Commercial Insurance - In Depth

Commercial Insurance - In Depth

What is Commercial General Liability (CGL) Insurance?

A commercial general liability (CGL) policy protects your business from financial loss caused by personal injury, advertising injury and property damage as a result of your business operations, employee activity or work / service/ products you provide on your business premises. It also covers negligence as a legal duty of care.

Commercial general liability is considered comprehensive business insurance, although it does not cover all risks a business may face.

As a business owner, understanding how to manage, prevent and mitigate these risks could affect your ability to insure your business. It is possible that the cost of re-insuring your business after as large loss becomes cost prohibitive, forcing you to either run the risk of operating uninsured or going out of business.

Here are just a few examples of situations in which your business could be responsible for paying various costs, such as medical and legal expenses, as well as compensatory and punitive damages: Your restaurant serves soup delivered to the table on a serving cart. A customer trips or causes the cart to overturn onto themselves or other customers. An employee of your construction business neglects to connect the water service supply in the attic fire suppression system and initiates a pressure test of the system, causing substantial damage to a customer’s home. A class action lawsuit is filed against your business, alleging that you employed deceptive advertisement inducements which constituted misleading information.

What does Commercial General Liability Insurance cover?

A CGL insurance policy will typically cover the costs of your legal fees and pay all of your damage claims if you are found liable. Coverage is ONLY up to the limits of your policy.

Commercial general liability policies have different types and levels of coverage. A policy may include premises coverage. This protects the business from claims that occur at the business’ physical location during regular business operations.

Additional types of coverage are either a Claims-Made policy or an Occurrence policy. Nearly all liability policies fall into either one of two categories, Claims-Made or Occurrence.

A Claims-Cade policy provides coverage through an Active Policy and covers claims made against the policy, even if the claim event occurred at a different time. An example would be Errors and Omissions insurance, where the party was damaged but the damage wasn’t reported until a later time. Other examples are Sexual Harassment, Discrimination or Wrongful Employee Termination.

An Occurrence policy covers claims stemming from incidents or events occurring during a policy period. Accidents and property damage are examples of occurrences. It may also include coverage for bodily injury and property damage that is the result of finished products.

It is therefore one of the most important types of insurance for businesses to have, due to the negative impact that a lawsuit can have on a business and because liability insurance claims can happen indiscriminately and without warning.

Standard Commercial General Liability coverage includes:

Coverage A: Bodily Injury and Property Damage Liability

Bodily injury and property damage coverage provides protection against losses from the legal liability for bodily injury or property damage to others during premises or business operations. These can include mental injuries and emotional distress.

Coverage B: Personal and Advertising Injury

Personal and advertising injury liability protects an insured against liability arising out of certain offenses, such as:

• Libel- a published false statement that is damaging to a person's reputation
• Slander- the action or crime of making a false spoken statement damaging to a person's reputation
• False arrest- an arrest made without a warrant or probable cause, a form of false imprisonment
• Infringing on another’s copyright- referred to as piracy and derivative works
• Malicious prosecution- criminal proceedings against someone without reasonable grounds
• Use of another’s advertising idea- intellectual property theft and style of doing business
• Wrongful eviction, entry or invasion of privacy

Coverage C: Medical Payments

A separate insuring agreement that obligates the insurer to pay reasonable medical expenses (subject to the CGL terms and conditions) for bodily injury, caused by an accident on a no-fault basis. A separate Limited coverage for reasonable medical payments includes payments for bodily 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 regardless to fault. Medical payments coverage can be triggered without legal action. This provides for prompt settlement of smaller medical claims without litigation. It pays for all necessary and reasonable ambulance, hospital, medical, professional, surgical, nursing and funeral expenses for injuries and death due to an accident at the business’ premises or arising from business operations. There is no defense or legal liability coverage because coverage is provided on a no-fault basis—unlike 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). Your Pacific Reliance Insurance professional can help you understand what type of coverage you need and recommend limits you should purchase. If your policy does not provide sufficient limits in coverage, you may want to consider purchasing a Commercial Excess Umbrella policy to provide these additional protection limits.

Additional Liability Coverage Endorsements or Floaters

Depending on your type of business, you may want to consider additional liability coverages. These are not part of the Commercial General Liability insurance policy. Talk with your Pacific Reliance Insurance professional or work with you Risk Manager and/or Legal Counsel regarding the types of coverages that you may need.

Claims-Made versus Occurrence Policy coverage

Claims-Made policies provide coverage for claims when the event is reported. An Occurrence policy provides coverage when the event occurs.

Claims-Made Policy

A Claims-Made policy is an insurance policy type of insurance policy most commonly used to cover the risks associated with business operations. It provides coverage when a claim is made against the policy, regardless of when the event took place. A Claims-Made insurance policy is purchased when there is a likely delay between when claims occur and when they are filed.

A Claims-Made policy is often used to cover the potential for mistakes associated with professional services such as financial or contractual businesses. This insurance is known as Professional Liability Insurance or Errors and Omissions (E&O) insurance. E&O insurance is also used to cover businesses from claims made by employees for wrongful termination, sexual harassment, and discrimination claims.

These claims may be made against a policy months after the mistake or event takes place. This type of liability is referred to as Employment Practices Liability, and may also cover the actions of Directors and Officers of the business. Proper business coverage is important and your Pacific Reliance Professional Agent can help guard against insurance pitfalls. Some insurance companies may also offer a Claims-Made and Reported policy. These policies are considered less desirable than the Standard Claims-Made policy because claims must be reported during the policy period in order for the claim to be covered. This reduces the window of coverage that a business can expect to be covered. A lack of coverage will result in the business standing alone against any uncovered claim, which can be a problem in when many months may pass between the event and the claim being made.

Occurrence Policy

An occurrence is an event that can result in the filing of an insurance claim. An Occurrence Policy covers claims made for injuries that happened during the life of an insurance policy, even if the claim is filed after the policy has been canceled or the policyholder changed insurance companies.

Occurrence coverage covers incidents that happened while the policy was in force, such as an individual exposed to hazardous chemicals may experience the effects years later. after retiring. Insurers typically place a limit on the total coverage provided through such a policy. One form of limit is the amount of coverage offered each year. The policy could possibly reset the coverage limit each year. If for example, a company purchases ten years of Occurrence coverage with an annual limit of one-million dollars the policy will allow the company or policyholder ten-million dollars in total coverage.