General Liability Insurance: Back to the Basics

The aptly named General Liability Insurance Policy gives your business coverage for most company-related issues.  Knowing what is covered and, more importantly, what is not covered is must-know information for the business owner.  In general, these policies have a cover page, a list of premium amounts and rates, and a laundry list of exclusions and caveats written in the densest “legalese” that you have seen.  Here are the key portions of this policy type and some of the common coverages that they provide.

Coverage Sections:  Each coverage will be listed with its limits near the beginning of your policy, on a Policy Declarations page.  These are listed by letter and should be similar to this list:

  • Policy Limit:  This tells you the maximum amount that the policy will pay out in a single term. Any legal fees may fall outside of this limit, but an umbrella policy can add the required coverage. For mid-size businesses, this coverage limit is usually set at a few million dollars; however the cost of increasing this limit can be quite small.
  • Occurrence Limit:  Similar to the aggregate policy limit, this tells you how much can be paid out for one, particular incident. This is usually either half of the aggregate limit or the same amount. Like the policy limit, any settlements above this limit are the responsibility of the business.
  • Business Property:  Damages to property or contents owned or used by the business are covered here. This limit can be adjusted depending on how expensive your equipment and tools are, but is capped at a certain amount. If your company owns or uses equipment over this limit, then you will need to specifically list (called scheduling) the equipment and its cost on the policy. Any property that is held or transported more than a set distance from the jobsite or office may have to be covered by a separate inland marine policy.
  • Liquid Assets:  This is meant to cover loss or damage to any accounting information, securities, or currency. If your building was to burn down due to a lightning strike and $5,000 of cash was housed in your office at the time, the loss would be reimbursed under this coverage section. Handling or housing money, bond certificates, or account information that exceeds your limit means you may need to add a coverage extension to your policy. A business owner’s policy will generally include this coverage, but a commercial package policy may offer this as optional coverage only.
  • Business Liability:  This major policy section covers damages caused by the work that you perform or those caused directly by your company. Often this portion is split between work in progress and finished products. Work in progress coverage would pay for damages caused to a property while construction or installations are being performed. If a bathroom remodeler were to break an existing pipe and cause water damage to the building, then this section would cover the damage. Finished products liability would cover any damages to completed projects or installs and may not be automatically included in your policy.
  • Personal Injury:  Slander, liable, and faulty advertisement damages are covered in this section. Any statements that you make that result in a lawsuit will be included here along with copyright infringement litigation. Both explicit damages and legal fees are paid, up to the limits of this section.
  • Medical Payments:  This portion covers medical bills paid out to someone injured by the work done by you or your company.  It is often capped for each person and for each incident; anything over this amount is the responsibility of the business. Employee injuries are not included in this section; instead they are covered by a separate Workers Compensation policy.

These policies will also list specific perils and damages that are covered by the policy. These vary slightly from company to company and policy to policy, but there are some general patterns for the things that are excluded or must be added on.

  • Fungi, Mold, & Rot Limit:  Policies generally include a set amount of coverage for damage to property due to any of these three things, but some can omit the coverage completely. This is something to be aware of in especially humid areas of the country and near the coast where water intrusion is more common.
  • Terrorism Coverage:  This coverage can be included or excluded by the insured in most states. It covers any damage done by a terroristic incident. Generally, this option is relatively inexpensive due to the low risk of occurrences, but can shave a small amount off your premium if you elect to reject this coverage.
  • Pollution:  Any damage done to the environment due to leaking containment systems is excluded from most policies. Specifically, chemical and biological contaminants being released is rarely covered, with the exception of the leak occurring due to a covered incident, like a fire. Professional Liability policies commonly offer this type of coverage and it can be purchased independently.
  • Faulty Installation:  This policy will cover damages caused while work is being done, but will generally exclude any damage caused by a mistake in the installation of a product.  If a client’s basement floods because you installed a seal incorrectly on their tub, then a basic General Liability policy may not cover the damage.
  • Any employee injuries, company vehicle damage, or unsound professional advice is excluded from a General Liability policy.  These are covered, instead, by separate Workers Compensation, Commercial Auto, and Professional Liability policies, respectively.  This removes duplicate coverage issues.

Each policy will be slightly different and will have unique limits and coverage sections. These are only a few of the different types of policy features that you may find, but these policies could also include: rental property coverage, specific fire damage limits, hired vehicles coverage, rust exclusions, and many other provisions. Reading through the policies can be a daunting task, but, chances are, your insurance agent would be more than happy to walk you through the coverage that your individual policy includes in more simple terms than the language used in your policy document.

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