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What is commercial general liability insurance?

Commercial general liability insurance provides financial protection for businesses when they are hit with third-party claims.

Let’s say a customer sustains an injury after slipping at your restaurant, or one of your employees damages a client’s property while performing a plumbing job at their home. These clients then decide to bring lawsuits against the businesses, alleging bodily injury and property damage.

A commercial general liability insurance policy will help cover the legal costs of defending the lawsuits. If the court awards damages to the clients, your policy will cover that as well, so you won’t have to pay out of pocket.

Commercial general liability insurance is not the only type of coverage business owners can get to protect themselves from third-party claims. But it is the broadest type of coverage. This means it covers the widest range of claims compared to other types of policies, including those related to property damage or bodily injury. To fill in the coverage gaps related to other types of third-party claims, insurance companies offer other supplementary insurance products policies.

For example, many businesses choose to add errors and omissions insurance on top of their commercial general liability policy. Errors and omissions insurance offers financial protection to businesses when customers allege problems with the services they provide. Critically, commercial general liability insurance does not cover claims related to the quality of a business’s services.

Who needs commercial general liability insurance?

Commercial general liability insurance is not mandatory in Canada. That said, we highly recommend it for all businesses.

That’s because legal fees accumulate fast. Hiring legal counsel is expensive. If a judge or jury rules against you, you are responsible for paying both the legal fees associated with defending the claim and any damages the court awards to the parties who brought the complaint. Mediation and settlements also cost money.

Accidents or mistakes can happen in a matter of seconds, but they can motivate clients or customers to file claims that can take years to resolve – and even longer to financially recover from.

Which industries could benefit most from commercial general liability insurance?

This type of coverage is highly recommended for any business that frequently interacts with third parties – whether that be clients, customers, suppliers, vendors, or even other businesses. These interactions are critical to most businesses, but they also increase the risk of third-party claims.

No matter the size of your business, it is especially important to have commercial general liability insurance if you or your employees regularly interact with clients on your commercial property, in your home, or on their properties.

What does commercial general liability insurance cover?

This type of policy generally covers the legal costs and damages associated with many kinds of third-party claims. These coverage areas include:

• Bodily injury liability: Claims that allege your business operations resulted in a third party’s bodily injuries or damage to their property.
• Personal and advertising injury liability: Claims that allege your business committed defamation, libel, slander, or false advertising.
• Product liability: Claims that allege a product your business sells or supplies caused a third party’s bodily injuries or damage to their property.
• Tenant’s legal liability: Claims that allege you or your employees damaged the commercial space you rent or occupy.

What does this type of insurance not cover?

Although commercial general liability insurance covers a wide range of third-party claims, certain kinds of claims are exempt from coverage. These include claims alleging:

• Intentional criminal acts
• Patent infringement
• Contractual liability

The following types of claims are not covered by commercial general liability insurance, either. However, many insurance companies offer other kinds of policies to fill the coverage gap.

Let’s say you damage a customer’s property while performing a job at their home, or you give a client professional advice that is misleading or inaccurate. If these clients file claims against your business over these incidents, your legal costs won’t be covered by your standard commercial general liability insurance policy. It would, however, be covered by errors and omissions insurance (which is sometimes called professional liability insurance).

Commercial general liability insurance won’t cover third-party claims that allege you or your employees inflicted damage while operating a vehicle on your business’s behalf. Instead, you’ll have to get coverage for these kinds of claims by buying a commercial auto insurance policy.

Types of insurance claims that are common in commercial general liability insurance

Clients, customers, vendors, suppliers, and even other businesses can file several types of third-party claims that are covered under a typical commercial general liability insurance policy. Claims alleging a business’s operations or products caused bodily injury or property damage are common. Many third-party claims also allege libel or false advertising, or that a company has damaged a commercial space it leases.

To get a sense of how your business could benefit from commercial general liability insurance, consider the following scenarios.

When skincare goes wrong: How liability insurance can protect a small business from a costly lawsuit

A small business produces and sells its own skincare line and claims its products can significantly reduce acne. A customer buys cleanser and moisturizer from the store, and promptly starts to break out in painful blemishes. These blemishes lead to significant scarring that will take many expensive lasering procedures to remove. The customer files a lawsuit against the company, alleging it engaged in false advertising and caused them bodily injury. A court rules in the customer’s favour and awards her damages.

The skincare company has commercial general liability insurance, which covers the legal costs of defending against the lawsuit. The policy also covers the damages the court awards the customers. Overall, the policy pays out $20,000 – an amount the company’s owner would have had to pay out of pocket if she did not have insurance coverage.

Costly repair mistake: How liability insurance saved a company $80,000

Here’s another example: A company sends an employee to a customer’s home to repair his dishwasher. The employee makes a mistake, resulting in a leak that ends up damaging the customer’s kitchen wall, floor, and cabinets. The customer sues the company, alleging it caused significant damage to her property. A court rules in favour of the customer, and awards damages to cover the costs of repairing the kitchen.

In this scenario, the company’s commercial general liability insurance policy would cover the legal fees associated with defending the lawsuit, as well as the damages owed to the customer. This coverage helps the company save $80,000. Without insurance, the company would have had to pay this amount out of pocket.

How much does commercial general liability insurance cost?

The amount your business pays for a commercial general liability insurance policy depends on several factors. These include:

• Your company’s annual and projected revenue
• What industry you’re in
• How many employees you have
• How many years your business has been in operation
• The type of building(s) you operate in
• Past insurance claims

To give you an idea, though, small to medium-sized businesses can generally expect a premium in the low thousands.