What Is Commercial General Liability Insurance?
Running a business can be risky. Business owners, contractors, and skilled tradespersons all face various risks that could land them in a messy lawsuit. If you are liable for property damage, personal and advertising injury caused by your services, or if your business’s operations or one of your employees causes physical injury or property damage to one of your clients, you need coverage to help stem the financial losses.
That’s where a commercial general liability (CGL) insurance policy can help protect you if you are sued. It covers non-professional negligent acts which may arise from common, day-to-day business operations. It is often used to cover claims against your business for injury or property damage, and it may also include coverage for your legal defence. For example, if a customer trips, falls, and is injured at your place of business, or an employee accidentally damages the property at a client's site and you are sued.
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What Does Commercial General Liability Insurance Cover?
There are four types of coverage included in a standard CGL policy:
- Bodily Injury and Property Damage Liability. If your company, product, services, employees or anything else associated with your company causes physical injury to someone like a client, vendor, or delivery person, or if their property or belongings are damaged, you could be held legally responsible and may be required to pay up. Bodily injury and property damage liability coverage will help you pay for those costs.
- Personal Injury Liability. The term 'personal injury liability' is confusing. While most people associate 'personal injury' with physical injury, this is not the case with a CGL policy. This type of coverage protects you for damages to a person's character, reputation, and position in the community if you are accused of libel (in print), slander (verbal defamation), or copyright infringement.
- Medical Payments. This part of a CGL policy provides coverage to pay someone's minor medical expenses from an accident that happens at your company's premises or as a result of your company's operations – even though you may never be held legally liable for the accident. It’s often used as a way to avoid a costly lawsuit.
- Tenants’ Legal Liability. This coverage applies if you don't own the space where your business is and rent or lease office, shop, or retail space. If you are held legally responsible for causing a fire, an explosion, smoke damage, or other damage caused by fire protection (like sprinklers going off), this coverage will pay the compensatory damages. It applies only to damages of the rented premises and not the property that you may own.
What Is Not Covered by a Commercial General Liability Policy?
Every business insurance policy for CGL coverage has risks, events, or "occurrences" that are not covered. That's not to say that coverage is not available. However, the following are highly specialized "risks" that require more than a standard CGL policy:
- Professional liability (often referred to as Errors and Omissions insurance)
- The misuse, destruction, or distribution of data
- Injury or property damage resulting from pollution caused by your company's operations, activities, employees or product
- Injury or property damage resulting from the use of nuclear material
- Injury or property damage resulting from war
- Acts of terrorism
- Injury or property damage resulting from fungi
- Injury or property damage resulting from asbestos
There are additional liability coverages you can get to safeguard against other possible risks, including:
- Directors and Officers Liability. This coverage protects your business from the words and actions of past, present, and future business leaders or executives in the event of any actual or alleged error, misstatement, omission, misleading statement or breach of duty.
- Liquor Liability. If you run a restaurant, café, or bar and sell alcohol, liquor liability will cover you in the event one of your customers becomes intoxicated and injures themselves or others. If you sell alcohol and don’t add this coverage to your CGL, or purchase it as a standalone policy, you are taking an enormous risk.
- Pollution Liability. An important add-on to a CGL policy for industrial, commercial, and agricultural property owners or companies. Pollution liability coverage protects against gradual, sudden, and accidental first-party and third-party environmental liabilities, as well as pollution-related risks that may lead to bodily injury, property damage, and clean-up costs.
- Commercial Auto Insurance. If your business has vehicles that you or your employees use, you will need a commercial auto insurance policy to cover injuries or damages that arise from their use. A commercial vehicle is any motor vehicle used primarily to transport materials, goods, tools or equipment that relates to your business. It also includes coverage for trailers that are intended for use with commercial vehicles.
- Cybersecurity and Data Breach Coverage. If your business is hacked or suffers a data breach, this type of coverage can help mitigate any losses you incur, as well as recover your lost data. A Leger poll commissioned by the Insurance Bureau of Canada in 2019 found one in five (18%) Canadian small and medium-sized businesses were affected by a cyberattack in the last two years. Of companies hit by a data breach, 37% estimate the cost to them was more than $100,000.
Why You Need a Commercial General Liability Insurance Policy
Whether your company is a startup or a small business you’re operating out of your home, don’t make the mistake of thinking you don’t need a CGL policy. You do. Businesses of all sizes need to protect themselves from liability risks. In the case of startups and small businesses, the risks are magnified if you’re found liable in court for damages since you’d be left holding the bag to pay for any losses to a third party plus legal expenses.
Moreover, if your business wishes to participate in tradeshows or festivals, you may need to provide proof that you have commercial general liability insurance coverage. Likewise, skilled tradespeople or contractors may need to give the same before you can work at a client’s property.
A standard CGL policy is not expensive. It’s certainly cheaper than having to foot the bill to pay for damages resulting from a lawsuit.