As a business owner, you are responsible for the work you and your employees do for customers, as well as your customers' health and safety while they are at your workplace. As a result, your customers can initiate legal claims against you and your company if they are injured or their property is damaged in the course of doing business. Under these circumstances, general liability insurance can help protect you against the financial costs of legal claims brought against your business.
What is general liability insurance?
General liability insurance (also known as commercial general liability insurance) provides coverage against claims that may arise when a third party is injured on your premises (e.g., a customer trips on the carpet in your store and hurts their arm) or an employee accidentally damages the customer's property (e.g., an employee breaks a wall while installing equipment at a customer's home). General liability insurance does not protect against claims that relate to professional or business practices. [Need general liability insurance? Check out the providers we recommend for small businesses.]
Who needs general liability insurance?
Business owners who sell products or provide services to customers need general liability insurance. A significant number of small businesses will face property or general liability claims for unexpected incidents and accidents. General liability insurance can protect a business against the costs associated with property or general liability claims.
Here are some types of businesses that need general liability insurance:
- Sole proprietors (e.g., contractors, electricians, painters)
- Small businesses (e.g., beauty shops, photography studios)
- Large companies (e.g., marketing firms, IT firms)
Businesses that engage in the following activities or business situations also face the possibility of legal claims, thus necessitating general liability insurance:
- Meeting with clients in person
- Working on or with a customer's property
- Representing a client either directly or through employees
- Conducting business activities at third-party locations
- Advertising the business
- Signing a contract with another business
Importantly, most states do not legally require a business to maintain general liability insurance. However, each state has its own insurance laws, which can affect what a business would require in its general liability insurance policy to ensure adequate coverage of costs related to legal claims. [Find out more about the types of business insurance you need in our Business Insurance Guide.]
What does general liability insurance cover?
General liability insurance provides coverage for the costs of dealing with claims that your business caused, including the following:
- Third-party bodily injury (e.g., a customer falls and becomes injured in front of your store)
- Third-party property damage (e.g., your employee damages the floor when installing some type of equipment at a customer's residence)
- Reputational harm (e.g., libel, slander)
- Advertising injury (e.g., copyright infringement, false claims)
- Damage to rental property (e.g., due to fire, flood, explosion and other causes)
Reputational harm
Your business can be sued by a competitor if you or an employee makes up unfounded claims about them. These claims could result in a loss of customers, revenue and trust for that competitor. General liability insurance can cover the legal costs involved in defending your business against these claims. Reputational harm can occur through the following means:
- Libel (i.e., defaming someone in print, on the radio, on TV or over the internet)
- Slander (i.e., defaming someone through oral statements or gestures)
- Defamation of the competitor's products or services
- Violation of the competitor's privacy
Advertising injury
A third party can sue your business based on perceived or actual offenses that arise in advertising your company, products or services. General liability insurance provides coverage of the legal costs associated with defending these claims. Advertising injury can occur through the following means:
- Theft of a competitor's ideas
- Copyright infringement
- False advertising claims about a competitor
Covered costs
General liability insurance helps to cover the following costs that result from claims against your business:
- Medical expenses of a customer who slipped and fell on the premises of your business
- Repair costs if your employee accidentally damaged something while working at a customer's home
- Legal costs that arise from participating in court
- Lawsuit judgments and settlements
Exclusions
General liability insurance does not cover the following:
- Damage to your business property (these types of claims are covered by commercial property insurance)
- Mistakes made in your business's professional services (these types of claims are covered by professional liability insurance)
- Work-related injuries or illnesses (these types of claims are covered by a workers' compensation insurance policy)
How much does general liability insurance cost?
Several factors affect the cost of general liability insurance:
- Location: Insurance providers price general liability insurance based on where the business is located within a city or state.
- Type of business: Some types of businesses (e.g., construction companies) face higher risks and thus have a greater risk of incurring more lawsuits than other industries. That, in turn, results in higher general liability insurance premiums.
- Business size/number of employees and clients: Businesses with more employees and clients typically require more general liability insurance coverage than single-person businesses.
- Experience/years in business: More experienced business owners may pay less for insurance than a relative newcomer, as they will have built up trust with their insurance provider and clients.
- Claim history: Businesses with a history of claims have a higher risk of potential lawsuits in the eyes of insurance providers, which increases the costs of the general liability policies.
- Policy details: Coverage limits, deductibles and other details within the general liability insurance policy affect the cost of premiums.
When you get quotes for general liability insurance, provide the insurance company with at least one of the following types of business documentation:
- Copies of contracts with current clients
- Documentation procedures
- Information on previous general liability insurance coverage
Types of liability insurance
Depending on your industry and professional situation, you may need more specialized liability insurance. Here are some other types of liability insurance:
Professional liability insurance
Professional liability insurance (also known as professional indemnity insurance) provides businesses with coverage against clients' legal claims of negligence, malpractice and misrepresentation. The insurance coverage pays your legal fees, judgments against you, settlements, compensatory damages, punitive damages, and economic or business damages that result from the lawsuit.
Professional liability insurance covers clients' claims of wrongdoing made during the policy period. Policies are usually arranged on a claims-made basis, wherein insurance coverage applies only for claims that are made during the policy period. A typical professional liability policy protects the insured against financial loss that arises from a claim made during the policy period for a covered error, omission or negligent act that takes place in the conduct of the insured's professional business.
Commercial umbrella insurance
Commercial umbrella insurance provides additional coverage on top of what is already covered by existing liability policies. It helps the insured pay for legal claims that exceed their current policy limits so that they do not have to pay any costs out of pocket. Commercial umbrella insurance typically covers the following expenses:
- Legal fees
- Judgments and settlements
- Medical costs
Commercial automobile insurance
Commercial automobile insurance provides coverage if you or your employees are involved in an auto accident while doing business and are found to be at fault. This type of insurance covers the costs of repairing or replacing damaged property, as well as medical expenses. Commercial auto insurance is ideal for businesses that meet any of these criteria:
- Own, lease or rent vehicles
- Have employees who use their own vehicles for their job
- Have employees who operate owned, leased or rented company vehicles
Management liability insurance
Management liability insurance protects a business's directors and officers against legal claims. This type of insurance can usually be added to a business owner's policy.
Employment practices liability insurance
Employment practices liability insurance covers the legal defense costs and settlements or judgments that can arise if a past or current employee sues you for wrongful employment practices. Here are some examples of employment-related claims:
- Discrimination
- Harassment
- Retaliation
- Wrongful termination
- Wrongful discipline
- Wrongful failure to promote
Cyber liability insurance
Cybersecurity (or cyber liability) insurance covers your business against the legal costs and damages related to cybercrime and cybersecurity issues. The insurance covers the following expenses:
- Incident response costs
- Legal, forensic and breach management costs
- System damage and restoration fees
- System business interruption
How do you get proof of general liability insurance?
You might be required to show proof of general liability insurance when working with another business. In these instances, you typically need to show a certificate of insurance (COI). A COI is a document that contains a quick overview of the key details found within an insurance policy. It also acts as verification of insurance and proof of specific insurance coverage.
A COI should include the following information:
- The name of the policyholder
- The effective date of the policy
- The type of coverage involved
- The policy's limits
Requesting a certificate of insurance
To request a COI, contact your insurance company or broker and provide them with the following information:
- Contact information
- Policy number
- The certificate holder's name
- The certificate holder's contact information
- The information of other individuals or companies to be listed on the certificate
- A copy of the insurance requirements or contract