General liability insurance is a fundamental business policy covering risks inherent in most operations, namely harm to third parties. Many insurers write general liability on standardized forms, making coverage similar across carriers. Understanding standard general liability insurance coverage can help you manage risks and identify other necessary policies.
Most business owners get general liability insurance because of the frequency of liability claims. And though it’s not legally required, you may find that clients and landlords require it. General liability insurance coverage is also required to apply for certain professional licenses.
How General Liability Insurance Coverage Works
General liability insurance covers costs if a third party, such as a customer, accuses your business of causing them physical injury, property damage, or reputational harm. The standard form divides general liability coverage into three distinct parts and lists what’s covered and what’s not. Policies typically pay for the third party’s medical or repair bills as well as your legal fees, including settlements or judgments, if they decided to sue.
The standard general liability coverage parts are:
- Coverage A: Protection against third-party claims of bodily injury and property damage as well as losses due to products-completed operations claims
- Coverage B: Protection against third-party claims of personal and advertising-related injuries
- Coverage C: Pays the medical expenses of others who happen to be injured on a business’s premises, regardless of fault
Business owners often confuse the coverage offered by general liability vs professional liability. The difference is that general liability only covers losses that are the result of operations common among most businesses. Damages caused by your unique professional services are covered by professional liability insurance, or errors and omissions.
General Liability Insurance Coverage Limits
General liability policies have both a per occurrence limit, or the total amount your insurer pays in a single claim, and an aggregate limit representing the dollar cap in any given policy year. Insurers typically have policies that start with coverage limits of $100,000 per occurrence and $300,000 aggregate, but many landlords and contract agreements require a minimum of $1 million per occurrence and $2 million aggregate.
How General Liability Insurance Coverage A Works
Bodily injury and property damage coverage protects against claims arising from third parties who experience accidents or damages on a business’s premises or due to the business’s operations. Coverage A pays for the third party’s medical care and treatment, repair or replacement of damaged property, and even emotional distress or mental anguish.
When Bodily Injury & Property Damage Claims Are Covered
General liability insurance covers third-party bodily injuries and property damage when your business is responsible for them. For example, say a customer enters your accounting office, trips over a stray power cord, and breaks a leg and her laptop in the process. She now has medical and repair bills to pay, so she sues your business to recoup her losses.
Your general liability insurance covers the cost of replacing her laptop and her ongoing medical expenses, as well as any emotional distress her injuries may have caused. General liability can also pay your legal fees to defend against the lawsuit. Immediate medical costs, such as calling an ambulance to the scene, are covered by general liability but fall under Coverage C.
Not all third-party injuries and property damage occur inside a business. If your business manufactures, distributes, or sells products or goods, it can be sued for harm its products cause customers. For these situations, general liability Coverage A also includes product-completed operations coverage to pay for claims related to:
- Design defects: For example, a business failing to catch a design flaw before a product goes to market, such as a short table leg causing an imbalance
- Accidental contamination: For example, E.coli ending up in pharmaceuticals
- Defective instructions or warnings: For example, mislabeling a food product as gluten-free
Product liability coverage pays for losses someone suffers because of your product, including property repair bills, medical care, and restitution for death. Policies also cover your legal fees should the injured party sue.
However, your products-completed operations coverage does not cover product recalls. This portion of your general liability insurance does not cover the costs of inspecting, adjusting, or recalling defective products. You can purchase product recall insurance to help with these costs.
Coverage A may not provide enough product liability for businesses that manufacture or distribute potentially hazardous products. These businesses can get additional coverage by getting product liability insurance, which is often available as an endorsement but can also be purchased as a standalone policy.
Damage to Rented Premises
Coverage A in general liability insurance also covers allegations you damaged premises you’ve rented from a landlord. “Premises” includes land and any buildings or structures attached to it. Even if you only rent a portion of a building for your business, your general liability pays for damages you’re responsible for. However, the coverage is only two distinct triggers:
- Fire damage: Coverage A pays for damage to premises you rent only if you’re legally liable for the damage; if you’re obligated to pay for damages because you signed a contract, Coverage A does not kick in
- Other damage to short-term rentals: Your general liability policy covers damage to property and its contents when it’s caused by something other than a fire and you’ve rented it for seven or fewer days; again, Coverage A only applies when you’re legally liable as opposed to contractually liable
Coverage for damage to rented premises is the result of exceptions to common general liability exclusions. Typically, general liability does not pay for damage to property that’s been rented or loaned to you, or property that is in your care, custody, or control.
When Bodily Injury & Property Damage Claims Aren’t Covered
Coverage A is fairly broad and covers many aspects of your business operations. However, it typically only covers other people’s injuries and property damage, not your own or those working for your business. Additionally, standard general liability policies list 17 exclusions that further narrow coverage.
