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Commercial General Liability Insurance Policies v. Errors and Omissions Policies

The Court of Appeals of Tennessee, in a case involving the litigation of a commercial general liability policy (“CGL policy”), issued an opinion that is helpful for those trying to understand the coverage parameters of commercial general liability policies. Commercial general liability policies are perhaps the most prevalent and common type of policies carried by businesses, but they provide markedly different coverage and protection than do errors and omissions policies (“E & O” policies).

The case involved a financial advisor who had advised some clients to invest in promissory notes. The promissory notes became worthless. The investors sued the estate of the financial advisor (who had passed away by the time the lawsuit was filed). The investment advisor’s business had been covered by a commercial general liability policy issued by Nationwide.

The personal representative of the estate of the investment advisor made a claim against the Nationwide CGL policy. As frequently happens in insurance policy litigation, Nationwide filed a declaratory judgment action in Chancery Court. Nationwide argued that it had no duty to defend the estate of the investment advisor or to provide any coverage for the claimed losses.

The Chancery Court held that Nationwide had no obligations under the CGL policy it issued because the losses claimed by the investors were not “property damage” as that term was defined in the Nationwide CGL policy. The Nationwide commercial general liability policy at issue, which was a typical CGL policy, defined “property damage” to include “loss of use of tangible property that is not physically injured.” (“Property damage” also included “physical injury” to tangible property).

The Chancery Court held for Nationwide. It found that the losses incurred by the investors were not property damage under the CGL policy’s definition of that term. The estate of the investment advisor appealed to the Court of Appeals of Tennessee.

On appeal, the estate argued that the investors had suffered property damage because they had lost the use of the promissory notes. Because the notes were worthless, the estate argued, the investors could not use them.

The Court of Appeals affirmed the decision of the Chancery Court that the loss suffered by the investors was not “loss of use” as defined by the Nationwide policy. It concluded that there was a difference between loss of use and loss of value. The investors had lost value, but, technically, not the use of the promissory notes, said the Court. (Technicalities matter in the interpretation of insurance policies).

The estate of the investment advisor argued that another Tennessee case supported the argument that the investors had suffered a loss of use. As pointed out by the Court of Appeals, that case was factually distinguishable, but it is worth discussing to understand more about the parameters of “loss of use” which will be equated to “property damage” under a commercial general liability policy. In that case, the party who was claiming a loss had lost the ability and right to use boat racks, a dry storage building and floating docks. Unlike the investors in the case at hand, who could actually hold and possess their worthless promissory notes, the party in the former case could not use the racks, building and docks.

The trial court in the case at hand pointed out, correctly, that the personal representative of the investment advisor’s estate was seeking coverage under a commercial general liability policy for the type of loss which would be covered, not by a CGL policy, but by an Errors & Omissions policy. If your claim or loss arises from someone’s rendering or failing to render professional advice, do not expect that a CGL policy will cover your losses.

Generally, you can expect CGL policies to cover, for example, personal injuries which take place on the premises of the insured business, or which are caused by an employee of the business or physical damage to vehicles or equipment located on the premises of the insured business. When doing any significant business with a purported professional, it is prudent to ensure that they have adequate E & O coverage or other professional liability coverage in place.