General Liability Insurance

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What General Liability Insurance Is All About

General Liability General Liability

If you’re an entrepreneur, contractor or owner of a small business, you need General Liability Insurance - no ifs, ands or buts about it.

When it comes to business insurance, this is the baseline and first type of policy you should purchase. It gives business owners peace of mind in knowing that in the case of an accident - such as someone slipping and falling on their property - their business is protected.

Read on to find out all about it in our comprehensive guide to General Liability Insurance.

What Is General Liability Insurance Coverage?

On a day to day basis, it’s likely that you’re interacting with many people - such as employees, clients, vendors and contractors, to name a few. Any one of them could experience an accident or claim that your business caused them injury or loss, and bring a lawsuit against you.

General Liability Insurance is a business insurance policy that is applicable to most contractors and business owners because it protects them. When a business has this type of insurance policy, they're covered when it comes to claims of bodily injury, associated medical costs and damage to property that occurred as a result of your business operations.

It also covers legal defense costs, along with settlements and judgements should you be successfully sued. If you are a tenant who causes damage to a property that you rent (like, for example, a fire), that’s another situation where under a General Liability Insurance policy, you’d be covered. Lastly, these types of policies cover claims of false or misleading advertising. That could include libel, slander or copyright infringement.

This type of insurance is often referred to as “Business Liability Insurance” or “Commercial Liability Insurance.” Call it whatever you’d like, but just make sure you have this policy in place - because not doing so could prove very costly.

Do I Need General Liability Insurance?

Almost every business owner or independent contractor can benefit from having this insurance. However, if you’re still asking if it’s necessary, here are some reasons you might need coverage:

  • You or your employees visit client's offices, or host clients at your work space
  • You represent your client’s business
  • You use third-party locations for any business-related activities
  • You use a client’s equipment
  • Your customers require you to have it (many companies require proof of coverage before they will enter into a contract or begin a business relationship with you, often requiring a minimum level of coverage)

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What Does General Liability Insurance Cover?

At a High Level...

General Liability Insurance covers bodily injury, property damage (including others' property) and personal injury.

It’s also important to know that this insurance covers the people associated with your business, as well as other businesses. For example, if you have a partnership or joint venture, all of your partners and members would be protected, along with their spouses, if they are sued for something they do as part of their job.

If you own a corporation, this insurance policy will cover all of your executive officers, directors and stockholders while they are acting in an official capacity. It also protects your employees from lawsuits resulting from actions they took on the job.

Those associated with your business don’t necessarily have to be employees, partners or customers to benefit from coverage. These insurance policies also include volunteers for liabilities that result from the work they do for you, and for the use or maintenance of your property that is in their care. For example, if a volunteer is using a laptop to check in attendees at an event and they accidentally spill water on the keyboard, you’re covered.

In terms of other businesses, if you have subsidiaries, your coverage should extend to any subsidiary where you own at least half of the stock. Additionally, during the first 90 days after you acquire a new business, it is automatically covered by your policy. After 90 days, however, you will have to update your policy to continue this protection for the new part of your business.

If you work with vendors, like contract salespeople, you may have a written agreement to indemnify a person or organization. Under this type of policy, these people and organizations would be protected against liability claims (like property damage or bodily injury) that happen as a result of selling or distributing your products.

Getting Into the Details...

Here are some examples of situations in which you’d be thankful you had a policy.

