General Liability Insurance Coverage
General Liability Insurance Coverage. Business insurance is a necessity when owning a business. Without it, you leave yourself and your employees open to great risk of litigation.
General liability insurance coverage (CGL) is broken into three parts:
- Coverage A: Bodily Injury and Property Damage
- Coverage B: Personal and Advertising Injury
- Coverage C: Medical Payments
In this article, we will break down how commercial general liability insurance works, what and who it covers, along with the exclusions that eliminate coverage for some risks.
Understanding general liability insurance coverage is important for small businesses. Learn how a GL policy can protect your business from lawsuits for bodily injury, property damage and more.
Coverage A - Bodily Injury and Property Damage
In accordance to the ISO CGL policy, Coverage A will protect against bodily injury and property damage. This can be from many different sources of liability, including premises and operations liability, products and completed operations liability, contractual liability, and independent contractor liability.
It should be mentioned that there is no specific general liability insurance coverage part for each of these liabilities, instead they all fall within the parameters of the CGL policy's Coverage A insuring agreement. This agreement defines the scope of coverage provided.
The Coverage A (bodily injury and property damage) insuring agreement also sets the outer parameters where coverage may apply with respect to causation, location, and timing. If a coverage trigger occurs, the key elements of Coverage A are:
- Bodily Injury or property damage occurs during the policy period.
- Bodily Injury or property damage is caused by an occurrence.
- The occurrence takes place in the coverage territory.
- The insured is legally liable for the loss.
- The insured was not aware of the bodily injury or property damage prior to the policy period.
The general liability insurance coverage will also pay costs in defending or settling a claim, and this is in addition to covering bodily injury or property damage. These cost are payable outside the policy limit, meaning the amount available to be paid for a claim isn't reduced. This is the case in the standard CGL policy, and most nonstandard policies.
Most business insurance runs on a 12 month contract that will renew at the end of each term, much like homeowners insurance. Upon renewal new coverage limitations will apply, along with any new terms and provisions to the policy. This may include the addition of new exclusions, and policy definitions may be changed. New endorsements may be attached, and different deductibles may apply, along with other variations.
Before the coverage available for a claim can be determined, the policy that is applicable for the claim must be identified. A "Coverage Trigger" will be used to indicate the events that policy is able to respond to. This is the insurance industry's standard to allow both the insurer and insured determine the applicable policy terms.
There are two different versions of CGL policy offered by the ISO, and the primary difference being the Coverage Triggers or bodily injury or property damage under Coverage A:
An Occurrence Based policy allows the insured to make a claim if the event happened during the policy period, even if the policy has since expired.
A Claims Made general liability insurance coverage, on the other hand, stipulates that any claims made have to be within the policy period, and not after the policy expires. Restrictions may even be put in place to control operations performed before a specified date.
For this reason claims-made policies very unpopular with consumers, so most policies are written as occurrence-based. Any time Coverage Triggers are mentioned, we'll be assuming them to be occurrence-based.
A distinction that has to be made about occurrence-based triggers is that the event causing injury or damage is irrelevant. The trigger itself is in regards the timing of the injury or damage. This is a common detail to be overlooked by some insurance professionals, who fail to recognize the timing of the injury or damage, not the time of the causing occurrence or time of claim that is taken into account.
The insuring agreement will impose other requirements for coverage to apply (e.g., that the injury or damage is caused by an occurrence that takes place in the coverage territory) but the trigger is solely the timing of the injury or damage.
The Coverage A insuring agreement provides that coverage applies to liability for bodily injury or property damage.
Bodily Injury can be defined as:
- Physical injury
- Mental injuries (mental anguish, emotional distress and other disorders, are covered if the applicable jurisdiction recognizes these types of injuries as bodily injuries. In most jurisdictions, these types of injuries are covered only if there is accompanying physical injury.)
