General liability insurance covers small businesses for financial losses due to third-party claims of bodily injury, reputational injury, or property damage to others. It is an essential liability coverage for all businesses, given that all businesses are exposed to these types of risks.
If you’re looking for general liability insurance for your business, working with an insurer like The Hartford is a good idea. Its team of insurance specialists can evaluate your small business risk and suggest the appropriate coverage your business should consider.
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Coverage in a Standard General Liability Policy
General liability insurance provides broad coverage, and the policy is divided into subsections addressing key coverage areas. The phrase, “covering financial losses” means that an insurance company will pay for items like court fees, defense attorney costs, damages, and/or settlement costs if a third party claims that the insured business is responsible for their bodily injury, reputational injury, or property damage.
Insuring Agreement
The insuring agreement section of a commercial general liability (CGL) policy is where it is stated that an insurer is legally responsible for paying losses described in three primary coverage sections—provided the insured meets certain conditions, such as paying for the policy:
- Coverage A: Bodily injury and property damage liability
- Coverage B: Personal and advertising injury liability
- Coverage C: Medical payments liability
It also details other rights and responsibilities of the insurer, such as their right to settle a claim and their obligations to defend the insured in covered suits.
Coverage A: Bodily Injury and Property Damage
Coverage A is the section of the policy that covers claims of liability associated with bodily injury and property damage to others. It’s important to note that mental injury or emotional distress can also be included in bodily injury.
Bodily injury claim example: A customer visits your store, and a large box of merchandise falls from the top shelf and hits them in the head, causing a concussion. Your business has a $1,000,000 per occurrence and $2,000,000 aggregate general liability policy and files a claim. The insurance company feels it is best to settle and offers the customer $200,000, which they accept. Your aggregate general liability limit is now reduced to $1,800,000.
Property damage claim example: A plumbing business that does some basic pipe replacement at a house. Two weeks later, one of the pipes bursts and floods the kitchen, causing $80,000 worth of damages. The plumbing company has a $1,000,000 per occurrence and $2,000,000 aggregate general liability policy, which includes $1,000,000 for products and $2,000,000 for completed operations. The $80,000 loss is paid by the insurer, leaving $1,920,000 for the remaining policy term.
Coverage B: Personal and Advertising Injury
Section B of a general liability policy covers the insured for claims of reputational harm, infringement on intellectual rights, or infringement on personal rights of a third party. Some common examples of personal and advertising injury are libel, slander, false arrest, copyright infringement, and wrongful eviction claims.
Personal and advertising claim example: The CEO of ABC Retail does an interview and makes false statements about a competitor, who then files a slander lawsuit. ABC Retail has a general liability policy of $2,000,000 per occurrence and $4,000,000 aggregate, with a $1,000,000 personal and advertising limit. ABC Retail elects to take it to court, which ends up costing $600,000 in defense fees, court fees, and court-issued damages. The insurer pays the $600,000, leaving $400,000 remaining in the personal and advertising limit of the policy.
Coverage C: Medical Payments
Coverage C is the section of a general liability policy designed to prevent potential lawsuits by paying for third-party medical expenses. It is considered “no-fault coverage,” meaning the coverage can be utilized even if the insured is not at fault for the loss.
Medical payments are designed to help with expenses related to medical care like surgeries, ambulances, and even funerals. The limit for these sections of coverage is much lower than Coverage A and B and is usually anywhere from $5,000 to $10,000.
Medical payments claim example: A customer decides to take a glossy magazine off of a rack, set it on the floor, and then dance on it. While doing so, they slip and sprain their ankle. After X-rays and medical care, their total bill ends up at $6,000. The shop has a general liability policy that includes $10,000 for medical payments per person, from which they pay the expenses for the injured customer. Because the policy is written as $10,000 per person, the limit for medical payments is not reduced.
Who Is Covered by a Standard General Liability Policy?
A standard general liability policy covers your business for claims laid out in coverages A, B, and C. It generally will not cover independent contractors, subcontractors, or freelancers whom your business hires. Additionally, only injuries or damages to the property of third parties will be covered.
General liability is a third-party coverage, so it does not cover your business property or employees. Depending on the type of property, you would either need a commercial property policy or inland marine insurance. Employee injuries fall under workers’ compensation insurance.
What Is Not Covered in a Standard General Liability Policy?
Following the insuring agreements of each coverage are the exclusions sections. These describe specific situations that are not covered by the general liability insurance policy. These situations are excluded because they don’t involve a third party or because the loss isn’t due to physical injury, reputational injury, or property damage. Intent and the type of loss can also exclude coverage.
Below are common exclusions of general liability insurance:
- Damage to property owned by the insured: This would be first-party property damage covered by commercial property insurance. See our roundup of the best commercial property insurance companies to find an insurer that fits the bill.
