Commercial General Liability Insurance

What is Commercial General Liability?

Also commonly known by the acronym - 'CGL', this type of insurance policy provides risk management and protection for businesses. Liability insurance is important because it protects your business from a financial loss from property damages and/or bodily or personal injury that was caused during the course of you conducting business. It does not cover company assets, equipment, inventory, etc. For example, a customer gets hurt on a driveway your company installed and claims personal injury due to faulty workmanship of your.

CGL is also often referred to interchangeably as 'General Liability', dropping the word 'commercial'. Two common types of liability insurance are general liability and professional liability.

General Liability (GL) is different from Professional Liability insurance (PL). GL covers personal or physical damages, while PL (also referred to Errors & Omissions insurance) covers an individual from potential negligence while providing professional services or professional advice. In insurance underwriting GL claims are referred to as personal injury losses or property damage losses, while PL claims are referred to as financial losses.

Every business owner faces certain risks of legal liability, which may arise out of their business operations, or which may occur on their commercial premises. CGL insurance is designed to protect business owners against a number of general liability loss exposures. It typically provides comprehensive insurance coverage for the risks that the business is exposed to - property damage, bodily injury, personal injury and other potential exposures that occur during normal running of the business's day to day operations.

Anyone can make a claim on the business for damages (physical, personal,) and most CGL policies will help cover the business against these law suits and potential judgments. But, not all claims would be accepted (or covered), so it is important for the business to read the fine print and create operational procedures that include asking their customers to sign contracts, disclaimers and other protective measures.

For example, if you operated a ski resort, you require all of your customers to sign a waiver. People jokingly refer to this as 'signing their life away'. But, in spite of signing a full waiver, patrons of the ski resort can be injured. And, even if they are skiing out of bounds and are completely at fault, they or their family can sue the resort.

A comprehensive liability insurance policy would be something that would help the ski report cover legal related expenses, in an event such as this.

Businesses have different needs and there are other additional coverages that a general liability policy could cover -

  • Bodily Injury
  • Property Damage
  • Advertising Injury
  • Personal Injury
  • Harassment
  • Discrimination
  • Directors amp; Officers Liability
  • Errors and omissions (Professional Liability)
There are two main types of commercial general liability policies -
  • Claims-made - this policy covers claims made during a specific time period, regardless of when the claim event act actually occurred.
  • Occurrence-based - this policy covers a time period when the actual event occurred and a claim is made for that event. So, events that occurred before or after the policy was in effect are not covered.
A comprehensive general liability policy should help keep you in business with -
  • Legal expenses
  • Medical expenses
  • Settlement expenses
A general liability policy does not normally cover you for punitive damages which are normally awarded for willful neglect or misconduct. Those types of claims are normally covered by a professional liability or errors and omissions policy.Are you ready to get a general liability insurance quote from a local, insurance expert?

How General Liability Insurance Works

A general liability policy outlines the maximum amount the insurance company will pay against a liability claim. For example, if your business gets sued for $250,000 for medical costs associated with an injury plus an additional $100,000 in legal fees, but your coverage amount is maxed at $300,000, then you would be responsible for paying the difference of $50,000.

Now, if you are on the higher end of the risk scale, and already have general liability insurance, you can also opt for excess insurance or umbrella insurance that increases your coverage limits. This will cover you in situations in which you're worried that your existing coverage won't cover all your costs should someone file and win a claim against you.

Sometimes a client will require that your business has the appropriate coverage or umbrella insurance before you can perform the work for them. In some cases, construction contractors may add you to their general liability policy as an additional name to be insured for the duration of the project.

How to Determine Your Coverage Needs

The coverage you will need depends on:
  • The type of business you are in
  • The perceived risk associated with it
Your business location is also another factor that is taken into consideration. As an example, some states tend to award more in damages to plaintiffs claiming personal injury than others. It's best to speak with a licensed insurance broker to determine the best coverage for your business.

A licensed insurance broker can discuss with you if you fall into the lower risk category. If so, you may want to consider a Business Owner's Policy (BOP). This policy would combine both your general liability and property insurance at a cost-effective rate.

