“I need insurance.”, we hear that a lot but really that doesn’t tell us much about what you are looking for. There are many different kinds of insurance and depending on your specific circumstances you may need one or more completely different kinds.
The insurance coverage most small businesses in Florida are asking for is General Liability or Commercial General Liability.
This coverage is the foundation of any insurance program and can sometimes be the only insurance a small business buys.
General Liability is a policy that provides coverage for bodily injury or property damage that is a result of the work you do or the product you sell.
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General Liability policies cover a lot of situations but they also have limitations or outright exclusions that means you may have to bundle with other types of insurance policies to find coverage.
General Liability does not cover property damage that belongs to you or that is in your (or your business’) care, custody or control. Property damage to your business property or in some cases your customers’ property can be covered by Property Insurance.
General Liability does not cover bodily injury to anyone related to your business. For example, employees, volunteers, owners, partners, etc. You can find coverage for these types of claim with Workers Compensation or Accident Health Coverage.
General Liability does not cover bodily injury or property damage that is a result of your Professional exposure. This means that if you are a lawyer, doctor, architect, realtor, insurance agent, or many other licensed or accredited professions you would also need to purchase Professional Liability insurance also known as Malpractice or Errors & Omissions insurance. You will still need General Liability to provide coverage for non-professional claims such as a slip and fall in your office or a fire caused by your presence on a project site but your “work” will more likely be covered by a Professional Liability policy.
There are a few more standard exclusions on a General Liability policy which are a bit more self-explanatory, such as Expected or Intended injury or damage; Contractual Liability; Liquor Liability; Employers Liability; Pollution; Aircraft, Autos, and Watercraft.
Many General Liability policies will also have Endorsements or changes to the policy that further restrict or exclude covered situations.
You have an office and a client comes in to purchase a product. While in your office the customer trips over a chair that an employee had accidentally left out. The customer may need medical attention due to the fall. That medical attention will likely be covered by your General Liability policy because of your employee’s negligence.
You have a small clothing manufacturing factory. One of your machines that should have been maintained last month overheats causing a fire that spreads to your neighbor’s warehouse destroying their property (e.g. stock, machinery, materials, and office equipment). The damage to your neighbor’s property will likely be covered due to your negligence. Remember that your property will NOT be covered by the General Liability policy.
You are an ironing board manufacturer who sells your products to a large chain store who in turn retails the product to customers. Due to a slight manufacturing flaw the latch that holds the board upright is weak and results in several consumers burning themselves with irons because the boards keep falling down unexpectedly. The medical injuries of those consumers will likely be covered due your negligence.
Those are a few examples of financial losses that can be transferred to an insurance company with a General Liability policies.
General Aggregate – this is the maximum amount of coverage the policy will pay in a policy period. Once the General Aggregate has been depleted the policy no longer provides any coverage.
Products & Completed Operations Aggregate – this is the maximum amount of overage 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. In example #3 above you can see a situation where the Products & Completed Operations Aggregate would be used.
Personal & Advertising Injury – one of the more misunderstood parts of the policy. This section provides coverage for losses resulting from things like libel, slander, and/or false arrest.
Each Occurrence Limit – this is the maximum payable due to any one occurrence on the policy. This may be smaller than the General Aggregate. So you may have multiple losses that combined may reach the General Aggregate, but no single loss may go over the each occurrence limit. It is possible to 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 – this is probably the most misunderstood part of the General Liability policy. It is also the easiest to explain because it only covers one very specific situation. If you rent space, that space that you rent is property in your care custody or control which is not covered by the General Liability policy as explained above. This part gives back some coverage for a loss by fire that is due to your negligence.
Medical Payments – This is a sub-limit (usually $5,000 or $10,000) 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. Keep in mind that this would be solely for medical bills so any claims for additional compensation such as future loss of earnings or property damage would not be included in the Medical Payments sub-limit.
Occurrence policy – this type of General Liability policy would respond to claims based on when the occurrence (when the accident happens) occurs. As an example in a slip and fill the Occurrence is easy because the accident occurred instantly. With a Product claim it can be a little more difficult. For instance, let’s say that you were selling those ironing boards to that big chain store 5 years ago, but not anymore. When you were selling to the store you had higher limits of coverage, $2,000,000, because they required you too. Now 5 years later is when that weak latch causes the bodily injury. Your current policy only provides coverage for $300,000 because you choose to carry lower limits because the store didn’t require it because you no longer sold to them. Even though you had $2,000,000 of coverage when you sold the product, you only had $300,000 when the Occurrence occurred so it is your current lower limit policy that would provide the coverage and you may find yourself at odds with that big chain store if the loss is higher than your lower limit due to the contract you signed.
Claims Made – this much rarer type of General Liability policy would respond to claims based on then the claim is made and not when the occurrence happened. So imagine that the occurrence occurred last year but the claim was made this year your current policy is the one that would pay the claim. We STRONGLY discourage our customers from purchasing Claims Made policies because once the policy is started it is imperative 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 (this means that 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
The cost of General Liability insurance 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. As an example a landlord of commercial land or buildings, an office for a professional service like a doctor, lawyer or architect. 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 by far the most common premium basis and is used for businesses whose operations are generally based around the sale of a product. Some 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 homeowners associations.
Payroll – the second most used premium basis after Gross Sales, payroll is used for services 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, etc.
Other – this is the least used premium basis and is reserved for the few times that one of the above just doesn’t fit so 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 generated by multiplying the carriers rate times the thousands of the premium basis. (i.e. 20,000 of payroll for a carpenters whose rate could be $30 would be 20 x $30 = $600)
For Area, Units or Other the premium cost is generated by multiplying the carriers rate by the premium basis. (i.e. day care center with 100 kids whose rate could be $10 would be 100 x $15 = $1,500)
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Above is a very broad and general explanation of different parts and types of the General Liability policies but some policies have endorsements that either take away even more coverage or add coverage. No matter what you may see on TV or internet adds 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 you your General Liability policy. If you don’t have an independent agent or would like a second opinion feel free to call, chat or email us and we would be glad to discuss your needs and/or policy with you.