Commercial General Liability Insurance Coverage
However carefully you run your business, it’s likely you’ll face at least one lawsuit—if not more—during your years of operation. Even one lawsuit could be a serious threat to your business and its future operation. That’s where commercial general liability (CGL) insurance becomes a necessity for most businesses today.
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What is Commercial General Liability Insurance?
Commercial general liability (CGL) insurance is insurance that protects your business when it is held liable for injuries or losses to third parties. This can be related to incidents that occur on your business premises or elsewhere, involving a physical injury, damage to property, or some kind of reputational harm.
What Does CGL Cover?
Essentially, commercial general liability insurance pays when your business is sued by someone. Regardless whether the lawsuit goes to court, the policy pays court-awarded damages or the amount of an out-of-court settlement agreed to by both parties. It will also cover related legal fees.
Covered awards/settlements include those for injuries, property damage, reputational damage (slander etc.), copyright breaches and others. If an employee sues the business, that’s usually not covered if it’s related to a workplace injury. These settlements are handled in Ontario by the Workplace Safety and Insurance Board (WSIB). If you are in an industry that does not require WSIB coverage, you can purchase employer liability insurance for this purpose.
Note that a basic CGL policy would not automatically cover damage or injury caused by a product that your business sells. If you manufacture, distribute or sell products, you would need to ensure product liability coverage is included for these instances.
Protection Provided By Commercial General Liability Insurance
With a typical commercial general liability policy in place, your business is protected in four key areas:
- Property Damage and Bodily Injury Liability: This coverage offers protection if your employees or your products or anything else associated with your business causes damage or injury to a third party or their property. If you are found to be legally responsible, then you may have to pay compensatory damages, which financially allows the injured party to restore things to they way the were before the incident that caused the lawsuit.
- Liability for Personal Injuries: Although this does sound like a situation where someone is physically harmed (which is covered in #1), it actually refers to damage caused to a person’s reputation, or character. If your business is accused of verbally hurting someone’s reputation, which is called slander, or putting defamatory statements in print, which is called libel, then this coverage will protect you from such claims.
- Coverage for Medical Payments: If an accident happens at your business location or is due to your how your business is conducted, this area of CGL insurance covers some of medical costs of the injured person. Using this coverage to offer assistance with a claimant’s medical bills can help you avoid a full-blown, costly lawsuit.
- Legal Liability for Tenants: This coverage is applicable when you do not own your businesses’ premises, which is often the case for many companies who rent or lease their space. If any damage should occur to your office space like a fire or water damage if the sprinkler system is triggered, this coverage will compensate the property owner for damages. Loss or damage to your own property (product, computers, inventory, etc.) is not covered; for this, you need your own commercial property insurance.
Why get commercial general liability insurance?
Frankly, because everyone your business deals with will insist on it. If you rent space, it protects your landlord if you cause damage to their building; If you work at a client site, it protects them if your work causes damage or injury; If you say something negative about a client, supplier or partner, it pays for any reputational harm they might suffer.
Other Common Questions About CGL Insurance
You can protect your business from most lawsuits for as little as $500 a year. Depending on the size of the business and other factors, premiums could be substantially higher.
Every business needs CGL coverage. Your customers, your partners, your bank, will all insist on it. What if your business is sued for something it didn’t do? Who would pay the legal defense costs if you weren’t insured?
Calculating premiums for a CGL policy is a complex process. The big questions that your insurance representative will want to be answered are:
– What kind of business is it? Different businesses have different levels of risk for lawsuits. For example, most contracting businesses pay higher CGL premiums because they are working in people’s homes and at their places of business. On the other hand, a consultant who never sets foot on the client’s premises could pay less for CGL coverage. (Note: Consultants are more likely to get sued for professional liability, which is a different type of insurance related to giving bad advice.)
– How much revenue does your business bring in? Larger revenues are an indication of a business with more clients, more work, larger value relationships with clients, etc. In these cases, you are more likely to be sued, and for larger amounts, than a business with fewer or smaller interactions with its customers.
– How old is your office? For businesses with an office or shop where you meet with clients, an older building, or one that’s not well maintained, has a higher risk of someone getting hurt or other property damage happening.
– Where is your business located? Factors like crime rates and traffic volume can affect the risk of someone getting hurt at your place of business.
– How long have you been in business? A business that’s been around for 40 years is more likely to have safety measures in place that will reduce the risk of a lawsuit.
Have you made claims? For how much? How long ago? This one’s obvious, no?
The best way to describe how CGL coverage works is to provide a few examples:
Your flooring business gets a contract to install hardwood in a $3 million home. One of your junior employees accidentally puts a flooring nail through a pipe in the floor that is part of a radiant heating system (heated floor) in the basement. The job is completed, and because the nail is in the pipe, it remains sealed. Several months later, after the nail and the pipe have rusted, the pipe starts to leak, and nobody notices until there is an inch of water. The floor has to be replaced, as do the floorboards, part of the drywall, and some of the cabinets. The homeowner’s classic guitar, stored in the basement, is ruined, as are a number of other valuables. The homeowner sues your business for $173,000.
A customer visits your accounting business to discuss her tax return. While getting a glass of water, she slips on some spilled coffee, breaks her arm and her hip. She has to miss three months of work and suffers from chronic pain for years after the injury. She sues your business for $311,000 for rehabilitation costs, lost income, and pain & suffering.
In both of the above examples, your insurance company would pay to defend you in court and would pay whatever amount the court awards to the plaintiff, or a sum agreed to as an out-of-court settlement.
Commercial general liability (CGL) insurance covers a business when it is sued by a third party for a physical injury, damage to property, or reputational harm. It also covers legal fees for defending against such lawsuits. It doesn’t cover losses related to advice given by your business. For that you would need professional liability insurance, sometimes called malpractice insurance.
A typical GGL policy includes coverage for contractual liability. In other words, it covers your business if it is sued for breaching a contract that you enter into with another party. But this coverage does not apply to all contracts. Contracts that are covered are considered “insured contracts”. Blanket contractual liability coverage applies to any contract that is not specifically excluded.
The following are typically insured contracts:
- Lease of premises
- Sidetrack agreement
- Easement or license agreement
- Indemnifying a municipality (except for work for the municipality)
- Elevator maintenance agreement
No. Your business’ CGL policy will not cover you for liability arising from a motor vehicle accident. If your business owns vehicles or if your employees use their own vehicles for business purposes, each vehicle requires its own auto insurance policy (personal or commercial), and that coverage will include liability coverage.
No. CGL coverage is only for when another party sues your business. Theft would be covered under your business’ property insurance. If you’re concerned about employee theft or dishonesty, that is covered under something called crime insurance.
Yes. If someone representing your business is negligent, and that causes physical injury, property damage or reputational harm to a third party, that is covered under CGL. The exception is professional negligence, which is usually related to a professional giving advice to a third party. Professional negligence is only covered under professional liability or malpractice insurance.
Speak with a Commercial Insurance Expert
If you have any questions or concerns about your business insurance, call Mitchell & Whale Insurance Brokers today at 1-800-731-2228.