How Does General Liability Insurance Work?

When a claim is made against a business covered by a general liability insurance policy, the insurer will investigate the claim to determine whether it is covered under the policy. If the claim is covered, the insurer will provide legal representation for the business and will pay for any settlements or judgments up to the policy limit.

The policy limit is the maximum amount that the insurance company will pay for any single claim. It is important to note that the policy limit applies to the entire policy period, not just a single occurrence. For example, if a business has a $1 million policy limit and two claims arise during the policy period, the insurer will pay no more than $1 million for both claims combined.

It is also important to note that general liability insurance policies do not cover all types of claims. For example, they typically do not cover claims arising from professional negligence or intentional acts. Businesses that need coverage for these types of claims will need to purchase additional insurance policies.

Businesses need general liability insurance for several reasons. First, it is often required by law or by contract. Many states require businesses to carry liability insurance, and some contracts with clients or vendors may also require it.

Second, general liability insurance provides financial protection against claims that can be very costly. Even if a business is not at fault, defending against a lawsuit can be expensive and time-consuming. Having liability insurance can help cover legal expenses and protect a business's assets in the event of a judgment against them.

Third, having liability insurance can give businesses peace of mind and help build trust with customers and clients. Knowing that a business has insurance coverage can give customers confidence that they are protected in case something goes wrong.

Overall, general liability insurance is an important form of protection for businesses. It can help cover legal expenses and judgments in the event of a claim, and can provide peace of mind for business owners and their customers.

A commercial general liability policy generally mainly covers three types of liability exposures. These include:

• Premises and Operations Exposure
• Products and Completed Operations Exposure
• Indirect/Contingent Exposure

Although commercial general liability insurance can cover a wide range accidents and damages, it also has certain limits. It can only protect your business from unpreventable accidents. It does not offer protection (excludes) things like:

• Damages to your property
• Employee injuries
• Disputes regarding employment
• Injuries resulting from pollution
• Professional errors & omissions
• Preventable accidents
• Intentional injuries

It's important to point out that insurance is often a requirement for doing business, and this is particularly true for CGL. There are three things that dictate how much general liability insurance you will need for your business: Your Landlord, Your Vendors and Your Business.

First, let's talk about landlords. Unless you own the building where you do business, you will need to negotiate with your landlord, and most landlords often require their tenants to have one million dollars per occurrence and two million dollars aggregate limits to get started. What this means is that in the event that you need to file a claim in a particular year, you will have up to one million dollars worth of coverage. If, however, you need to more than one claim in the same year then the policy caps out at the 2 million aggregate - regardless of the number of claims.

Aside from landlords, vendors may also dictate how much general liability coverage you will need to get. Most vendors want their partners have millions of dollars worth of GL coverage, because they want to make sure they're protected in case something goes wrong with your services or products. So if you don't have a lot of assets, you may be forced to get a lot of coverage just to satisfy your vendors. This is particularly true for small business that work with large corporations like Lowe's, Amazon etc.

Finally, you will need to consider your own businesses insurance needs. The faster your business grows, the more coverage you will need. Most small businesses need millions of dollars worth of coverage to prevent financial disaster. So if you already have a mature business then you will need a plan that is appropriate for its size. A company with $100,000,000 in sales will need more than one with $100,000 in sales.