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.
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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
CGL coverage A protects you from damages arising out of bodily injury you cause other people, or from damage you cause to third-party property.
This portion covers many of the issues we discussed above. This portion of the policy is the most commonly needed for your business, and is where a majority of your claims would arise.
Coverage B: Personal And Advertising Injury Liability
CGL coverage B protects you from claims of slander, libel, false arrest, and even improper eviction. In addition, it provides some coverage for improperly using copyrighted material in your business.This portion protects your business from the issues you may face during advertising, such as those discussed above.
Coverage C: Medical Payments
CGL coverage C pays for medical bills arising from third-party bodily injury regardless of the business's liability or negligence. This coverage will pay for smaller injuries and is often referred to as a “goodwill coverage” to provide some level of reputational protection in case a customer is injured.
You don’t hear a lot about this kind of coverage because it covers very small injuries. The “goodwill” terminology is drawn from the fact that even if you haven’t done anything wrong, the injured party is properly taken care of.
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.