Don't fail this April Fool's quiz

"Bodily injury" or "property damage" for which any insured may be held liable by reason of:

(1) Causing or contributing to the intoxication of any person;

(2) The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or

(3) Any statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages.

This exclusion applies even if the claims against any insured allege negligence or other wrongdoing in:

(a) The supervision, hiring, employment, training or monitoring of others by that insured; or

(b) Providing or failing to provide transportation with respect to any person that may be under the influence of alcohol;

if the "occurrence" which caused the "bodily injury" or "property damage", involved that which is described in Paragraph (1), (2) or (3) above.

There is a final paragraph limiting the application of this language only to those in the business of specified liquor activities, thus including in the CGL what is commonly referred to as "host liquor" coverage.

So if the claim arises from the liquor as a beverage—for example, if a bad bottle of wine sends a budding oenophile to the emergency room instead of Blissville, the exclusion would not apply. If the claim arose specifically from allegations that the same imbiber was underage or already intoxicated when served, then the exclusion will apply.

This is not a trap or "gotcha" provision. When you see the actual policy language, what is covered and what is excluded is clear. Yet in every liability class, from licensing to advanced designations, there are far too many who would have gotten this one wrong. This is why loyal readers and students already know that a key habit in separating foolishness from wisdom is to always refer to the actual form language prior to rushing in where coverage angels should fear to tread.

One final note: Often I find it is the way this provision is commonly referred to as the "liquor exclusion" that may send otherwise astute insurance folk down the foolish path. Without reference to the form wording, one would certainly think a "liquor exclusion" excludes liquor. One would be wrong.

Now that you see where this is going, let's try another one:

(Photo: Shutterstock)

2. Fool or Fact: The CGL excludes Professional Liability

Fool! There is not a single "professional" exclusion in the CGL. Of course, the ISO manual lists many classifications that require attachment of an endorsement that excludes or limits Professional Liability coverage. But what if there were no such exclusion attached, either by error or lack of requirement? Then any "professional" claim would be covered, subject, of course, to any other applicable exclusions and limitations.

This one is almost a direct parallel to the liquor misunderstandings. Agents often assume there is a blanket exclusion for any claim against a professional. But if a client or prospect slips and falls in your icy parking lot, would you turn to your E&O or CGL (or its equivalent)? Then why would a doctor or engineer do any different? Even with an attached exclusionary endorsement, it's not any claim against the professional that is excluded, but claims arising from the professional actions of the insured.

3. Fool or Fact: The CGL provides blanket contractual liability

Yes, indeed, the answer to this question is once again: Fool! Check the key wording from exclusion 2.b.:

"Bodily injury" or "property damage" for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages:

(1) That the insured would have in the absence of the contract or agreement; or

(2) Assumed in a contract or agreement that is an "insured contract", provided the "bodily injury" or "property damage" occurs subsequent to the execution of the contract or agreement.

And here is the "blanket" wording from Definition 9, "Insured contract":

f. That part of any other contract or agreement pertaining to your business (including an indemnification of a municipality in connection with work performed for a municipality) under which you assume the tort liability of another party to pay for "bodily injury" or "property damage" to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.

If this is a blanket, please don't foist it upon me on a freezing winter night—or even a cool spring eve. "That part of any other contract or agreement" is what created the "blanket" reference, and certainly sounds as broad as you can get. But the wording that follows limits it to only one specific type of contractual claim: tort. And the specific definition included for that term further limits the coverage.

Consider the complete definition of Insured contract (a.—f.) as similar to an approved admittance list to an exclusive party. It begins with specific names, then adds "Or anyone else whose last name starts with the letter H." While that certainly provides a "blanket" invite to those lucky Harrisons and Hinkles, it also leaves a multitude of other potential attendees blocked by security at the door. How minor or severe you believe this potential restriction to be depends entirely upon which side of the coverage door you find your client's specific contractual exposure.

Bottom line: The coverage this provision provides is less blanket than bath towel: warm, indeed, but less of it than too many assume.

There are a plethora of other "Fool or Fact" quiz possibilities. For example, is there actually a coverage called Fire Legal Liability in the CGL? You can probably guess. 

Chris Amrhein, AAI, is an insurance educator and speaker, and serves as the chief fun officer at insuranceisfun.com.