Coverage A Exclusions
General liability does not cover:
- Expected or intended injury
- Contractual liability
- Liquor liability
- Damage covered by workers’ compensation or similar laws
- Employer’s liability
- Damage caused by pollution
- Damage caused by aircraft, auto, or watercraft
- Damage caused by mobile equipment
- Damage caused by war or warlike action
- Damage to property
- Damage to your product
- Damage to your work
- Damage to impaired property or property not physically injured
- Recall of products
- Damage caused by personal and advertising injury
- Damage caused by the loss of electronic data
- Damage caused by recording and distribution of material or information in violation of law
An easy example of how a Coverage A exclusion works is an employee injury. Say your employee breaks his leg by slipping on a wet floor. In this case, general liability insurance does not cover any of the medical bills because an employee is not considered a third party. Moreover, it doesn’t pay for your legal bills if the employee sues. The insurance policy for this situation is workers’ compensation insurance, which pays for medical care and replacement wages when an employee experiences a workplace injury or occupational illness.
General liability insurance also does not cover errors and omissions your business may make. Professional liability, however, covers risks specific to the services your business provides.
How General Liability Insurance Coverage B Works
Personal injury coverage offers protection for claims of offenses that produce harm other than bodily injury—essentially intentional acts that cause psychological or financial injury. Advertising injury coverage protects against offenses related to your business’s advertising of its goods or services. Coverage B pays for legal fees and court costs related to these claims, and Coverage B can cover bodily injury if personal or advertising injury is the cause.
When Personal and Advertising Injury Claims Are Covered
Coverage B in standard general liability is triggered by seven specific perils, or hazards. These are actually listed in the policy’s definition section:
- False arrest, detention, or imprisonment
- Malicious prosecution
- Wrongful eviction from, wrongful entry into, or invasion of privacy
- Slander or libel of goods, products, or services
- Oral or written publication that violates another’s privacy
- The use of another’s advertising idea
- Infringing upon another’s copyright, trade dress or slogan
Let’s say you offhandedly tell a customer at your coffee shop that your competitor’s employees spit in people’s cups when they don’t like them. The comment spreads and customers start boycotting your competitor. The other owner gets word about your comment and sues for slander. Advertising injury coverage pays for your legal defense and settlement or judgment costs for your competitor’s losses.
When Personal and Advertising Injury Claims Aren’t Covered
Coverage B also includes numerous exclusions, particularly in regards to intentional acts of violation or wrongful misappropriation. If you knowingly violate the rights of another person or business, your claim is usually denied. If you intentionally publish or share false information, this is another instance of intentional harm.
Coverage B Exclusions
Coverage B is not triggered by:
- Knowing violation of another’s rights
- Material published with knowledge of falsity
- Material published before policy period
- Criminal acts
- Contractual liability
- Breach of contract
- Quality or performance of goods (failure to conform to statements)
- Wrong description of prices
- Infringement of copyright, patent, trademark, or trade secret
- Insureds in media and internet type businesses
- Electronic chat rooms or bulletin boards
- Unauthorized use of another’s name or product
- Recording and distribution of material or information in violation of law
Say your gardening shop sells fertilizer and you display a sign that promises plants will grow 50% larger when treated with your fertilizer. However, you know this to be untrue. Customers find their plants are not growing larger, and a group of them decide to sue your business for false advertising. Because you knowingly printed false information, your advertising coverage would not cover the lawsuit costs.
How General Liability Insurance Coverage C Works
If someone is injured on your business’s premises, regardless of negligence, they may be eligible to have their medical bills paid. Coverage C in standard general liability insurance covers medical payments, including necessary and reasonable care (e.g., ambulance, emergency room, surgery, funeral expenses).
Coverage C doesn’t include defense coverage because medical payments are provided on a no-fault basis. In other words, your insurer pays whether the third party or the business is responsible for the injury or accident. Many insurers prefer to pay an injured party’s medical payments upfront to help prevent a larger lawsuit down the road.
When Medical Payment Claims Are Covered
Generally, there are certain factors that must be met for Coverage C to be triggered. Medical payments are covered if there’s an injury on your business premises, if an injury occurs on the way to your business premises, or if an injury is caused by your business operations. Coverage C pertains to immediate medical care expenses, whereas Coverage A has broader coverage for ongoing medical expenses a third party might have after an accident.
Regardless of who’s at fault, most general liability policies cover:
- First aid administered at the time of an accident
- Necessary medical, surgical, X-ray, and dental services
- Necessary ambulance, hospital, professional nursing, and funeral services
For example, a customer slips and hits his head on the counter at your business. He’s conscious, but he’s bleeding from a bad cut on his forehead. You call 911 for assistance, and a team of paramedics treat the cut on-site, then take the customer to the hospital for further evaluation. Coverage C pays the cost of the ambulance and the visit to the emergency room.
When Medical Payment Claims Aren’t Covered
Coverage C does not cover immediate medical care if you or one of your employees is injured at work. Much like Coverage A, medical payment claims are only covered for third parties—in fact, Coverage A exclusions also fall under Coverage C exclusions. Additionally, medical payments are only for initial medical care and expenses, not ongoing care that might be covered by bodily injury coverage.
