General Liability Insurance Overview
A hypothetical story about general liability insurance:
An entrepreneur working in the construction industry for a decade moves on his own and opens a general contracting business. He is in New York City, construction is booming and he lands a project to build a 3 story brick, 6 apartment building in Brooklyn. Structure goes up, the mason is putting up the brick, the electricians are running cable, the plumbers are piping and installing the boiler. Landlord is paying on time and nothing could be better.
One day, shifts end, workers go home but they forget to lock the fencing around the property. That night, 3 boys who live around the corner are out playing around and pull the door handle for giggles. They see it isn’t unlocked and decide to enter the job site to see whats there. While not being able to see too well, one of them trips over some tools on the floor and breaks his leg. Ambulance comes and takes the boy, landlord is notified and 2 months later the General Contractor is being sued by the boys parents. The cost of the defending the business in court along with the possible payout of injury to the boy can wipe out the business owner completely. However, he had a general liability insurance policy in place for just such an event.
The insurance company steps in, represents the General Contractor in court and settles with the boys parents and the project comes to completion without another incident. The landlord is satisfied and uses the same General Liability for a 2nd project the following year.
What is General Liability Insurance?
General liability insurance applies to all businesses – at least every one we can think of. Whether it’s an office, restaurant, warehouse or whether you are a contractor or any business providing a service, you need general liability insurance. As a starting point, it provides liability coverage, which is the insurance basis for all businesses and across all industries. The liability section is meant to provide protection to 3rd parties who use your products and services. General Liability Insurance as a whole is a starting point to the overall risk management of a business, its assets, and its interests. It spans all industries and business sizes, whether it’s a tiny, one-person marketing agency, or a Fortune 500 company, and everything in between.
By definition, General Liability insurance is all encompassing. It can cover anything and everything that can happen or occur to a business. As you can imagine, that can be very expensive due to the vast number of circumstances possible. In fact, it would be so expensive that it would become cost prohibitive.
Because of the cost, you would not want to, and likely could not afford, to cover “everything that could possibly happen ever”. The vast number of circumstances that could occur are too great. Like losing your raw materials to an apartment flood. Or losing a truck to a sinkhole. Or someone getting into a fight at your restaurant and breaking thousands of dollars of furnishings.
Every Business is Different
Every insurance company takes out scenarios and coverage possibilities to lower the price. For example, if you own a coffee shop, but you’re not going to serve alcohol, you won’t need liquor liability coverage. If you own a construction company, you might not need assault-and-battery coverage (which is primarily for bars and taverns, amongst others).
By comparison general liability insurance for a contractor will look different from a general liability policy for a restaurant. A restaurant will probably need to include the property section of a General Liability Insurance policy. A restaurant has belongings, tables, chairs, machinery etc..versus a contractor who might need to cover his tools and equipment. Every business needs a comprehensive General Liability Insurance policy, but each policy will look very different from industry to industry, and even within the same industry.
That is because insurance can be complicated, which is why you cannot just assume or generalize a basic cost. There are many variables to consider, all of which will affect your coverage and cost. Therefore, you want to work with a professional full-time insurance agent to help you figure out what kind of coverage you will need. This is one of the most customized policies we do, so it’s important to work with someone who knows what they’re doing. Working with someone that understands insurance is important. But having an insurance agent that understands your business and your industry is equally, if not more, important.
The main difference between one insurance company – and policy – and the next is how many coverages are excluded. Typically, the more exclusions, the lower the price. The problem is, an insurance company who is solely focused on price may take out a coverage option which is very important to your specific business. They’ll work to give you the lowest price and sell you a policy that is lacking and possibly damaging to the future of your business.
Each insurance company and policy has it’s benefits and drawbacks and they are typically geared towards a specific niche within your industry. Our underwriters have access to almost all available markets and insurance companies, Once we know specifically what makes your business different and unique from the rest, we can present you with the best option available to properly protect the business and still be financially competitive.
Price is always important, but the risks associated with a business’ operations are just as important. Understanding what is most likely to happen and making sure that instance is covered is an important first step to covering the business.
What does General Liability Cover?
Even though there are different variables to consider, general liability insurance usually includes several different areas of coverage.
1) Each Occurrence Limit: Refers to the maximum amount the insurance will pay per occurrence during the policy year. It is usually set a $1 million.
2) Aggregate Limit: Usually for $2 million. This is the total amount the insurance company will pay for all occurrences combined. If you have two claims of each occurrence of $1 million, that is $2 million. However, you can have four claims for $500,000 per year as well.
3) Products-Completed Operations: Covers your product or completed operation. Usually set at $1 million, it will cover the products you sell against injury to the customer who bought it. Or if you have a service company, it will cover your completed operation (e.g., contractor, remodeling, etc.)
4) Personal Advertising Injury: Also typically $1 million in coverage. It combines a standard commercial general liability policy with personal injury protection. That combination provides coverage for several different scenarios while advertising the business’ goods or services including libel, slander, invasion of privacy, copyright infringement, and misappropriation of advertising.
Some Examples of What General Liability Typically Does Not Cover
Remember, general liability insurance can cover a lot. But there are a few things that businesses either need or do not need, and there are other areas that insurance companies will automatically exclude, and in some instances can be bought back if available.
These exceptions are usually broken out into other insurance products. The main exclusions are:
- Workers Compensation
- Cyber Liability
- Employment Practices Liability (EPLI)
- Liquor Liability
- Errors & Omissions (E&O)
- and others
For example, workers compensation is one type of insurance that is not included in general liability. That’s because not every business has an employee, whether W2 or 1099. Moreover, if they do have employees, they definitely do not all do the same type of work.
