Liability Insurance Coverage
Commercial General Liability Coverage
Your business faces liabilities every day. The only way to protect your assets is to carry adequate business liability insurance. A Commercial General Liability (CGL) insurance policy is your first line of defense against many common claims.
CGL insurance protects you if a customer is injured at your place of business. It would also cover damage or injuries caused by your employees at a client's site. CGL protects businesses against these types of claims. Even if your company is negligent or liable for damage, injury or loss to another's property, reputation or health, your business can keep its assets if it is adequately insured.
Types of Claims Covered by a CGL Policy
Damages Covered by a CGL Policy
Defense and Legal Costs
Coverage Triggers
Exclusions
Types of Claims Covered by a CGL Policy
CGL policies cover claims in four basic categories of business liability:
- Bodily injury is damage to a person's body or physical well being.
- Property damage is damage to any type of real estate or personal property such as furniture.
- Personal injury (including slander or libel) is damage to a person's or business entity's reputation or basic rights, such as the right to be free from interference and to have privacy.
- Advertising injury refers only to liability for the harm caused as the result of the insured's advertising its goods or services, such as an advertisement that slanders another organizations products or services.
The CGL policy also pays for medical expenses of persons, other than employees, who sustain injuries at the insured business or as a direct result of the operations of the insured business.
The CGL covers liability claims that stem from ownership or control of premises; products and completed operations; and certain types of contracts. The term "premises" includes land, building and other property. This part of the policy, known also as owners', landlords' and tenants', covers claims due to the failure to avoid harming customers, salespeople or other people (even trespassers) who are on their premises.
"Products" coverage includes claims that stem not only from the manufacture of products but also from their distribution and sale. "Completed operations" is work that has been performed, such as the repairing of appliances, the cleaning of chimneys or the installation of plumbing.
Liability also may be transferred through contractual agreement. Only certain kinds of contracts, such as leases and sidetrack agreements, are covered under the CGL.
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Damages Covered by a CGL Policy
Three different kinds of damages are covered by a CGL policy:
- Compensatory damages are the actual financial losses already suffered by the plaintiff and any additional monetary losses the plaintiff may suffer in the future as a result of the injury that gave rise to the lawsuit.
- General damages compensate the plaintiff for nonmonetary, intangible losses, such as for "pain and suffering," "mental anguish" and loss of "consortium" of a deceased or disabled spouse or "bereavement" from the loss of a loved one.
- Punitive damages are additional amounts the defendant must pay as punishment for having engaged in a wrongful act.
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Defense and Legal Costs
The CGL policy obligates the insurer to provide a defense and pay for various legal costs when there is a covered liability claim or lawsuit against the insured business owner and the claim is covered by the policy. This provision not only protects a business from legal expenses, but it also generally makes available a more expert defense than the business would be able to afford on its own.
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Coverage Triggers
Most CGL policies are written with what is called an "occurrence trigger." This means that the CGL policy in effect at the time the alleged injury or property damage occurred is the policy that covers that event, regardless of how far back in time that event was from the time the claim is filed or whether the same insurance company is currently insuring the defendant.
Another type of CGL policy is called "claims-made." This means the current liability insurer is responsible for claims made during the policy period, even though the event that gave rise to the claims occurred in a prior year. The claims-made form is used for only a small percentage of liability insurance, mainly for medical malpractice and other types of professional liability.
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Exclusions
The CGL policy excludes some types of liability coverage, worker's compensation, professional liability, liability related to operating an automobile or truck, and corporate directors and officer's liability. These liabilities are covered by other specially created policies.
The CGL also excludes all coverage for pollution claims. Firms that use toxic materials in the manufacturing process or store or transport them must purchase a special environmental liability policy. Many businesses keep gasoline on the premises for their own use. Because storage tanks can leak over time, allowing gasoline to seep into wells and other water supplies, federal law requires all tank owners to have insurance or show some other means of paying for potential claims.
Also excluded are claims resulting from damage to the property of others in the business owner's care, custody and control. This is because coverage for such damage is covered under property policies.
Manufacturers of products subject to product recall, such as food items or toys, should consider purchasing a special policy to cover this exposure. Products are excluded from the CGL policy because of the costs incurred in a recall.
Coverage for administering certain kinds of professional services or failure to render such services may also be excluded from the CGL policy, depending on the extent of services provided.
Legal actions that do not involve a claim for bodily injury, property damage, personal injury, or advertising injury, are not covered. The CGL policy does not cover most contract disputes, actions by governmental agencies charging that a business has failed to abide by regulations or statutes, and charges of pollution.
A claim for back taxes or a penalty for failure to provide a safe workplace is not covered by the CGL policy.
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