What Isn't Covered by a Commercial General Liability Policy?

Understand Insurance Exclusions to Protect Your Business

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A commercial general liability policy's success is based on its ability to protect business owners from the potentially devastating impact of costly claims.

General liability insurance is the most prevalent form of business liability insurance. These policies are designed to protect businesses you represent against occurrences when someone alleges they were injured or their property was damaged as a result of a client's negligence.

What is Commercial General Liability?

The Commercial General Liability (CGL) policy excludes some types of liability coverage, worker's compensation, professional liability, liability related to operating an automobile or truck, and corporate directors and officer's liability. These liabilities are covered by other specially created policies.

The CGL also excludes all coverage for pollution claims. Firms that use toxic materials in the manufacturing process or store or transport them must purchase a special environmental liability policy. Many businesses keep gasoline on the premises for their own use. Because storage tanks can leak over time, allowing gasoline to seep into wells and other water supplies, federal law requires all tank owners to have insurance or show some other means of paying for potential claims. Also excluded are claims resulting from damage to the property of others in the business owner's care, custody and control.

This is because coverage for such damage is covered under property policies.

Manufacturers of products subject to product recall, such as food items or toys, should consider purchasing a special policy to cover this exposure. Products are excluded from the CGL policy because of the costs incurred in a recall.

Coverage for administering certain kinds of professional services or failure to render such services may also be excluded from the CGL policy, depending on the extent of services provided. Legal actions that do not involve a claim for bodily injury, property damage, personal injury, or advertising injury, are not covered. The CGL policy does not cover most contract disputes, actions by governmental agencies charging that a business has failed to abide by regulations or statutes, and charges of pollution.

In addition, claims for back taxes or a penalty for failure to provide a safe workplace is not covered by the CGL policy.

The most common exclusion on the typical general liability insurance policy is claim of professional negligence or errors and omissions. If the damage resulting from serious negligence on the part of a client or one of their employee's resulted in non-physical damage, your general liability insurance will not cover the suit.

A Business Owner’s Policy typically includes general liability insurance that covers bodily injury, personal injury, property damage, and advertising injury. This often includes advertising copyright infringement; invasion or privacy; defamation of character, such as libel and slander.

A Business Owner's Policy also will include property insurance that covers both their own and others’ vital commercial property.

Malpractice Coverage

An obvious form of professional liability insurance for physicians and attorneys is malpractice coverage. Most health care providers need to buy professional liability insurance. Nearly all states require that physicians have liability insurance. Even in states that don’t, physicians usually need to have insurance coverage in order to get privileges to see patients at a hospital. In some contexts, however, physicians can choose to go without coverage, but this is extremely risky. 

Commercial general liability insurance provides an extensive coverage for loss exposures such as operations and premises liability, products liability and contingent liability.

However, agents need to be informed of the potential coverage exclusions which lessen commercial liability coverage. Detailing these exclusions is key to properly informing clients of both the benefits of commercial liability coverage and where gaps may need to be addressed through other means.

Coverage A provides important legal and financial security to the client if the business operations of the latter have caused any harmful damage to a third party. Coverage B protects the insured from personal and any advertising-related injury liability. Coverage C pays the hospital and physician expenses of others who happen to be injured on the commercial premises of the insured, regardless of fault.

Business Pursuits Factor

Various insurance companies view different types of activities as “business pursuits,” even if the activities are part-time, freelance or intermittent, such as horse boarding, riding instruction, landscaping, auto repair, boat deliveries, or child care.

Some insurers may also look at “business pursuits” as an insured’s regular trade or occupation. Others do not. Some insurers look to the continuity and business motive of the business as a key element before determining that a “business pursuit” is involved. Is it a hobby or is it a for-profit venture?

Agent and business coverage consultant's understanding of the exclusions of commercial business insurance is essential. Identifying gaps and potential resources to minimize those gaps sets agents apart and can lead to valuable long-term relationships and many renewals. When the client knows you have their back, they'll be back again, and again.