Editorial · July 12, 2022
General Liability Insurance: What It Covers and Excludes
General liability insurance pays when someone outside your business says you hurt them or damaged their property. It also pays for your legal defense. It is the base policy for most small firms. It does not cover everything, though, and many owners learn that only after a claim. This guide explains what the policy pays for, what it leaves out and how it differs from other policies.
What general liability insurance covers
General liability insurance is also called commercial general liability, or CGL. It covers claims from third parties, which means people outside your company. Three kinds of claims sit at the center of the policy.
The first is bodily injury. If a customer trips in your shop and breaks a wrist, the policy can help pay the medical bills. It can also pay for a lawyer if the customer sues.
The second is property damage. If a worker of yours accidentally scratches a client's floor or backs a truck into a fence, the policy can help pay for the repair.
The third is personal and advertising injury. This covers claims such as libel, slander and copyright infringement tied to your ads or website. Some policies also list wrongful eviction and invasion of privacy.
Many policies also pay for damage to a space you rent if a fire starts there, and for product claims if something you make or sell harms a customer. Defense costs, judgments and settlements can all fall under the cover, up to the policy limit.
What it does not cover
A general liability policy is built for outside claims. It leaves out several things owners often expect it to pay for.
Injuries to your own workers are not covered. Medical bills and lost wages for employees come from workers' compensation. Claims about harassment, discrimination or wrongful firing fall under employment practices cover.
Professional mistakes are not covered either. If a client says your advice or your service was wrong or late, you need professional liability insurance. It is also called errors and omissions cover.
Your own property is left out. Stolen equipment or a fire that burns your inventory belongs under commercial property insurance. Cars and trucks the business owns need commercial auto cover. Serving alcohol calls for liquor liability.
Some policies also carry other exclusions, such as a product recall. Read the exclusions list before you buy.
How it differs from other policies
Think of each policy as answering one question. General liability answers, "Did we harm an outsider?" Professional liability answers, "Did our work let a client down?" Workers' compensation answers, "Was one of our people hurt on the job?" Property insurance answers, "Did we lose what we own?"
A business owner's policy, or BOP, bundles general liability with commercial property cover. Insureon notes that the bundle is usually sold at a discount. Umbrella insurance sits on top and raises the limit if a claim is larger than the base policy allows.
Forming an LLC does not replace the policy. The Hartford points out that an LLC separates your personal assets from the business, but the business can still be sued and still needs cover.
Limits, cost and proof
Policies state a limit for each claim and a limit for the whole policy year. Insureon says most small businesses choose $1 million per occurrence and $2 million in total. Check the deductible too. If you cannot afford it in a crisis, the policy will not help you when you need it.
Cost depends on your trade, your location, your staff size and your claims history. The Hartford says a year of cover can run from a few hundred dollars to a few thousand. Insureon reported a median premium of about $42 a month among its own customers in mid-2022. Those are single-company figures, so treat them as a rough guide.
State law does not usually require the policy. Even so, landlords, lenders and clients often do. They may ask for a certificate of insurance, which is a short document that proves you hold the policy. Ask your agent for one before you sign a lease or contract.
Read your own policy
You can check your cover in one sitting. Pull out the policy and look at these items.
The limits. Find the per-claim limit and the total limit, and the deductible.
The exclusions. Read the list in full. Note anything tied to your own trade.
The policy type. A claims-made policy responds to claims reported during the policy period. An occurrence policy responds to events that happened during the period, even if the claim comes later. Know which one you hold.
Additional insured. If a client asks to be named on your policy, ask your agent how that works and what it costs.
If a line is unclear, ask a licensed agent or broker to explain it in writing. Do this before a loss, not after. The exact words of your policy decide what gets paid.
Sources
- Insureon, General Liability Insurance for Small Businesses (updated June 29, 2022): insureon.com/small-business-insurance/general-liability
- Insureon, What does general liability insurance cover? (May 2022): insureon.com/small-business-insurance/general-liability/coverage
- The Hartford, General Liability Insurance (June 2022): thehartford.com/general-liability-insurance
- Investopedia, Commercial General Liability (CGL) (June 2022): investopedia.com