As a small business owner, you spend considerable time figuring out what expenses are essential for your company’s well-being, including different types of insurance policies.
General liability insurance in particular is crucial to consider obtaining. This type of insurance covers your assets and pays for potential damages if anyone were to file a claim against you.
What general liability insurance is
A general liability policy provides your business the necessary protection if you, your employees, your business operations or your products or services cause, or are alleged to have caused, unintentional bodily injury or property damage to your customers or a third party.
For example, during the course of doing business:
- a customer may get injured on your business premises; for instance, by slipping on ice in your company’s parking lot.
- an employee may accidentally damage a customer’s property; for instance, by mistakenly breaking a wall while installing equipment at the client’s home.
In both cases, your customers could initiate legal claims against you and your company. If settled in favor of the plaintiff, this could drain your finances or even wipe out the assets of your small business. Having general liability insurance can help safeguard you from such financial risks.
Who needs general liability insurance?
Ideally, every business, even a home-based one, needs to have liability insurance. In particular, any business that sells products or provides services to customers should opt for a general liability policy, owing to their vulnerability to liability claims for unexpected mishaps.
Examples of business types that should carry general liability insurance:
- Sole proprietors such as contractors, plumbers, electricians, artists and painters.
- Small businesses such as beauty salons, local auto repair shops, bakeries and fitness studios.
- Large corporations such as IT firms, automobile manufacturers and retail chains.
Additionally, businesses that engage in the following activities face increased risk of legal claims necessitating general liability insurance: working on or with a customer’s property; conducting business activities at third-party locations; promoting and advertising the business; meeting clients in person; entering into a contract with another business.
What it covers
A standard general liability insurance policy provides coverage for the costs of dealing with claims relating to the following when associated with your business.
Third-party bodily injury and property damage
This coverage confers protection from legal liability for bodily injury or property damage to third parties arising from nonprofessional negligent acts or for any liability arising from your business premises or business operations. Bodily injury in this context is not limited to physical bodily harm. It may also include mental injuries or emotional distress.
Reputational harm
Your business can be sued by a competitor for defamation if you or an employee make an unsubstantiated claim about them. As such claims could result in a loss of customers as well as financial and social capital for that competitor, corresponding legal battles can get ugly and prove to be extremely costly for your business.
However, if you have general liability insurance, your policy will cover the legal costs involved in defending your business against these claims. Reputational harm claims may stem from alleged libel, slander, defamatory comments or violations of a competitor’s privacy.
Advertising injury
You may be sued by a third party for alleged offenses that arise from your company’s advertisements or products and services. Legal costs for defending against these claims are also covered by your general liability insurance policy.
Claims of advertising injury may include alleged theft of a competitor’s ideas, copyright infringement, and false or misleading advertising.
Covered costs
General liability insurance helps cover the following costs that may result from claims brought by third parties against your business:
- Medical expenses of injuries sustained by a nonemployee or customer caused by an accident that takes place on your business premises or when exposed to your business operations.
- Repair costs for any accidental damage caused by your employee while working at a customer’s home.
- Litigation costs.
- Lawsuit judgments and settlements.
What are the exclusions?
Be aware that your standard general liability insurance will not cover the following:
1. Any damage to your business property or company vehicles.(Such claims are typically covered by commercial property insurance and business vehicle insurance.)
2. Any professional errors and omissions in performing business services. (Such claims would be covered under professional liability insurance.)
3. Any work-related injuries or illnesses.
(Such claims would be covered by workers’ compensation insurance).
4. Coverage for circumstances such as employment disputes, business interruption caused by employee injury/sickness or natural disaster or government-declared disaster and cyberattacks.