A medical practice or law firm would need Cyber Liability because of privacy issues. The same holds true for any retail operation, ecommerce business, and any business that stores customer information in computer databases. Even a restaurant needs cyber liability to cover the possibility of credit card and identity theft. However, a general contractor exclusively paid by check probably does not. Therefore, because each of these businesses needs a different level of cyber liability, it’s typically excluded from general liability.
Similarly, we exclude auto insurance, earthquake insurance, flood insurance, and even employment practices liability insurance (EPLI) which can cover allegations of discrimination or a toxic work environment amongst other things).
Even certain industries will have insurance requirements that are unique to them. For example, restaurants and bars may need a specific kind of insurance that other businesses might not. These can include Assault & Battery, and Liquor Liability.
Assault & Battery: This covers suits that can come about because of the physical harm caused to someone while on your premises. One thing we tell our bar-owning clients is that unless you really know the security aspect of your industry, hire an outside service for your bouncers. This separates you from possible liability and puts the responsibility directly on the security company. The proper way for trained bouncers to operate is to limit touching and escort unruly patrons out of the bar, not headlocks and left hooks. Why would you lose your multi-million dollar business over some overly aggressive bouncer who decided to get into a fight with a patron?
Instead, collect a certificate of insurance from the security company and send it to your DurAmerica underwriter. We will suggest and help you collect a proper certificate of insurance to make sure that they carry a proper General Liability Insurance Policy with Assault & Battery coverage. We will then suggest that you have them name your business and others depending on your lease of the space with additional insured status.
Liquor Liability: This covers nearly all liability involving liquor, such as two patrons getting into a fight because they drank too much or if someone was involved in an auto accident after leaving the premises. It can make recommendations such as proper record keeping for bartenders who are supposed to keep track of how many drinks they are serving an intoxicated patron, whether they tried to take the patron’s keys, tried to call their friends or a cab. This is something bartenders are supposed to do when they get a license, but some do not. That puts the responsibility and liability on the bar owner, and many bar owners have lost their liquor license over a bartender’s failure to keep a proper record.
General Liability Insurance is Customized to Your Business
All in all, there are dozens of exceptions and exclusions in a general liability insurance policy. As you look around at the various pages on our website, you will see different insurance products available for different businesses and industries. A discussion with your underwriter about your business can give you insight about the risks associated with your business and then provide options available to you as you think about what direction you would like your business to move towards.
Are There Limitations to the Scope of General Liability Insurance?
Another hypothetical story:
A remodeling contractor has an insurance policy that covers him for interior remodeling of residential and commercial properties. It has broad classifications listed including, interior carpentry, drywall, painting & tiling.
One day, a customer asks one of the workers to help with another project. They need a small hole dug behind their building, it’s for a small landscaping project that they want to do. The employee rightfully says that they are not able to do this, but after reconsidering because this is a high-value customer and they said it would only take a few minutes.
The new guy agrees to help out and he digs a hole for the customer, and inadvertently cuts a power line. The line powers a nearby restaurant, and the resulting power outage knocks out power to their walk-in freezer and refrigerator. In just a few short hours while the line is being repaired, thousands of dollars of food is spoiled.
Normally, something like this would be covered under general liability insurance, but the work that was done was outside the classification of the contractor’s work and outside their existing contract. This was not an interior remodeling project; this was just a favor to help the customer with a landscaping project. As a result, the contractor’s general liability insurance will not cover the food loss. The contractor is forced to repay the money from their savings.
What is a Classification Limitation?
This is what’s called a classification limitation. That means when you have a services industry business, your coverage is limited to what you specifically do. Not only does this keep dentists from practicing law, or doctors from doing your taxes, but also it can even be as specific as preventing plumbers from climbing roofs to fix roof leaks.
This means if you say your plumbing business only works on piping, you can’t do anything else, including working on boilers. If you are a general contractor, you can, in theory, do anything and everything, but that’s quite expensive and still has limitations. This is why sub-contractors specialize and fill only a specific niche or area, they are covered only for that function in that particular setting.
This story is not meant to frighten you, but to serve as a reminder about how important general liability insurance is for all business owners. We hope to make you understand how important it is that you work with a professional insurance agency. We take the time to sit down with you, listen to you, and learn about your business. We can then advise you on the types of insurance you will most likely need.
We also tell this story to stress how important classification limitations are, and why these limitations exist. They are there to protect you, the business owner, as much as your clients and customers.
The Big Takeaway
A Risk Assessment requires a lot of thought and planning, because it can be hazy, and get murky fast if you don’t know what you’re doing. You really do need a professional to handle this, because they know what kinds of questions to ask.
What type of business do you have? What populations and audiences do you serve? Are there any special circumstances or exceptions to your work, like a bar that serves brunch on Sundays, or a coffee shop that sells wine in the evenings? What is the structure of the company, and who are the owners? Who signed the lease on your space? Who holds the interest in the property? How and where was the corporation filed? Who has financial interest? What assets do they own?
We’ve shared a couple of stories about the need for general liability insurance, but the chances of them occurring may seem unusual or rare. Many people think, “Oh, this could never happen to me.” And you may be right. These are rare cases and events but the odds of them happening are not so small.
We have heard enough stories from customers to make it clear that this is not as rare as the rest of the world would like to think. We invite you to sit down with one of our insurance underwriters who specialize in business insurance, to make sure you know what you’re getting, and that you get the right coverage.
If you would like to learn more about general liability insurance, or if you have any questions about this kind of insurance for your company, you can contact us here or fill out this form and we will have an underwriter reach out to you.