Legacy Digest

What Is General Liability Insurance And How Does It Protect Your Business?

If you own a business, chances are you need general liability insurance to help protect your business in case something goes wrong. While most business owners realize they need it, there’s more to general liability coverage than meets the eye. To make sure you’re properly protected, it’s important to understand exactly what types of things it covers you for, and what types of things it does not.

Our team at Legacy Partners is committed to helping businessowners understand their insurance so they know what risks they face and how insurance can help protect against those risks. Here’s a detailed look at general liability insurance, and how it helps protect your business.

Understanding General Liability Insurance

Probably the most common type of insurance coverage purchased today, general liability coverage helps protect your business against claims that your business (usually through you or your employees) caused specific types of harm to a third party. But understanding general liability coverage requires a deeper dive into what specifically is covered by this type of policy.

What Does General Liability Cover?

General liability insurance at the most basic level provides protection against two types of harms to third-parties, bodily injury and property damage.

• Third-Party Bodily Injury: If a customer gets injured by slipping and falling in your parking lot, or tripping over something in your store, they can sue your business. General liability insurance includes coverage against bodily injury liability, to help pay for their medical bills, as well as attorneys fees and other costs associated with the claim.
• Third-Party Property Damage: If your businesses puts you in touch with another person’s property, there’s a risk you could damage it. For example, if you are trying to fix someone’s dishwasher and you accidentally damage their floor, property damage liability can help pay for the costs to repair or replace the damage you’ve done.

When you think about general liability insurance, these are the two primary types of coverages that apply. It’s important to remember that this does not provide coverage against harm to your own property (building or business personal property coverage) or for injuries to your own employees (workers’ compensation coverage). This only covers harm to third-parties.

How Much Coverage Do I Have?

When you look at your general liability policy, you’ll likely see a number of different line items for what is covered under the policy. The two that apply specifically to the bodily injury and property damage claims are typically an “each occurrence” and a “general aggregate” limit.

• Each Occurrence Limit: This is the maximum available to protect you for any one “occurrence,” which is usually defined to mean any one accident, including continuous or repeated exposure to substantially the same general harmful conditions. Most commonly, this will be a $1,000,000 per occurrence limit, but other limits are available.
• General Aggregate Limit: This is the total amount available under your policy for all occurrences. Most commonly, this will be a $2,000,000 aggregate, but other limits are available.

If you need higher limits, you can usually modify these specific limits within a general liability policy. Many times it is actually cheaper to purchase a standard $1,000,000 per occurrence and $2,000,000 aggregate general liability policy, and add coverage through an umbrella or excess liability policy, which can provide more coverage for liability of multiple types (e.g., general liability, auto liability, employer’s liability, etc.).

What Other Types Of Claims Does A General Liability Policy Typically Cover?

The general liability limits themselves are intended to apply to third-party bodily injury and third-party property damage claims caused by you or your employees. However, there are other limits on the policy which provide supplemental coverages above and beyond these basic coverages to help better protect your business. Above and beyond the standard third-party bodily injury and property damage coverages, you may also see a limit on your policy for some of the following coverages:

• Products / Completed Operations Limit: This extends coverage beyond property damage and bodily injury caused by you or your employees to provide coverage for situations where your “product” — something you made or built — is the source of the bodily injury or property damage.
  • For some companies, it can be better to exclude this from your standard general liability policy, and obtain this coverage through a separate policy. This is usually done for higher risk exposures that standard insurance carriers will not agree to insure.
• Personal or Advertising Injury Limit: This typically includes protection for your business for non-physical injuries, such as:
  • Slander or Libel
  • Invasion of Privacy
  • Copyright Violations
  • False arrest or imprisonment
  • Malicious prosecution
  • Wrongful Eviction
  • Reputational Harm
• Damage To Premises Rented To You Limit: Formerly known as fire legal liability, this is a sublimit on most policies that further restricts how much coverage is available if you cause damage to premises you are renting. Carriers expect property coverage to step in (yours, or the building owners) to cover most of the loss, but this helps cover the gaps if there isn’t enough property insurance available.
• Medical Expense Limit: This is the amount of coverage available to cover medical expenses, usually per person, without even evaluating whether your company is liable. If a customer gets hurt on your property, for example, this coverage steps in, no questions asked.

