Analysis

Many of the medical payments exclusions are similar to those in the ISO BOP or CGL. The arrangement, however, is different, and two of the exclusions do not appear at all in the BOP or CGL. The basic limit for this coverage is $5,000 per person.

Any kind of “bodily injury” that would be excluded under coverage L—Bodily Injury Liability and Property Damage Liability is also excluded under the medical payments coverage. An easy example is the coverage L exclusion for bodily injury which is intended or expected by the insured. An insured employee cannot punch another employee, breaking his nose, and then look to medical payments coverage to respond.

Employees—or indeed, any others who qualify as “insureds”—do not qualify for medical payments. These persons should be covered under a workers compensation policy, as exclusion i. makes clear. The exception is for volunteer workers. Persons hired by an insured to do work for an insured or for a tenant of an insured do not receive medical payments coverage. These persons should be covered under a workers compensation policy.

No coverage is available for a person who normally occupies a part of the premises either owned by or rented to the named insured. For example, the named insured owns an office building, and rents a part of it to a tenant. If the tenant (or an employee of the tenant) is injured on that part of the premises, there is no coverage.

The exclusion for those taking part in “athletic activities” is typical. It is commonly held that the exclusion implies some sort of physical training, so it would not necessarily apply to, say, a company picnic softball game if someone other than an employee was injured.

There are three exclusions that do not appear in the ISO BOP or CGL. First, there is no medical payments coverage for bodily injury to any club member, if the named insured is a club. Second, there is no medical payments coverage for any guest of any hotel, motel, or tourist court owned or operated by or on behalf of the named insured. The third exclusion precludes coverage for any student or camper, or patient or inmate in any program or facility owned or operated by or on behalf of the named insured. The rate structure of the businessowners policy is inadequate for these exposures, which require specialized coverage.

Coverage O—Fire Legal Liability

In the AAIS form, unlike the ISO BOP, coverage for fire legal liability appears as a separate coverage, rather than a series of exceptions to exclusions. For example, ISO exclusion k.(1) damage to property applies to eliminate coverage for property damage to property the named insured owns, rents or occupies. But following the exclusions, the exception states that certain exclusions (one of them being k.) do “not apply to damage by fire or explosion to premises while rented to you, or temporarily occupied by you with permission of the owner.”

The AAIS form states:

Analysis

The limit for this coverage is $50,000, although increased limits up to $1,000,000 may be purchased (subject, of course, to underwriter approval). Note that the coverage applies only to damage resulting from fire or explosion. If the named insured negligently left a faucet running which consequently overflowed and caused extensive damage, he or she could not look for coverage under fire legal liability.

Although this is liability coverage, it covers damage to property. However, no deductible applies. This coverage is similar to coverage for damage to “short-term rented premises”, but they are in fact two distinct coverages. Fire legal liability is intended to respond when the insured rents or borrows on a long-term basis; “short-term rented premises” is defined as “premises which are rented to an 'insured' for a period of seven successive days or fewer, and the contents of such premises.” For example, an insured employee rents a suite for four days in a hotel to invite clients for product demonstrations. Short-term rented premises coverage responds in the event of any damage for which the employee is legally responsible. The insured business leases two floors of an office building; fire legal responds to fire or explosion damage for which the insured is legally liable. It should be noted that fire legal does not replace coverage for physical damage to property since its scope is limited.

The AAIS form goes on to state that once the limit of liability is reached, the insurer has no further duty to defend the insured. “Property damage” liability assumed by the insured under a contract or agreement to indemnify any person or organization for damage to the premises is not covered, nor is any damage expected or intended by the insured, or resulting from an intentional act. The intent is to preclude coverage for intentionally setting the premises ablaze; fire resulting from negligent use of a blowtorch would be covered.

Coverage P—Personal and Advertising Injury

Before discussing the coverage, two definitions should be considered.

