Our previous blog was an insight into commercial general liability (CGL) insurance policies –
the most common business insurance policy in America. In this blog we will share a few exclusion examples.
What commercial general liability insurance covers
A CGL insurance policy will usually cover the costs of your legal defense and will pay on your behalf all damages if you are found liable—up to the limits of your policy. CGL coverage is one of the most important insurance products, due to the negative impact that a lawsuit can have on a business and because such liability suits happen so frequently. Standard CGL includes:
Coverage A: Bodily Injury and Property Damage Liability
Bodily injury and property damage coverage provides protection against losses from the legal liability of insureds for bodily injury or property damage to others arising out of non-professional negligent acts or for liability arising out of their premises or business operations. Mental injuries and emotional distress can be considered bodily injuries, even in the absence of physical bodily harm.
Workers’ compensation and employment practices liability insurance are excluded but can be purchased as separate policies. In addition, pollution liability is excluded and can be purchased as an endorsement. However, this coverage is very limited, and high-risk businesses should consider purchasing a separate pollution liability policy. Liquor liability, professional liability and other risks may also be excluded. An insurance professional can help you to determine endorsements that are right for your type of business.
Coverage B: Personal and Advertising Injury
Personal and advertising injury liability protects an insured against liability arising out of certain offenses, such as:
- Libel
- Slander
- False arrest
- Infringing on another’s copyright
- Malicious prosecution
- Use of another’s advertising idea
- Wrongful eviction, entry or invasion of privacy
Coverage C: Medical Payments
Limited coverage for medical payments includes payments for injuries sustained by a non-employee caused by an accident that takes place on the insured’s premises or when exposed to the insured’s business operations. Medical payment coverage can be triggered without legal action. This provides for prompt settlement of smaller medical claims without litigation. It is included in the CGL policy and pays for all necessary and reasonable medical, surgical, ambulance, hospital, professional nursing and funeral expenses for a person injured or killed in an accident taking place at the insured’s premises or arising from business operations. There is no defense or legal liability coverage—as there is with bodily injury and property damage (Coverage A) and personal and advertising liability (Coverage B) —since coverage is provided on a no-fault basis.
Purchasing commercial general liability insurance
You can purchase commercial general liability insurance as a stand-alone policy, as part of a Business Owners Policy (BOP) or as part of a Commercial Package Policy (CPP). Consult with your insurance professional about what type of coverage you need and how much. If your general liability policy, BOP or CPP do not provide sufficient coverage, you may want to consider purchasing a commercial excess (umbrella) policy, which will provide additional protection.
Additional liability coverages to consider
Depending on your type of business, you may want to consider additional liability coverage that is not part of commercial general liability insurance. Talk with your insurance professional, risk manager and/or legal counsel regarding the types of coverages that you may need.
Here are 16 of the most common general liability policy exclusions.
Expected or Intended Damage
When an action is done intentionally, and you can reasonably expect damage or injury from the activity, this won’t be covered. Insurance won’t protect you when you intentionally do something that will lead to a claim. For example, you need to maneuver a forklift through the parking lot to load materials into a customer’s truck. A motorcycle is blocking your path, and you run the forklift into the motorcycle to move it out of the way. This is not a covered claim.
Contractual Liability
You cannot have bodily injury or property damage coverage when you assume the liability of another party through a contractual agreement. This often happens with construction companies that assume the liability of a project while under development. The insurance company cannot control what the other company does; it can only underwrite what your actions can create in liability.
For example, if you agree to assume the liability of a construction agreement for a building, you are not liable for claims of the building owner’s liability to others
Liquor Liability
When a company is in the business of making, selling, serving, or otherwise furnishing alcohol, there is no coverage for liquor liability. This is a separate policy that the company must get that is underwritten specifically for the liquor risk. Many insurance companies expand the exclusion to companies that sell or serve alcohol occasionally, such as a nonprofit that offers alcohol at a fundraiser.
For example, a nightclub regularly serves alcohol to its patrons. If a customer drives his car after being served drinks and hits a pedestrian, the general liability policy will not cover this. The nightclub must have specialized liquor liability coverage.
Workers’ Compensation
Employees are not protected for injury or property damage under a general liability policy. Employees are covered for bodily injury via a workers’ compensation policy; most states mandate workers’ compensation for any business that has at least one employee.
For example, a warehouse employee slips and falls, hurting his back. Even though this is a slip-and-fall accident, it is not a covered claim under general liability but instead is paid for by the workers’ compensation policy.
Employer’s Liability
If an employee gets hurt while working and either he, his family, or a third party files a lawsuit against the employer, general liability will not cover the claim.
For example, if an employee is hurt while using a certain machine at work, he might sue the machine maker. However, if the machine manufacturer finds out that the employer, as per company policy, did not operate the machine according to safety standards, then the employer is liable, with no coverage from the general liability policy.
