Summary
This study provides a review of some of the major court rulings that have shaped and continue to shape the commercial general liability (CGL) market. The evolution of the concepts of "triggers" and allocations systems is examined to gain a perspective on the way in which courts reinterpret contract language to apply to new and emerging exposures. A review of the issues impacting the CGL provides valuable insights into the way court rulings can create a significant impact in the insurance market. A stream of court decisions provides the backdrop for today's challenges, including the reemergence of asbestos claims. The study also fills a gap in the literature related to the crisis in the CGL marketplace and changes in the pricing, regulation, and solvency of insurers operating in those lines. As old risks continue to evolve and new risks emerge, courts have begun to reinterpret liability contracts in much the same way as they reinterpreted contracts with regard to pollution and products in the 1970s and 1980s. Recent rulings related to asbestos and environmental liability underscore the importance of these issues in today's marketplace. By reviewing these events related to the CGL policy, insurers, insureds, and regulators may gain a new perspective on the importance of developing a clear standard wording that will be consistently interpreted in light of new exposures.
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Extract
Exposure Triggers and Allocation Methods: Learning Lessons From Prior Court Rulings
INTRODUCTION
For over three decades, the wording of the commercial general liability (CGL) policy has been at the center of a number of legal disputes and conceptual difficulties arising from the nature of the events triggering the coverage. Since the mid 1980s, the insurance industry has utilized two CGL insurance policies. The evolution of those two forms and their application to a series of unexpected coverage issues has been an ongoing saga at the epicenter of such issues as asbestos, Agent Orange, and toxic substances.Clearly, the judicial system has shaped the products and services of the insurance industry. The evolution of the coverage forms, the interpretation of policy wording, and the allocation of losses among multiple insurers, provide a perspective on the way in which the law and the insurance industry are related to one another. Over the years, the courts have reinterpreted the policy wording to apply to new settings insurers did not foresee and/or did not intend for the policy to cover. Recent rulings related to asbestos and environmental exposures highlight the fact that the interpretation of CGL contracts is still an important issue facing both insurers and insureds (e.g., McLeod, 2003).This article explores the impact of court rulings on policy interpretation by providing a historical perspective on legal issues impacting the development of the CGL and its interpretation by the courts. First, the article provides a brief review of the events surrounding the creation of the claims-made policy form. The article then focuses on the debate over what defines an "occurrence" or "trigger." Additionally, various systems of allocating losses among insurance contracts and insureds a...See the full content of this document
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