General public liability insurance: a primer for businesses

General public liability insurance: a primer for businesses | Insurance Business America

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General public liability insurance: a primer for businesses

General public liability insurance provides your business with a financial cushion against costly lawsuits. Find out what’s covered and what’s not

There’s no degree of caution that can make your business immune from lawsuits. Even with the necessary safety measures in place, accidents and mistakes can still happen in your day-to-day transactions. Sometimes, just a single mishap is enough to put your business in a dire financial situation.

General liability insurance plays a key role in keeping your business financially protected if such incidents threaten to derail your operations.

In this article, Insurance Business explains how general public liability insurance works. We will discuss what the policy covers and which industries need coverage the most. We will also touch on how much coverage costs and the factors that affect premiums.

This guide can be useful for businesses working out if general liability insurance is worth the investment. Read on and find out how this type of policy can protect your business.

General liability insurance is a type of policy that covers claims of bodily injury or property damage resulting from your business activities. It is called by several other names, including public liability, business liability, and commercial general liability (CGL) insurance.

Policies may also cover copyright infringement and other incidents that can cause reputational damage such as libel and slander. Some policies also provide product liability coverage. This protects your business against claims resulting from a product that you design, manufacture, or sell.

You can often purchase general liability coverage, along with commercial property insurance, in a business owner’s policy (BOP). This type of business insurance, however, is only available to businesses earning less than $1 million in revenue and employing fewer than 100 staff.

General liability insurance is one of the several types of liability policies designed for businesses. It is also the most common form of liability coverage that companies take out.

A public liability policy protects your business against claims of bodily injury, property damage, and reputational harm resulting from your daily operations. It pays for the legal and settlement costs arising from lawsuits. Some policies also cover medical expenses.

Unlike other types of insurance policy that pay the policyholder, all forms of liability coverage compensate third parties who file the claims.

For a claim to be valid, however, there are three conditions that must be met, according to the Insurance Information Institute (Triple-I):

1. It is caused by an occurrence.

The institute defines an occurrence as an “accident, including continuous or repeated exposure to substantially the same harmful conditions.” This means it causes unintentional injury or property damage to others. If the harm is intentional, general liability insurance will not provide coverage.

2. It is within the coverage territory.

Coverage territory often refers to the US, including its territories, and Canada. For a claim to be covered, the injury or property damage must have happened within these jurisdictions. There are also some situations where coverage is extended to other parts of the world. The lawsuit, however, must be brought in the US and involve:

business-related transactions involving you or your staff while abroad
reputational harm or personal injury resulting from your business’ online activities
products that you manufacture or sell in the US

3. It occurs during the policy period.

Most liability insurance policies cover only property damage, and personal and bodily injury that happens while the policy is active. You may be able to purchase a policy called a backdated liability insurance coverage, but this is not commonly offered. This type of policy protects your business against claims that occurred before you took out coverage.

Depending on the level of coverage, commercial general liability insurance comes in two main forms:

Occurrence general liability policy

This policy covers your business against claims that happen while the policy is in force, regardless of when the claim is filed.

Claims-made general liability policy

This protects your business against claims that occur while the policy is in force, regardless of when the incident happened.

Another element of public liability coverage that you need to pay attention to is the policy limit. This also comes in two types:

Per-occurrence limit

This is the maximum amount your insurance provider will pay for a single claim. Per-occurrence limits are typically capped at $1 million.

Aggregate limit

This is the maximum amount your insurer will pay out in a year, regardless of the number of claims. Aggregate limits are usually set at $2 million.

Both types of policy limits can be adjusted depending on your business’ coverage needs.

General liability insurance covers claims from clients and other third parties resulting from your daily business operations. These include:

Bodily injury

Policies help cover the cost of medical treatment if someone suffers an injury because of your business activities. This is regardless of who is at fault or whether a lawsuit has been filed. Among the most common bodily injury claims involve slips and falls.

Property damage

Public liability coverage pays for the cost of repairing or replacing a third party’s property if the damage was a result of your day-to-day transactions.

Reputational harm

General liability insurance covers incidents that cause reputational harm, including:

false arrest
invasion of privacy
libel
malicious prosecution
slander
wrongful eviction

If your business has been accused of causing these types of personal injury, your policy will cover the legal and settlement costs incurred.

Copyright infringement

Commercial general liability insurance covers lawsuits involving copyright or trademark infringement under the advertising injuries clause. Coverage, however, only kicks in if the infringement is unintentional.

Product liability

Some business liability insurance policies cover lawsuits from clients claiming injury or losses because of a product your business designs, manufactures, or sells. Coverage includes legal defense costs and third-party compensation if your business is found to be at fault.