How Much Does General Liability Insurance Cost?

This varies greatly based on the coverage you need, type of business, revenue earned, exposure profile of the business; what other additional policies you have, etc. But, by way of example - let's take a small marketing services firm, that has 5 employees (including one owner - 100%).

All the employees work indoors, do not use their cars for work purposes, no goods to move, has a company informational website (but no real cyber liability exposure), has clients than typically pay about $20,000 per year in fees to the firm. The firm needs $1M million in coverage and $2 million in aggregate coverage. A firm such as this can expect to pay somewhere between $500 and $1,000 a year in general liability insurance coverage. This is an example only - actual costs will vary.

What Does CGL Insurance Cover?

A Commercial General Liability policy has five major parts to it, each of them specifying matters of importance, such as the policy characteristics, limits, conditions and definitions. The most important element of a Commercial General Liability policy is Section I, which details the types of liability covered under the policy.

The Commercial General Liability policy will have three general groups of coverage, as shown below:
  • Coverage A of the Commercial General Liability policy is specifically intended to pay compensation for bodily injury and property damage which the insured is held legally liable for. What this means is that if the insured's business operations cause bodily injury, or property damage to a third party, coverage A will cover the damages awarded in a lawsuit up to the policy limits. The contingent legal defense costs are also included. Some exclusions that apply to Coverage A include intended injury, liquor liability, contractual liability and pollution.
  • Coverage B of Commercial General Liability insurance provides protection against personal and advertising injury, such as libel, slander, malicious prosecution, and unlawful imprisonment, copyright and other intellectual property infringement, etc. If the offense is committed intentionally or before the policy comes into effect, it is usually not covered by commercial general liability policy.
  • Coverage C covers the medical payments of those who have suffered bodily injuries as a result of the business operations of the insured, or on the commercial premises of the insured. This is regardless of legal liability. What this means is the insured does not need to go to court for Coverage C to come into effect. The only requirement is that the medical bills are incurred within a year of the occurrence.

Who needs General Liability insurance?

Every business needs this policy. In most cases, other businesses will not do business with you if you don't have liability insurance coverages. In many cases, you will be asked to indemnify your clients, vendors and other businesses you do business with. In many cases, you will be asked to add the company you are doing business with as an additional insured to your policy.

If you are a contractor, or small business owner, you need some form of general liability protection to safeguard your business. A single accident could result in a costly lawsuit. A general liability insurance policy is a great way to protect your business. You want to make sure you have liability coverage that matches your level of exposure. Some employers or clients might require you to carry a certain amount of general liability before you can work for them.

Does your business need liability insurance?

The answer to this question is probably, yes. Getting insurance is a smart investment, that doesn't cost much, but can save you a lot in the long run. It certainly costs a lot less than the thousands, or possibly millions, of dollars you may need to spend fighting your case in court. If you're conducting business, there's almost a guarantee that you're exposed to potential claims that a Commercial general liability policy would cover.

How Does A Business Pay For Liability Insurance?

Most carriers will expect the business to pay the whole annual premium (the costs of the coverage) up front, until the firm is established and maybe if the firm is a renewal with the carrier, the carrier can accept quarterly premium payments or sometimes, even monthly.

You can purchase commercial general liability insurance as a stand-alone policy, as part of a Business Owners Policy (BOP) or as part of a Commercial Package Policy (CPP). An insurance professional can discuss with you what type of coverage you need and how much. If your general liability policy, BOP or CPP do not provide sufficient coverage, you might consider purchasing a commercial excess (umbrella) policy for additional protection.

Financing The Payments For Your Policy.

For businesses that don't have a lot of spare cash lying around, but have high annual premiums - they can finance the premium for the liability insurance. So, your insurance agent/broker will help you set up payments to a premium finance company. The premium finance company will pay the full amount to the insurance carrier and in turn, give you a payment plan (with interest and servicing fees).

The interest rates and fees will vary, based on your business's reputation, earnings, etc, and can run from 10%-30% per year. You will then start paying the premium finance company. If you miss a payment or stop paying them, they have the ability to cancel the policy with the carrier, and get a pro-rated refund from the carrier. The premium finance company will then attempt to collect from you and may assign your debt to a collection agency.

