Business Liability Insurance

Posted September 26th, 2018 by Amy Danise

Business liability insurance covers lawsuits, out-of-court settlements and legal costs related to claims for bodily injury, property damage, libel, slander and false advertising. It's also called commercial general liability (CGL) insurance.

Business liability insurance is essential coverage for any business. Let's take a closer look at what it usually covers.

Bodily injury and property damage: If a business causes injury to someone or damages someone else's property. For example, if a customer slips in a store and is injured. This component may also include product liability coverage for damage resulting from use of your product. Check with your agent to confirm the extent of product liability insurance in your CGL policy.

If a business rents property and damages it, that's also generally covered. For example, if you rent a store and there's a fire, the damage falls under a CGL policy.

False advertising and advertising errors: For mistakes or copyright infringement in ads. For example, if you use a photo in an ad that you don't have a right to use.

Libel, slander and violation of privacy: If a business harms the reputation of someone else. (Also called personal injury; not to be confused with bodily injury.) For example, if a business posts a comment on an online article that falsely states a competitor's product will make customers sick.

Reputational harm claims are the most expensive among business liability claims, according to The Hartford. These claims average $50,000, based on The Hartford's analysis.

Legal costs: Attorney fees associated with defending the business. A court judgment or settlement is also covered, up to the limits of the liability policy.

Buying commercial general liability insurance

You can typically buy CGL as a stand-alone policy or as a package with other coverage in a business owners policy (BOP).

Business liability insurance can cost between $750 and $2,000 a year, according to the U.S. Small Business Administration. That amount can seem small compared to the cost of a potential lawsuit and legal fees.

The cost of business liability insurance can depend on:

  • Business location and size.
  • Risks for the business type.
  • Years of experience.
  • Past claims.
  • Amount of coverage being purchased.

Remember, a commercial liability insurance policy pays out only up to the coverage limits you choose. If a lawsuit ends up costing more than your coverage limit, you're responsible for the rest. You can increase coverage limits on your business liability insurance policy, or add an excess insurance or umbrella insurance policy. Both will give you extra liability insurance.

Occurrence limit vs. aggregate limit

A general liability business insurance policy may define two coverage limits:

  • Occurrence limit: The insurer will pay up to that amount for any single claim.
  • Aggregate limit: The insurer will pay up to this total amount (whether it's one claim or multiple claims) during the term of the policy -- typically one year.

What's not covered by commercial general liability insurance

In addition to knowing what a CGL policy covers, it's good to know what's not covered so you're not caught by surprise later.

Generally not covered by CGL: Instead buy:
Injuries to employees Workers compensation insurance
Car accidents with business vehicles Commercial auto insurance
Intentional acts, such as an employee who intentionally damages property There's typically no insurance for intentional acts
Mistakes in your professional work Errors and omissions insurance
Faulty workmanship, materials or products in construction (called the "workmanship exclusion") Contractors faulty workmanship insurance