Running your own business can be an exciting endeavor, but it’s important to stop and consider the risks your business may face and how you can successfully safeguard your business from claims and any unfortunate events. No matter what industry you’re in, all businesses face some level of liability, and General Liability Insurance can help protect your business from a variety of common claims.
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What is General Liability Insurance?
General Liability Insurance, also known as Commercial General Liability (CGL) Insurance, protects your business financially from lawsuits and damages that arise in the course of doing business. If your business unintentionally causes bodily injury, property damage, personal injury, or advertising injury to a third party, CGL will pay for the legal fees, settlements, judgements, and even medical payments.
General Liability Insurance is one of the most common types of commercial insurance that businesses purchase, as accidents can happen to anyone at any time. If you or an employee accidentally harms another person or property, CGL can help protect your business financially if you are sued.
Example:
- You own a popular restaurant, known for its top-notch burgers and fast service. Lately, you’ve seen a surge in business, and the restaurant is constantly packed. Over the weekend, a customer slipped on some wet flooring near your soda fountain. He injured his back and decides to sue your restaurant for damages. Your CGL policy will cover any legal and defense costs.
It’s important to note that General Liability Insurance is third-party insurance, which means it covers you against claims by third parties, which don’t include your business or your employees. Third parties may include customers, vendors, or landlords.
What does General Liability Insurance cover?
General Liability Insurance covers three categories of damage: property damage, bodily injury, and personal and advertising injury. Under General Liability Insurance Policies, your insurer will cover the costs of any legal defense or attorney’s fees incurred while defending against covered lawsuits, as well as any medical payments. In the event that your business is sued because of an accident, CGL can help provide financial backing to help reduce the financial strain on your business.
Property Damage
General Liability Insurance will pay for the damages if your business or one of your employees causes property damage to another person or company’s property.
Examples:
- You have a wholesale business that rents a warehouse from a landlord. One of your forklift operators accidentally drives into and damages a structural wall.
- Your plumbing business performs repairs at customer homes. One of your plumbers knocks over and destroys a valuable vase on a service visit.
Bear in mind, General Liability Insurance does not provide coverage for damage to your own business property—only for damage to the property of others. For coverage of your business property, you would need commercial property insurance.
Example:
- You own a restaurant, and a fire starts in the kitchen, spreading to a neighboring bakery. The fire destroys their storefront and equipment. General Liability Insurance would cover damage to your neighbor’s property. It does not, however, cover the fire damage to your own restaurant and equipment.
Another important exclusion to property damage coverage is property belonging to others that is under your care, custody, or control. If your business often takes temporary care or possession of others’ property, you may need additional coverage.
Example:
- You are hired to remodel a client’s kitchen. As your employees are carrying a heavy sink into the kitchen, they accidentally drop the sink, severely damaging the floor. In this scenario, the damage to the floor would not be covered by CGL insurance because the kitchen would be considered to be in your care, custody, or control.
To protect against such incidences, you’ll need an additional endorsement, often known as voluntary property damage. Voluntary property damage provides coverage for unintentional damage to others’ property while that property is under your care, custody, or control. For businesses that take temporary possession of customers’ property, like a computer repair business or dry cleaner, you may also want to consider bailee’s customer insurance.
Bodily Injury
General Liability Insurance covers your business if a third party who is not an employee suffers a bodily injury while on your business premises or in the course of your business operations. CGL will cover legal defense costs, court costs, any judgements or settlements, as well as medical fees.
Examples:
- You own a clothing retail store. An employee mops the floor and puts up a wet floor sign. A customer does not see the sign and walks on the wet floor. He falls and breaks his hip.
- You own a home appliance store, and one of your employees visits a customer home to fix a recently purchased dishwasher. He accidentally leaves his tools on the floor of the customer’s kitchen. The customer trips over the tools and is seriously injured.
If your company is found liable for any bodily injury to a third party, CGL will pay for damages to the other party. These damages might include the injured party’s medical expenses, lost income from not being able to work, pain and suffering, and funeral expenses.
Products and Completed Operations
The products and completed operations coverage portion of Commercial General Liability covers any property damage or bodily injury caused by your company’s products or services. It should be pointed out that coverage here applies to incidents that occur away from your business property, while the property damage and bodily injury coverage areas of CGL apply when the damage occurs on your business premises.
Products and completed operations coverage consists of two coverage areas: products liability and completed operations liability. Products liability covers your business if the products that you sell are defective or have a faulty design and cause either bodily injury or property damage. Products liability does not cover defects in products if they do not cause injury or damage. This coverage also excludes the costs of a recall.
Examples:
- You manufacture and sell custom electric lights. Due to a design flaw, a custom light you sold to a customer catches fire at the customer’s home, burning down their property. Products liability would cover the property damage to their house.