General public liability insurance covers claims of bodily injury, property damage, and reputational harm against your business. This type of policy, however, doesn’t cover everything that your business may be held liable for. Here are some exclusions from general liability coverage, which may be covered by other policies:

legal and settlement costs resulting from service-related mistakes and oversights covered by professional indemnity insurance, also called errors and omissions (E&O) insurance
business-related lawsuits against a company’s directors or senior management, covered under directors’ and officers’ (D&O) insurance
bodily injury and property damage caused by a vehicle your business owns, covered by commercial auto insurance
incidents of theft, unless committed by employees, covered under commercial property insurance
medical expenses and lost income of employees who are injured while doing their jobs, covered by workers’ compensation insurance
legal and settlement costs resulting from damages from a cyberattack, covered under cyber liability insurance
liability costs exceeding your policy limits, which can be covered by commercial umbrella liability insurance

If a claim results from intentional or criminal acts, there isn’t an insurance policy that will provide coverage.

Businesses operate differently and some face greater liability risks than others. Regardless of these differences, it’s advisable to have general public liability insurance. This form of coverage provides business owners with some financial cushion if they are sued due to an unexpected accident.

General liability coverage is important if your business:

has a physical store, office, or business premises with heavy foot traffic
handles or conducts work for or near another person’s or business’ property
creates advertisements or marketing materials
uses social media as part of your operations
manufactures or sells products
needs coverage to be considered for work contracts

Some businesses that may need CGL insurance include:

architects
caterers and food trucks
consulting firms
contractors
design companies
engineers
hospitality businesses
insurance agencies and brokerages
IT professionals
janitorial services
landscaping companies
marketing firms
real estate agents
small business owners

Find out what types of insurance policies you need if you’re operating a limited liability company in this guide to liability insurance for LLCs.

The average premiums for a general liability insurance policy for a small business cost between $40 and $80 monthly or around $480 to $960 per year. The figures are based on various price comparison and insurer websites the Insurance Business research team checked out.

Your premiums may be higher or lower depending on a range of factors, including:

Industry

Businesses in different sectors are exposed to varying levels of risks. Construction and landscaping companies, for example, face a higher risk of property damage than office-based businesses. Retail stores experience more foot traffic than IT consultancies, raising the likelihood of client injuries. These situations have a corresponding effect on general liability insurance premiums.

Business size

The more employees your business has, the higher the cost of coverage as each worker carries a certain level of risk. If you operate a taxi fleet with 20 drivers, for instance, you can expect to pay higher premiums compared to a transport service company with just five drivers. This is because the likelihood of your drivers getting involved in accidents is higher.

Business location

If your business is based in areas with higher crime and accident rates, you are more likely to pay higher premiums than businesses in safer locations.

Policy limits

Per-occurrence limits are often set at $1 million, while aggregate limits are capped at $2 million. These figures can be adjusted depending on the needs of your business. The higher the coverage limits, the more expensive your premiums and vice versa.

Deductible amount

Just like most types of insurance policies, general liability coverage comes with a deductible. This is the amount you must pay out of pocket for an insured loss before your policy kicks in. The higher your deductible, the lower your coverage costs because your insurer assumes less risks.

Claims history

For each claim made against you, your general liability insurance costs go up come renewal time. Insurers typically see businesses with a history of lawsuits or past claims as risky. Because of this, insurance providers tend to charge higher premiums to offset future potential losses.

There’s no law requiring businesses in the US to take out general liability insurance. Some clients, stakeholders, and suppliers, however, may require you to purchase coverage as a condition of your business contract. Landlords may also make it a requirement for your lease agreement.

General liability insurance may also be a licensing requirement for certain industries. These include construction contractors and real estate developers.

While it is not mandatory, it pays to have this form of protection in case an unexpected incident threatens your business. Mistakes and accidents happen without warning, even with the necessary risk management strategies and safety precautions in place. Sometimes, just one lawsuit can have huge financial consequences for your business.

Some policies may cost more than others. But considering the level of protection general liability coverage provides, it may spell the difference between keeping your business or shutting down.

Is general liability insurance tax-deductible?

The Internal Revenue Service (IRS) often considers the premiums you pay for general liability coverage as “a cost of doing business.” Because of this, these costs can be written off when filing tax returns.

Who is insured in a general liability policy?

Apart from the business and the business owner, the named insureds in a general liability policy can include:

employees
volunteers
subcontractors
anyone directly associated with the business

How much liability insurance is enough?

A good rule of thumb is to have liability insurance that’s enough to cover your net worth. To calculate your net worth, add up the value of all your cash, investments, and assets, then subtract that amount from your total liabilities. The result is how much you need in coverage. Always consult an experienced insurance agent or broker to get a rate that works for you.

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Is taking out general public liability insurance worth it? Share your thoughts in the comments.

General public liability insurance: a primer for businesses