The Claim Process

If an incident occurs that may lead to a claim, you should notify your insurance company or agent immediately. Be prepared to explain what has happened in detail including the time, date, the names of any witnesses, and any other pertinent information. Not all claims will be accepted by the insurance company, however. As a business owner, you are required to file a claim with your insurance carrier.

If you have used an agent in the process, then they will help you file the claim. Most general liability insurance carriers allow you to file a claim over the phone and also offer up an online option. Regardless, there is quite a bit of paperwork and details involved, regardless of what the claim may be. The business is then assigned a claim adjuster, who will review the claim and determine if the claim is covered. They may require more paperwork and it may be weeks before you know if the claim is denied or accepted. If denied, you can appeal and submit more information.

What If Your Business Gets Sued?

If you are facing a lawsuit, the first thing you want to do is file a claim to see if your insurance policy covers the cost of the law suit. After the initial claim process, if you are covered the claims adjuster could direct you to do one of two things -
  • They will take over the defense and reimburse you for any valid expenses that you have come out of pocket so far.
  • They may advise you to find a defense lawyer (with certain cost guidelines) and either they will reimburse you or work directly with your legal counsel.
If your claim is not covered, then you are on your own. You will have to retain legal counsel and proceed accordingly.

There is a new insurance product (since 2009) out there called Contract Litigation Insurance. In a nutshell, it is an insurance policy that you purchase that specifically helps you with some litigation costs (opposing teams legal fees), if litigation occurs and you lose and are held responsible for opposing counsel's fees. But, that is out of the scope of this page that is focused on educating businesses on commercial general liability insurance.

Examples Of Some Exclusions In A Commercial General Liability Policy

Below are some examples of exclusions commonly found in a commercial general liability policy. Please note, coverage does vary by insurer and it will include additional exclusions other than the examples below. It would be best to thoroughly review your policy to know exactly what your policy does and doesn't cover.
  • Damage to Your Work - Usually, commercial general liability policies exclude coverage for property damage to your work.
  • Damage to Your Product - Commercial general liability policies will not cover property damage to your product.
  • Contractual Liability - Commercial general liability policies exclude coverage for bodily injury or property damage that you are obligated to pay because you assumed liability in a contract or agreement.
  • Recall of Products, Work, or Impaired Property - Commercial general liability policies will not pay the cost to recall faulty products, work, or impaired property. You do have the option to add this coverage to the policy by endorsement for an additional cost.
  • Workers' Compensation and Employer's Liability - Commercial general liability policies don't provide coverage for workers' compensation, or employer's liability.

How to add an additional insured to your policy.

Adding an Additional Insured to a General Liability policy takes a simple call to your agent/broker or insurance carrier . It doesn't cost anything and can be accomplished in a matter of a working day, or two. If you like your carrier, but want to change agents - just tell the carrier that and they will recommend another agent that can take over the Broker OF Record (BOR). If you do not like your carrier but like your insurance agent, then you can ask your agent to shop for a different carrier/quote. If you are changing both agents and insurance carrier, , it takes a little bit more effort - a new application, quote process and binding process.

CGL Protects Your Business From Common Liabilities

The bottom line is your business faces liabilities every day. There is only one way to protect your assets and that is to carry sufficient business liability insurance. A Commercial General Liability policy is your first line of defense against many claims. General Liability insurance covers claims of bodily injury, physical injury, or property damage. It's usually offered in a package with Property insurance to protect your business against incidents that might occur where you normally conduct business. Commercial General Liability allows your business to continue operations while it faces real or fraudulent claims of certain types of negligence.

To break it down in simple terms, Commercial General Liability Insurance protects your business by providing the financial resources necessary to keep it operational when something unexpected gets thrown your way, such as an injury that results in a lawsuit. Without a commercial general liability insurance policy, your business is vulnerable to lawsuits that could have a devastating impact on your business. As our society becomes more and more litigious, it is important to protect your business with Commercial General Liability insurance.Ready to get a commercial general liability insurance quote from a local, insurance expert?
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