Commercial Liability Insurance – Limits, Coverage, and Costs

A commercial liability insurance coverage safeguards your company against financial loss resulting from your services, business activities, or personnel. The first step in managing CLI risks is to understand the coverage.

Commercial liability insurance, often known as business liability insurance, protects you and your company from “general” claims such as personal injury and property damage. General liability insurance is required by almost every business.

Commercial liability insurance

A commercial general liability insurance policy protects nearly all business owners from the hazards they face. It defends your company’s assets against harm claims relating to your business and answers to third-party accusations of negligence.

Even one lawsuit’s court costs might be financially disastrous to most small firms. Commercial general liability insurance can offer you legal defense (per occurrence aggregate applies exclusively to settlements) and the resources you need to keep your firm running even if you’re sued.

Product liability coverage is usually included in most CGL policies. This protects you in the event that a customer alleges that your goods or service caused them harm.

When we talk about liability in the context of a business, we’re talking about a corporation being accountable for damages to a third party in some way. Even if you didn’t do anything wrong, your company could become embroiled in a protracted legal battle and lose a significant amount of money defending itself before your innocence is established.

Commercial general liability insurance was established to safeguard businesses from financial loss if they are ever found legally responsible for third-party harm. Essentially, the product or service you give could be held liable for a third party’s property, bodily harm, and other losses.

In such cases, CGL coverage will assist your company in minimizing losses.

What commercial general liability insurance covers

A CGL insurance policy will typically cover the costs of your legal defense as well as pay for all damages on your behalf if you are held liable—up to the policy limits. Due to the detrimental impact that a lawsuit can have on a corporation and the frequency with which such liability cases occur, CGL coverage is one of the most critical insurance products. The CGL standard comprises the following:

  • Coverage A: Bodily injury and property damage liability

The legal liability of insureds for bodily injury or property damage to others arising out of non-professional negligent acts or liability arising out of their premises or business activities is covered by bodily injury and property damage coverage. Even if there is no physical bodily impairment, mental and emotional discomfort can be termed bodily injuries.

Workers’ compensation and employment practices liability insurance are not included in the package but can be acquired separately. Furthermore, pollution liability is not covered and can be added as an endorsement. However, because this coverage is so restricted, high-risk enterprises should consider acquiring their own environmental liability insurance. Other risks, such as liquor liability and professional liability, may also be excluded. An insurance expert can assist you in determining endorsements.

  • Coverage B: Personal and advertising injury

Personal and advertising injury liability protects an insured against liability arising out of certain offenses, such as:

  • Libel
  • Slander
  • False arrest
  • Infringing on another’s copyright
  • Malicious prosecution
  • Use of another’s an advertising idea
  • Wrongful eviction, entry, or invasion of privacy
  • Coverage C: Medical payments

Payments for injuries incurred by a non-employee caused by an accident that occurs on the insured’s premises or while exposed to the insured’s business operations are covered under limited medical payments coverage. Medical payments insurance can be activated without the need for judicial action. This allows for the quick settlement of modest medical claims without the need for litigation. It is covered under the CGL insurance and pays for all necessary and reasonable medical, surgical, ambulance, hospital, professional nursing, and burial expenditures for a person wounded or killed in an accident that occurs on the insured’s property or as a result of company operations.

There is no defense or legal liability coverage—as there is with bodily injury and property damage (Coverage A) and personal and advertising liability (Coverage B).

Purchasing commercial general liability insurance

Commercial general liability insurance can be purchased separately, as part of a Business Owners Policy (BOP), or as part of a Commercial Package Policy (CPP). Consult your insurance agent to determine the type and amount of coverage you require. If your BOP or CPP general liability policy is insufficient, you should consider acquiring a commercial excess (umbrella) policy, which will give further protection.

Additional liability coverages to consider

You may wish to investigate supplemental liability coverage that isn’t included in commercial general liability insurance, depending on your type of business. Discuss the sorts of coverages you may require with your insurance agent, risk management, and/or legal counsel. The list below is not exhaustive, but it includes several important types of insurance to consider:

  • Directors and officers liability

Past, present, and future directors and officers of for-profit and nonprofit companies are covered by directors and officers liability insurance, which protects them from damages resulting from suspected or real improper acts committed while in their roles. In the event of a real or alleged error, misrepresentation, omission, misleading statement, or breach of duty, the policy protects you. Furthermore, some insurance includes coverage for employees as well.