Within the insurance world, there is a clear definition between bodily injury and personal injury. Despite attorneys frequently use the latter term to refer to physical injuries to a person, the general liability insurance coverage defines personal injury as a variety of offenses against a person other than a physical injury, such as invasion of privacy, slander, libel, trespass, and false imprisonment.
Personal injury (along with advertising injury) has its own separate coverage part under the CGL (Coverage B), with its own insuring agreement and exclusions. It is important to recognize the difference between these two terms within the context of CGL policy.
Property Damage can be defined as:
- Physical damage to property
- Accompanying loss of use of that property
- Loss of use of property that has not been physically damaged
Loss of use claims can include loss of revenues, increased rent or living expenses, and even diminution of value.
Coverage A Exclusions
As with all insurance, general liability insurance coverage holds its own set of exclusions. Designed to remove coverage for exposures that are not common to most businesses, that underwriters are not willing to cover on a blanket basis, or that are considered uninsurable. Many of the exclusions can be covered under other insurance policies. Once the insuring agreements conditions have been met, any damages that fit the definitions of bodily injury or property damage are covered, within the policy limits. That is unless one of these exclusions applies:
Expected or Intended Injury or Damage. CGL insurance does not cover bodily injury or property damage that was expected or intended. Insurance is designed to indemnify insureds for losses suffered fortuitously, not intentionally. Purposeful damage or injury won't be covered.
Contractual Liability. This exclusion has two key exceptions. First, it does not apply to liability that is both accepted in a contract and that would be imposed on the insured even if no contract existed. More importantly, the second exception applies to liability assumed in an insured contract. Insured contracts can include lease of premises, sidetrack agreements, certain easement agreements, certain ordinance-related obligations to indemnify a municipality, and elevator maintenance agreements.
Liquor Liability. Coverage for bodily injury or property damage is unavailable for when any insured may be held liable relating to the furnishing of alcoholic beverages. However, the exclusion applies only if the named insured is in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages.
Workers Compensation and Similar Laws. Any obligation the insured may have under workers compensation, disability benefits, and unemployment compensation laws will inhibit the availability of business insurance coverage. These coverages are provided under separate policies designed specifically to handle these exposures. This exclusion in the general liability insurance coverage is designed to avoid potential overlaps in coverage, and fraudulent claims.
Employers Liability. Injuries to workers tend to be covered by workers compensation insurance, however if they fall outside the workers compensation statute, they are not covered by the CGL policy. Therefore, coverage for any injury that is sustained as a result of that employment to an employee of the insured is removed.
Pollution. The term pollutants is defined in the exclusion as any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapors, soot, fumes, acids, alkalis, chemicals and waste. The discharge, dispersal, seepage, migration, release or escape of pollutants will omits coverage for damages arising as a result. This is worded to encompass virtually any environment, ground, water, or air of which pollutants enter or are spread.
Aircraft, Auto, or Watercraft. Injury or damage arising out of the ownership, maintenance, or use of aircraft, auto, or watercraft would not be covered. Also excluded is the liability arising out of the loading or unloading of an automobile. There are policies specifically designed to insure these exposures.
Transportation of Mobile Equipment. Mobile equipment itself is covered by the CGL, but an exclusion does apply with respect to the transportation of mobile equipment such equipment.
War. Any incident taking place in a war zone, and other warlike action; and insurrection, revolution, rebellion, and usurped power.
Damage to Property. The insureds own property isn't covered by the CGL if damaged. Premises that the business rents or leases, and other properties that where the risks are more representative of first-party property than third-party property aren't covered either.
Damage to Your Product. Manufacturers and other entities that produce products rather than service companies cannot be covered for damages arising from their products, to the property or the products themselves.
Damage to Your Work. Liability arising out of the products-completed operations hazard is the only time this applies, limiting its application to completed work. The damage to property exclusion, as above, applies in regards to coverage for damage to work in progress.
Electronic Data. Damages resulting from loss of use or damage to electronic data, unless bodily injury results, would not be covered.
