General Liability

A general liability policy covers the Insured’s liability to third parties arising out of Injury or Damage caused by the Insured in the course of its business activities. Although this is a very broad explanation, the cover is subject to exclusions many of which are covered under the optional sections and extensions of the policy.

Question: Example 15 – illustrate a non-accidental act covered by the policy (burglary)
Answer:

Multimark-type Liability policies only provide cover for liability arising out of an accident. Possibly the thinking was that if the loss did not arise out of an accident, then it must have been a wilful act, which would also not be covered.

Here is an example of how a non-accidental loss could arise without wilful wrongdoing on the part of the defendant.

In the case of Loureiro and Others v Imvula Quality Protection (Pty) Ltd (09/15228) [2011], thieves gained access to the Loureiro property when a security guard (working for Imvula Quality Protection) was tricked into opening a pedestrian gate. The guard was negligent in that he failed to follow the agreed process of first notifying the Loureiro family before opening the gate.

Although the guard had intentionally opened the gate it was not his intent that the Loureiro family be harmed. It is unlikely that a Multimark-type policy would cover Imvula’s liability. By contrast, a Broadform liability policy probably would respond because it does not require that the event causing the loss be an accident.

Question: Example 14 – understanding the scope of Products Liability cover (Waste materials discarded at rubbish dump)
Answer:

The Insured produces flammable materials as a by-product of his manufacturing process. He dumps these materials at a local rubbish dump believing that this is not a contravention of any municipal regulation. The label on waste the container states that the contents are flammable but becomes obscured over time. A third party is injured when he tosses a cigarette butt in the direction of the disposed flammable liquid.

Question:

Assuming that the Insured had taken reasonable precautions to prevent any loss, would the injuries to the third party covered if

(i)            The Insured was not dumping illegally?

(ii)          The Insured subsequently discovered that the dumping was illegal?

Answer:

This would fall under the Products Section of the policy because the policy defines a Product as “any tangible property after it has left the … control of the Insured which has been … manufactured …, treated, … by or on behalf of the Insured.”

(i)            The Products Liability Section of the policy states that there is cover for Injury or Damage arising out of products. Although there are nine section exclusions, none of them are relevant to this example. Yes, there would be cover.

(ii)          There is no policy exclusion which excludes liability because it arose out of an illegal act. Yes, it is covered. 

Question: Example 13 –understanding Products Recall, Products Guarantee (Tin and bean manufacturer)
Answer:

The Insured manufactures tins. His customer (Mr Bean) manufactures baked beans and uses the Insured’s tins as part of the Mr Bean line of canned food products. After the canned food is distributed to retailers it becomes apparent that there was a serious manufacturing flaw in the tins supplied by the Insured. As a result of this flaw it is possible that many of the tins contain contaminated baked beans which, if eaten, could result in Injury.

Although it is not clear yet which of the baked bean tins are contaminated, Mr Bean decides to recall all the baked bean tins before consumers eat the food and suffer Injury.

Shortly after initiating the recall, Mr Bean sues the Insured for:

  1. The cost of recalling the canned food from the retailers
  2. The cost of the baked beans inserted into the tins
  3. The cost of the tins

Question:

Which Sections or Extensions of the policy could be used to insure against the abovementioned losses?

Answer:

  1. In terms of the cost of recalling the tins, there are two important facts to note here:
    1. (i)             There was no injury or damage at the time the recall was initiated, which means that we are dealing with a Pure Economic Loss.*  
    2. (ii)           At the time when Mr Bean recalled the products he had not been held liable for any injury or damage arising out of those recalled tins.
    3. (iii)          It was not the Insured who initiated the Recall.

It is unlikely that any section or extension of a normal liability policy can be used to cover this situation because:

  • The Products Liability Section of the policy covers Injury or Damage but not Pure Economic Losses.
  • The Insured’s Product Recall extension would not respond since it only covers a recall initiated by the Insured and not a third party.
  • The Product Inefficacy extension is not normally intended to cover the cost of recalling a product.

Although this scenario would not be covered by the CGL policy, it would be covered by a third party recall policy. Third party recall policies are quite rare and most companies find then prohibitively expensive.

*Note: Although it may be necessary to cause Injury or Damage to fix a pure economic loss, the proximate cause of the loss did not arise out of Injury or Damage.

  1. The cost of the baked beans inserted into the tins

    If Mr Bean’s property (i.e. the baked beans) had actually been damaged by the Insured’s Product then this would be a Products Liability claim.

    However in this case, Mr Beans property has simply been made less valuable by the threat that the Insured’s Product might malfunction. This would be covered by the Insured’s Products Inefficacy extension.

