“We often hear, “I need insurance.” However, this statement doesn’t provide much detail about your specific needs. Insurance comes in various forms, and depending on your circumstances, you might require one or more different types.
In Florida, most small businesses typically request General Liability or Commercial General Liability insurance. This coverage forms the basis of any insurance program and is often the only insurance purchased by small businesses.
General Liability insurance provides coverage for bodily injury or property damage resulting from your work or the products you sell. However, it’s important to note that General Liability policies have limitations or exclusions, which may necessitate bundling with other types of insurance policies for comprehensive coverage.
For instance, General Liability does not cover damage to your property or property under your care. Such damage can be covered by Property Insurance. It also does not cover bodily injury to individuals associated with your business, such as employees or volunteers. Coverage for these types of claims can be found with Workers Compensation or Accident Health Coverage.
Furthermore, General Liability does not cover bodily injury or property damage resulting from your professional exposure. If you’re a professional like a lawyer, doctor, architect, realtor, insurance agent, or other licensed professionals, you would need to purchase Professional Liability insurance, also known as Malpractice or Errors & Omissions insurance. You would still need General Liability for non-professional claims.
There are also standard exclusions on a General Liability policy, such as Expected or Intended injury or damage; Contractual Liability; Liquor Liability; Employers Liability; Pollution; Aircraft, Autos, and Watercraft. Many General Liability policies also have Endorsements or changes that further restrict or exclude covered situations.
Now, let’s discuss what is covered with a few examples:
- Suppose you have an office where a client comes to purchase a product. If the client trips over a chair left out by an employee and requires medical attention, the medical expenses will likely be covered by your General Liability policy due to your employee’s negligence.
- If you own a small clothing manufacturing factory and one of your machines overheats causing a fire that damages your neighbor’s property, the damage will likely be covered due to your negligence. However, your property will NOT be covered by the General Liability policy.
- If you manufacture ironing boards and due to a manufacturing flaw, several consumers get burned because the boards keep falling down unexpectedly, the medical injuries of those consumers will likely be covered due to your negligence.
These are just a few examples of financial losses that can be transferred to an insurance company with a General Liability insurance policy.
The standard General Liability policy consists of several parts, including the General Aggregate, which is the maximum amount of coverage the policy will provide.”
The General Aggregate is the maximum coverage the policy will pay in a policy period. Once the General Aggregate is exhausted, the policy ceases to provide any coverage.
The Products & Completed Operations Aggregate is the maximum coverage that the policy will pay from a loss resulting from a product or service you have sold after the product or services has been delivered or completed.
Personal & Advertising Injury is a part of the policy that provides coverage for losses resulting from things like libel, slander, and/or false arrest.
Each Occurrence Limit is the maximum payable due to any one occurrence on the policy. This may be smaller than the General Aggregate. You can raise the Each Occurrence Limit and the General Aggregate with the purchase of an Umbrella Insurance Policy or an Excess Liability Policy.
Damage to Rented Premises or Fire Damage Limit only covers one very specific situation. If you rent space, that space that you rent is property in your care which is not covered by the General Liability policy. This part gives back some coverage for a loss by fire that is due to your negligence.
Medical Payments is a sub-limit of the General Aggregate that will provide coverage for medical bills that results from your product, services or operation without the heavy burden of negligence having to be proven.
There are two types of General Liability policies: Occurrence policy and Claims Made. The Occurrence policy would respond to claims based on when the occurrence (when the accident happens) occurs. The Claims Made policy would respond to claims based on then the claim is made and not when the occurrence happened. It is important that there be continuous coverage without any lapse, in order for the policy to respond. Claims made policies have two dates that are very important in order for coverage to apply. The first is the Retroactive Date, which is the date from which the policy will start to provide coverage for occurrences.
A General Liability Occurrence policy is a type of insurance policy that provides coverage for claims based on when the incident or “occurrence” took place, regardless of when the claim was made. This means that the policy will cover incidents that happened during the policy period, even if the claim is filed after the policy has expired.
For example, if an accident happened last year when the policy was active, but the claim was made this year after the policy expired, the Occurrence policy would still respond to the claim because the incident happened during the policy period.
This type of policy is commonly used in General Liability insurance and is often preferred because it provides long-term protection against incidents that may result in claims long after they occur. It’s important to note that each claim is subject to the policy’s per-occurrence limit, and the total payout in a policy period cannot exceed the policy’s aggregate limit.
Claims Made is a less common type of General Liability policy that responds to claims based on when the claim is made, not when the occurrence happened. For instance, if an occurrence happened last year but the claim was made this year, your current policy would pay the claim. We strongly advise against purchasing Claims Made policies because continuous coverage without any lapse is crucial for the policy to respond. Claims made policies have two important dates for coverage to apply. The first is the Retroactive Date, which is the date from which the policy starts to provide coverage for occurrences. Any occurrence that results in a loss prior to the Retroactive Date would not be covered, regardless of the date the claim is made. The other date is the Extended Reporting Period. Claims made policies have a definite number of days after the policy has lapsed to report a claim. If the claim is reported after that date, there would be no coverage even if the occurrence happened during the policy period.
Now, let’s discuss the cost of General Liability insurance. The cost is calculated using one of 5 kinds of information called ‘premium basis’:
- Area (Square feet): This is usually used for businesses whose operations are generally confined to the space they work in. Examples include landlords of commercial land or buildings, offices for professional services like doctors, lawyers, or architects. Other types of businesses can also be rated on square feet when the policy is limited to provide coverage solely to satisfy the landlord’s requirements and the Products & Completed Operations coverage is excluded. This is often called Premises Liability.
- Gross Sales: This is the most common premium basis and is used for businesses whose operations are generally based around the sale of a product. Examples include retail stores, manufacturers, importers or distributors, restaurants, etc.
- Units: This premium basis is used most often for residential businesses or non-profits like apartment buildings, condominium associations, or homeowner’s associations.
- Payroll: is the second most used premium basis after Gross Sales. It is used for service or construction industries where the amount of work performed by an employee is the biggest risk of claims. Businesses like landscapers, carpenters, tree trimmers, boat repair or maintenance, information technology consultants or programmers, janitorial services, etc., often use this basis.
The ‘Other’ category is the least used premium basis and is reserved for times when none of the above categories fit.
It’s more individualized by the type of business. Examples include child day care centers or adult day care centers which are rated based on the number of children or adults. Beauty salons, nail salons, massage or other beauty-related services are often based on the number of technicians performing the different services. Private schools, tutoring or instructional programs are rated by the number of students.
For Gross Sales, Payroll, or Area, the premium cost is calculated by multiplying the carrier’s rate times the thousands of the premium basis. For example, if you have 20,000 of payroll for a carpenter whose rate could be $30, the calculation would be 20 x $30 = $600.
For Area, Units, or Other, the premium cost is calculated by multiplying the carrier’s rate by the premium basis. For example, a day care center with 100 kids whose rate could be $10, the calculation would be 100 x $15 = $1,500.
It’s important to remember that not all General Liability insurance is created equal.
Some policies have endorsements that either take away even more coverage or add coverage. Despite what you may see on TV or internet ads, all policies are not the same. You should spend some time with your independent insurance agent to discuss your coverage and make sure that the insurance coverage you want to have is what would be covered by your General Liability policy. If you don’t have an independent agent or would like a second opinion, feel free to reach out to us and we would be glad to discuss your needs and/or policy with you.