Chapter 21 Quiz: Commercial General Liability Underwriting

Twenty questions to check your grasp of CGL coverage, the occurrence/claims-made trigger, the exposure base, the products tail, and the additional-insured machinery. Answers are in the collapsed key at the bottom — work the question before you open it.

Multiple choice

1. The commercial general liability policy is fundamentally:

  • A. First-party coverage protecting the insured's own property
  • B. Third-party coverage protecting the insured against claims by others
  • C. A warranty guaranteeing the quality of the insured's products
  • D. A no-fault medical plan for the insured's employees

2. Coverage A of the standard CGL is split into two parts. They are:

  • A. Personal injury and advertising injury
  • B. Premises/operations and products-completed operations
  • C. Bodily injury and medical payments
  • D. Occurrence and claims-made

3. The standard CGL uses which trigger?

  • A. Claims-made
  • B. Claims-made with a retroactive date
  • C. Occurrence
  • D. Manifestation only

4. Under an occurrence trigger, the policy that responds to a claim is the one in force when:

  • A. The claim is first reported to the insurer
  • B. The lawsuit is filed
  • C. The injury or damage occurs
  • D. The policy is renewed

5. A fabricated bracket fails; the only loss is that the bracket itself is now worthless. Under the standard CGL, this loss is:

  • A. Covered under products-completed operations
  • B. Covered under premises/operations
  • C. Excluded by the "your product" business-risk exclusion
  • D. Covered under personal & advertising injury

6. The most appropriate exposure base for a products manufacturer is usually:

  • A. Square footage (area)
  • B. Gross sales (revenue)
  • C. Admissions
  • D. Number of vehicles

7. Personal & advertising injury (Coverage B) covers:

  • A. Bodily injury to advertising executives
  • B. A defined list of non-physical offenses such as libel, slander, and advertising-idea infringement
  • C. The insured's own lost advertising revenue
  • D. Injury to the insured's employees

8. The reason the industry moved much long-tail and professional coverage to a claims-made trigger in the 1980s was primarily to:

  • A. Lower premiums for insureds
  • B. Comply with a federal mandate
  • C. Regain control of the open-ended tail of late-reported losses (e.g., asbestos, pollution)
  • D. Eliminate the duty to defend

9. A liability account whose ultimate losses are dominated by claims that develop after the policy period is best described as:

  • A. A frequency-driven account
  • B. A loss-sensitive (long-tail) account
  • C. A highly protected risk
  • D. A premises-only account

10. The products-completed operations aggregate is:

  • A. The same limit as the general aggregate
  • B. A separate cap on all products/completed-operations claims in the policy period
  • C. A per-claim deductible
  • D. The defense-cost reimbursement limit

11. Why does an additional-insured endorsement expand the carrier's exposure? Best answer:

  • A. It raises the policy limit automatically
  • B. More parties can share the same limit, coverage may reach the additional insured's own negligence, and subrogation against them is lost
  • C. It converts the policy to claims-made
  • D. It adds employees to workers' compensation

12. Contractual liability, as the term is used in the CGL, refers to:

  • A. Liability the law imposes for the insured's torts
  • B. Liability the insured assumes by contract (e.g., a hold-harmless agreement) that it would not otherwise have had
  • C. The premium the insured agrees to pay
  • D. The duty to defend

13. An umbrella liability policy differs from a pure excess policy because the umbrella:

  • A. Is always cheaper
  • B. Follows form exactly and cannot broaden coverage
  • C. Provides excess limits and can drop down to cover some gaps the underlying policies exclude (subject to a retention)
  • D. Only covers auto claims

14. Which exposure does the standard CGL exclude, pushing it to a specialized policy?

  • A. A customer's slip-and-fall in the lobby
  • B. Property damage to a third party from the insured's completed work
  • C. Liability arising from the insured rendering professional advice negligently
  • D. An advertising-slogan infringement in the insured's ads

15. On a products account, the underwriter's central concern relative to a predictive frequency model is that the model:

  • A. Overprices the premises exposure
  • B. Cannot see and tends to under-weight the rare, severe, long-latency products claim
  • C. Ignores the medical-payments coverage
  • D. Always recommends declining

Short answer

16. In two or three sentences, explain why an occurrence CGL loss run "systematically understates the ultimate losses" on a products account, and what an experienced underwriter does about it.