  • Liquor liability

Liquor liability insurance is a type of business insurance that protects your company from claims of loss or damage as a result of a customer becoming intoxicated and harming himself or others. This coverage is likely to be required if your company makes, sells, serves, or facilitates the use or purchase of alcohol. Liquor liability insurance is available as an add-on to business liability insurance or as a standalone policy. However, unless you obtain this additional coverage, your regular commercial general liability policy will not cover liquor-related claims.

  • Pollution liability

This form of coverage offers a comprehensive spectrum of pollution liability protection to industrial, commercial, and agricultural property owners, managers, and developers for gradual, as well as sudden and unintentional, first-party and third-party environmental liabilities. It also safeguards assets against unforeseeable environmental risks that could have a significant financial impact. It also safeguards against unforeseeable environmental risks that could result in human harm, property damage, or pollution cleanup expenditures.

Who needs liability insurance coverage?

Each business is different, but you want to make sure you’re covered. Examples of businesses that use general liability insurance are:

  • Artisan contractors
  • Small business owners
  • Landscaping companies
  • IT contractors
  • Real estate agents
  • Consulting
  • Marketing
  • Janitorial services and more

Does your company need a different type of liability insurance coverage?

Being properly insured is critical to protecting your company. A few examples of companies that may be better suited to our other business insurance products:

  • Your company provides professional services (e.g. education and training)
  • Rent or own a storefront
  • Utilize vehicles to transport goods, yourself, or employees

Common terms to know when shopping for liability insurance

  • Property Damage

Can include claims costs if you damage someone else’s property.

  • Medical Payments

Payments resulting from accidents that occur on your premises or because of your operations. This is regardless of fault. An example is a customer slipping on a wet floor.

  • Personal & Advertising Injury

If you’re sued for libel and slander, this could provide coverage for those claims.

Liability Insurance: What does general liability insurance cover?

General liability insurance covers common lawsuits that arise from everyday business activities. It protects against customer injuries, damaged customer property, and accusations of defamation and copyright infringement.

General liability insurance provides coverage for:

  • Third-party bodily injury

If a customer is hurt in an accident involving your business, general liability insurance can help pay for medical expenses. It also covers legal expenses if a customer sues over the injury.

  • Product liability

General liability insurance can cover expenses to repair or replace customer property accidentally damaged by a business.

  • Third-party property damage

Not all property damage or customer injuries happen inside a store. If a business manufactures, distributes, or sells products, it can be sued over the harm its products cause to people or property.

  • Advertising injuries

If someone sues a business owner or employee over slander, libel, or copyright infringement, general liability insurance can help pay for legal expenses.

What commercial general liability insurance does not cover

  • Professional errors

Professional liability insurance, also called errors and omissions insurance, can cover lawsuits over professional mistakes, including undelivered services and missed deadlines.

Employee discrimination lawsuits

Employment practices liability insurance (EPLI) can cover lawsuit expenses related to claims of harassment, discrimination, and wrongful termination.

  • Employee injuries

Workers’ compensation insurance is the policy that covers medical expenses, physical therapy, and some lost wages for employees.

  • Vehicles used by a business

Personal auto insurance policies almost always exclude business use. Vehicles owned by a business must be covered by commercial auto insurance. Personal vehicles used for work purposes, along with leased or rented vehicles, can be covered by hired and non-owned auto insurance, which you can add to a general liability policy.

  • Damage to business property

A business owner’s policy, which combines general liability insurance with commercial property insurance, can help cover the cost of replacing stolen business property. It can also pay for repairing or replacing business property damaged by fire or certain weather events.

  • Liquor liability

Liquor liability insurance protects your business from lawsuits stemming from incidents caused by intoxicated patrons. Drunk driving, assault, and vandalism are all possibilities.

Businesses that serve alcohol must follow this policy. It’s available as a stand-alone policy or as an endorsement of your general liability coverage.

Some coverage exclusions apply to general liability insurance. It doesn’t cover defense costs in cases of intentional copyright infringement or willful negligence, which are both criminal charges. It also excludes willful bodily injury and property damage.