Type of Claim Description Example
Bodily Injury If someone is injured at your business or because of your business - including employees and customers - you are legally liable for their injury, including medical payments. A customer or employee slips in your store, and hurts themselves. They require medical care, and bring a suit against you for the damages.
Property Damage In the course of doing business, you cause damage to someone else’s property, whether that’s an actual property location (like their building) or simply an item they own. While working as a contractor at your client’s place of business, you accidentally break something and cause costly damage to their facility.
Data Loss Today, data is considered a valuable asset by many companies. If they suffer a data loss due to your business, you could be held liable as it could fall under the umbrella of property damage. Your marketing technology company stores valuable data about a retail store’s customer preferences on its servers. Unfortunately, one of your employees accidentally deleted important files that can’t be recovered. The retailer brings suit against you, claiming the loss of data has caused significant financial harm to their business.
Personal Injury This can include false advertising, copyright infringement, libel or slander. One of your employees shares unflattering information about a customer with someone else who works in the same industry. Word gets back to your client that they are being bad-mouthed, and they sue for slander.
Property Damage Due to Disasters Sometimes things happen to your property that are beyond your control, like a natural disaster, fire, lightning strike or theft. Your neighborhood experiences a major storm, and your business is flooded. With insurance, you’re covered for the costs of repairs.
Rental Property Damage If your business rents property from a third party, you could be held liable for damages. An employee spills something on the floor at the venue you rented out for the company holiday party.
Financial Loss If you sell products or services to clients, there is a risk that they could hold you liable for financial losses caused by said products and sue. You sell a customer a software product that is supposed to streamline their invoicing process. However, it ends up complicating things and frustrates their clients, resulting in the loss of an important account.
Failure to Deliver on Promises If something happens that causes you to be unable to deliver the product or service you promised to a customer, you could be liable for any loss that results. You run a business that delivers products to other businesses. A supplier you use shuts down suddenly and is unable to ship products you delivery frequently, causing a significant loss in sales for your clients.
Liquor Liability If your business does not manufacture, distribute, sell, serve or furnish alcoholic beverages, your General Liability insurance policy will cover you if are held liable for a liquor-related accident. If you are a business that sells liquor (like a restaurant), you’ll need to purchase a separate Liquor Liability insurance policy. This type of coverage is important if you distribute alcoholic beverages occasionally, such as at your office holiday party or a team happy hour. If an accident occurred, you’d be covered as long as you didn’t charge money for the alcohol.

You'll Know It's the Right Policy If It Covers:

  • Bodily injury
  • Property damage, including to property you are a tenant at and someone else’s property you use in the course of doing business.
  • Personal injury, such as slander
  • Defense costs, including court costs, witness fees, attorney's fees, and police report costs, regardless of fault
  • Reasonable expenses incurred when the insurance company asks you to assist in your defense. For example, if you lost income while spending a day in court, you would be covered
  • Judgements and settlements, including medical expenses.

What Does General Liability Insurance Not Cover?

While this insurance offers broad protection for your business, it doesn’t cover absolutely everything.

For example, this insurance will not protect you from claims of negligence, even if it isn’t your fault. This is one reason why many contractors and business owners choose to buy additional business liability insurance policies.

If you or your business own commercial properties, such as a garage or a storage facility, you would likely benefit from the additional protections provided in a Business Owner’s Policy.

Likewise if you or your business provide professional and personal services, you’ll almost always want to purchase Errors and Omissions insurance in addition to this insurance.

In general, damage that is caused intentionally or results from crimes committed by the insured will not be covered under a General Liability Insurance Policy. This protects the insurance company from fraudsters, like a business owner who sets fire to their own policy in order to collect money, as well as organized crime. If this provision didn’t exist, criminals would be able to purchase insurance to cover defense costs in the case of legal action brought by their victims.

What Are the Limits of General Liability Insurance?

Like most insurance plans, this type of policy will clearly outline its limit, or the maximum amount the insurance company will pay against a liability claim. It’s important to assess your risk carefully to ensure you have adequate coverage and won’t be left paying for expenses out of pocket.

For example, if your small business is sued for $300,000 in medical costs associated with a slip-and-fall injury, but your policy limit is $250,000, you will have to cover the difference of $50,000 yourself. It is important to research your industry research before investing in a policy.

How Much Does General Liability Insurance Cost?

The cost varies. The coverage your business needs depends on the type of business you operate, as well as the perceived risk associated with you or your industry. For example, a marketing consultant would need less coverage than a building contractor. Your location is also important, as some states tend to award more in damages to plaintiffs claiming personal injury than others. If you live in one of those states, you’re likely to face higher premiums.

Generally the insurance company will ask for information before determining your premium, such as:

  • Location
  • History of previous claims
  • Current and past business activities
  • Payroll amounts
  • The number of years you have been in business
  • The size and type of your business

Minimum premiums start from as little as around $350 per year. However, most annual premiums for small businesses range from $750 to $2,000 depending on your type of work and coverage needs. That’s certainly a lot less than the thousands, if not millions, of dollars you may need to spend fighting your case in court.

If you fall into a low risk category, you may want to consider a Business Owners Policy, which would combine both General Liability Insurance and Property Insurance at a more affordable rate. If you already have a Business Owner’s Policy, you should double check it to see what your coverage limit is. If it’s low, you’ll want to consider purchasing a second separate policy that will provide additional coverages.

In today’s society, lawsuits are increasingly frequent. No matter how small your business is or how unlikely you think it is that you’ll ever face a claim, you’re still exposed to liability risks at work. An insurance policy costs very little when compared to the expenses your business will incur.

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