Commercial general liability insurance is typically one of the first policies purchased in a business insurance program. It can be required by leases or contracts, but either way your business should maintain insurance to protect against third party claims of bodily injury, property damage, personal and advertising injury, and legal defense costs. Legal fees can accrue quickly, even if your business believes the claim is frivolous.
If your business serves customers, vendors, tenants, subcontractors or the general public, general liability insurance is likely necessary. Read on to learn what’s covered, what isn’t, and how limits work so you can avoid unexpected coverage gaps that put your business assets at risk.
Does General Liability Insurance Cover…
Covered Claims
General liability insurance, or CGL, protects your business against third-party claims for bodily injury, property damage, or personal and advertising injury that arise from your premises, operations, or products.
Bodily Injury and Property Damage Liability
Imagine a customer slips on the wet floor of your retail store and injures themselves. The customer could decide to sue your business to recover damages. Your general liability policy would kick in and cover their medical bills, legal defense costs, and any settlements or judgments up to your policy limits.
Another example could involve your employee accidentally bumping into a client’s refrigerator with a tool box while performing work. If the refrigerator gets damaged, your policy would likely respond.
Defense costs alone can reach five-figures quickly. Even if a claim against your business is unsubstantiated, your policy will cover attorney fees, court costs, and any necessary investigations. Without liability coverage, these unexpected expenses would come directly from your operating budget.
General liability insurance is typically purchased with $1 million per occurrence limits, and $2 million in aggregate limits. Many small businesses increase their general liability limits to $2 million, $5 million, or even $10 million per occurrence based on contracts and exposure.
Personal and Advertising Injury Liability
General liability insurance also protects your business from certain types of non-physical injuries to a third party. Also known as personal and advertising injury liability, these coverages include libel, slander, defamation, false arrest, and copyright infringement of advertisements.
An example might be if one of your competitors files a claim against your business because they believe your marketing brochures included a libelous statement about their company. Or, if someone accuses your business of copying their website content in one of your online ads.
With so many businesses marketing online and utilizing social media, personal and advertising injury claims are becoming more commonplace. Don’t overlook this coverage.
Non-Covered Claims
Commercial general liability provides broad insurance coverage for your business, but doesn’t protect against every exposure.
Professional liability. Also known as Errors and Omissions (E&O) insurance, this coverage applies to financial losses caused by errors in advice, design, consulting or specialized services. If your business provides these types of services, consider purchasing standalone Professional Liability insurance.
Employee injuries. If someone is injured while on the job working for your business, it’s covered by Workers’ Compensation insurance.
Commercial auto accidents. Vehicle accidents are excluded and require Commercial Auto coverage.
Pollution liability. Pollution-related exposures are excluded from general liability policies. Depending on your business, contractors, manufacturers, and environmental consulting firms may require standalone pollution liability coverage.
Policy Limits
General liability policies are typically written with two limits:
Per occurrence limit: how much the insurance company will pay for any one claim
Aggregate limit: how much the insurance company will pay for all claims during the policy term
So, if your general liability policy has a $1 million per occurrence limit and a $2 million aggregate limit, the insurer would pay no more than $1 million for a single claim. Additionally, the insurer would pay no more than $2 million for all claims combined during the policy period.
Let’s say your business is faced with two claims valued at $1 million each. Your aggregate limit would be exhausted, and any subsequent claims during that policy period would not be covered.
Many businesses purchase Umbrella or Excess Liability insurance to protect against this risk. Umbrella policies provide coverage above and beyond the underlying general liability limits.
Deductibles, also known as Self-Insured Retentions (SIR), may also apply. The higher your deductible, the lower your premium. However, you’ll be responsible for more costs should a claim occur.
Occurrence vs. Claims-Made
As briefly mentioned, general liability insurance policies are written on either an occurrence or a claims-made basis.
Under an occurrence policy, if the incident occurs during the policy period your insurer will provide a defense, even if the claim is filed after the policy has expired.
Claims-made policies only provide coverage if the claim is filed while the policy is active. Businesses should be careful when switching carriers to ensure there are no gaps in coverage.
Additional insureds and contract requirements
Many businesses are required to add additional insureds to their general liability insurance policy. When added as an additional insured under your general liability policy, a third party (landlord, general contractor, project owner) receives certain protections under your policy.
Keep in mind that a certificate of insurance does not make someone an additional insured. Review the policy and any additional insured endorsements to determine if a party is listed as additional insured.
Contracts often require additional provisions like a waiver of subrogation. This means your insurance company can’t pursue the contractual partner to help recoup costs after paying a claim.
Failing to meet contract requirements can cause payment delays, breach of contract, or project jeopardy.
Claims
Timely notice of a claim to your insurance company is important. Once notified, the insurer will investigate and determine if coverage applies. If so, they will appoint counsel and provide a defense. Most general liability carriers work with defense counsel and handle all settlement negotiations.
Should a claim arise that has the potential to exceed your policy limits, notify any excess or umbrella carriers as well.
Taking pictures of the incident scene, proper documentation, and following established risk management procedures can help ensure a successful claims outcome.
Cost
How much you pay for general liability coverage will vary depending on your unique risk factors. Common underwriting criteria includes:
Business classification
Revenue or payroll
Claims history
Operations
Number of locations
General liability insurance for a low-risk retail store could cost less than $500 per year. Contractors will often pay $1,000 to $3,000+ per year.
Insurance companies also consider how you manage risk. Do you have a formal safety program? Written hiring practices? Subcontractor agreements? Loss control measures? Implementing strong risk management techniques can have a favorable impact on your bottom line.
Key Points
General liability insurance protects your business from third-party claims for bodily injury, property damage, and personal and advertising injury. Many landlords, lenders, and clients require general liability insurance before signing a contract with your business.
While general liability insurance is extremely important, having a policy doesn’t ensure you are fully protected. Review your policy’s exclusions, endorsements, limits and how other policies relate to your general liability coverage.
Anytime your business expands, takes on new contracts, increases revenue, or hires subcontractors is a good time to review your overall liability program.
Frequently Asked Questions
Q1: How much general liability should I carry on my small business?
Most small businesses carry at least $1 million per occurrence, and $2 million in aggregate. General contractors, landlords, and high traffic businesses may need higher limits.
Q2: Is general liability insurance required?
While not typically required by law, most landlords, lenders, and clients will require proof of general liability insurance before entering a contract with your business.
Q3: What’s the difference between general liability and professional liability?
General liability covers third party claims of bodily injury, property damage, and personal and advertising injury. Professional liability covers third-party financial losses resulting from professional services.
Q4: Will general liability cover my subcontractors?
Any claim made against your business as a result of their operations would likely be covered under your general liability policy. However, subcontractors should have their own general liability policy. Many contracts require subcontractors to name the contractor hiring them as an additional insured.
Q5: How much does general liability insurance cost?
General liability insurance can range from a few hundred dollars to $1,000 to $3,000+ per year. The price varies depending on your industry, revenue, payroll, claims history and more.