So you got a business running and you are thinking about purchasing some insurance. Lets begin.

What is Commercial General Liability (CGL) Insurance?

Commercial General Liability (CGL) insurance is a type of insurance policy that provides coverage to businesses for third-party claims of bodily injury, property damage, and other liabilities that may arise from normal business operations. This insurance protects the insured business from financial losses if they are found to be legally responsible for the damages or losses incurred by others. CGL policies typically include coverage for damages awarded to a third party, legal fees, and related expenses incurred as a result of a liability claim.

Any business that interacts with third parties, such as customers, clients, vendors, or the public, can benefit from having Commercial General Liability (CGL) insurance. This includes businesses of all sizes and types, from small service-based businesses to large manufacturing companies. Some examples of businesses that typically purchase CGL insurance include:

• Retail stores
• Restaurants
• Service providers (e.g. plumbers, electricians)
• Contractors
• Manufacturing companies
• Technology companies
• Healthcare providers
• Non-profit organizations

Having CGL insurance can help protect a business from financial losses resulting from third-party claims of bodily injury, property damage, or other liabilities. As such, it is a recommended coverage for most businesses.

How does this work in practice?

As an example, a small catering business is hired to provide food for a wedding reception. During the reception, catering waiter spills a drink on the wedding dress of the bride, causing significant damage. The bride sues the catering business for the cost of the dress.

Without Commercial General Liability (CGL) insurance, the catering business would have to pay for the legal fees and compensation out of their own pocket. This could result in financial strain for the business and even put its future in jeopardy.

However, with CGL insurance, the insurance company will cover the cost of the legal fees and compensation, up to the limit of the policy. The catering business is able to continue its operations without worrying about the financial burden of the lawsuit, and can focus on providing quality food and service to its clients. In this case, having CGL insurance proves to be a wise investment for the small catering business.

Can someone sue for something that was clearly an accident? Yes they can. Anybody can sue you for anything, even if it is trivial. Having an isurance policy offloads that risk onto another party, giving you a peace of mind.

Another example

Consider a small bakery that specializes in custom cakes for special events. One day, a customer comes in to pick up a cake for their event and trips on a loose tile in the bakery. They fall and break their arm, requiring medical attention. The customer decides to sue the bakery for their medical expenses and lost wages.

Without Commercial General Liability (CGL) insurance, the bakery would have to pay for their legal fees and any damages awarded to the customer out of pocket. This could be a significant financial burden for the small business, especially if the damages awarded are substantial.

However, with CGL insurance in place, the bakery's insurance policy would provide coverage for their legal fees and any damages awarded, up to the policy's limit. This would provide peace of mind and financial protection for the small business, allowing them to focus on what they do best: making delicious cakes.

In this scenario, having CGL insurance proved to be a valuable investment for the small bakery, protecting them from the financial consequences of a liability claim and allowing them to continue operating their business without worry.

To buy or not to buy?

You as a small business owner should consider several factors when deciding whether to purchase Commercial General Liability (CGL) insurance. These include:

1. Risk exposure: The business owner should assess the level of risk exposure the business faces, taking into account the type of products or services provided, the number of third-party interactions, and the potential for property damage or bodily injury.
2. Industry regulations: Some industries may require businesses to carry certain types of insurance, including CGL insurance, by law. The business owner should check with their local regulatory bodies to determine if this is the case for their business.
3. Financial stability: If a liability claim were to be made against the business, it could result in significant financial loss. The business owner should consider the financial stability of the business and whether it could withstand such a loss.
4. Budget: Insurance policies, including CGL insurance, come with a cost. The business owner should assess the budget of the business and determine if purchasing insurance is feasible.
5. Legal requirements: In some cases, a business may be required to have CGL insurance as a condition of doing business with certain clients or customers. The business owner should be aware of these requirements and factor them into their decision-making process.

Is CGL insurance requried by law?

The short answer is: Yes and No.

