Are There Limits to a Commercial General Liability Policy?

That is the question that an appellate court in the State of Illinois considered in the case, Erie Insurance Exchange v Dragana Petrovic, in an opinion issued on November 15, 2022.

What is a Commercial General Liability Policy?

A commercial general liability (GCL) insurance policy covers a business for claims of bodily injury, personal injury and property damage incurred during the operation of the insured’s business.  CGL is a business necessity.  Without it, a business risks disruption to its business operations as it fends off claims of negligence or intentional misconduct.  Putting aside the time away from running a business that defending a lawsuit entails, the legal costs, as well as money damages that might be awarded against a business, could be enough to throw a business into bankruptcy.  Yet, does every CGL policy provide the comprehensive protection that a business needs or wants?

What is Not Covered Under a Commercial General Liability Policy?

The facts of the Erie Insurance Exchange case are not uncommon. The defendant in the case, Dragana Petrovic (Petrovic), was injured when a truck driven by Arunas Alasevicius (Alasevicius) hit the door of her car as she was exiting her vehicle.  Alasevicius was the owner and sole employee of Aral Construction Company (Aral), a carpentry firm.  At the time of the accident, Alasevicius was driving between jobsites where Aral had been engaged to provide carpentry services.  Alasevicius personally owned the truck that he was driving at the time of the accident.

Alasevicius had a personal automobile insurance policy issued through State Farm with a limit of liability of $25,000. In addition, Aral had a CGL policy issued by the plaintiff in the case, Erie Insurance Exchange (Erie), with a limit of liability of $1m.  When the State Farm policy proved inadequate to fully compensate Petrovic for her injuries, Aral filed a claim under the policy issued by Erie. Erie denied coverage, citing the policy’s auto exclusion, and brought this action for a declaratory judgment that Petrovic’s claim was not covered under the policy.

What is an Auto Exclusion?

An auto exclusion is a common feature in a CGL policy.  It excludes from coverage bodily injury and property damage caused by an employee of an insured while operating a motor vehicle, even if the employee is operating the vehicle during the course of their employment.  In the instant case, the Erie policy’s auto exclusion provided that the policy did not cover:

‘Bodily injury’ or ‘property damage’ arising out of the ownership, maintenance, use or entrustment to others of any *** ‘auto’ *** owned or operated by or rented or loaned to any insured.  Use includes operation and ‘loading and unloading.  This exclusion applies even if the claims against any insured allege negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by that insured, if the ‘occurrence’ which caused the ‘bodily injury’ or ‘property damage’ involved the ownership, maintenance, use or entrustment to others of any *** ‘auto’ *** that is owned or operated by or rented or loaned to any insured.

The court found this an easy case to resolve.  Petrovic alleged that she was injured while an employee of Aral, who was thus an insured under the policy, was driving a truck owned by the insured during the course of his employment with Aral.  The facts of the case fit squarely within the parameters of the auto exclusion.  As a result, the court held that Erie had no obligation to cover the accident.

The result of this case may seem counterintuitive.  After all, a CGL policy is supposed to provide comprehensive protection to a business.  However, the court saw the logic in the auto exclusion.

Our conclusion is supported by the impetus for “auto exclusion” provisions in commercial general liability policies, such as Erie’s. Oakley Transport, 271 Ill. App. 3d at 726. As we have explained in the past: “The purpose of [an auto] exclusion [provision] is related to the purpose of business liability insurance in general. Standard commercial liability policies are issued to cover all hazards incident to the operation of a business with the exception of certain excluded risks, including those involved in the ownership maintenance, use or entrustment of an ‘auto.’ The premium charged by the [commercial general liability] insurer reflects the underwriting objective of placing automobile accidents beyond the scope of coverage.  These latter risks involve unique hazards to which the general business of the insured is not subject. For that reason, they are generally covered as a special class by an automobile liability policy[.]” Id. Accord Mid-Continent Casualty Co. v. Advantage Medical Elecs., LLC, 196 So. 3d 238, 245 (Ala. 2015) (the purpose of an “auto exclusion” in a commercial general liability policy “is to proscribe coverage for liability that should more properly fall under an automobile-liability policy”); see also BP America, Inc. v. State Auto Property & Casualty Insurance Co., 2005 OK 65, 15 (refusing to read “auto exclusion” provision so that it would “unilaterally convert a general liability policy –without motor vehicle coverage—into a[n] automotive liability policy.”)

What is the Lesson of This Case?

The lesson of this case is that, while it is an absolute necessity for a business to buy commercial general liability insurance, that does not complete the task.  It is also absolutely essential that a business understand its policy, know what risks are covered and, more importantly, know what risks are not covered.  Only then, will a business be protected against risks that may jeopardize the future of the business.

That is where RMC comes in.  As insurance professionals with many years of experience procuring the right insurance coverage at the right price for our clients, we can help you to ensure that your business is fully protected with no gaps in coverage.

Questions about your insurance coverage or would like a quote? Contact RMC Group today at 239-298-8210 or [email protected].