Analysis

The definition of “advertisement” is new to this edition. Because of the increase in electronic business activities, AAIS has added this definition to clarify that an advertisement need not be limited to a newspaper or television ad. A common practice today with many Internet sites is to run a string of advertisements (see Google, for example); this definition makes it clear that only the part of the website given to promoting the insured's goods or services falls within the definition.

Analysis

Similarly to the current ISO CGL and BOP forms, “personal and advertising injury” have been combined to form one coverage. In the AAIS form, this is coverage P. Note that the definition includes “bodily injury” that may result from a personal or advertising injury. If, for example, an insured business's employee grabbed a suspected shoplifter by the arm, and the person sued for false detention and an injury to his or her arm, coverage P would respond. Exclusion w. of coverage L—bodily injury liability and property damage liability states that the insurer will not pay for “bodily injury” arising out of “personal and advertising injury”; coverage is found here.

The coverage P insuring agreement states that the insurer has the right and duty to defend a suit, but has no duty to defend a suit to which the policy does not apply. Once the amount paid reaches the limit of insurance, the insurer has no more duty to defend. The offense resulting in “personal and advertising injury” must have been committed during the policy period, in the course of the insured's business, and within the coverage territory.

The definitions for “insured” apply, except that no employee or volunteer worker is an insured for personal or advertising injury to the named insured, partners or members, or fellow employees or other volunteer workers, while performing duties related to the conduct of the named insured's business. There is no coverage for consequential injury to a spouse, child, parent, brother or sister of the injured fellow employee. So, for example, should a volunteer worker slander a fellow employee, he or she could not claim coverage under the named insured's businessowners policy, nor would the fellow employee's spouse claim for damages because he or she had suffered emotional damage as a result of his or her spouse's being slandered be covered.

Many of the exclusions are similar to those in the ISO BOP and CGL; but others differ. Two such are an exclusion relating to employers liability, and one relating to acts of war.

Analysis

Exclusion b. declares that “personal and advertising injury” is not intended to cover actions that should properly be the subject of employers liability insurance. Exclusion c. states that the coverage will not respond to any acts of war, whether or not declared.

There is no coverage for any injury arising out of an act “committed by or directed by” an insured who knew the injury would occur. This is similar to the exclusion for bodily injury that is expected or intended by the person committing the act that results in the bodily injury. Liability coverage for oral or written publication of material done by or at the direction of an insured who knows the material is false is precluded. There is no coverage for publication taking place before the policy period. There is no coverage for any injury resulting from a criminal act. For example, although “personal and advertising injury” encompasses “false arrest,” kidnapping—that is, holding another against his or her will with intent to obtain a ransom—is not covered.

Liability assumed by an insured under a contract is not covered, but there is coverage for liability the insured would have had in the absence of a contract or agreement. A breech of contract, other than using the advertising ideas of another under an implied contract, is not covered. For example, a businessowner may discuss a great advertising campaign with a colleague in the same type of work. If the colleague suggests an advertising slogan, but adds “Of course, I expect to be paid for this idea,” an implied contract has been instituted if the businessowner uses the slogan.

The insurer will not cover personal and advertising liability if the named insured's business is advertising, broadcasting, publishing, designing or coordinating content of web sites for others, or providing Internet access or content capabilities. This exposure requires specialized coverage beyond the scope of the businessowners policy. The exclusion, however, does not apply to other elements of the coverage: false arrest, detention, imprisonment, malicious prosecution, and wrongful entry, eviction, or invasion of the right of private occupancy. But simply placing advertising on the Internet is not in and of itself being in the advertising business. For example, simply placing an ad in the borders of Google does not mean the advertiser is in the business of advertising. The ad is there to attract the searcher to the business's products or services.

Failure of goods or services to conform to the quality or performance indicated in the named insured's advertisement is not covered. Exclusion k. adds that there is no coverage for personal and advertising injury arising out of the wrong description of the price of the goods or services. It is a part of doing business that the businessowner is him- or herself responsible for the quality of the goods or services. It is not the responsibility of the insurer to serve as a guarantee.

