General Liability Insurance: Coverage, Exclusions and Cost Factors

TDI divides CGL protection into two hazards. Premises and operations coverage pays for bodily injury or property damage that occurs on your premises or results from your business operations. Products and completed operations coverage pays for bodily injury and property damage that happens away from your premises and is caused by your products or completed work. TDI CGL guide.

The NAIC lists four categories of events a CGL policy covers: bodily injury, damage to others' property, personal injury including slander and libel, and false or misleading advertising. It adds that CGL pays the injured party's medical expenses. NAIC small-business insurance guide.

The SBA describes general liability as protecting against financial loss from bodily injury, property damage, medical expenses, libel, slander, defending lawsuits, and settlement bonds or judgments. How defense costs interact with your limits is a separate question, covered in the limits section below. SBA business insurance types.

The California Department of Insurance (CDI) describes the CGL insuring agreement as comprehensive: it covers hazards within its scope that are not otherwise excluded, and extends to new locations and activities that begin during the policy term. That breadth is why CDI calls reading the exclusions "particularly critical in a liability policy." CDI commercial insurance guide.

Start with the requirements that apply to you, then decide which other risks you want insured.

Licensing rules. Some licensing boards make liability insurance a condition of the license. California's Contractors State License Board requires a licensed LLC to carry liability insurance with a cumulative limit of at least $1 million when five or fewer people are listed as personnel of record, plus $100,000 for each additional person, up to $5 million in total. CSLB requirements for LLC licenses.

In Washington, a contractor registering or reregistering must furnish insurance, or an assigned account, of $50,000 for injury or damage to property, $100,000 for injury or damage including death to any one person, and $200,000 for more than one person. RCW 18.27.050. These two rules apply to specific license types in two states. Ask the licensing agency for your trade in each state where you work.

Contracts and leases. Construction and service contracts can set their own insurance requirements, separate from any law. Get the written requirement before you shop, because a certificate of insurance will not repeat it for you: in Texas, a certificate may not refer to a requirement in any contract other than the insurance policy, including a construction or services contract. Texas Insurance Code section 1811.154. The COI and contract insurance checklist organizes the requested coverages, limits, endorsements and deadlines.

Risks you choose to insure. The NAIC's example is simple: if someone falls while visiting your business, or a customer is hurt by a product you sell, you can be held responsible. The SBA's general rule is to insure against things you "wouldn't be able to pay for on your own." NAIC small-business guide; SBA business insurance guide.

Every CGL policy has exclusions, and TDI cautions that coverage varies by insurer and includes exclusions beyond its examples. CDI's list of major CGL exclusions includes intentional injury, liquor liability, pollution, automobiles, aircraft, watercraft, mobile equipment, war, care, custody and control (property in your keeping), damage to your work, impaired property, and failure to perform. TDI CGL guide; CDI commercial insurance guide.

The NAIC's exclusions for vehicles, employees, employment practices and professional errors appear in its small-business insurance guide. TDI's examples, including the two contractual-liability exceptions, are in its CGL exclusions section. The exceptions cover liability you would have had without the contract, and liability under a contract the policy defines as an "insured contract," if the injury or damage occurs after that contract is signed.

TDI's example of the "your work" exclusion: A homebuilder's completed garage roof collapses because of faulty construction and damages the homeowner's car. TDI says the policy may pay for the car but may not pay to repair the roof, because the roof is the builder's work. If subcontractors built the roof, the policy may pay for both. TDI CGL guide.

Adding a product line? Our product launch insurance questions show how to describe a new product for an insurance review and ask about injury claims separately from replacement and recall costs.

The policy form decides which claims a policy year answers. TDI explains the two forms this way. TDI claims-made versus occurrence.

• Occurrence: covers claims arising from injury or damage that occurs while the policy is in force, regardless of when the claim is first made.
• Claims-made: covers claims for injury or damage that occurs during the policy period and is reported to the insurer during the policy period. Claims outside those dates are not covered unless special coverage is purchased or arranged.

TDI describes the two kinds of special coverage. Prior acts ("nose") coverage uses a retroactive date, usually shown on the declarations page, which may be the policy's effective date or an earlier date. It excludes claims you knew about when the policy began. Run-off ("tail") coverage, also called an extended reporting period, covers claims made after the policy expires. TDI says a typical claims-made policy gives a reporting period of 30 or 60 days after expiration; an extended reporting period bought for an additional premium can run one, three or five years, or be unlimited. TDI CGL guide.

TDI's illustration: a customer falls in your showroom and files a claim months later, after the policy has expired. An occurrence policy in force on the day of the fall covers the claim. A claims-made policy for the same dates does not, though TDI says the claim may be covered if you bought an extended reporting period. If a claims-made policy expires, cancels or is not renewed, TDI advises buying run-off coverage from the old insurer or prior acts coverage from the new one to prevent a gap. TDI CGL guide.