These are all important coverages that can help protect your business against a serious loss from a lawsuit that could put you out of business.

What Is Not Covered By General Liability?

Just as important as understanding what is covered is understanding what gaps are left open even if you do purchase a general liability policy. In order to know for certain what is excluded, you’ll need to examine all of the specific policy forms to read the exclusions. While there can be a lot of exclusions, here’s some of the most common types of things that are not covered:

• Employee Accidents: If your employee is injured on the job, general liability does not provide coverage for their injury; instead, you will need to obtain workers’ compensation coverage to protect against this type of injury.
• Damage To Your Own Property: If you damage your own property, it won’t be covered by general liability. You’ll need commercial property insurance coverage to help cover the cost of replacing a building you own, or replacing your business personal property.
• Auto Accidents: If you cause bodily injury or property damage with a vehicle, you’ll likely need a separate auto liability policy to pick up this exposure.
• Pollution Liability: One common exposure that is excluded from general liability policies is pollution. If you cause harm due to pollution, this is likely not covered unless you purchase this coverage separately.
• Professional Errors or Omissions: Another exposure that is typically excluded from general liability coverage is mistakes made by you professionally, such as giving bad advice or faulty workmanship. You should investigate professional liability coverage to protect against this scenario.
• Illegal Acts / Intentional Harm: If you or your employees are engaged in illegal conduct, or if you purposefully cause bodily injury or property damage, you are likely not covered by insurance for this conduct.
• Employment Practices Liability (EPLI): Claims of discrimination and harassment by your employees or by third-parties towards your employees are commonly excluded from general liability coverage, but you can separately purchase EPLI coverage to protect against this risk.
• Cyber Liability: Claims related to cyber liability are also commonly excluded from general liability coverage. You should consider purchasing a separate cyber liability policy to help protect your company against claims from data breaches and other cyber intrusions.
• Contractual Liability: If you take on a legal liability through contract, that exposure is most likely excluded from your general liability policy unless you specifically purchase a coverage extension that covers this exposure.
• Liquor Liability: If you serve liquor at your business, you have an exposure for liquor liability this is also likely excluded from your general liability policy. You should purchase separate liquor liability coverage, which most states require as a condition of maintaining your liquor license.

These are some of the most common exclusions, but there are likely others as well. You should read your full policy to understand what types of things are excluded to make sure you understand if there are specific risks to which your business is still exposed.

Why Do You Need General Liability Insurance?

While most states don’t require you to carry general liability insurance, often times other businesses you engage with will require you to carry it. For example:

• If you rent a building from another company, they will often require you to carry general liability insurance in case someone is injured on the property they own to help protect both parties.
• If you buy a building but have a mortgage, the bank will often require you to carry general liability insurance to protect the business against these types of claims so that you can continue to operate and pay the mortgage.
• If you work as a subcontractor for another company, they will often require you to carry general liability insurance because if you don’t, they get charged on their policy for the work you performed. That’s why they will often require you to submit certificates of insurance to prove you have coverage of your own.

Even if you aren’t obligated to carry general liability insurance, there are plenty of good reasons to opt to purchase it anyway. Every business interacts with third-parties and there’s always some risk of injury to that third-party or their property. If your business did nothing wrong, you could still wind up spending hundreds of thousands of dollars in legal fees just defeat the claim. Having that protection from a general liability policy can help provide peace of mind for your business.

Conclusion

Every business needs a general liability policy. Even if you aren’t required by law or by another party to carry this coverage, when you or your employees engage with third-parties, you run the risk of causing bodily injury or property damage that could result in a catastrophic loss to your business. We highly recommend every business have a general liability policy in place to protect against this risk.

For personalized advice and comprehensive coverage options, contact Legacy Partners Insurance. As an independent agency serving our customers in Michigan and all over the United States, our licensed professionals are ready to assist you with all your insurance needs. Call us today to ensure your business is properly protected.