When a business buys a commercial liability insurance policy, that policy is supposed to respond if the business gets sued because it negligently injures or kills someone. In an oversimplified nutshell, that’s what liability insurance is all about. That’s why you buy it.
Most of the verbiage in any insurance policy, however, trims back the insurance company’s responsibility, sometimes to a point where the exclusions and limitations undercut the main function that the insurance was supposed to serve.
Consider a recent situation faced by my colleague Rosa Feeney, Esq., a New York insurance coverage attorney with Smiley & Smiley, LLP, who often works with us to analyze our clients’ insurance policies and programs to try to make sure they provide the right coverage.
A 37-page insurance policy was called a Commercial General Liability policy. It indeed covered any “loss” caused by the policyholder’s negligence. It was supposed to cover the types of injuries expected when people visit any place of business, such as the relatively common case where a visitor trips and falls, or is otherwise accidentally injured on the premises.
In this particular case, the business covered by the policy was a medical facility. In reviewing the tenant’s insurance policy, Feeney realized that the insurance company had added a special endorsement captioned “Exclusion – Injury to Patients.”
The special endorsement categorically excluded coverage for any “loss” suffered by “any patient of the insured.”
That language was probably intended to protect the insurance carrier from responsibility for medical malpractice claims. But it went much further than that. It excluded coverage for any of the typical losses that could occur in any space operated for any type of business. So the policy didn’t cover any claims if someone who happens to be a patient gets injured in the normal course of business of the facility.
“Let’s say this medical facility was seeing patients, and a fire started in the waiting room because the business had negligently piled up old newspapers next to a gas-fired heater. Let’s also assume that some of the patients were injured,” Feeney said. “If those injured patients sued, an ordinary business liability policy would cover those claims. But this special endorsement would eliminate that coverage, just because the people injured in the fire were patients.”
“In other words,” Feeney said, “the insurance company could deny coverage for injury to the class of persons most likely to get injured in a medical facility, i.e., the patients who were there for medical reasons. If the intent was to exclude medical malpractice claims against the facility, that’s perfectly fine. But this special endorsement went way too far. It excluded ordinary negligence claims by most of the people in the facility. That type of coverage is essential in any place of business.”
Feeney recommended negotiating a revision to the policy. Where the policy excludes losses suffered by “any patient,” it should instead only exclude coverage for losses caused by medical malpractice, not losses caused by ordinary garden variety negligence. The whole point of the policy was to cover those latter losses.
“Gaps and glitches like this one can be buried anywhere in the verbiage, and especially the additional endorsements, in any insurance policy,” Feeney said.
It pays to read the policy.