General liability insurance, also called commercial general liability, is an important policy for your clients because it protects against one of their primary risks: third-party lawsuits. Accidents can and will happen, and the third-party lawsuits that follow can devastate a small business. A general liability policy protects their business assets in the event of a lawsuit, helping them cover the costs of investigating and defending against allegations that their business damaged another party.
What Is General Liability Insurance?
General liability is a standard insurance policy issued to businesses to protect them from liability claims in the case of a third-party lawsuit – that is, a lawsuit brought by someone other than an employee of your company. The lawsuits covered by General liability insurance primarily relate to physical injury and property damage, and protect the company as a whole as well as the individuals who represent it.
What Does General Liability Insurance Cover?
General liability policies can cover a broad range of events. If your client is sued by a third party for one of these covered events, the policy pays attorney fees, court costs and witness expenses. It may also cover settlements, judgments and any court-ordered compensation up to stated policy limits.
Here is a list of the events a GL policy typically covers. For the sake of illustration, we’re going to assume you’re working to insure a restaurant owner:
- Bodily Injury – General liability insurance covers medical expenses, loss of services, funeral expenses and court-ordered compensation when your client’s business is found to have injured a customer or another nonemployee. For example, a customer brings a suit against your client, claiming she slipped in water on his premises and broker her leg. If the court finds your client liable, a GL policy will pay the judgment.
- Property Damage – A GL policy will pay to repair or replace damaged property when your client’s business is found to be responsible for the damage. This coverage applies whether the damage is the result of the client’s actions, like spilling coffee on a customer’s laptop, or neglect like failing to maintain the restaurant’s equipment.
- Completed Products – In some cases, a customer may claim your client’s product or service caused physical harm or property damage. Completed products covers legal fees and any court-awarded damages if your client is found liable.
- Contract Liability – When a small business enters into certain contracts, like a building lease, they typically assume a degree of liability which may be protected in a GL policy. For example, if a restaurant owner leases space but decides to change locations before the lease is up, the building owner could sue. If the restaurant owner is found to have breached the contract, contract liability may cover the remaining months of the lease.
- Personal and Advertising Injury – Many general liability policies cover nonphysical damages as well. These damages can arise from copyright or brand infringement, unlawful eviction, libelous or slanderous material, malicious prosecution and privacy violations.
- Liquor Liability – While this insurance will not cover a business that manufactures or sells alcohol as its primary function, it may cover alcohol-related accidents when your client serves alcohol at a business event (like the holiday party).
- Bonus: Medical Expense Coverage – This differs from bodily injury coverage in that it provides compensation for small, immediate expenses when a non-employee is injured by your client’s business. The easiest example to illustrate this to your clients is paying the cost of an ambulance when a customer is injured. Insurance carriers that include this coverage in their general liability policies hope to minimize their future costs by providing care in the moment.
Who Needs General Liability Insurance?
As you probably know, general liability insurance is not required by law. But encouraging a small business owner to carry general liability is a good idea – especially since a lawsuit can wipe out their entire bank account. Your clients may also find that client contracts and professional licenses require an active general liability policy. Even when it isn’t required, general liability insurance improves your client’s credibility with their customers, something it never hurts to remind them.