As is common with the personal and advertising injury coverages, the AAIS form excludes (exclusion l.) coverage for any liability arising out of pollutants—their dispersal, clean-up, or requirement to clean them up. The exclusion's intent is to preclude coverage in the event a court declared, as has occurred, that the escape of pollutants constitutes an invasion of the right of private occupancy.

Although exclusion m. precludes coverage for personal and advertising injury arising out of violation of intellectual property rights, including infringement of trademark or patent rights, the exclusion does not apply to a violation or infringement of a copyright, slogan, or trade-dress rights that occur in the insured business's advertisement. For example, the insured business may attempt to violate another organization's patent on a product, and that action is not covered. But if the business infringes upon the slogan of the other organization in its own advertising slogan, that is covered by personal and advertising injury. For example, soda bottler A may declare its product “leaves the others flat.” Not to be outdone, soda bottler B says its product “leaves the others in the dust.” Coverage P responds to soda bottler A's claim or suit for damages.

It is a fact of the electronic age that violations of chat rooms and bulletin boards occur, or they are used for purposes never intended. Exclusion n. makes the point that the coverage is not intended to provide liability coverage if the insured is held responsible for the content of this format. The idea is that potentially libelous information, or information that violates a person's right to privacy, is an exposure best insured elsewhere. So, there is no coverage for injury arising out of electronic forums which the insured owns, hosts, or has control over or authority to update.

Exclusion o. precludes coverage for with unauthorized use of another's name or product in the insured's e-mail address, domain name, or metatags for the purpose of misleading the potential customers of another.

Supplemental Payments

Supplemental payments are in addition to the limit of liability. The insurer will therefore assume the cost of investigating and defending a claim or suit against an insured, as well as pay up to the limit of liability to settle, once a judgment is reached. The insurer will also pay “necessary and reasonable” costs incurred by the insured, at the insurer's request, to assist in investigation or defense. If the insured is away from work at the insurer's request, loss of earnings of up to $250 per day is available.

Pre-judgment interest awarded against the insured will be paid. But once the insurer makes an offer to pay the limit of insurance, no further interest will be paid. Interest accruing on the amount of a judgment beginning with the entry of the judgment, and ending when the insurer offers to pay, deposits in court, or pays the portion not exceeding the limit of insurance is covered.

Two types of bonds fall within the supplemental payments. The first is the cost of appeal bonds or bonds for the release of attachments (as when the insured's property is held by the court pending outcome of an action in court). The insurer is not required to apply for or furnish the bonds; the maximum amount payable is the limit of insurance. The second type of bond is a bail bond required because of the use of a vehicle to which coverage L liability for bodily injury applies. The cost is limited to $500 (the similar ISO coverage is limited to $250). For example, an insured is cited for operating a piece of mobile equipment too close to a highway; this coverage responds if a bond is necessary. Again, the insurer need not apply for or furnish the bond.

Loss Settlement Conditions and Limits of Insurance

In event of an “occurrence” or offense, “or if an 'insured' becomes aware of anything that indicates that there might be a claim under the Commercial Liability Coverages,” the named insured must promptly notify the insurer or the agent. The notice need not be written, but it should contain this information: the insured's name, policy number, date, time, and location of the occurrence or offense (or a situation that suggests a claim may be in the offing), and names and addresses of all witnesses and potential claimants.

All insureds must cooperate with the insurer in investigation or settlement of the claim or suit. This includes attending trials, hearings, or proceedings. Insureds are also to assist the insurer in obtaining evidence and the attendance of witnesses. Insureds are not to make any voluntary payments without the insurer's written consent; if they do, they do so at their own expense. This condition does not apply to any first aid to others at the time of “bodily injury.”

If a claim or suit is brought against any insured, all legal papers and demands must be sent promptly to the insurer.

