General Liability Insurance (also known as Commercial General Liability Insurance) protects your business financially from lawsuits and damages that arise while doing business. It pays for bodily injury and property damage that is unintentionally caused by your business.
General Liability Insurance is one of the most common types of insurance that businesses buy. It can help protect your business financially if someone else is harmed by your business and sues your company.
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 property damage, bodily injury, products & completed operations, and personal & advertising injury. It also covers the costs of any legal defense or attorney’s fees incurred while defending against covered lawsuits.
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.
- 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.
- You own a restaurant, and a fire starts in the kitchen, spreading to a neighboring bakery. The fire destroys their storefront and equipment. Liability insurance would cover damage to your neighbor’s property. It does not cover the fire damage to your restaurant and equipment.
This insurance does not provide coverage for damage to your business property, only for damage to the property of others. For coverage of your business property, you would need Property Insurance.
Another important exclusion to property damage coverage is property belonging to others that is under your care, custody, or control.
- 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 property damage 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 to your property damage insurance, 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.
This aspect of 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.
- You have 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.
- Your home appliance repairman visits a customer home and forgets his tools on the floor. The customer trips over the tools and is seriously injured.
If your company is found liable for the injury, bodily injury coverage will pay for damages to the other party. These damages might include the injured party’s medical expenses as well as lost income from not being able to work, pain and suffering, and funeral expenses.
Products & Completed Operations
Products liability covers your business if products that you sell are defective or have a faulty design, and cause either bodily injury or property damage. It is important to note that 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.
- You manufacture and sell custom electric lights. Due to a design flaw, one light catches on fire, and burns down your customer’s house. Products liability would cover the property damage to their house.
- Your business sells hammers. A batch of hammers has a manufacturing defect, and the head and handle 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.
- 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 & Advertising Injury
In addition to the broad coverage provided by the bodily injury and property damage sections of the insurance contract, Personal & Advertising injury provides coverage for several non-physical reputational injuries that are specifically defined. While bodily injury and property damage cover unintentional acts, Personal & Advertising injury covers intentional acts that may have unintended consequences.
The areas covered by Personal & Advertising injury include:
- False Arrest and Malicious Prosecution.
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.
- Wrongful eviction or wrongful entry.
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. Note that this coverage does not apply to landlords who knowingly violate eviction laws.
- Publications that violate privacy. This includes use of a person’s name or likeness without permission, or intrusion into someone’s private affairs. It also covers advertisements that show others in a false light, or public disclosure of embarrassing private facts.
A company publishes an advertisement using an Instagram celebrity’s face without obtaining permission. The celebrity sues the company for invasion of privacy.
- Slander or libel.
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 infringement in advertising.
A local pizza restaurant creates a logo that looks similar to the logo of a national pizza chain. The local restaurant is sued for copyright infringement.
If your company is sued for a cause covered by the insurance policy, General Liability Insurance will 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. For example, if your 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.
What doesn’t general liability cover?
There are several common exclusions to general liability insurance you should know about:
- Your business property. Liability insurance only covers damage to the property of others. For coverage of your own property, you need Property Insurance.
- Damage caused intentionally.
- Liability resulting from crimes or fraud.
- Professional errors. To cover this, you need Professional Liability Insurance.
- Employee injuries. For employee injuries, 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 crashes. For auto coverage, you need Commercial Auto Insurance.
Is general liability insurance required?
General Liability Insurance is not legally required in most cases. In some states, 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 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.
Limits of 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.
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)
How is pricing determined?
Pricing for general liability insurance is based upon the unique risks your business faces. Insurers consider factors such as:
- Business size
- 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.