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Businessmen with umbrella

Businesses frequently purchase comprehensive general liability (CGL) coverage, which is often referred to as “litigation insurance.” It covers businesses for the costs incurred defending and reasonably resolving suits seeking to hold them liable for alleged bodily injuries or property damage. Companies or businesses that render professional services or advice often also purchase “professional liability” (PL) coverage. An insured may find itself temporarily without its valuable defense coverage despite having two policies that potentially cover the loss when, because the plaintiff pleads alternative theories of liability, the insurers each look to one another to honor that “first dollar” duty to defend.

Distinctions Between Coverage

CGL policies typically obligate the insurer to “pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’…to which this insurance applies.” A CGL policy will customarily attempt to exclude claims for property damage or bodily injury arising out of the rendering or failing to render “professional services.” A PL policy typically obligates the insurer to pay “‘damages’ an ‘insured’ is legally obligated to pay as a result of a ‘claim’ caused by…an act, error or omission.” The PL “claim” requires an alleged liability for damages arising from an act, error or omission relating to the performance of professional services.

Duties to Defend, Indemnify

Both CGL and PL policies can impose on the insurer a duty to defend. That duty is exceedingly broad and is triggered by a potentially covered allegation in the underlying complaint. A liability insurer owes a defense of an underlying suit as a matter of law unless the insurer can establish “that there is no possible factual or legal basis on which the insurer might eventually be obligated to indemnify [the insured] under any provision contained in the policy.” Villa Charlotte Bronte v. Commercial Union Ins. Co., 64 N.Y.2d 846, 848 (1985). “If any of the claims against [an] insured arguably arise from covered events, the insurer is required to defend the entire action.” Town of Massena v. Healthcare Underwriters Mut. Ins. Co., 98 N.Y.2d 435, 443, 749 N.Y.S.2d 456, 459 (2002).

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