- Your business manufactures and sells hammers. A batch of hammers has a manufacturing defect, and the head and handle are prone to separate, causing injury to a customer. The customer’s medical expenses and lost income would be covered by products liability.
Completed operations covers your business if there is property damage or bodily injury caused by work your company has completed for a client.
Example:
- Your contracting company constructs a bathroom for a client. Due to your company’s faulty work, a pipe bursts, causing extensive water damage to the client’s home. Completed operations coverage would cover the damage to the home.
Personal Injury and Advertising Injury
In addition to the broad coverage provided by the bodily injury and property damage sections of Commercial General Liability Insurance, personal and advertising injury provides coverage for several non-physical, reputational injuries that are specifically defined. While bodily injury and property damage cover unintentional acts, personal and advertising injury covers intentional acts that may have unintended consequences. If an injury is knowingly or deliberately caused, coverage would be excluded.
The areas covered by personal and advertising injury include:
- False arrest, detention, or imprisonment. Example: A retail store suspects a customer of shoplifting and calls the police. The police arrive and arrest the customer. Upon investigation and review of surveillance video, the police realize the customer did not shoplift. The customer sues the store for false arrest.
- Malicious prosecution. Example: A sports equipment store was broken into over the weekend, with thousands of dollars of golf equipment stolen. The owner suspects the culprit is a recent customer who he recently had an argument with over the pricing of his golf clubs. The owner contacts the police and has the customer charged with theft. A few weeks later, you find out one of your employees stole the equipment. You drop the charges against the customer, who, in turn, sues you for malicious prosecution.
- Wrongful eviction, entry, or invasion of the right of private occupancy. Example: A landlord who is not familiar with the legal procedures for eviction orders a tenant to leave his apartment without getting the necessary court order for eviction. The tenant leaves but sues the landlord for wrongful eviction.
- Publications that violate privacy. Example: A company publishes an advertisement using an Instagram celebrity’s face without obtaining permission. The celebrity sues the company for invasion of privacy.
- Slander, libel, or disparagement. Example: A business publishes a post on their website comparing their product to their competitor’s. The post contains several false statements about the competitor’s product. The competitor sues the business for libel.
- Copyright, trade dress, or slogan infringement in advertising. Example: A local pizza restaurant creates a new logo for an ad that looks similar to the logo of a national pizza chain. The local restaurant is sued for copyright infringement.
- Use of another’s advertising idea in your advertisement. Example: A regional ice cream brand releases a new commercial for its vegan ice cream line, featuring imagery of a scoop of ice cream morphing into the planet Earth. Unfortunately, the ad looks very similar to a national chain’s advertisement, and the regional brand is sued.
Legal Defense
If your company is sued for a cause covered by the insurance policy, General Liability Insurance will offer protection and cover the costs of your legal defense, including attorney’s fees, expert witness fees, and court costs. These fees will be covered whether or not your company is found at fault. These legal fees don’t count against your limits of coverage for most General Liability policies.
Example:
- Your CGL policy has a limit of $1 million, and you are liable for a judgment of $1 million, plus $250,000 in legal fees. The insurance company would pay for all $1.25 million in costs.
Medical Payments
Commercial General Liability will cover medical expenses in the event of any third-party injury that occurs on or adjacent to your business property or is caused by your business operations. While the third-party injury coverage portion of your CGL policy can cover medical bills as well, it will only do so when the policyholder is found to be at fault for injury. With the medical payments portion of your CGL policy, your insurer will pay for medical expenses up to the policy’s medical expense limit, regardless of fault.
One of the primary benefits of having medical payments coverage is the possibility of avoiding potential injury lawsuits. Medical payments coverage can pay for first aid, ambulance or hospital fees, medical or dental services, and funeral services, no matter who is at fault for the injury. Having these expenses covered may help to avoid litigation.
How much does General Liability Insurance cost?
AdvisorSmith found the average cost of General Liability Insurance for small businesses was $597 per year. This cost survey included small businesses with under $500K in revenue in 27 industries, including retail, wholesale, manufacturing, consultants, contractors, and more. Premiums are based upon Commercial General Liability coverage of $1 million per occurrence and $2 million in aggregate.