Recording and Distribution of Material or Information in Violation of Law. Claims involving the violation of the Fair Credit Reporting Act and other specified laws would not be covered.
Coverage B - Personal and Advertising Injury
Personal and advertising injury can be defined by a number of different types of offences that may produce covered damages. As discussed before, personal injury is defined as being very different as compared to bodily injury and property damage, and it is crucial that this distinction is considered. The key trigger offences for personal and advertising injury are:
- False arrest, detention, or imprisonment
- Malicious prosecution
- Wrongful eviction
- Wrongful entry
- Invasion of privacy
- Libel or slander of a person, organization, product, or service
- Advertising infringement
- Copyright infringement in advertisements
- Consequential bodily injury arising out of any of the above offenses
Coverage B Exclusions
There are 14 exclusions which are omitted by Coverage B - Personal and Advertising Injury. Acts committed with knowledge of the fact that they violate the rights of another aren't covered, and many these exclusions pertain to just that. Criminal acts committed towards the insured are also excluded, and should be dealt with by the authorities, with the subsequent court action if necessary. Following are the excluded general liability insurance Coverage B acts.
- Knowing violation of rights of another
- Material published with knowledge of falsity
- Material published prior to policy period
- Criminal acts
- Contractual liability
- Breach of contract
- Quality or performance of goods
- Failure to conform to statements
- Wrong description of prices
- Infringement of copyright, patent, trademark, or trade secret
- Insureds in media and internet type businesses
- Electronic chatrooms or bulletin boards
- Unauthorized use of another's name or product
- Pollution-related costs
- Recording and distribution of material or information in violation of law
Coverage C - Medical Payments
If the event occurs where members of the general public are injured on the insured business premises, or because of the business operations, Coverage C will reimburse medical expenses incurred. This is paid regardless of legal liability. This is similar to no-fault medical payments in auto insurance.
For example, if a customer slips on an insured shop floor, the general liability insurance coverage will pay for reasonable medical expenses incurred regardless of whether the business is legally liable for the injury, so whether the floor was wet or not is irrelevant. No fault coverage is offered under the premise that injured parties will be less likely to sue if properly cared for at the time of the injury.
Who Is an Insured
Automatic coverage is extended for various other persons and entities, not just the entity listed on the policy as the named insured. Covered insureds are able to name the likes of a spouse, stockholders, partners, volunteer workers, employees, and newly acquired organizations. This is dependent on the type of business, and would be subject to review as it would not be beneficial to grant insured status to just anyone.
Where certain legal or contractual relationships exist, it makes sense to do so. A good example is a general contractor requiring a sub contractor to them additional insured on the sub-contractors policy.
Hopefully this has given you an in-depth insight into how general liability insurance coverage works, and defined some key points to remember when purchasing or claiming on commercial insurance.
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Get useful tips and information about how much commercial insurance costs, small business risks and exposures, how insurance regulations effect your businesses' and detailed descriptions of coverages and exclusions and more. Most small businesses need to buy the following four types of insurance at a minimum to cover their operations from every day risks:
Property Insurance: This policy covers a business if the property used in the business is damaged or stolen as the result of common perils like fire or theft. Commercial property insurance covers the buildings, structures and also business personal property - which includes furniture, inventory, raw materials, machinery, computers and other items.
Liability Insurance: Any company can be sued. Slip-and fall lawsuits are very common and be costly. Customers can claim you injured them or damaged their property - and lawsuits are very expensive. Commercial liability insurance pays damages and can include attorney's fees and other legal expenses. It also ca pay for the medical bills of injured third parties
Commercial Auto Insurance: For vehicles owned by the business. Commercial auto insurance pays bodily injury or property damage costs for which the business is found liable - up the the policy limits for liability and property damage.
Workers Compensation Insurance: In almost every state employers must provide workers comp when there are W2 employees. Workers compensation pays for the medical care of employees and can replace a portion of lost wages - regardless of who was at fault for the injuries.