1. Forms
2. CG
3. CG-03-00

Form CG 03 00: Deductible Liability Insurance

1. What the form is

The CG 03 00, titled "Deductible Liability Insurance," is an endorsement to the Commercial General Liability (CGL) policy, specifically related to form CG 00 01 (Commercial General Liability Coverage Part). Its primary purpose is to introduce a deductible to the CGL policy for damages covered under Bodily Injury Liability and/or Property Damage Liability. This means the insured is responsible for paying a specified amount of a covered loss before the insurance policy responds. The insurer's obligation to pay damages on behalf of the insured only applies to the amount of damages that exceed the deductible amount stated in the endorsement's schedule. The endorsement allows the deductible to be applied on either a "per claim" or "per occurrence" basis. If "per claim" is selected, the deductible applies to all damages sustained by any one person (for Bodily Injury) or to all damages sustained by any one person (for Property Damage). If "per occurrence" is selected, the deductible applies to all damages arising out of a single "occurrence," regardless of the number of persons or organizations that sustain damages. It's important to note that even with this deductible, the insurer may pay part or all of the deductible to settle a claim, and the insured must then promptly reimburse the insurer for that amount.

2. Classes of business it applies to

The CG 03 00 endorsement is versatile and can be applied to a wide range of commercial businesses and enterprises that carry a CGL policy. It is not limited to specific industries but rather to any insured who opts for or is required to have a deductible on their liability coverage. Examples include:

• Construction Contractors: A general contractor might use this endorsement to manage their premium costs. If a covered incident causes property damage, the contractor would pay the deductible amount before the CGL policy covers the rest of the damages. For instance, if a contractor has a $5,000 per occurrence deductible and causes $20,000 in property damage to a client's building, the contractor pays the first $5,000, and the insurer covers the remaining $15,000.
• Manufacturing Companies: A manufacturer of goods might have this endorsement on their Products/Completed Operations Liability Coverage Part. If a product defect leads to bodily injury claims from multiple customers arising from the same batch (occurrence), the deductible would apply to the total damages from that occurrence (if "per occurrence" basis is chosen) or to each individual claim (if "per claim" basis is chosen).
• Real Estate Owners/Managers: Owners of commercial properties, such as shopping centers or office buildings, may utilize this endorsement. If a slip-and-fall incident occurs on their premises resulting in a bodily injury claim, the property owner would be responsible for the deductible amount before the CGL policy responds.
• Retail Businesses: A retail store could have a CGL policy with this deductible endorsement. If a customer's property is damaged within the store due to the store's negligence, the store owner would cover the damages up to the deductible amount.

Essentially, any business seeking to reduce its CGL premium by retaining a portion of the risk through a deductible could use this form. Some classifications may even have footnotes specifically requiring the use of a deductible.

3. Special considerations

Several important considerations apply when using the CG 03 00 endorsement:

• Per Claim vs. Per Occurrence: The choice between a "per claim" and "per occurrence" deductible basis is critical and has significant financial implications. A "per claim" deductible applies to each individual claim, even if multiple claims arise from a single event. Conversely, a "per occurrence" deductible applies only once to all damages arising from a single event, regardless of the number of claims. For example, if an explosion (one occurrence) injures five people, a "per occurrence" deductible would apply once to the total sum of damages for all five injuries. However, a "per claim" deductible would apply five separate times, once for each injured person's claim.
• Impact on Policy Limits: The endorsement states that the insurer's obligation to pay applies only to damages in excess of the deductible. Some versions of deductible endorsements specify how deductibles affect policy limits. For instance, an older version of CG 03 00 (11 85) stated that the limits of insurance applicable to "each occurrence" would be reduced by the deductible amount, but "aggregate" limits would not be reduced. It is crucial to review the specific edition of the CG 03 00 used to understand its effect on the policy limits.
• Insurer's Right to Pay Deductible: The insurer retains the right to pay any part or all of the deductible amount to settle a claim or "suit." If the insurer exercises this right, the named insured is obligated to promptly reimburse the insurer for the deductible amount paid by the insurer. This provision ensures that the settlement of claims is not unduly hindered by the insured's inability or unwillingness to pay the deductible upfront.
• Defense Obligations: Typically, under a deductible arrangement (as opposed to a Self-Insured Retention or SIR), the insurer still has the duty to defend claims from the first dollar, even if the ultimate loss may fall within the deductible. The insured then reimburses the insurer for the deductible portion of the loss. However, policy language should always be reviewed.
• Mandatory Use: For certain business classifications or types of risks, the use of a deductible, and therefore an endorsement like CG 03 00, may be required by underwriting guidelines or rating rules.
• Interaction with CG 00 01: The CG 03 00 directly modifies the CG 00 01 Commercial General Liability Coverage Form. Therefore, all terms, conditions, and exclusions of the underlying CG 00 01 remain in effect unless specifically modified by this endorsement or others.

4. Key information for agents and underwriters

Agents and underwriters should consider the following when dealing with the CG 03 00:

• Pricing and Premium Credits: The primary incentive for an insured to accept a deductible is a reduction in premium. Underwriters will apply deductible factors to the premium calculation. The larger the deductible, the greater the premium credit. Agents should clearly explain this trade-off to clients: lower premium in exchange for higher retained risk.
• Risk Assessment: The appropriateness and level of a deductible depend heavily on the insured's financial capacity to absorb the retained losses. Underwriters must assess the insured's financial stability before offering or agreeing to a significant deductible. An insured who cannot comfortably pay the deductible amount may create collection issues for the insurer later on.
• Coverage Gaps: While a deductible reduces premium, it also creates an out-of-pocket expense for the insured with each applicable claim or occurrence. Agents must ensure clients understand this potential "gap" in coverage and can manage it. This is particularly important for businesses with high claims frequency but low severity, where multiple deductibles could accumulate quickly.
• Underwriting Guidelines: Insurers will have specific underwriting guidelines regarding the maximum deductible levels they are willing to offer for different types of risks and industries. Certain high-hazard industries or those with poor loss histories might be required to take a higher deductible. Some insurers may also have specific classifications where a deductible is mandatory.
• Clarity in Schedule: The schedule within the CG 03 00 endorsement must clearly state the amount of the deductible and whether it applies on a "per claim" or "per occurrence" basis. It should also specify whether the deductible applies to Bodily Injury Liability, Property Damage Liability, or a combination. Ambiguity can lead to disputes at the time of a claim.
• Distinction from Self-Insured Retention (SIR): It is crucial to distinguish a deductible (as implemented by CG 03 00) from a Self-Insured Retention (SIR). With a deductible, the policy limits often sit on top of the deductible, and the insurer typically handles the claim from the outset and then seeks reimbursement of the deductible from the insured. With an SIR, the policy typically only responds after the SIR has been exhausted by the insured, who often handles claims within the SIR layer. The CG 03 00 establishes a deductible, not an SIR.
• Reimbursement Provision: Underwriters should be aware of the insurer's right to pay the deductible and seek reimbursement. While this facilitates claim settlements, the creditworthiness of the insured remains a factor in the potential recovery of that deductible payment.