The businessowners liability coverage is subject to four limits. The first is the “each occurrence” limit. The AAIS program is based on an each occurrence limit of $300,000, which can be increased to $500,000, $1,000,000, or $2,000,000 (subject to underwriter approval). This is the most that will be paid for the total of damages under coverages L and P, and medical expenses coverage M for all bodily injury and property damage arising out of a single occurrence, or due to personal and advertising injury sustained by one person or organization. If a visitor to the insured premises falls, breaking a leg, and first aid at a cost of $2,000 is administered, that leaves $298,000 available should the visitor sue for damages. The coverage for property damage to “short-term rented premises” is $50,000 for each occurrence and is subject to the each occurrence limit. If, in this example, the visit is made to a “short-term rented premises” and not only is there an injury but also a $50,000 fire at the premises because of an employee's carelessness, that leaves $248,000 available if the visitor sues. (Of course, both incidents would have to be considered one “occurrence.”)

The next limit is the General Aggregate limit, which is twice the “each occurrence” limit. (This limit can be increased to three times the “each occurrence” limit.) This is the most that will be paid in any consecutive twelve month period beginning with the inception date. For example, if the insured carries “each occurrence” limits of $300,000, the General Aggregate will be $600,000. This Aggregate is the most that will be paid for the total of all damages under coverage L (exclusive of bodily injury or property damage included in the products/completed work hazard), all medical expenses under coverage M, and all damages under coverage P. If three separate events not covered by the products/completed work hazard occur in the course of a year, and each results in a suit for damages for $300,000 because of bodily injury, the most that will be paid is still limited to $600,000.

The third limit is the Products/Completed Work Hazard aggregate limit, which is twice the “each occurrence” limit. In the earlier program, this aggregate limit was equal to the “each occurrence” limit. Here again, if the insured carries each occurrence limits of $300,000, the aggregate limit for the Products/Completed Work Hazard will be $600,000.

The final limit is $50,000 for coverage O fire legal liability. This limit may be increased from $50,000 up to $1,000,000, but in no event can it exceed the each occurrence limit. Using the example of a $300,000 each occurrence limit, the coverage O limit cannot be increased above $300,000.

Additional Conditions

Found in this section are general conditions governing the liability and medical expense coverages. Note, though, that the conditions for cancellation or nonrenewal are not contained in the body of the policy itself, but are attached by means of the state amendatory endorsements.

As is common, an insured's bankruptcy does not relieve the insurer of performing its duties.

There are extensive conditions governing the application of the insurance when there is more than one policy in force applicable to the same loss. Coverage M medical payments is exempt from this provision; it is always intended to provide “first dollar” coverage.

The insurance under the AAIS businessowners form is primary, with certain exceptions. It is excess over other insurance if the other insurance, “whether primary, excess, contingent, or on any other basis, provides:

Analysis

The businessowners liability insurance is not intended to replace coverage for direct physical damage to property. If this exposure exists, coverage should be purchased rather than hoping liability coverage will respond.

The businessowners insurance is excess if there is other insurance applicable to a loss arising out of maintenance or use of aircraft, “autos,” or watercraft, which might also be covered by this insurance. This insurance is also excess if the other insurance is primary and is available to the named insured business because the named insured has been added as an additional insured to that other insurance. For example, the named insured business might be added as an additional insured to a subcontractor's policy for liability arising out of premises or operations.

When this insurance is excess, the insurer has no duty to defend any claim or suit that another insurer has a duty to defend; however, if no insurer defends, then the named insured's insurer will defend, and will be entitled to the insured's rights against the other insurers. The insurer will pay its share of the loss that exceeds the sum of “the total amount that all such other insurance would pay for the loss in the absence of this insurance, and the total of all deductibles and self-insured amounts required by such other insurance.” The insurer will then “share the remaining loss with any other insurance that is not described in this excess insurance provision and was not bought specifically to apply in excess of the 'limits' shown on the 'declarations' of this Commercial Liability Coverage.” In other words, if there is an excess or umbrella policy in force, the businessowners insurer will not share a loss that the umbrella insurer should pay.

