Understanding the Necessity and Limitations of a CGL Within Your Small Business

As a small business owner, you’ve invested a great deal of time and money creating a company you take pride in. In order to protect it, you may consider purchasing a commercial general liability insurance policy (or CGL for short). But what is a CGL and how can it help protect you and your business? Keep reading for a breakdown of the basics.

What is a CGL?

Commercial general liability insurance policies are designed to protect businesses when they are sued. They usually protect against claims of bodily injury or property damage. According to the American Bar Association, these policies are written using forms generated by nationwide insurance industry organizations. The ABA points out that, “Because CGL policies are products of insurance industry draftsmanship, courts in most jurisdictions construe any ambiguities in favor of the policyholder.”

When a policy is triggered, the insurer has two duties, the duty to defend, and the duty to indemnify. The duty to defend is more general than the duty to indemnify. It usually means the insurance provider is required to defend claims, even if the policy holder has no legal obligation to pay the damages. The duty to indemnify is also referred to as the duty to pay, which is pretty self-explanatory in itself.

What does it cover?

A CGL typically covers claims of bodily injury or property damage. This can include property loss in addition to property damage and medical expenses that result from injury. It also sometimes extends to cover slander (under the personal injury claim).

These policies can cover employees or volunteers of the business as well as the named business and named partners. Since policies differ, be sure to read yours carefully to see exactly what and who is covered.

What does it exclude?

Just like coverage will depend on your specific policy, exclusions will vary. However, common CGL exclusions include:

• Intentional injury
• Intentional property damage
• Bodily injury that falls under workers compensation
• Property damage due to motor vehicle accidents
• Abuse or harassment
• War
• Pollution
• Property damage to your own product

Read your policy carefully to make sure you understand what is excluded in your coverage.

Why do you need one?

CGL policies are important for most businesses, but they are especially important for small businesses. This is because smaller businesses usually have fewer assets which makes them more at risk of losing everything if they’re sued. One lawsuit over a minor incident could completely eliminate most of your company’s capital. Instead of leaving the fate of your business up to chance, invest in an insurance policy that protects your assets and investments. Since they are complicated, it is wise to get the help of an attorney or professional who understands insurance policies and practices. Injury lawyers are often familiar with this area of the law—you could also find a lawyer who specializes in insurance.

Insurance policies and laws can be complicated, but taking the time to understand your policies and make sure your business is adequately covered is well worth it. Do some research and choose a policy that best suits your business needs. You’ve put your heart and soul into your small business – now make sure you are protected.

Originally from San Jose, California, Erika Remmington is a recent graduate of the University of California, Berkeley in linguistics with a minor in business administration. She enjoys spending her time with her husband and 18 month old daughter. She also enjoys rock climbing and outdoor activities. Liability information from this article was provided by Cummings Andrews Mackay LLP.