Insurance for Your Business: General Liability Insurance
June 2005
We continue our series on business insurance with general liability insurance. General liability insurance covers accidents for which your business is legally responsible and pays on claims for personal injury or damage to property.
If you or one of your employees is responsible for an on-the-job accident, you may have to pay for the injured person's medical expenses or property loss. This includes incidents involving your company's vehicles as well as accidents that happen on your business' premises (for instance, if someone slips and falls). You also can be liable for injuries incurred by the use of your products (product liability) or by your actions (professional liability, as in malpractice). Your company is also legally responsible for any accidents your employees are involved in if the accident occurred while the employee was conducting business for your company.
Liability insurance pays for the damages up to the limits you have chosen for each policy coverage. If you are served with a lawsuit, the insurance company absorbs all defense costs including hiring an attorney on your behalf and handles all the legal issues, even if the suit is frivolous. In choosing the insurance you need, take a look at your operations and consider the possible exposures from which you need protection.
Who is covered?
A Commercial General Liability Insurance policy extends liability protection to a number of people involved in your business.
If your business is a partnership or joint venture, the policy covers all partners or members and their spouses while they act in an official capacity for your business.
If your business is a corporation or association, the policy would cover all executive officers, directors, and stockholders while they act in these official capacities.
The policy covers your employees while they act in their capacity as employees.
Your policy would also extend liability coverage to any subsidiary for which you own more than 50% of the voting stock.
Any person or organization with whom you have a written agreement to indemnify, such as a vendor, would be protected against liability claims for any bodily injury or property damage that results from distributing or selling your products.
Your legal representatives would also be afforded liability coverage under this policy for any liability arising from the maintenance or use of your property in their care.
While acting under your direction and within the scope of their responsibilities for you, any volunteers for your business would also be extended liability coverage.
What is covered?
Generally speaking, most Commercial General Liability Insurance Policies cover:
Bodily Injury coverage will pay the affected person or organization for 1) the cost of care; 2) the loss of services; and 3) restitution for any death resulting from the injury.
Property Damage coverage compensates the property's owner for either the physical damage to the property or its loss of use.
Products-Completed Operations covers injury from something your company made or some service your company provided. Your policy pays for the resulting damages and any legal expenses up to your policy's limit.
Contractual Liability extends coverage to any liability you may assume by entering into a variety of different types of contracts, including: a building lease; any easement of license agreement; an agreement to indemnify a town or city if required by ordinance; or an elevator maintenance agreement.
Hired Auto & Non-Owned Auto coverage is typically added as an endorsement on a General Liability policy. Hired Auto coverage replaces or augments the liability coverage offered by auto rental agencies. Non-Owned Auto coverage protects your company in the event that your company is sued as a result of an auto accident that you or one of your employees has in a personal vehicle while on company business.
Legal Defense Costs coverage pays for many legal fees if your company is sued. Even if your company is not legally responsible for a claim someone makes against you, it can be quite expensive to defend yourself against such claims. Fortunately, your liability policy will typically pay for:
Any defense costs incurred directly by the insurance company;
Any court costs or related costs you're charged in connection with a legal suit;
Reasonable expenses you incur at the insurance company's request to assist in your defense.
Medical Payments and Funeral Expenses are covered by General Liability coverage within one year of the accident up to your policy's limit.
Personal Injury claims happen when your business does something -- or fails to do something -- that may not physically harm a person, but it may personally injure them. Most General Liability policies provide coverage if you are accused of: publishing inaccurate information that slanders or libels a person or organization; publishing material that violates a person's right of privacy; falsely arresting, detaining or imprisoning someone; maliciously prosecuting someone; or wrongfully evicting someone.
Advertising Injury - If you are ever sued because of something that happened during the course of advertising your company's own goods, products or services, this policy will provide valuable liability protection.
Evaluate Three Critical Aspects
When purchasing or renewing general liability insurance you should focus on three critical aspects of any policy.
The legal minimums - Ask your agent or state insurance commissioner whether there are any minimum insurance levels set by law. Also check to see whether these limits are higher if you are in a certain type of business, or if you must have greater coverage to do business with the government or other state organizations.
Your business structure - If your business is incorporated you can probably get away with buying insurance with lower limits. In the event you're sued and lose, only the assets of the corporation may be seized to satisfy a judgment. On the other hand, if you are not incorporated then you generally need more liability insurance because you can be held personally responsible for judgments against your business.
Your people - This includes knowing both your employees and yourself. Is your business staffed with highly-skilled professionals with years of experience in their field, or high school kids? Are you or any of your employee's accident prone? Consider this factor when you decide how much liability insurance to buy.
The key to any insurance is to get the right amount and type of coverage for your company. Talk to your broker, who should know your business and its associated risks, to help you decide what protection your company needs in the event it's held legally responsible for an accident.