However, as earlier stated, there are other circumstances in which the businessowners insurance will be primary. But if other applicable insurance declares itself also to be primary, then loss is either settled by each insurer paying equal shares or proportionately, as the respective policies determine.

An important new condition has been added to the form, and that addresses prior knowledge of an event that may give rise to a claim. For a discussion of the provision stating that the liability coverage does not apply to injury or damage known to a “designated insured” (and the definition of “designated insured,” see AAIS Businessowners—Liability. The provision states that “Knowledge of 'bodily injury' or 'property damage' will be deemed to have occurred at the earliest of the following times:

Analysis

The insurer declares that if a “designated insured”—that is, the named insured, spouse, partners or members, managers, trustees, officers, or any employee authorized to give or receive notice of a claim or occurrence knows of bodily injury or property damage that occurred prior to the inception date of the policy, then any continuance, resumption, or change in the bodily injury or property damage will be deemed to have been known by the designated insured prior to the inception date of the policy. Coverage will then be denied for the bodily injury or property damage. The above provision details when the knowledge will be presumed to have occurred.

The condition governing payment of premium states that if a deposit premium is paid, the insurer will compute the final earned premium at the end of each audit period as shown in the declarations. The insurer will either bill or refund any difference. If the premium is based on an audit of exposures and the final premium is determined after the policy expires, the insurer will bill for any additional premium.

Liability coverage applies separately to each insured; however, the limits of liability remain unchanged.

The insurer has the right to subrogate. The insured cannot interfere with that right; however, an insured can waive his or her right to recover if indicated in writing prior to an “occurrence.”

All terms and conditions of the policy must be complied with before any suit can be brought against the insurer. No one has the right to join the insurer in an action brought to determine an insured's liability.

Nuclear Energy Liability Exclusion

Although the nuclear energy liability exclusion is given a separate policy heading, it is much the same as the ISO BP 00 03 exclusion B.3. Applicable to Both Business Liability Coverage and Medical Expenses Coverage—Nuclear Energy Liability Exclusion. Indeed, the exclusion is commonly found in liability forms or in an endorsement attached thereto.

The AAIS form adds the following definitions that are used in applying the exclusion:

Analysis

The set of definitions are used in the exclusions to make clear that there is no coverage under the policy for any type of nuclear exposure. Exclusion 1.a.1) declares that the insurance does not apply to bodily injury or property damage with respect to which an insured is also an insured under a Nuclear Energy Liability policy, or would be except that it terminated because the limits were exhausted. Exclusion 1.a.2) adds that there is no coverage for bodily injury or property damage resulting from “hazardous properties” of “nuclear material” with respect to which the insured would be entitled to indemnification from the United States or its agency had the businessowners policy not been issued.

The Medical Payments coverage does not provide any expense incurred with respect to bodily injury resulting from the “hazardous properties” of “nuclear material” and arising out of the operation of a “nuclear facility.”

Exclusion 1.c. states that the insurance does not apply to bodily injury or property damage resulting from “hazardous properties” of “nuclear material” if that material is at any “nuclear facility” owned by, operated by or on behalf of an insured. There is no coverage for bodily injury or property damage if the “nuclear material” is contained in any “spent fuel” or “waste” that was at any time processed, handled, used, stored, processed, transported, or disposed of by or on behalf of an insured. Finally, there is no coverage for bodily injury or property damage arising out of the furnishing by an insured of services, materials, parts or equipment in connection with the planning, construction, maintenance, operation, or use of any “nuclear facility.” But if the facility is within the United States, its territories and possessions, or Canada , exclusion 1.c. applies only to “property damage” to such “nuclear facility” and any property at it. In other words, if a bodily injury occurred because one of the insured's products was used in construction, there would be coverage if the facility was in the United States, its territories and possessions, or Canada .