The table below lists the average insurance cost in a selection of industries as studied by AdvisorSmith.
| Industry | Average Annual Cost |
|---|---|
| Automotive Service | $605 |
| Building Design | $521 |
| Cleaning Services | $648 |
| Construction & Contracting | $1,076 |
| Consulting | $366 |
| Financial Services | $390 |
| Food and Hospitality | $776 |
| Health Care | $541 |
| IT / Technology | $418 |
| Landscaping | $783 |
| Legal | $371 |
| Non-profits | $525 |
| Personal Care | $424 |
| Photo & Video | $461 |
| Professional Services | $375 |
| Real Estate | $453 |
| Retail | $714 |
| Sports and Fitness | $477 |
Pricing for General Liability Insurance is based upon the unique risks your business faces. Insurers consider factors such as:
- Business size
- Industry
- Location
- Number of employees
- Claims history
Businesses with higher risks will have higher premiums than those deemed lower risk. For example, an amusement park will probably have higher liability premiums than a graphic design business. Premiums also rise as you increase the limits of insurance. Different insurance companies have different models for rating risks, so it is worth comparing pricing across different insurers.
Compare General Liability Insurance Quotes
There are a variety of insurers and brokers in the market, and it may be difficult sorting through all of the options. AdvisorSmith analyzed a variety of general liability policies and determined the best general liability insurance companies for small businesses. To determine the best CGL insurers, AdvisorSmith considered a number of factors, including financial strength ratings from AM Best and Standard & Poors, customer satisfaction data from several J.D. Power studies, complaint ratings from the National Association of Insurance Commissioners, available features and options, and availability of information and ease of use of the insurers’ websites.
» Read our full review of the best general liability insurance companies.
| Rank | Company | AdvisorSmith Rating |
|---|---|---|
| 1 | The Hartford | 5.0 / 5.0 |
| 2 | Chubb | 4.9 / 5.0 |
| 3 | Hiscox | 4.7 / 5.0 |
| 4 | CNA | 4.7 / 5.0 |
| 5 | Berkshire Hathaway GUARD | 4.5 / 5.0 |
| 6 | Travelers | 4.5 / 5.0 |
| 7 | Great American | 4.3 / 5.0 |
| 8 | Progressive Commercial | 4.1 / 5.0 |
| 9 | Zurich | 4.0 / 5.0 |
| 10 | Liberty Mutual | 4.0 / 5.0 |
What are the exclusions to General Liability Insurance?
There are several common exclusions to General Liability Insurance you should know about:
- Your business property. General Liability Insurance only covers damage to the property of others. For coverage of your own property, you need commercial property insurance.
- Professional errors. To protect against lawsuits related to your professional errors or omissions, you need professional liability insurance.
- Employee injuries. To cover employees who fall ill or are injured on the job, you should buy workers’ compensation insurance.
- Employee discrimination lawsuits. Employment practices liability insurance covers employment-related issues such as discrimination, harassment, and wrongful termination.
- Automobile accidents. For auto coverage, you need commercial auto insurance.
- Damage caused intentionally. If you knowingly or purposefully caused injury or damage, coverage is excluded.
- Liability resulting from crimes or fraud.
Is General Liability Insurance required?
General Liability Insurance is not legally required in most cases. In some states, General Liability Insurance is required as a condition of getting a license for some professions, such as plumbers and electricians.
Sometimes, customers or other third parties may require General Liability insurance in order to do business together or allow access to their premises. For example, a caterer for a wedding may be required to have insurance by the wedding venue. Or, a moving company may be required to have insurance by a building in order to work in the building.
Does General Liability Insurance have a deductible?
No, General Liability Insurance usually does not have a deductible.
What are the limits of insurance for General Liability Insurance?
The limit of insurance is the maximum that the insurance company will pay in claims. It is common in General Liability policies for there to be separate limits “per occurrence” and “per year.” The “per occurrence” limit is the maximum that the insurer will pay for a single loss, while the “per year” limit is the maximum they will pay for the policy year.
Example:
Your business has limits of $2 million “per occurrence” and $4 million “per year.” During a particularly unlucky policy year, your business experiences the following losses:
- $2.5 million
- $1 million
- $1.5 million
The insurance company would pay the following amounts on your claims:
- $2 million, because the “per occurrence” limit is $2 million
- $1 million
- $1 million, because the “per year” limit is $4 million and $3 million has already been paid in (1) and (2)
What is the difference between Public Liability and General Liability Policy?
Public liability insurance provides a minimum layer of liability coverage, focused on bodily injuries and third-party property damage. It’s a starting point for insuring your business against liabilities and is much more common in the United Kingdom and Australia. General Liability Insurance is more commonly purchased in the U.S. and contains more comprehensive coverage than public liability insurance, including coverage for personal and advertising injury.
Final Word
General Liability Insurance is one of the most commonly purchased insurance types and is foundational for many businesses. CGL can help protect your company and provide coverage for third-party liability claims of property damage, bodily injury, and advertising injury. No business is immune to accidents, and if your business faces an expensive personal injury lawsuit, would it be able to weather the storm without insurance? Most business owners won’t take this chance and make sure they have a comprehensive insurance plan in place, including coverage for General Liability.