Commercial General Liability (CGL) insurance is not required by law in every state, but some states and industries do have specific regulations or requirements related to liability insurance. Here are a few examples:

• States with licensing requirements: Some states require businesses to have liability insurance as a condition of obtaining a business license. For example, in California, contractors are required to carry liability insurance as a condition of obtaining a contractor's license.
• Professional service providers: Certain professions, such as architects and engineers, may be required to carry liability insurance as a condition of practicing in their field. This is to protect clients and the public from any damages or losses that may result from their professional services.
• Construction industry: In the construction industry, it is common for contractors to be required to carry liability insurance, especially for larger projects. This is to protect the property owner, the contractor, and any other parties involved in the project from any damages or losses that may occur.
• Service-based businesses: Service-based businesses, such as cleaning services, catering services, and personal care services, may be required to carry liability insurance by clients or customers. This is to protect them from any damages or losses that may result from the services provided by the business.
• It is important to note that these are just a few examples, and requirements for liability insurance can vary by state, industry, and type of business. A small business owner should check with their local regulatory bodies to determine the specific requirements for their business.

You should check with your local regulatory bodies to determine the specific requirements for your specific business.

Specific risks

Commercial General Liability (CGL) insurance provides coverage for a wide range of perils that could result in liability claims. Here are some specific examples of perils that would typically be covered under a CGL insurance policy:

• Bodily injury: CGL insurance covers claims for bodily injury that result from the business's operations. For example, if a customer slips and falls on the business's property, the business's CGL policy would cover any resulting medical expenses or settlements.
• Property damage: CGL insurance covers claims for property damage that result from the business's operations. For example, if the business's delivery truck causes an accident and damages another vehicle, the business's CGL policy would cover the cost of repairs.
• Products liability: CGL insurance covers claims for damages or injuries caused by a business's products. For example, if a business's product causes damage to a customer's property, the business's CGL policy would cover the cost of repairs or settlements.
• Advertising injury: CGL insurance covers claims for advertising injury, which is injury to another person or business's reputation or intellectual property rights that results from the business's advertising activities. For example, if a business's advertising campaign infringes on another business's trademark, the business's CGL policy would cover any settlements or damages that result.
• Personal injury: CGL insurance covers claims for personal injury that result from the business's operations. For example, if a customer accuses the business of defamation, the business's CGL policy would cover any settlements or damages that result.

These are just a few examples of the types of perils that would be covered under a CGL insurance policy. It is important to note that coverage will vary depending on the specifics of the policy, and a business owner should consult with their insurance agent to fully understand the coverage provided by their CGL policy.

Limits and Deducibles

When choosing a Commercial General Liability (CGL) insurance policy, a small business owner must select both a deductible and a limi

A deductible is the amount the business owner must pay before their insurance policy kicks in and begins covering the cost of a claim. The higher the deductible, the lower the premium, and vice versa. Common deductibles for CGL policies range from $500 to $5,000. A small business owner should choose a deductible that they can afford to pay in the event of a claim, but also one that balances the cost of the policy with the level of protection they need.

The limit is the maximum amount the insurance company will pay for a covered claim. Common limits for CGL policies range from $1 million to $5 million. A small business owner should choose a limit that provides adequate coverage for their business, taking into account the potential financial impact of a liability claim.

Some states have specific requirements for the limit that certain professions must carry. For example, in California, contractors must carry a minimum limit of $1 million per occurrence for general liability insurance.

It is important for a small business owner to carefully consider both their deductible and limit choices, taking into account their specific needs and circumstances, to ensure that they have adequate protection for their business. They may want to consult with an insurance agent or financial advisor to help make an informed decision.

Deducible Vs Self-Insured Retention

When it comes to managing risk, a small business owner may have the option to choose between a deductible or a self-insured retention (SIR) for their Commercial General Liability (CGL) insurance. Here are some factors to consider when making this choice:

• Affordability: A deductible is an upfront cost that a business owner must pay in the event of a claim, while a SIR is an amount that a business owner sets aside to cover potential losses. A business owner should consider their budget and ability to pay a deductible or set aside funds for a SIR.
• Control: With a deductible, the business owner has no control over how the claim is handled and how much they will ultimately have to pay. With a SIR, the business owner retains control over the claims process and can negotiate with the insurance company on the amount they will pay.
• Risk tolerance: A business owner should consider their level of risk tolerance and willingness to take on more responsibility for managing their claims. A SIR may be a good choice for a business owner who is comfortable with taking on more risk and has the resources to manage claims.
• Claim history: If a business has a history of frequent or large claims, a SIR may not be the best option as it will require a significant amount of funds to be set aside. In this case, a deductible may be a more affordable option.
• Availability: Not all insurance companies offer SIR options for CGL policies, so a business owner should check with their insurance company to see if this option is available.

