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What general liability insurance covers (and doesn’t cover)

By Higginbotham on March 23 , 2021

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No matter what products or services you sell, the simple act of opening for business each day exposes you to a multitude of liability risks. A customer could slip and fall in your store. One of your employees could accidentally cause damage at a customer’s home or business. Another business could sue you for defamation for speaking negatively about it in your ads.

There are a thousand and one scenarios that could lead to a liability claim against your business. And a settlement from a lawsuit could cost you tens of thousands, even millions of dollars if you’re found liable, in addition to the reputational damage your business could suffer.

That’s why it’s so crucial to protect your business with the right insurance. At the heart of that protection is your commercial general liability (CGL) policy, providing broad coverage against most third-party property damage, bodily injury, personal and advertising injury claims. It will also generally cover the costs of your legal defense and pay all damages if you’re found liable, up to your policy limits.

But Beware – Your CGL Policy Doesn’t Cover Every Risk

Even though commercial general liability insurance is considered comprehensive business insurance, it doesn’t cover every possible risk your business may face. Every CGL policy has exclusions, and many risks require separate coverage. If you don’t fully understand the nuances of your coverage, you could be leaving yourself wide open for a costly lawsuit.

So, what exactly is covered under your CGL policy and, more importantly, what isn’t? First, here’s a rundown of the core coverages under a standard general liability insurance policy.

What General Liability Insurance Covers

In general, your CGL policy helps protect your business from claims of:

  • Bodily injury
  • Property damage
  • Advertising injury
  • Copyright infringement
  • Reputational harm

A basic CGL policy has three core sections:

  • Coverage A: Bodily Injury and Property Damage. This coverage protects your business from damages arising out of bodily injury you or your employees cause other people, or from damage you or your employees cause to third-party property.

  • Coverage B: Personal and Advertising Injury. This coverage protects you from such things as slander or libel, and it also provides coverage for infringing on someone else’s copyrighted material or advertising idea.

  • Coverage C: Medical Payments. This coverage pays for medical, surgical, ambulance, hospital, professional nursing and even funeral expenses for a person injured or killed in an accident taking place at your business premises or arising from your business operations.

What Your General Liability Insurance Doesn’t Cover

Knowing what your general liability insurance covers is important. Knowing what it doesn’t cover is equally crucial.

First, no two CGL policies are exactly the same, and nearly all contain exclusions. Your policy’s exclusions will depend on your industry and operations. Here are 10 of the most common exclusions found in CGL policies:

  1. Premises liability. This limits coverage to a specific address or addresses, so the policy would only cover claims that happen at the addresses listed.

  2. Operation limitations. If your business is considered a high-hazard business, your policy might have this endorsement, which limits coverage to very specific operations. Review this one carefully. If the description doesn’t encompass everything you do, amend or remove the endorsement.

  3. Contractor and subcontractor exclusions. Long common in the construction industry, other industries are beginning to exclude the work of contractors in their CGL policies.

  4. Pollution liability. Coverage for pollution is generally excluded from CGL policies, but can be purchased as an endorsement or, for better coverage, a separate policy.

  5. Expected or intended injury, or bodily injury or property damage that’s intentional.

  6. Contractual liability – additional liabilities you assume in a contract unless you would have been otherwise legally responsible for without the agreement.

  7. First party damage – bodily injury or property damage to yourself.

  8. Damage to your product or work – the CGL policy only covers the work of others that your product or work damaged.

  9. Product recalls and associated costs.

  10. Data breaches and most claims arising out of the handling of electronic data.

There are also many types of claims that require specialized liability coverage. For example, your commercial general liability insurance policy doesn’t cover:

  • Employee injuries or illnesses resulting from their work. That’s what workers’ compensation insurance is for. A workers’ compensation policy will provide your employees benefits to help them recover from a work-related personal injury or illness.

  • Damage to your own business property. You’ll need a commercial property policy to protect your owned or rented building and business equipment.

  • Automobile accidents caused by you or your employees while driving for work. If driving is a part of your business, a commercial auto policy is essential.

  • Errors in professional services. Professional liability coverage will help cover your legal costs if a client sues you for an error in professional services provided by your business.

  • Claims of harassment or discrimination. Increasingly important today, an employment practices liability (EPL) policy will help protect you from employment-related claims.

  • Claims over your policy limit. A commercial umbrella policy extends your general liability limits to help cover expensive claims.

With liability claims on the rise, don’t make the potentially costly mistake of assuming your CGL policy will cover these liabilities. It likely won’t. Having the right type of liability insurance for your unique risks is just smart business.

Three Things to Remember When Choosing A General Liability Insurance Policy

First, CGL policies come in two types, “claims made” and “occurrence.” A claims-made policy provides coverage when a claim is made regardless of when the event happened. An occurrence policy provides coverage for injuries or damages sustained during the life of an insurance policy, even if years have passed and the policy is no longer in force.

Second, the amount of coverage you obtain is vitally important because once that coverage limit is reached, any remaining liability costs come out of your pocket. And that can create a serious financial liability for the business.

Third, it’s important to work closely with an insurance provider who knows your business and your unique risks and can help you get the right coverage.

Conclusion

Most states don’t require you to carry general liability insurance coverage. But with so much at stake, you’re rolling the dice without it. Solid financial protection for your business starts with a robust commercial general liability policy. By working closely with your insurance provider, you can make sure your CGL policy is the right one for your unique operation and risks.

For more risk management advice, contact the commercial insurance professionals at Higginbotham Insurance today.

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