Coverage C Exclusions
Coverage C does not cover:
- Any insured
- Hired person or employee
- Injury on normally occupied premises
- Injuries covered by workers’ compensation or similar laws
- Injuries resulting from athletics activities
- Injuries covered by products-completed operations coverage
- Coverage A exclusions
Say you sell bicycles and a customer purchases your new commuter model. The first time she takes the bike out for a spin the front wheel comes loose, causing her to crash. Because your defective product caused their injuries, Coverage C does not apply here. Instead, her injuries trigger the products-completed operations portion in Coverage A.
Key General Liability Insurance Exclusions
Each general liability insurance coverage part lists a number of exclusions that do not trigger coverage. These exclusions define the scope of the coverage, but insurers also exclude risks that might make someone other than the business responsible for its operations, are too expensive to insure, or can be covered by types of business insurance.
You can be held responsible for damage and injury caused by alcohol-related incidents, so general liability policies include limited liquor liability coverage for most businesses. However, it excludes businesses that manufacture, distribute, sell, serve, or furnish alcoholic beverages. Liquor liability insurance is available as an endorsement for an additional premium on some policies, but businesses where liquor is central to their operations often need a standalone policy.
Many insurers add language that eliminates coverage for not only those in the business of serving alcohol, but also those that sell alcohol for a charge or if the serving of alcohol requires a license. For example, a nonprofit holding a fundraiser dinner that includes drink tickets may be considered as selling alcohol for a charge.
In most cases, any act of pollution or discharge of pollutants from your business premises or operations where pollution causes property damage, bodily injury, or contamination is excluded from both Coverage A and Coverage B. Pollution cleanup coverage is also excluded. Pollution liability insurance can help pay for pollution cleanup and pollution-related liability claims.
While general liability insurance covers personal and advertising injury, it often excludes coverage for businesses in media, advertising, and marketing because of the nature of their services increase the possibility of these claims. Media businesses typically have coverage for false arrest, malicious prosecution, and wrongful eviction under general liability.
For other types of personal and advertising injuries, such as a copyright infringement and libel, media professionals need media liability insurance. This specialized type of errors and omissions insurance, typically includes coverage for numerous professional liability-related offenses and defense costs in the event of a lawsuit.
Damage to Your Property
General liability insurance does not cover damage to your commercial property or assets. You need commercial property insurance to cover your business space (i.e., the actual building) as well as its contents such as computers, furniture, supplies, and inventory. Consider purchasing a business owner’s policy (BOP) vs general liability insurance—a BOP combines the protection of general liability and commercial property insurance into one affordable bundle.
Expected or Intended Liability
If you or an employee intentionally cause property damage or bodily injury, general liability will not cover it. For example, say your employee punches a customer. If the customer sues, your general liability insurer would most likely deny the claim because the customer’s injuries and medical bills are a foreseeable result of the event. Typically, the insurer has to demonstrate the result of an occurrence was expected or intended, not that the act itself was intentional.
Who’s Covered by General Liability Insurance?
General liability insurance covers you as the named insured, plus it extends to your employees. If they cause damage or injury to a third party, your general liability coverage typically pays the claim. However, general liability does not extend coverage to any independent contractors you hire.
Additionally, only people with an insurable interest, or a financial stake, can take out an insurance policy on something. The most obvious example is you, the business owner, who would suffer a financial loss if someone sued your business. However, as the policyholder and named insured (i.e., the person named on the policy), you can add other people to your coverage. This is done through an additional insured endorsement that extends some coverage to people with an insurable interest in your business.
Duty to Defend General Liability Insurance Requirements
The policy language in general liability insurance coverage creates an obligation for your insurance carrier to defend your business against suits seeking damages, whether claims are for bodily injury, property damage, or personal and advertising injury. This duty to defend is included in Coverage A and Coverage B of general liability insurance, and is subject to your policy’s limits.
In some cases, your insurer may choose to consent to proceedings (i.e., allowing a suit to move forward) or it may choose to settle or mediate a lawsuit out of court. You, the insured, typically do not get to decide how your insurer handles a case. Your insurer also does not have a duty to defend any suits you file against a third party. For example, if you decide to sue a competitor for patent infringement, your general liability insurance would not cover legal costs since it’s not a claim against your business.
General liability policies typically cover you and your business for third-party claims involving bodily injuries and property damage resulting from your products, services, or operations. Coverage also pays for your defense costs and settlements or judgments from lawsuits. While general liability covers many common risks that businesses face, read your policy carefully to understand any exclusions.
You can prevent general liability insurance claims by proactively taking steps to manage your risks. By minimizing your risks, your business can expect to pay lower premiums. Develop a thorough risk management plan, including training for employees and effective safety measures on your premises, like keeping walkways clear.