General Liability Insurance: Everything You Should Know
The commercial general liability (CGL) insurance policy is the most common business insurance policy in America. This broad coverage insures businesses against property damage or bodily injury claims that arise out of your actions to others.
Although there are a variety of commercial general liability coverage forms, the one you’ll most frequently see is the “Commercial General Liability Coverage Form.” That’s why today we will review this form and explain how most insurance policies are put together.
From slip and falls to certain class-action lawsuits, commercial general liability is a critical component for your business protection. Whether you are looking for high-risk public liability insurance or just a policy to protect your company, there is relevant coverage for every business.
Why Businesses Need Commercial Liability Insurance
A CGL policy is a necessity for a customer-facing business. Of course, you never set out intending to harm a customer, but accidents happen. If your actions lead to a customer being injured, your CGL policy will cover you.
A CGL policy will also cover premises liability, which covers incidents that occur on your owned or leased property. If a customer comes into your store and slips and falls, that is a premises liability claim. This would be covered under the CGL policy.
If your business does any advertising, you can easily find yourself in a lawsuit for libel or slander. These claims can arise out of something as simple as “We’re the best in town” or “The competition can’t compare” in an ad for your business. While these seem small and unlikely to result in a lawsuit, they very well could lead to a claim. The CGL policy would cover these claims under the business advertising portion.
You Have Employees
Having employees can open you up to many different types of claims. Apart from workers compensation coverage, which is under a different policy, you will need to protect your business from your employees’ actions. If, for example, the actions of one of your employees leads to physical damage to another person’s property, or even physical injury to another individual, your CGL policy will cover you and your business, preventing you from being on the hook for your employee’s actions.
You Have Large Equipment
With large equipment comes large disasters, as working with a bulldozer or other heavy machinery can easily lead to damage to another person’s property. Let’s say you are going to clear an area and debris falls, damaging someone’s roof. Your CGL policy will cover that damage.
You Produce a Product
If your business produces anything, you are opening it up for a products liability claim. A products liability claim occurs when your product leads to damage or injury of another person’s property or body.
Commercial general liability can cover a range of potential lawsuits. We will go over the core coverages, but if you have any specific questions, talk to one of our risk advisors for additional clarification.
Coverage A: Bodily Injury And Property Damage Liability
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Coverage A of a CGL policy provides protection from claims that relate to when your business’s operations, products, or completed work caused bodily injury or property damage. This coverage is typically provided on an "occurrence" basis, which means that you will be insured against incidents that happened during the policy period, regardless of when the claim is filed. In other words, if a claim is filed years later because an injury or damage was just discovered, you are still protected.
Bodily Injury Liability
This covers claims for a person’s physical injury, sickness, or disease that was caused by your business operations. It can also cover the death of that person if their injury, sickness, or disease led to that. Note that your business must be found legally responsible for causing the bodily injury.
Examples of bodily injury claims include:
- A customer slipping and falling on a wet floor in your retail store
- A construction worker getting injured while on-site for a project managed by your company
- A visitor getting burned due to a faulty product manufactured by your business
Property Damage Liability
This provides coverage for damages to a third party's property that was caused by your business operations, products, or completed work. “Damage” is defined as physical harm to a property, as well as the loss of use of that property.Examples of property damage claims include:
- A contractor damaging a client's property while performing renovation work
- A manufacturer's defective product causing damage to a customer's property
- A landscaper accidentally breaking a neighbor's window while working on a project
It is important to note that Coverage A also includes a provision called the "products-completed operations hazard." This means if either bodily injury and property damage claims arise after the work has been completed or product has been sold, you will be covered.
The Coverage A portion of a CGL policy is the most needed for your business, and where a majority of your claims will arise.
Coverage B: Personal And Advertising Injury Liability
Coverage B of a CGL policy protects you against claims that relate to personal and advertising injury. These are primarily allegations that your advertising or business activities harmed a person’s or business’s reputation or rights. Claims can be filed for libel, slander, invasion of privacy, copyright infringement, false arrest, and even improper eviction.
Examples of personal and advertising injury claims include:
- A person suing your business for defamation due to a false statement made in an advertisement
- A competitor claiming that your advertising materials infringe on their copyright or trademark
- A customer accusing your business of violating their right to privacy by disclosing personal information without consent
Like Coverage A, Coverage B is typically provided on an occurrence basis. Regardless of when a claim is filed, you will be covered if the offense happened during the policy period.
Coverage C: Medical Payments
Coverage C of a CGL policy provides a no-fault coverage for medical expenses incurred by people who sustain bodily injuries on your premises or due to your operations. Another name for this is “goodwill coverage” because it pays medical bills without going through the rigmarole of determining who fault it was.