Check your policy to determine what’s covered and what isn’t. You can add endorsements to your policy to fill any coverage gaps. Make sure your general liability policy contains all of the coverage you need by speaking with an Insureon advisor.

How much commercial general liability coverage do I need?

If you’re buying general liability insurance to meet the conditions of a contract or lease, ensure your coverage fulfills the policy limits specified. The quantity of coverage you require is also determined by criteria such as the size of your company, the risks it faces in its industry, and the number of employees you have.

The usual $1 million per incident / $2 million aggregate policy limits are chosen by the majority of small firms. This indicates that the policy will pay up to $1 million for a single claim, with a lifetime limit of $2 million (typically one year).

What does commercial general liability insurance costs?

Your industry and business are two of the most important elements that influence the cost of general liability insurance. If you work from home as a freelance contractor, you probably deal with significantly fewer people than a convenience store owner. Because they typically undertake work on other people’s properties, the construction business pays some of the highest insurance premiums.

Your company is distinct, and so are your insurance requirements. Your premiums are affected by the services you provide, the number of staff you have, and the types of risks your customers encounter. You should expect to spend more for a general liability insurance policy with a large coverage limit if you desire it.

According to Liberty Mutual’s research, the largest expenses associated with GL claims today are legal fees, with several litigation trends actively contributing to higher claims costs, including litigation funding (outside investors fronting legal fees in exchange for a percentage of potential judgment settlements), traumatic brain injuries (an increased number of plaintiffs’ lawyers alleging traumatic brain injuries at the opportune time), and wrongful death (an increase in the number of plaintiffs’ lawyers alleging wrongful death at the opportune time) (larger trial verdicts).

Compare general liability insurance with other policies

  • General liability vs. business owner’s policy

A BOP, or business owner’s policy, combines general liability coverage with commercial property insurance, which can pay to repair or replace damaged, stolen, or destroyed business property. A BOP is usually less expensive than buying each policy separately.

  • General liability vs. professional liability insurance

If a third party sues you for a bodily injury, property damage, or an advertising injury, general liability insurance will protect you (libel or slander). If you are sued by a customer who believes you made a professional mistake that resulted in financial loss, professional liability insurance will protect you. A general liability policy could be beneficial to almost any business owner. If you require a professional liability policy, it will depend on your sort of business.

Both general liability and workers’ compensation insurance can cover medical expenditures resulting from workplace injuries. Employee injuries, on the other hand, are not covered by general liability insurance. Workers’ compensation insurance, which covers the costs associated with employee accidents or illnesses, is required to provide this protection to your employees. Depending on the state in which your company is located, you may be obliged to acquire workers’ compensation insurance.

When do you need CGL insurance?

As soon as a company is established, it should begin looking into acquiring some sort of general liability insurance. Not only should you do it straight away since you should be protected from the beginning, but you may be asked to produce proof of coverage when signing contracts with larger organizations, signing office leases, or even asking for a professional license to work lawfully.

Having general liability insurance gives firms and clients that are interested in working with your peace of mind and shows them that your finances are in good shape.

Clients and businesses want to engage with organizations that are secure and stable, not ones that could go bankrupt due to a single liability lawsuit, which is exactly what could happen.

How do you apply for CGL insurance?

The insurer will seek proof that investing in your firm is not a dangerous concept when you apply for commercial general liability coverage.

Before you receive the insurance, the prospective insurer will almost certainly look at your company’s previous claim history as well as the kind of products or services you offer to establish what potential hazards and risks exist in your line of business.

In general, you won’t face much resistance, and obtaining CGL coverage should be simple unless your firm provides a clear and substantial risk to you and your clients. However, unless you’re teaching tightrope walking without a safety net, you should be able to simply obtain the appropriate CGL coverage.

Is commercial general liability insurance required by law?

The purchase of general liability insurance is not required by law. Keep in mind, however, that most local governments will demand you to have a GL policy before issuing a business license. In addition, liability insurance is required by most venues and business buildings.

How do I get proof of general liability insurance?

If you need evidence of insurance, you must first speak with the client or entity who is requesting the certificate to identify the minimums and limits that they require. If you need to raise your premium, get your client’s name, address, and tax identification number. The certificate can then be requested by contacting your broker or insurer.