There is one exception to this, which would be if the employer is characterized in the lawsuit as something other than an employer like the manufacturer of a product that caused harm.
Pollution
When pollutants are released as a result of business operations, there is no coverage for claims against this. The general liability policy has the same exclusion regardless of whether the pollutants were released gradually or suddenly. All waste is excluded regardless of how or where the waste is released.
For example, a manufacturer has a byproduct that is made when producing his product. The byproduct accidentally gets into a local stream and kills a farmer’s sheep. This is not a covered claim.
Aircraft, Auto, and Watercraft
Any liability caused by the use of aircraft, automobiles, or watercraft, whether owned, leased, or borrowed, is excluded from the general liability policy. This would need to be covered by a policy specific to the aircraft, automobile, or watercraft.
For example, your business rents a truck to pick up a shipment of materials for a special project. When reversing to load the truck at the loading dock, the business’ driver hits a golf cart. This is not covered by the general liability policy and would instead be covered by the auto insurance policy held for the truck.
Mobile Equipment
When using mobile equipment such as tractors, forklifts, or golf carts, any damage or injury resulting from the use of the equipment is not covered. The business would need to have a special policy that offered liability protection for the operation of mobile equipment.
For example, a forklift runs into a car when trying to navigate around it. The resulting damage to the car is not covered by the general liability policy. The business would have to have a specialty policy specifically for the forklift. Otherwise, the business must pay out of pocket.
Damage to Property
General liability does not provide for business property protection. This means that the office building, materials, equipment, or inventory are not covered if they are damaged in the course of business operations. This would have to be covered by a commercial property policy.
For example, if a small fire breaks out in the office kitchen, damaging the building itself as well as the kitchen furniture, it would be covered by a commercial property policy, not general liability.
Damage to Your Product
When damage happens to a company’s products, there is no coverage afforded for the loss under the general liability policy. This coverage also comes in the form of commercial property insurance.
For example, a circuit board used in a business’ hoverboards is faulty. This defect leads to an entire palette of hoverboards being damaged and unusable. This is not covered by the general liability policy.
Damage to Your Work
When work is completed and fails to operate properly, leading to property loss or injury, there is no coverage from the general liability policy. This would be covered by a professional liability policy that protects a business for professional errors.
For example, if a contractor builds a two-story house with a grand staircase and that staircase collapses after the homeowner moves in, the homeowner is likely to sue the contractor. This lawsuit is not covered by the general liability policy. The contractor would need a professional liability policy to cover the claim.
Damage to Impaired Property or Property Not Physically Injured
This exclusion refers to incidents where the business has provided a part of service, but their part has not worked, causing the other property to become impaired and rendered ineffective. There isn’t property damage per se with this exclusion, but the inability for work to be completed due to the impaired property.
For example, an electrician is hired to complete work on a new development by June 1. The electrical panels he installs are defective and, even though the work is completed by the date, the project doesn’t pass inspection due to the problem. This delays the developer from selling the property, causing financial loss. This type of claim is not covered by general liability and could be covered, instead, by a professional liability policy.
Recall of Products, Work, or Impaired Property
When a company has to recall its own products, any claims arising from the recall are not covered by general liability. It’s not just potential damages that are excluded, but the cost of inspections, removal, and adjusting of the defective product.
For example, a dangerous battery for cell phones must be recalled for consumer safety. The manufacturer cannot make a claim on the general liability policy and must instead absorb the costs of notifying retailers and consumers about the problem, getting the batteries back, and paying for replacements.
Personal and Advertising Injury
When bodily injury results from a personal injury offense, that bodily injury is excluded from coverage in the general liability policy.
For example, a business claims that a competitor is defrauding consumers and makes this allegation on social media. The information goes viral, and the competitor files a lawsuit for advertising injury against a false claim on his company. During the lawsuit, the competitor’s owner has a heart attack from the stress. While the advertising injury is covered under general liability, the costs related to the heart attack are excluded.
Electronic Data
Because electronic data is not considered tangible property, it is excluded from coverage in a general liability policy. This means that claims filed by customers who experience a loss of data, loss of software function, corruption of data, or the inability to access or manipulate data are not covered by general liability.
For example, a medical office with an MRI machine inadvertently stores a client’s laptop in the MRI room, wiping all data from the drive. This is not a claim covered by general liability, and the business would be on the hook to pay for the damages.
Distribution of Material in Violation of Statutes
When a company violates laws or statutes and that violation results in property damage or bodily injury, the loss is not covered by general liability insurance.
For example, a collections firm repeatedly violates telemarketing laws by calling too early in the morning, and the firm finds itself in a lawsuit. Because the company has violated the law, the lawsuit is not covered by the general liability policy.
Bottom Line
While general liability insurance offers comprehensive coverage, it does have several limitations set forth by the exclusions in the policy. Read through your general liability policy and talk to us to find out how you can get coverage for some of these exclusions.