A per-occurrence limit caps what the policy pays for one occurrence. An aggregate limit caps the total the policy pays for all covered claims in the policy term. CDI explains that a CGL policy carries separate limits for general liability, fire legal liability, products and completed operations, personal and advertising liability, and medical payments. CDI commercial insurance guide.

One aggregate applies to the general liability, fire legal liability, personal and advertising, and medical payments claims. CDI says that once total claims exceed it, "no more claims will be paid from the policy for the duration of the policy period." Products and completed operations claims have their own separate aggregate. Two claims that each fit under the per-occurrence limit can still use up an aggregate. CDI limits of insurance.

Copy every limit from the declarations page of each proposal into your comparison, along with the deductible. Then compare each one with the limits your contracts and licenses require. If a contract specifies how the aggregate must apply, show that wording to the insurer and ask which endorsement, if any, meets it.

Defense costs. Ask whether defense costs are paid in addition to the limits or reduce them. TDI notes that with a surplus lines insurer in Texas, "defense costs could be included within the limit of liability." TDI CGL guide.

Higher limits. TDI defines excess liability insurance as coverage that pays covered losses above your CGL limit, and an umbrella policy as excess coverage above auto and CGL limits that can also cover some exposures the primary policy does not. TDI CGL guide. See the commercial umbrella insurance page for how that layer works.

A certificate of insurance (COI) is a summary of your coverage issued to someone outside the policy, such as a client or landlord. It is evidence of a policy, not the policy itself. Texas law states this directly: a certificate "is not a policy of insurance and does not amend, extend, or alter the coverage afforded by the referenced insurance policy." Texas Insurance Code Chapter 1811.

Additional insured status comes from the policy and its endorsements, not from the certificate. Under Texas Insurance Code section 1811.153, a certificate cannot give the holder rights beyond what the referenced policy or an executed endorsement provides. TDI's FAQ applies this to a common request. If the policy has only a blanket additional insured endorsement, the certificate cannot name the holder as an additional insured. It can state that the policy contains that blanket endorsement. TDI certificates of insurance FAQ.

The same FAQ says a Texas certificate cannot refer to the insurance requirements of another contract, such as a construction contract. It may include a 30-day cancellation notice only if the notice mirrors the policy's own requirements. Other states set their own rules, so ask your state insurance department where you operate. TDI certificates of insurance FAQ.

When a client asks to be added as an additional insured, ask the insurer three questions. Which endorsement grants the status? Which work and which period does it cover? What conditions apply? The certificate vs. additional insured checklist walks through comparing the certificate, the contract and the endorsement.

Your premium is the insurer's rate for your business classification multiplied by your exposure base. CDI gives the basic formula as rate x exposure = premium. Deductibles, limits and loss history then adjust the result. Each proposal is priced on the information in your application, so a price from someone else's business tells you little about yours. CDI commercial insurance guide.

The classification, exposure, deductible and loss-history entries come from CDI's rating and premium section. The limits entry and the advice to update loss runs come from TDI's CGL shopping guidance.

Premium audits. TDI says most CGL policies are auditable. The premium you pay at the start is a deposit based on estimated payroll, sales or units sold. The insurer can examine your records, usually after the policy ends. If the actual figure is higher, you may owe additional premium; if lower, you may be due a return premium. The sales-based GL audit guide explains how to reconcile revenue before an audit. TDI premium audit explanation.

The kind of insurer (Texas). TDI regulates the policy forms and rates of licensed insurers. Surplus lines insurers do not have to file rates and forms with TDI, and their forms may be more restrictive. TDI says policyholders of licensed insurers are protected by the Texas Property and Casualty Insurance Guaranty Association for up to $300,000 per claim if the insurer becomes insolvent; surplus lines policyholders are not. Ask which kind of insurer issues each proposal. TDI CGL guide.

Shopping. TDI advises giving your agent your claims history, coverage choices and risk-management efforts four months in advance. It suggests getting quotes from several companies and comparing policies with similar coverage, since a cheaper policy might provide less. If one insurer declines your business, another may accept it. TDI shopping guidance.

The General Liability Cost Planner builds a checklist of the business details and policy questions to gather before you compare proposals. Ready for a next step? Request coverage help and PolicyBenchmark can follow up on your questions. PolicyBenchmark is an educational publisher; a request is not a quote and does not place coverage.

Professional liability. General liability addresses injury and property damage. Claims that your professional advice or services caused a client a financial loss are the subject of professional liability, also called errors and omissions (E&O). The NAIC lists professional E&O among the claims standard CGL does not protect against. See the professional liability coverage page, or the general liability vs. professional liability comparison if you are deciding between the two. NAIC small-business guide.

Business owners policy (BOP). The NAIC describes a BOP as a package that typically includes property, business interruption and liability insurance. CDI says a BOP is written with strict underwriting guidelines, including maximum allowable square footage, and calls it most appropriate for small "main street" businesses. If you also need property coverage, compare a BOP with standalone CGL. See the business owners policy page. NAIC small-business guide; CDI commercial insurance guide.