What You Need to Know
Proactive Risk Management
Running a business comes with inevitable risks, from daily interactions with employees, contractors, and customers to accidents involving third-party property damage or injury. As a business owner, it’s crucial to protect your assets against potential liability claims.
This is where commercial liability insurance comes in—ensuring that your business can survive legal claims without facing bankruptcy.
If your business is not covered by a commercial liability insurance policy, the financial consequences of even a single lawsuit could be devastating.
Commercial general liability (CGL) insurance serves to protect your company’s assets and help cover legal obligations when liability claims arise.
Understanding Business Liability Exposures
Businesses face multiple types of liability exposures daily. Commercial general liability (CGL) insurance provides financial protection against claims of injury, property damage, and negligence related to business operations.
Key Risk Exposures Covered by CGL Insurance:
- Premises and Operations
- Products and Completed Operations
- Fire Legal Liability
- Independent Contractors Liability
- Contractual Liability
Premises and Operations Exposure
A business can be held liable for accidents occurring on its premises or resulting from business activities. For example, if a customer slips on a freshly cleaned floor or if a contractor working for your company damages property during a job, you could face a lawsuit.
Example: A retail store faces a claim after a customer slips and falls on a waxed floor inside the store.
Products and Completed Operations Exposure
Liability may arise due to defects in products your company sells or services that have been completed. Even if a product leaves your store in perfect condition, issues that occur later could still lead to claims.
Example: A bakery is sued after selling spoiled cream puffs that cause food poisoning.
Fire Legal Liability
If your business rents or leases property, negligence that causes fire damage could leave you liable.
CGL policies can cover fire damage to the rented property, but only the part of the building you occupy.
Independent Contractor Liability
Businesses hiring contractors to perform services for customers may still be held liable if the contractor causes damage or injury during the service.
Example: A hardware store contracts with XYZ Heating & Air for a furnace installation. If improper installation causes a fire 90 days later, both companies could be held liable.
Contractual Liability
Sometimes, a business takes on liability as part of a contract.
Example: You lease parking space from another business and assume liability in the contract for accidents that occur, CGL insurance may provide coverage.
Example: You lease parking space from another business and assume liability in the contract for accidents that occur, CGL insurance may provide coverage.
Coverage A: Bodily Injury and Property Damage
Coverage A of the CGL policy protects businesses against claims for bodily injury (BI) or property damage (PD) caused by accidents during operations.
Coverage A of the CGL policy protects businesses against claims for bodily injury (BI) or property damage (PD) caused by accidents during operations.
Exclusions for Coverage A include:
- Intentional injury
- Contractual obligations (except those in standard insured contracts)
- Pollution-related losses
- Liability from aircraft, autos, or watercraft
- Damage to property owned or controlled by the insured
Coverage B: Personal and Advertising Injury Liability
Coverage B handles claims for personal injury, such as libel, slander, and defamation, and advertising injury.
Coverage B handles claims for personal injury, such as libel, slander, and defamation, and advertising injury.
Businesses involved in advertising, publishing, or content creation can be especially vulnerable to these types of claims.
Exclusions for Coverage B include:
- Knowingly inflicting injury
- Publishing false material knowingly
- Copyright infringement
- Advertising-related offenses
Coverage C: Medical Payments
Coverage C provides payment for medical expenses related to accidents on your premises or due to your business operations, regardless of fault.
This coverage ensures quick assistance for injured individuals, potentially preventing more serious claims.
Exclusions for Coverage C include:
- Injuries to employees or tenants
- Injuries covered by workers’ compensation
Claims-Made vs. Occurrence Forms
Occurrence Form
Under an occurrence form, claims are covered based on when the injury or damage happened, even if the claim is filed after the policy expires.
Example: A customer is injured on May 30, but the claim is filed on July 30. The insurer who covered the business in May will handle the claim.
Claims-Made Form
A claims-made form covers incidents only if the claim is made during the policy period. The claim must arise from an incident that occurred on or after the retroactive date.
Extended Reporting Periods (ERP)
For claims-made policies, ERPs extend coverage beyond the policy’s expiration. Basic ERPs provide 60 days or up to five years for reporting claims after the policy ends.
Businesses can also purchase a supplemental ERP for unlimited reporting time.
Who is Insured?
The named insured’s structure determines who is covered:
- Individuals: The business owner and their spouse.
- Partnerships/Joint Ventures: Business partners and their spouses.
- LLCs: Members and managers of the LLC.
- Corporations: Executive officers, directors, and stockholders.
CGL Limits of Insurance
The CGL policy outlines several limits that apply depending on the nature of the claim:
- General Aggregate Limit: The maximum for all claims during the policy period.
- Products-Completed Operations Aggregate Limit: Covers claims related to completed work or products.
- Per Occurrence Limit: The maximum for any single incident.
- Medical Expense Limit: The maximum coverage for medical payments per person.
Conditions and Duties of the Insured
In the event of a claim, the insured must:
- Notify the insurer of any occurrence or claim immediately.
- Provide details, cooperate with investigations, and avoid making unauthorized payments or assuming obligations without the insurer’s consent.
Other Insurance
If another policy also covers the same loss, CGL policies often divide payments either by equal shares or by limits of insurance.
We Want to Help
Understanding the importance of Commercial Liability Insurance can protect your business from financial devastation.
At Armor Insurance Agency, we’re committed to providing resources so you can make informed decisions about risk management and insurance coverage.
Our team is here to guide you through the complexities of commercial liability insurance, ensuring you have the protection you need.