  2. The cost of the tins
    Covering the cost the tins provided by the Insured is a Products Guarantee claim. This is not covered by any Camargue policy.

 

Question: Example 12 –understanding the Retroactive Date, Products Liability, Products Guarantee (Tent Manufacturer)
Answer:

The Insured manufactures fabric which is use by its client for the manufacture of tents. Only after the tents have been manufactured does the client discover a flaw in the fabric. As a result the client suffers a loss in terms of other materials used as well as his labour. The relevant dates are:

  • Fabric manufacture date - 1 May 2011
  • Retroactive date - 1 June 2011
  • The fault was discovered on 1 July 2011.

There would be no cover because the proximate cause (the faulty fabric manufacture) occurred after the Retroactive Date.

Would the cost of the faulty material be covered? No, that would be a Products Guarantee claim.

Question: Example 11 – When does the Defective Workmanship Section cover products supplied by the Insured?
Answer:

The Defective Workmanship section covers losses that are caused by the Insured’s ‘bad’ work; however, it specifically excludes the cost of rectifying the defective work itself. This example illustrates how an exception to this could arise.

The Insured’s business replaced a customer’s wall to wall carpets. At the time, the Insured’s water was disconnected and one of the Insured’s employees opened a tap. Some time after the work was handed over the water was reconnected and resulted in the customer’s new carpets being damaged. Would Section C – Products Liability pay for the cost of replacing the carpets?

Yes it would.

  • The work itself was not defective (even though the Insured’s work had caused the loss).
  • The loss arose after the carpet had changed ownership. If the loss occurred while the Insured still owned the carpet then this would be an ‘own damage’ claim, which is not covered by a liability policy. (A liability policy only covers damage to third party property and never the Insured’s own property.)
Question: Example 10 - Illustrate cover given to the Insured’s employees
Answer:

The Insured’s forklift driver reversed the vehicle into a customer. The customer sued not only the Insured for her injuries but also the employee in his personal capacity. Would the policy defend both the Insured and the Insured’s employee?

  1. Yes. The indemnity granted extends to officials of the Insured in their business capacity.
Question: Example 9 - Illustrate the difference between Products Liability and Products Inefficacy
Answer:

The Insured provides anti-microbials which are included in its customer’s dairy products. Without the anti-microbials the product will spoil in 24 hours, but with the anti-microbials the product will last for 7 days. The claim arises when defective anti-microbials are added to the dairy products.

  1. If the claim arises because the dairy products spoil in 48 hours – then this is a Products Inefficacy claim. The dairy product was not actually damaged, but it was rendered of less value because of its reduced shelf life.
  2. If the claim arises because the milk immediately acquires a curry spice flavour then this would be a Products Liability claim. The product was Damaged when it was contaminated with an unsuitable flavour.
Question: Example 8 - Illustrate the difference between Public Liability claim and a Products Guarantee claim
Answer:

Question:

The Insured is a petrol filling station that maintains fuel in an underground tank. As a result of heavy rains storm water seeped into the fuel tank. The Insured filled the customer’s vehicle with 20 litres of the contaminated fuel. After a few kilometres the customer’s vehicle ceased working. The claim made against the Insured’s liability policy was for

  1. Damage to the customer’s vehicle.
  2. The cost of the 20 litres of contaminated fuel.
  3. The fuel in the Insured’s underground tank which was contaminated.

What would be covered?

Answer:

  1. Damage to the customer’s vehicle. This would be a Products liability claim as the loss arose after the product had been handed over to the Insured.
  2. The cost of the 20 litres of contaminated fuel. This is a Products Guarantee claim and is not covered by the general liability policy.
  3. The fuel in the Insured’s underground tank is not covered since that is an ‘own damage’ claim. Liability policies only cover ‘third party’ claims.


Question: Example 7 – Illustrate the difference between Public Liability claim and a Pure Economic Loss claim
Answer:

The Power Cable Installer – Part 2

Question:

The Insured installs power cables at customer offices. This job does not require any special skill. During the installation process the Insured causes the customer to suffer financial loss due penalties arising from a missed deadline. It all happened when customer’s computer mainframe system suddenly shut down because the Insured

  1. Flicked the wrong power switch, or
  2. Accidentally cut the wrong power cable

What parts of the policy would cover thee two scenarios?

 

Answer:

(a)   Flick of the switch - this would be covered by the Pure Economic Loss extension since the loss did not arise out of damage to physical property.

(b)  Cutting the wrong cable – this would be covered by Section A – Public liability. Almost all the damage was consequential to the damage of the customer’s property (cutting the wrong power cable).

