General Liability Insurance

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General Liability Insurance?

Most businesses find themselves interacting with employees, contractors, clients, vendors, and others. Any one of these individuals or entities could claim that your business caused them injury or loss and take legal action against you. Whether you need to defend yourself against claims of property damage, bodily injury, libel, slander, or something else, your General Liability Insurance policy would cover you.

Commercial General Liability Insurance

What Is General Liability Insurance?

General Liabilitiy (GL), also refered to as Commercial General Liability Insurance (CGL), helps protect your business from property damage claims, bodily injury claims, and/or personal and advertising injury claims that could put your business’s assets at risk. For example, General liability insurance helps protect you and your business in the event of the following:

  • A customer slips and injures himself in your store. The injuries result in costly medical bills and maybe even a lawsuit.
  • While on the job, you accidentally damage a customer’s property and the repairs are costly. Should a claim like one of these be made against your business, then your commercial general liability insurance policy may help pay for the damages.

The indemnity provided by a liability insurance policy helps your business cover the costs associated with mounting a legal defense.
In addition, many businesses find that their clients require them to have General Liability Insurance before they’ll sign a contract. Typically, commercial landlords will require this of a Tenant. This means that having the right coverage in place can make a significant difference in a business’s ability to land clients and bring in revenue.

How Commercial General Liability Insurance Protects You and Your Business

Commercial General Liability Insurance policy protects your business by providing the financial resources necessary to keep it operational when unexpected events (such as a client injury that leads to a lawsuit) throw a wrench in your plans.

Costs Covered by Commercial General Liability Insurance

A general liability insurance policy provides financial protection from the risks that any business, no matter how careful run it is, might incur. A typical policy covers the following expenses:

  • The costs of defending or investigating a suit or claim against the business, including court costs, witness fees, attorney's fees, and police report costs.
  • Reasonable expenses incurred when the insurance company asks you to assist in your company's defense (e.g., income lost while spending a day in court).
  • Judgments or settlements resulting from covered suits, including interest required on the judgment and the injured party’s medical expenses, if your defense is unsuccessful.
  • The premium on a court-mandated bond connected with a liability suit.

People Protected by General Liability Insurance

General liability policies cover the owners, of course, but it also covers many of the other people involved in your business:

  • If you have a joint venture or partnership, all of your partners, members, and their spouses are protected if they are sued for something they do in an official capacity related to your business.
  • If your business is a corporation, your policy covers all of your business’s executive officers, stockholders and directors while they are acting in their official capacities.
  • If you have subsidiaries, your policy’s liability coverage extends to any subsidiary where you own at least 50 percent of the stock.
  • It protects your employees from claims that result from actions they may take in their capacity as employees.
  • If your company has a written agreement to indemnify a person or organization, such as a vendor, that person or organization would be protected against liability claims for property damage or bodily injury as a result of selling or distributing your products.
  • During the first 90 days after you acquire a new business, it is automatically covered by this policy. After that time frame, you would need to update your policy to continue this protection for the new part of your business
  • People legally associated with your business, including volunteers working under your direction, are covered for liabilities that result from the work they do for you, and for the use or maintenance of your property that is in their care

Specific Coverage Offered by General Liability Insurance (Standard and Optional)

Bodily Injury

It may be difficult to imagine how your business could cause another person serious harm or even death. But it’s good to know that if you are ever held responsible for someone else’s sickness, injury, or disease, your general liability insurance policy would pay for:

  • Medical care costs,
  • Loss of services,
  • Court-awarded compensation for deaths that result from an injury.

Products-Completed Operations

Commercial general liability insurance policies generally include liability protection for services or products completed by your company. So if something your company manufactures or a service your company provides causes an injury, your policy would pay for any resulting legal expenses, as well as damages up to your policy's limit.

Liquor Liability

If you do not manufacture, distribute, sell, serve, or furnish alcoholic beverages as a business, your general liability insurance policy will cover you if are held liable for a liquor-related accident. If you distribute alcoholic beverages occasionally, such as at a company picnic or office holiday party, you’d also be covered - as long as you don't charge money for the alcohol.

Fire, Explosion, or Lightning Damage

The property insurance portion of your general liability insurance covers damage you may cause to other people’s property as a result of fire, lightning, or explosion, whether you own your business property or rent it. This coverage even applies to other areas in your building that may be damaged as a result of negligence on your part. Let’s say a fire in your office on the building’s second floor causes damage to another company’s offices below. Your liability policy will pay for the damage to the downstairs office space.