Ultimately, the choice between a deductible or SIR will depend on a variety of factors, including the business owner's budget, risk tolerance, and claims history. It is important to carefully consider all options and consult with an insurance agent or financial advisor to make an informed decision.

Do I really need this? Isn't this an overkill?

Low-risk businesses are typically those that have a lower likelihood of facing a liability claim. Some examples of low-risk businesses are:

• Sole proprietorships or single-owner businesses that do not have employees or clients visiting their place of business
• Virtual businesses that provide services or sell products entirely online
• Service-based businesses that do not involve the use of physical products or equipment

However, it is important for you to note that even low-risk businesses can still face liability claims, so it is always advisable to assess the potential risks and consult with an insurance professional before making a decision about purchasing a Commercial General Liability (CGL) policy. In some cases, a low-risk business may still choose to purchase a CGL policy for added peace of mind and financial protection.

Cost of a CGL policy

The cost of a Commercial General Liability (CGL) policy for a small business can vary greatly depending on several factors such as the type of business, the location, the size of the business, and the coverage limit desired. On average, a small business can expect to pay anywhere from a few hundred dollars to several thousand dollars per year for a CGL policy.

Is everything covered under CGL policy?

No it is not. There are some exclusions worth knowing about.

Commercial General Liability (CGL) policies typically exclude coverage for a variety of perils, which are risks or events that the insurance company will not provide coverage for. Some common exclusions from a typical CGL policy include:

• Intentional acts: Coverage is generally not provided for intentional acts or criminal activities committed by the policyholder or their employees.
• Pollution: Coverage is generally not provided for claims related to pollution or contamination, such as release of toxic chemicals into the environment.
• Cyber Liability: Coverage is generally not provided for claims arising from data breaches, cyber attacks, or other cyber-related incidents.
• Employee Benefits: Coverage is generally not provided for claims related to employee benefits, such as workers' compensation or employment practices liability.
• Professional Services: Coverage is generally not provided for claims arising from the rendering of or failure to render professional services, such as errors or omissions made by accountants, lawyers, or other professional service providers.
• Contractual Liability: Coverage is generally not provided for claims arising from the policyholder's obligations under contracts, unless the policy specifically includes coverage for contractual liability.

These exclusions can vary from policy to policy and from insurer to insurer, so it is important to carefully review the policy wording and understand the coverage provided and excluded.

Summary

Commercial General Liability (CGL) insurance is an important coverage for small businesses to consider in order to protect themselves from financial losses due to third-party liability claims. The cost of a CGL policy can vary greatly depending on several factors such as the type of business, the location, the size of the business, and the coverage limit desired. However, the cost of a CGL policy is just one aspect to consider when deciding whether to purchase insurance, as the value of having a CGL policy in place, in the event of a liability claim, can be much greater than the cost of the policy itself.

It's important to assess the potential risks of a business and consult with an insurance professional before making a decision about purchasing a CGL policy. Some low-risk businesses, such as sole proprietorships or virtual businesses, may choose not to purchase a CGL policy, but other low-risk businesses may still choose to do so for added peace of mind and financial protection.

CGL policies typically exclude coverage for a variety of perils, such as intentional acts, pollution, cyber liability, employee benefits, professional services, and contractual liability. These exclusions can vary from policy to policy and from insurer to insurer, so it is important to carefully review the policy wording and understand the coverage provided and excluded.

In summary, CGL insurance is a valuable coverage for small businesses to consider in order to protect themselves from financial losses due to third-party liability claims, and it is important to assess the potential risks, consult with an insurance professional, and carefully review the policy wording before making a decision about purchasing a CGL policy.