Question

In: Finance

4-3 Joe Smith has been in the plumbing business as a sole proprietor for the past...

4-3 Joe Smith has been in the plumbing business as a sole proprietor for the past 35 years and is planning to retire. His insurance agent has told him that he should continue to carry Products and Completed Operations Liability coverage. Do you agree with the agent’s recommendation? Explain your answer

Solutions

Expert Solution

The general liability policy is made up in accordance with the standard forms issued by the Insurance Services office(ISO) that is predictable and carries fewer risks in comparing with other proprietary forms. Therefore, a person who is in service should opt for this general liability policy which not only helpful for the insured person but also for the part of insurer as the interpretation of the clauses under the policy have analyzed by the Court which does not mean differently beyond the expectation of the insurer hence carries fewer risks.

There are three basic coverage found in the Commercial General Liability Form. These are:

  1. Bodily injury and liability relating to property damage that is under coverage A

The clause under Coverage A saves the insured person if any damage occurs from his part to the third party relating to body injury and when any claim aroused by the third party, then the insurer afford the coverage money in lieu of the insured person called policy holder and thus compensates the third party against his claim for body injury done by the insured person who creates such body injury to the third party due to negligence while executing his service and which is not regarded as a subject to an exclusion. The place where such negligence occurs can be in the premises; on or off premises where the ongoing work being executed. Moreover, such negligence of service may be occurred from the work done by the insured person. Or the product being made by the insured person when such act of negligence occurs and harm the third party.

Sometimes ongoing operation may be defective and cause to create harm to the third party after finishing the work so liability then also arises for the insured person to pay off compensation to the injured parties and coverage A also covers this criteria to pay off the compensation to the third party on behalf of insured policy holder.

In case of law suit the insurer may provide the attorney to defend for the insured person and the added advantage is that the coverage cost bears the supplementary costs relating to court case. So no extra money to be borne by the insured person separately in order to defend himself for such court case.

  1. Liability in relation to injury based on advertisement and personal nature that is under coverage B

It is automatically inserted in the general liability policy and protect the insured person against claims for libels, slander and other forms of offences. However, patent infringement is not covered by Coverage B. The advertisement and personal nature injury should be held within coverage territory and within the policy period.

  1. Medical payments that is under coverage C

The terms and conditions of the coverage enables the insured person to settle the claim of compensation in accordance with the maximum amount fix in the declaration under the coverage regardless whatever claims are forwarded by the affected parties facing loss due to the injury done by the insured party during the operation period.

However, an important aspect of consideration is that while the insurer covers the cost on behalf of the policy holder but such covered costs do not exceed more than the aggregate limits and once such aggregate limits gets exhausted any extra amount that is required to be paid to the third party to be borne by the policy holder and not by the insurer as it has already covered the aggregate limit.

Although the last point is not giving full support to the policy holder or insured party in the matter of injury caused by the policy holder during the time of providing service to the third party but the rest coverage of this policy helps the policy holder to defend himself if any harmful act occurs due to negligence and injures the third party creating loss to them.

If no such policy is made by the service provider and in the future if any harm occurs to the third party it may create huge pecuniary loss for such service provider and create great financial loss to him. In order to minimise the risk in the operations a service provider should opt for Products and Completed liability coverage which saves him by giving the protection of coverage A, B and C described earlier in this article.


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