- Claims of negligence or errors made by a business when providing a professional service that caused financial loss to a client or customer: This wouldn’t involve physical or reputational injury. Instead, professional liability insurance would cover this type of loss, and our guide to the leading professional liability insurance companies offers you several options.
- Injuries to employees of the insured: Employees aren’t considered third parties, so their injuries would be excluded under general liability but covered by workers’ compensation insurance.
- Claims of company mismanagement by shareholders: This does not entail physical injury, reputational injury, or property damage to others. This type of loss would fall under the directors and officers insurance.
- Employment-related claims such as discrimination or sexual harassment: This is excluded since employees aren’t considered third parties and are covered under employment practices liability insurance (EPLI).
- Data privacy, negligent security, or data breach claims: Cyber-related claims are excluded from general liability insurance but are covered by cyber liability insurance.
- Liability claims of incidents involving company vehicles or employees using personal vehicles for company use: This is covered by commercial auto insurance.
- Injury or damage claims associated with serving, selling, or manufacturing liquor: These are covered under liquor liability insurance.
General Liability Endorsements
It should be noted that some of the above exclusions can be “bought back” through an insurance endorsement. For example, most carriers offer hired and non-owned auto liability as an endorsement to extend liability to vehicles used but not owned by the business. Liquor liability is another separate policy that can often be purchased as an endorsement on a general liability policy.
Types of General Liability Policies
Regarding claim coverage based on when the incident took place and when the claim was filed, there are two types of general liability policies: occurrence and claims-made. While a majority of general liability policies are written as occurrence-based, some carriers will write them as claims-made.
1. Occurrence
Occurrence general liability policies will cover losses that take place during the coverage or policy period, regardless of when the claim is made.
Let’s say Hank’s Electrical Company had an occurrence general liability policy from Jan. 1, 2019, to Dec. 31, 2019. It did electrical work for one of its customers in October 2019. On Feb. 2, 2020, after the policy period, a claim was filed by the customer, which stated that miswiring done by Hank’s Electrical Company caused them to shock themselves, leading to burn injuries. Because the electrical work occurred during the policy period, the insurer will cover the loss associated with it.
2. Claims-made
A claims-made general liability policy will only cover claims that were reported during the policy period—as long as the incident took place on or after the policy’s retroactive date. The retroactive date is the date on which coverage starts, typically before the actual policy period.
For instance, instead of an occurrence policy, Hank’s Electrical Company had a claims-made policy from Jan. 1, 2019, to Dec. 31, 2019, with a retroactive date of Jan. 1, 2015. Hank’s Electrical Company did work for a customer in October 2018, and in February 2019, miswiring caused the customer to shock, which led to burning injuries.
The customer claimed that the work from 2018 by Hank’s Electrical Company caused these injuries. In this case, since the work took place after the retroactive date (Jan. 1, 2015) and was reported during the policy period, the insurer will cover the loss.
When To Buy General Liability Insurance
While general liability is an important coverage and offers very broad coverage, not every business necessarily needs it. For example, if you are a consultant without an office, then you may not need general liability but should instead consider professional liability.
However, there are situations where you may be required to carry general liability insurance:
- License and industry requirements: Some industries and even government agencies (local and state) require a minimum amount of general liability insurance to be licensed. For example, if you work as a painter in Maryland, you are required to carry general liability with at least $50,000.
- Rented premises: You may not own any property but if you are renting a building, the tenant will likely require you to purchase general liability insurance. Most general liability policies will carry a minimum of $100,000 in coverage for damage to a rented premise.
- Vendors: If you are a vendor at a show, market, or some other event, the event organizer will usually request a certificate of insurance (COI) showing you have appropriate general liability coverage and sometimes, that the event organizer is listed as an additional insured.
- Contract and job bids: Contractors can count on being asked to provide proof of insurance (meaning general liability) when bidding on a project. Our guide on contractors insurance provides more information.
While general liability insurance can be costly, not having it can mean the end of your business if you experience a severe loss. In a widely cited study by The Hartford, the average cost of a slip and fall claim (which is covered by general liability) is $20,000. And according to Swiss Re, between 2010 and 2019, the average size of large awards for general liability claims increased by 26%.
Bottom Line
General liability is an important insurance policy for small businesses because it pays for defense costs, court fees, settlements, and damages due to third-party claims of bodily injury, advertising injury, and property damage. It also holds the same exclusions across the board for first-party losses and claims not related to injuries or property damage.
While the coverages and exclusions are nearly universal, businesses may find differences in coverage A, B, and C by the insurer. There may also be differences regarding claims-made vs occurrence policies.
If you need general liability or would just like to compare what you’re paying to what else is available, then check out The Hartford. It has affordable general liability policies customized for multiple industries with endorsements available to broaden the coverage.