17. A custom manufacturer both makes products and installs them at customer sites. Explain why rating the whole account on a single exposure base misprices it, and what proper classification does instead.

18. Distinguish the liability the CGL covers by default (tort) from contractual liability assumed through a hold-harmless agreement. What does the "insured contract" exception do?

19. Why is the discipline to charge an adequate products rate hardest in a soft market, and what does that delayed feedback do to the combined ratio (Chapter 3) years later?

20. Name the four management/professional lines the CGL does not cover (E&O, D&O, EPL, cyber), and for any two of them, state the gap in the CGL each fills.

Answer key (try the questions first) **1.** B — The CGL is third-party liability coverage; it protects the insured against claims by others, not the insured's own losses (that is property insurance, Chapter 19). **2.** B — Coverage A (bodily injury & property damage) splits into premises/operations and products-completed operations. **3.** C — Occurrence. (Most professional and management lines use claims-made; the standard CGL does not.) **4.** C — The injury or damage occurs. Occurrence coverage follows the date of harm, regardless of when the claim is reported. **5.** C — Excluded by the "your product" business-risk exclusion. The CGL is not a warranty on the insured's own work; it would pay only the *resulting* third-party injury or damage. **6.** B — Gross sales (revenue), because products and premises exposure scale with the volume of product out the door and customers through. **7.** B — A defined list of non-physical offenses (libel, slander, false arrest, wrongful eviction, privacy violation, advertising-idea/slogan infringement). It is unrelated to bodily injury. **8.** C — To regain control of the open-ended tail of late-reported losses. The long-tail asbestos and pollution catastrophes of the 1980s landed as claims on occurrence policies written decades earlier. **9.** B — A loss-sensitive (long-tail) account; its true cost isn't knowable for years because the worst claims develop after the term. **10.** B — A separate aggregate cap on all products/completed-operations claims in the policy period, distinct from the general aggregate. On a products account it does real work. **11.** B — More parties share the limit, coverage can reach the additional insured's own negligence depending on the endorsement edition, and you generally cannot subrogate against your own insured. **12.** B — Liability the insured assumes by contract (hold-harmless/indemnity) that it would not otherwise have had. The CGL gives back some of this through the "insured contract" exception. **13.** C — The umbrella provides excess limits *and* can drop down for some gaps the underlying policies exclude, subject to a self-insured retention (Chapter 12). Excess generally just follows form. **14.** C — Professional services. Errors in rendering professional advice belong to E&O (Chapter 24), not the CGL. (A, B, and D are all covered by the CGL.) **15.** B — The model prices the frequency half well but cannot see and under-weights the rare, severe, long-latency products claim — exactly where the money is. Supplying that judgment is the underwriter's job. **16.** Because the standard CGL is an occurrence form, the policy accepts harms that *occur* this term even if the claim isn't reported for years; the recent policy years on a loss run are the most incomplete because the worst products claims haven't been filed yet. An experienced underwriter mentally "develops" the recent years upward (the way an actuary applies loss-development factors, Chapter 10) rather than taking the raw reported numbers at face value. **17.** Products (sold by the dollar) and installation labor (by the payroll dollar) are different exposures; rating it all on sales under-captures the installation injury exposure, and rating it all on payroll under-captures the products exposure. Proper classification splits the operations and applies the right base — and the correct class code — to each. **18.** Tort liability is what the *law* imposes when the insured injures someone or damages property; contractual liability is what the insured *takes on by contract*, most often a hold-harmless/indemnity that covers *another party's* liability. The "insured contract" exception gives back coverage for a defined category of business agreements, but an indemnity broader than that definition is an uninsured assumption the insured carries naked. **19.** Because the losses arrive late: cutting the products rate makes this year's (and next year's) loss ratio look fine, since the claims the underpricing failed to fund haven't matured. By the time the tail develops, the carrier is staring at several accident years of under-reserved liability business and a combined ratio that blows past 100% on losses set in motion years earlier — the most seductive mistake on a casualty desk. **20.** Errors & omissions (E&O), directors & officers (D&O), employment practices liability (EPL), and cyber liability. Any two, e.g.: E&O fills the professional-services exclusion (negligent advice/service); EPL fills the employment-torts gap (discrimination, harassment, wrongful termination) that the CGL and workers' comp don't reach.