General Liability Definition
Operating a business creates potential liability for any number of reasons. General liability refers to the scope of causes covered by an insurance policy but not the extent of the coverage. A business can be sued not only for something it does but for things it doesn't do. Legal defense can be costly, and settlements or judgments can be even more so. General liability insurance is usually the first line of defense for entities subject to litigation.
Other People Are Reading
-
Types
-
Contrary to the name, general liability does not cover all forms of potential liability. The details are subject to wide variation, according to the needs of the insured and the terms offered by the insurance provider. Usually, however, general liability covers bodily injury, damage to property, personal injury and claims arising from advertising, which typically involve slander, false advertising or copyright infringement. General liability insurance covers judgments in suits for these causes, subject to financial limits but not punitive damages. Insurance for a business's real estate assets and related claims, such as fire or flood, is usually separate from general liability.
Function
-
The purpose of general liability insurance is to provide a business owner with peace of mind while she conducts her operations. Essentially, it ensures that she will have funds to defend herself in the event of litigation without having to shut down her business or stop operating. General liability insurance also combines what would otherwise have to be many different policies into a single, convenient policy. Though individuals could feasibly be also liable for all the causes protected under a general liability insurance policy, it is generally only cost-effective for businesses. Thus, general liability is almost exclusively marketed toward businesses entities.
-
Features
-
Though general liability insurance covers a wide range of situations, it does not necessarily provide complete protection. Policies always state the maximum amount the insurer will pay during the life of a policy, depending on the annual cost of the policy and the financial resources of the insurer. The insurer frequently limits the amount it will pay out for each single occurrence. For example, a company can be insured for up to $5 million, with a per occurrence cap of $1 million. If it sued because of a single occurrence for $1 million or less, then it is fully covered. If it sued for $1 million in five different instances, it is also fully covered. A sixth suit for $1 million dollars, however, would not be covered. Similarly, if it is sued in a single occurrence for $5 million, it bears $4 million in uncovered liability. In its liability policy and it's successfully sued for $1.5 million, the insurer would pay $1 million and the business would be responsible for paying $500,000.
Effects
-
Insurance providers usually require an insured company to immediately report any incident that can give rise to a claim, thus allowing the insurance company to document the situation and design ways to limit the claim or its own liability to pay. Failure to report an incident in a timely fashion can limit the company's protection under a general liability policy. Because a general liability policy covers a broad range of causes, but not necessarily the full extent of a company's liability, most large corporations are forced to take out additional insurance. Not surprisingly, insurance companies have a product designed for just such situations. Umbrella liability insurance is the generic term for a policy in which the coverage starts where general liability coverage ends. Such a policy can not only extend to payments that exceed the limits on a generally liability policy, it can also provide coverage for situations not covered in the general liability policy.
Considerations
-
The two major factors that determine the cost of a general liability insurance policy are the kind of business operations a company conducts and the state in which those operations are conducted. Some forms of business are inherently more risky than others. This higher likelihood of a claim leads an insurance provider to charge more. Similarly, some states have a well-recorded history of awarding large, even exorbitant judgments against businesses. In these states, the insurance company will also look to protect itself by charging higher rates. The steps a company can take to modestly lower its general liability insurance costs are to make sure all employees are properly trained, that adequate safety measures are in place, that the operations climate includes a high standard for safety, and that all records of the company and its employees are complete and current.
-