Coverage C is designed to help businesses address minor injuries quickly and efficiently, while avoiding litigation. It is important to note that Coverage C typically has a lower limit than Coverage A and does not require you to be found legally liable for the injury.Examples of medical payments claims include:
- A customer sustaining a broken arm at your retail store and requiring immediate medical attention
- A guest getting injured at an event hosted by your business and needs emergency medical treatment
4 Key Features of Coverage C:
- No-Fault Coverage: The primary advantage of Coverage C is that it provides no-fault coverage for medical expenses: Your insurance company will pay for the injured person's medical expenses without determining whether you are legally responsible for the injury. This can help businesses avoid lengthy (and expensive) legal disputes and maintain a good reputation with customers, clients, or other third parties.
- Limited Scope: Coverage C is specifically designed to cover medical expenses resulting from bodily injuries. It does not cover property damage, lost wages, or pain and suffering. Furthermore, it does not apply to injuries sustained by employees, as those are typically covered under workers compensation insurance.
- Payment Timeframe: Coverage C typically requires the insurance company to pay medical expenses within a specific time frame, usually one year from the date of the accident. This ensures that injured parties receive prompt reimbursement for their medical costs.
- Per-Person Limit: Coverage C caps the amount the insurance company will pay for medical expenses for each injured person. It is essential for businesses to review their policy limits and consider purchasing higher limits if necessary, particularly if they operate in high-traffic or high-risk environments.
LandesBlosch Notes About CGL Coverages A, B & C
Understanding the scope of Coverage A, B, and C on a commercial general liability policy is crucial for businesses to ensure they have adequate protection against various risks. To summarize:
- Coverage A provides protects against bodily injury and property damage claims
- Coverage B addresses personal and advertising injury claims
- Coverage C offers no-fault coverage for medical expenses when someone is injured on your premises or because of your operations
By being aware of the types of claims that each coverage addresses and their limitations, businesses can make informed decisions when purchasing or renewing their commercial general liability policies. We always recommend consulting with an insurance expert to discuss your specific needs and tailor a policy that provides the right level of protection for your situation.
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What should I avoid when purchasing general liability insurance?
Not all commercial general liability policies are created equal. Although most liability policies use the CGL coverage form we have previously discussed, some have more exclusions than others. The declarations page looks the same as a policy with no exclusions. This means the first page shows everything the policy could possibly cover in a very broad manner. But you should know that exclusions will always be added later in the policy. These exclusions will limit the broad coverage in the declarations to page to show what the policy will actually cover.
Sometimes certain scenarios are excluded because they are better covered by an individual policy. For example, most liability policies exclude certain computer-related losses, as this coverage would be insured through a cyber liability policy instead of general liability.
Another example is workers compensation coverage. We previously discussed liability arising out of employee actions, but we said harm that occurs to your employees is not covered in a CGL policy. This is because that harm is covered under a workers compensation policy that is required by law for most states.
Although sometimes unavoidable, here are a couple of endorsements (portions that exclude coverage) that we would caution against:
Premises Liability Exclusions
One of the most common ways insurance companies reduce coverage on insurance policies is by adding a premises liability exclusion. This limits insurance coverage to a select address or the addresses listed, usually the place of doing business.
With this endorsement in place, coverage doesn't follow your business operation from location to location. This is not ideal, because an unendorsed commercial general liability policy would cover your business anywhere you went in the US. If endorsed with this exclusion or limitation, the policy would only cover claims that happened at the address listed on the policy. This could impact coverage for off-site business dealings and parking lot liability, among other things.
This is particularly problematic if you have a business that regularly moves from one location to another. For example, if you are working construction, you will almost never have claims arising out of the business address because most of your claims will arise on a job site. If this limitation is in place, and you didn’t include the address of every single one of your job sites, your CGL policy is virtually useless.
If you’re running a high-hazard business, you may find this endorsement on your insurance policy. It limits coverage to the operations listed on the endorsement. The operations description can be very broad (“construction”) or very narrow (“iron fence welding”). It is essential to read over this endorsement carefully in the context of your business operations.
If the description of your business does not encompass everything you do, then you either need to amend the endorsement wording or remove it entirely.
Contractor And Subcontractor Exclusions
We are seeing these subcontractor or contractor exclusions on more commercial general liability policies. It has been a common occurrence for construction businesses for a while, and it is starting to appear in other industries.
Let’s use a real estate business as an example. There will often be an exclusion that takes away coverage from claims arising out of contractor or subcontractor work. This would exclude coverage if a contractor that you hired hurt a customer while they were in your building, or if their faulty work injured someone on your premises.
Each industry has its own specific set of exclusions that commonly pop up on insurance policies. It is important to have a broker that understands what these exclusions are and how it affects coverage.
The Bottom Line
A CGL policy will cover property damage or bodily injury that you cause to another individual. This is the bread and butter of business insurance, and every business needs it. While a CGL policy may seem like it can cover any possible issue that arises when you first read the declarations page, endorsements will limit this coverage. If you aren’t careful about reading those endorsements, you could be left with a policy that doesn’t adequately protect your business.
If you have questions about your CGL policy, and whether or not the endorsements in your policy have left your business without property coverage, give us a call and have one of our experts take a look at your policy.
About The Author: Austin Landes, CIC
Austin is an experienced Commercial Risk Advisor specializing in property & casualty risk management for religious institutions, real estate, construction, and manufacturing.
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