Legal Defense Expenses

Even if your company is not found liable for a claim, the process of mounting a defense is expensive without insurance. A business liability insurance policy will generally pay for:

  • The cost to defend or investigate a suit or claim against you, including court costs, witness fees, attorney's fees, and police report costs
  • If the insurance company asks you to assist in your defense against a claim, it will pay your reasonable expenses, such as the loss of your income for a day in court
  • It will pay the judgments or settlements resulting from covered suits, including interest required on the judgment and the injured party’s medical expenses, if your defense is unsuccessful
  • When a court requires you to post a bond to ensure you can pay a potential judgment in a liability suit, this insurance will pay the premium for the bond

Personal Injury

Personal injury is the part of the commercial general liability policy that protects you should someone claim that your business caused damage that isn’t physical. In the following examples, most liability policies would protect you against any lawsuits related to:

  • Publishing, in writing or verbally, false information that libels or slanders an organization or person
  • Publishing material that violates someone’s privacy rights
  • Falsely detaining, arresting or imprisoning someone
  • Maliciously prosecuting someone
  • Evicting someone wrongfully

Property Damage

Even if you’re careful and take precautions, it’s still possible that something what your business does – or something what it doesn't do – could damage another person’s property. It’s also possible that your actions might prevent the property’s owner from being able to use it. In such cases, your business liability insurance coverage compensates for:

  • Physical damage to the property, or
  • Loss of use of the property.

It is important to note that property damage liability coverage often does not cover damage caused to client property you are working on or have in your possession.

Contractual Liability

Your commercial liability insurance coverage would cover liability your business might take on when it enters into various contracts, such as:

  • Easement-of-license agreements
  • Building leases
  • Elevator maintenance agreements
  • Agreements to indemnify a municipality, if required by ordinance

Employee Injuries

It’s important to know that if an employee should sue you over an injury on the job, your commercial general liability insurance policy would not cover the damages. For this type of coverage, you need a worker's compensation policy.

Hired Auto and Non-owned Auto

Some insurance policies offer businesses an add on option to their general liability policy called “hired auto and non-owned auto” insurance. If you don’t have any vehicles in your company’s name, this option meets the requirements of any contract that requires you to have commercial auto coverage.

This coverage also allows you to save money on at least part of the insurance that rental car companies recommend whenever you pick up their cars. When you rent the car in your company’s name, this insurance applies to the liability part of the rental car contract. You’ll still need to purchase damage insurance from the car rental agency if you want to be fully protected, however, as this option doesn’t cover physical damage to the rented vehicle.

Additionally, if you or an employee is driving a personally owned vehicle on company business, and you have an auto accident, non-owned auto coverage protects you should the company be sued. However, the policy will not cover a suit against you or your employee personally – that would be covered by a personal auto policy.

Medical Payments

If a person should be injured, either directly by you or at your place of business, your commercial liability insurance coverage would pay for funeral and medical expenses incurred within a year of the accident. For example, if one of your clients slips and falls at your office and requires medical treatment, your policy would cover the cost of that treatment. Of course, policy limits apply.

Advertising Injury

Should you ever be sued over something that happens while advertising your company's products or services, your business liability insurance protection will cover the claim. Advertising injuries can arise from:

  • Publishing, verbally or in writing, false information that libels or slanders a person or organization
  • Publishing material that violates an individual’s privacy rights
  • Copying another company's style of doing business, or advertising concepts
  • Infringing on another business’s title, copyright or slogan

Claims-Made Versus Occurrence Policies

Occurrence policies cover claims arising from injury or damage occurring while the policy is in force, regardless of when the claim is first made.

Claims-made policies cover claims that arise from injury or damage occurring during the policy period and reported to the insurer during the policy period. Claims arising from events outside the policy period or claims reported to the insurer outside the policy period are not covered unless special coverage is purchased or arranged with the insurer. This special coverage comes in two forms:

  • Prior acts ("nose") coverage covers claims that arise from injury or damage occurring before the policy period, but reported to the insurer after the policy period begins.
    Prior acts coverage is provided by establishing a "retroactive date" covering injury or damage occurring after the retroactive date. The retroactive date usually appears in the declarations page accompanying your policy. It may be the effective date of the policy or an earlier date. Prior acts coverage does not cover claims that were known at the time your policy began.
  • Run-off ("tail") coverage, also called extended reporting period, pays for residual claims made after your policy expires. A typical claims-made policy provides a short reporting period of 30 or 60 days after the policy's expiration date to file claims that arose too late to report before the policy expired. Run-off coverage starts when the 30- or 60-day period ends and is provided for an additional premium. The extended reporting period may be one, three, or five years, or even unlimited.

If a claims-made policy does not continue (expires, cancels, or nonrenews), you should purchase either run-off coverage from your previous insurer or prior acts coverage from your new insurer to prevent coverage gaps. Generally, claims-made policies may be less expensive in their early years as the potential for claims increases as policy years accumulate.

The differences between claims-made and occurrence policies are best illustrated by the following examples:

Assume you operate a business located in a building that you own. Your customers may enter the building and shop for merchandise in a showroom. On April 15, 2010, a customer slips and falls in your showroom. The customer reports the incident to you but says he does not believe he is injured. On December 15, however, you receive notice that the customer has filed a claim for injuries sustained in the fall.

Occurrence Policy: An occurrence policy with a policy period from June 1, 2009, to May 31, 2010, will cover the claim because the incident occurred during the policy period.

Claims-Made Policy: A claims-made policy with a policy period from June 1, 2009, to May 31, 2010, will not provide coverage because the claim was made after the policy expired. If, however, you purchased an extended reporting period from your insurer when your policy expired, the claim may be covered.