A business cannot operate in a vacuum. The very nature of providing goods and services necessitates interacting with the outside world – and therein always lies risk. 

One of your customers may become injured by one of your employees or while they are visiting your property. Someone on your staff may accidentally damage someone else’s property. You may conduct a marketing campaign that unintentionally damages someone’s reputation, or provide a product or service which causes bodily harm or death. Any of these unfortunate circumstances could result in a lawsuit that is disastrous to your business if you do not possess commercial general liability insurance.

What Is Commercial General Liability Insurance?

Commercial general liability (CGL) is insurance that protects a business against financial loss in the event that its services, operations or employees cause bodily injury, personal injury, property damage or advertising injury. CGL policies are typically divided into three separate types of coverage: A, B and C.

Coverage A – bodily injury and property damage. Covers a business when it is held liable for a direct physical injury, illness or death, as well as physical damage to tangible property. 

Grimshaw v. Ford Motor Company is one of the best-known personal injury lawsuits. The defense was awarded $127.8 million after claiming the Pinto’s negligent design caused its gas tank to explode during a rear-end collision. Even a business’s normal operations can cause extensive property damage, such as when a semi-trailer truck veers off the road and collides with a house.

Coverage B – advertising and personal injury. Covers a business when it is held liable for stolen ideas, invasion of privacy, libel, slander or copyright infringement as the result of its advertising, as well as a physical, mental or emotional injury resulting from an accident. 

Taco Bell was the defendant in a notorious advertising lawsuit when two men accused the company of stealing their idea for a marketing campaign revolving around a talking chihuahua (“¡Yo quiero Taco Bell!”). The McDonald’s hot coffee lawsuit provided the most famous example of a personal injury claim; in essence, a woman sued the burger chain after claiming that its dangerously hot coffee scalded her lap.

Coverage C – medical payments coverage. Covers a business when it is held liable for medical or funeral expenses

Once again, even a business’s normal operations can pose a risk of bodily injury to its customers or the general public. For example, a man recently sued Costco after claiming the store’s security broke his leg while apprehending him. The plaintiff’s $670,000 claim was intended as compensation not just for the injury, but also the hospital bills he had to pay during his recovery.

As the aforementioned examples clearly illustrate, no company is so large that it is safe from liability claims. Indeed, a company’s great size may actually attract lawsuits. But even small business owners must purchase CGL policies if they wish to receive protection in the event that they are sued for an injury or property damage.

Extra CGL Considerations

A CGL policy doesn’t necessarily provide universal protection. Premises coverage only covers claims resulting from accidents which occurred at the policyholder’s physical location. Additional coverage may be necessary if the business’s operations extend beyond its location. For example, a contractor would require a CGL that covers injuries caused at job sites. Likewise, a restaurant may need liquor liability insurance in case one of its inebriated patrons causes a traffic collision.

A CGL policy offers two different types of coverage: occurrence and claims-made. An occurrence policy covers the business so long as the incident which caused a claim happened while the policy was still active. An occurrence policy can therefore cover a claim even after its term has expired. A claims-made policy is functionally opposite: The policy may have been active while the incident occurred, but will not cover any resultant claim which follows its cancellation or the expiration of its term.

A CGL policy is not all-encompassing. While it does cover unforeseeable accidents, it typically does not cover intentional or probable accidents. For example, a driver who smashes his employer’s truck into his ex-wife’s house will probably not be covered by CGL. Businesses which offer services that put their customers at greater risk (such as skydiving and rock climbing) can similarly expect their insurance providers not to cover injuries that were caused as the direct result of their normal operations unless they purchase additional coverage.

The coverage provided by a CGL policy is typically exclusive to the policyholder. If a business regularly hires other companies during the course of its work – such as a general contractor which hires subcontractors – then it may have to add those third-party businesses as “additional insured.”

There are nearly as many insurance policies as there are businesses. If you would like to ensure that your CGL is perfectly tailored to your business’s unique needs, then we welcome you to contact McKinneyOlson Insurance today. We have cared for local businesses throughout the greater Sioux Falls, SD area since our foundation in 1880, and our staff’s centuries of combined professional experience ensures that our clients receive the coverage they need to remain in business in an increasingly litigious world.