What Does General Liability Insurance Cover? A Closer Look
Tricia has nearly two decades of experience in commercial and federal government lending. Her expertise is highlighted throughout small business loan content on Fit Small Business.
This article is part of a larger series on General Liability Insurance.
General liability insurance, also known as business liability insurance, covers businesses for financial losses due to third-party claims of bodily injury, reputational injury, or property damage to others. It’s 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. The Hartford’s team of insurance specialists can evaluate your small business’ risk and point you toward the appropriate coverage.
Coverage in a Standard General Liability Policy
“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.
General liability coverage can also include components like products and completed operations insurance, which covers bodily injury or property damage claims resulting from the use of a product made by the insured business or as a result of completed work. Additionally, it can include premise liability coverage, which is coverage for claims involving accidents that take place on a business’s property or premise.
Insuring Agreement
The insuring agreement section of a commercial general liability (CGL) policy summarizes which scenarios or perils are covered under the policy for each coverage type. 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.
The insuring agreement section is where it’s stated that an insurer is legally responsible for paying losses described in three primary coverage sections:
- Coverage A: Bodily injury and property damage liability
- Coverage B: Personal and advertising injury liability
- Coverage C: Medical payments liability
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.
Here’s an example of a bodily injury liability claim:
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 million per occurrence and $2 million aggregate general liability policy and files a claim. The insurance company feels it’s best to settle and offers the customer $200,000, which they accept. Your aggregate general liability limit is now reduced to $1.8 million.
A good property damage claim example involves 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 million per occurrence and $2 million aggregate general liability policy, which includes $1 million for products and $2 million for completed operations. The $80,000 loss is paid by the insurer, leaving $1.92 million for the remaining policy term.
Coverage B: Personal and Advertising Injury
Coverage B is the part of a general liability policy that 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.
The following is an example of a personal and advertising injury claim:
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 for $2 million per occurrence and $4 million aggregate, with a $1 million personal and advertising limit.
ABC 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’s considered “no-fault coverage,” so no lawsuit needs to be filed for an insurer to pay these costs, which can include expenses for medical care, surgeries, ambulances, and even funerals. The limit for these sections of coverage is much lower than Coverage A and B because no legal expenses are included.
Let’s say, for example, that while walking to the bathroom, a restaurant customer slips and sprains their ankle. After X-rays and medical care, their total bill ends up being $6,000. The restaurant 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 isn’t 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 won’t cover independent contractors, subcontractors, or freelancers that your business hires. Additionally, only injuries or damages to the property of third parties will be covered, so employee injury claims or property damage to your company isn’t covered.
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 aren’t 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.
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.
- 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. Professional liability would cover this type of loss.
- 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.
- Claims of company mismanagement by shareholders: This doesn’t entail physical injury, reputational injury, or property damage to others. Directors and officers (D&O) insurance would cover this kind of claim.
- 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.
- 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: Excluded by general liability insurance but covered by commercial auto coverage
- Injury or damage claims associated with serving, selling, or manufacturing liquor: Excluded by general liability but covered by liquor liability insurance.
For more information on what general liability doesn’t cover, check out our article on the 16 common general liability insurance exclusions.
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.
Occurrence
Occurrence general liability policies will cover losses that take place during the coverage or policy period, regardless of when the claim is made. For example, Hank’s Electrical Company had an occurrence general liability policy from January 1, 2019, to December 31, 2019. They did electrical work for one of their customers in October 2019.
On February 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.
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 example, instead of an occurrence policy, Hank’s Electrical Company had a claims-made policy from January 1, 2019, to December 31, 2019, with a retroactive date of January 1, 2015. Hank’s Electrical Company did work for a customer in October 2018, and in February 2019, miswiring caused the customer to shock themselves, which led to burn 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―January 1, 2015―and was reported during the policy period, the insurer will cover the loss.
Bottom Line
General liability coverage pays for defense costs, court fees, settlements, and damages owed 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.
Although the coverage and exclusions are universal across policies, businesses may find differences in coverage A, B, and C in terms of the limits provided by the insurer. There may also be differences regarding claims-made vs occurrence policies.
