CGL Policies – the Russian Doll of Business Insurance

Few subjects beguile new lawyers more than the interpretation of commercial general liability insurance policies (CGL).

This includes many corporate-commercial lawyers contributing to complex agreements running into hundreds of pages.  Show them a CGL form, and their eyes glaze over. But most CGL policies are only a few pages long, and the longest run a few dozen pages.  Once you “get” the basic structure of the agreement, as described by Justice Rothstein at paragraphs 26-28 of the 2010 Supreme Court of Canada decision in Progressive Homes v. Lombard, you’ll wonder why you ever thought the subject so daunting:

[26] The insurance contracts in this appeal are CGL policies.  CGL insurance policies typically consist of several sections. …  The policy will set out the types of coverage contained in the agreement, for example, property damage caused by an accident.

[27] This is typically followed by specific exclusions to coverage.  Exclusions do not create coverage —  they preclude coverage when the claim otherwise falls within the initial grant of coverage.  Exclusions, should, however, be read in light of the initial grant of coverage. …

[28] A CGL policy may also contain exceptions to exclusions.  Exceptions also do not create coverage —  they bring an otherwise excluded claim back within coverage, where the claim fell within the initial grant of coverage in the first place. …  Because of this alternating structure of the CGL policy, it is generally advisable to interpret the policy in the order described above: coverage, exclusions and then exceptions.

(emphasis added; references removed for ease of reading)

This organizational structure, by the way, is the origin of arcane insurance law concept that coverage grants are construed broadly, exclusions construed narrowly, and exceptions from exclusions more narrowly.  It is the Russian matryoshka doll of business law.

Further Reading …

This, and other gross simplifications of an overly complicated area of law, can be found in my updated primer on CGL policies, Is it not covered?  Originally delivered as a seminar to the Yukon Branch of the Canadian Bar Association, it has been updated with detailed commentary on the Progressive Homes decision.

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