If you are a business owner then chances are that you have been required to show proof of General Liability Insurance at some point. In this article we will discuss all of the ins and outs of general liability insurance so that you have a clear understanding of this important type of insurance coverage.
What is General Liability Insurance?
General Liability insurance is technically called Commercial General Liability Insurance, or CGL. This is usually the first kind of insurance that any kind of business is required to obtain. If you are a business that is trying to sign a new lease then the landlord will require proof of your general liability insurance in order to protect their interest while you occupy their property as a tenant. As a contractor you will be require to show proof of general liability insurance before you are allowed to enter a job site or before you can get paid for a job. This is because the job owner or the general contractor needs to protect their interests in the event that your negligence causes a claim.
You may also hear General Liability insurance called by some other names like these.
- Business Liability Insurance
- Commercial Insurance
What does CGL cover?
General Liability insurance protects you as the business owners against claims for Bodily Injury and Property Damage. Claims will be brought against you and your business whenever another party feels that you have been negligent. Negligence is when you or your business fails to uphold a duty owed to third parties. For example, if you have a store it is reasonable to expect that you will have a safe premises for your customers. If you fail to maintain a safe premises that can be considered negligence and when someone is injured due to your negligence they have the right to sue you and your business.
Here are some examples of the types of claims covered by a general liability insurance policy.
- Slip and fall injuries at your place of business
- Electrical contractor starts fire on job
- Lawn care provider damages glass from rock thrown out by equipment
- Warehouse operator negligently assembled shelving that injured customer
- Plumbing contractor caused flooding in home during job
- A restaurant customer gets sick from food borne illness
There are all sorts of different scenarios that can occur when you’re operating a business. In our day and age anyone can sue another for any reason. Your General Liability policy may also offer a defense to you even if the claim brought against you is groundless.
Your General Liability policy can also extend coverage to your Product Liability exposure. If you manufacture, distribute, sell, or apply products that cause Bodily Injury or Property Damage then those claims can also go against your general liability insurance policy. With some types of highly hazardous products, such as electronic cigarettes, it may be necessary to secure a separate product liability policy as your general liability policy will likely exclude product liability.
How much is CGL Insurance?
General Liability insurance is rated in different ways. In reality it depends on what kind of business you operate and what kind of exposure you have. These are a few of the most common ways that it is rated.
- Gross Annual Receipts – This method is usually used for retail stores and offices
- Gross Annual Payroll – This method is usually used for contractors and service providers
- Square Footage – This method is usually used for restaurants and other kind of venues
It’s easy to understand that a business that doesn’t have any other employees, or is only one owner, doesn’t have as much exposure to have a claim as a business with 10 employees. Can the owner realistically supervise all 10 employees at once? Usually they cannot. Therefore, the larger your business is or the more employees you have the more you can expect to pay for your general liability insurance.
The company is aiming to collect an appropriate amount of premium to match the exposure to having a claim that your business presents. Businesses that engage in more hazardous operations, like a sky diving school, can also expect to pay higher premiums.
It is also common for these policies to be subject to audit. When you start your policy you will give your agent estimates as to what you think your annual sales or payroll will be for the policy period. After the policy period expires the company may request a premium audit. You will have to provide the company with financial records so that they can compare the estimated figures to the actual figures. If you underestimated at the beginning of the policy then you will have a balance owed and if you overestimated then the company will have to return premium to you. It is important for you to maintain accurate financial records so that the audit is a smooth experience.
How do I obtain General Liability Insurance?
The first thing you need to do is find an independent insurance agency that is used to writing policies for businesses like yours. Not all insurance agencies are the same and often most agencies don’t have the expertise needed to properly write commercial insurance. Some insurance agencies only focus on auto, home and life insurance and the companies they write for don’t like to offer commercial insurance.
An independent insurance agency is going to have more options for your business. Most of the large, well-known, national insurance companies have a more limited appetite for commercial insurance and their agents aren’t used to writing it. It is common for agents that aren’t experts to mis-classify commercial insurance policies and cause future problems.
Here are the steps that our agents will follow to start the process with your business.
- Underwriting questions
- Marketing with our various companies to obtain the best terms
- Present the findings
- Bind coverage
- Issue Certificates of Liability Insurance
You can get started with this quote request form below.
Common Mistakes to Avoid
IRMI (International Risk Management Institute) provides this document that outlines some of the most common commercial insurance pitfalls to avoid. Here are a few that stand out to us.
- Relying on commercial general liability fire legal liability coverage to insure leased premises when commercial property insurance is needed to satisfy the obligations of the lease.
- Failing to provide additional insured status as required by contract. Make sure to let your insurance agent review the insurance sections in your lease and other contracts.
- Relying on CGL or umbrella policy to cover professional liability exposures