In today's litigious society even small mishaps can result in large lawsuits.
That's why general liability insurance along with property and worker's compensation insurance, is an essential for most companies.
Liability insurance protects the assets of a business when it is sued for something it didnt or did do to cause an injury or property damage.
General liability insurance can be purchased separately or as part of a business-owner's policy (BOP). A BOP bundles property and liability insurance into one policy.
How General Liability Works
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Under a general liability insurance policy, the insurer is obligated to pay the legal costs of a business in a covered liability claim or lawsuit. Covered liability claims include bodily injury, property damage, personal injury, and advertising injury (damage from slander or false advertising). The insurance company also covers compensatory and general damages. Punitive damages aren't covered under general liability insurance policies because they're considered to be punishment for intentional acts.
General liability insurance policies always state a maximum amount that the insurer will pay during the policy period. Usually these policies also list the maximum amount the insurer will pay per occurrence. For example, if a company has a $1 million occurrence cap 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.
To cover these types of situations, many companies purchase umbrella liability insurance, which picks up where their general liability coverage ends. Umbrella liability covers payments that exceed their other policy's limits, and provides additional coverage for liabilities not covered in a standard liability insurance policy.
Taking precautions before an accident can help keep your liability and insurance rates down. All businesses can take certain steps to lower the chance of a liability insurance claim:
- Set a high standard for product quality control;
- Make sure all company records are complete and up-to-date;
- Be sure employees are properly trained;
- Get safety tips for your type of business from your insurance company