Your broker will lead you through the process and assist you with the paperwork if you need to get more insurance or increase your policy to ensure that your insurance fits the project. After this is completed, your broker can prepare an insurance certificate and send it to you.

Difference between professional and general liability policies

Professional liability coverage cannot be substituted with a general liability policy, and vice versa.

The key distinction is in the types of risks they protect against. If your company is held liable for harm or property damage as a result of its normal operations, general liability insurance will protect you. Professional liability coverage safeguards the organization against lawsuits arising from the provision of professional services or advice. Claims of negligence, professional errors, malpractice, and misrepresentation fall under this category.

Professional liability insurance

What is professional liability insurance?

Professional liability insurance (PLI) covers professionals such as accountants, lawyers, and physicians from claims brought by their clients for negligence or other reasons. Because general liability insurance policies do not cover claims stemming from business or professional practices such as carelessness, malpractice, or misrepresentation, professionals who have expertise in a certain area require this form of insurance.

How professional liability insurance works

Professional liability insurance is known by several names depending on the profession, such as medical malpractice insurance for doctors and errors & omissions insurance for real estate agents. Professional liability insurance is a unique type of coverage that is not available through homeowners’ endorsements, in-home business policies, or company owner’s policies. Only claims made within the insurance period are covered.

Professional liability insurance policies are typically written on a claims-made basis, meaning that coverage is only valid for claims filed within the policy period. Typical professional liability insurance will indemnify the insured against loss resulting from any claim or claims made during the policy period as a result of any covered error, omission, or negligent act performed during the policy period in the course of the insured’s professional business.

What professional liability insurance does not include

Only those stated in the policy are covered, not criminal prosecution or other forms of legal liability under civil law. Cyber liability, which covers data breaches and other technical hazards, isn’t often covered by standard policies. Data security and other technology security-related risks, on the other hand, are covered by a different policy.

Professional liability policy wording

Some professional liability insurance policies are more restrictive than others. While some insurance wordings are designed to meet a certain minimum acceptable wording, making comparisons easier, others range substantially in the coverages they give. Breach of duty, for example, may be included if the incident occurred during the policy period and was reported to the insurer by the policyholder.

Non-lawyers may be confused by terms with significant legal differences. For example, “negligent act, error, or omission” coverage protects the policyholder from losses/circumstances suffered solely as a result of a professional error or omission, or negligent act (i.e., the modifier “negligent” does not apply to all three categories, though any non-legal reader might assume that it did).

A “negligent act, negligent error, or negligent omission” provision, on the other hand, is a far more restrictive policy, denying coverage in a case asserting a non-negligent error or omission.

Example of professional liability insurance

A typical sort of professional liability insurance is medical malpractice insurance. Medical professionals labor under the fear of being sued for alleged medical malpractice, which is defined as an act or omission by a medical provider in which they deliver treatment that falls below the standard of care, resulting in the patient’s damage or death. While most medical malpractice cases in the United States are considered civil torts, medical malpractice insurance can help providers cover the costs of such litigation.

The bottom line

You need commercial general liability insurance if you own a business that works with or employs other individuals in some way. Even if you don’t think you’ll be sued, insurance is always a good (and reasonably priced) investment. Few people regret purchasing insurance; nevertheless, many regret not purchasing it.

Everyone, not just huge enterprises, needs general liability insurance. You should have this type of coverage even if you work as an independent consultant, contractor, or tradesperson.

You already have enough to worry about as a business owner of any kind. Business general liability insurance can help you manage your risks and provide you peace of mind.

The type of insurance you require is determined by your sector, so it’s important to know what you need.

Tony Bennett

Tony Bennett

Tony Benett makes his living in the insurance industry by teaching and consulting. He is also recognized by the legal profession as an expert on insurance coverages. His insurance experience includes having worked at the company level, owned an independent general agency and having worked for an insurance association. He has received various certificates over the past few years and helps his clients and readers by giving them a realistic outlook on what they can expect to achieve within their set targets. At Insurance Noon, he is known for his in-depth analysis and attention to details with accuracy. He has been published as one of the most referred agents by his peers in the insurance community. Tony loves the outdoors and most sport events. His passion other than providing excellent advice is playing golf.