Is There Ever a Good Reason to Delete CGL Medical Payments Coverage?

03 Mar Is There Ever a Good Reason to Delete CGL Medical Payments Coverage?

Question: A restaurant has a Commercial General Liability Policy with $1 million occurrence limit and $10,000 Medical Payments limit. A customer alleges that while biting into a french fry, he broke a tooth, resulting in a $6,000 dental bill. The insurance carrier quickly writes a check to the customer up to the Medical Payments limit without any investigation. The restaurant wants to pay for anything for which they might be legally responsible, but doesn’t want to be known as a place that provides free dental care.

I have two questions:

1. What are the negatives if the restaurant chooses to delete its Medical Payments coverage under the CGL Policy?
2. The Medical Payments Exclusion Section states, “We will not pay expenses for ‘bodily injury’ included within the ‘products-completed operation hazard.” Would the cooked meal represent the restaurant’s “product?”

Answer: The original intent of medical payments coverage was to provide “goodwill coverage.” An insured did not want a customer to get hurt in the business without some recourse that did not require a legal remedy. Medical payments coverage is not based on legal liability, and it was intended to prevent lawsuits.

Any claim made under medical payments coverage would reduce the policy’s general aggregate. It would also reduce the occurrence limit for any subsequent “bodily injury” liability claim. For example, a customer collects the $10,000 medical payments limit and then later sues for product liability. The initial med pay claim reduced the general aggregate, and the amount already paid would be subtracted from the occurrence limit for the subsequent BI claim, further reducing the aggregate.

As indicated, the CGL medical payments section excludes “bodily injury” arising out of the “products-completed operations hazard.” The restaurant’s food would be their product. A customer could make a claim up to the med pay limit, but he would have to sue for damage caused by the insured’s product. The CGL defines “products-completed operations hazard” to include all “bodily injury” and “property damage” occurring away from premises you own or rent and arising out of “your product.”

Due to the “away from the premises” requirement, claims arising out of a restaurant’s food consumed on premises would be considered a premises claim and not a products claim. Such a claim would reduce the general aggregate, not the products completed operations aggregate. A special endorsement, CG 24 07 Products-Completed Operations Hazard Redefined, is needed because—in the case of dine-in restaurants—the product is relinquished and put to use on the insured’s premises. This endorsement redefines “products-completed operations hazard” by eliminating the requirement that the injury occur away from the premises owned by or rented to the named insured. In essence, it makes available the products/completed operations aggregate.

I have reached the point where I question the wisdom of providing medical payments coverage, especially for businesses with a lot of customer traffic. Customers often collect the medical payments limit and then sue anyway. Also, this coverage has become the subject of a lot of insurance fraud. We all know about “staged” slip and fall claims or claims in which a customer brings a foreign object such a stone and then alleges the object was in the insured’s product and caused injury like the dental situation described.

You might want to talk to the insured about the CG 21 35 Exclusion—Coverage C—Medical Payments endorsement. Of course, the negative would be they are deleting coverage. It is important to document the discussion and make sure they understand they are voluntarily eliminating coverage.