General Liability and Negligence: Tort Basics and the CGL Policy

Every liability claim asks two separate questions: is the insured legally liable under tort law, and if so, does the policy pay? Adjusters answer the first with the elements of negligence, the available defenses and the measure of damages, and the second with the policy form, most often the ISO Commercial General Liability (CGL) Coverage Form, CG 00 01 04 13. This guide covers both in the order you would work a file.

The four elements of negligence

A claimant must prove all four:

1. Duty: the insured owed a legal duty of reasonable care, judged by what a reasonable person would do.
2. Breach: the insured failed to meet that standard.
3. Causation: the breach actually caused the harm and was its proximate (legally foreseeable) cause.
4. Damages: actual injury or loss. Careless conduct that hurts no one, like a driver who runs a stop sign and forces a pedestrian to jump back unharmed, supports no recovery.

Three doctrines help claimants prove the first two elements:

• Negligence per se: an unexcused violation of a safety statute meant to protect people like the claimant establishes breach. The claimant still must prove causation and damages.
• Res ipsa loquitur (“the thing speaks for itself”): an inference of negligence when the event does not ordinarily happen without negligence, the instrument was in the defendant’s exclusive control, and the claimant did not contribute.
• Attractive nuisance: landowners owe reasonable care to trespassing children when they know children are likely to trespass and a dangerous condition is one children will not appreciate.

Defenses and fault allocation

The biggest liability question on many files is how the claimant’s own fault affects recovery. Here is how each system treats a claimant with $100,000 of damages:

Only a handful of jurisdictions still follow contributory negligence, including Alabama, Maryland, North Carolina and Virginia. Texas uses proportionate responsibility with a 51% bar: a claimant is barred only if his responsibility is greater than 50%. Check the rule for the state of loss on every file, because the two modified systems differ only at exactly 50%.

Other defenses:

• Assumption of risk: the claimant knew of a specific risk and voluntarily accepted it. A signed waiver is express assumption of risk and generally bars recovery for harm within that risk unless it violates public policy.
• Last clear chance: a negligent claimant can still recover if the defendant had the final opportunity to avoid the harm. It developed to soften the contributory negligence rule.

Joint and several liability lets a claimant collect the whole judgment from any liable defendant. If three defendants are 60%, 30% and 10% at fault on a $300,000 judgment and two have no assets, the 60% defendant can be made to pay all $300,000 and then seek contribution. Many states now limit this by statute.

Types of damages

If a jury awards $38,000 of medical bills, $12,000 of lost wages, $90,000 for pain and suffering and $150,000 in punitive damages, special damages are $50,000 and compensatory damages (special plus general) are $140,000.

The traditional collateral source rule says payments from sources independent of the wrongdoer, such as the claimant’s own health insurance, do not reduce the damages owed. Many states have modified it by statute.

Vicarious and strict liability

• Vicarious liability makes one party answer for another’s conduct. Under respondeat superior, an employer is liable for an employee’s wrongful acts within the scope of employment even if the employer did nothing wrong. It generally does not reach independent contractors.
• Strict liability applies without proof of fault to abnormally dangerous activities such as blasting, to keeping wild animals, and to defective products. Reasonable care is not a defense.
• Dram shop laws can make businesses that sell alcohol liable for harm caused by visibly intoxicated or underage patrons they served.

How the CGL policy is built

CG 00 01 04 13 has five sections: Coverages (A, B, C and Supplementary Payments), Who Is an Insured, Limits of Insurance, Conditions, and Definitions.

Supplementary payments sit outside the limits: defense expenses, post-judgment interest and similar costs. If the insurer spends $140,000 defending a suit that ends in a $1,000,000 judgment against a $1,000,000 limit, and $9,000 of post-judgment interest accrues, it pays $1,149,000. The right and duty to defend end when the applicable limit is used up paying judgments, settlements or Coverage C expenses.

Who is an insured depends on the entity type. For an individual, the named insured and spouse are insureds only for the conduct of a business the named insured solely owns. Employees are insureds for acts within the scope of their employment.

CGL limits explained

The amounts below are a common example; the real figures are on the declarations.

Aggregates erode separately. If a manufacturer pays a $900,000 slip-and-fall settlement and two $800,000 product injury settlements in one policy year, the general aggregate has $1,100,000 left and the products-completed operations aggregate has $400,000 left. Limits reset for each annual period.

Key CGL exclusions

Coverage A excludes, among others:

• Expected or intended injury, except reasonable force to protect persons or property
• Contractual liability, except liability the insured would have anyway and liability assumed in an “insured contract” (such as a lease of premises or a business contract assuming another’s tort liability)
• Liquor liability, but only for insureds in the business of making, selling, serving or furnishing alcohol
• Workers compensation and employer’s liability, including consequential claims by an injured employee’s spouse, child, parent or sibling
• Pollution, with exceptions such as heat, smoke or fumes from a hostile fire
• Aircraft, autos and watercraft owned, operated, rented or loaned to an insured, with exceptions such as non-owned watercraft under 26 feet not carrying people or property for a charge
• Mobile equipment in specific situations, and war
• Damage to property the insured owns, rents or occupies, or has in its care, custody or control
• Damage to your product and damage to your work, though the your-work exclusion does not apply when the damaged work or the work causing the damage was done by a subcontractor
• Impaired property, product recall costs, electronic data, and distribution of material in violation of laws such as the TCPA

Coverage B has its own list, including breach of contract, criminal acts by the insured, material first published before the policy period, and infringement of patents, trademarks or trade secrets (copyright, trade dress and slogan infringement in your advertisement are carved back in).

Occurrence vs claims-made

Example: a claims-made policy for 2026 with a January 1, 2024 retroactive date does not cover a claim made in March 2026 for an injury in June 2023.

Umbrella vs excess liability

A follow-form excess policy adds limits above the underlying policies and follows their terms. A true umbrella also adds limits but can cover some claims the underlying policies exclude, usually subject to a self-insured retention, and it drops down when an underlying aggregate is reduced or exhausted. If a $60,000 judgment is covered by the umbrella but excluded by the CGL, and the retention is $10,000, the umbrella pays $50,000. Umbrellas typically require specified underlying insurance.

Duty to defend, reservation of rights and settlement

The duty to defend is broader than the duty to indemnify. Courts generally compare the complaint’s allegations with the policy, and if any allegation is potentially covered, most courts require the insurer to defend the whole suit, often under a reservation of rights letter that preserves its right to deny later. A non-waiver agreement does the same job but is signed by both sides. The duty to indemnify is decided later on the actual facts.

Settlement handling creates exposure too. Under Texas’s Stowers doctrine, an insurer that rejects a reasonable demand within limits on a covered claim, with a full release, can be liable for the entire excess judgment. On the insured’s side, the CGL conditions require notice as soon as practicable and bar voluntary payments without consent, except first aid.

For the workflow around these decisions, see the insurance claim process guide and insurance contract law basics, then test yourself with the general liability practice test.