The General Aggregate and Long Tail Claims - A Historical Perspective on Claims For Increased Limits
Since 1985 the Commercial General Liability (CGL) policy has had a General Aggregate Limit. Prior to that time there was no aggregate for premises bodily injury and there were four separate aggregates for property damage. This article explains why and how the aggregate limit developed over time.
Asbestos, Environmental, Sexual Abuse, and other claims that date back to and originate from the 1940’s continue to be a drag on insurance company earnings. Most of these claims are on policies issued before 1985 when the General Aggregate limit was added to the policy. To fully understand the evolution of aggregate limits and the reasons why a General Aggregate limit was not used until 1985, it is necessary to go back to the early part of the last century. At that time, liability insurance was sold for specific hazards such as Public Liability, Manufacturing Liability, Team Liability, and various types of contingent liability to name a few. Having separate policies for each hazard was based on the belief that “the cost of the hazards of the new types of insurance should not be averaged in the premiums of all policyholders, because not all of the policyholders would have such hazards.” Therefore, each policy had its own premium rating basis. This might be area, payroll, sales, receipts, or another basis. “Because each separate cover was regarded as a separate policy or contract, not only different rating bases were adopted but separate rules governing the writing of each cover were formulated.”
As companies expanded operations throughout the nation and hazards increased, a need was recognized for a policy combining several coverages. In 1939, the National Bureau of Casualty and Surety Underwriters and The Mutual Casualty Insurance Rating Bureau began developing a Comprehensive Liability Insurance program. In 1941, when the Comprehensive General Liability (“CGL”) insurance policy first became available nationwide, a new approach to the writing of liability insurance began. Rather than needing a separate policy for each hazard to which it could be potentially exposed, an insured could obtain the CGL policy which would insure all hazards not specifically excluded. This would mean that as new hazards arose, an exclusion would have to be added or an appropriate premium charge made.
There were many challenges and obstacles, with the different manual rules and rating bases serving as two of the biggest challenges. To meet the challenge of complying with the various manual rating rules for the different types of coverage combined in the comprehensive liability form there were separate aggregate limits and not a general aggregate limit on the policy. Though the declarations page in the early versions of the form had only one bodily injury aggregate limit, and that applied to products and completed operations, the declarations page had four separate property damage aggregate limits. These separate aggregate limits corresponded to the separate covers that were combined into the CGL policy: Premises; Operations; Protective; Products-Completed Operations; and Contractual. The limits of liability section of the form described the circumstances under which each aggregate would apply. The four separate property damage aggregate limits remained on the declarations page of the policy until the 1966 revision, but the description of circumstances for the different aggregates continued to be in the form with little change. This was finally overcome in 1985, and the general aggregate came into existence.
Having separate aggregate limits gave the Policyholders and their attorneys opportunities to make several different arguments to increase the limits of coverage and ultimate payout. Listed below are three of the more common arguments, and the basis of each argument.
1. The Products-Completed Operations Aggregate for Bodily Injury does not apply to workers exposed to asbestos during installation of asbestos containing products even if the triggered policy incepts after the installation is completed. From the early 1980’s until the mid 1990’s, most insurers made payments for Asbestos claims as Products-Completed Operations, therefore subject to an aggregate. As limits became exhausted, policyholder attorneys sought other ways to access insurance coverage. Policyholders often times did not have umbrella or excess coverage, especially during the 1940’s and 1950’s, or the umbrella or excess insurer in place at the time may have subsequently become insolvent. In those instances, Policyholder attorneys began making the argument that the policies were not exhausted, because these were operations claims and there was no aggregate for bodily injury. Additionally, plaintiff attorneys began suing peripheral defendants that were considered second or third tier defendants. The attorneys for the plaintiffs and policyholders have been fairly successful in advancing this argument and asbestos litigation has continued beyond the mid 1990’s when it was believed to be going away.
2. A Property Damage Aggregate limit does not apply to environmental contamination caused by operations of a policyholder if the premium rating basis was not remuneration. This argument is likely to be advanced for a policyholder whose policy was composite rated for ease of premium calculation. The composite rate may certainly include remuneration rating for Manufacturer’s and Contractor exposures, but often times the rating sheets for a policy issued more than twenty years ago are not available.
3. There is a separate aggregate limit for each site where the policyholder is liable for environmental contamination. This argument is premised on the policy language that describes the circumstances for the Premises Operations Aggregate and Protective or Independent Contractor Aggregate which states “These limits apply separately to each project with respect to operations being performed away from premises owned or rented by the named insured” or similar language. Separate aggregate limits for each project reflect the manual rules in effect in 1941. The manual called for “Property damage liability for a contractor requires a limit upon the aggregate losses which result from each separate project” . Even though there is no definition in the coverage form for project, there is a statement that the aggregate for Protective or Independent Contractors is for operations performed for the named insured by independent contractors and general supervision thereof by the named insured.
The form promulgated in late 1940 was a beginning and all understood it would continue to change. The first revision to this form was in 1943 with other revisions taking place in 1947, 1955, 1966 and 1973, before the massive landmark revisions in 1985. Though E. W. Sawyer, a person very instrumental in development of the CGL policy, acknowledged that the CGL policy would continue to change and be modified, I do not believe he ever anticipated the long tail type of claims that insurance companies are being confronted with today.
An exclusion dealing with pollution exposure was finally added to the CGL policy in 1970. This exclusion was only a qualified exclusion and allowed the policy to still provide coverage for “sudden and accidental” pollution events. In 1985, the absolute pollution exclusion was adopted and incorporated into the CGL policy. Exclusions dealing with Asbestos were added in the late 1970’s and early 1980’s. Since the courts consider sexual abuse to be an intentional act, the “expected or intended” injury exclusion would apply to those types of claims. Even though these exclusions were developed to restrict the scope of coverage to that anticipated by the premium, policyholder attorneys developed creative methods to expand coverage beyond that which was originally contemplated when the policy had been issued. This was done primarily through interpretation of the four or five different aggregates on the CGL policy.
This ability to increase the limits of coverage and ultimate payout continued until the General Aggregate came into existence along with massive changes made to the CGL policy in 1985. This was also the edition that changed the name of the form from Comprehensive General Liability to Commercial General Liability. The current CGL policy form has a General Aggregate limit and a Product-Completed Operations Aggregate limit. These limits apply to all bodily injury and property damage under Coverage A, damages under Coverage B and medical expenses under Coverage C.
The use of a General Aggregate resolved these issues because there was an aggregate limit that applied to bodily injury other than Products and Completed Operations. The General Aggregate is not dependent on a rating base or for separate projects, although there are endorsements available currently that allow a policyholder to have separate General Aggregate Limits for each designated project.
As new hazards develop, new legal theories emerge, and courts interpret the policy in a manner not intended by the parties at the time it was issued, the CGL policy form will continue to change and evolve. As always in handling claims, it is important to read the policy.
ABOUT THE AUTHOR: Tommy R. Michaels
Tommy R. Michaels, CPCU, AlC, ARe, is the principal of T. R. Michaels Clalm Consultinq LLC and has been involved in property casualty insurance claims for more than 38 years. Michaels serves as an expert witness on claim handling issues, a consultant in coverage interpretation, insurance policy historian, and an instructor of insurance. A CPCU since 1976 he is a member of the National CPCU Society and Connecticut chapter of CPCU, where he has served on the Board of Directors.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.