Commercial general liability insurance is one of the most commonly purchased types of small business insurance. But many small business owners still have lots of questions about what it is, why it’s needed, and how it works. Here are answers to the top five questions we hear from our small business clients about general liability coverage.
1. What does general liability insurance cover?
General liability insurance covers claims of bodily injury or other physical injury or property damage. In the event of a covered lawsuit, such policies will typically pay for a legal defense as well as compensatory, general and punitive damages.
A typical general liability insurance policy covers:
– Bodily injury and property damage liability: If a visitor is injured on your premises, or you or your employee injures some or damages property on your client’s premises.
– Personal and advertising injury: Certain offenses you or your employees commit in the course of your business, such as libel, slander, disparagement or advertising copyright infringement.
– Medical expenses: Applicable medical costs if someone is injured and needs medical treatment due to an accident on your premises.
– Premises and operations liability: Bodily injury and property damage sustained by others at your premises or as a result of your business operations.
– Tenant’s liability: Claims of damage due to fire or other covered losses caused by you to premises that you rent.
Please note that this list includes typical coverages afforded under some policies. Be sure to examine your own policy carefully for any exclusions, limitations, or any other terms or conditions that may affect your coverage. The terms and conditions of your policy will prevail.
2. Why do I need general liability insurance?
Even if you don’t expect to ever face a claim, general liability insurance is a smart, inexpensive investment in your company’s future. Accidents do happen, and people who are injured or whose property is damaged will expect compensation. Although such accidents may be no fault of your own, you’ll still be held financially responsible for them, and it only takes one such incident to break the bank for most small businesses.
In the event of certain types of lawsuits, even if you feel you’re not at fault, you’ll likely spend a hefty sum trying to prove it in court. For covered suits, general liability insurance pays for a legal defense and any settlement award, up to the limits specified by the policy.
Additionally, many client companies will have contract requirements that mandate that their business partners or vendors carry general liability coverage. Such contract requirements protect the client from incurring any costs in the unlikely event that someone or something should be injured or damaged in the course of your business relationship.
If you’re still not sure if you’re one who needs general liability insurance, there’s no cost to speak with an agent or broker for advice and a no-obligation quote.
3. How do I determine how much coverage I need for my business?
Your insurance agent or broker can help you assess the potential liability for your business, which varies depending on the type of industry your business engages in, as well as other factors.
Your location is one consideration, as courts in some states have historically made higher damage awards than those in other states. Businesses in those states may wish to consider carrying general liability insurance with higher coverage limits.
Lower-risk businesses, such as accounting firms or IT consultancies, may feel comfortable with lower coverage limits, while businesses in higher-risk fields, such as construction, may need more coverage. For small businesses with less risk, a combined general liability and property insurance package may be a cost-effective option. Such dual policies are known as a Business Owner’s Policy or BOP.
4. I’m worried that the coverage limits on my general liability policy aren’t high enough. What can I do to be sure I have enough coverage if I get sued?
If you’ve got a $1 million general liability policy, but you’re worried that you’ll be sued and your legal costs and court-ordered settlement could be even higher than $1 million, you may wish to purchase an excess liability insurance policy. What is this type of insurance? Also known as umbrella insurance, excess insurance is an inexpensive way to provide additional coverage when the limits of insurance on an underlying policy are exceeded.
For instance, if you have $1 million in general liability coverage, but a court orders you to pay $1.5 million in compensation, the right excess insurance policy would pay for the difference of $500,000. In addition to general liability policies, an umbrella insurance policy also adds coverage to your hired and non-owned auto liability and employer’s liability insurance policies, at no additional cost. However, umbrella coverage does not apply to professional liability insurance.
For contractors and consultants, some clients require excess liability insurance in their contracts to ensure that their vendors are financially capable of paying a large damage award in the event of a lawsuit. Client contracts may also require other types of insurance, such as professional liability or workers’ compensation.
5. How can I reduce my risk of having to file a general liability claim?
While it’s good to have general liability coverage, it’s even better when you don’t have to use it. There are several ways you can cut your risk exposure and reduce the chances that you’ll face a lawsuit:
– Provide proper training for all employees and subcontractors.
– Institute safety policies, processes and procedures appropriate for your line of work.
– Inspect your place of business for hazards that could result in injury.
– Maintain your office space, furnishings and equipment in top condition to reduce the risk of injury or property damage.
– Ensure that smoke detectors are operational and emergency exits are clearly marked and unobstructed.
– Restrict access to hazardous areas or equipment to authorized personnel only.
Ask your insurance agent or broker for additional tips on how you can reduce your risk.
By James Clapton