 

Question: Example 6 – Illustrate the differences between Products Liability, Products Guarantee, Public Liability and Defective Workmanship
Answer:

The Power Cable Installer – Part 1

Question:

The Insured installs power cables at customer offices. As a result of negligent installation, one of the installed cables has a break in it. This is only noticed some time after the installation has been finished and signed off by the client. As a result of the break there is a short circuit and some of the customer’s equipment is damaged. As a result of that damage the client cannot meet an important deadline and loses money. Can the policy provide cover for:

    1. The cost of the damaged cable itself
    2. The cost of the labour in repairing the damaged cable
    3. The damage to the customer’s equipment
    4. The financial loss suffered by the customer

 

Answer:

The cost of the damaged cable itself:

Who supplied the cable?

  1. The Insured: not covered – this falls under the ambit of Products Guarantee insurance which is not provided by Camargue.
  2. The customer: Covered by Section A – Public Liability.

The cost of the labour in repairing the damaged cable

Not covered – this falls under the ambit of Products Guarantee insurance which is not provided by Camargue

The damage to the customer’s equipment

  1. Covered by the Products Liability/Defective Workmanship section if the damage occurred after it was handed over.1
  2. Covered by the Public Liability section if the damage occurred before it was handed over (while the work was still being done). 2

The financial loss suffered by the customer

This is consequential loss arising out of damage to the customer’s equipment. This will be covered as part of the property damage claim.

Notes:

  1. Even if the Insured did not supply or sell the product, he installed or repaired the product which makes it product related.
  2. A ‘product’ only becomes a ‘product’ after it has been handed over to the customer.
Question: Example 5 – Illustrate the difference between Work Away and Custody and Control
Answer:

The Computer Network

Question:

The Insured upgrades and maintains computer servers for their clients. While programming a client’s server the Insured’s employee spills a cup of coffee over the server resulting damage to the client’s server. What part of the policy would this be covered under if the damage occurred while the server was being worked on at:

(a)   The Insured’s premises

(b)  The client’s premises

 

Answer:

Section A – Public liability would cover damage to the server under both circumstances.

(a)   Section A provides limited Custody and Control cover, but sufficient under these circumstances

(b)  Section A also provides automatic Work Away cover

 

Question: Example 4 – Illustrate Negligent Advice
Answer:

The Pharmacist

Question:

The Insured is a pharmacy that dispenses medicine. The pharmacy sometimes gives advice on which medicine a patient should use. It does not charge for that advice. Which section of the policy provides cover for injury arising out of the prescription of the wrong medicine?

Answer:

Negligent Advice – provides cover for incorrect ‘information of a technical nature given in the promotion of the Insured’s Products’.

 

Question: Example 3 – Illustrate Products Inefficacy Liability
Answer:

The Wine Farmer – Part 3

Question:

The Insured is a plant nursery that sells grape vines as small plants. The wine farmer purchases small plants and after spending considerable time and expense in growing them discovers that they have a genetic flaw. He sues the nursery for the cost of growing the plants and the loss of income while he waits for a new harvest to mature. What cover should the nursery have had?

 

Answer:

Products Inefficacy liability – provides cover for a pure economic loss which arises when the Insured’s products fail to perform as reasonably expected.

Question: Example 2 – Illustrate Products Liability
Answer:

The Wine Farmer – Part 2

Question:

The Insured is a plant nursery that sells grape vines as small plants. The wine farmer asks for a specific type of grape, and on the nursery’s sales person identifies the relevant plant. After growing the vine the wine farmer discovers that he has the wrong type of grape when he mixes it with other wines. Instead of creating a valuable blend, the mix tastes awful and is discarded. What additional cover should the nursery have had?

 

Answer:

Products Liability – would cover the damage to the other wines because they were ‘damaged’ by the product supplied by the nursery.

 

Question: Example 1 – Illustrate the difference between Negligent Advice, E&O and Products Inefficacy
Answer:

The Wine Farmer – Part 1

Question:

The Insured is a plant nursery that sells grape vines as small plants. The wine farmer asks for a specific type of grape, and on the nursery’s sales person identifies the relevant plant. After considerable time and expense the vine starts producing grapes. The farmer then discovers that it is the wrong type of grape and sues the nursery because this type of wine will only fetch half the market value of the intended wine. What cover should the nursery have had if the loss arose out of the

(a)   sales person identifying the wrong plants?

(b)  delivery person confusing the plants?

 

Answer:

(a)   Negligent Advice would appear to be the answer, but it only provides Injury and Damage cover.

(b)  Errors and omissions would appear to be the answer, but it excludes liability arising out any product.

Both these scenarios would fall under the Products Inefficacy extension which covers loss arising out of the Insured’s products to perform as specified.