, explain how incidental operations factor into your policy, and outline a systematic method for identifying coverage gaps. By clarifying these points, agents can ensure their client’s business is well-prepared to manage liability risks—including coverage for operations necessary or incidental to your business, along with off premises coverage.
Understanding CGL Coverage Policy Structure
A Commercial General Liability policy, commonly referenced as ISO CG 00 01, has three core elements that shape its coverage scope. First is the broad “insuring agreement,” which sets out the basic protection provided. Second, the policy contains exclusions that reduce or remove coverage for specific scenarios. Third, it lays out conditions that govern the responsibilities of both policyholder and insurer.
Standard CGL policy protection typically includes the following:
- Premises operations coverage for incidents at business locations
- Products and completed operations coverage
- Personal and advertising injury coverage
- Property damage resulting from business operations
There are two main varieties of CGL policies: claims-made and occurrence-based. Claims-made coverage responds whenever a claim is reported, regardless of when the incident happened. By contrast, an occurrence policy responds to claims for incidents that happen during the policy’s active period—even if the policy later expires.
Policies can also include excess liability coverage, allowing businesses to increase their protection beyond the standard CGL policy limits. In addition, each policy spells out conditions that define the obligations of both insured and insurer, including protocols for claim filing and dispute resolution. Further adjustments can be made through insurance policy endorsements—for example, the CG2144 endorsement—added at the policy’s start or mid-term.
Identifying Incidental Operations for CGL Coverage
“Incidental operations” refers to secondary business activities that support your primary operations but do not serve as a major source of income. With endorsements like CG 21 44 increasingly attached to policies, it’s more important than ever to recognize these activities. CG 21 44 can strictly limit coverage to designated premises or specific projects.
In general, an operation must be “necessary or incidental to” the designated premises for coverage to apply. For example, if a manufacturing facility offers an on-site cafeteria or runs its own equipment maintenance, these services qualify as incidental to premises. Common examples of automatically included incidental operations include:
- Occasional residential property rental
- School or studio use on premises
- Private garage rental
- Activities often performed by minors
- Non-business tasks tied to business pursuits
The 2017 revisions to CGL forms changed how these incidental operations are addressed. Losses must now happen on scheduled premises or arise directly from the specific project. As a result, organizations need to confirm that their off-premises coverage will cover any work taking place outside the premises.
In practical terms, your operations must show a clear connection to the premises listed on the policy, not just to your overall business. This is critical for multi-site businesses or those taking on projects away from their primary location. Some policies also include a designated operations exclusion or designated ongoing operations exclusion, which can further limit coverage for certain activities.
Real-World Coverage Disputes CGL Coverage
Recent court rulings have influenced how CGL coverage is interpreted, especially regarding incidental operations and off premises coverage. One key example is United States Liability Insurance Company v. Harbor Club, Inc., where a Massachusetts appeals court held that off-premises events must have a direct link to the designated premises to qualify for coverage [8].
Courts have also distinguished between activities broadly associated with a business and those necessary for a specific premises. Merely planning an event at a business location may not activate coverage under a designated premises endorsement.
In Smith v. Burlington Insurance Co., the Tenth Circuit upheld a coverage denial involving a security service claim, despite the declarations page describing the business as a “courier service.” The court ruled that the policy’s merger clause brought the business description into the overall coverage terms.
Meanwhile, Mount Vernon Fire Insurance Co. v. Belize NY, Inc. found that a standalone business description does not restrict coverage unless the policy text specifically states so. This underscores why policy language interpretation is so critical to coverage.
Even though these legal battles can appear technical, their consequences are significant. For instance, a general contractor once faced water damage claims tied to faulty sprinkler repairs. Coverage was denied when the subcontractor’s insurance failed to meet the policy’s warranty conditions, highlighting why it’s crucial to review subcontractor insurance requirements and consider the possibility of a designated work exclusion.
Policy Review Framework
When you set out to review your client’s CGL policy, start by looking closely at the declarations page, which summarizes essential policy details like coverage limits, deductibles, and named insureds.
Pay particular attention to definitions within the policy, as they significantly influence your coverage. In a CGL policy, six key definitions stand out: “bodily injury,” “property damage,” “suit,” “occurrence,” “employee,” and “coverage territory.” These terms set the scope of what the policy considers covered.
The insuring agreement then outlines ten specific requirements that must be met before coverage applies. Confirm that your business activities comply with these terms to avoid unforeseen coverage gaps.
Broadly, your review should include four main considerations:
- The policy’s limits and how they apply to various claims
- Any liability exclusions that restrict coverage for particular operations, such as auto insurance exclusions or an aviation exclusion
- Conditions specifying your obligations after a loss
- Relevant endorsements—like CG 21 53 or CG2149 endorsements—that change standard policy language
Also, think about any recent changes in how you do business, such as reorganizations, expansion into new regions, or new payment systems. Those shifts could require alterations in your coverage.
As you evaluate the policy, watch for designated projects or scheduled operations that might affect coverage for work away from your main premises. Be mindful of any premises-only liability wording, as it can limit coverage for operations outside the primary site. Also, understand how ISO forms function within your policy and how they can influence coverage.
Conclusion for CGL Coverage
Commercial General Liability policies need careful scrutiny in light of ongoing changes to coverage forms. From the policy structure to court decisions and recent revisions, a few main themes emerge:
- Post-2017 form changes demand increased vigilance, especially concerning incidental operations and coverage for endeavors taking place outside the premises.
- Court rulings emphasize the need for a direct link between activities and the designated premises—general business connections alone won’t suffice for coverage.
- Business owners should regularly assess their policies by reviewing defined terms, insuring agreements, and any shifts in their operations. Be mindful of exclusions, coverage restrictions, or designated operations exclusions that could reduce protection.
Understanding the extent of your client’s CGL coverage helps protect you from unwelcome coverage gaps and ensures you maintain strong liability safeguards. Policies change, operations grow, and new risks emerge—so making coverage reviews part of your risk management plan is simply good business.
