1. Lastovica Construction is insured under a commercial general liability (CGL) policy. The firm agreed to build a new manufacturing facility for the Smith Corporation. A heavy machine used by Lastovica Construction accidentally fell from the roof of a partially completed building. Bill, an employee of the construction firm, was severely injured when the falling machine crushed his foot. Heather, a pedestrian, was also injured by the machine while walking on a public sidewalk in front of the building.
a. Heather sued both Lastovica Construction and the Smith Corporation for her injury. Indicate the extent, if any, of the CGL insurer's obligation to provide a legal defense for Lastovica Construction.
b. What legal defense could the Smith Corporation use to counter Heather's claim based on the nature of its relationship with Lastovica Construction? Explain your answer.
c. Does Lastovica Construction have any responsibility for Bill's medical expenses and lost wages? Explain.
2. James is director of research for a pharmaceutical company. The company recently introduced a new drug to reduce the symptoms of arthritis. The company is insured under a claims-made CGL policy. The policy term is January 1, 2012 through December 31, 2012. On December 15, 2012, a patient of a physician that prescribed the drug became seriously ill after taking the prescribed dosage. On February 1, 2013, the patient filed a claim against the company for the illness. James had no prior notice that the patient had become ill. Explain whether the company's claims-made policy will cover the loss.