General Liability 101

Understanding General Liability Insurance

As a Risk Advisor, I find that many of my commercial clients do not understand what general liability insurance is, what it covers, and why insurance agents ask seemingly unrelated questions when reviewing their insurance programs.

Hopefully, this article will help answer those questions as well as provide a useable definition of general liability insurance.

Also included within this article:

Occurrence-based and claims-made forms
Common GL policy endorsements
Factors that determine your GL policy premium

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Types of General Liability Coverage

General liability coverage is written on either an occurrence or claims-made form. For both forms of liability coverage, there are two differentiations that define the limits of coverage.

When an incident occurs?
When the claim is filed for the incident?

Occurrence-Based Policies

Occurrence-based policy form types are defined as coverage for a set period of time (usually a year). Any incident that occurs during the policy is covered – regardless of the timeframe.

For example, a plumber installs some pipes in a house for a customer in 2020. In 2022 it is discovered that the plumber performed faulty work because of water damage that was found.

Remember the questions “When did the incident occurred?” and “When was the claim was filed for the incident?” – that is what matters.

The plumber’s policy written on an occurrence-based form would cover the damage regardless of when the claim was filed. It could be filed 10 years after the work was completed and the insurance company would be obligated to provide coverage.

Occurrence-Base Policy Takeaways:

Coverage depends on the timing of the event.
Policies written on an occurrence-based form provide much more extensive coverage and protection to the insured.
They are generally more expensive than claims-made form policies.

Claims-Made Policies

Claims-made policy form type provides coverage only for incidents and claims that occur during the policy period if the policy is still active. In this type of policy, coverage depends on the timing of the claim.

From the example earlier, for the plumber to be covered under a claims-made form policy, he must have maintained that same policy at the time the incident occurred and when the claim was filed.

If the plumber transitioned to a new policy, and the original policy is no longer active he would not be covered.

For this reason, it is important to check on getting tail coverage from the insurer for the claims made policy.

Claim-Base Policy Takeaways:

Coverage depends on the timing of the claim.
Often have a retroactive date that will go back to a specific date (usually the date of the creation of the policy).
It is important to maintain the same retroactive date as you move from one policy to another as it could lead to significant exposure to paying for a claim out of pocket.

Important Reminder

When transitioning from an occurrence-based form to a claims-made form there are possible exposures. Be sure to discuss “discontinued operations” and “prior acts” coverage with your agent.

When changing from a claims-made form to an occurrence-based form there are possible exposures. Consider tail coverage/endorsement.

Factors that Determine GL Premiums

Several factors influence the cost of general liability insurance. Broadly there are three areas that insurance carriers use when determining the premium of a business’s risk including:

The class or type of business. i.e., Roofing contractors are looked at differently than landscaping companies because the risks are different.
The rating basis for that business. The rating basis can be gross sales, payroll, square-footage of building, the total number of employees doing the work.
The claims history (loss history). The lower the loss history the lower the premium. Many carriers evaluate claim history on a case-by-case basis.

Common Endorsements Found on GL Policies

The below are often listed under general liability policies as a sub-limit or endorsement.

Fire Legal Liability Coverage

Many of our clients confuse this coverage as being coverage for the property in case of a fire or other physical damage to the property that is rented or owned by the insured. This is incorrect.

Fire legal liability coverage covers the insured if:

They rent property from a landlord and through negligence cause a fire that damages the building.
There is a caveat! If the insured is leasing property for commercial use then depending on how the lease agreement is written the insured could be held is responsible for any damage to the building.

For this reason, it is important to provide a copy of your lease agreement to your insurance agent. It can be reviewed by the insurance underwriter and be considered when underwriting the policy. Often the policy can be modified to provide coverage for the liability accepted by the leasing agreement.

Medical Expense Coverage

This coverage provides the insured protection for a 3rd party that is injured on their property regardless of whether the insured is liable or not. It is usually a lower limit of approximately $5k. This coverage pays for the medical expenses related to the accident of funeral expenses.

Note that medical expense coverage is only available in states that do not have personal injury protection (PIP).

Personal and Advertising Injury Liability

This coverage provides the insured coverage for libel, slander, invasion of privacy, copyright infringement, as well as personal injury other than bodily injury (BI), including false arrest, detention, wrongful eviction, invasion of privacy, etc. Personal and advertising injury liability coverage also provides funding for the legal fees, settlement or judgment costs, and other court costs associated. There is a lot of nuance in this coverage.

There are many other coverages that can be considered part of a general liability policy and can be written as an endorsement to a policy with a sub-limit or be a stand-alone policy based on the unique needs of the business.

For brevity’s sake here are a few mentions:

Employment Practices Liability Insurance (EPLI)
Employer’s Liability Insurance (EL)
Pollution Liability
Professional Liability
Cyber Liability
Error and Omission liability
Completed Operations/Project Liability

In summary, a general liability policy provides broad coverage for a business and protects them from personal and advertising liability, fire legal liability, medical expenses, and a host of other endorsements as well as exclusions.

The Importance of Speaking with an Agent

It is important for any business owner to take the time to discuss with their insurance agent the uniqueness of their business. No two businesses are alike and therefore there are no two insurance policies that are the same.

For an insurance agency to provide an accurate analysis of a business insurance programs, they need access to the policies and understand the business in order to relay this information to the insurance underwriters who will be writing the policy.

If you need help assessing your business risks, need more information, or would like help getting coverage give us a call at 615-356-3212 or complete an insurance quote form here.