What does General Liability Insurance cover?
What is General Liability insurance? What does General Liability cover? General Liability insurance (also referred to as Commercial General Liability or Comprehensive General Liability) covers third party claims that an insured becomes liable for due to the operations or his business. A third part claim would be from any entity other than an employee. Not every policy is the same and the exclusions and endorsements added to a policy limit the coverage. The main areas of what general liability covers are:
- Bodily Injury & Property Damage
- Products and Completed Operations
- Personal and Advertising Injury.
- Owner's and Contractors Protective (OCP)
Bodily Injury and Property Damage liability arise out of accidents resulting from the operations or premises and completed operations. General Liability also provides limited contractual liability.
Personal Injury is often mistakenly understood as Bodily Injury. Injury to Person would be something that lowers status or position in society which in turn could result in financal loss. If one business published something disparaging about another business that subsequently affected the other business it could be a basis for a Personal and Advertising Injury Claim.
It is important to understand that General Liability (GL) coverage primarily provides coverage for property damage and bodily injury that is a result of your ongoing operations and in some cases property damage or bodily injury from your completed products as well. This is especially true for contractors since it takes a bit of imagination to come up with scenarios for a Personal and Advertising Injury for a contractor. But for BI and PD numerous examples come to mind. Obvious things like damaging someone's property in the course of operations. Or someone getting injured at the job site would be the types of claims that GL should respond to.
Less obvious examples are in the case of a subcontractor getting injured at a job site. The General Contractor is responsible for safety at a job site and his GL policy could be brought into the claim.
I find that often General Liability is confused with a product warranty. A possible example for a completed products claim is, if a plumbing contractor performs an installation, which then later causes water damage due to leakage, GL should cover the resultant damage that occurs during the time when coverage was in force. GL would not pay for the replacement of the defective pipe. GL does not cover bad workmanship, only covered property damage or bodily injury that is a result of the work performed and for which a contractor is liable.
The coverage available in a General Liability policy is often modified by an endorsement to the policy. The most common is a known or ongoing damage or injury endorsement. Insurance is not intended to cover claims after the fact. If there is known damage or an ongoing claim this would normally be excluded.
A few policies have a Prior Work Exclusion and you need to understand the implications of this type of exclusion. A prior work exclusion is stating that a claim arising from work performed prior to the effective date of the policy would be excluded, even if the damage or injury occurred during the policy period. This is a very strongly worded endorsement which greatly reduces the value of a policy. If you are given a choice between a policy with a prior work exclusion and one with a known or ongoing injury exclusion, the prior work exclusion is probably the worst choice. Unfortunately there are brokers who are not aware of the difference in these exclusions and they are not always disclosed to the insured at the time of the proposal. Be sure your broker understands the various endorsements attached to the policies that are being offered to you.
The Owners and Contractors Protective provides coverage relating to independent contractors. For a contractor this coverage needs to be included if he has any subcontractors. It is important to understand the terms of the policy as regards OCP. Many policies have a "Subcontractors Warranty" which generally states that the subs have to have GL coverage and what amount of coverage as well. For coverage to apply the subs may also have to name the contractor as an Additional Insured as well. If the warranty is not met then there is the possibility that no coverage will apply.
It goes without saying that this explanation of GL should not be construed as a statement of what your policy will or will not cover. When it comes to a claim many things come into play and it is the claims adjuster's job to determine whether coverage will apply or not.
Venture Insurance Services
PO Box 469
Burbank, CA 91503